Lasting Ease to Logistics Nightmare Through Competitive Market




Poor logistics is a shared nightmare in Ethiopia. There hardly is an issue as delicate across sectors as logistics. Everyone, from businesspeople to diplomats, are heard cursing the sector as painfully sluggish, costly and untraceable. It also is a staple issue in every forum in which the high echelons of power participate.

Inarguably, the economy is also suffering from this sector marred with incompetence, inefficiency and strategic passivity. A latest manifestation of this is the inability to effectively transport the direly needed food items for 10.2 million drought-affected Ethiopians across the nation. The shortage of trucks is so severe that the government is deploying resources from the national defense forces to clear essential cargo, such as wheat and fertilizer. And this has left the Port of Djibouti congested with containerized and bulk cargo. It is like a perfect storm.

Only five years ago a similar occurrence plugged the whole economy, bringing it to the brink of collapse. It took a group of government officials to go to Djibouti and craft a short-term solution before things started to move ahead again. That infamous trip was followed by a national effort to overhaul the logistics sector. A global management consulting firm, A. T. Kearney, was commissioned to study the logistics value chain and design a comprehensive logistics strategy.

It has been almost a year since the consulting firm finalized the strategy. Yet, little has changed in the way the sector performs. Average transit time for cargo is still 45 days. Transporting a 20ft container to Djibouti costs 30pc more than the global average cost. Customs clearance is still an inefficient and costly process.

Not even the establishment of dry ports is helping to ease the process. Average lead time at Gelan and Modjo, two of the seven dry ports, is about 15 days. This conundrum is furthered by a dwindling national truck stock. Over the past 10 years, the average annual rate of addition to the national truck stock has been 4.7pc. Compared to the increasing size of cargo the nation’s external trade is handling, the growth is a drop in the ocean.

Whereas the whole system is going wrong, the ruling Revolutionary Democrats seem to remain passive. They seem to care less about how things are running in the sector dominated by an enterprise failing to bring any structural change. This happens despite the multiple reports by various international institutions, not to mention the World Bank, the World Economic Forum (WEF) and the International Monetary Fund (IMF), showing how much damage the chaotic logistics sector is doing to the nation’s competitiveness.

The only line of argument that seems to make sense to the EPRDFites is keeping the state’s monopoly within the value chain. It is to achieve this monopolization effort that the ruling elite instituted the Ethiopian Shipping & Logistic Services Enterprise (ESLSE). Their hope was that the amalgamated institution, formed from the former Ethiopian Shipping Lines, the Dry Ports Enterprise, and the Maritime & Transit Services Enterprise, could keep that interest by way of integrating the value chain.

Indeed, both the monopoly and the integration are achieved. The ESLSE has become the elephant in the room. It monopolized both seaway and in-land transport. Through its dry port arm, it controls the multimodal transport system. It even has bought trucks that crowd private truck owners out of the market.

In terms of integration, the multimodal transport has replaced what used to be fragmented contracts by a single contract. Importing and exporting agreements are now done from port of origin to the dry ports. In case of preferred businesses, the chain could even extend to bonded warehouses. Yet, the system remains inefficient as it lives under the unchallenged hands of the ESLSE.

None of this means that the ruling EPRDFites do not know the problem. In his recent report to the Parliament, ESLSE’s head Ahmed Tussa acknowledged that the Enterprise failed to meet its targets on key aspects. In terms of the multimodal transport services, for instance, the achievement was just less than 80pc. Seaway performance was 57pc for containers, whereas the rounds of trips trucks made in the fiscal year was 40pc short of the planned target.

More than what the figures show, the Revolutionary Democrats know the magnitude of the uproar from businesspeople. They face it everywhere they go, be it in international investment forums, local consultation platforms or policy dialogues.

But their effort to correct the problem could not go beyond having a strategy. It looks like the paper pack of good advice could benefit from a miracle to solve the problem. By now, it should have become clear to them that they are sitting on a recurring structural hindrance that has the potential to drag the economy down to a standstill. Correcting it should be the priority.

Of course, their statist approach of amalgamation, integration and monopolization has not worked as it proved to have a natural limit. It is not able to take the system any further. Hence, a new way of doing things has to be instituted.

What is essentially missing from Ethiopia’s logistics sector is competition. The lack of competition has resulted in sluggish bureaucracy, considerable rise in price and lack of innovation. Other characteristics include undercapitalization of sector players, a declining number of service providers and costly paper work. There is no one edge in the sector that is not affected by poor competition.

In the 24 years of EPRDF’s leadership, no single consolidated private transport company with the capacity to serve the market has emerged. Largely, the sector continues to be served by associations of single-truck owners. Due to lack of support from the financial sector, the stock of trucks these associations deploy continues to dwindle rapidly.

Banks, including state-owned ones, consider lending to the sector risky. No de-risking policy has ever been implemented by the government.

Equally problematic is the transit and forwarding business. Dependent on the ESLSE, the sector remains populated with poorly-capitalized small firms. The growth of their capacity has been marginal. They continue to sail at the bottom waters in terms of operational systems, technology adoption, human resource capacity and sophistication.

Not even the Customs Authority, clearly a process managed by the state itself, has seen improvement. It still takes days to get clearance. Much of the work is manually done. The inspection process is corrupt, hierarchic and traditional. The job is mostly done using intuition more than objective instruments.

Both for clearing the current congestion at Djibouti and to enhance the competitiveness of the nation in the global marketplace, competition ought to be instituted in the nation’s logistics sector. And there can be no better way to infuse competition in the system than opening it up for the full forces of the market.

Ending the monopoly of the ESLSE in the sector is a timely issue. What could be gained from furthering the dominance of the Enterprise is another cycle of port congestion, worsened logistics disorder and economic standstill. An economy with the aspiration to sustain growth, by way of importing and exporting more, cannot afford this.

Opening the sector for the full actions of the market could bring the capacity, innovativeness and flexibility of the private sector into play. Well-capitalized, effective and tech-savvy global logistics companies could also be incentivised to join the market. And this will be followed by a reduction in lead time and cost, not to mention a rise in trade competitiveness.

But such a change demands for the ruling elite to shake off its long overdue comfort in monopolization of the sector. Even in terms of politics, there is much to be gained from making the sector competitive and effective. After all, in this era of globalization, better politics is a function of better economics.

 



Published on Apr 05,2016 [ Vol 16 ,No 831]


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