Much has been said about the challenges facing the Nigerian logistics industry. Poor infrastructure, multiple taxation, lax regulation and a hostile business environment are no longer news to an industry grappling with low margins and lack of access to capital.
While technologies like Blockchain have been posited as potential tools with which the industry can mitigate some of its challenges, consolidation, that is unifying interests to leverage bigger gains, is often absent from the conversation. One of the issues is that Nigerian businesses tend to err on the side of secrecy and everything typically happens in silos. This means that certain strategies that hold considerable potential like consolidation, are not even on the table to discuss.
According to a 2013 PriceWaterhouseCooper (PWC) report, 29.9% of Nigerian transport and logistics firms consider transport as a major constraint. But consolidation could make this less of a hurdle in the sense that businesses can merge to form bigger entities, joining their resources and leveraging on each others’ transportation networks for growth. This could create opportunities to expand into new regions with untapped markets, which as small entities would demand substantial finance and manpower that they do not have. They would also benefit from sharing technical know-how. Imagine two startups in Abuja and Lagos merging and then leveraging each other’s knowledge of each city to better optimise their operational efficiency and ultimately, bottomline.
At the moment, everyone is trying to get that first mover advantage, even though it may not be plausible or scaleable. With paved roads making up 15% of Nigeria’s total road network, consolidation (via mergers or acquisitions) could help logistics businesses cut down costs and improve operational efficiency and increase profits and customer satisfaction.
Redundancies will also be reduced when businesses consolidate. There will be no need to constantly replicate data collection, turn around times will be faster and third-party strategic partnerships will be streamlined. A freight company can merge or acquire a courier company, for example, so that the freight company does not have to bring on third-party courier companies (with all the documentation) to get items from the port/airport to the customer.
In addition, consolidation will help define standard operating procedures for the industry and establish best practices that would improve operations and professionalism of the workers. There are not many regulations or policies guiding the activities of the industry outside of state signage agencies, local governments and NIPOST. Logistics businesses, especially less established startups, are pretty much winging it. According to one founder, “It’s dangerous to operate in this sort of free-form market where you can basically do anything you want. Tomorrow the government can wake up and say it wants to go this way and we will all have to follow. But if we can come together and take our destinies into our hands, we will at least have a bargaining chip at the table.”
Several logistics firms in Nigeria have revamped their operating models, sometimes more than once, in a bid to stay above the water and balance their economies of scale. Consolidation will not only help cut down overhead expenses but also labour costs and other operational costs. Departments within the organisation can share resources and networks as well to expand to increase the volume of business that they can handle.
Okay Great But Can This Work?
The barrier to consolidation, in my opinion is valuations. Back in 2016, when Nigeria went into a recession, valuations of Nigerian startups were sliced in half. There is still no way to determine how much a Nigerian company is worth, especially in a constant changing economy. This could make it difficult for startups who want to raise funds for mergers or acquisitions.
Also, the desire for short term gains rather than a long term outlook for their companies is an obstacle to consolidation. People find it hard to set personal gain aside for longterm glory. Founders are typically averse to mergers and acquisitions and the so called “crab mentality” is probably more prominent in Nigeria than anywhere on the continent.
Finance is another thing. Consolidation in any industry is not cheap and startups who are still struggling to raise capital to keep their businesses afloat may not have the capacity to acquire other startups or even facilitate mergers. While investments in industries like renewable energy and fintech have been on the rise in Africa, transport and logistics investment still pales in comparison.
They say that two heads are better than one, and Nigerian logistic startups need to begin look to each other to jointly overcome the challenges they face. If startups cannot merge or acquire other companies, they must think of creative solutions to leverage on their existing resources and technology to benefit one from one another. They must reject working in silos and secrecy and be open to collaboration and partnerships rather than compete with merger resources. Consolidation within the space offers more advantage in the long term, and founders, startups and customers will be the better for it.