Keeping African goods moving

This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.

When Obi Ozor was a college student in Michigan a decade ago, he made extra money by exporting consumer goods to Nigeria, his home country. After transferring to the Wharton School to finish his studies, Ozor worked for JPMorgan before returning to Nigeria, where he had a stint at Uber. But he remembered the challenges he had faced in sending diapers and soap to Africa, which became a key reason he founded Kobo360, a logistics company headquartered in Lagos, in 2017, after he moved back. His work experiences allowed him to see and understand the need for a data-driven service to move goods efficiently and securely.

Kobo360 uses an Uber-like model for trucks, connecting fleets and independent drivers with major companies that need goods moved. It handles payment, scheduling, and loans to drivers (for truck purchases), while allowing clients to track their goods in real time using Kobo’s digital dashboard. It can dispatch rapid-response repair teams and coordinate with authorities in the case of hijackings or bandit attacks, a frequent occurrence on the remote highways of Africa. In 2019, the company raised US$30 million, including funds from an international group led by Goldman Sachs.

Kobo360 aims to address some of the challenges unique to intra-African trade — both between and within countries that have decrepit railroads, shoddy road systems, onerous duties, and cumbersome and sometimes corrupt bureaucracies. The company currently operates in six countries, with its biggest operations in Nigeria, Africa’s largest economy and most populous country. Its clients include the Swiss/French cement company Lafarge, Unilever, and Flour Mills of Nigeria.

Africa is set to begin implementing the African Continental Free Trade Area (AfCFTA) agreement in 2021. AfCFTA will be the world’s largest free trade zone, with 54 countries and a collective GDP of close to $3 trillion. Ozor sat down with strategy+business, via Zoom, to talk about the changing nature of African trade; the impact of the coronavirus pandemic on economies, companies, and people across the continent; and the future of logistics.

S+B: People say that one of the most important and difficult aspects of doing business in Africa in general and in Nigeria specifically is logistics — simply moving goods around. How important is supply chain management, and what is Kobo360 trying to do about it?
OZOR: Nigeria is ranked about 110 [out of 166 countries] in the Logistics Performance Index, and most African countries, with the exception of South Africa, are in that range. The first big challenge [to trade] in Africa is the infrastructure problem, right? You don’t have a quality road network in almost any country. When I started sending consumer goods to Nigeria, for example, a 1,000-kilometer journey within the country was taking eight days, but it cost way more than moving a container from the U.S. to Nigeria.

The second challenge is the quality of the trucks and the experience of the drivers. I think more than 92 percent of trucks in Africa are purchased used, mostly from European brands. So that already poses a lot of quality issues. Then there is the training of the drivers and their needs. Are you able to provide some of the key enablers that allow drivers to perform their jobs, including rest stops, or what we at Kobo call driver support centers? Are you able to also make sure that drivers are compensated properly? Is there a maintenance requirement for truck owners so that drivers’ lives are not endangered?

In Nigeria, this whole field was simply considered transportation: We move things from point A to point B. There was no coordination. Kobo is introducing logistics where things are planned: Customers can preorder trucks and then know that they are getting the number they ordered. These businesses are going to get scheduling reliability, insurance, and on-time payment, and the data they need to know how their business is going. Kobo’s platform will show the time it takes for a submission to go from request to acceptance, acceptance to position, and position to loading; from loading to transit, transit to delivery, delivery to invoice, and invoice to payment.

S+B: Your business touches a lot of parts of various African economies, which have seen a huge disruption from the pandemic. How has this played out on the ground in Africa?
OZOR: Most people weren’t taking the pandemic seriously. But at Kobo we were, because of the nature of our company. So already by early March, we had a COVID plan, anticipating that this would become a full-blown epidemic in Africa. We’d already thought about how we would go to work digitally, and what that even means in Africa, where most business is high-touch.

COVID started showing up in the second and third weeks of March in Africa, especially Nigeria. We saw that the government had no plans whatsoever. What they did was mandate a shutdown. But the government hadn’t really been in touch with the private sector [about] shutting down the economy. In the first two days of the shutdown, our trips went down by almost 84 percent, so we started reaching out to the government. We got in touch with the minister of trade and industry in Nigeria, who was championing the COVID response team, and we sent the ministry daily updates on what was going on across the country in terms of the movement of essential goods and services.

The government also needed to ensure that a supply chain platform like ours was not a conduit to spread COVID. So we worked with them to provide our drivers with standard hygiene and healthcare. We have to check drivers’ temperatures before they enter the factories and after they leave. And we report this to the authorities that are monitoring COVID.

S+B: These shutdowns were particularly onerous because so many Africans live from day to day. What is the near-term and long-term economic outlook for Nigeria and for the continent?
OZOR: The near-term challenge is a combination of the effects of COVID, which is global, and the foreign currency devaluation [which can lead to inflation, for example]. We are already preparing for that, because this will actually hit very hard. We think that consumer spending will go down significantly, because people don’t have any safety net.

I think we are going to start seeing the true impact in Nigeria and most African countries starting in September. I think COVID might be on the rise until the end of December. The hope is that by then, the U.S. and some other countries might have found a vaccine, which might be able to ease the impact. But after that, in Q4 and Q1 and Q2 next year, we will run into currency issues across most countries, which of course might be even more devastating than COVID in terms of their economic impact on lives.

There may be some benefit for Africa in the long term, because it will become clear to African countries that you can no longer depend on commodities [to support economies]. I think the government can use this COVID environment from now until next year to start really making an argument on building a sustainable, free economy. The government will have an opportunity to remove some of the subsidies [on energy], which will save the government money.

S+B: So you could say the pandemic helped put those issues in starker relief and the government realized it needed to do this much faster?
OZOR: Yes. That is exactly what has happened. COVID is an unfortunate development, but I’m excited about what we will learn from this. And I’m beginning to see government officials reach out to us for the first time, and it’s kind of weird. In some of the projects we’re doing, we’re seeing government become a little bit more efficient in the way it works. Bureaucracies are reduced. I didn’t know government could work like this, which is interesting. This kind of accelerates the growth of digital innovation and, therefore, diversification, which [will help develop] the real economy of African countries.

Because of the lack of support from the government during this period, you notice that the citizens are more interested in politics than they have been. [People saw] the government could not really provide that much. It was the private sector that came together and started to support people. One effect of this, I think, is that rampant corruption might be reduced, because people will know that these are serious issues that cannot be left for politicians alone. But the people are actually the ones who must stand up for and demand what is right in their economy.

S+B: You said that business went down after the initial lockdown. PwC is looking at COVID-19 in three waves: mobilize, stabilize, and strategize. And the first wave, mobilize, involves ensuring business continuity and cash flow. How has Kobo been managing to keep everything moving?
OZOR: In terms of mobilization, at Kobo we basically assumed that things were going to get worse. We went digital, of course. Because we’re already a digital company, it wasn’t that challenging for us. Our customers, though, did have challenges. For example, proof of delivery is a very analog system in many parts of the world. But it has a lot of impact on our cost of capital because it impacts payments. We’ve now been able to move 47 percent of our customers to digital proof of delivery.

S+B: Sourcing for your clients must have been a challenge.
OZOR: Yes, most of the flour mill companies and food companies are trying to scramble for ingredients. Nobody knows when the supply chain will recover fully in China or Australia or Russia, from where we move a lot of these grains. But this was also good, in a way, because now we have started scaling up some of the businesses for local farmers.

What the Nigerian government did in agriculture was quite interesting. Immediately when the pandemic started, it prioritized movement of inputs because it was planting season. If you didn’t get those inputs — the fertilizers and the chemicals — to the farms, then you would have a bigger crisis next year, because there would be no harvest, and there would be serious food scarcity.

The government basically gave us permission to move fertilizer from Port Harcourt and other areas to the north and other regions for agricultural purposes, so that was not disrupted at all. Farmers were still able to get their inputs, which is stabilizing, in my view. It would have been bad if you had COVID and FX [foreign exchange] issues and you had food scarcity next year. But they were able to make sure that the farmers still were able to have the planting season. Agriculture is still affected, but it could have been worse.

S+B: You’re operating in a space where there is a lot of corruption, with extortion points throughout the system. How will the ramped-up digitization impact that?
OZOR: In Africa, because of this high-touch ecosystem, there are inefficiencies, a lack of transparency, and corruption. As digital becomes mainstream, those issues will be reduced because there will be less opportunity for extortion.

But it’s been tough, especially on our drivers, who are independent contractors. We know that they face a lot of challenges in transit. What we’ve been working on is seeing whether we can use our strength to work with law enforcement to make sure that there is no dysfunction and there is a process for reporting [extortion attempts]. Drivers don’t want to be targeted, including by the police, if they report corruption.

This environment makes business difficult. Maybe we would be four times bigger [in sales] than we are today if there weren’t these challenges. We basically have abandoned the road entrance to the Apapa port in Lagos [Nigeria’s largest port complex], for example. More than 70 percent of our trucks now enter the port through inland waterways, where we put trucks on barges. And this costs us a lot of money, because we have to lease the barges and bring them here, and we are moving trucks literally less than a kilometer across the water to avoid the risk of extortion on the road. We can’t continue to operate in that type of environment.

S+B: What further advancements do you think need to be brought to the logistics business in Africa?
OZOR: The most important thing is soft infrastructure, both digital and physical. Our flagship tech solution, called Global Logistics Operating System, or GLOS, went live in early August. We hope that it becomes that digital infrastructure where every single order is processed through a blockchain-enabled solution.

There is also the need to improve physical infrastructure, which means scaling up the driver support centers, so drivers have places to rest and to stop if it’s raining so that goods are not damaged [in open trucks]. The drivers can then use the support centers to get updates on road conditions and business, and they can also use apps, which will make planning more efficient.

Once these things start happening, you’re suddenly going to get a lot of data. And then you can start working with the government, to say, OK, here is the most important thing we need to unlock. I hope that even before that, we can fix the problem of the roads in the port, so we don’t have to use the barges. 

We are also hoping that we can start digitizing the backhauls — the return journey of trucks — so that they aren’t coming back empty. We have started doing integration with ag-tech companies [technology companies specializing in agriculture support], but that really doesn’t solve the problem, because ag-tech companies don’t have even 5 percent of the commodities business. So we are also trying to see how we can work with governments and big companies to get information on what is available in different places, to help fight food insecurity, and to make sure that our trucks are full on their return journeys too.

S+B: Food insecurity is driven in part by climate change. How do you view climate change’s impact on Nigeria, and on Africa more widely?
OZOR: Environmental factors are a very, very serious issue for this continent. But as we are connecting that backhaul and optimizing the logistics, those efforts reduce the time that trucks spend on the roads hurting the environment. In Nigeria, trucks still spend up to six days in queue before they get inside a port. Now with the barges, you basically cut that time to two days. So we are actually beginning to reduce emissions, but it would be better if the roads to the ports weren’t congested or prone to extortion.

We don’t think driverless cars or autonomous trucks [that reduce emissions] are something that we are going to see in the short to medium term in Africa. But what we can do today practically is to move from diesel to gas and try to fully optimize supply chains.

S+B: Logistics is at the heart of the AfCFTA agreement. Officials have said its launch will be delayed because of the pandemic, to the beginning of 2021 now. Are you optimistic about it?
OZOR: I think COVID was very important to make people understand how many things weren’t ready for the launch of the agreement. There’s a lot of work that needs to be done, going to different countries and working with their customs authorities, understanding all of their peculiarities. I think the AfCFTA will really swing into action in the next few years.

S+B: Digitization should make doing business within Africa and between African countries easier. Can you talk a little bit about what it has been like to do cross-border business within Africa, and how that might be changing?
OZOR: We haven’t really seen a change. If there was any system before, that would have been a plus. It would have helped accelerate digitization and improve trade. But there wasn’t anything, so there is nothing to adapt. That is a challenge.

But it does seem like people are taking these issues seriously, especially with the AfCFTA agreement. For example, on a recent call with the AfCFTA people, we focused on the issue of origination. Origination is what will impact duty. How do we make sure that we know the origin of every good that is moved and that the origination is real and not fake?

We actually modified our GLOS to start really taking that into account, because if intra-Africa trade is going to succeed, origination will need to be ascertained easily and securely.

S+B: This point about origination gets to another big debate that’s been accelerated by the pandemic, which is globalization versus localization. How important is it that Africa produces for itself?
OZOR: We shouldn’t be importing any type of meat or some other products. I like the idea that [Nigerian billionaire Aliko] Dangote is creating a fertilizer plant. And then Nigeria will be exporting more than 80 percent of its fertilizer [rather than importing product]. That is what we need in many different sectors. Because these initiatives will create a lot of jobs, which will increase consumer spending. And that consumer spending will make for a more robust economy, and an empowered society. A society that is empowered will be able to vote and will be able to get good governance and eliminate extortion.