DP World’s acquisition of Imperial Logistics will transform distribution in Africa

DP World has announced plans to buy South Africa’s Imperial Logistics for $890m, a move that will transform the distribution landscape in Africa. It has offered a 40% premium on Imperial Logistics’ last closing price. The deal, which is expected to close in Q1 2022, will be subject to regulatory approval.

Back in December 2020, DP World’s CEO said that it was “not just a port operator. We are now a global provider of end-to-end logistics solutions.” The company has dramatically accelerated its activities in Africa in the past twelve months to enact that vision. The Imperial Logistics acquisition is a key part of the transformation of DP World as an end to end logistics solution.

DP World’s growing footprint in Africa

In Africa, DP World has operations in Angola, Senegal, Egypt, Mozambique, Somaliland, Rwanda, Algeria and the Democratic Republic of Congo.

In June 2021, DP World announced the launch of the first dedicated container train service connecting Maputo, Mozambique and Harare, Zimbabwe. The rail link is designed to enhance Maputo’s position as a gateway to Zimbabwe. DP World has the concession to manage, develop and operate the Maputo container terminal.

In May 2021, DP World announced that it would to begin the development of a deep-sea port at Banana in the Democratic Republic of Congo.  In January 2021, DP World agreed a 20-year concession agreement with Angola to operate a multi-purpose terminal (MPT) at Luanda port.

In December 2020, it signed agreements for the development of a deep water port at Ndayane, approximately 50km from the existing port and near the Blaise Diagne International airport. The new agreement is on top of DP World’s current plans to build and run a 300ha container terminal in the Port of Dakar and positions Senegal as a major regional logistics hub. The same month it also signed a Memorandum of Understanding (MoU) with the Rwanda Development Board. Under the MoU, Rwanda became the first country for DP World’s new global B2B and B2C e-commerce platform, DuBuy.com. Rwanda is being positioned as DP World’s initial hub for expanding e-commerce across the East Africa Community and into Eastern DRC.

Imperial Logistics’ transformation as a pan African distributor

Imperial Logistics has also been very active transforming itself as an African logistics and distribution solution.

In June 2021, Imperial Logistics entered into an agreement to buy Namibian meat and seafood distributor Deep Catch for R633m ($44.2m) from Salt Capital Ventures, DEG and other shareholders. The move will further add to Imperial Logistics’ cold chain capabilities under its “Gateway to Africa” strategy.

In February 2021, Imperial acquired Parcel Ninja, a specialist South African ecommerce logistics business. In November 2020, Imperial invested in a partnership with disruptive Kenyan online logistics platform Lori Systems to expand its solutions across Africa. In August 2020, it acquired a 49% shareholding in Pharmafrique Proprietary Limited (trading as Kiara Health) a South African pharmaceutical manufacturing and healthcare services company.

Trendtype’s Distributor Explorer maps brand distributor relationships and distributors across more than 50 countries in Africa. Imperial Logistics owns major distributors in Ghana, Malawi, Mozambique, Namibia, Botswana, Nigeria, South Africa and Zambia. It also has distribution interests in Cameroon, Eswatini and Zimbabwe.

The transformation of distribution in Africa

If the DP World / Imperial Logistics deal goes through, it could transform the distribution of FMCG and pharmaceutical products in Africa. DP World is one of the largest port operators in Africa. Imperial Logistics is by far the largest distributor in Africa.

One major change will be the flow of products into Africa and where that flow is managed from. DP World operates the Jebel Ali Port in Dubai. Critical to the port’s success is the Jebel Ali Free Zone, which accounts for 21% of Dubai’s GDP. There has been a growing trend in the past 5 years for large FMCG and pharma companies to shift their Africa management to the UAE – from South Africa, or from European headquarters. We believe this acquisition will cement Dubai’s place as the hub for decision-making about African markets.

However, although DP World and Imperial Logistics share a common focus on Africa, their assets are located in different places. Outside South Africa, Imperial Logistics is strong in Ghana and Nigeria – where it owns Fareast Mercantile’s FMCG and pharma distribution businesses, and Kenya, where it owns Surgipharm.

But DP World is relatively weak in East Africa. In 2019 it lost control of the Doraleh Container Terminal (DCT) in Djibouti and it does not have operations in either Kenya or Tanzania. In Djibouti, the driving force behind the port modernisation became China. Djibouti also serves as the gateway for Ethiopia.

In Lagos, which by rights should be the single most important port in Africa, DP World had negotiations with the Nigerian Ports Authority (NPA) in 2017 to develop the Lekki Deep Sea Port. But the port, which is costing $1.6bn and in May 2021 was 50% complete, is Chinese built and financed. It is due for completion in Q4 2022 and the container terminal will be operated by Lekki Freeport Terminal, a subsidiary of CGM/CMA.

So while on paper it looks like the deal will be transformative, in practice, DP World and Imperial Logistics are focused on different parts of Africa. For now.

Where will transformation happen?

The largest port in West and Central Africa is Tema, Ghana. In 2017, DP World expressed an interest in becoming the port operator but ultimately lost out. Instead, the port is operated by Meridian Port Services (MPS), the joint venture between Bolloré Transport & Logistics, APM Terminals and the Government of Ghana. If achievable, we think this could become a target for takeover for DP World. Other options also include the ports of Cotonou (Benin) and Lomé (Togo), both of which are also operated by Bolloré and are gateways for the Nigerian market.

DP World may also focus on South Africa, which is the gateway to the Southern African markets where Imperial Logistics is strongest. It already operates DP World Komatipoort, a dry port designed to provide a gateway from Maputo into provincial northeast South Africa. Here, the jewel in the crown is the Durban container port, the second largest container port in Africa and which handles approximately 65% of South Africa’s container volumes. It is also a gateway for landlocked Southern African countries such as Zimbabwe, Botwana, Eswatini, Malawi and Lesotho.

South Africa’s port operator model is unusual: all major ports in South Africa are owned and operated by state-owned Transnet, and its respective divisions such as the port authority Transnet National Port Authority (TNPA) and terminal operator Transnet Port Terminals (TPT). We think this may be an opportunity for DP World. In the financial year ended March 31st 2020, Transnet reported a 34.9% decrease in net profit to R3.9bn ($241.7m), despite a 1.3% increase in revenue to R75.1bn.

Transnet has performed below its potential in recent years, partially due to the lack of maintenance for ageing infrastructure – a familiar picture in South Africa where state assets such as Eskom, the electricity public utility, have suffered from years of underinvestment.

On the distribution side we expect to see some substantial changes. South African businesses have tended to be hesitant in francophone markets, not least for language reasons. An obvious gap in the Imperial Logistics portfolio is distribution businesses in Senegal, where DP World is strong, and Côte d’Ivoire.

Finally, Imperial Logistics has established a fund to invest in innovative disruptive distribution and logistics businesses such as Parcel Ninja (South Africa) and Lori Systems (Kenya). We think future targets, which align well with both Imperial Logistics and DP World, would include online disruptors such as Copia (Kenya), Sokowatch (Kenya), TradeDepot (Nigeria), Fatura (Egypt), MaxAB (Egypt) and Sendy (Kenya).