Warehousing: Investors eye share of billions

SHIPPING & LOGISTICS |

Richard Hough, Chief Executive Africa Logistics Properties (ALP), at one of the firm's warehouses at Tilisi Logistics Park, Limuru. [Courtesy].

Kenyan developers stand to reap big from the construction of warehouses as the country struggles to meet growing demand for modern storage facilities.

This comes amidst new projections from economists that the country’s warehousing and logistics sector could be worth Sh7 billion by 2023 buoyed by opportunities from regional trade agreements and growing sub-sectors such as e-commerce.

The new industry statistics come just weeks after Agriculture Cabinet Secretary Peter Munya inaugurated the Warehouse Receipt System Council with a call to private investors to seize the opportunity created by the newly enacted legislation.

After years of delays and uncertainty, Kenya’s Parliament passed the Warehouse Receipt System Act (2019). The recent law provides farmers, commodity traders and distributors opportunity to store produce in certified warehouses in exchange for receipts. These receipts can then be used as collateral to obtain credit or fresh farm inputs.

“It is expected that the Warehouse Receipt System will lead to the development of aggregation and offtake centres across the country,” said CS Munya during the virtual event.

Munya said the system will help establish a network of modern certified agricultural produce warehouses that will be linked to structured trading platforms such as commodity exchanges and auctions.

“The warehouse receipt system is not an end in itself but principally the first step in the creation of a functional agricultural commodities exchange,” he explained. “This will provide an array of solutions to farmers, especially small holder farmers who face several challenges related to inefficiencies brought by lack of transparent and structured systems,” he said.

According to the World Bank, a functioning warehouse receipt can improve income for farmers and stabilise commodity prices.

A section of Graylands warehouses in Athi River. [Elvis Ogina, Standard]

Farmers have the option to store their harvest, selling it at a later date when prices are favourable. This is unlike the scenario today, where farmers sell produce immediately after harvesting when prices are often low due to glut in the market.

Additionally, farmers can use their receipts to obtain credit from commercial lenders, which often shy away from lending to small-holder farmers for lack of collateral.

The nine-person Warehouse Receipt System Council is chaired by Jane Ngige, former head of the Kenya Horticulture Council and draws representation from the country’s agricultural, logistics and financial sectors.

In May this year, the Council invited bids for a consultant to conduct a national survey of Kenya’s warehouse industry. It expects this to enable it map out opportunities and gaps in the existing stock of facilities in the country.

The exercise is expected to establish the location and address of all warehouses in Kenya together with their geo-coordinates, their storage capacity, utilised space and structural soundness.

The study will also reveal the status of all warehouse infrastructure such as power supply and road network and determine their level of compliance to standards and licensing requirements.

However, most stakeholders in the sector already know that the study will reveal a wide gap between the demand for quality storage facilities country-wide and an oversupply of aged godowns largely centered in Nairobi’s Industrial Area.

Warehousing Receipt System Council CEO Samuel Ogola however said the bulk of the warehouses in the country are dilapidated and called for more investment to guarantee success of the scheme.

“Because of underfunding in agriculture by the private sector and other institutions, most of the warehouses are not in a very good state and they need injection of finances to improve the infrastructure,” he said at a recent briefing.   

Richard Hough, Africa Logistics Properties (ALP) CEO, said upgrading the existing stock of warehouse facilities would have huge benefits not just for Kenya, but the region as well.

“The existing warehousing stock in East Africa and in Nairobi, in particular, is very old in terms of construction and design,” he explained. “We are talking about what is popularly known as the godown buildings which are not very suited to modern warehousing.”

Industrialisation PS Kirimi Kaberia (left) with ALP CEO RIchard Hough during the launch of a warehousing facility in Limuru, Kiambu County. [James Wanzala, Standard]

ALP develops and manages grade-A logistics facilities in emerging markets. In 2017, the company raised more than Sh5 billion in financing with investors including the World Bank’s International Finance Corporation (IFC) and UK’s CDC Group.

The firm has so far put up warehouse facilities in Nairobi’s Tatu City and last year started construction on a new facility at Tilisi, Limuru.

Among ALP’s partners is retail food company Twiga Foods Limited, which last year signed a 10-year lease agreement to occupy an estimated 139,000 square feet at the company’s Tatu City facility.

Hough said the company has further adopted a business model that allows it to accommodate smaller enterprises that often find warehouse services prohibitive due to their small capacities.

“Having built these buildings we came to realise the small and medium enterprises (SME) market in Nairobi is very important,” he explained. “For our first phase in Tilisi, we redesigned the product so that the minimum is 500 square metre let with only a seven-metre height.”

This is expected to give clients with smaller business operations storage solutions that can be tailor-made to their needs.

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