The Logistics Innovation for Trade (LIFT) is a new development finance instrument that provides grant finance for innovative business projects proposed by the private sector operating in the transport and logistics sector of the East African Community (EAC) Funded by TradeMark East Africa (TMEA), LIFT is designed to build on the strengths of the private sector – namely its creativity, speed of response, delivery capability – and seeks to help empower the private sector in pushing the boundaries of innovation in new directions to create impacts that lead to improved efficiencies in transport and logistics services and reductions in the transportation times incurred for shipment of goods within and external to the EAC.
LIFT will co-invest with the private sector in projects that have the potential to achieve this, but have been regarded by mainstream financial investors as too risky to undertake without TMEAs risk-sharing support. It is a competitive facility which will support the most promising projects and is open to businesses throughout the world that are operating, or will operate, in the EAC.
TMEA’s objective is to reduce transport time along the main transport corridors by 15% by the end of 2016. TMEA has had some success in reducing transport times along the Northern Corridor and is currently addressing the inefficiencies of logistics and transport activities along the Central Corridor. As part of this broad transport and logistics initiative, TMEA is also streamlining custom clearance, investing in infrastructure and reducing bottlenecks along the corridors.
LIFT will allocate financial support to test the commercial viability of projects proposed by businesses to catalyse investment in disruptive, innovative technologies or improved practices that will have a significant impact on the efficiency as well as competition of the overall transport and logistics sector across East Africa.
East Africa is characterised by some of the highest freight and transport costs in the world – freight logistics costs in East Africa per kilometre are more than 50% higher than the USA and Europe and for landlocked countries transport costs can be as high as 75% of the value of exports. These costs seriously erode the competitiveness of goods exported by East African countries, raise the cost of living for East Africans and present significant barriers to the growth of trade.
There are two main trade arteries carrying 98% of trade in East Africa:
The East African transport and logistics industry trails behind the most efficient industries of Southern Africa in terms of both efficiency and technological innovation. Its large number of small and medium enterprises (SMEs) has yet to take advantage of the breakthrough in ICT, investing in modern transport and handling equipment, and developing the skilled human resources required in a highly productive economy.Even the large businesses in the EAC lack the competitiveness of their counterparts in Southern Africa. These shortcomings result partly from constraints within the industry, but are also due to a less than enabling environment characterised by high levels of bureaucracy, regulatory restrictions and the high cost of business development finance.
The future of the transport and logistics sector in the East African Community relies on innovation developed by the private sector and the easing of the numerous regulations to allow this to transpire. However, because of information and other market failures, the barriers to innovation are high. Firms currently perceive the risks as being too high to invest in new technology or improved procedures.
LIFT aims to reduce the risk of investing in disruptive innovative technologies or improved practices that will have a significant impact on the efficiency of the transport and logistics industry in East Africa.
Overall, the fund will aim to support the reduction of transport costs along the main transport corridors in East Africa and focus on:
LIFT will trigger innovation to ensure the East African transport and logistics industry improves efficiency and service quality.