More than 30 private sector companies have so far applied for grants in the first round of TradeMark East Africa’s Logistics Innovation for Trade, or LIFT, fund, which was launched in Europe last month.
With such funds typically attracting a deluge of applications in the final days before a round closes, many more are expected to submit proposals between now and the March 31 deadline, according to Clara Garcia Parra, a consultant at Nathan Associates, which is managing the fund. A number of the firms applying are multinationals.
Backed by the U.K. Department for International Development, the LIFT fund has raised $16 million to provide challenge grants ranging from $250,000 to $750,000 to help companies develop new ways of cutting the cost and time involved when trading goods within East Africa.
Its aim is to encourage the private sector to invest in East Africa’s logistics and transportation industry, testing out fresh innovations that will help bring down the significant barriers to trade that slow the region’s economic development.
The idea is that LIFT will shoulder part of the perceived risk of investing in East Africa and reduce the cost of entry for companies eyeing the region, TMEA CEO Frank Matsaert told Devex. This will not only inject expertise into the sector but will stimulate price competition into “what are fairly cartelized niches.”
Transport costs in East Africa are around 60 percent higher than those in the United States or Europe, many supply chains are underdeveloped, and the logistics industry lacks technological breadth, he noted. This results in higher prices for many goods and makes it harder for companies to grow and create jobs.
The fund follows a model trailblazed in East Africa by M-Pesa, a mobile money wallet that allows users to store and transfer money using their mobile phones. Telecommunications provider Safaricom initially received a grant to absorb the risk of developing the product, which 80 percent of Kenyans now use.
Some innovative applications
LIFT is open to companies from anywhere in the world, but TMEA is especially targeting logistics and transportation firms that operate in logistics hubs in Belgium, the Netherlands, Germany and the United Kingdom.
One example of the type of innovation TMEA hopes to trigger through the grants is the development of electronic platforms allowing small businesses to jointly buy space on a truck rather than individually bearing the whole cost of one vehicle, Matsaert explained.
Applications received have so far included a number of interesting proposals in the fields of intermodal transport solutions and 4PL, which is relatively new to East Africa, according to Nathan Associates’ Garcia Parra.
Several applications seek to address information asymmetries, for example through the creation of online exchange platforms, with a view to bringing the price of transport and logistics services down. Fund managers also expect to receive a number of ICT-based proposals to improve logistics efficiency.
The fund has generated an “encouraging response” in terms of proposals on East Africa’s so-called central trade corridor, which serves Burundi, the Democratic Republic of the Congo, Rwanda, Uganda and South Sudan, with the emphasis here on reviving intermodal solutions, especially on Lake Victoria, she said.
“Follow-ups are also being conducted with academic institutions with a view to establishing tertiary logistics training in the area. A large number of advocacy proposals have also been received,” the Nathan Associates consultant explained.
How to apply
To apply for funding, firms must first submit a proposal outlining the innovation they would bring to East Africa’s trade and logistics industry, including the proposal’s economic feasibility and how it would fulfill TMEA’s remit of reducing trade barriers to assist economic development and improve the lives of the poor, according to Allan Ngugi, business competitiveness program manager at TMEA.
An independent investment committee will then shortlist interesting contenders and, after a due diligence process and negotiation of targets and timelines for rollout, make the final award. First funding will be disbursed to companies as reimbursement for their investments when initial targets are achieved, potentially as early as July this year, he said.
TMEA hopes to expand the LIFT fund after a pilot phase of around two years, according to Matsaert.