Out of Africa. Infrastructure Talks looking into the Prospects of Ukrainian Grain Hubs in Africa

The Infrastructure Talks series is hosted by Dmytro Pavlenko, Partner, Head of the Infrastructure Industry Group at Deloitte Ukraine.

Ukraine and African countries have never shown any particular interest in each other and their political and business relations could hardly be seen as intense—until a notable shift occurred in 2023–2024 with the activation of Ukrainian diplomacy on the African continent, aiming to establish cooperation in the field of food security in the backdrop of the full-scale war and the blockade of ports. Ukraine’s Minister of Foreign Affairs and Minister of Agricultural Policy visited a number of countries, including Kenya, Guinea, Namibia, Mozambique, Ghana, the state members of the Southern African Development Community (South Africa, Zimbabwe, Congo), Malawi, Mauritius, and Zambia.

This resulted in the launch of the Grain from Ukraine initiative—a humanitarian food program to supply grain to the poorest African nations, funded by partner countries and donors.

In the Ministry of Foreign Affairs of Ukraine, the Special Representative for the Middle East and Africa intensified his efforts and, in particular, participated in a meeting with the business community to discuss cooperation with African countries in the agro-industrial sector.

The Ministry of Agrarian Policy signed two memorandums: one on food cooperation with the relevant ministry of Senegal, and another with the Lagos Free Trade Zone Company (owned by the Singaporean Tolaram Group) on joint participation in a grain terminal project at the Port of Lekki, Nigeria.

The ground for mutually beneficial cooperation is clear: Ukraine seeks to diversify export routes for its raw materials and gain new allies in the Global South, while Africa needs Ukrainian agricultural products. The cooperation will include the construction of logistics hubs in African ports to ensure a sustainable and diversified supply of agricultural goods from Ukrainian producers.

It looked like a promising start to a new vector of relations. However, the signed government memorandums met the same fate as most such documents — no practical action followed. Later, Mykola Solsky, Ukraine’s Minister of Agrarian Policy and Food, ended his political career after being suspected of committing a profit-motivated crime (as far as is known, Africa was not affected by the minister’s actions).

There was mixed news coming from Africa as well.

On the one hand, there have been military coups and three countries—Mali, Niger, and Burkina Faso—have withdrawn from the Economic Community of West African States (ECOWAS). These three states, however, have never held significant potential for logistical cooperation with Ukraine — and, as the recent military events in Mali prove, not only because they are landlocked. In early August, Mali and Niger severed diplomatic relations with Ukraine.

On the other hand, in South Africa, traditionally pro-Russian in its foreign policy, the parliamentary elections led to an unexpected shift: the pro-European Democratic Alliance, previously in opposition, gained part of the power in the new coalition government. The party’s leader, John Steenhuisen, visited Kyiv in 2023 and expressed support for Ukraine. In the new cabinet, he was appointed Minister of Agriculture.

Malawi and Mauritius supported the Peace Summit Communiqué and entered into dialogue on cooperation, particularly in agriculture. Beyond dialogue, Mauritius has taken active steps to prepare several agreements on the mutual promotion and protection of investments, as well as the avoidance of double taxation.

Thus, apart from Russia’s aggression in Ukraine, joint logistics projects are exposed to some other global risks, including Africa’s internal security and political challenges, Russia’s historical influence and military presence in the region, and the growing role of China on the continent.

The advantages include the consistent demand for global food security, in particular through the Grain from Ukraine initiative. Furthermore, the stable growth of Africa's economy and a vast consumer market—as confirmed by Deloitte researches (2023 Deloitte Africa Report, West Africa Macroeconomic Update, South Africa economic outlook (May), South African economic outlook (February)). Relatively low competition in the African market also creates favorable conditions for raw materials suppliers from Ukraine. Moreover, there is potential to expand the range of supplies to include value-added products. For example, not only wheat, but also its derivatives, such as flour, can be exported to Africa using an integrated processing and logistics cycle between Ukraine and Africa.

In addition to Senegal and Nigeria—West African countries already mentioned in the memorandums—other African countries are considered promising for such cooperation. These include Egypt and Tunisia in the north, Ghana in the west, South Africa, Malawi, and Mauritius in the south, and Kenya and Djibouti in the east.

The geography of cooperation may be extended beyond Africa to the southwest, to include Saudi Arabia. The Kingdom is not as heavily influenced by Russia as, for example, the UAE, and it has the port of Jeddah on the Red Sea. Moreover, Neom — a city of the future and a port — is being constructed here and is expected to become a strong regional competitor. The viability of this route is somewhat constrained by the instability caused by the Houthis in the Gulf of Aden. However, this risk is only partial, as the route for Ukrainian grain to Saudi Arabia’s western ports via the Suez Canal does not necessarily pass through Aden. Exports to East Africa would go through Kenya and Djibouti, while shipments to other Middle Eastern countries could be made by land.

Many questions remain open, including those concerning the structure of participants and financing, risk diversification, insurance, and the terms and conditions of investments payback. Comprehensive feasibility studies are required.

In this edition of Infrastructure Talks, we spoke with leading representatives from the industries concerned — agriculture, logistics, and port operations — to explore the following questions:

How viable is the idea of building logistics hubs for Ukrainian agricultural raw materials in Africa? How to ensure stable supply and sales through such hubs? What conditions would encourage Ukrainian business to participate in such projects? What are the next steps to be taken by the government to bring these initiatives to life?

Serhii Dobrohorskyi, Deputy Chief Executive Officer for Agribusiness, MHP

The African market can be attractive for exports of grains and oilseeds (oil, meal). However, there are several important aspects to consider:

1. Low purchasing power of buyers. In many markets, such as Tunisia, Algeria, and Libya, trading requires the use of letters of credit, often issued by second-tier banks. Egypt uses the Cash Against Documents (CAD) system, which is faster than letters of credit but still carries certain risks.
2. Geographical location. In addition to what has already been mentioned in the article, it is important to emphasize the need for war risk insurance in both West and East Africa (e.g., Kenya, Mozambique, etc.), particularly along routes such as the Suez Canal, which are exposed to piracy threats.
3. Complex quality specifications. For example, for wheat, which is a key crop (tenders in Algeria and Tunisia). Lacking its own terminal, MHP has to arrange for separate storage of its consignments in order to be able to control all quality parameters. This year, we were unable to select batches that met the required specifications.
4. Political relations. Historically, political ties have always played a key role in trade with Africa. For example, France had long-standing influence across the continent, which has also shaped wheat quality requirements. Even before the war, Russia engaged in price dumping to make its products more competitive.
5. Difficulties in accessing the South African market. South Africa is somewhat closed to goods of Ukrainian origin. It is difficult for Ukrainian products to compete with European goods, which are imported duty-free — unlike ours. For instance, Delta Wilmar has its office in South Africa and imports oil from Europe. Products of Romanian and Bulgarian origin rarely appear in Europe as they are mostly shipped to the premium South African market. Algeria, Morocco, Egypt, Tunisia, Kenya, Mozambique, Ethiopia, Djibouti, and Libya are the markets that consume Ukrainian-origin goods, and our presence there is gradually expanding.
6. Local presence of multinational companies and traders. Multinationals and traders already operating in the African market establish their offices in the region. Their presence is important given the specificity of the market. Typically, they do business under framework agreements, thus creating opportunities for building long-term partnership.

The idea of creating logistics hubs is attractive, but it skips over the initial stage — strengthening the presence of Ukrainian products on the African market. Weak political ties, the existence of tariffs and additional documentation requirements for Ukrainian goods, and Russia’s strong foothold in the region all pose significant obstacles. Therefore, Ukrainian products must first enter the market, establish contacts and build reliable supply chains.

Oleksandr Shchokin, CEO of CMA CGM Ukraine

In my opinion, such a project would be extremely timely given the current realities faced by the agricultural sector of our economy in its search for new markets for Ukrainian agricultural products. The implementation of signed memorandums and the expansion of such initiatives would undoubtedly carry significant importance in strengthening Ukraine's position on the African continent — economically, humanitarianly, and even geopolitically.

The involvement of global container carriers in transporting agricultural raw materials between Ukraine and such hubs is unlikely due to the higher costs of container shipping compared to bulk carriage. However, container operators could still play a useful role in transporting processed, value-added products, such as flour, sugar, etc.

Given the underdeveloped port infrastructure in Africa, in terms of capacity for transshipment of agricultural products, container transportation could be an effective solution for the distribution of Ukrainian grain within the region, in particular, for further delivery to landlocked countries.

Mykola Miroshnychenko, Logistics Director at Kernel

African markets have a significant potential for increasing agricultural exports from Ukraine, but it is developing rather slowly due to a number of factors.

High logistics costs from Ukraine to Africa due to the absence of large trade flows between Europe, Asia, the Middle East, and the African continent. Usually, goods are transported one way only, which results in high freight costs to Africa. For example, freight from Europe to Asia costs half as much.

Lack of stable financing in African importing countries hinders the development of local infrastructure, in particular, the expansion of port capacities to increase transshipment volumes and improve domestic transportation. Without reliable financial resources, it is difficult to arrange efficient logistics routes, which leads to delays in deliveries and higher costs, and thus reduces profitability.

Currency constraints. Most African countries are pegged to their domestic currencies, which makes it difficult to buy dollars or euros for international contracts. In some cases, there are payment reliability issues, creating financial risks and potential insolvency.

Customs preferences that have historically been granted to some importing countries. These preferences give a competitive advantage to suppliers from countries that have concluded agreements on duty-free imports or reduced tariffs.

Consumption of high-protein wheat in Sub-Saharan Africa. Ukraine is not a major supplier of this type of grain, which limits our ability to increase supply volumes in this market, as competition in this segment is significant.

Transportation safety and reliability. The situation may vary significantly depending on the country of destination (for example, military activities in the Red Sea pose certain risks). In some cases, there is a risk of cargo rejection, which leads to additional costs for the consignor due to demurrage until the issue with containerized cargo is resolved.

Specifics of interaction with local consignees. There are known cases when the consignee stopped communicating once the draft bill of lading was approved. This is mainly done in order to receive the cargo without paying for it, when the products arrive and wait for more than a month at the port of destination. In addition, there is an issue with removing cargo from the port — consignors often exceed the free container usage period due to the client's prolonged search for transportation. Also, the consignees are often unable to call a qualified surveyor, which increases the time required for, and affects the quality of, cargo acceptance.

Despite these difficulties, investing in Africa may bring certain benefits, such as access to new markets and resources, lower production costs, and the opportunity to conduct socially responsible business. However, there are significant risks involved.

The situation with the development of the African destination can be improved with the support from the state in the form of insurance against non-payment or non-fulfillment of contracts. Reducing shipping costs is also crucial. Although the state cannot directly influence freight rates, it could consider reducing or lifting port charges, as well as ensuring ground shipping to the port on preferential terms.

In terms of the export structure, it should be noted that feed consumption in Africa has limited potential in the coming years, but demand for corn, barley and meal is expected to grow in the long term, provided that the population's income increases and effective demand grows. As for vegetable oil, it can only be exported in large quantities to countries with refining capacities. Exports of bottled and refined oil are also important, but these items are not capable of providing significant export volumes. It would be more economically feasible to supply crude oil in tanker batches.

Roman Koloianov, CEO of Maersk Ukraine

There are always prospects for constructing logistics hubs for Ukrainian agricultural raw materials in Africa, but it should be kept in mind that hubs never concentrate on goods of the same origin or nomenclature. In addition, the complex political and legislative environment of African countries should be taken into account. Building a hub in one country may not be efficient enough to distribute goods to other countries, even neighboring ones, due to tax, transit, licensing, and customs barriers that can vary significantly between African nations. Logistics hubs work best in a simplified and liberal regulatory environment.

Another challenging issue is the stability of supplies and sales through such hubs. African markets are mostly controlled by intermediaries, who are not representatives of Ukrainian companies. Historically, agents from Turkey, Lebanon, Belgium, and France have had significant influence over these markets. Moreover, import licensing is often associated with artificial restrictions on importers, which is a form of hidden corruption. This creates additional barriers for Ukrainian exporters, who are unlikely to be able to contract directly with end consumers.

Ukrainian businesses may be interested in participating in such projects only if they receive strong support and lobbying from the Ukrainian state. Looking at the countries currently dominating the geopolitics of the African continent, we see China (significant investments that do not always meet transparency and compliance criteria), Russia (arms supplies, support and participation in local conflicts on the side of autocratic leaders and groups), Saudi Arabia (also an autocratic country), and Turkey (a more complex influence through Islam and long-running educational programs).

Our government should work to deepen its political influence by increasing Ukraine's geopolitical importance for these countries — but whether this will align with democratic values remains an open question.

This interview contains the respondent's direct speech without curtailments, changes, corrections or retouching; it reflects the respondent’s subjective opinion and may not coincide with the position of Deloitte. Deloitte is not responsible for the information provided.

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