The African trend towards the privatization of port operations: opportunity or risk? ...Or both?

A recent article published by the Washington-based African Center for Strategic Studies analyses the presence of Chinese firms in African ports, concluding that they are active in 78 of them, out of 231 commercial ports in total (a comprehensive mapping of African ports is offered by MaritimAfrica). This presence, the article notes, is multifaceted. Distributed across 32 African countries, with a strong concentration in West Africa (35 ports), it takes various forms, ranging from building, financing or operating port facilities. Cases where Chinese companies dominate all these segments also exist, like the new Lekki Deep Sea Port in Nigeria. After West Africa, China's presence is also important in East Africa (in 17 ports), Southern Africa (15 ports), and North Africa (11 ports). In order to understand the scale of such presence, Latin America and the Caribbean host only 10 Chinese-built or operated ports, while Asian countries 24.

According to the article, investing in African ports is a particularly lucrative business: for every $1 invested, China is gaining as much as $13 in trade revenues. It would be interesting to know how much of these 13 dollars stays on the continent. Unfortunately there are no estimates on this. But there is more. This strong presence is giving China significant leverage over the shipping lanes that serve African ports. The African Center for Strategic Studies notes that a firm that holds an operating lease or concession agreement with a port authority, reaps not only the financial benefits of all trade flows passing through that port, but also controls access to it and key nodes in supply chains. In fact, the port operator determines the allocation of piers, accepts or denies port calls, and has the possibility to offer preferential rates and services for vessels and cargo flying its nation’s flag. This obviously raises sovereignty and security concerns by the States where those ports are located.

Finally, ports are key geopolitically strategic assets. Controlling a port can increase a nation's ability to project military power and influence in a country or in an entire region, impacting local security dynamics. This influence can extend beyond the port itself, impacting inland transportation and trade corridors that connect to it. Access to African ports gives therefore to China the opportunity to establish strategic maritime and military operations on the continent.

African ports generally poorly equipped and uneconomically operated

The African Development Bank, in a study published in 2014, concluded that many African ports are poorly equipped and uneconomically operated, adding that they have an inadequate capacity, particularly in terminal storage and maintenance, with handling costs that average 50 percent higher than in the rest of the world. In order to address these inefficiencies, the African Center for Strategic Studies notes, there is a trend on the continent toward the privatization of port operations.

The use of the term "privatization" requires a clarification, as ports can be fully or partially privatized. When a port is fully privatized, the private sector owns and operates both the port infrastructure and the cargo terminals. It also purchases and installs its own equipment and hires the personnel who provides port and cargo handling services. This model is known as the “private service model” and it is rarely used worldwide. At the other extreme there is the “public service model”, where a government entity (the Port Authority) owns and maintains the infrastructure and port and terminal equipment, providing also all cargo handling services. This is the case of many African ports, like Kenya, where both the port and terminal infrastructure is operated and the relevant services provided by the Kenya Port Authority (KPA).

The most common port management methodology, however, is another one. It is called “landlord system” and it is characterized by the partial privatization of ports activities. The port authority owns the port infrastructure and the land where it is built (dealing with the maintance of such infrastructure), while private operators run the terminals and provide operational services under a long-term concession contract - usually of 20 years or more - paying a fee to the landlord in return.

This is the model that many African countries are increasingly embracing, including Kenya, where the Port Masterplan 2018-2047 foresees a future transition to this system as part of the country’s long-term strategy for improving the port efficiency.

Yet, a landlord port model, while offering important benefits in terms of efficiency gains and attraction of investment from the private sector, can pose a risk to the loss of control of maritime routes by African countries. This may happen because:

• Under a landlord model, private operators, which are often foreign companies, gain significant control over port operations, including cargo handling, terminal management, and logistics. This influence can translate into control over the flow of goods and, consequently, of the maritime routes that serve those ports.
• If foreign operators dominate key port terminals, African countries may become strategically dependent on them for access to global trade routes. This dependence can create vulnerabilities, particularly in times of geopolitical tension or economic disruption.
• Private operators often control critical data related to cargo movements, vessel traffic, and logistics. This data can be valuable for commercial and strategic purposes, and its control by foreign entities can raise concerns about national security and economic sovereignty.
• Foreign (private) entities that operate ports could be owned, participated or tied to their countries governments, as it happens in most cases with Chinese companies. This raises important considerations regarding the potential for government influence on maritime routes and regional security and can cause geopolitical concerns if there is a conflict of interest between the operating company's home nation, and the African nation where the port is located.
• Lastly, profits generated by port operations may be repatriated to foreign countries, leading to economic leakage and a reduced contribution to local economies.

In transiting towards port management landlord systems, African countries need to adopt measures able to adequately protect their national interests. This can primarily be done by implementing robust regulatory frameworks that ensure transparency and strong oversight on concession agreements. Promotion of local participation in port operations is also desirable. Concession agreements should include clauses that mandate the use of local labor, local suppliers, and local services, at least in part. This would ensure that a portion of the economic benefits from port operations will remain within the local economy.