20 August 2021

What’s the impact of investing in warehousing in Kenya?

Warehouses are a fundamental part of most supply chains and an important contributor to economic development. They provide businesses with storage, distribution, packing and processing of goods, all of which supports business growth as well as local and international trade. As these businesses grow, they create economic opportunities by creating jobs, increasing income for suppliers and sales agents, and reaching new customers.

High-quality or ‘Grade-A’ warehousing is a particularly powerful economic enabler. Access to Grade-A warehousing gives businesses the facilities they need to establish highly efficient supply chains, allowing them to grow and tap into wider markets. However, this type of high-quality warehousing is scarce in developing markets.

Africa Logistics Properties (ALP) is a specialist integrated property investment and development company focused on Grade-A warehousing. Five years ago, ALP set out to address the rapidly growing need for high quality warehousing facilities across East Africa.

Using capital from a consortium of investors, including CDC, ALP built 55,000 square metres of Grade-A warehousing across two sites in Nairobi. Until ALP entered the market, international standard warehousing in Kenya did not exist, and small low-quality sheds and ‘godowns’ dominated, located in congested industrial areas.

Launched in 2017, ALP North is EDGE-certified and offers 47,000 sqm of space to large, local and international tenants. Launched in 2020, ALP West Phase I offers 8,000 sqm of space to small and medium-sized businesses (SMEs).

To deepen our understanding of the development impact of our investment in ALP, we’ve undertaken a study of the business in partnership with Open Capital Advisors. The study focuses on who this type of investment ultimately reaches, specifically ALP’s tenant’s employees, suppliers, and customers. ALP’s energy efficiency impact (SDG 13) was an additional important component of our investment case – you can find out more about this here.

The study uses the United Nations Sustainable Development Goals (SDGs) to assess ALP’s economic opportunity (SDG 8) and productivity (SDG 9) development impacts, both of which were fundamental to our investment case.

Consultations were organised by the Open Capital team with ALP’s management and all six ALP tenants provided the basis for the report’s findings. Case studies on two ALP tenants, Twiga and Copia, put the findings in context and provide a more complete picture.

What did we find out?

  • ALP tenants attribute increased operational efficiency to the use of Grade-A warehousing facilities, resulting in improved margins and ability to scale.
  • Tenants have benefitted from 45-60 per cent storage cost savings on a per pallet basis, 63 per cent reduction in turnaround times, reliable utilities, better access to markets, and inventory losses to both theft and damage reduced to near zero. These benefits have enabled tenants to increase their revenues and grow business margins.
  • Improved tenant productivity has contributed to positive direct and indirect economic opportunity and livelihood impacts. ALP’s tenants have created high-quality, skilled jobs, and their business operations have contributed to Kenya’s economic growth. Indirectly, the suppliers and customers of ALP’s tenants have also benefited through increased earnings and better access to goods. ALP has also contributed to the development of the Kenyan warehousing market, influencing a new generation of warehouse developers to invest in modern facilities.

This study validates our impact case for investing in ALP. Potential ways of enhancing the development impact of warehousing are also considered, such as educating and training tenants on warehouse management best practices. The impact profile of ALP’s tenants varies considerably, suggesting further research on tenant-specific needs may identify further opportunities to enhance impact. It is likely that the early adopters of Grade-A warehousing are tenants with atypical characteristics, so gaining a better understanding of this profile may provide useful insights.

This Insight report builds the development impact evidence base of the construction and real estate sector (CRE) in Africa and South Asia. At CDC, we want to encourage more investors to focus on the sector given its importance in determining urban form in cities and its potential to lock-in economic, social and environmental impacts for decades. This study sits alongside our Construction and Real Estate Impact Framework and supports more impactful investment strategies by using evidence to map the development impacts of the CRE sector on people and the planet.

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