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Join us on October 3, 2023, from 9 AM (4 PM EAT) to 10 AM (5 PM EAT) for a learning webinar in which we will dive deeper into key lessons learned from both pilot projects and discuss what could be next for Ethiopia’s private sector and startup ecosystem.
Strengthening Urban to Rural Linkages and the Trucking, Transportation and Logistics Sector in Ethiopia
By Andrew Larsen | Wed Sep 13 2023
From late 2020 through February 2021, USAID’s Bureau of Humanitarian Assistance (BHA) conducted a Private Sector Landscape Assessment (PSLA) for Ethiopia that identified and prioritized concrete opportunities to integrate high-impact private sector engagement (PSE) initiatives into USAID BHA’s emergency and non-emergency programming for Ethiopia. Ultimately, the PSLA recommended focusing on two thematic areas for new PSE opportunities:
- Expanding businesses to rural areas in support of the Mission’s Resilience Food Security Activities (RFSAs); and
- Strengthening the trucking sector within Ethiopia through improving standardizations, planning requirements, utilization of new technologies and improving driver requirements to both improve the delivery and reduce the costs of providing food assistance.
In support of these recommendations, USAID BHA launched the Strengthening Humanitarian Assistance and Resilience Private Sector Engagement in Ethiopia (SHARP-SEE) Project in partnership with Renew Capital in March 2022, during which the project team worked to strengthen urban-to-rural linkages and enhance the trucking, transportation and logistics sector in Ethiopia. This collaboration resulted in robust market and ecosystem research, pipeline formation, micro-testing of solutions, as well as the implementation of two pilot projects between February 2023 and July 15, 2023, in Ethiopia.
THE LOGITECH INVESTMENT SPRINT
The first pilot project was a 12-week, intensive training program focused on 10 logistics and technology (or “LogiTech”) startups in Ethiopia. Key takeaways from the pilot project included:
- Renew Capital estimates that the Ethiopian economy needs nearly $1B in investment to overcome its funding gap in the trucking sector and be on par with Kenya’s fleet size per capita.
- Trucking and transportation companies are not tech-enabled; most companies still operate with manual processes.
- Tech-enabled startups have the potential to provide the much-needed innovation to optimize Ethiopia’s trucking and logistics sector.
However, Ethiopia’s startup ecosystem remains nascent and un-activated:
- Ethiopian startups only attracted 0.07% of capital invested in logistics and transport startups in Africa from 2019 to January 2023.
- The average deal size for Ethiopian logistics startups was $170K, significantly lower than other African countries from 2019 to January 2023.
- Ethiopian startups only raised 5.82% of the total capital raised by startups in Africa from 2019 to January 2023.
From the project team’s perspective, the lack of easily accessible startup and growth capital is not the problem in it of itself, but it is a symptom of a nascent startup ecosystem within Ethiopia. In general, startup founders need support to scale in key skill areas, including product development and customer engagement, operations (especially cash management), as well as pitching and investment readiness.
The SHARP-SEE project team aimed to address these challenges through the key project activities addressed in the next section.
ACTIVITIES & KEY OUTCOMES:The LogiTech Investment Sprint aimed to address persistent challenges in Ethiopia's logistics sector by training and coaching LogiTech startups over a 12-week program that covered essential business skills, such as strategic planning, organizational structure, financial management, product development, customer engagement and investment readiness.
The program also assisted startups in refining their minimum viable products through customer interviews, setting growth targets and KPIs and continuous performance analysis. Participating startups focused on various areas within logistics, including intercity logistics, public transportation, last-mile delivery, B2B logistics and digital tools for truck operators involved in import and export.
These innovations align with Ethiopia's modernizing digital economy, paving the way for a more tech-enabled logistics sector. Additionally, they have the potential to enhance humanitarian aid delivery by introducing digital solutions to a traditionally un-digitized sector. Furthermore, tech-enabled logistics services can strengthen urban-to-rural linkages, improve relationships between manufacturers, suppliers, and retailers, and enhance urban and intercity transportation and improve the efficiency of humanitarian aid deliveries over the long term as processes become optimized by technological processes. Overall, these initiatives aim to make logistics more efficient and contribute to the development of Ethiopia's digital economy.
THE AGRICULTURAL INPUT SUPPLY CHAIN OPTIMIZATION (AGISCO)
In terms of urban-to-rural linkages, the project team learned the following as part of Phase I and Phase II research:
- The agricultural input supply chain is broken throughout Ethiopia.
- Smallholder farmers lack access to reliable and steady supplies of inputs.
- Smallholder farmers and agrodealers alike lack access to capital, preventing them from scaling.
- Agrodealers are unable to receive timely deliveries of high-quality inputs at a reasonable price.
- Typically, agrodealers travel long distances to purchase inputs and arrange their own logistics, resulting in high costs.
In light of these findings, the project team launched the Agricultural Input Supply Chain Optimization (AGISCO) project in partnership with a local Ethiopian agritech startup. This Ethiopian technology startup provides a digital marketplace for smallholder farmers to access inputs, mechanization services, climate advisory content and tailored credit products. AGISCO’s objective was to de-risk the expansion of this product into one of USAID BHA’s target resilience and food security (RFSA) project areas, specifically five woredas in Eastern Hararghe.
The AGISCO project engaged a local Ethiopian agritech company to support its growth and sustainability in Eastern Hararghe through a KPI-focused approach. The project’s objectives included enhancing agricultural input distribution, increasing digital adoption, improving supply chain efficiency and expanding access to credit.
The project was divided into three phases:
- Phase I: Landscape Mapping, Agent Training and Platform Optimization
- Phase II: Recruiting and Training Additional Agents
- Phase III: Deployment of Agents and Platform Services into Additional Woredas
Top-line objectives of the pilot project included:
- Train 24 New Agents Onboarded
- Onboard at least 12,000 new farmers onto the platform
- Provide access to inputs, mechanization services, finance and climate advisory to onboarded farmers
- Reduce costs of logistics incurred by smallholders
As part of AGISCO, the project team also provided strategic advice and recommendations to the local agritech partner throughout the project during weekly check-in calls.
TO DATE (SEPTEMBER 13, 2023), THE AGISCO PROJECT HAS ACHIEVED THE FOLLOWING KEY OUTCOMES:
In achieving these project outcomes, the project team has learned the following key lessons and identified key opportunities:
Growth of Fintech Could Increase Access to Finance: The current situation in Ethiopia is a critical moment for the growth of access to finance and fintech services. The introduction of M-PESA and competition among local providers like Telebirr marks a significant change in the market dynamics. Fintech companies in Ethiopia are competing for market share and expanding their service offerings. This competitive environment could drive innovation and the development of tailored financial products to meet the needs of different customer segments, including smallholder farmers. However, the market is still largely not tech-enabled, creating challenges that may impede scaling on the ground in the near future.
Coordination for Resource Optimization:
Efficient coordination between orders and suppliers is crucial for maximizing the utilization of limited logistics and transportation resources. As observed in the pilot project, technology can play a pivotal role in enhancing the capacity utilization of existing transport resources.
Technology as a Solution: Platform-driven technological approaches can facilitate the dissemination of multiple services, such as financial services, logistics provisions, input distribution, and educational and climate-related materials, through a single platform. The flexibility of these services, if done correctly, could dramatically expand the ability of smallholders to access crucial services, increasing incomes and overall food security in the long term.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.
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