What happens when a plan misfires?

It has been widely reported that India will invest between $350 and $550 billion on infrastructure projects over the next 5 years to transform connectivity and provide the platform for sustainable (and inclusive) growth. That’s up to 10% of GDP per year. Currently, this is running at 4.6% and stalling as the global crisis deepens. Let’s take a closer look.

First, the facts. The Indian Government has released information on the state of play for 2007-08: 207 of 516 projects of Rs 100 crore ($20 million) or more each are runnning behind schedule or face delays; 105 of 181 Highway projects are running late and a further 346 of 909 infrastructure projects valued at Rs 418,567 crore ($85 billion) are behind schedule. There are cost overuns totalling an estimated $5 billion on over 13% of these projects. And finally,  K.H. Muniyappa, Minister of State for Road Transport and Highways, has confirmed that of 2885 kms of roads planned for 2007-08 only 114 kms have been completed. That’s 4% completion. By the way, over 130k people died on Indian roads last year and that is 60% more than China – with 4 x the number of cars. The World Bank has expressed concerns that their own investments are way behind schedule. What now? Is jugaad enough?

 

Small loans are not enough …

There are 13 million SMEs in India which accounts for 80% of all companies. They have a 40% share of industrial output and account for 45% of all exports mainly from sectors such as textiles, leather, jewellery, auto components and pharmaceuticals. They are the biggest employers in the country – second only to Agriculture. Many of them are an integral part of all sorts of supply chains that lead to formal brands on shelves or in the showroom. Without them few brands could be cost effective. And yet, according to statistics from SMERA (Small and Medium Enterprises Rating Agency) of all the investments made by SMEs in 2007 – Rs 100,000 crore or, over $20 billion – only 14% was provided by the formal banking sector!

 

Lost trade along the Last Mile …

Readers of this Trans Log Blog will know of the Last Mile and the damage that poor infrastructure and connectivity can cause to any advances in a Port and those key industries that depend upon consistent supply. And yet, the story does not end with creating a bigger and better drive thru; the Last Mile is also the story of local traders and, the quality of life of people living in close proximity to Ports all over the world. If you have not seen the video, have a look – and read on. There’s more …

 

Beyond the Last Mile …

Clearly, the Last Mile video (see below) has struck a chord in many places all over the developed, fractured and emerging world. Many thanks for the comments. More has to be done on infrastructure. However, several commentators stress that this is only part of the story. What about the roads to the marketplace and the perils beyond the potholes…

 

More on the Last Mile …

We have had a massive response to the Last Mile video. See below.

Clearly, this strikes a chord. Summing up the various comments made:

• From the UK. “Don’t think that this is just a developing world issue. The Planning process in the UK is wrapped up so tightly with red tape that even the most logical infrastructure initiatives are not happening. There are many UK Ports with issues around last mile connectivity …
• From a Financial Analyst specialising in Infrastructure matters . The current downturn has done quite a few Governments in developing countries a favour on Ports Policy. They can postpone the issues saying that the volume isn’t there. Wrong. This is the very time when investment in this type of infrastructure can release the economy. Just look at the Pearl River Delta or, Dubai. Start with capacity and demand will follow…

 

The Last Mile

One of the biggest challenges in any emerging or fast growing economy is infrastructure. The Chinese have been superb at this. For example, the Pearl River Delta story starts with building up the clusters that delivered the roads, the railways and port connectivity. Manufacturing and textiles followed as market access (in/out) was sorted out. Exports exploded. Imports of vital resources were speeded up. The rest is history. The idea was to build capacity, supply would follow and demand would be triggered. Sustainable growth was the prize. Elsewhere, it is as if they build the house starting with the smoke coming out of the chimney. 

This video illustrates just why logistics has to be enabled for any economy to be transformed at the grassroots and not just at the macro level. It takes place in Chennai, India. Let’s be clear – it could be elsewhere. It is a wake up call. 

India will spend between $350 to $550 billion on infrastruture in the coming years. How much on the last mile? And how quickly? 95% of Indian exportsand nearly 70% in value terms are carried by sea and pass through the ports. The export-import (exim) trade has grown at an impressive compounded annual growth rate of 13.4% during the last ten years. Containerised traffic stands at 25% of exim trade and this will grow to 18m TEUs by 2013-14 in major ports. This is up from an estimated 8 m TEUS for 2008. And trucks move most of this through areas such as the ones highlighted on this video. Food for thought. 

 

Infrastructure and delivery systems

The informal market does not lend itself to a one size fits all distribution system. On the one hand, we have the issues raised by crowded urban environments and, on the other, the issue of access to highly dispersed and remote rural communities. The cost of reaching each consumer varies greatly and this is where the field marketing and neighbourhood based sales initiatives covered above can be so successful.  

 

Logistics as a competitive advantage for an industry

The Japanese market imports a high percentage of textiles. Consider the competition between competition for Japanese markets of the textile industries of Malaysia and Vietnam. Vietnam had a distinct cost advantage over Malaysia at the production stage but this was lost when logistics is considered. Vietnam lacked a deep water port – a fact that had a significant role to play in US military operations during the ill fated Vietnam War – and this inflated their costs to reach the Japanese market. Malaysia had sophisticated port facilities in place in Singapore even before they developed their own.

 

Kerala fishermen and the mobile phone

Traditionally, the Kerala fishermen would leave their home port and return with their catch to be bought by agents who would travel the coast to “aggregate” the catch. These agents dictated price and, the fish not sold would be wasted. Enterprising fishermen started to use mobile phones to check prices at the different ports along the Kerala coastline and then, started to auction their catch whilst still out at sea. Instead of landing their catch in the same place they now move to where the best prices are. The impact has been impressive. A 9% hike on revenues; zero waste and a 6% reduction in consumer prices.