By Kholofelo Kugler
It is widely acknowledged that intra-African trade holds massive economic growth potential for the continent. However, intra-regional trade is characterised by high trade barriers which restrain significant economic development. Continent-wide trade facilitation policies need to be implemented in order to address inadequate infrastructure and customs-related processes that hinder trade within Africa.
Trade facilitation, defined as the simplification and harmonisation of international trade procedures with the objective of minimising obstacles to the movement of goods across borders,(2) is high on the global trade agenda. The elimination of trade restrictions in the form of institutional and regulatory reform and improved customs and port efficiency is particularly pertinent to the African region, which, though relatively open with a trade-GDP ratio of 55.7% in 2009, currently accounts for a paltry 3% of global trade. Of particular concern is the low level of intra-regional trade presently at 10%; a figure in sharp contrast with the intra-regional trade levels for the European Union (EU) and the North American Free Trade Agreement (NAFTA), for example, which account for 60% and 40% respectively.(3)
The need to deepen regional integration of African economies is by no means a novel realisation, evidenced by the existence of 14 regional economic communities (RECs) and several initiatives currently being implemented towards this end. However, these efforts are yet to produce impressive gains in trade, a key constraint being Africa’s poor and inadequate infrastructure coupled with complex customs-related processes which result in prohibitive transit costs, more so for landlocked resource-poor economies. This CAI paper discusses the potential benefits of intra-Africa trade, key barriers to trade in Africa and current continental initiatives which seek to implement trade-facilitating measures that will propel the continent to a higher level of economic development.
Intra-Africa trade: Realising potential gains
According to the United Nations Conference on Trade and Development (UNCTAD), intra-African trade holds the greatest potential for enhanced economic growth and development for the region.(4) As noted above, intra-regional trade currently accounts for just 10% of the continent’s total trade. It is worth noting that some argue that this figure fails to take into account large volumes of informal trade conducted across poorly managed borders and consequently not captured in the official figures recorded by customs officials.(5) However, even when trade between African countries is adjusted for informal sector activities, the figure still remains below 20%.(6) An increase in intra-African trade would result in inter alia the availability of economies of scale for local producers and access to a potential market size of Africa’s 1 billion inhabitants. Further, it would create opportunities to source goods and services within the continent instead of importing them externally, which would subsequently reduce transit costs significantly.(7) Against this backdrop the African Union (AU) Sixth Ordinary Session led to the adoption of the Action Plan for Boosting Intra-African Trade in January 2013.(8) The Action Plan aims at deepening market integration in Africa and significantly increasing the volume of intra-Africa trade by inter alia harmonising and simplifying customs and transit procedures, establishing and implementing trade facilitation regulations, establishing one-stop border posts and implementing a continental integrated border management system.
The Organisation for Economic Co-operation and Development’s (OECD) research on the impact of 16 trade facilitation indicators (TFIs) on developing countries’ trade shows that full implementation of the TFIs could result in a 17% reduction in trade costs for sub-Saharan Africa (SSA). The measures that have the highest and most robust impact for bilateral trade in SSA are automation of customs processes, simplification and harmonisation of documents, and improving information availability.(9) For landlocked countries, which constitute 16 of SSA’s 48 countries, transit agreements and cooperation are among the measures that could have the most significant impact on the reduction of trade costs for traders in these countries.(10) The figure below demonstrates the gains that can be realised from improved border policies and procedures and transportation alone. One study reveals that improving trade logistics in Ethiopia halfway to South Africa’s level is approximately equivalent to a 7.5% reduction in tariffs faced by Ethiopian exporters.(11) Similarly, if Tanzania improved its customs clearing procedures to Zambian levels, the average Tanzanian firm would increase its share of production for export by over 4 percentage points, potentially stimulating economic growth.(12)
However, even where trade barriers are minimised substantially, significant gains from intra-regional trade can only be realised if African policy makers commit to diversifying their economies and propelling them higher up the global value chain. Currently, Africa “produces what it does not consume and consumes what it does not produce,”(13) a major impediment to intra-regional trade. In the absence of economic reforms African economies cannot constitute markets for one another and will certainly continue to stagger economically if the export basket remains dominated by primary commodities. An additional challenge which has stalled the progress of RECs is the perception of “loss of sovereignty.” This has seen some governments making half-hearted commitments to the regional integration drive and has resulted in delays in implementing trade agreements.
Addressing Africa’s number one trade barrier: Infrastructure
Reliable and adequate infrastructure is central to the current discussion. Indeed, SSA’s poor and inadequate infrastructure — which is well recognised as the most pervasive trade facilitation constraint particularly for landlocked economies — accounts for 40% of predicted transport costs for coastal countries and up to 60% for landlocked countries. The need for improved infrastructure was one of the central themes of the Second United Nations Conference of Landlocked Developing Countries held in Vienna in November 2014 which called for the recognition of the unique challenges faced by developing landlocked economies which limit their potential gains from trade and subsequently hamper economic development.(15)
In addition to various country-level and regional-level interventions, there is a compelling awareness among African policy makers that infrastructure deficits in SSA have a clear impact on the region’s competitiveness and deficient infrastructure saps regional growth by as much as 2% per annum. To this end the AU has formulated the Programme for Infrastructure Development in Africa (PIDA), an initiative which targets infrastructure challenges in transport, energy, transboundary water and information and communication technologies (ICTs) through coordinated efforts on a supra-regional level.(16) Among PIDA’s objectives is a reduction in transport costs and heightened intra-African trade through the African Regional Transport Integration Network (ARTIN) in the hopes of shifting trade from outside of Africa’s boundaries to within in order to fulfil the goal of establishing a Pan-African Economic and Monetary Union by 2028.(17)
It is encouraging to note that some African countries have already implemented measures that have had a profound impact on the facilitation of goods across regional borders. One example is the vast improvements at Chirundu One-Stop Border Post between Zambia and Zimbabwe. Cargo dwell time at this border has been reduced from five days to just a single day, with those cleared under the fast-lane facility going through the border in a mere five hours. In addition, improvements in customs procedures have helped the respective governments raise revenue through improved collection of import duties.(18) Furthermore, several countries including Rwanda and Kenya are moving towards the adoption of an electronic single window system, where all trade documentation can be submitted on one electronic customs date platform.(19)
There is no doubt that increased intra-Africa trade holds significant benefits for SSA economies. However, trade barriers in the form of infrastructure and custom-related inefficiencies serve as effective restrains to regional trade and subsequently economic development. The implementation of a sound trade facilitation framework in Africa would not only enhance current trade between Africa and its trade partners but will also unleash the vast potential of trade within the region. Although governments, regional economic blocs and supra-regional institutions have made concerted efforts to prioritise trade facilitation programmes — some even yielding stellar results — a lot more must be done to facilitate regional trade as even an incremental improvement can lead to significant gains and foster sustainable growth and development in Africa.
(1) Kholofelo Kugler is a Research Associate IOA whose key areas of interest are international trade and investment. Contact Kholofelo through IOA’s South African office (email@example.com). Edited by Nicky Berg. Research Manager: Feri Gwata.
(2) Goode, W., 2007. Dictionary of trade policy terms. Cambridge University Press: Cambridge.
(3) ‘Action Plan for Boosting Intra-African Trade’, African Union, http://www.au.int.
(4) ‘Economic development in Africa report 2013, intra-African trade: Unlocking private sector dynamism’, United Nations Conference on Trade and Development, 2013, http://unctad.org.
(5) Tafirenyika, M., ‘Intra-Africa trade: Going beyond political commitments’, Africa Renewal Online, August 2014, http://www.un.org.
(6) ‘Action Plan for Boosting Intra-African Trade’, African Union, http://www.au.int.
(8) Rubiato, J. and Hoffman, J., ‘Promoting African intra-regional trade through trade facilitation negotiations’, Bridges Africa, 17 June 2013,http://www.ictsd.org/bridges-africa.
(9) Moïsé, E. and Sorescu, S., ‘Trade Facilitation Indicators: The potential impact of trade facilitation on developing countries’ trade’, OECD Trade Policy Papers No. 114, 2013, http://www.oecd-ilibrary.org.
(11) Njinkeu, D., Wilson, J. and Fosso, B., ‘Expanding trade within Africa: The impact of trade facilitation’, World Bank Policy Research Working Paper 4790, December 2008, http://elibrary.worldbank.org.
(12) ‘Trade facilitation in the East African Community: Recent developments and potential benefits’, US International Trade Commission Investigation no. 332-530, Publication no. 4335, July 2012, http://www.usitc.gov.
(13) Tafirenyika, M., ‘Intra-Africa trade: Going beyond political commitments’, Africa Renewal Online, August 2014, http://www.un.org.
(14) ‘Trade facilitation in the East African Community: Recent developments and potential benefits’, US International Trade Commission Investigation no. 332-530, Publication no. 4335, July 2012, http://www.usitc.gov.
(15) Second United Nations Conference on Landlocked Developing Countries, 3-5 November 2014, Vienna, Austria.(16) African Union website, http://pages.au.int.
(18) Kanyimbo, P. and Manduna, C., ‘Trade facilitation in the Bali Package: What’s in it for Africa?’, African Development Bank, 16 December 2013,http://www.afdb.org.
(19) ‘Trade facilitation in the East African Community: Recent developments and potential benefits’, US International Trade Commission Investigation no. 332-530, Publication no. 4335, July 2012, http://www.usitc.gov.