Boosting intra-African trade: the infrastructure perspective
“There are particularly untapped gains from Africa trading within itself. African countries are currently losing out on billions of dollars in potential trade earnings every year because of high trade barriers with its neighbours…. It is easier for Africa to trade with the rest of the world than with itself.”
The above statement by Otaviano Canuto, an erstwhile World Bank vice president and currently senior advisor on BRICS, is simply sacrosanct, and provides a succinct theme for this write-up.
Trade is known to be a catalyst for sustainable economic growth and development, as well as poverty alleviation. It is therefore worrisome that Africa, home to 12 percent of the world’s population, only controls 3 percent of the world trade in spite of its enormous potentials. It is even declining, instead of growing! Another embarrassing statistics is that intra-African trade stands at 10 percent as against 60 percent, 40 percent and 30 percent intra-regional trade achieved by Europe, North America and ASEAN, respectively. This means that there is need for urgent action to improve on these figures, not just mere rhetoric.
Share in Global Trade by Region, 1980-2011
Source: Le Goff and Singh (2013)
Discussion on enhancing African trade is beginning to dominate headlines in recent times. The 19th summit of the African Union held last year was aptly themed ‘Boosting intra-African trade’. The ECOWAS trade liberalisation scheme (ETLS) is also an example of the numerous initiatives championed at a regional basis to boost trade as it seeks to eliminate customs duties and taxes for some goods originating from within the region. There is also the treaty on free movement of persons within the region, as well as the much-expected single currency scheme for the region. All these are quite commendable, and can only succeed to boost trade if supported by adequate infrastructure.
According to a World Trade Organisation (WTO) report, infrastructure plays a crucial role in the flow of international trade. It went on to list trade-enabling infrastructure to include transport infrastructure, telecommunication networks and trade-supporting infrastructural services. But how adequate are these to support Africa’s trade?
Transport infrastructure: This facilitates the free movement of goods and persons. Poor transport infrastructure can lead to higher cost of goods. A World Bank study confirms that the cost of transport outweighs cost of tariffs in 168 out of 216 trade partners of the USA, majority of which are in sub-Saharan African countries. So, how has Africa fared under the various modes of transport?
i) Land transport covers essentially movement of goods by road and via pipelines. The safety and durability of roads linking African countries is a source of concern, as most of the roads are barely motorable, unpaved, or filled with pot-holes due to poor maintenance and/or the impact of the high density of rain within the region. As a result, heavy duty trucks which convey goods find it difficult to manoeuvre through these roads, and the incidence of articulated lorries over-turning at big pot-holes is a common sight. Logistics companies are therefore seriously discouraged, and the few that embark on conveyance trips charge exorbitant fees which in turn affect the cost of goods.
This constraint must be addressed in order to boost trade, and encourage free movement of goods/people. Of particular note are the challenges faced by land-locked countries and the need for good roads. For instance, the USAID recently built the Juba-Nimule road, which has greatly aided trade in South Sudan through the Mombasa port in Kenya.
ii) Rail transport: Rail system of transport is reputed world over as the cheapest mode of transport. However, unlike Europe which has rail lines linking major countries, Africa does not have that luxury. Not only does this affect intra-African trade, anecdotal evidences uphold that rail network is inadequate within countries to support internal movement of goods/persons. For instance, the rail system in Nigeria still follows the colonial graph that slopes from land-locked Maiduguri to the seaport in Port Harcourt, and from Nguru/Kaura Namoda to Lagos port. Little has been done to expand this network after almost 100 years.
iii) Air transport: Though air travel has significantly shortened the distance between countries, most African countries do not have direct air links, and in most cases would involve two or three stops which might span days when airport waiting time is factored in. It is not unusual to see a traveller going from Lagos to Khartoum first flying over the Sudanese airspace to Dubai or Doha before connecting. It is also a fact that flying from Lagos to London or Atlanta from Lagos is easier/cheaper than flying to Dakar due to availability of more frequent flights. The logic that this supports is that if people can’t move easily within the continent, then goods will be difficult to move too.
Telecommunication networks: As a popular saying goes, “don’t make the trip, make the call”. This shows that availability of fast and dependable telephony and internet system can substitute for the need to embark on trips to seal the trade deal. Available records narrate how some traders in Ghana who previously travelled long distance to remote locations to buy farm produce now buy more from those farmers who have acquired mobile phones than those who did not. This probably explains why Nigeria’s minister of agriculture embarked on a drive to buy mobile phones for rural farmers, a laudable move which was unfortunately criticised by many.
Africa’s telecom industry is, however, not without squabbles in achieving its trade facilitation potentials. The unstable connectivity, slow internet speed coupled with the high cost of call are all bottlenecks that must be broken. Remarkably, call costs are even higher for call between African countries. For instance, in Nigeria, while it is possible to make calls to US, UK, Canada, China and India for as low as N8.33/minute, calls to Algeria, South Africa and Senegal could cost as high as N60/minute. This is a major problem, and must be addressed.
Trade support services: Apart from the logistics services which move goods from exporter to importer, the other notable trade supporting institution is the financial services sector, especially the banks which facilitate the flow of funds in the opposite direction. Another fundamental role played by the banks is the provision of credit facilities to exporters and importers, all in a bid to grow trade capacity. While most multilateral finance institutions like the IFC, ADB, AFREXIM, etc have initiated access to finance schemes for rural SMEs, these efforts must be corroborated by local commercial banks to ensure the efforts trickle down to the remotest areas.
The fact that most African banks neither have correspondence relationships among themselves nor exchange bi-lateral key agreements for sending secure messages on the SWIFT messaging network is also a cause for concern. Example is that a letter of credit from a Nigeria bank to a Ghanaian beneficiary was first transmitted to a bank in London for advice to a bank in Ghana, simply because the two West African banks have no direct relationship. To be able to support increasing trade flows, this scenario must be amended.
In the end, boosting trade in Africa depends so much on the state of infrastructure within the continent. Although infrastructural development will definitely involve a huge outlay of funds, as the World Bank estimates that $93 billion (or 15 percent of Africa’s GDP) is needed annually to fund Africa’s infrastructural development, governments must realise the need to make this a priority. Encouragement to do this should derive from the enormous benefits accruable from the development of trade within the continent, which include economic development, provision of employment, higher income levels and ultimately eradication of poverty. If these are taken into cognisance, then efforts should begin in earnest to raise funds from both within and outside to tackle the infrastructural challenges, since no price is high enough to be paid for development of trade on African goods, by Africans and for the benefit of Africans.
Ihejirika, a certified International Trade Finance professional with over 10 years banking experience, writes from Lagos.
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