The Real Problem for Intra-African Trade

Photo: BBC / AFP
Photo: BBC / AFP

This post is continuation of a previous article on regional integration in Africa.

Reducing tariffs is a great start for increasing trade within Africa, but important non-tariff barriers (NTBs) must also be reduced in order to boost trade both within and outside of the continent. In fact, the United Nations Economic Commission for Africa found the costs of NTBs in 2010 were higher than the costs of tariffs. The African Development Bank notes that, “while tariffs have progressively fallen, the key challenge to intra-African trade is non-tariff barriers that stifle the movement of goods, services and people across borders.”

What sort of non-tariff barriers exist in Africa? Infrastructure across the continent is poor, discouraging the movement of goods and people. Less than a quarter of roads are paved, and those are often filled with potholes. It’s not uncommon for airfare with a layover in Europe or Asia to be cheaper than direct intra-continental flights. Meanwhile, seaports are crumbling and rail connection is paltry.

“Thick borders” are also an issue, created by burdensome administrative procedures for clearing goods for import and export. Lines of trucks at the border lead to waits measured in days due to excessive bureaucratic red tape and burdensome administrative procedures. A report by Transparency International (TI) and TradeMark East Africa (TMEA) found that drivers at Rwanda-Tanzania customs stations spent an average of 72 hours obtaining customs clearance. World Bank economist Paul Brenton found that a truck serving supermarkets across a Southern Africa border may need to carry up to 1600 documents to comply with different countries’ requirements for permits, licenses, and other required paperwork.

Excessively long delays at the border are created by a lack of coordination and uniformity between countries’ technical regulations, rules of origin, standards, and policies on licenses and permits, writes Karen Hasse of Good Governance Africa. Such protracted delays also create an environment ripe for corruption, as bribes can grease the wheels and speed up the customs process. Of those surveyed in the TI-TMEA study, 86 percent of truckers from Kenya and 82 percent from Tanzania admitted paying bribes. The study found that 18.6 percent of the total cost of goods transported across Tanzanian borders was due to bribes paid to speed the customs clearance process.

The Cost of NTBs

Over-regulation is choking African trade and growth. With greater integration could come greater country specialization – such as basic manufacturing in metal and plastic products that are expensive to import from the global market. The costs of these barriers hit the small traders and small businesses the hardest. Small traders cannot afford the cross-border trading costs and as a result their growth is hampered, specifically due to their inability to integrate into regional and global value chains.

Paul Brenton, the World Bank economist, compares the cost of crossing the Bay Bridge from San Francisco to Oakland to the cost of crossing the Congo River between Kinshasa and Brazzaville – a trip of similar distance. If Bay Area residents faced similar relative costs as the Congolese, this journey would cost $1,200. As a result, Brenton observes, “cross-border exchanges between the two Congos is around five times smaller than that between East and West Berlin in 1988 – well before the dismantling of the Wall!”

Source: KPMG Africa
Source: KPMG Africa

The removal of NTBs is not as simple as the removal of tariffs, however. Brenton notes that “removing non-tariff barriers typically requires better regulations and […] reform of institutions that apply regulations affecting trade (such as customs). Often the capacity to implement a regulatory reform agenda is very weak.”

Effective regulatory reform will not consist of generalized, broad, or simple solutions. Instead, successful reform will require sector- and context-specific knowledge to remove the specific barriers that are the most burdensome while serving the least useful purpose. Brenton concludes that successful regional integration will not be measured by tariff preferences but rather by “reductions in the level of transaction costs that limit the capacity of Africans to move, invest in, and trade goods and services across their borders.”

The Trade Facilitation Agreement

One of the main outcomes of the World Trade Organization’s 2013 Ministerial Conference in Bali was the Trade Facilitation Agreement (TFA), which will be binding on all 159 WTO member states. The agreement aims to reduce non-tariff barriers by simplifying required documentation and procedures through solutions such as one-stop border posts – which allow for a single stop to exit one country and enter another – and single-window projects, which permit cross-border traders to submit all their regulatory documents at a single location.

The agreement promises that by streamlining customs procedures, trade costs could be cut by almost 15 percent for low-income countries. It is seen as a win-win for both developing and developed countries, yet there remains some concern among developing countries about their capacities to implement the commitments. Developed countries and the international community have agreed to help these countries meet their obligations with technical and capacity-building support.

To meet the TFA commitments, however, it is paramount that the private sector play an integral role in the trade reform process. As the importers, exporters, transporters, and logisticians, the business community has a granular and intimate understanding of where reform is most needed. Private sector actors are affected daily by the bottlenecks, redundancy, and bureaucratic red tape and can provide unique input and assistance into identifying local challenges for trade and opportunities for reform. Not only should individual businesses be engaged in the reform process, but also business and trade associations who can provide a consolidated and holistic voice for reform. Such organizations enable the private sector to coalesce and act effectively in a collective manner as part of the policy-making process.

The TFA, if implemented, will surely benefit Africa by increasing intra-African trade and further opening African economies to foreign investment and trade. “Trade facilitation is vital for Africa’s own competitiveness as it will reduce costs for traders,” the African Development Bank states. As Hester Hopkins of Deloitte South Africa observes, manufacturers, freight forwarders, logistics providers, express carriers and entrepreneurs seeking to export all stand to benefit from this agreement, not to mention all the small-scale traders and businesses. According to one estimate, by 2020, Africa stands to gain more than 7 percent in GDP and more than 22 percent in exports brought about by trade facilitation. Such improvements could vastly alter Africa’s trade environment and boost its economies, for the benefit of all.

Ryan Musser is Program Assistant for Africa at CIPE.