The key challenge to intra-African trade is Non-tariff Barriers (NTB) that stifle the movement of goods, services and people across borders.
This article by Karen Hasse of Good Governance Africa shows how Non-tariff barriers can choke African trade.
Non-tariff barriers choke African trade
Cumbersome documentation requirements and unpredictable procedures at borders, cost businesses and governments more than tariffs.
Somewhere near an African frontier, a heavily laden truck is wedged in a long train of other lorries. Its driver has turned off the engine and snoozes in the cab. He and other motorists have been waiting for hours, sometimes days, while their goods bake under the hot sun. Crossing an African border can be tedious, lengthy and expensive.
Often, a full set of procedures on either side of the border results in delays, making cross-border trade difficult and costly. “In Southern Africa, a truck serving supermarkets across a border may need to carry up to 1,600 documents as a result of permits and licences and other requirements,” wrote Paul Brenton, a World Bank expert on African trade, early last year.
These trade barriers have excluded Africa from reaping the rewards of increased economic interaction and interdependence. Yet Africa’s economic development and ability to compete internationally depend on removing these roadblocks and liberalising commerce. Supply and demand are becoming increasingly global, with firms taking advantage of production facilities and markets far beyond their national borders.
Lowering restrictions on trade has encouraged trade specialisation in East Asia, India and China. In India, freer trade has allowed medium to high technology sectors to flourish and develop a competitive edge.
This could happen in Africa too. More trade between African countries might encourage them to specialise to gain a competitive edge against neighbours that currently produce similar, mainly primary, commodities. Intra-African trade has the potential to diversify and grow African economies.
Africa’s share of world trade is tiny—only 3% in 2009, according to the United Nations Conference on Trade and Development. Intra-African trade made up only 10% of total African trade. This stands in stark contrast to 22% between developing countries in South America, and 50% between those in Asia.
African countries have recognised the potential to bolster economic development through greater cooperation. This is the thrust behind African regional economic communities (RECs), among them the Common Market for Eastern and Southern Africa (COMESA), founded in 1994, the Southern African Development Community (SADC), founded in 1992, and the East African Community (EAC), founded in 2000.
Through these regional alliances, states have committed to making trade easier by removing tariffs and other barriers to trade. Progress in removing tariffs has had some success. For example, SADC implemented a free-trade agreement in 2008, removing tariffs on 85% of goods traded between member states.
But non-tariff barriers (NTBs) are even worse obstacles to greater African trade. Losses incurred by businesses and governments due to delays, complex documentation requirements and the unpredictable procedures at borders were higher than the costs of tariffs in 2010, according to the United Nations Economic Commission for Africa.
NTBs include policies such as quotas and import and export bans. But one of the chief NTBs to trade in Africa is what a 2012 World Bank report calls “thick borders”—inefficient border posts and customs operations that inhibit trade.
Lack of coordination and uniformity in countries’ technical regulations, rules of origin, standards, and policies on licences and permits create extraordinary delays. They place a heavy burden on cross-border traders.
The average time to import between member states of SADC and COMESA is 38 days, compared to 22 days within Latin America and 12 days within the European Union, according to the African Development Bank. Clearly, trade in Africa is over-regulated.
But breaking the rules is widespread, too. Corruption is a major cost to cross- border traders. Long waiting times at customs stations create the perfect scenario for officials to elicit bribes to speed up the process, according to a recent survey on bribery as a barrier to trade in the EAC by Transparency International and Trade Mark East Africa, a non-profit organisation. At most of the customs stations on the Kenya-Tanzania border, drivers spent 68 hours on average to get customs clearance, the survey found.
Of the transporters surveyed, 86% of those from Kenya, 82% from Tanzania, 55% from Uganda, and 50% from Burundi admitted to paying bribes. The annual cost incurred on trade due to bribery in Tanzania made up about 18.6% of the value of goods transported across Tanzanian borders.
Africa’s infrastructure deficit also plays a large role in hindering trade. Moving goods efficiently is especially important given the large number of small, land-locked states on the continent. But only 22.7% of African roads are paved, according to the African Development Bank. The continent’s rail and port infrastructure is also largely crumbling or non-existent. According to the World Bank, 26.9% of firms in sub-Saharan Africa identify transportation as a major stumbling block.
“There are ports, particularly in [the] Central West African cluster and East Africa, which have serious barriers to operations,” a shipping coordinator for African ports based in Cape Town told Africa in Fact. “In each port the [logistics] operations are uniquely catered to working around constraints that do not exist in ports in developed countries,” she said, asking not to be identified. “Other ports around the world— [in] Asia, Europe, America—have automated systems, developed infrastructure, government support and trade agreements that are upheld.”
Though some African ports are better than others, “the net effect on total cost and on the bottom line of operating an entire network of vessels that call [on] almost every feasible port in Africa is vast,” she said. NTBs make trade much more expensive, hitting hardest small traders who do not have the capacity to overcome such costs. These barriers hinder the growth of small businesses, as well as transferring increased costs to the consumer. They may also be preventing the development of sectors that could gain comparative advantage and drive African economic growth.
Some progress has been made in removing NTBs. Members of the grand tripartite Free Trade Agreement—COMESA, EAC and SADC—set up a mechanism for reporting, monitoring and eliminating NTBs. Through this online forum traders can report complaints regarding NTBs, which are then drawn to the attention of the relevant authorities. They can also track to what extent authorities have addressed their complaints.
Since its inception in 2008, the system has registered 436 complaints, 326 of which it reports as resolved, and 110 as unresolved. Not surprisingly, the highest number of complaints (53) relate to lengthy and costly customs clearance procedures.
While this system shows awareness of the problems posed by NTBs, it is problematic in at least two ways. First, it fails to capture and address the experiences of traders who do not report problems and those who are deterred from trading by NTBs. Second, it offers only a case-by-case approach to tackling NTBs rather than a structural approach. It relies on resolving individual complaints, thereby removing the onus of eradicating the root causes of NTBs from governments and regulatory bodies.
On the surface, African leaders have shown zealous commitment to regional economic integration and trade liberalisation by joining RECs. Overlapping member- ships of RECs are common. The Democratic Republic of Congo (DRC) is a member of four. But this creates other problems in meeting these diverse commitments. Tellingly, SADC reported in 2010 that the DRC had ratified only two of its 56 protocols and amendments.
The situation with NTBs is similar. For example, most of the 25 NTBs identified by the EAC for immediate removal in 2008 were still in place in 2012, according to the World Bank report mentioned earlier. In addition, a March 2012 report by the EAC identified 16 new NTBs to be resolved.
“We do not have a good set of indicators regarding non-tariff barriers by which to hold governments accountable for the commitments they have made,” Mr Brenton told Africa in Fact in an e-mail interview. “For example, we know that small traders regularly suffer harassment and have to pay bribes at the border but we have no measures to show whether things are improving or not.
“The policy agenda for removing non-tariff barriers is often a complex one— much more complex than reducing tariffs, which can be done literally at a stroke of a pen. Removing non-tariff barriers typically requires better regulations and/or reform of institutions that apply regulations affecting trade (such as customs),” Mr Brenton said. “Often the capacity to implement a regulatory reform agenda is very weak.”
Political will is also a problem. Removing NTBs is expensive and difficult, without the guarantee of immediate success. This makes it an unpopular endeavour for African leaders intent on short-term successes to please their electorates and keep them in power.
To remove NTBs, governments will have to work towards greater regional co- ordination and efficient regulatory procedures; they will need to simplify the process of cross-border trade and reduce corruption. Leaders will also need to eliminate deficits in knowledge, administration and finance. This will likely require large-scale institutional reform. At the same time, policies for removing NTBs in Africa will need to be tailored to specific contexts by harnessing the understanding of experts and those who experience them first-hand.
Above all, governments will need the foresight to invest now to achieve the long-term benefits of dismantling NTBs. Without such action the outlook for African trade and small-scale African traders will remain bleak. A great opportunity to speed Africa’s development will remain untapped.
Karen Hasse is a researcher for Good Governance Africa.
This is a guest post; views may not represent that of ECDPM
This article first appeared in Africa in Fact, the journal of Good Governance Africa.