There’s a Crucial Link Between Better Road Networks and International Trade for African Countries
Contractors work on the Mombasa-Nairobi highway construction project in Athi River Kenya
Smoothing things over. (Reuters/Thomas Mukoya)
Yinka Adegoke
March 20, 2018
Quartz Africa
I recently asked a business acquaintance how long it took to travel by road between DR Congo’s two biggest cities, Kinshasa to Lubumbashi. There was a long sigh, a pained look, then a helpless shrug. “It could take a week or two.”
DRC is Sub Saharan Africa’s largest country but this seemed remarkable. A Google Maps search tells you the 1,451 miles (2,335 kilometers) between both cities should take 36 hours, but as my contact noted, it’s not quite that straightforward. A similar distance in the US, from New York to Oklahoma City, (2,373 km), would take take 22 hours, says Google.
The DRC conversation came to mind while reading a report (pdf) from London School of Economics’ International Growth Centre, which argues that despite years of trade liberalization and tariff reductions across Africa, the impact has been significantly limited by the internal costs of moving goods within African countries and between neighbors.
The high cost of moving goods from or to ports eats into the benefits of free or lower tariff trade. Research shows a one-day reduction in inland travel times could lead to a 7% increase in exports, the equivalent to a 1.5 percentage point reduction on importing country tariffs. Other research shows a 10% drop in transport costs could increase trade by 25%.
As is likely in the case of DRC, 2015 research estimated the cost of transporting goods could be up to five times higher (per unit distance) in some sub-Saharan African countries when compared to the US. In Ethiopia it’s thought to be 3.5 times while in Nigeria it’s said to be 5.3 times higher.
Some of the recent infrastructure partnerships and investments such as those backed by China give some hope that it won’t always be this way. But the LSE report cautions that just building better road and rail networks has not been enough to win meaningful cost reductions. A plethora of challenges include the price of fuel, labor, and equipment, unnecessary regulations, bureaucracy and cartels, among others.
Put another way, it’s great if my agribusiness can get its produce to ports in a day rather than a week, thanks to improved transport, but that’s not much use if it still takes two weeks to get through customs and the other “officials” to reach my international buyers. As the authors say, “Even though the required number of days has been falling, exporters and importers require 50% more time to get exports to market in Africa than in East Asia.”
The last point the authors note is how globalization’s lower or free tariffs create unequal outcomes within a country due to the high cost of transporting goods. This impact is notably different between urban and rural areas. So the prices of imported goods might fall in urban/port city areas but by not as much in rural locations. This exacerbates regional inequalities.
It might be all rage to bash free trade in the age of Trump and, to some extent, Brexit, but there’s is still much for African countries to gain from fully opening up. But to achieve that, to paraphrase that boring old aphorism, charity really has to begin at home.
Smoothing things over. (Reuters/Thomas Mukoya)
Yinka Adegoke
March 20, 2018
Quartz Africa
I recently asked a business acquaintance how long it took to travel by road between DR Congo’s two biggest cities, Kinshasa to Lubumbashi. There was a long sigh, a pained look, then a helpless shrug. “It could take a week or two.”
DRC is Sub Saharan Africa’s largest country but this seemed remarkable. A Google Maps search tells you the 1,451 miles (2,335 kilometers) between both cities should take 36 hours, but as my contact noted, it’s not quite that straightforward. A similar distance in the US, from New York to Oklahoma City, (2,373 km), would take take 22 hours, says Google.
The DRC conversation came to mind while reading a report (pdf) from London School of Economics’ International Growth Centre, which argues that despite years of trade liberalization and tariff reductions across Africa, the impact has been significantly limited by the internal costs of moving goods within African countries and between neighbors.
The high cost of moving goods from or to ports eats into the benefits of free or lower tariff trade. Research shows a one-day reduction in inland travel times could lead to a 7% increase in exports, the equivalent to a 1.5 percentage point reduction on importing country tariffs. Other research shows a 10% drop in transport costs could increase trade by 25%.
As is likely in the case of DRC, 2015 research estimated the cost of transporting goods could be up to five times higher (per unit distance) in some sub-Saharan African countries when compared to the US. In Ethiopia it’s thought to be 3.5 times while in Nigeria it’s said to be 5.3 times higher.
Some of the recent infrastructure partnerships and investments such as those backed by China give some hope that it won’t always be this way. But the LSE report cautions that just building better road and rail networks has not been enough to win meaningful cost reductions. A plethora of challenges include the price of fuel, labor, and equipment, unnecessary regulations, bureaucracy and cartels, among others.
Put another way, it’s great if my agribusiness can get its produce to ports in a day rather than a week, thanks to improved transport, but that’s not much use if it still takes two weeks to get through customs and the other “officials” to reach my international buyers. As the authors say, “Even though the required number of days has been falling, exporters and importers require 50% more time to get exports to market in Africa than in East Asia.”
The last point the authors note is how globalization’s lower or free tariffs create unequal outcomes within a country due to the high cost of transporting goods. This impact is notably different between urban and rural areas. So the prices of imported goods might fall in urban/port city areas but by not as much in rural locations. This exacerbates regional inequalities.
It might be all rage to bash free trade in the age of Trump and, to some extent, Brexit, but there’s is still much for African countries to gain from fully opening up. But to achieve that, to paraphrase that boring old aphorism, charity really has to begin at home.
No comments:
Post a Comment