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Contributions from
the Column
Tribune
Regional trade barriers
Using planning to overcome borders
Grinding poverty and economic boom
11/2004
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[ African economy ]
Regional trade barriers
[ By Alexandra Burmann ]
Trade helps. This belief is not only held by free trade ideologists but also by academics who study economic history. Regional trade is particularly useful. But even though there are more integration agreements in Africa than anywhere else, trade relations are still completely geared to the former colonial powers and the EU. Africa lags behind not only in world trade but also in intra-regional trade. Only 8% of the exports from African countries remain on the continent ($ 11 billion).
And yet regional trade could be an “engine for growth” for Africa, says K.Y. Amoako, Executive Secretary of the UN-Economic Commission for Africa (UNECA). The integration of markets and reliable partners provide a good basis for the continent’s inclusion in the world economy. Among the many reasons for stronger cooperation are similar consumer behaviour, larger markets, short distances et cetera. A study by German Agro Action (Deutsche Welthungerhilfe) demonstrates why African countries nevertheless struggle to promote regional trade. Local factors slow business down. Moreover, the trade and agriculture policies of developed countries also serve as obstacles to expansion.
Internal obstacles
Transport costs in Africa are among the highest in the world. According to UNECA (2004) shipping a car from Japan to Abidjan on the Ivory Coast costs $ 1500. Shipping the same car from Ethiopia to Abidjan would cost $ 5000. Inadequate transportation and communication networks are the biggest challenge. Kamran Kousari, Special Coordinator for Africa with UNCTAD, says that road, rail and air networks all do not suit inner-African trade. The same is true for telecommunication systems.
This makes matters particularly difficult for land-locked countries such as Burkina Faso or Malawi. The OECD’s explanation for this sorry state of affairs is inadequate investment incentives (2001). The organisation suggests setting up an authority to coordinate regional infrastructure funding. In many countries, political instability also acts as a significant non-tariff trade barrier. Michael Finger, economist with the WTO, believes that the political vulnerability to crises, together with the misdirected economic policy, cause high transaction costs which hinder regional trade.
Poor performance and even absence of institutions cause further harm. Cornelius Mwalwanda, the UNECA-representative in Geneva, suggests structuring institutions in such a way that they assist African integration. The International Trade Centre in Geneva (ITC) is endeavouring to contribute to this goal by providing market information, trade fairs and a web portal intended to bring together suppliers and customers. But this effort does not substitute for national or regional structures.
Since trade in products from the secondary sector requires an efficient primary sector, institutions to advance agriculture are vital. Efficient agriculture is the engine for development of other sectors in agrarian economies. Appropriate financial and credit institutions, research, advisory and marketing organisations and institutions for the development of processing and product diversification are essential.
Customs administration also impedes internal African trade. One third of the total transport time for the trip from Mali to the ports of Lomé (Togo) or Abidjan is spent on customs clearance (Gugerty and Stern, 1996). UNCTAD (2003) calls for the harmonisation and better co-ordination of the customs procedures as well as tariff reductions and investments in infrastructure to stimulate trade.
Dependency on a few primary products presents a further problem for the continent. Extreme weather conditions, high price volatility and the constant decline in commodity prices lead to decreasing budgets. Government funds are difficult to predict. According to UNCTAD (2003), 17 of the 20 most important export products are commodities or semi-finished goods. As there are no processing industries, Africa also lacks diversified products, which could be exchanged.
Shortages in supply, brought about by structural problems in agriculture or unfavourable new directions in economic policy, present a further obstacle. Michael Finger complains that trade between Algeria and Egypt always goes through Marseille because the ships are not used to full capacity, and this further increases the costs.
Agriculture based on smallholders, hardly producing any surplus, seems to present a key issue. Even if farmers are occasionally able to produce sectoral surpluses (for instance cash crops) this does not apply to many products consumed on the continent. The success of speeding up agricultural growth through increases in productivity essentially depends on market opportunities. According to IFPRI (2004), there is little incentive for African smallholders, in spite of low production costs, to produce for the market. After all, up to 90% of the proceeds must be spent on marketing and transport. Agriculture cannot develop its full potential based primarily on smallholders.
External obstacles
Trade and agriculture policy of developed countries also hinders regional trade. On the one hand, the goods of African suppliers must compete with those from advanced countries. Many products only reach African markets because of huge subsidies. On the other hand, the developed countries protect their markets with tariffs and thus impede the emergence of processing industries in developing countries. Cornelius Mwalwanda regards peak tariffs and tariff escalation as the most significant external disruptive factors which have forced African countries into the role of commodity suppliers. The protectionist policy of developed countries for reprocessed products does not provide any incentive for necessary diversification and industrialisation.
Future options
Development policy can encourage the economic integration of Africa by supporting the set-up of appropriate institutions. However, change in the agricultural and trade policy of developed countries must accompany these reforms. Subsidies on agricultural products by developed countries present an external politically-induced problem for south-south trade.
Developing countries need effective rules to protect themselves against exports dumped by developed countries. The procedural cost of the defensive instruments provided in WTO rules is high, and many developing countries cannot afford it. Simplified rules are therefore necessary for developing countries. So far, a country must provide proof that there is a serious injury before being able to defend itself.
Many developing countries have long since called for a re-balancing mechanism. This would allow surcharges to be imposed of the same amount as the subsidy. However, the dumping practice itself would not be affected. Therefore, there is no way past corresponding reforms of the EU policy. Realigning the EU agriculture policy to domestic needs would not only avoid dumping – it would also result in rising world market prices for many agricultural products thereby providing an incentive for developing countries to promote their agricultural production and achieve trade expansion.
There has not yet been any analysis of whether the EU’s Everything But Arms – Initiative has brought about higher imports from the least developed countries since 2001. However, tariff exemption alone is not enough for Africa to manoeuvre itself out of the role of commodity supplier in the short term. Competition on the world market is tough. Other developing countries have for a long time been supplying the developed countries with products, which have become too expensive to produce domestically.
Alexandra Burmann
is a consultant. Her study of inner-African trade was commissioned by Deutsche Welthungerhilfe (German Agro Action).
Alexandra.Burmann@dwhh.de
Bibliography
– Gugerty, M. K. and J. Stern (1996):
Structural Barriers to Trade in Africa. Harvard Institute for International Development, Discussion Paper Number 561, November 1996.
– IFPRI (2004):
Exploring Market Opportunities for African Smallholders. By Xinshen Diao and Peter Hazell. International Food Policy Research Institute. 2020 Africa Conference Brief 6, Washington D.C.
– OECD (2001):
Obstacles to Expanding Intra-African Trade. OECD Technical Papers No. 169. CD/DOC/2001)1. Paris
– UNECA (2004):
Assessing Regional Integration in Africa. Addis Ababa
– UNCTAD (2003):
Economic Development in Africa – Trade Performance and Commodity Dependence. United Nations Publication, sales no. E.03.II.D.34. New York and Geneva
– WTO (2003):
World Trade Report 2003, Geneva
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