Bridges AfricaVolume 1Number 1 • 8th February 2012

Red tape and trade barriers costing Africa billions

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High trade barriers with neighboring countries are costing African nations billions of dollars of potential earnings and depriving the continent of new sources of economic growth, says the World Bank in a report released yesterday. As a consequence, Africa has integrated with the rest of the world faster than with itself, stresses the report - “De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services.”

Intra-African trade currently stands at 12 percent of total trade, compared to 60 percent for Europe, 40 percent for North America, and 30 percent for ASEAN, according to statistics cited by the World Trade Organization.

While tariffs in general have been lowered within regional communities, many non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders. Five types of barriers to trade are analyzed in the report: inefficiencies in transport, customs and logistics, complex fiscal arrangements, restrictive rule of origin, lack of effective regulations and standards, and heavy administrative procedures. In one striking example of the administrative burden faced by businesses, the report explains that a particular South African supermarket chain needs to spend an average of 20,000 USD a week on import permits to distribute its products to its stores in Zambia and provide around 1600 documents to send one truck across the regional border.  The report also describes the dangers faced by “informal” cross border traders, in particular women carrying agricultural products, who routinely encounter violence, demands for bribes, and sexual harassment.  This would help to bring Africa’s booming informal trade into the formal economy.

Unlocking the potential of cross-border trade

According to the report, African leaders need to urgently pursue changes in three crucial areas, improving cross-border trade, removing a range of non-tariff barriers to trade, and reforming regulations and immigration rules.  Given a worsening euro zone crisis that could reduce Africa’s GDP growth by as much as 1.3 percentage points, the World Bank warns that effective regional integration is of particular importance at the current time.

Among the potential avenues for increased cross border trade in Africa, the report highlights improvement of food security by facilitating the movement of food from surplus countries to those facing deficits.  Additionally, since trading among African countries involves manufactured products that are costly to import from global markets, there exists significant potential for the development of regional production chains, such as those in East Asia, to drive global exports of manufactured goods.  As Africa’s middle class grows, consumer demand will increase, raising the potential for greater intra-African trade.

To facilitate more effective cross border trade, the report calls for simplification of border procedures, reducing the number of agencies at the border, increasing the professionalism of officials, improving the flow of information on market opportunities, and improving access to finance.

Limitations of EPAs for services reform

The World Bank also encourages trade in services liberalization, which could contribute to export diversification, human development and increased industrial productivity.  With regards to the  Economic Partnership Agreements, Paul Brenton - the lead author of the report - questions the effectiveness of such preferential trade agreements to reform the services sector in Africa.  “For countries with limited capacity to negotiate and regulate services a focus on priority services sectors(…) is likely to be more effective than a broad but shallow preferential trade agreement that involves negotiations across all sectors and modes of supply” says the report.  Along the same lines, observers have highlighted that if African governments were to sign individual trade deals with the EU, this could seriously undermine the whole region’s efforts toward integration.

Goals set but plans for implementation unclear

This report was released a few weeks after the January 2012 African Union Summit “Boosting Intra-African Trade,” which stressed the rising importance of regional trade on the African agenda for economic development.   However, the declaration endorsed by Heads of State - to set up a Continental Free Trade Area by 2014 and to boost trade within the region by at least 25-30 percent in the next decade - is purely a political document without binding implementation mechanisms.  Therefore, intra-African trade remains an important and unresolved issue.   A video produced for the report concludes that implementing these changes would require extensive collaboration between countries and regional institutions, and more importantly, it would take a push from African leaders to take action to reduce costs and  ”let Africa trade with Africa“.

Source : The World Bank; “World Bank warns on Africa trade“, 9 February, The Wall Street Journal

To see the full report “De-Fragmenting Africa“, The World Bank

One response to “Red tape and trade barriers costing Africa billions”

  1. Henri Joel Nkuepo

    Completing the World Bank Report: De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services

    In a report published early this week, De-FragmentingAfrica: Deepening Regional Trade Integration in Goods and Services, the World Bank argues that because of trade barriers, Africa is losing billions of dollars in potential trade earnings and I agree with that. However, there are some points that the authors have not considered and that I would like to highlight in this comment.
    As barriers to intra-African trade, the report cites: inefficiencies in transport, customs and logistics, complex fiscal arrangements, restrictive rule of origin, lack of effective regulations and standards, and heavy administrative procedures which are the same barriers cited by the African Union in a plan week earlier. This is why I would like to add to that list: conflicts, terrorism and political instabilities and corruption which are “obstacles” to trade. For example, terrorism in Nigeria affects trade in the region and neighboring countries suffer; this is also the case with conflicts in South and North Sudan, with Al Shabaab in Somalia, instabilities in Egypt and rebels in Mali. The consequences are food insecurity, multiplied refugees camps, displacement of population, closure of businesses and borders (Cameroon’s Economy Suffers as Boko Haram Infiltrates Country. Citizens are forced to close their businesses selling fuel imported from Nigeria, known locally as “zoa-zoa”, because of the Islamic extremist group Boko Haram. IPS Africa reported).
    The report asks African leaders to pursue changes in three crucial areas, improving cross-border trade, removing a range of non-tariff barriers to trade, and reforming regulations and immigration rules. I think that there are more than three crucial areas needing urgent attentions. That is, African Leaders (the African Union) should multiply meetings and strategies to reduce conflicts, eradicate terrorism and reduce refugees camps in Africa. Those obstacles have to be eradicated as soon as possible if African leaders are serious about establishing a Continental Free Trade Areas CFTA and increase trade.
    The report regards the informal sector as an important factor for increasing intra-regional trade. I believe that as well and recommend African leaders to mainstream gender in all their policies and strategies aimed at increasing cross-border trade. This is because women are, as the report rightly mentions, more involved in such trade than men and because they are often harassed and physically abused. This gender mainstreaming also entails mixing the custom officials at the borders (men and women working together). I think that women, mostly householders in Africa, would better understand their counterparts and the chances of women harassing other women sexually are lower. Gender mainstreaming can also help reduce corruption at the borders because higher levels of women’s participation in public life are associated with lower levels of corruption and women are more trustworthy and less prone to corruption than men (World Bank, Gender and corruption, 1999).
    Natural resources dominance in Africa’s economy, one can argue, is a strategic handicap and can be associated to the continent’s high unemployment rates. The report notices a strong growth of Africa’s exports but argues that the products exported are mainly natural resources. It also stresses that the growth does not impact on the unemployment rates in African countries. Such findings are generally used by those who believe that increased trade does not bring jobs and that the World Trade organization (WTO) rather encourages countries to liberalize trade instead of creating jobs. The problem with Africa is that African countries concentrate all their energy on extracting and exporting the continent’s resources and forget to develop other sectors and, therefore, to create jobs. They rather export the resources instead of attracting investors to come and invest in Africa and to create jobs for Africans. Smart phones can also be manufactured in Africa if African countries liberalize their service sectors, create an environment that is safe for foreign investors (good policies, no conflicts, no terrorism, no corruption, normal taxes and well regulated insurance industry, et cetera), create jobs for Africans and facilitate the free shipment of goods within Africa.

    The report further stresses that it is imperative for African leaders to address the long-standing problem of overlapping trade agreements that have different commitments. This is now a recognized problem with proposed solution by the African Union (AU). In Addis Ababa during the 18th AU Summit 23 – 30 Jan 2012, African leaders decided to target a Continental Free Trade Area (CFTA) by 2017, one of the objectives being to finalize the current tripartite Agreement, East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC), by 2014. I think the questions that we should now ask ourselves are: how can they overcome the challenges (including the obstacles to intra-regional trade) and make this possible? How can other trade blocs learn from the experience of the tripartite agreement? How can the African Union itself help?

    Thank you

  2. Anonymous

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