Red tape and trade barriers costing Africa billions

8 February 2012

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

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