Free Trade in Africa: It's Not Just About Tariffs

Lake Victoria, as seen from Uganda, has potential as a useful conduit for regional trade
Lake Victoria, as seen from Uganda, has potential as a useful conduit for regional trade


Africa has reaped the economic benefits of trade liberalization, as seen in the expanding commerce of goods and services within the East African Community Customs Union and Common Market. Cross-border trading in several agricultural commodities, for example, has demonstrated marked improvements over the past decade. Yet for all the expansion that results from the decrease and elimination of tariffs and import fees, there still remain stubborn obstacles that prevent the robust interchange necessary for the substantial alleviation of poverty. These impediments are rooted in infrastructure, bureaucracy and culture.


Transportation costs in Africa are among the most expensive worldwide. Freight costs for African nations alone exceed the average for all developing nations by a full five percentage points. These liabilities are passed on to the consumer, thereby driving prices higher and diminishing competitiveness. Landlocked countries fare the worst, according to a World Bank Study from 2000: Moving goods 1,000km by sea will add $190 (US) to the cost of a shipment, whereas doing so by land will add $1,380. Amazingly, a Ugandan trader can ship maize to China for fewer dollars than to Zambia. Thus the ease and speed by which commodities move are indicative of how attractively they will be priced in the marketplace.


Infrastructure


Transit is made pricey by the difficulty with which it is accomplished. The difficulty can be safely said to rest in infrastructure. Up to 90 percent of all freight on the continent moves via roads. With this in mind, African leaders conceived of the Trans-African Highways network in the 1970s, as newly independent states were eager to promote development. However, that which was conceived has been long in labor and slow in delivery four decades later. Gaps in the network are numerous, particularly at border locations. In fact, a UN study concludes that a full third of TAH “links” – those road segments leading to border entries – are unpaved. Moreover, 16 percent of the paved roads are judged to be in disrepair. This lack of physical integration hampers the growth of vibrant intra-continental trade.


Other deficiencies in transport infrastructure afflict Africa. Railway service is sparse compared to the rest of the developing world, and air transport is – for a majority – cost-prohibitive. The economic potential of waterway conduits is great, according to a Brookings Institute study, but ignored nonetheless:


Five rivers—the Nile, Congo, Niger, Senegal and Zambezi—and three lakes—Victoria, Tanganyika and Malawi—could be utilized to move goods across the region. However, due to political instability, social unrest, and the lack of high-level government support for such projects, Africa’s waterways remain the region’s greatest untapped connectors.


Clearly, infrastructure is a sector requiring large infusions of financial investment from public and private sources alike. Working in isolation, however, may worsen the problem. Governments, African financiers and foreign investors – from China, to give a contemporary example – are well advised to coordinate their efforts in reviving the physical underpinning of African transportation.


Bureaucracy


While it is often fashionable to bash bureaucracies, they are sometimes useful in setting standards and coordinating transactions. In Africa, though, standards are relative and procedures are rarely uniform. Even as regional trade zones are established, documentation specifications vary by country. This difficulty is compounded when border and customs agencies within each state operate in complete isolation from one another. Non-governmental organizations that have studied this issue tend to agree that replication and redundancy abound when it comes to import/export credentials. Automated documentation systems are not common; when they are present, users lack the training to exploit their advantages. A shining exception to this stagnancy is Tunisia TradeNet. The UN Economic Commission for Africa describes TTN’s benefits:


The Tunisia TradeNet (TTN) is an automated system that provides a one-stop trade documentation-processing platform connecting the principal actors of international trade. It serves as a tool for exchanging international trade documents, maritime community documents and other administrative documents; payment of documentary credits and settlement of duty taxes. It is also a tool for business transactions such as processing purchase orders, shipment and delivery bills, invoices and transfer orders. In terms of international financial transaction, the TTN facilitates the exchange of bills of lading between Tunisian banks and European banks. In addition, the TTN serves as a marketplace where offers and request are made and transactions processed.


Prior to the creation of TTN in February 2000, the complexity of trade documentation processing in Tunisia resulted in delays in clearance of goods for imports. For example, the vessel turn time in Tunis varied from 5 to 17 days, with an average of 8 days, and port facilities were often overloaded. This led to reduced competitiveness, spoilt resources and the prevalence of non-productive activities. TTN is expected to reduce shipment clearance to 3 days. Overall, it is estimated that TTN will result in a productivity gain of 7%.


The fact that the bureaucratic blockages are well-identified – and that at least one country is overcoming them – will give hope to the other African nation-states. As they prioritize standardization of documents and adoption of automation, they too will see expedited shipping and gains in productivity.


Culture


Also inhibiting the expansion of cross-border trade – and trade within countries, for that matter – are tribal claims to ancestral lands. Structural improvements such as road repair become impossible when varying clans engage in endless disputes over territory. The movement of goods is likewise stifled when it depends on bribes being paid from one group to another. Each African government has its share of tension with its constituent people groups. Fortunately, some headway is being made in promoting nationalistic aims over tribal preferences. In Tanzania, the political leadership has worked for the consolidation of ethnic interests in pursuit of larger economic and cultural goals. Observers believe there is now less rigidity on the part of the ethnic groups than before.


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