Leveraging Trade Facilitation to Drive Africa’s Regional Integration Agenda

17 May 2017

As regional economic integration gathers pace in Africa, how can trade facilitation be leveraged to spur the economic growth and development necessary for its implementation? Is the TFA the answer?

 

Have you ever considered how competitive a country would be if donkeys and camels were the primary mode of transport for its cross-border trade? Over long distances, a donkey can trot at a leisurely 9 km/hour but it can notch up a top speed of 43 km/hour. That is approximately how efficient trade would have been for our forefathers in Africa’s ancient trading kingdoms around Timbuktu and similar cities. It took a trade caravan 40 days to cross the Sahara Desert in those medieval times. Fast forward to the twenty-first century and you would think that things must be totally different and that Africa would have considerably accelerated. Not quite, when you consider that the estimated effective speed of road transport within the Southern African Development Community, for example, is between 6 km/hour and 12 km/hour.[1] The road infrastructure has substantially improved since the medieval era and trucks can move as fast as anywhere else in the world. But when drivers have to be stopped at numerous checkpoints and are forced to spend days at borders, the average speed of an entire journey reduces to donkey pace.

It is therefore unsurprising that Africa faces the largest trade costs of any region in the world. And many of the challenges are man-made. Granted, geographic constraints, such as having more landlocked countries (16) than any other region in the world, put Africa at a disadvantage. But such geographic barriers have not prevented Switzerland or Austria from participating effectively in international trade. In fact, the landlock barrier needs to be qualified. In The Bottom Billion, Paul Collier pins it down to being “landlocked with bad neighbours.”[2] Since exports and imports have to pass through one or more borders to reach their intended destinations, bad neighbours make trade especially problematic for landlocked countries.

One of the solutions proffered by development practitioners is for African countries to adopt trade facilitation measures in order to reduce trade costs and enhance economic competitiveness. Essentially, the Trade Facilitation Agreement (TFA) concluded under the WTO at Bali, Indonesia, in December 2013 is all about reducing trade costs. The TFA was a major milestone for the multilateral trade talks, as the Doha Development Agenda had lost momentum since its launch in 2001. The agreement contains provisions for expediting the movement, release, and clearance of goods, including goods in transit. Many of these measures were already being implemented to varying extents by some African countries as part of the Revised Kyoto Convention (RKC) under the World Customs Organization.

However, unlike the RKC, which provides good practices on trade facilitation for countries to adopt on a voluntary basis, the TFA entails binding commitments.[3] By 22 February 2017, 87 countries, including 18 African countries, had ratified the TFA, triggering its entry into force. The beginning of the implementation phase again spotlights the importance of trade facilitation to the continent. This article seeks to address the role of trade facilitation in regional economic integration in Africa. It draws lessons from recent experiences and their implications to make the TFA a success.


The WTO’s TFA and intra-African trade

A number of studies have attempted to quantify the benefits of the TFA. For instance, a 2015 WTO study argued that least developed countries (LDCs), the majority of which are in Africa, would experience a 35 percent increase in exports courtesy of the TFA if the agreement is fully implemented. It added that the TFA could boost economic growth in developing countries by increasing exports by 3.5 percent annually, increasing annual economic output by 0.9 percent, while also expanding and diversifying the export basket by as much as 20 percent.[4] Given that Africa is wholly made up of developing countries and LDCs, such estimates suggest that Africa would reap substantial benefits by implementing the TFA. Moreover, since intra-African trade comprises a larger share of products which are more sensitive to transport costs and border delays, it is reasonable to expect that the TFA would help to boost intra-African trade in particular. Simulations by the United Nations Economic Commission for Africa demonstrated that implementation of the Continental Free Trade Area, accompanied by trade facilitation measures, would double the share of intra-African trade in the continent’s total trade in a decade, from circa 12 percent in 2012 to 22 percent by 2022, compared to an increase up to 15.5 percent in a scenario without trade facilitation measures.[5]

Therefore, the coming into force of the TFA bodes well for Africa’s reinvigorated agenda on regional integration, complemented and underpinned by an industrialisation as well as an infrastructure development drive. This agenda includes the official launch, in June 2015, of the Tripartite Free Trade Area (TFTA) involving 26 countries that form the Common Market for Eastern and Southern Africa, the East African Community, and the Southern African Development Community. These 26 countries account for over half of the continent’s gross domestic product and population. Beyond the TFTA, African countries are pursuing negotiations towards the establishment of the Continental Free Trade Area.

The TFA also brings with it the certainty that binding legal commitments will be implemented by all the countries involved, including developing countries. This will positively impact on the overall business environment. African countries can also benefit from the goodwill generated by the TFA, which will help unlock developmental assistance to support developing countries in their implementation efforts and respond to their specific needs. International goodwill is evident in the establishment of the TFA Facility, launched by the WTO in July 2014, which offers a range of activities designed to enable developing countries and least developed countries to implement the agreement and reap its full rewards. The African Development Bank also aims to expand its Africa Trade Fund, which African countries can call on.

African countries can therefore ride this tide of trade facilitation enthusiasm and goodwill from development partners and launch measures aimed at fulfilling the provisions of the WTO’s TFA.


Challenges

Although trade facilitation, per TFA definition,  is necessary for enhancing intra-African trade, it is by no means sufficient to realise Africa’s integration goals.  Inadequate infrastructure (energy, information and communication technologies (ICTs), roads, water) and supply-side constraints associated with low levels of economic diversification, low productivity, low investment, and an underdeveloped and unregulated services sector pose fundamental challenges for regional integration.

Moreover, many studies seem to ignore the cost of implementing trade facilitation reforms. Implementing a single window system, for example, requires substantial upfront investment in hardware and software, process re-engineering, and legislative changes, plus recurring maintenance and upgrading costs and training of personnel. These costs must be passed on to economic operators and ultimately to consumers. Ultimately, answers to these questions will provide a more comprehensive picture of what the adoption of trade facilitation measures, and the TFA in particular, really means for Africa. Yet studies analysing such issues in Africa are scanty.

Further, the adoption of trade facilitation measures may be hampered by political economy issues as certain categories of stakeholders may feel that their interests are threatened. There is also a degree of apprehension among some African countries over a binding trade facilitation agreement, which may be seen to impose restrictions on their exercise of their development space.

In addition, the limited scope of the TFA minimises its impact. For Africa, in particular, achieving its integration aspirations requires a more comprehensiveunderstanding of the concept of trade facilitation which goes beyond the narrow TFA definition, which is about freeing trade by unlocking border and transit measures. A broader definition includes dealing with hard infrastructure development, behind-the-border policies that impact on trade, policies regulating markets in backbone services (including issues affecting the market structure and pricing of marine and road freight), services trade, and trade finance, among many others. The trade facilitation agenda goes way beyond the TFA agreement. Viewed from a wider perspective, there are therefore many ways in which trade facilitation can help address some of the challenges that constrain regional integration on the continent.


Towards a more holistic approach to supporting Africa’s integration

Beyond the TFA, development institutions such as the African Development Bank need to provide holistic support to deliver on this broader mandate. A few considerations will be vital to success in economic integration in terms of movement of goods, services, and people. These include the following.

Pursuing a regional approach

Trade facilitation measures are best implemented through a regional approach, since they need to be harmonised across countries. In the absence of such an approach, efficiency gains at one point along a corridor may be easily offset by chokepoints at a converging crossing point. Addressing facilitation along the entire length of a corridor and across many countries and regional blocs is imperative if Africa is to achieve integration on the scale of Cape to Cairo and east to west connectivity, as envisaged by its leaders. In other words, corridors and borders should be looked at in terms of “spaces of flows,” rather than “spaces of places.” This entails unbundling an approach to border control concentrating on territory towards one focusing on facilitation

However, a regional approach requires levelling up capacities in terms of human resources, ICTs, and other infrastructure, and addressing coordination weaknesses.


Leveraging the hard–soft infrastructure nexus

Implementing trade facilitation reforms tends to have less visible outcomes and may not be the best vote-catcher for political leaders compared to investment in hard infrastructure (roads, airports, railways, internet broadband, irrigation systems, potable water, schools, hospitals, etc.). Pushing for trade facilitation reforms may therefore be challenging if it is not accompanied by bigger and tangible investments in hard infrastructure. The solution is to leverage the hard–soft infrastructure nexus by combining physical infrastructure with soft infrastructure interventions in projects. At the African Development Bank, for instance, 10 percent of the budget for regional projects funded from the regional operations envelope must be carved out for soft interventions. This approach also enhances inclusiveness. A 2012 study by the World Bank on the economic geography of the East Africa Community, found that “border improvements save more time for the most number of people than infrastructure improvements alone.”[6] Given the relative costs involved, a dollar invested in trade facilitation measures is a quick win over new infrastructure.


Scaling up funding and effective policy dialogue to bridge the implementation gap

Africa tends to lag behind in the implementation of regional integration commitments – rhetoric has not always been matched with action. This seems to be no different in the case of the TFA. The lethargy demonstrated by African countries in accepting the TFA may be indicative of slow donor support in helping countries to fully assess the benefits, define their commitments under the three commitment categories, expand their implementation capacity, and make the requisite investments among many competing priorities. Although the TFA contains promises of technical assistance for implementation, these provisions are not binding and support so far has been minimal, with demand by far outweighing the resources committed. Therefore, development institutions and donors need to scale up support in order to make a dent in the trade facilitation needs of developing countries, including those in Africa.


Conclusion

To sum up, for Africa to achieve its goal of boosting trade within its own region and globally, it needs to make a leap from the current inefficient trade logistics. The TFA offers a platform to realise that goal, but it has its own limitations. Therefore, efforts should go beyond the narrow definition of trade facilitation under the TFA to embrace a broader approach that encompasses dealing with hard infrastructure development, behind-the-border policies that impact on trade, regulating backbone services, enhancing competition in logistics value chains on both land and sea, leveraging the hard–soft infrastructure nexus, and embracing a regional approach.

 

Authors: Memory Dube, Senior Trade Officer, Industrialisation and Trade Department, African Development Bank. Patrick Kanyimbo, Principal Regional Integration Coordinator, East Africa Regional Development and Business Delivery Hub, African Development Bank.


[1] UKAID (2014) quoted in Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and South African Institute of International Affairs (SAIIA). Regional Business Barriers: Unlocking Economic Potential in Southern Africa. 2014.
[2] Collier, Paul. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done about It. Oxford: Oxford University Press, 2007.
[3] For more on this, see Kanyimbo, Patrick. “Trade Facilitation in the Bali Package: What’s In It for Africa?” Briefing Note No. 61, European Centre for Development Policy Management, December 2013.
[4] WTO. World Trade Report 2015. Geneva: WTO, 2015.
[5] Mevel, Simon, and Stephen Karingi. “Deepening Regional Integration in Africa:  A Computable General Equilibrium Assessment of the Establishment of a Continental Free Trade Area followed by a Continental Customs Union.” Paper presented at the 7th African Economic Conference, 2012.
[6] World Bank. Reshaping Economic Geography of East Africa: From Regional to Global Integration, Vol. 1 of 2. Washington, DC: World Bank, 2012. 

This article is published under
9 February 2015
Several WTO members indicated concrete sectors and modes of supply where they intend to provide preferential treatment to least developed countries’ (LDCs) services and services suppliers at a high-...
Share: 
24 February 2015
The debate over the renewal – and updating – of the African Growth and Opportunity Act (AGOA) has ramping up in Washington in recent weeks, with US lawmakers sparring over the potential length,...
Share: