TRADE GAP - JSE MAGAZINE

TRADE GAP

It should be easier to export goods to a neighbouring country than across the ocean. But in Africa that’s rarely the case. Why is it that the continent finds it so difficult to do business with itself?

TRADE GAP

In the battle for economic growth, Africa is outstripping its competitors in Europe, Asia and the Americas. But trade between countries on the continent remains well below the global average. ‘Intra-African trade is increasing, but it’s coming off a relatively low base,’ says Scott Allen, deputy CEO of TradeMark East Africa, a non-profit organisation funded by the World Bank and various governments to help increase prosperity through trade.

‘Right now in sub-Saharan Africa, intra-regional trade accounts for 17% of all trade –in East Africa it’s 11%. But compare that to Latin America where it’s 21%, Asia where it’s 50% and Europe where it’s 70%.’ Of course, that is only what’s officially counted, and as anyone who has travelled in Africa knows, there’s often a roaring trade crossing the border through less official channels.

‘The conditional on those figures is that that’s the trade that’s recorded,’ says the World Bank’s Paul Brenton. ‘There’s a lot of trade going across borders informally, which is not recorded and one of the reasons for that is all the red tape.’ Brenton is the trade practice leader for the African region of the World Bank, and co-authored a book on intra-African trade called De-fragmenting Africa. According to Brenton, as a result of non-tariff barriers such as processes, rules and regulations, and systems (in other words red tape) a large number of intra-regional trade remains in the informal sector, depriving states of tax revenue, traders of broader markets for their goods and economies of growth.

This is not an exclusively African problem. A recent report released by the WEF suggested that if border administration, along with transport and communication infrastructure and related services, could be improved to just half of what is considered global best practice, that the resultant boost to the global economy could be as high as $2.6 trillion. To put that figure into perspective, the World Bank and WEF estimate that corruption costs the global GDP around the same amount annually – $2.6 trillion or 5% of global GDP.

When compared with tackling global corruption, improving border administration is a comparatively easy win for governments, but that doesn’t mean it’s happening fast enough. Despite a lot of positive talk from African governments, there is often too little action on the ground.

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In SA, this represents a significant problem for companies looking to expand into Africa where the burgeoning middle class offers opportunities to sell everything from cellphones to clothes to cars. In August last year, Shoprite Holdings chairman Christo Wiese called bureaucratic red tape ‘one of the most significant obstacles’ to intra-African trade. Shoprite, with 153 stores in 16 countries, knows the scale of this problem. A 2011 study by the World Bank estimated that a single truckload of Shoprite’s goods crossing a border in Africa could accumulate up to 1 600 forms at one time.

In Zambia, for instance, Shoprite spends $20 000 a week on acquiring import permits for meat, vegetables and milk alone – costs that inevitably make their way back to the consumer. ‘Shoprite is a particular case because they’re often transferring a lot of products within a single truck, so often the paperwork builds up,’ says Brenton.

‘But it does show what the constraints are. If this is what Shoprite is experiencing, what are smaller companies going to have to face?’ In fact, a study conducted by the African Development Bank in 2013 found that the average cross-border transaction in Africa involved 20 to 30 parties and 40 documents. As a result, up to 70% of data gets retyped.

Part of the problem facing smaller traders is that they’re often less aware of regulations that can change overnight with little warning, making them easy prey for opportunistic border officials.

For example, at the Kinshasa-Brazzaville border post – which officially has representatives from only four agencies – there are sometimes officials from 17 different agencies on duty. ‘A lot of the time you’ll still find officials from those agencies who are just rent-seeking without collecting any particular fees or providing any specific function in terms of health and safety,’ says Brenton.

This, and poor physical infrastructure, transport and related costs, tend to make up an unreasonably high percentage of imported goods in Africa.

‘East Africa has some of the highest transport costs in the world,’ says Allen. ‘The transport costs alone of goods imported from Kenya to Rwanda is about 45%. That’s ridiculous and unsustainable. If you can reduce the time and costs associated with importing goods, then traders will benefit, consumers will benefit – everyone will benefit.’

Although the East Africa Community has one of the lowest rates of intra-regional trade in Africa, it is also home to some of the most ambitious and progressive initiatives to encourage trade facilitation. The idea is to integrate the region economically, remove trade barriers at borders, increase access to stock markets and allow goods and people to flow seamlessly between markets in the region.

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‘There’s a lot of trade going across borders informally, which is not recorded and one of the reasons for that is all the red tape’

PAUL BRENTON, AUTHOR AND TRADE PRACTICE LEADER (AFRICAN REGION), WORLD BANK

TradeMark East Africa, with a budget of around $560 million, focuses largely on creating faster, easier and more transparent cross-border trade. One initiative the organisation has undertaken is to develop one-stop border posts (OSBP). There are currently seven in East Africa, but other organisations are working on implementing OSBPs in other parts of Africa too. 

The OSBP concept is simple. Instead of stopping on each side of the fence, officials from both countries work together, processing paperwork and carrying out inspections at the same time so that the truck only stops once. The target is a 30% reduction in transit time through all border posts where TradeMark East Africa is working.

Additional TradeMark East Africa initiatives look at changing the way paperwork is handled between border posts so that all necessary documents are sent from the point of departure, such as a port, to the border post electronically before the truck arrives. A no-brainer, but a solution that is rarely in place, leading to massive delays.

There are also a number of initiatives aimed at reducing corruption associated with border crossings and weighbridges. ‘The economic prospects for the continent are very good if countries work hard to be competitive on a global basis, and if they reduce the rent-seeking opportunities that exist for everyone, from casual labourers all the way up to heads of state,’ says Allen.

Another organisation that has introduced programmes to facilitate the cross-border movement of goods is the Southern African Customs Union (SACU). In January 2010 SACU initiated a joint programme with the World Customs Organisation (WCO) and the Swedish International Development Co-operation Agency (SIDA).

The SACU-WCO Customs Development Programme plans to ‘contribute to the development of a sustainable and improved economy in the region with regard to trade, security and social protection through development of the customs authorities as fair and effective trade management partners’. Yusuf Daya, deputy director of trade facilitation at the SACU Secretariat said: ‘The programme aims to assist SACU member states to comply with international customs instruments and modernise their customs administrations.’

Brenton’s book concludes that it’s often easier for Africa to trade with the world than itself. ‘A lot of the efforts that have been made, for instance, with ports have been to link Africa to the global market, with very little attention paid to linking African countries to each other. It’s really just making sure the conditions for trade with African countries are the same for trade with the rest of the world.’

By Susan Comrie
Image: Fredrik Broden/reneerhyner.com