Investment How to Cut the Cost of Africa's Cross-Border Transport: It Costs 60% More to Transport an Item in Africa Than It Does for the Same Item over the Same Distance in the US or the UK. Most of This Expense Is Caused by Unnecessary Red Tape and Ends Up Costing African Economies Billions in Lost Efficiency and Investment. What Can Be Done? Asks Omari Issa
Issa, Omari, African Business
Stories about difficult trade experiences are commonplace in Africa--so much so that it is easy to overlook the very damaging impact that trade barriers can have on businesses and investor confidence. The implications for domestic businesses, which have to battle with delays and high costs just to import or export their goods, are profoundly damaging and do little to inspire innovation or expansion.
Why should farmers or manufacturers try to increase their yield, diversify their lines or consider innovation if they know efforts to expand their business beyond their country's borders will be thwarted with problems and delays? Similarly, the perceptions of foreign investors are shaped by their experiences of doing business in a country. Lengthy and inefficient exporting and importing procedures understandably tarnish investors' opinion of a country and lead them to look elsewhere.
In today's economic climate, when competition for investment is becoming tougher than ever before, removing such hurdles to doing business becomes even more urgent. If Africa is to be taken seriously as a global trading player, governments need to address the fundamentals to doing business, including modernising and increasing the efficiency of the continent's trade and customs procedures. The reasons behind Africa's formidable trade barriers are multiple, ranging from excessive red tape and paperwork, unnecessarily high numbers of physical inspections of goods, poor IT systems and inadequate physical infrastructure. Delays can also occur because systems are outdated and unable to cope with an increase in trading activity.
For example, the East African Community has enjoyed robust economic growth in the last five years, averaging 5.6% growth per annum. However this growth has led to congestion and overcrowding in many areas, with some customs systems grinding almost to a halt.
Eighty per cent of East Africa's trade depends on the imports and exports that pass along the Northern Corridor between Mombasa and Kigali, and the Central Corridor between Dar es Salaam, Kigali and Bujumbura.
These corridors carry the lifeblood of EAC partner states, especially for landlocked Uganda, Rwanda and Burundi, but passage along them can be severely hampered by delays at ports, on roads and at border posts.
Prohibitive transport costs
Truck journeys through the Central Corridor can typically take four to six days and each day's delay for a typical truck costs its owner approximately $400, while a ship at berth costs its owner approximately $25,000 for every 24 hours. As a result, East Africa is one of the most expensive parts of the world in which to ship and move goods, with consequences for the cost of living as well as the region's business competitiveness.
Transport costs are up to 60% higher than in the US and Europe. A typical container costs about $3,000 to transport by land from Mombasa to Kigali--twice the cost of shipping it all the way to Mombasa from Singapore or Malaysia. The good news is that the solutions to many of these issues don't need to be complex or expensive.
The Commission for Africa report of 2005 stated that while non-tariff barriers are major obstacles to investment, they are relatively inexpensive and straightforward to remove. Similarly, progress made by ICF in removing trade barriers highlights the positive impact that practical intervention can have on reducing business costs and increasing investor confidence. In Senegal, for example, we are working with the government and the private sector to streamline and refine their existing system of paperless electronic customs administration.
The first phase of our involvement focused on increasing the efficiency of Senegal's paperless pre-clearance process. By providing technical support and investment in IT equipment, this phase of the project has successfully redefined and streamlined procedures. …