High Cost of Transporting Goods in Africa is Restricting the Continent’s Potential

Tema Port, Ghana

Accra, Ghana, April 9, 2018//-Africa has witnessed massive trade liberalisation in the last three decades. But the success of translating reduced tariffs into increased international trade has been limited and geographically unbalanced.

This view is expressed by the International Growth Centre (IGC) which aims at  promoting sustainable growth in developing countries by providing demand-led policy advice based on frontier research.

It noted in its report titled-‘ Beyond Borders: Making Transport Work  for African Trade’ that one of the main reasons for this is the high cost of moving goods within 54 African countries.

While the rest of the developing world has been tapping into global value chains and raising international exports, African trade has, on average, stagnated and in some cases even regressed.

This has happened despite a big reduction in tariffs, global logistic charges, and other factors affecting the cost of trading internationally.

One of the potential explanations for this stagnation is that intra-national trade costs remain substantially high in many countries in Africa. These costs are incurred both when transporting goods over long distances, and when clearing the goods at harbours or border controls. The costs then have a knock-on effect on the total volume and efficiency of international trade with other countries.

Recent research shows that these costs constitute a significant barrier to trade in many countries. Atkin and Donaldson (2015) have shown that while the low availability and quality of roads is a well recognised factor, inefficient logistics, low vehicle quality, and policies restricting competition also have significant effects.

Andrew Lynch, Head of , Mediterranean Shipping Company (MSC) in Nigeria who has extensive knowledge in the transport of goods in West Africa added  that the cost of shipping container from China is even cheaper compare to transporting cargo in Ghana.

“Most at times, the cost to bring container from let’s say, China to your port (Tema port) is less than to deliver a container from your port to your capital City Accra) to a location in your country and that is because the inland logistics is actually costing more than the shipping logistics.”

The costs of moving goods are higher

The costs of moving goods within countries are generally higher in developing countries than in the rest of the world, and this is especially true in much of Africa.

Transport in Africa is often unpredictable and unreliable, and the cost of transport is therefore often higher than the value of the goods being transported, World Bank said.

In some areas of Africa, transport costs may constitute a higher trade barrier than import tariffs or other trade restrictions, another report indicated.

 

A one-day reduction in inland travel times could lead to a 7% increase in exports – equivalent to a cut of 1.5 percentage points on all importing-country tariffs (Freund and Rocha, 2010).

It has also been estimated that a 10% drop in transport costs could increase trade by 25%, according to Limao and Venables.

Difficult to estimate

 It is difficult to give an exact estimate of the size and implications of existing transport costs in sub-Saharan Africa, especially in environments where data is scarce.

Various techniques have been used, with one study estimating that the unit costs of road transport are 40–100% higher in Africa than in Southeast Asia (Rizet and Gwet, 1998).

In landlocked countries, estimates suggest the costs are three to four times higher than in other developed countries.

However, more recent research suggests these could be substantial underestimates. Atkin and Donaldson in 2015 reckoned that the cost of transporting goods could be up to five times higher (per unit distance) in some sub-Saharan African countries than in the US.

In the case of Ethiopia, the “cost of distance” is estimated to be about 3.5 times higher relative to the US, while in Nigeria, it is 5.3 times higher.

The ‘Beyond Borders: Making Transport Work  for African Trade’ report authored by Dave Donaldson, Amanda Jinhage, and Eric Verhoogen stressed: “There is little doubt that such relatively high costs would put upward pressure on the prices of a country’s imports, and simultaneously make its exports less competitive in international markets – and that both of these factors would act to reduce the country’s level of international trade”.

” Having an accurate estimate of transportation costs is important in order to understand the role these costs play in determining the overall level and benefits of international trade. These new estimates suggest that the beneficial effect of reducing transport costs could be even larger than previously thought”.

Estimating the size of intra-national trade costs

Estimating the size of intra-national trade costs and how these costs depend on distance proves challenging. Many studies have tried to do this by using the quoted price of transport from trucking companies. If your trucking company needs better management then try using this fleet management software. 

Although such quotes can give an approximate measure of trade costs, they only capture the components that transport firms charge, omitting other costs of distance (delay, uncertainty, risk of damage or theft, difficulties of buyers and sellers matching and monitoring one another, etc.)

The most straightforward way to estimate the cost of distance without using surveys would be to calculate the difference in price of an imported good when sold at the port of origin versus the price at the destination.

This requires detailed data on goods, with specific information about their origin and price at different locations. This is necessary to ensure that the goods sold at different locations are identical, and that price differences do not simply reflect differences in quality.

Atkin and Donaldson (2015) generate a unique dataset to tackle this challenge, where the prices of goods are recorded at the barcode-equivalent level and also include information on its origin and destination.

Once such data has been found, the calculation still presents a serious challenge, as the difference in price between origin and destination may reflect not only the desired intra-national trade costs but also an added mark-up by traders, which may vary across locations. To address this problem, Atkin and Donaldson (2015) remove the variation in mark-ups from the data on prices.

They do this by observing how a change in price (perhaps due to a reduced tariff or a change in production costs) at the port or source location is reflected in the price of that good at the destination – the so-called pass-through rate.

Using this information, the authors can deduce how strongly mark-ups are affected by transport costs and are thus able to arrive at a clean estimate of the intra-national trade costs.

Policy Reforms

Reducing these costs would increase trade and improve economic performance for exporting firms in Africa.

To this end, Mr Lynch, has called on the African governments to improve the road and rail network to decrease the cost of cargo transportation in the country.

But he was optimistic that things could improve soon if the governments pay attention to that sector.

“In order to boost sub-Saharan Africa’s participation in international trade, policies need to address the exceptionally high intra-national trade costs that increase the cost of transferring goods and resources throughout the country and to and from ports and borders”, the ‘Beyond Borders: Making Transport Work  for African Trade’ report suggested.

It was quick to add that policies aimed at reducing the costs of trade should not solely focus on improving the quality or availability of roads. Other factors need to be addressed, such as restricted market competition in logistics, inferior technology of transport vehicles, and under-utilisation of trucks and roads.

Also, tt is important to address policies governing infrastructure, such as restrictions on competition, standards and licensing, and border inspections that reduce the efficiency of highways.

Policies to reduce the high costs of intra-national trade to ensure a more equal distribution of the gains from globalisation should be implemented. Lower intra-national trade costs could lead to reduced regional inequalities and benefit economic growth in remote areas.

By Masahudu Ankiilu Kunateh, African Eye Report

Leave a Reply

*