Africa Trade Forum 2012 Can Africa Trade Itself Out of Poverty? Boosting Intra-African Trade and Establishing the Continental Free Trade Area The Role of Trade Facilitation as a driver for deeper integration, increasing competitiveness and trade expansion African Union Commission Economic Commission for Africa African Development Bank Group
Africa Trade Forum II Boosting Intra-African Trade and Establishing the Continental Free Trade Area The Role of Trade Facilitation as a driver for deeper integration, increasing competitiveness and trade expansion 1. Background A survey of the main trade, competitiveness, transport and logistics performance indicators places most African countries at the bottom end of the performance tier. There is very strong correlation among reports like the Global Enabling Trade Report, the Global Competitiveness Report, the Logistics Performance Index, and the Corruption Perception Index, that African countries are lagging behind other regions in critical factors that influence trade performance. This situation reveals itself in Africa s weak performance in global trade. In spite of very liberal trade regimes at home, and a host of trade preferences to developed markets, Africa s trade still accounts for about 3% of global trade. It has further been observed that in spite of the proliferation of regional trade agreements on the continent, intra- Africa trade accounts for only about 10% of Africa s trade. In comparison with Africa s main trading partners, trade within North American states accounts for up to 40% of their trade, whilst that of Western European states accounts for over 60% of their trade. The continent continues to progressively improve trade-related infrastructure, especially roads, border posts and sea ports. These initiatives have however not been adequate in themselves to ensure that the continent fully exploits its advantageous position of high natural resource endowment, liberal trade regimes at home and preferential market access in lucrative foreign markets, as well as a large potential market on the continent. The role of trade facilitation is becoming ever more critical to translate these advantages into improved trade performance. The decision by the African Union to expedite implementation of the Continental Free Trade Area (CFTA) therefore carries great promise for deeper integration, with the potential to raise intra-africa trade to levels that are closer to other regions of the world. The critical question to be addressed therefore relates to what compliment of measures are going to translate the aspirations of the African Union into tangible growth in intra- Africa trade. 2. Africa in main trade and transport facilitation indicators. 1
A number of reports have ranked countries according to their competence in influencing trade performance. These include the Logistics Performance Index 1, the Global Competitiveness report 2, the Doing Business report 3, the Global Enabling Trade index 4, the Liner Shipping Connectivity index 5, and the Corruption Perception Index 6. In the context of trade facilitation issues on the African continent, we focus on only three of these reports, namely the Global Enabling Trade Report 2012 (ETI), the Logistics Performance Index 2012 (LPI) and the Corruption Perception Index 2011 (CPI). Table 1 below presents a composite of the performance of selected African countries in the selected performance reports. Some highlights and observations from the reports: i. Performance of African countries is varied within and across regions, as well as within and across income groups. ii. Out of 132 countries included in the ETI 2012 report for example, only 2 African countries feature in the top 50 performers, Mauritius ranked 36 th, and Tunisia ranked 44 th. At the same time, 7 of the bottom 10 countries are from Africa, including 2 oil producing countries. iii. Countries with access to the sea did not necessarily perform better than land-locked countries. Botswana and Rwanda had better ETI scores than South Africa and Kenya. Access to the sea however affects LPI scores. iv. Countries with very liberal trade regimes like Lesotho and Burundi still enabled trade to a lesser degree than those with less liberal regimes like Egypt and the Gambia. v. The income group a country belongs to had an impact on quality of infrastructure, but this did not guarantee overall trade performance. Similar observations can be made from the LPI and CPI scores and ranks. The question provoked by these observations therefore relates to whether there is a specific compliment of critical factors that would guarantee efficacy of the trade and transport policies being pursued on the continent. The answer lies in a shift of focus towards managing the total supply chain as interrelated components, and not as individual performance enhancers in their own right. 1 www.worldbank.org/lpi 2 http://www.weforum.org/documents/gcr09/index.html 3 http://www.doingbusiness.org/economyrankings/ 4 http://www.weforum.org/en/initiatives/gcp/globalenablingtradereport/index.html 5 http://www.unctad.org/en/docs/webdtltlb20092_en.pdf 6 http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results 2
3. Key Issues and considerations towards reducing supply chain barriers The efficiency of any supply chain (from origin to destination) is measured by the total cost of undertaking an import or export transaction, the total time taken to complete the transaction, and the reliability of the service delivery. In measuring supply chain efficiency, it is noted that the supply chain is as strong as its weakest link. This has enormous implications on how countries should approach trade facilitation. A few areas are highlighted below. a) Customs modernization offers great promise for unlocking trade potential, but the efficiency of the supply chain goes beyond the efficiency of the customs authority. If the customs authority can guarantee 2 hours clearance time, and other government agencies require up to 48 hours or more to clear the same consignment, the realized clearance time remains at 48 hours (in spite of contrary statistics from the customs authority). Hence modernization of customs processes for the sake of trade facilitation, needs to integrate all relevant government agencies, and focus on raising their competence towards that of the customs authority. Initiatives that improve interagency coordination in border management therefore offer more concrete benefits in trade facilitation. These include among others, Integrated Border Management systems (IBMs), joint-inspection schemes and Single Window systems. b) Improvements in infrastructure create more favorable conditions for trading, but streamlining processes and procedures ensures that available infrastructure is utilized at optimal levels. One Stop Border Post projects (OSBPs) for example can be more trade facilitating by streamlining border crossing processes, procedures and traffic flow, ahead of determining infrastructure requirements, so that the expected process flows speak to the design of the infrastructure, and not the opposite. Incorporating or improving utilization of information and communication technology (ICT) therefore becomes an integral part of the total solution, aimed at reducing duplicative processes and data capture, eliminating physical movements that waste time, and minimizing human factors like arbitrary decision-making. c) Eliminating non-tariff barriers is not easy, given the number of non-tariff measures that can impede trade, but there are best practices to follow. Various regulations and standards (e.g. axle-load limits, quality standards), multiple check-points and physical inspections, are all undertaken to fulfill certain legitimate purposes. Securing government revenue, protecting life and protecting consumer are some of the legitimate functions of certain non-tariff measures. The best practice states that such measures should be applied in a manner that does not impede trade. But how exactly can that be achieved? Regional agreements normally include provisions that promise trade facilitation in the application of legitimate controls, including harmonization of regulations and standards. The process towards such harmonization is however painfully slow, conducted with limited reference to or adoption of international best practice, and in 3
cases where agreement has already been reached, implementation is either lengthy or lacking. Lack of capacity normally being named the main culprit. Participation in international conventions and professional bodies that promote best practice in transport and trade facilitation can help countries deliver on their commitments. Such arrangements normally have very robust capacity building functions. Developing the right mix of positive and negative incentives to motivate voluntary compliance, and discipline non-compliance could also enhance the rate at which African countries implement trade facilitation measures. d) There is a growing need for public private partnership (PPP), especially in the realm of providing end-to-end logistics services that transcend the competence of either public or private agencies. A key attraction for private sector participation comes from the creation of a transparent environment in all trade-related processes and matters. Increasing transparency in border operations will increase participation of private players on a level playing field, as well as enhance how smoothly border operations flow. Opportunities for corrupt practices are also minimized. 4. Concluding remarks The list of measures presented here is not exhaustive, but comprises the principal reasoning that can help to unlock the suppressed trade performance of many African countries. There is no silver bullet in trade facilitation, only a compliment of principles that work together to reduce logistics costs and time, and improve service reliability. It is the aspiration of the Africa Trade Forum II, that such principles will be articulated and adopted as the best way forward to achieve deeper integration on the continent, resulting in the much-needed trade expansion for higher growth, employment creation and poverty reduction. 5. Issues for discussion in breakaway sessions. A. Simplifying and harmonizing customs procedures and documentation: - ICT penetration and utilization in border processes; - Weighing the costs and benefits of utilizing ICT (single window systems and cloud computing) to improve border operations; - Improving transparency of border procedures and processes; - Identifying areas requiring capacity building and/or further research for policy guidance. 4
B. Improving transport and logistics services and maritime traffic facilitation: - Enhancing inter-modality into multi-modality to reduce logistics costs. - Imbalances in infrastructure development across modes. - The role of PPPs in end-to-end supply chain systems. - Identifying areas requiring capacity building and/or further research for policy guidance. C. Managing transit trade and mobility across borders - Essential elements of a functional One-Stop-Border Post (OSBP); - Trade-offs between sovereignty and trade facilitation in border management; - Trade-offs between stringent transit controls and trade facilitation; - Identifying areas requiring capacity building and/or further research for policy guidance. 5
Table 1: Performance of Select African Countries in main Trade and Transport Facilitation Indicators Region & Country Logistics Performance Index 2012: (Out of 155) Corruption Perception Index 2010 (Out of 178) Enabling Trade Index 2012 (Out of 132) Market Access Enabling Trade 2012 Sub Indexes (Out of 132 countries) Border Administration Transport & Communication Infrastructure Business Environment Enabling Trade 2012: Border Administration Sub Pillars Efficiency of Customs Administration Efficiency of Import/Export Procedures Transparency of border administration North Africa Egypt 57 98 90 113 76 60 93 80 55 94 Algeria 125 105 120 127 108 93 120 116 93 120 Southern Africa South Africa 23 54 63 66 59 55 71 33 100 47 Lesotho 142 78 113 47 112 127 99 123 108 86 East Africa Kenya 122 154 103 37 119 99 108 129 110 121 Burundi 155 170 131 35 131 132 129 125 125 128 West Africa Nigeria 121 134 123 124 114 107 109 115 106 116 Cote D'Ivoire 83 146 126 123 121 110 122 109 117 124 Central Africa d 152 171 132 126 132 131 127 120 132 131 6