Trade Facilitation and the Road to Bali


For many of us, Bali is a place where pearl white sands meet the bluest of oceans water and the sights and sounds resemble that of a forgotten land lost in time.

beach

The beauty and splendour of Bali will, in a few weeks time, host the top brass of the World Trade Organisation (WTO) and a whole raft of Ministers of Trade and Commerce during the 9th WTO Ministerial Conference. There is an optimistic sense in some quarters, that this meeting may herald movement on the comatose Doha trade negotiations. So, why is trade facilitation important? What is the importance of the Bali meeting? And how could these discussions impact poverty eradication in Africa?

This piece will offer some insights to these questions and perhaps trigger some debate on whether the current international trading system is fit for purpose in the African context.

Trade in sub-Saharan Africa and its potential impact on poverty

A recent conference which I attended, hosted by Wilton Park,  focused on trade facilitation for African countries. In its simplest form, ‘trade facilitation’ means making trade between countries easier through the reducing/removal of barriers to trade. These barriers range from administrative procedures; poor infrastructure; or poor institutions to clear goods at borders. The Wilton Park conference sought to discuss the possibility of getting a good deal out of the Bali meeting, and establish what this could mean for poverty reduction in Sub-Saharan Africa.

Lord Green, speaking at the conference, said:

[…] this is an immense pride if we can get it right. All countries benefit from this. It’s also binary: if we fail, if we came away with no agreement, this would deal a very serious blow to the standing of the WTO and international trade discussions generally. So we can’t allow that to happen either. (1)

Trade facilitation is important, because the price you pay for your coffee or tea or fresh-cut flowers at your local supermarket is partly determined by the cost of getting it from the farm somewhere in Africa to Europe. At present, the cost of exporting and importing goods from/to Sub-Saharan Africa (SSA) to/from Europe or anywhere in the world ranks at the highest. According to data on trading across borders, it costs on average approximately $2,108 to export a 20 foot container from SSA compared to just $1,787 from South Asia.

The table below presents other comparative data for exporting and importing goods from and to a number of regions. It becomes very apparent that SSA is an expensive region to do business and conduct international trade. Improving trade facilitation means lower costs for moving goods across the trade systems, which in turn could mean lower prices for the European consumer.

Table 1: Trading across borders 

Economy Name

Documents to export (number)

Time to export (days)

Cost to export (US$ per container)

Documents to import (number)

Time to import (days)

Cost to import (US$ per container)

East Asia & Pacific

6

21

856

7

22

884

Europe & Central Asia

7

25

2,109

8

26

2,339

Latin America & Caribbean

6

17

1,283

7

19

1,676

Middle East & North Africa

6

20

1,127

8

24

1,360

OECD high income

4

11

1,070

4

10

1,090

South Asia

8

33

1,787

10

34

1,968

Sub-Saharan Africa

8

31

2,108

9

38

2,793

(2)

What might happen in at the WTO meetings in Bali?

Besides the sun, sand, and sea, Bali presents an opportunity to revive the comatose Doha trade negotiations. There is a quiet optimism that a deal on trade facilitation might be in the offing. This is a significant development, given the Doha round has been essentially ‘dead’ for the past decade or so with several attempts failing to revive the negotiations. The recent Wilton Park conference (on trade facilitation for African economies) looked at the implications of getting a trade facilitation deal out of Bali- there was broad agreement any deal on this issue would be a positive step, especially for SSA. In addition to being potentially good for SSA, the international trade system stands to benefit, as it recovers from the global recession. Should Doha be revived, this would provide a much-needed boost to the WTO- often maligned for not being fit for purpose.

But how might this impact on Africa? To address this, I would like you to think of a truck laden with goods going from the port of Mombasa (in Kenya) to Kigali (in Rwanda). This truck’s journey will take it across the heart of Kenya, through the either Uganda or Tanzania (via Uganda is a common truck route), and finally into Kigali, Rwanda. This journey is approximately 1,700kms and would take approximately 23 hours.

uganda mapSo, here we are in this truck with goods destined for Kigali. This truck will have to stop at no more than five weighbridges; deal with over ten police roadblocks; spend up to two nights at each stop over; and finally deal with two border crossing which could take up to three to five days each. All in all our truck will take almost ten days to get to its destination, all the while having to pay small kick-backs here and there, having to pay a number of fees and so on. The point of this journey is that in SSA, moving goods across the region is time consuming and expensive.

This means good are priced higher and it is cheaper to send goods to Europe than within Africa. Indeed, intra-African trade is a paltry 13% while Africa’s trade with Europe and USA is at over 60% – and increasing the share of trade with Asia (China specifically) is on the up (3). By reducing trade costs, intra-African trade will increase and the cost of exporting finished goods will fall meaning potentially higher profit margins. Since import costs fall too, increasing intra-African trade could benefit African consumers with cheaper products.

Finally, trade facilitation is important if Africa is going to compete in the global trading system. Investment to make moving goods cheaper and faster across the continent will increase intra-African trade and spur growth and development of the continent. This has the potential to transform the continent of offer meaningful poverty reduction. And this is why Bali is critical for the development of trade in SSA.

Of course, trade alone will not reduce or eradicate poverty in SSA. For this to happen, there is a need to adopt a more pragmatic approach and adopt a mix of policy instruments that brings together resources, institutions, partnership, and participation. Then can we say we are on the path to realising the goal of eradicating poverty by 2030. The point here is that coming away from Bali with a deal on trade facilitation is still, as I have shown, immensely important for Africa.

So after the sun, sand, and sea, let there be trade, trade, and trade for SSA!



References:

  1. Lord Stephen Green Minister of State for Trade and Investment, Department for Business, Innovation and Skills, United Kingdom
  2. World Bank IFC “Trading Across Borders” data accessed November 2013
  3. Chibaya, E African Union – a presentation made during a Symposium on WTO Trade Facilitation for African Countries AU’s Action Plan for Fast Tracking the CFTA, Nairobi, Kenya, 2012