Africa has seen 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. One of the main reasons for this is the high cost of moving goods within 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 (Ansu et al., 2016). 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.
Reducing these costs would increase trade and improve economic performance for exporting firms in Africa.
- The high cost of getting goods to and from borders or ports in Africa is restricting the continent’s potential gains from international trade.
Despite increasing global efficiencies, the cost of moving goods domestically remains high and can be up to five times higher in Africa than in the US. This
acts as a severe barrier to trade and limits the economic benefits globalisation may bring.
- Poor roads increase the cost of transporting goods over long distances, but other factors may also be significant.
The market power of logistics companies, delays at border controls, customs regulations, and low-tech transport vehicles are key factors affecting trade costs.
- Reducing trade costs could spread the gains from globalisation to remote areas and help tackle regional inequality.
The high costs of intra-national trade (trade within a country) mean that remote locations benefit less from trade liberalisation and the lower prices and market opportunities it brings.