Key message 2 – Poor roads increase the cost of transporting goods over long distances, but other factors may be more significant.
Africa’s infrastructure is improving but it is doing so from a low base. Poor-quality roads and weak transport infrastructure have long been an issue for African trade, and are considered prime reasons for the continent’s low level of competitiveness. The large majority of roads in sub-Saharan Africa are poorly maintained and a significant number – around 53% – remain unpaved (The African Development Bank, 2014).
Although it is tempting to attribute the majority of Africa’s high trade costs to poor road quality, research shows that this may not necessarily be the main determinant of high internal transport costs. Instead, research finds that the high burden of distance between typical cities in Ethiopia and Nigeria remains, even after adjusting for the availability and quality of roads (Atkin and Donaldson, 2015).
Even when taking into account that there are both more and better quality roads in the US, the cost of distance is still 2.5 times higher in Ethiopia and four times higher in Nigeria than in America. This is a surprising finding: with its low wage levels, Africa’s transport costs should be much lower than in the US if roads were of the same quality, since the trucking industry is so labour-intensive.
There remain a wide range of factors that could generate high intra-national trade costs within African countries: the price of inputs such as fuel, labour, and equipment on the one hand; and market characteristics, including regulations, transport, and trade procedures on the other.
Among potential logistics costs are market-entry barriers such as access restrictions, technical regulations, customs regulations, and cartels (Teravaninthorn and Raballand, 2009). Corruption and protectionism may serve as a barrier to entry for modern or more efficient logistics firms. In addition, many routes are under-utilised and trucks often travel short distances, or only carry a small load. As a result, potential economies of scale are not captured and internal transport prices remain high.
Other factors affecting intra-national trade costs are long waiting times for loading or unloading, and frequent checkpoints. On average, in 2006, it took 116 days to move an export container from the factory in Bangui, Central African Republic, to the nearest port and fulfil all the customs, administrative, and port requirements to load the cargo onto a ship (OECD/WTO, 2011).
Even though the required number of days has been falling, exporters and importers require 50% more time to get exports to market in Africa than in East Asia. Reducing such delays could have a dramatically positive effect on export volumes (Arvis et al., 2014). Lastly, inferior technology, for example old truck fleets that are fuel-inefficient, may severely increase the cost of intra-national trade (Atkin and Donaldson, 2015).
Even though the required number of days has been falling, exporters and importers require 50% more time to get exports to market in Africa than in East Asia.
It has often been presumed that large investments in improved road infrastructure would reduce transport prices, but this does not appear to have been the case. The significant support programmes implemented by the World Bank since the 1970s in transport corridors in Africa has had little if any impact on transport prices (Teravaninthorn and Raballand, 2009).
Once roads are paved, further improvements have not been found to result in a significant reduction in transport costs (Teravaninthorn and Raballand, 2009). Instead, to be successful, policies need to recognise the complexity and diversity of high intra-national trade costs and address a wider range of infrastructure constraints such as those highlighted above.
Country case studies: The ease of trading across borders
Some progress has been made in eliminating the costs of trading across borders in Rwanda, partly through the removal of non-tariff barriers in the East African Community (EAC), but more needs to be done. In 2015, Rwanda scored very low on the World Bank’s Doing Business indicator for “trading across borders”, which indicates the time and cost of documentary and border compliance. This was partly due to a policy requiring a pre-shipment inspection for all imported products. A reversal of this policy in 2016, combined with the introduction of an electronic single-window system at the border, improved Rwanda’s rank from 131st in 2015 to 87th in 2016.
Rwanda now does better than the sub-Saharan African average and its East African neighbours, especially in terms of cost. However, as Rwanda is separated from its nearest port by 1,500 km, there are still significant challenges when it comes to the costs of internal trading.
Uganda ranks almost at the bottom of the quality of trade and transport-related infrastructure component of the World Bank’s Logistics Performance Index (LPI), far below the sub-Saharan African average and other comparable landlocked sub-Saharan African countries. According to the World Bank’s Doing Business indicators, border compliance in Uganda takes 71 hours for exports, and 154 hours for imports.
Although Uganda’s performance is not dramatically worse than that of its regional peers, it clearly hampers the ability of firms to move goods across borders in a globally competitive way. Moreover, only 17% of Uganda’s national roads are paved, only about 25% of the country’s railway network is operational, and it only has one international airport. Difficulties with road transport in Uganda may cause particular problems in getting agricultural goods to market, and minimising post-harvest loss.
Kenya currently ranks 105th on the World Bank’s Doing Business indicator with regards to ‘trading across borders’ and has seen no progress in the last five years. Although it has improved tremendously since 2007, Kenya is still experiencing serious challenges on the logistics side of trade facilitation, as evidenced by its rank of 74th in the 2014 LPI. Another area of concern is inadequate road infrastructure.
Due to the extensive documentation requirements, customs processing delays, and non-transparent importing rules, import and export procedures are also very costly and time-consuming. The capacity of domestic institutions responsible for ensuring compliance with international standards is limited. Moreover, local standards vary greatly and there is little harmonisation with regional or international standards.