CROSS-BORDER TRADE BARRIERS CAUSE AFRICA TO LOSE BILLIONS – World Bank report

A new World Bank report has revealed that African countries are losing out billions of dollars in potential trade earnings every year because of high trade barriers with neighboring countries.

A news release from the World Bank on Tuesday announcing the publication of the 191-page report entitled “De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services” states that it is easier for Africa countries to trade with the rest of the world than among themselves. 

The report is published at a time when African leaders are calling for a continental free trade area by 2017 to boost trade within the continent. 

Barriers to intra-Africa trade include trade permits, export taxes, import licenses, and bans, all of which are persistent.

According to the new report, regional fragmentation could become even more costly for the continent as World Bank forecasts suggest that economic slowdown in the Eurozone could cut off Africa’s growth by up to 1.3 percentage points this year.

The authors said:  “While uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited.”

The reports says this situation deprives the continent of new sources of economic growth, new jobs, and sharply falling poverty, factors which accompanied significant trade integration in East Asia and other regions. The cross-border production networks that have spurred economic dynamism in other regions, especially East Asia, have yet to materialize in Africa.

“It is clear that Africa is not reaching its potential for regional trade, despite the fact that its benefits are enormous—they create larger markets, help countries diversify their economies, reduce costs, improve productivity and help reduce poverty.” says Obiageli "Oby" Ezekwesili, The World Bank’s Vice President for Africa, and a former Nigerian Minister of Extractive Industries.

“Yet trade and non-trade barriers remain significant and fall most heavily and disproportionately on poor traders, most of whom are women. African leaders must now back aspiration with action and work together to align the policies, institutions and investments needed to unblock these barriers and to create a dynamic regional market on a scale worthy of Africa’s one billion people and its roughly $2 trillion economy."

Barriers blunt trade in goods as well as services

The report says that until the onset of the financial crisis, most sub-Saharan African (SSA) countries grew rapidly and often at much higher rates than the world average. Economic growth in these countries was robust and driven by the boom in commodity prices, which led to very high growth in export values, especially for minerals, to new fast-growing markets such as India and China.

While exports have grown strongly over the last decade, and the region’s trade has recovered well from the global crisis, the impact on unemployment and poverty has been disappointing in many countries. Unemployment remains around 24 percent in South Africa. In Tanzania, extreme income-poverty appears to have remained broadly constant at around 35 percent of the population.

This shows that export growth has typically been fueled by a small number of mineral and primary products with limited impacts on the wider economy and that formal sectors remain small in many countries.

As a result, the report suggests that Africa will have to diversify its exports from depending solely on precious metals and other commodities and encourage more people to trade goods and professional services in accounting, law, education, and healthcare, among others. The region’s large number of young people also calls for significant numbers of new jobs, intensive trade, and growth.

“Imagine the benefits of allowing African doctors, nurses, teacher, engineers and lawyers to practice anywhere in the continent, but responsibility for making this happen lies with countries first and foremost,” says Marcelo Giugale, the World Bank’s Africa Director for Poverty Reduction and Economic Management.

“The final prize is clear: helping Africans trade goods and services with each other. Few contributions carry more development power than that.”

Changes are needed in three areas

To escape the current straightjacket of trade fragmentation, the report says that African leaders, need to pursue changes in three key areas.

1. Improving cross-border trade, especially by small poor traders, many of whom are women, by simplifying border procedures, limiting the number of agencies at the border and increasing the professionalism of officials, supporting traders associations, improving the flow of information on market opportunities, and assisting in the spread of new technologies such as cross-border mobile banking that improve access to finance.

2. Removing a range of non-tariff barriers to trade, such as restrictive rules of origin, import and export bans, and onerous and costly import and export licensing procedures

3. Reforming regulations and immigration rules that limit the substantial potential for cross-border trade and investment in services.

While there has been some success in removing import duties within regional communities, a range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders. The end-result is that Africa has integrated with the rest of the world faster than with itself.

Effective regional integration is of particular pertinence now. While uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited.

Such trade is essential for welfare and poverty reduction, since poor people, and especially women, are intensively engaged in the informal production and trading of the goods and services that are actually crossing African borders. Allowing these traders to flourish and gradually integrate into the formal economy would boost trade and the private sector base for future growth and development.

There are enormous opportunities from trade in services in Africa that are not dependent on a common external tariff being in place.

Countries can work to improve trade facilitation at the border and to remove non-tariff barriers with neighbors while free trade agreements are being designed and implemented.

Countries that are not members of the same free trade agreements can work to disseminate information on market prices to producers and traders.

How the World Bank supports regional integration

Trade and regional integration are core elements of the World Bank’s new Africa strategy, launched in March 2011, to help countries create opportunities for their transformation and sustained growth.

The Bank has doubled its investment in regional integration from US$2.1 billion in 2008 to US$4.2 billion in July 2011, and it will rise to $5.7 billion by July 2012.