Disconnected!

>African markets remain fragmented and inefficient

Windhoek – Africa has over the years been unable to boost internal commerce due to countries’ low level of connectedness, despite the existence of abundant empirical evidence showing that increased economic integration can bring large gains in wealth and welfare.
The bulk of African countries are still dependent on exports to former colonisers – a situation made possible by the fact that colonial Africa’s infrastructure was originally designed as feeder routes to largely serve European markets.
African governments’ inability to invest in new infrastructure and to bring down colonial borders and raise the level of connectedness, even between neighbours, has resulted in just about all trade routes leading to Europe.
Numerous studies have provided evidence that African borders have pronounced effects in hampering the flow of goods given the fact that Africa is the least connected region in the world.
Analysts now argue that the poor levels of integration in Africa are not because of want of good policies, but rather substandard – or in some cases non-existent – facilitation and implementation.
Adrian Saville, Visiting Professor of Economics at the Gordon Institute of Business Science (GIBS), and Dr Lyal White, director of the Centre for Dynamic Markets at GIBS, argue in a report titled “Realising Potential: Connecting Africa” that poor connectivity in the past was one reason why the continent’s economy has underperformed.
They add that Africa is by far the most disconnected region when measured by movement of goods, services, people and information within countries and across borders.
Despite pursuing a trade liberalisation agenda and entering into a number of free and preferential trade agreements with partners around the world, the movement of goods and services between Africa and the rest of the world has been slow.
Prof Saville and Dr White argue that Africa’s poor trade performance has been less about policy and preferential access to key markets than about facilitation.
To bolster their argument, they point out that trading with Africa is significantly more expensive than trading with other regions of the world.
For example, the cost of moving a container in Nigeria is five times the cost in Brazil and ten times that in The Netherlands.
The same can be said for visa requirements and border controls, which the analysts say frustrate trade and movement of people.
For example, while a flight between Johannesburg and Harare can take 90 minutes, passengers might take another 90 minutes to clear immigration controls in both countries.
“Africa needs to trade and become more integrated in global value chains if it is to harness its natural potential and stimulate wealth and prosperity. This also means growing integration within Africa-to build economies of scale and competitiveness in global markets,” Prof Saville and Dr White say.
There is emerging consensus that the low level of regional integration is due to lack of product diversification, historical relationships, poor or inadequate infrastructure and small, fragmented markets with low purchasing power.
“There is little complementarity between African countries and historically, infrastructure was designed and built to extract resources from the continent to be shipped to other locals and not necessarily to connect one African market to the next.
“With low levels of economic and product diversification, the markets for exports from African countries are not in other African countries, but rather further afield in markets requiring these resources, but that do not have their own internal supply.
“African countries still produce overwhelmingly the same (or similar) goods at the same time of year, offering little trade complementarity. As a consequence, African economies often compete against each other with low degrees of differentiation in common external markets for goods,” the analysts say.
They further point out that preferential market agreements with the EU, US also encourages products to flow to those markets instead of neighbouring African countries.
Historical ties play a key role in African countries’ inability to do business with each other.
There is the example of Angola, a former colony of Portugal whose major trade ties are with Portugal and Brazil.
“Angola is essentially disconnected from the African countries east of it. There are few road networks and no rail networks linking Angola to other African countries.
“This makes cross border trade difficult or impossible with neighbouring countries. It simply is easier, and by inference more profitable, to trade with countries like US, Brazil, Portugal and China.”
The DRC, a treasure trove of untapped natural resources, has no road or rail network linking Kinshasa with the eastern parts of the country.
“Transporting products between the rich copperbelt – which spans the border between Zambia and the DRC – and the coast, is an arduous logistical undertaking which can take up to two weeks if southward bound through South Africa or up to a month if eastward bound through Kenya or Tanzania.
“Over half of this transport time is spent at road blocks and bottlenecked borders,” the analysts say.
It is estimated that transportation costs are 136 percent higher in Africa than in other developing regions.
The movement of goods and people is not just constrained by poor physical infrastructure alone.
Studies reveal that on average, customs transactions involve 20 to 30 different parties, 40 documents, 200 data elements (30 of which repeated at least 30 times), and the rekeying of as much as 70 percent of all data at least once.
Each day of delay at customs is equivalent to an estimated 85km of travel distance.
The delays do not only involve people and goods as moving capital has also been found to be expensive and difficult.
For instance, the cost of sending money across the Tanzania-Kenya border is nearly ten times that of sending from the United Kingdom to Pakistan.
The cost of moving money between Tanzania and Rwanda is eight times that of moving it between UK and Pakistan, and the multiple for South Africa and Mozambique is six times.
These exorbitant costs of moving funds across borders act as a direct challenge to financial integration and considering the movement of people, inefficiencies and deficits in air travel infrastructure are glaring and gaping, the analysts say.
“Hampered by infrastructure that was designed by former colonial powers to efficiently move resources out of Africa rather than within Africa, infrastructure, which includes improved processes as much as it includes physical infrastructure, geared towards intraregional flows will go a long way in connecting African countries with each other and from there, through their coastal ports to global markets.
“Improving border posts and customs procedures will not only reduce the cost and delays incurred by commercial companies, and enhance trade competitiveness, but will also boost government revenues by up to 25 percent and accelerate economic development on the continent,” Prof Saville and Dr White say.

July 2013
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