Maritime Trade Facilitation and Economic Development in Africa

David Skov

By David Skov

 

Introduction

According to the African Development Bank, a significant decline in Africa’s poverty will require the continent’s GDP to grow at an overall average of 7 per cent. In order to achieve this goal, it is of paramount importance that Africa’s international trade continues and strengthens its current development.

 

According to the Doing Business Index by the World Bank, a 1 percent increase in trade is associated with more than a 0.5 percent increase in income per capita in economies with flexible entry regulations. The gains of trade-enabling measures can contribute to broader objectives, such as private sector development, education, foreign direct investments, market integration, economic growth and employment. All players across the value chain, i.e. governments, shippers, customers, etc. need to collaborate in order for the society to get the full benefit from the efforts.

Trade between Africa and the rest of the world has increased by 200 per cent since the year 2000 but the African continent and its Regional Economic Communities (RECs) have recorded less intra-regional trade than most other regions of the world. According to data from the United Nations Conference on Trade and Development (UNCTAD), intra-African trade amounts to only about 13.8 per cent as compared to intra-regional trade among Latin America countries which is 22 per cent, Asian countries at 52 per cent and Europe at about 70 per cent.

 

One of the major factors behind this low level of trade integration is the low level of Trade Facilitation implementation.

Maritime transport is essential to the world trade. Over 80 per cent of the volume of world merchandise trade is carried by sea, and an even higher percentage of developing-country trade is carried in ships. Global seaborne trade have both been growing at a faster rate than global GDP since 1990 according to the UNCTAD Maritime Review of 2016.

 

This shows the increasing importance of transportation infrastructure investment such as ports, terminals and cargo inland services to overall economic growth and rising standards of living, particularly in economically developing areas currently underserved by modern transportation networks and access.

 

This development has gone hand in hand with an increase in the volumes of traded goods transported by sea. In 2007, international seaborne trade was estimated at 8 billion ton of goods loaded. During the past three decades the annual average growth rate of world seaborne trade is estimated as 3.1 per cent. Dry cargo (bulk, break-bulk and containerized cargo) accounted for 66.6 per cent of the good loaded. The rest is oil and petroleum transports.

 

Seaborne trade surpassed 10 billion tons in 2015, and continues to represent the overwhelming majority of the more than USD16 trillion in global merchandise trade by volume as well as value.

 

More than half of all seaborne trade by value moves in containers, with emerging economies of Asia, Latin America, the Middle East and Africa accounting for most of current shipping market expansion.

 

A breakdown of the group of developing countries shows that goods are predominantly loaded in Asia, which represents close to 40 per cent of the total goods loaded followed be the Americas (14.7 per cent), Africa (10.5 per cent) and Oceania (0.1 per cent). 53 per cent of the volume of world seaborne trade is unloaded in developed countries.

 

The development in international trade and transport has been promoted by several factors. Tariffs and other barriers to trade have decreased through multilateral negotiations in the World Trade Organisation and through regional and bilateral agreements.

 

Maritime transport systems have also evolved to today’s container ships taking advantage of economies of scale. The costs of maritime transport have declined over time. The WTO World Trade Report 2008 cites three main technological and institutional changes as reasons for the lowering of shipping cost. First the development of open registry shipping, scale effects from increased trade and containerization.

 

The Relationship between Trade and Economic Growth

 

According to a study by the Swedish Maritime Administration, openness to trade is one of several important factors to achieve economic growth. Countries that are open to trade have had faster economic growth than countries that have been more closed to trade.

 

Greater openness to trade is clearly associated with faster economic growth, but it is not the only factor contributing to growth. Other factors such as technical innovation, a responsible economic policy and education are also necessary.

 

Trade contributes to a positive economic development both by generating incomes from exports, as well as by importing products in demand. Through trade, both the exporting and importing country can take advantage of their respective resources and relative competitive advantage in a more efficient way, and contribute to diffusion of new knowledge through technology transfer.

 

Access to larger and richer markets is a key factor to enabling local producers generate the level of demand required to exploit economies of scale. Through specialization and economies of scale the production cost per unit decreases as production rise. Prices are also lowered by the competition that comes from trade. The combination of lowered prices and specialized products is beneficial for consumers.

 

Trade creates conditions for economic growth, which in its turn, is a precondition for poverty alleviation. Developing countries are a diverse group with differing trade patterns, natural resources, factor endowments and comparative advantages. Trade has an effect on growth, employment, revenue, consumer prices and government spending in a country, which all, in turn, has an effect on the poor in a bid to alleviating poverty.

 

In general, there are direct and indirect effects of trade. Increased trade, as an effect of liberalisation or reduction of trade barriers, directly affects the prices in a market. How the consumers are affected by these price changes in a specific sector depends if they are net producers or net consumers.

 

For example, fishermen in a closed market might be negatively affected by increased imports of fish and a lowering of prices, whereas the consumers in the same market will benefits from lower prices. How price changes impact the consumers also depends on the costs for distribution, the way markets are structured and domestic taxes and regulations.

 

However, not all developing countries have managed to take advantage of the trade opportunities that come from globalisation and increased trade facilitation according to the United Nations Conference on Trade and Development. The economic performance for developing economies in Africa remains below that recorded by developing countries as a whole. Africa’s share in the total world export was 3.1 per cent in 2007 and this share has been decreasing since the 1950s.

 

High trade cost and supply-side constraints may be one explanation as to why countries in Africa are not able to take advantage of trading opportunities. One measure to address these constraints is to invest in physical infrastructure that is essential to carry out production and trade, so as to allow traders easier access to international markets.

 

The Maersk Group through its APM Terminals brand is the largest port and terminal operating company in Africa by equity throughput with 5.27 million TEUs handled in 2015, including transshipment volume at APM terminals Tangier in Morocco, and the Suez Canal Container Terminal in Egypt.

 

APM Terminals is particularly well-represented in West Africa, with ten facilities in eight countries, including APM Terminals Apapa, the busiest container terminal in West Africa with throughout of 608,000 TEUs in 2015. A proposal for a new deep-water 1 million TEU annual capacity facility at Badagry, Nigeria, is moving forward, and a 1.5 billion investment agreement for a new deep-water hub port facility in Tema, Ghana was officially signed in June 2015 and to be completed in mid-2019.

 

In May 2013 a new 600 meter rebuilt quay was officially opened at Monrovia and in 2016, night navigation was reinstalled which had not been possible in the last 30 years.

 

A consortium led by APM Terminals was awarded the contract for a second container terminal to be built in Abidjan, Ivory Coast, a deep-water facility capable of handling 8,000 TEU capacity vessels, with an annual throughput capacity of 1.5 million TEUs.

 

In May 2014, APM Terminals’ local joint venture Sogester signed a 20-year concession for the operation, management and development of the Port of Namibe, Angola’s southernmost port. Sogester also operates the terminal facility at the primary Angolan port of Luanda.

 

An equally important measure in taking advantage of trading opportunities relates to regulatory reforms to cut red tape and reduce cumbersome border procedures.

 

Trade facilitation is a concept aiming at precisely that.

 

Trade Facilitation

 

Customs play a central role in the trade chain but in order to achieve trade facilitation, all agencies at the borders must be involved. It is a concept directed towards reducing the complexity and cost of the trade transaction process and ensuring that all these activities take place in an efficient, transparent and predictable manner.

 

The United National Centre for Electronic Business and Trade Facilitation (UN/CEFACT) defines trade facilitation as: “The simplification, standardisation and harmonisation of procedures and associated information flows required to move goods from seller to buyer and to make payment”.

 

Efforts to achieve trade facilitation in a country are strengthened by alliances and partnerships with international and local stakeholders in both the public and the private sectors. An ordinary trade transaction involves a large number of actors, both public and private. To facilitate the trading environment it is important to involve all these actors. In addition to a close cooperation between the public and the private sector, there need to be a clear political will and commitment in order to ensure that reforms at facilitating trade are undertaken and sustained.

 

Using the UN/CEFACT definition, we can identify four trade facilitation principles.

 

Transparency means that countries should ensure that all information, requirements and processes for crossing borders are clear specific and easily accessible for all involved.

 

Simplification of administrative and commercial formalities, procedures and documents cuts red tape for companies and contributes to a less bureaucratic trade process.

 

To achieve trade facilitation, countries should take advantage of the international standards on data, documents and procedures, including those on the use of ICT to exchange information efficiently. The purpose of having international standards and recommendations is to ensure that the procedures of international trade work in the same general direction, with compatible tools and globally accepted measures.

 

Harmonisation of applicable laws and regulations, for instance within a customs union, is another step towards trade facilitation through regional integration.

 

In December 2015, the Maersk Group joined the Global Alliance for Trade Facilitation with the aim of accelerating trade facilitation. The objective of the Global Alliance for Trade is to accelerate trade facilitation reforms by supporting swift and wide implementation of the WTO Trade Facilitation Agreement (TFA).

When fully implemented, the TFA will represent an important step towards minimising supply chain barriers and reinvigorating global trade, contributing to private sector development, investments, market integration, education and employment.

The WTO estimates that a full implementation of the TFA can add USD1 trillion to the global GDP annually and 21 million new jobs globally.

The Maersk Group will use its local expertise to support the implementation of the Global Alliance for Trade Facilitation and stimulate local growth, adding value with our knowledge and insight of global and regional trade patterns and barriers.

 

David Skov is the Country Manager of APM Terminals Nigeria, he made this presentation at the AAMA conference in Abuja recently. 

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