EGM on Trade and Transport Facilitation 10-11 April, 2013 Dubai, United Arab Emirates Trade and...

EGM on Trade and Transport Facilitation

10-11 April, 2013Dubai, United Arab Emirates

Trade and Transport Facilitation Measures – Trade and Income Implications for Africa

Simon Mevel / RITD / UNECA

Key figures:

Africa’s total trade accounts for about 3% of total world trade

Poor diversification of Africa’s trade:

Primary products account for 64% of Africa’s exports

Industrial products account for 66% of Africa’s imports

Share of intra-African trade is low around about 10-12%

Context

Paramount decision:

January 2012 (Addis Ababa) – 18th AU Summit of African Heads of States and Governments

Adoption of AU Action Plan on “Boosting Intra-African Trade and the Establishment of a Continental Free Trade Area (CFTA)” - 2017 as indicative date for CFTA

Objective set:

• Doubling the share of Intra-African Trade within the next 10 years (from 10-12% to 20-25%)

Central question: in what extent, can improvements in transport and trade facilitation measures help achieving the objective set?

Context

Outline of the Presentation

I. Main trade and transport-related constraints within Africa today

II. Ongoing concrete efforts to improve trade and transport facilitation measures

III. Empirical analysis from improvement of trade facilitation measures in the context of the CFTA

IV. Conclusions and policy recommendations

In addition to Non-Tariff Barriers (NTBs) to trade many other constraints hinder trade within the African continent:

Still significant tariff barriers to trade,

Poor infrastructure,

Lack of export diversification,

Low intra-industry trade,

Lack of exploitation of supply chain potentials,

Lack of productive capacities,

Governance issues, etc.


Average Time to Export* Average Time to import*OECD high income 10.5 days 10.7 daysLatin America & Caribbean 17.8 days 19.6 daysMiddle East & North Africa 19.7 days 23.6 daysEast Asia & Pacific 21.9 days 23.0 daysEastern Europe & Central Asia 27.0 days 28.8 daysSub-Saharan Africa 31.5 days 37.1 days

*Average time for inland transport + customs procedures + port handling

Source: World Bank, “Doing Business 2012: Doing Business in a More Transparent World”.

Average time to export vs. import


A few specific examples:

Only 30% of Africa’s roads are paved (ARIA IV, UNECA)

Importing a car from Japan to Abidjan costs in average USD 1,500, whereas it costs in average USD 5,000 to import the same vehicle from Addis Ababa to Abidjan (ARIA IV, UNECA)

Over a distance of about 500 kilometers between Douala and Bertoua, in Cameroon, up to 47 roadblocks can be found (ARIA IV, UNECA)


Internet diffusion worldwide (users per 1,000 population)


Source: UNECA, ARIA IV

However, data issues which do not allow for exhaustive accounting of intra-African trade should be highlighted, such as:

Difficulties to measure informal trade

Lack of data availability on trade in services


Tripartite (COMESA-EAC-SADC = 26 African countries):

Set up a web-based NTB reporting, monitoring and elimination mechanism (with concrete timelines for the removal of NTBs),

Launched the Comprehensive Tripartite Trade and Transport Facilitation Programme (CTTTFP):

Simplification and harmonization of customs procedures,

Harmonization of vehicle regulations and standards (i.e. agreed on maximum vehicle dimensions in terms of height, width and length),

Harmonization of the third party motor vehicle insurance, etc.

One stop border posts (OSBPs; no need to stop at both sides of the border) operating or under construction in ECOWAS, COMESA, EAC and SADC

II. Ongoing concrete efforts to improve trade and transport facilitation

Use of a Computable General Equilibrium (CGE) model

Why using a CGE model?

Very powerful tool for economists to conduct policy analyses of many kinds (not only trade policies but also environmental policies, fiscal policies … just to name a few)

Capable of capturing multiple interactions taking place within the different agents of the world economy – thanks to many interconnected equations representing behaviors of economic agents and various economic linkages

Also has significant constraints/limitations and represent world economy imperfectly (based on numerous assumptions) BUT it is the only tool available today to undertake assessment of complex economic policies


Modelling International Relationships in Applied General Equilibrium (MIRAGE) model:

CEPII & IFPRI, UNECA is member of the MIRAGE consortium

Dynamic, multi-country & multi-sector

Particularly well designed for trade policies analysis


Key data inputs for CGE models:

Global Trade Analysis Project (GTAP) database – version 7 Used as global Social Accounting Matrix for the model:

• 57 sectors• 113 regions

Market Access Map-HS6 (MAcMap-HS6) database – version 2

Exhaustive database on market access: • Bilateral level (220 exporters & 169 importers) • 5113 product lines• Information on bound, applied MFN & applied tariffs• Preferential schemes included


Comparison of findings from 2 scenarios:

CFTA Reform

Removal of all tariff barriers on goods within the African continent – Effective 2017

Adoption of trade facilitation measures on top of CFTA

CFTA + making customs procedures twice more efficient as well as reducing the time goods spend at African ports by half (by 2017)


How are the results reported?

Unless otherwise indicated, results are given:

by comparison between scenarios and reference (or baseline; i.e. without trade reforms),

either percent change or absolute change,

for the year 2022 (allow time for variables to adjust after full implementation of trade reforms).


Exports and Real income variations for Africa – Percentage and value changes as compared to the baseline scenario – 2022

Source: Authors’ calculations based on MIRAGE model

Tariff revenue losses tend to limit the magnitude of real income gains for Africa


% USD billionExports 4.0 25.3Real income 0.2 0.3

Share of intra-African Trade would increase by 52% between 2010 and 2022 with the establishment of a CFTA - But would not double!

Moreover, at country level, if all African economies get an increase in exports nearly half of them register a decrease in real income

Share of intra-African trade: 2010 vs. 2022

Source: authors’ calculations based on MIRAGE model


2012 Baseline CFTA10.2% 10.6% 15.5%

2022

In what extent could complementary reforms help enhancing the share of Intra-African Trade?

Modeling trade facilitation (TF) measures:

Reduction of trade costs or “Iceberg costs” (following L. Fontagné & Y. Decreux (2009))

Estimates of trade costs obtained by crossing information on:

o Delays in days in export/import process from World Bank Doing Business Reports on Trading Across Borders

o Export/import weighted averages time costs from P. Minor and D. Hummels (2011)

• Estimates by country and sector of percentage of exports and imports lost due to delay in customs processing and port handling

III. Empirical analysis from improvement of trade facilitation measures

Exports and real income variations for Africa after establishment of a CFTA with and without TF measures – Percentage as compared to the baseline scenario – 2022


CFTA CFTA+TF CFTA CFTA+TF4.0 10.2 0.2 1.0

Exports Real Income


Share of intra-African Trade would MORE THAN DOUBLE between 2010 and 2022 with the establishment of a CFTA if accompanied by Trade Facilitation measures

In addition, at country level, all African economies –without exception- register increase in both exports and real income

Share of intra-African trade after establishment of a CFTA with and without TF measure: 2010 vs. 2022

Source: authors’ calculations based on MIRAGE model


2012 Baseline CFTA CFTA+TF10.2% 10.6% 15.5% 21.9%

2022

Intra-African Trade – Changes as compared to the baseline scenario – 2022 – US$ Billion


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

CFTA CFTA+TF

Agriculture and food Primary Industry Services

TF measures stronglyenhance industrialization of intra-African trade


CFTA would bring trade and real income gains for Africa as a whole

However, reduction/elimination of tariff barriers is not costless:

Generating tariff revenue losses

Real income effects can be ambiguous (some African countries being hurt)

Complementary measures (such as trade facilitation) are critical to enhance trade benefits and industrialization, and ensure real income gains for all African economies


Nevertheless, adopting trade facilitation measures and improving infrastructure are very costly

For example: the Programme for Infrastructure Development in Africa (PIDA) has identified 51 priority projects for the period 2012-2020 and the cost of implementation is estimated to about USD 70 billion

Therefore, there is a need to find financial resources

Aid for Trade (AfT) could be devoted to key priority projects aiming at tackling constraints to intra-African trade

Limit losses associated to Illicit Financial Flows (IFF) from Africa

Creation of an African fund aiming at tackling NTBs


Development Account project on AfT

ECA in collaboration with all other UN Commissions (ESCWA, ESCAP, ECE, ECLAC)

Core objective:

Assist member States in each of the 5 regions in mobilizing AfT resources to help increasing intra-regional trade

As far as Africa is concerned:

Focus on 5 transport corridors projects taken from PIDA

o Help improving formulation of projects to secure AfT funding

o Help including a Monitoring and Evaluation (M&E) component to the projects to make sure they are effective

UN Reg. Commissions-wide initiative

Thank you!

EGM on Trade and Transport Facilitation 10-11 April, 2013 Dubai, United Arab Emirates Trade and...

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