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Brainstorming on breaking trade barriers in West Africa

Business Day, Nigeria

Brainstorming on breaking trade barriers in West Africa

23 May 2011

By Siaka Momoh, Industry Editor

The subject of trade barriers has been a recurring issue in the country for years. Thus, a forum that emphasised the need for African countries, West African countries in particular, to trade with each other was organised Thursday by the Lagos Chamber of Commerce and Industry (LCCI). The event, tagged: ‘Stakeholders’ Forum on Breaking Trade Barriers in West African sub-region,’ drew participants from across the country.
Joseph Annan, deputy minister of trade and industry of Ghana, gave the keynote address, while Lewis Olu Ogunojemite, comptroller of Customs, presented a paper at the forum, and recalled Hillary Clinton, US secretary of state, calling on African countries to increase trade with each other, in other to realise the enormous potential that exists within the continent.

The customs boss argued that although ECOWAS have made strides towards free trade, “full market integration remains an ambition. The efforts to eliminate tariffs have begun and all members, except Liberia, have eliminated tariffs on unprocessed products. Finished products also only attract the Export Trade Liberalisation Scheme (ETLS) tax; revitalisation of trade liberalisation has begun with the fast track initiative between Ghana and Nigeria; efforts are on going to remove non-tariff barriers, however, progress on removal of these barriers is harder to assess, as data on such barriers are inadequate and by their very nature, they are not directly measurable.”

For him, there are other underlying structural constraints such as deep-seated distrust among member states, which fundamentally limits the depth and progress in regional integration, there are systemic problems that hamper the development of national economies and invariably impede the regional integration, there is the reluctance to adhere to integration programmes due to concerns over losses and uneven gains, insufficient analytical and technical support also limit implementation of some integration instruments, for instance, the trade liberalisation scheme.

In terms of progress made in advancing the goals of regional integration, Ogunojemite said the results are mixed with a general sense that there remain substantial gaps in achievements.

“Some encouraging advances have been made in the area of information and communication technology (ICT), due to global advances in this sector, as well as the increased role of the private sector in enhancing service provision. However, in comparison to other parts of the world, the sub-region is still a long way from realising universal access to ICT,” he argued.

Quoting World Bank (2003), Hester Hopkins, general manager, operations, COTECTNA, said trade can be a powerful force for growth and poverty reduction. Countries that have increased the share of trade in their GDP have grown faster and reduced poverty more rapidly. She stressed the need for trade facilitation in the sub-region to reduce the complexity and cost of the trade transaction process, and ensure that all these activities take place in an efficient, transparent and predictable manner.

Those she listed as important players in the process of trade facilitation include: government and government agencies, transporters/logistic providers, financiers/insurers, and traders.

For Hopkins, trade facilitation reduces transaction costs, allows for faster delivery/ clearance, predictable trade rules, increased foreign investments, reduced corruption, increased revenue and increased compliance. For her too, trade facilitation principles include harmonisation of applicable laws and regulations, simplification, that is the use of ICT to exchange information efficiently, standardisation which has to do with administrative and commercial formalities, procedures and documents; transparency, that ensures that information, requirements are processed for crossing borders, clear, specific and easily accessible for all involved.

Citing the SWEPRO/National Board of Trade, Sweden, 2002, she argued that trade facilitation results in direct benefits both to governments and to the business community in terms of increased economic efficiency, better security, faster delivery of goods, and reduced costs.
Hopkins argued that the World Bank observes that the top 10 trade facilitation economies, which include Singapore, Hong Kong, China and the Republic of Korea, share four characteristics as follows:
•Introduced paper-free electronic data interchange systems and pre-arrival submission of customs declarations,
•Make use of a risk management inspection system, where less than 10 percent of containers are physically inspected,
•Have systems allowing authorised persons, who meet prescribed criteria to benefit from simplified procedures,
•Have excellent port infrastructure.

Roberts Orya, managing director/CEO, Nigeria Import Export Bank, also reeled our data on the economy of the sub-region and place of Nigeria in the economy.

“According to IMF/World Bank data, the ECOWAS region attained a total GDP of $565 billion and a population of 289 million in 2010. Of this figure, Nigeria contributed over 60 percent, with a GDP of $374 billion and a population of 150 million.

The Economic Community of West African States (ECOWAS) Treaty, which is a regional grouping of 15 member countries, is expected to eliminate all tariffs, restrictions and quotas towards facilitating free movement of people, goods and services, thereby promoting social and economic harmonisation, deepening trade and encouraging large-scale investment.

The above mentioned goals are expected to achieve the attainment of a free trade area, a unified custom union/establishment of a common external tariff, creation of a common market, and the creation of an economic union (harmonisation of economic, agricultural, industrial and monetary policies, etc.

Orya further said: “Intra-regional trade remains a relatively small part of the ECOWAS economic activity, accounting for about 10 percent of the total trade of the member states. In 2008, the total ECOWAS intra-regional trade was valued at $6.9 billion, while total ECOWAS trade with the world was valued at $64.4 billion.

“Historically, the value of ECOWAS intra-regional trade has over the years been increasing from $3.2 billion in 2002 to peak at $9.9 billion in 2006 before it nose-dived to $6.6 billion and $6.9 billion in 2007 and 2008 respectively.

“In tonnage, the volume had similarly increased from 4.2 million tons in 1996 to 13.4 million tons in 2008.”

For Orya, “With regards to Nigeria’s level of ECOWAS intra-regional trade, the aggregate non-oil exports stood at $189.96 million in 2009 declining from $228.81 in 2008, and representing 9.7 percent of Nigeria’s non oil export in 2009 account to the 2009 CBN Annual Account.”
The low level of ECOWAS intra-regional trade, according to Orya, are largely traced to some tariff and non-tariff barriers, some of which include lack of appropriate/adequate infrastructure at the region that is characterised by lack of poor rail systems, roads, energy etc. - this is more compelling when viewed against the empirical evidence that cargo volumes have leaped about 300 per cent from 4.7 million tons in 1998 to 13.4 million tons in 2008 without corresponding increase/improvement on basic logistical infrastructure; barriers to movement of goods and services, due to multiple check points/border posts with attendant consequences of time and cost overruns and eventual uncompetitive pricing of goods at market destination.

Femi Deru, president, LCCI, said trade within the ECOWAS sub-region has become more imperative today than ever before. “Global competitiveness is a major factor in achieving efficiency, which is in itself dependent on market size and the ability to enjoy economies of scale,” he said. For him, with a robust market of about 300 million people, significant benefits of economies of scale would be enjoyed by West African firms in the event of full market integration.

Deru argued there is a strong relationship between the development of intra regional trade and the promotion of economic integration in the sub-region. “Integration is in fact the main vehicle for the boosting of trade within the sub-region, With integration, African economies would be stronger and their capacity to cope with the challenges of globalisation would be enhanced. Africa would also be better positioned to respond to the challenges of peace and security in the continent,” he said.

For him, some progress has been made under the current integration initiatives in Africa, but on the whole, the performance in economic integration has not been quite satisfactory.

Joseph Annan, who delivered the keynote address, addressed the issue of constraints to West African trade listing high transport cost and poor infrastructure and border measures and regulatory environment. He argued it is well known that transportation costs are extremely high between our countries. He said road freight tariffs in sub-Saharan Africa are in the range of $0.04-0.14 per ton per kilometre compared to $0.01-0.04 per ton per kilometre in other developing regions. “Trade to landlocked countries in particular is especially costly, with import costs three to five times the global average. It takes 116 days to move a container from Bangui, Central African Republic to the nearest port,” he said.

For him, time-consuming and costly border measures and unharmonised and cumbersome regulatory systems are even greater barriers to trade than poor physical infrastructure.

Way forward
Annan, the implementation of existing agreements is the most important step; negotiating new agreements could even be counterproductive. He said since the implementation of regional agreements can only advance at the pace of the slowest moving country, pressure from peers and business leaders is needed to speed this process.

He advised that there is need to enforce existing trade protocols especially ETLS and free movement of persons. For him, at the national level, countries need to think carefully about how to promote West African trade, and then act to integrate these strategies into their development plans.