Why does Africa not (yet) enjoy its fair share of international trade

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Tuesday, 7th May 2013
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Why does Africa not (yet) enjoy its fair share of trade?

 

By Prof Alwyn Hoffman

North West University

South Africa

It is a widely accepted fact that Africa can be regarded as the step-child of the global economy.  Generally speaking, and in spite of hiccups like the recent global financial crisis, over the last decades the bulk of the world’s population has enjoyed a steady improvement in quality of life resulting from economic growth.  Economic activities are also increasingly characterized by a dependence on international trade, as various nations find niches where they can excel, feeding their economic growth through exports.  On another level the manufacturing and processing industries, still the backbone of the global economic engine, are moving towards just-in-time practices to achieve new levels of efficiency, eliminating stock piles of raw materials and relying on the reliability of logistics channels to keep production lines running.

The above scenario spells out the rules for nations that wish to remain part of the world’s economic success story:

  • You must offer the rest of world with a product (including the delivery service) that provides an edge – else your customer will not pay a premium, as it has become so easy to shop globally.
  • Your logistics systems must be geared to fit into the global just-in-time production systems of the world – else your customer will either disappear or will insist on buying at a discount to make up for the losses resulting from unreliable delivery.
  • Your entire operation must be efficient and cost-effective in all respects to be considered a global player – global competition is ruthless with any weak links in the chain of economic activities.

As one scrutinizes the performance of Africa in general in recent years, against the background of the performance benchmarks as outlined above, the observations are in most respects not very surprising.  On the positive side Africa boasts a wealth of natural resources, specifically in terms of minerals. The booming world economy, fed by double digit growth figures in China (prior to the recent economic recession); saw the price of resources sky-rocket as demand soared.  While this had a positive impact on net exports from Africa, the question is whether African economies received its fair share of the net monetary increase in economic activities.

The harsh reality on ground level is that most of the profits went elsewhere.  This is partly due to the fact that, in the majority of cases, minerals are mined by foreign companies with licenses or concessions to operate locally.  A second contributing factor is the fact that net raw material prices on which the corresponding levies or taxes are based, are being pushed down, firstly by the high cost of logistics operations in Africa, and secondly by the uncertainties in delivery cycles.  While this may be viewed as a sweeping statement, it is unfortunately backed up by hard facts: while the rest of the world has driven down the cost of logistics to 8-9% of overall cost of delivery, in Africa it is still above 17% (and rising).  Even worse: while the rest of the world is relentlessly speeding up the movement of materials through the supply chain, in Africa the average speed of movement of freight trucks (as measured through studies that include delays at ports and border posts) is a shocking 10 km/h.  In the absence of any efficient rail transport system on most parts of the continent, this paints a bleak picture for prospective trading partners.  And for this lack of performance Africa is paying the penalty – firstly by losing control over its own resources, and secondly by receiving scant reward for what is carted off to other continents.

The question must be asked: how did Africa manage to land itself into this quagmire?  While it is not the responsibility of the logistics industry to solve the general socio-economic or political problems of the continent, it is critically dependent upon a healthy economy to achieve its own growth and success targets.  This industry should therefore ask very pertinent questions regarding the reasons why the economy that it forms part of does not achieve the levels of performance that could be expected, given its generally favorable situation, depending on a resource driven economy in a world with growing demands for raw materials.

One of the key factors for which Africa can potentially blame its colonized past is the geographical fragmentation of the continent, with borders that were historically drawn to settle disputes between European nations, rather than to manage economic realities in Africa.  This resulted in a situation where the bulk of African trade corridors are multi-national in nature, creating potential complications around customs and border control operations.  This in itself should not present an insurmountable problem, as the European model has shown that, while retaining political independence, countries can open up their borders for free trade in order to enjoy the benefits of a more efficient continental economy.

Unfortunately Africa yet again suffers from some realities that complicate the local implementation of the European success story.  While most European nations have a strong internal tax base, founded in manufacturing and service industries, African countries mostly rely on taxing the flow of goods crossing its borders.  Whereas Europe could therefore afford to largely do away with the charging of customs duties for goods travelling amongst European countries, these duties form the life blood of the majority of African governments.  Every effort is therefore made to ensure that nothing crosses a border before being properly inspected and duly taxed.  The result is inefficient bureaucracies, congested borders and over-burdened customs officials, with goods typically taking up to three days to cross into the next country.  For a typical consignment, moving from the DRC, via Zambia, via Zimbabwe, through South Africa to reach a container vessel in Durban port before departing to the Far East, it is no small wonder that the effective speed of movement is reminiscent of the days of the ox cart.

The obvious solution to overcome the above challenge is the formation of multi-national trade corridors with over-arching agreements and integrated systems that manage the corridor as a whole, rather than leaving it to each country to independently oversee operations within its own borders.  In principle this will allow importers and exporters to negotiate a mutually acceptable service level agreement with a single entity that not only has the responsibility, but that has also been authorized to take the necessary measures to ensure logistics efficiencies for the entire corridor.  The silver lining of the dark clouds hanging over the African economic scene is the fact that several initiatives have already been launched around the continent to move in exactly this direction.  Relevant examples include the establishment of the first One Stop Border Post (OSBP) at Chirundu, between Zambia and Zimbabwe, and the formation of organizations like the Trans-Kalahari Corridor, a Public-Private Partnership (PPP) between the governments of Namibia, Botswana and South Africa, and a number of prominent private sector end-users of this corridor to the port of Walvis Bay.

There is however yet another dark shadow lurking, that has not only been a primary cause for historic economic failures in Africa, but that is also seriously threatening the more recent initiatives to take African trade corridors to new levels of efficiency.  In politically correct terms one could refer to this as the general lack of governance over governmental processes.  In lay-man’s terms one could call it corruption and bribery, a phenomenon that is still rife in many areas of the officialdom across the continent.

A naïve view on the phenomenon of ‘lacking governance’ would conclude that it merely adds a few percent to the cost of doing business, and that there may even be some justification for the disadvantaged portions of the continent’s population to increase their share of global wealth.  Unfortunately the impact goes much, much deeper –it can be argued that the lack of integrity in governmental processes has caused most of the fundamental problems that the African economy is suffering from.

For the sake of this article, and to remain focused on logistics issues, it will suffice to illustrate the above statements by way of two obvious examples.  Both lie at the core of Africa’s logistical inefficiencies, and both will not disappear until real integrity has been enforced onto the respective areas of governmental responsibility:

  • In the absence of efficiently operating freight rail systems (and let us leave the reason for that state of affairs for a future debate), Africa critically relies on a high quality road network.  Logistics operators on the continent are however very well acquainted with the notorious state of most African roads, in spite of billions of dollars being spent annually to build new roads.  The reason, when simplified, is twofold: Africa has not yet sufficiently bought into the concept of regular maintenance of infrastructure, and even more importantly, there is little control over the phenomenon of overloading.  If we stick to the latter factor for the time being: studies have shown that roads built in Africa to last for 15 years are typically destroyed within a mere 3 years, as trucks sometimes carry up to 3 times their legally allowed weight per axle.  The reason for lacking control is not primarily the absence of weigh bridges, but rather the absence of integrity in control of the law enforcement process.  The result is that the bulk of offenders, adding insult to injury by bribing corrupt officials, go free, creating an incentive for normally law-abiding operators to do the same.
  • Border crossing operations has become a major source of income, not only for customs officials, but also for all kinds of informal economic activities that tend to spring up around any African border post.  This is a good example of a vicious circle that will keep on spiraling downwards until some external intervention is enforced:  Ineffective paper based systems creates an endless bureaucratic process enforced by several independent authorities - typically you will encounter a customs authority each side of the border, plus authorities enforcing vehicle insurance, plus roads authorities enforcing road levies, with another agency requiring a levy for emission gases, and the regional council asking yet another levy for passing through their territory.  This results in a situation that is all too easy to be exploited by customs officials and truck drivers alike.  Long queues and lacking visibility of what exactly is causing the current delay for a specific consignment causes sufficient frustration for the haulier to be lured into paying a bribe just to get through the bureaucratic nightmare.  Once this pattern of behavior has been established, there is no incentive left for the customs official to be effective in doing his job the ethical way – in most cases the chaotic state of paperwork will anyway make a successful prosecution highly unlikely and even practically impossible.  Similarly the driver is enticed into exploiting the situation as an excuse to enjoy the services of the local shebeen or brothel, even though there may have not been any delay in the customs process at all.

One has to accept that there is no simple solution to what is essentially a socio-economic phenomenon, rather than a case of lacking skills or inefficient best practices.  The one element that is however keeping these types of behavior alive and well is the general lack of transparency of official processes.  As long as people believe that they cannot be caught out, believing that their actions are practically invisible from authorities situated hundreds of miles away; situations that lend themselves towards corrupt practices will continue to be exploited.  What is therefore needed are systems that provide visibility of what is actually happening on ground level - with each truck, each consignment, each manifest, each cargo inspection.  And as importantly: the human operator responsible for handling any step in the logistics process must be aware that his/her actions are being monitored and that the result of each check, or the absence thereof, is being recorded. 

This may appear to be very idealistic in terms of logistics practices, and on the draconic side in terms of human considerations.  The potential upside, if this ideal could be achieved, however offers too much to be ignored: not only can the official who is diligently doing his or her work be justly rewarded, but the shackles could be removed from Africa’s logistics operations, allowing individual operators to determine their own level of success.  The aggregate effect would be to enable regional economies to proudly take their place amongst the economic success stories of the world.

In conclusion, the obvious question is: will it ever be affordable and practically possible to deploy and operate systems in Africa that will allow real scrutiny of corridor operations? I believe that the answer to this is a cautious ‘Yes’, provided that some sound principles are obeyed – the first of these being that any system deployed in Africa, in this case to sort out the chaos on trade corridors and enable new levels of efficiency, should be kept as simple as possible.  The practicalities of how to achieve this goal will be the topic of a future article.

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