India is one of the world’s most restrictive places for trade and doing business. In 2014, it is ranked 110 out of 152 countries, in terms of economic freedom, by the Economic Freedom of the World Report. Its Freedom to Trade Index was 6.2 (highest score 10.0), 124 out of 152.[i]Doing business in India remains difficult for both foreign and domestic companies. The country was ranked 133 out of 152 countries by the World Bank this year in its Doing Business Score.[ii] Many studies have indicated trade barriers continue to be a major hindrance to India’s development and prosperity, making trade liberalization and further deregulation critical to its economy. Read more:
Among arguments used by those opposing free trade agreements, especially the Trans-Pacific Partnership Agreement (TPPA) negotiations, is the potential decline of Malaysia’s trade surpluses if we join a big trade group with dominant players such as the United States. Sri Murniati, Manager of Political Economy and Governance Unit at the Institute for Democracy and Economic Affairs argues in a recent article that current debate over whether Malaysia should further opening up trade through TPP has missed its point. She said, ” They argue that Malaysia’s exports to countries in the trade group such as the TPP may probably increase but our imports from those countries may increase even more. This will result in a net reduction in our Balance of Trade (BOT), creating a trade deficit. They argue that this is a bad thing for our country.Using trade surplus to measure the impact of free trade is not necessarily appropriate, and could be misleading.” The two agreements initiated by the United States since last year are still experiencing challenges and resistance from local groups. It is a time to realize the importance educating public about benefits of trade not only to the government, but more importantly to the general public who are becoming increasingly active in shaping public policies thanks to the world wide web. In her article, she also stressed a key to today’s trade integration, “If we want to further integrate our economy into the global economy, we should not be obsessed with increasing export volume so as to ensure it is above import volume. Rather we should think about how to increase Domestic Value Added (DVA) that can be retained from increased trade. The higher the DVA retained within a country, the higher the benefit the country will gain from global trade.” Read more:
According a recent blog at World Economic Forum, Out of the total number of exporting firms, more than 80% are SMEs (over 600,000 exporters). With over €500 billion of merchandised exports, SMEs account for over a third of EU exports. These exporting SMEs employ more than 6 million people throughout Europe. Therefore, while the happy few are still accounting for a dominant share of total EU exports, SME exports are too large to be ignored. And so are those firm-level characteristics that lead SMEs to become successful exporters, which bring us to the third conclusion: Export performance of EU SMEs by member states is quite diverse.When benchmarking SMEs export performance by member states against the EU average, they can be clustered in two dimensions: The proportionate number of exporting SMEs and the value of their exports. Some countries excel in both dimensions, whereas others fall behind in one or in both aspects. Understanding the different SME export performance across countries is important in establishing trade-related domestic policy priorities in various EU countries. Benefits of export to SMEs is inevitable. Nevertheless, one should not underestimate the importance of import to a large economy as European Union. Business and people in large economies would only truly benefit from trade if governments are willing to open up its market and welcome foreign businesses. Read more…
Despite recent economic growth in the East African Community (EAC), freedom to trade across borders remains stifled. The main trade barriers are extraneous transportation costs, particularly caused by corruption, bureaucratic time delays, and poor border infrastructure. If costs do not decrease soon, East African GDP growth will stall.
Because road transportation is significantly more expensive than shipping and air transport, only 23 percent of the EAC’s total exports and 10 percent of total imports are intraregional. (See chart.) To transport a 20-ton container from Mombasa to Nairobi costs $1,300, while a similar container from Mombasa to Kampala and Kigali costs $3,400 and $6,500 respectively. This is more than double the $1,200 one would incur to ship the same goods from Japan to Mombasa.
High road transportation costs are most likely the result of low logistical efficiency, which is a function of customs procedures, infrastructure, quality of services, and wait times. Among 160 countries tracked by the World Bank in 2013, EAC countries ranked in the bottom 60 in the Logistic Performance Index (LPI), significantly lower than advanced economies. Bureaucracy and excessive government intervention over the years have been at the root of the poor logistical performance. It is estimated that improving the EAC’s logistical performance by 50 percent could bring about a 15 percent increase in trade and a 5 percent growth in GDP.
High Bribes and Overcharges
In an interview drivers reported unexpected overcharges and bribes at border checkpoints and weighbridges. According to an NGO official we interviewed, bribes to and overcharges by customs officials are the norm. Collectively, these additional expenses amount to nearly 19 percent of total operating costs for companies crossing these borders, according to a recent survey done by the East Africa Policy Center. (See Table 1.)
In addition to paying bribes, traders must pay double road tolls between countries, passing through two tolls gates at each border, one each side. Administration is so disorganized that drivers often pay the same fees twice.
World’s Longest Time Delay at Borders
Time delays arise out of inadequate infrastructure, complex cargo-clearance procedures, documentation requirements, and customs procedures. Inefficient labor management also increases delays and is especially common in Tanzania, where empty trucks are weighed in the central corridor. The average waiting time at the borders of EAC countries is 13 hours – approximately 130 times longer than in most OECD countries. (See Table 2.) A single trip between Mombasa and Kigali requires 52 documents and signatures. In the United States and Canada, truckers cross the border in less than an hour.
As an example of cargo-clearance inefficiency, cigarettes manufactured in Kenya and exported to Tanzania are required to contain 75 percent Kenyan tobacco to qualify for preferential treatment at the border. However, the border personnel’s lack of understanding of the complex product structure and their limited management experience often lead to long waits — up to two days at the main Kenya-Uganda border. We found that delays and fixed port charges account for up to 40 percent of transport costs for freight transported along the Northern Corridor.
Customs delays in EAC countries cost businesses and individuals about US$8 million per year. Our team estimated that eliminating unnecessary border delays would reduce the transport prices and increase sales by 10-15 percent. For many years these inefficiencies have amplified risk, slowed operation, and driven up prices, steering business towards the United States, European Union, and other advanced economies, rather than allowing trade to develop within the region.
Alternative Solutions Critical to Meet Development Need
Although the EAC Sectorial Council of Trade, a regional legislative and policy making body, has approved two bills to prevent trucking overcharges and to reduce delays at the borders — the One Stop Border Post Bill and the Vehicle Load Control Bill — implementation has been slow.
Eliminating one of the two border stops that trucks are required to pass through would prevent unnecessary duplication of documents and procedures and would require EAC countries to coordinate rules and regulations. Governments call for close collaboration and hope that the new bills will significantly reduce transport costs and stamp out corruption. However, the trucking businesses’ savings from collaboration will be marginal. The EAC should stop treating trade restrictions, which distort markets, as a diplomatic matter and start treating them as government policy failures.
In a 1994 experiment in Rwanda, deregulation of transportation reduced cartel influence and cut transportation costs by 75 percent. Those who favor liberalized transport foresee a competitive interregional trade environment and more incentives for road managers to provide more efficient and less costly services.
Removing nontariff barriers and reducing road transportation costs are critical not only to Africa’s economic growth but also to the African development agenda as a whole. Over 80 per cent of regional trade is in nonfuel products and essential goods such as crops and grains. Reducing transport costs is a key to reducing food prices in East Africa. Elimination of such barriers will significantly reduce poverty in the region.
Mike Rotich is the President of East Africa Policy Centre, a think tank based in Nairobi, Kenya. This Op-ed is based on Struggling with Trade Barriers, Formal and Informal: Challenges Facing the Long Distance Trucking Industry in East Africa Community, a report recently published by East Africa Policy Center.
The Ukraine crisis has come full circle. While images of revolution, war, annexation, and invasion remain fresh, it is important to remember that this upheaval actually began as a trade dispute. The EU and Ukraine wanted to increase trade via the association agreement, and Russia loudly objected, first with words and soon thereafter with guns. A shaky cease-fire is now in place, but any lasting solution to this crisis begins where it started, namely with trade. Read More …