EGM on Trade and Transport Facilitation April, 2013 Dubai, 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)” 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. I.Main trade and transport-related constraints within Africa today

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

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

 Internet diffusion worldwide (users per 1,000 population) I.Main trade and transport-related constraints within Africa today 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 I.Main trade and transport-related constraints within Africa today

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

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

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

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

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

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

 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 Source: authors’ calculations based on MIRAGE model III.Empirical analysis from improvement of trade facilitation measures in the context of the CFTA

 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 Source: Authors’ calculations based on MIRAGE model III.Empirical analysis from improvement of trade facilitation measures in the context of the CFTA

 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 Source: authors’ calculations based on MIRAGE model III.Empirical analysis from improvement of trade facilitation measures in the context of the CFTA

 Intra-African Trade – Changes as compared to the baseline scenario – 2022 – US$ Billion Source: Authors’ calculations based on MIRAGE model  TF measures strongly enhance industrialization of intra-African trade III.Empirical analysis from improvement of trade facilitation measures in the context of the CFTA

 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 IV.Conclusions and policy recommendations

 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 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 IV.Conclusions and policy recommendations

 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!