Sub-Saharan Africa trade and exports: Digitalisation and the need to improve physical infrastructure
Mark Norris, Deputy Chair of BExA and Partner at Sullivan, discusses the imperative to promote digitalisation and invest in post-harvest and border infrastructure in Sub-Saharan Africa in parallel in order to improve trade and exports.
Global trade and the UN’s Sustainable Development Goals
Global trade is has long been recognised as an engine of growth and development. The UN’s 2030 Agenda for Sustainable Development recognises international trade as an important means to achieve the UN’s Sustainable Development Goals (SDGs).
SDG 17 (‘Strengthen the means of implementation and revitalise the global partnership for sustainable development’) has as a specific target (17.11) to ‘significantly increase the exports of developing countries’.
For Sub-Saharan Africa, when it comes to trade and exports there is much that needs to be done. Improving the infrastructure necessary for trade is key and this is an area where export credit agencies have a key role to play.
There has been much coverage of the benefits of the digitalisation of trade. In the UK, draft legislation has recently published to allow for the legal recognition of electronic trade documents. The ICC has estimated that digitalising trade documents will generate £25 billion in additional economic growth by 2024 and will generate £224 billion in efficiency savings.
Clearly, reliance on physical documents is inefficient and the benefits of digitalisation are impressive. While digitalisation will remove obstacles and has the potential to boost African trade, digitalisation initiatives need to happen in parallel with investment in physical infrastructure. Poor physical infrastructure remains a significant challenge for many developing countries and for the African continent in particular. For trade, these infrastructure gaps span the whole supply chain from post-harvest infrastructure, through road and rail, to one-stop border posts (OSBPs) and port infrastructure.
Of these, post-harvest infrastructure and customs infrastructure are two areas where there is a pressing need for investment.
The potential for agricultural trade both within Africa and from Africa to the world is vast. To achieve this potential, investment in post-harvest infrastructure is critical.
The loss of food between production and consumption (or ‘post-harvest loss’) is significant in Africa. For some Sub-Saharan countries up to half the food grown is lost. Nigeria, for example, is the largest producer of tomatoes in Sub-Saharan Africa. It is also the largest importer of tomato paste in world. Post-harvest losses of the tomato crop in Nigeria are estimated at 45%-60% of production (The Rockefeller Foundation (‘Reducing Post Harvest Loss’)). For grain, the value of post-harvest loss in sub-Saharan Africa is estimated to be $4 billion annually. This more than the value of total food aid received over the preceding decade. Post-harvest losses are staggering.
In addition to the economic losses, post-harvest losses have significant environmental impacts. The UN Food and Agriculture Organisation has calculated that the total carbon footprint of food wastage (including land use change) was around 4.4 gigatons of greenhouse gas emission annually in 2012. At the time, this was equivalent to 87% of global road traffic greenhouse gas emissions.
In addition to the potential trade benefits, to address the environmental impact SDG 13 (‘Take urgent action to combat climate change and its impacts’) requires greater investment in post-harvest infrastructure. In particular, better storage and warehousing and significantly improved access to processing plants is needed.
Investing in post-harvest loss prevention through investment in post-harvest infrastructure such as warehousing, silos, post-harvest handling and processing is critical. Not only to improve trade (according to the UN from 2016 to 2018 Africa imported about 85% of its food from outside the continent) but also to combat climate change.
One-stop border posts
Without investment in physical customs infrastructure it will not be possible to realise the benefits of digitalisation. The two are very much interdependent. At the moment many customs posts duplicate procedures. Clearly, digitalisation can significantly reduce duplication and improve efficiency and effectiveness. But there needs to be the corresponding physical infrastructure such as OSBPs to maximise the benefits. Critically for trade OSBPs enable goods and vehicles to stop at a single facility for customs clearance when exiting one country and entering an adjoining country thereby avoiding bureaucratic duplication and delays.
According to the World Bank, time delays and bureaucracy make African transport three times more expensive than South American transport and five times more expensive than Asian transport. These additional costs affect the competitiveness of African goods on the international markets.
The World Economic Forum in their May 2022 White Paper ‘Growing Intra-African Trade through Digital Transformation of Border and Customs Services’ reported that a 24 hour delay in transit times added the equivalent of an ad valorem tariff of between 0.6% and 2.3%. Further that a day’s delay due to customs procedures could cause up to a 1.4% fall in a country’s export growth rate.
Even with digitalisation, a lack of investment in physical infrastructure will mean that sub-Saharan Africa will lose out and will fall behind.
Vincent Nkundabaramye of Kigali Independent University in his recent paper on Rwanda’s OSBP initiative reported that the initiative had “significantly and positively affected the movement of goods along the Rwandan customs posts” and had “considerably contributed to the improvements in the level of trade facilitation”.
Prior to the establishment of the Chirundu OSBP in Rwanda it took up to five days for a commercial truck to be cleared. With the streamlining and harmonisation of border procedures processing times for have been dramatically reduced. Commercial trucks are now cleared same or next day depending on the time of their arrival.
Not only does investment in OSBPs improve trade facilitation it has positive social impacts. SDG 3 (‘Ensure healthy lives and promote well-being for all at all ages’) has a specific target to end the epidemic of AIDS by 2030. Improved border infrastructure can play an important role in meeting this goal. When customs and border post infrastructure is deficient truck drivers are left with little to do for days on end while they wait for their documentation to be cleared. In Chirundu, “this attracted sex workers which resulted in high HIV/AIDS infections among the drivers and the Chirundu community.” Nkundabaramye highlights that reducing processing times through OSBP is expected to reduce HIV/AIDS infection rates.
The need for finance and investment
While digitalisation has the potential to be transformational for global and regional trade, in order for many countries to reap the benefits of digitalisation there will need to be significant investment in the underlying infrastructure. In Sub-Saharan Africa the need for investment in post-harvest infrastructure and border infrastructure is critical. More needs to be done to improve the affordability of post-harvest infrastructure and OSPBs given their clear environmental and social benefits. To ensure affordability ECAs and development banks will have a key role to play going forward.