Impact of Overland Transport on Intra regional Trade in Africa

A recent USITC Study titled Sub-Saharan Africa: Effects of Infrastructure Conditions on Export Competitiveness, Third Annual Report found that intra-regional trade as a percentage of total trade in SSA averaged only 8 percent, compared to 44 percent in East Asia.  The fact is that there are intra-regional trade opportunities among African countries, especially for countries that share a border and in fact neighboring countries often have integrated transport networks and bilateral transit or customs agreements. However, the poor quality, high cost and overall port-oriented design of land transport infrastructure in SSA inhibits intra-regional trade.   

As an example, there is no overland trade between South Africa and Nigeria, the two largest economies in Sub Saharan Africa and as shown in the figure (source: Adapted by USITC from OECD, Africa Economic Outlook 2008) there is little overland connectivity between West and Southern Africa. 

However improvements in land transport infrastructure will not necessarily lower transport prices in regions where regulations render logistics markets uncompetitive. Transport firms capable of exercising monopolistic power may still maintain high transport prices and avoid passing along savings to end-users. For instance where market regulation is strong, there are high barriers to market entry, and freight bureaus and transport associations can have great influence, resulting in high transport prices. As a consequence, freight transport services in Africa can be more expensive than those in developed countries and similarly, the cost of intra regional trade would be high.

While improved road and rail links and infrastructure may increase trade between SSA countries by integrating markets and facilitating specialization, intra-SSA trade effects may also be limited by the fact that many SSA countries produce similar commodities (agriculture, oil and minerals), while demand for imports tends to be for manufactured goods.  Hence there are limited complementarities between regional economies in SSA, and in the absence of changes in the trade profiles of SSA countries, there may be little natural momentum to spear dramatic changes in infrastructure investment.