Why transport costs in Africa, and in developing countries, are so high?

About 90 percent of the the global volume of cargo is currently transported by sea. Maritime trade has benefitted in the latest 70 years from a continuous growth in the tonnage of container ships, which have now reached a carrying capacity of about 24,000 containers or more. This growth in transport volumes has enabled a significant reduction of costs for this mode of transport, which have declined by up to 39 percent by weight and 62 percent by value since the 1960s. Unfortunately, this reduction has not been uniform across countries. For instance, a shipment from a low-income country to the United States costs almost twice as much as a shipment from a high-income country. On the other hand, for what concerns South-South trade, in contrast to developed countries, developing countries predominantly use road transportation as main transport modality, a mode of transport that is notoriously more expensive than maritime shipping, despite being more flexible, as it allows for door-to-door deliveries. A new World Bank report analyses the factors that cause these disparities, showing that the cost of trading within developing countries is between 3 and 14 times higher than in the United States, a situation that is also common to Africa.

In short, greater distances, a more difficult geography and qualitatively less efficient infrastructures affect the cost of shipping. Sometimes, this situation is exacerbated by the lack of alternative routes, especially in landlocked countries. Ethiopia and Kenya come to mind. These two economies, the biggest in the Horn of Africa, are currently connected by only one road passing through the border post of Moyale, converted in 2017 in a One Stop Border Post (OSBP). The consequence of this situation is that any interruption on this route risks to totally paralyze trade between the two countries.

But these are not the only reasons. In developing countries, the poor road conditions, the treacherous topography, and unpredictable weather that often makes some roads impassable or difficult to pass make transportation slow. There is also the problem of freight flow imbalances: as Africa imports much more of what it exports, trucks and containers often remain stuck in the destination point for weeks awaiting a cargo to transport back to the port. When no cargo is found, the exporter must pay the empty trip of the truck from the port to his location so that this truck can pick his cargo and move to the port in order to export it. And this tremendously raises transportation costs.

In addition, multiple market regulations and cross-border regulatory barriers cage the transport profession into a bureaucratic quagmire which contributes to cause further delays. A main point of the report is that when transportation is slow, it costs more. If we add to this the fact that borders are a major bottlenecks, with an average time to comply with export regulations often exceeding 4 days in low-income countries (compared to one day in high-income countries), we have a quite clear scenario of why in Africa (and in development countries in general), imported products are so expensive on the destination markets. Citing a brief published in 2017 by the International Growth Centre, the report notes that the high cost of domestic transport in African countries is one of the main reasons why the impact of trade liberalization in the continent has been so far limited and geographically unbalanced. Hence, reducing domestic transport time and cost can promote international trade. This is a lesson to keep in mind also within the context of the African Continental Free Trade Area (AfCFTA).

As for maritime transportation, in developing countries, ships sometimes spend 15% or more of their total export time waiting in ports. This further escalates the cost of this mode of transport. Furthermore, travel from the point of origin of the shipment to the main port or from the port to the border tend to be slower in poor countries than in rich ones.

Another situation examined in the World Bank report is the competitiveness of the transportation services. Price regulation, formal and informal barriers to entry, market concentration by a few players and alliances/collusion among carriers are factors that lead to poor logistics performances and higher transportation costs. The case of Sub-Saharan Africa is given as an example. Here, food prices can increase by up to 50 percent because of the high incidence of transport costs, that are ultimately passed on consumers. Moreover, poor logistics is responsible for about 40 percent of food losses.

The conclusion is that to compete in global markets and harness the benefits of trade liberalization initiatives (including the AfCFTA), developing country governments need to keep transport costs down. And this must be done not only by ensuring better connectivity between the points of departure and points of arrival of goods, but also by addressing all the factors listed above, including procedural bottlenecks. Policy and decision-makers have to keep in mind all these variables if they want to design impactful reforms that accelerate trade and growth.