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Logistics without Borders will enhance trade in Africa

By Meshack Kipturgo

A recent tweet from the Federation of Kenya Employers (FKE) Chairman stated ‘Now Uganda and Tanzania are exporting more food to Kenya than any other point in history…’ attracted varied reactions from Twittersphere and opened up the debate on regional trade.

The Chair argued that Kenya was becoming sloppy in agriculture, education and health and that there’s need for sober reflection on this trend. This commentary compelled me to reflect more critically on the role of the logistics industry in improving economic development of Kenya and the African continent in general.

Firstly, I can confidently state that Africa does not really need to rely on western countries’ support to develop its ability to trade and do business with itself. The continent only requires an inward and outward strategy to enable it cement its place in the global logistic economy through foreign investment and improved trading ties while internally driving regional trade through cross border integration.

The logistics sector across various countries in Africa reveals that substandard infrastructure continues to negatively impact the free flow of goods and largely influences the high cost of goods as well as inflate the cost of doing business in the industry. Today, cargo movement across Africa by road is painfully slow due to poor road networks and the multiple tariff barriers which make it extremely expensive to trade even within regional trade blocs.

In addition, the movement of cargo across Africa has been riddled with corruption and poor management of respective customs bodies further curtailing logistics operations.Though transport by sea in Africa accounts for 90 per cent of trade, more than any other region,  poor infrastructure, challenges associated with piracy has continued to stifled smooth operations and come with additional security costs which are passed on to the consumer.

As a result of these challenges, intra-Africa trade still remains a challenge and Africa is operating below its potential with volumes of 12 per cent of all trade in the continent. However, the income generated from the logistics sector through customs department, is currently estimated at 40 percent of government revenues and points to the huge income potential that remains largely untapped.

Kenya recently commissioned the Standard Gauge Railway (SGR) ferrying cargo from the Port of Mombasa inland and beyond with the expectation of efficient cargo movement, reduced revenue leakages and cost savings for the consumer. It is envisioned that the SGR will extend to the regional neighbours of Rwanda, Tanzania, Uganda and South Sudan to enable efficient interconnection of transit cargo and boost economic development. On the air transportation front, the launch of the Single African Air Transport Market (SAATM) by the African Union in January 2018, is a silver lining with great opportunities for the logistics industry as it is bound to encourage pan-African integration by opening up the continent’s skies which could be a huge gain in reducing the cost of air cargo.

To reap full benefits of these interventions, Africa therefore needs to – as a matter of priority – enhance its transport infrastructure, remove all the bottlenecks associated with intra-trade by opening up their borders for cargo movement using a single rail network and single transport documents to facilitate the growth of key sectors of the region’s economies.

Borrowing a leaf from the West, the European Union’s growth, has been primarily driven through an EU decision to open up their borders for trade with each other. Trade in goods and services between EU Member States accounts for over two thirds of the overall trade of EU Member States.This same potential exists for African economies by adopting a logistics without borders philosophy. Dynamics in today’s global landscape mean emerging markets must start considering how to shape their own futures. Africa needs to take the cue from developed countries by shifting its focus and efforts to explore the trade potential within the continent.

Africa is the second-largest and second most populous continent on earth with an estimated population of over 1.2 billion people. It is home to 54 recognized sovereign states which presents a huge market for intra-Africa trade. However, these statistics may mean nothing if Africa doesn’t realize the need to take radical and more tangible steps that will enable it secure its own share of global economic growth while sustaining its own regional growth.

To achieve this goal, Africa needs to exploit its potential by working together on its shared future by encouraging a robust continental integration and trade reforms that are geared towards economic development and ease cross border trade.  Trade barriers and fragmented markets will continue to put a lot of strain on the region’s growth hampering any possibilities of being an economic powerhouse on the global space.

In March 2018, 44 Africa member states signed the African Continental Free Trade Area (AfCFTA) at the African Union in Kigali, Rwanda. The agreement is a step towards African integration and is predicted to boost intra-African trade. The AfCTA is geared to reduce barriers to trade such as removing import duties and non – tariff barriers and boost intra-continental business. Jean-Louis Billon, VP of AfroChampions, a private sector group backing the initiative, told CNN: “There (are) too many barriers within the African continent and the only way for us to get to real development in the future is to boost trade and industry relations.”

In 2015, intra-African trade was worth just US$170m, according to the World Bank statistics which is way below its potential that runs into trillions of dollars. We need to be asking ourselves tough questions on what are the impediments to a self sustaining region? Collectively to succeed, individual governments must address these painful multiple tariff barriers in the various economic blocs so that sustainable and inclusive growth for the continent can be achieved. These regional trading blocs cannot work in segregation; they need to be scalable so as to improve connectivity across the African continent. Africa Union, consider this a tip to push Africa to the next frontier. Future generations will thank you for it.

The writer is the Group Managing Director at Siginon Group.