Landlocked Developing Countries and Trade in Africa
Princess Puskas and Tlotlo Nkile are economists in the Research and Financial Stability Department, at the Central Bank of Botswana, and they are both Young African TradeExperettes Fellows.
Landlocked developing countries (LLDCs) share the common problem of lack of territorial access to the sea and the resulting geographical remoteness from international markets. As such, LLDCs are marginalized from major transportation networks and logistics services. Their exports and imports must transit through one or more neighbouring countries, and therefore unavoidably depend on the infrastructure, political and economic stability, and administrative practices of transit countries. This substantially increases the cost of trade for LLDCs and is a key factor in preventing their effective integration into the global trading system. Moreover, delays in customs clearance at the border caused by poor transit-transport infrastructure, cumbersome transit procedures and inefficient customs operations contribute to the reduction in opportunities for external trade and subsequent economic growth in LLDCs. Therefore, to enhance their access to the global market, LLDCs should cooperate to build sustainable transport and communications infrastructure that improves transit efficiency, promotes regional integration, and enhances business competitiveness.
Challenges and Opportunities of Landlocked Countries
Despite the progress made by Africa in enhancing LLDCs’ connectivity to international markets, it remains slow and challenges persist, including long transit distances and the lack of sustainable and resilient transport infrastructure, such as rail and network connections. The disruptions induced by the COVID-19 pandemic exacerbated deficits in trade and connectivity of LLDCs. On average, LLDCs spend about two times more of their export earnings on the payment of transport and insurance services than the average of developing countries, and three times more than the average of developed economies.
Transit times for goods of LLDCs are often extremely long because of their remoteness, difficult terrain, inadequate road and railway conditions and inefficiency of transit countries’ transport. As alluded to by the United Nations (UN), it takes LLDCs 42 days to import and 37 days to export goods, whereas coastal countries need only half that time. Transport dependence increases transaction costs and delays in trade, which erodes LLDCs’ competitiveness, discourages foreign investment, reduces economic growth, and subsequently limits the capacity of landlocked countries to achieve sustainable development.
Despite the prevailing challenges that LLDCs face, their inland location presents several opportunities too. They can become regional hubs for manufacturing, infrastructure, and the provision of services. One country that has taken advantage of its central position to attract foreign investment is Rwanda, which has been working towards becoming a financial hub in Africa. It is progressing the modernisation of its existing financial sector, institutions, and regulatory frameworks, positioning itself as a preferred destination for sophisticated and compliant financial services and cross-border financial transactions within Africa. LLDCs could also explore the possibilities of using air freight to reduce dependence on transit countries, particularly countries with diamond trade, like Botswana. Reducing bureaucratic restrictions could help facilitate trade and significantly reduce business costs. Furthermore, the development of economic corridors provide an opportunity for Africa to stimulate intra-regional and global trade and foster market integration.
Reforms to help LLDCs
It is acknowledged by various regional and international bodies that infrastructure is of critical importance as an enabler of industrialisation and trade. For example, the UN Almaty Programme of Action and its successor Programme, the Vienna Plan of Action (VPoA) aim to address the reduction of trade costs and the promotion of growth in landlocked developing countries. In recognition of the special development needs of LLDCs, the VPoA has implemented a 10-year Programme of Action for the decade 2014-2024, which focuses, among others, on infrastructure development and maintenance (including transport infrastructure), information and communications technology infrastructure, regional integration and cooperation, and structural economic transformation.
There has been noticeable progress in implementing VoPA’s pursuit of strategies for regional cooperation on infrastructure development and integration. Notably Botswana successfully completed the Kazungula bridge in 2021, a joint project between Botswana and Zambia. The bridge is aimed at expanding regional integration and trade across Southern Africa and provides an impetus to enhance the African Continental Free Trade Area (AfCFTA), launched in 2021. The AfCFTA is the largest free trading zone in the world in terms of the number of participating countries. The state parties acknowledge that the adoption of information and communications technology infrastructure has improved, although unevenly, throughout the LLDCs in Africa. To ensure the success of the trade area and to boost trade within the continent, AfCFTA emphasises the need to address head-on issues of cross-border payment platforms, transport and telecommunications networks, and internet access.
Recommendations for African LLDCs
The liberalisation of the transport sector plays a crucial role in facilitating inclusive intra-African trade as it enables LLDCs to participate in trade. With the AfCFTA implementation set to increase intra-Africa trade by 34% in 2045, it is imperative for the agreement to stipulate clear protocols on transport and logistics, and to address how the LLDCs can best be helped to have sound transport systems and how all member States can be encouraged to participate in joint cross border-investments.
The AfCFTA should learn from existing regional blocs to address implementation barriers. For example it could draw on the International Road Transport (TIR) system or European Union’s transit principles to improve the efficiency of transit systems. The AfCFTA could assist its members to promote incentives for quality and compliance using simplified customs procedures and allowing for the payment of duties and taxes through e-platforms prior to signing of consignments. These measures would reduce delays at the border. In most LLDCs, trucking remains a main mode of freight transportation. Therefore, a system similar to a TIR system, in which customs control is operated in an internationally harmonized manner, would benefit many LLDCs.
Investments in roads, railways, dry ports, and airports as well as in trucks, rail wagons, aircrafts and vessels are necessary to accommodate increased trade flows. Furthermore, dry ports are becoming key in assisting LLDCs to be better served by distant seaports and provide an opportunity to substantially improve the continent’s logistics.
There is also a need to develop a continent-wide transit regulation governing both intra- and inter-regional operations to reduce transit costs for overseas shipments. For example, transit countries in Africa should commit to having scheduled road maintenance included in their national development plans and strive to adopt vignette toll systems to generate funds to facilitate road maintenance.
In conclusion, LLDCs and development partners should enhance cooperation among themselves, and implement sustainable and resilient infrastructure projects including in transport and digital communications. These initiatives can help LLDCs and transit developing countries improve transit efficiency and regional integration, resulting in a more hospitable business environment and market competitiveness. Lastly, closer cooperation among LLDCs and transit countries on reliable transit infrastructure, efficient customs operations and improved access and use of technology can help overcome some of the challenges of being landlocked.
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