THE WORLD BANK Edited by Paul Brenton and Gözde Isik De-Fragmenting aFrica Deepening Regional Trade Integration in Goods and Services DE-FRAGMENTING AFRICA – Deepening Regional Trade Integration in Goods and Services DE-FRAGMENTING AFRICA Deepening Regional Trade Integration in Goods and Services © 2012 International Bank for Reconstruction and Development/International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. De-Fragmenting Africa ____________________________________i List of Abbreviations _____________________________________ix Preface _____________________________________________xiii Foreword ___________________________________________ xv 1. Introduction ________________________________________ 1 Introduction ______________________________________________ 1 Regional Integration Can Play a Key Role in Export Diversification ____________ 3 There is Substantial Scope for Trade Across Borders in Africa _______________ 5 Cross-Border Trade in Africa is Limited by Thick Borders __________________ 7 Removing Non-Tariffs Barriers is Essential to Free-Up Regional Trade in Goods _________________________________________ 12 Coordinated Regulatory and Trade Reforms are Needed to Integrate Regional Markets in Services. ________________________________ 16 Conclusions _____________________________________________ 20 Part I. Facilitating Cross-border Trade in Goods and Services __________23 2. Risky Business ______________________________________25 Introduction _____________________________________________ 25 The Characteristics of Cross-border Traders in the Great Lakes Region ________ 26 Conditions at the Border _____________________________________ 28 Steps to Facilitate Cross-border Trade in the Great Lakes Region ____________ 29 3. Economic Integration in the Lower Congo Region ________________33 Introduction _____________________________________________ 33 Estimating the Effects of Removing the Bottleneck _____________________ 34 Barriers to Cross-border Integration ______________________________ 36 Policy Recommendations _____________________________________ 39 4. Enhancing the Recent Growth of Cross-border Trade between South Sudan and Uganda _________________________43 Introduction _____________________________________________ 43 Costs and Constraints at the Border and Behind the Border ________________ 46 Table of Contents iv De-Fragmenting Africa Women’s Participation in Informal Border Trade ______________________ 51 Independent South Sudan and an Agenda for Regional Trade _______________ 52 5. Lowering the Cost of Payments and Money Transfers in UEMOA ______55 Introduction _____________________________________________ 55 The Current Payments Landscape _______________________________ 56 The Legal Framework Applicable to Payment Services ___________________ 59 What Factors are Limiting UEMOA Money Transfers? ___________________ 60 Policy Suggestions for the Way Forward ____________________________ 61 6. Facilitating Cross-border Mobile Banking in Southern Africa ________65 Introduction _____________________________________________ 65 Understanding the Demand for Mobile Banking in Southern Africa ___________ 65 Remittances _____________________________________________ 66 Trade Patterns in Southern Africa—Implications for Cross-border Payments _____ 68 The Financial and Telecommunications Landscape ____________________ 68 Policy Recommendations _____________________________________ 69 7. Why Trade Facilitation Is Important for Africa _________________73 Introduction _____________________________________________ 73 The New Approach to Trade Facilitation ___________________________ 74 Trade Facilitation Contributes to Africa’s Growth ______________________ 75 Setting Priorities for Trade Facilitation ____________________________ 79 Trade Facilitation is a Multi-sectoral Approach _______________________ 80 How to Integrate Trade Facilitation across Sectors _____________________ 81 Future Opportunities for Africa _________________________________ 83 Part II. Removing Non-tariff Barriers to Trade ____________________87 8. Deepening Regional Integration to Eliminate the Fragmented Goods Market in Southern Africa __________________________89 Introduction _____________________________________________ 89 Despite Southern African Economies Often Growing Faster than the World Average, Regional Trade Has Remained Relatively Constant _______ 90 While Efforts to Reduce Tariffs have Largely Been Met with Success, other Barriers are Critically Hindering Regional Trade ________________ 91 What are the Main Types of Barrier That Remain and How Much do They Cost? ___________________________________ 92 Priorities for Regional Merchandise Trade Reform and Implementing Them _____ 95 9. Addressing Trade Restrictive Non-tariff Measures on Goods Trade in the East African Community _______________________99 Introduction _____________________________________________ 99 Non-tariff Barriers in the EAC __________________________________100 Policy Recommendations _____________________________________102 10. Non-tariff Barriers and Regional Standards in the EAC Dairy Sector _______________________________________105 Introduction _____________________________________________105 The Dairy Industry in East Africa ________________________________106 Current Efforts to Harmonize Standards in East Africa __________________107 Policy Recommendations _____________________________________109 Table of Contents v 11. The Business Environment in Southern Africa: Issues in Trade and Market Integration ________________________________113 Introduction _____________________________________________113 Trends in Trade Integration ___________________________________113 Business Environment Reforms and FDI ____________________________116 Issues in Financial Market Integration _____________________________117 Policy Recommendations _____________________________________118 Part III. Integrating Services Markets ________________________121 12. Africa’s Trade in Services and the Opportunities and Risks of Economic Partnership Agreements _______________________________123 Introduction _____________________________________________123 Trade Liberalization and Regulation of Services Sectors __________________124 The Role of International Trade Agreements in Services Reform ____________126 Reform of Services in Africa and Economic Partnership Agreements __________127 Recommendations _________________________________________128 13. Developing Professional Services in Africa ___________________131 Introduction _____________________________________________131 Striking Differences in the Level of Development of Professional Services in Eastern and Southern Africa _________________________________132 A Middle-Level Skills Vacuum and Significant Skills Mismatches ____________133 Professional Services Remain Inaccessible for Many Small and Micro Enterprises_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 133 Limited Trade in Professional Services ____________________________134 Explaining Skills Shortages and the Segmentation of Markets for Professional Services in Eastern and Southern Africa – Weaknesses in Education ________134 Explaining the Segmentation of Markets for Professional Services – Strict Domestic Regulation and Regulatory Heterogeneity ________135 Explaining the Segmentation of Markets for Professional Services – Trade Barriers and Restrictive Immigration Policies ______________________136 Reforming Markets for Professional Services in Eastern and Southern Africa _____138 Policy Action is Called for in the Following Key Areas. ___________________140 14. Scaling up Regional Financial Integration in the EAC ____________145 Introduction _____________________________________________145 Cross-Border Financial Linkages in the EAC _________________________146 Path to Deeper Regional Financial Integration ________________________148 Integrating Burundi and Rwanda ________________________________149 Going Forward ___________________________________________150 The EAC Financial Sector Development and Regionalization Project __________151 15. Increasing Trade in Banking and Insurance Services in the West Africa Monetary Zone _____________________________153 Introduction _____________________________________________153 Opportunities for Increasing Cross-Border Trade in the Banking Sector ________154 Opportunities for Increasing Trade in the Insurance Sector ________________156 Conclusions _____________________________________________158 16. Beyond the Nakumatt Generation _________________________161 Introduction _____________________________________________161 vi De-Fragmenting Africa Developing the Distribution Services Sector in East Africa to Reach Poor Consumers 162 Price Comparison of Selected Products in Informal Settlements _____________167 Policy Recommendations _____________________________________168 List of Figures Figure 1.1: Formal and Informal Trade by Food Commodity in East Africa January–June 2011 _________________________________ 6 Figure 1.2: Borders in Africa Remain Very Thick ______________________ 8 Figure 1.3: Logistics Performance Index 2010 – Regional Averages ___________ 9 Figure 2.1: Key Border Crossings in the Great Lakes Region ______________ 27 Figure 2.2: Reported frequency of risks by cross-border traders ____________ 28 Figure 3.1: Night Lights in Kinshasa-Brazzaville, 1992 and 2009 ___________ 34 Figure 4.1: Trade between Sudan and Uganda ($ Million) ________________ 44 Figure 4.2: Exports (Formal and Informal) from Uganda by Destination ______ 45 Figure 4.3: Prices of Agricultural Products in South Sudan and Uganda (USh Per Kg) ____________________________________ 46 Figure 4.4: Costs of Trading from Kampala to Juba: Case of Beans __________ 47 Figure 4.5: Behind-the-Border Costs in South Sudan: Unit Cost (cent/ Ton-Km-Ton) ________________________________ 47 Figure 4.6: Number of Vehicles Registered at Sudanese and Ugandan Customs Per Day: November 2009 _______________________ 48 Figure 7.1: The Extended Spectrum of Trade Facilitation ________________ 75 Figure 7.2: How Trade Facilitation Can Contribute to Reaching Development Goals ________________________________ 77 Figure 8.1: Regional Trade Has Lagged Behind SADC Income Growth while Exports to the Rest of the World Have Boomed (1998–2008, Annual Values) ___________________________ 90 Figure 11.1: Index of Technical Efficiency (Manufacturing and Services) for Countries in Southern Africa ________________________115 Figure 11.2: Index of Allocative Efficiency (Manufacturing and Services) for Countries in Southern Africa ________________________115 Figure 11.3: FDI Inflows and the Marginal Productivity of Capital ___________116 Figure 11.4: Cost of Exporting – Doing Business Standard Cargo in the US, 2010 (USD) ________________________________119 Figure 12.1: Restrictiveness of Applied Services Trade Policies by Region _______125 Figure 13.1: Professional Density in Sub-Saharan Africa _________________132 Figure 13.2: Overall Restrictiveness Indices for Professional Services _________137 Figure 16.1: Compound Annual Growth Rate (CAGR) of Retail Sales in East Africa, 2006–2010 and Forecasted CAGR of Retail Sales, 2010–2015 ____________________________163 Figure 16.2: Retail Sales in East Africa, Millions of USD _________________163 Table of Contents vii List of Tables Table 1.1: Trading Across Borders in SSA is Costly and Time Consuming _______ 9 Table 3.1: Estimated Cost of Passenger Crossing between Kinshasa and Brazzaville (in USD) ______________________________ 37 Table 4.1: Miscellaneous Formal and Informal Payments During Transit between Border and Juba _____________________________ 50 Table 8.1: NTBs That have Been Notified to SADC Affect at Least One-Fifth of Regional Trade_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 92 Table 9.1: Examples of EAC Non-Tariff Barriers Identified for Immediate Action __________________________________103 Table 14.1: Regionalized Banking Operations in the EAC _________________147 Table 15.1: Credit Information Sharing Activities in WAMZ States ___________156 Table 16.1: Kenyan Supermarkets with EAC Presence ___________________165 List of Boxes Box 1.1: Risky Business: Poor Women Cross-border Traders in the East of the DRC ______________________________________ 4 Box 1.2: Examples of Non-Tariff Barriers in Southern Africa and their Costs. _______________________________________ 13 Box 1.3: Regional Integration and Services: The Example of Professional Services in East Africa ________________________ 17 Box 3.1: ONATRA and CNTF __________________________________ 38 Box 3.2: Crossing the Congo at Kisangani __________________________ 39 Box 7.1: One Stop Border Post: Chirundu between Zambia and Zimbabwe ______ 78 Box 9.1: EAC Categories for Non-tariff Barriers ______________________101 Box 15.1: African Insurance Forums ______________________________157 Box 16.1: The Bottom of the Pyramid Penalty ________________________167 Box 16.2: Pharmacy Accreditation Programs for Informal Retail Operators – Tanzania _________________________________169 Box 16.3: Reaching the Bottom of the Pyramid – Innovations in Distribution in India _________________________________170 [...]... Growing and more youthful populations increase the need for more inclusive and employment intensive trade and growth and at the same time offer a real opportunity for Africa to harness an enormous potential advantage that can drive productivity and growth over a sustained period as happened in east Asia in the 1980s and 1990s and more recently in China Regional integration and the boosting of intra -regional. .. that looks at constraints to trade along the value chain of exports and imports Trade facilitation thus is more than “fixing borders” and requires a focus on reducing trade costs wherever they arise along the value chain of traded goods, including critical services inputs and behind the border barriers to trade Removing Non-tariffs Barriers is Essential to Free-up Regional Trade in Goods While there is... (Teravaninthorn and Raballand 2009) It is therefore important to invest in regulatory reform in the logistics services sector including trucking, warehousing, customs clearing, and freight forwarding that ensures competitive and efficiently provided services along trade networks and lower trade costs It is important, therefore, to address policy constraints as an integral part of programs for improving infrastructure... of intra -regional trade can play a critical role in achieving these objectives in Africa Deeper integration of regional markets can lower trade and operating costs and relax the constraints faced by many firms in accessing the essential services and skills that are needed to boost productivity and diversify into higher value-added production and trade Goods traded across borders in Africa will tend... specialists, and the relevant government ministries; extensive dissemination of information and analysis at the national and then regional levels for increased awareness and deeper understanding of the policy issues affecting each sector Regional integration in financial services in sub-Saharan Africa has taken two different, though not mutually exclusive, paths In West and Central Africa, institutional initiatives... border crossing, yet up to 17 agencies operate there, raising fees from traders and travelers without offering any corresponding services 10 De-Fragmenting Africa Yoshino et al in Chapter 4 also find high trading costs leading to large disparities in food prices between Juba in South Sudan and Ugandan cities Maize in Juba is about three times more expensive than in Ugandan cities, while beans in Juba... rules of origin, import and export bans, and onerous and costly import and export licensing procedures 3 Reforming regulations and immigration procedures that limit the substantial potential for cross-border trade and investment in services The main message of this work is that to deliver integrated regional markets that will attract investment in agro-processing, manufacturing and new services activities,... trade in Africa Integrating regional financial markets can be an important mechanism to allow greater scale in the provision of financial services (which is generally acknowledged as being important in promoting financial sector development), to lower the cost of financial services, increase competition and innovation, and increase access to finance In Chapter 5, Musuku et al describe the current landscape... granting of trade preferences to that of COMESA), the membership in multiple agreements often entails applying differing trade rules to different regional partners This hampers trade flows by raising the costs involved for traders in meeting multiple sets of trade rules and gives rise to inconsistencies in the rules and procedures applied by the different trade agreements, distorting regional markets and. .. professional services in East Africa reveal that restrictions on multidisciplinary activities are an important constraint in the accounting sector, while regulations on fees and prices are the major constraints in the engineering and legal sectors Non-transparent procurement procedures also hurt accounting and engineering services providers while inappropriate standards hurt accounting services providers Trade . Brenton and Gözde Isik De-Fragmenting aFrica Deepening Regional Trade Integration in Goods and Services DE-FRAGMENTING AFRICA – Deepening Regional Trade Integration. in Goods and Services DE-FRAGMENTING AFRICA Deepening Regional Trade Integration in Goods and Services © 2012 International Bank for Reconstruction and