Have Transport Costs Contributed to the Relative Decline of Sub-Saharan African Exports? Some Preliminary Empirical Evide

Abstract

Sub-Saharan African countries often attribute their poor export performance to foreign trade barriers, despite lack of evidence to support that view. More attention should be focused on how African countries' own policies --- especially policies affecting transport --- have hurt African exports. From the mid-1950s to 1990, Sub-Saharan Africa's share of global exports fell from 3.1 to under 1.2 percent, a decline that implies associated export earning losses of about $65 billion annually. Previous studies show that foreign trade barriers do not account for this poor performance. Indeed, African exports enjoy important OECD tariff preferences that provide significant competitive advantages over similar goods shipped from other countries. In the Sub-Saharan African countries, too high a proportion of foreign exchange earnings --- earnings that should be invested in productive capacity building --- is paying for Africa's high export transport costs. The authors demonstrate that relatively high transportation costs --- especially for processed products --- often place African exporters at a serious competitive disadvantage. Nominal freight rates on African exports are normally considerably higher than those on similar goods shipped from outside the region. Also, these charges often incorporate very high rates of effective transport protection against Africa --- a point that significantly reduces incentives for investment and the location of export-oriented industries in the region. African countries must use a far larger share of their foreign exchange earnings to pay for international transport services than other developing countries do --- and the relative importance of those payments has been increasing. In 1970, for example, net freight payments to foreign nationals absorbed 11 percent of Africa's export earnings; that ratio had increased to 15 percent by 1990. And for landlocked African countries, the freight cost ratio exceeds 30 percent, as exports must transit neighboring territories. Why are Africa's transport costs so high? Ill-advised policies on the part of some African governments seem to have played a role, as their cargo reservation policies produced high rents for lines that have been shielded from the effects of competition. The failure to maintain or improve port and transport infrastructure has also played a role. This paper --- a product of the International Trade Division, International Economics Department --- is part of a larger effort in the department to identify factors affecting the export earnings of developing countries and to anticipate important changes that may occur.