High trade costs: What can be done?

A SCRUTINY of the World Bank’s Ease of Doing Business report 2014 reveals that Zambia has been performing poorly on ‘Trading across borders’ ranking 163 out of 189 countries for the years 2013 and 2014.
Zambia’s lack of progress on this ranking is symptomatic of high trade costs and bottlenecks to trade. The ranking records the time and cost necessary to complete every official procedure for exporting and importing a standardised cargo of goods. These procedures include documents preparation, customs clearance, ports handling and inland transportation.
According to the report, it takes 44 and 49 days to complete all export and import procedures in Zambia respectively whereas it takes 31 and 38 for a similar process for sub-Saharan Africa on average. It takes even less time for developed countries to export and import at 11 and 10 days respectively. On average, 76 percent of the time in export and import procedures in Zambia is attributable to administrative procedures – documentation, customs and ports handling. Such lengthy export and import procedures present high trade costs for businesses and add to their cost of doing business. In particular, the expense of covering per day rates for truck hire and per diem transit allowances paid to drivers. Exporters also incur losses for time-sensitive goods such as perishable agricultural products.
Moreover, businesses risk losing customers due to late and unpredictable delivery of goods. On the other hand, consumers bear the cost of lengthy import procedures by paying higher prices charged for imported goods. But most importantly, lengthy export procedures can negatively impact trade volumes. Caroline Freund and Nadia Rocha in their paper “What Constrains Africa’s Exports?’ estimate that a one day increase in inland transit time reduces exports by seven percent on average in sub-Saharan Africa.
Equally of concern is that bureaucratic and inefficient border procedures encourage smuggling and corruption resulting in lost revenue for governments. The Organisation for Economic Co-operation and Development (OECD) estimate that revenue loss from inefficient border procedures exceeds five percent of GDP in some African countries. For a country like Zambia with a pressing need to improve revenue collection, it is imperative that our border procedures operate more smoothly and efficiently to ensure the optimal collection of revenue.
Granted, Zambia has made some important strides in facilitating trade through the implementation of various initiatives such as the Chirundu one-stop border post; improved web-based customs handling; and the introduction of scanning machines at border posts among other measures. These measures largely implemented between the years 2011 and 2013 have started to show benefits as evidenced by the sharp growth in non-traditional exports (NTEs). The value of NTEs doubled between the years 2011 and 2013 which to some extent, can be attributed to the implementation of these initiatives. Notwithstanding this achievement, trade costs remain high therefore necessitating continued efforts that will further reduce trade costs, boost trade flows and revenue collection.
Findings from the OECD trade facilitation analysis illustrate short-term measures that can reduce trade costs for lower middle income countries, namely: harmonising and simplifying trade documents reduce trade costs by 2.7 percent – the top 10 countries that make importing and exporting easy according to the Doing Business report require between 2 to 4 documents whereas Zambia currently requires seven to eight documents. Reducing the number of documents necessary for importing and exporting in Zambia should expedite the movement, release and clearance of goods;
Streamlining border procedures further reduce trade costs by 2.2 percent; ensuring the availability of trade-related information create cost savings of 1.4 percent; and advance rulings on customs matters bring cost reductions of 1.5 percent. Beyond this, Zambia stands to benefit from trade facilitation measures that will address factors affecting inland transit time given that increases in inland transit times negatively affect trade volumes. These factors that may affect the ability of firms to meet the specified delivery timelines of goods include the quality of roads and vehicles, efficiency of checkpoints, road blocks, accidents, and border waiting times among others.
In addition, Zambia can easily reduce trade costs by merely strengthening and broadening existing reforms. For instance, the roll out of the one stop border posts will greatly reduce the time spent on customs clearance and port handling at other border posts such as Nakonde and Kasumbalesa. Further, the Zambia Revenue Authority (ZRA) has recently announced that all major customs stations have been connected to a robust Optic fibre network and pooled bandwidth. This measure should address the slow customs procedures that were experienced following the upgrade of the Automated System for Customs Data (ASYCUDA) world.
Of course, improving Zambia’s trade will depend on more than these proposed measures. Nonetheless, evidence shows that improving efficiency in border procedures expands trade and in turn, contributes to economic growth. Other benefits include efficiency in revenue collection. Equally important for Zambia is that if inputs to production and finished goods can be imported and exported quickly and in a reliable time-frame, the country will become a more attractive destination for foreign investment.
The author is a researcher at the Zambia Institute for Policy Analysis and Research (ZIPAR).
For details contact: The Executive Director, ZIPAR, corner of John Mbita and Nationalist roads, CSO Annex building, P.O. Box 50782, Lusaka. Telephone: +260 211 252559. Email: info@zipar.org.zm.

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