West African Intra-regional trade is small. Trade structure is dominated by raw or commodities with a limited added value and informality prevails
West Africa and the Abidjan-Lagos corridor – between Cote d’Ivoire and Nigeria, passing through Ghana, Benin and Togo – have been growing steadily for the past decades. The region has abundant and diverse resources including both agricultural and mineral resources that represent great opportunities for trade. Trade, subsequently, plays a vital role in the regional economic performance and can potentially promote industrialization and thus induce a virtuous development cycle. At the same time, global value chains are one of the main features of today’s global economy and West Africa should leverage on these chains in its development process. Hence, to foster this cycle and the access to these chains, the need for transport and trade facilitation policies, strategies and specific hard and soft measures. There are good prospects for the region to develop by tapping into regional and global value chains but there are also important challenges.
To secure benefits, the corridor countries have to meet certain conditions such as the establishment of a stable business environment, the elimination of restrictions on competition between firms from the corridor, and the implementation of trade facilitation measures to reduce barriers to trade. Policies require various institutional structures to deliver on trade development.
Some of the fundamentals of trade that need to be borne in mind are:
- Trade is more likely to be created when the economic integration and the number of countries involved is larger (economies of scale), barriers to trade (tariffs and non-tariff barriers) are reduced or eliminated, and the economies of the integrated countries are competitive with comparable levels of development and complementariness between the base of resources.
- The pattern of trade heavily reflects the differences in comparative advantage among countries.
- Trade is created when countries “give up” on the production of goods and services that they produce less efficiently, favoring the same goods and services produced more efficiently by a partner country.
- Regional welfare will increase with when changes introduced by the latter produce a shift in consumption form higher-cost domestic products to lower-cost partner products.
The Challenge: a fully integrated economic corridor
The main challenge now is to transform a mere transport corridor into a fully integrated economic corridor. Whereas a transport corridor only requires the physical infrastructure – which is still being built and improved for the corridor between Cote d’Ivoire and Nigeria, an economic corridor is made of well-developed production and logistics chains.
To fulfill the goal of economically integrating the corridor, the following challenges will need to be addressed – financial; regulatory; technical; of governance; of capacity; and cultural. To address this challenge, corridor countries need to address a number of issues regarding public and private sector involvement, community engagement and informal sector participation. Some of the critical issues to be addressed for the facilitation of trade along the Abidjan-Lagos corridor include:
- A comprehensive industrial policy that supports a number of key sectors to upgrade and diversify the economy (with added value products), and thus establishes an adequate production base for the global value chains and a rapidly changing world.
- A structural change in corporate governance aiming both at recovering public investment and boost private investment. For the latter, it is essential that the financial system provides adequate credit to small and medium enterprises.
- A pragmatic approach to goods, adding-value-processes and markets that will spur international trade and leverage on the links between the exporting sectors and the rest of the economy.
- A framework for economic activity that is simultaneously stable for economic activity and flexible to adapt to specific circumstances. This requires that policies and institutions are closely connected to, but independent of, the business community.
What is now needed and required is to develop and invest on proposals that with little effort and relative simplicity address effectively and efficiently the main barriers to trade. The corridor, which has a long tradition of maritime shipping based on geographical features and important land infrastructure’s flaws, may be facing a paradigm shift – there is now an opportunity for modal shift from water to road and development of land logistics chains.
The solution: Add value and engage stakeholders through a phased approach
There are opportunities for trade development in West Africa and, specifically, between the five countries, as a consequence of the following drivers:
- The massive size of Africa, and of some countries in the Abidjan-Lagos corridor, and the existence of many several landlocked countries will foster the development of high-capacity and efficient transport corridors.
- West Africa will produce large and growing volumes of goods that are natural markets for road transnational corridors.
- Growing urbanization and industrialization will pose new transportation and trade challenges and the Abidjan-Lagos corridor is well placed to play a key role in addressing some of the major issues.
Regional trade will not take-off until countries in the corridor start differentiating from each other. Countries could instead focus in producing goods that can effectively generate value for the country while promoting cooperation rather than competition between the different nations in the region. Countries should start from labor-intensive sectors and upgrade to medium and later high-technology sectors. Industrial and Trade policy makers need to bear this in mind and understand that regional trade of goods will only be sustainable, resilient and profitable provided that they are compatible with their natural markets.
Believing that regional integration can be immediately achieved would be naïve. The same applies to trade. The solution for the corridor might require intermediate small steps through bilateral measures that would address specifics of transport and trade between two countries. Once these bilateral collaborations are attained and progressing smoothly, they can be used as stepping stones for seamless trade along the corridor throughout the five countries.
The solution: Leadership, political and local communities’ participation, private sector enrolment and unleashing the potential of the informal sector
Leadership and political participation are essential factors to be taken into consideration and heavily promoted. Executive Branch leadership is crucial for strategy and specific measures implementation. Since the communities should be the main beneficiaries of trade, they should also be engaged in promoting it. Individual citizens should act as agents of change. Future action also necessarily focuses on getting the private sector onboard. The private sector, in general, and the informal sector, in particular, need to be involved and may act as an initial trigger of trade dynamics identified as critical to trade development. The corridor development needs to become “a personal target and quest” for every stakeholder.
ALG work for the African Development Bank
ALG is currently working on the “Abidjan-Lagos Highway Corridor – Trade and Transport Facilitation Needs Assessment study” for the NEPAD division of the African Development Bank. The project aims at contributing to the planning and implementation of an efficient trade and transport system along the Abidjan-Lagos corridor, thus facilitating international trade between Cote d’Ivoire, Ghana, Togo, Benin and Nigeria.