African Trade Corridors

Thursday, 01 July 2010 10:14

Improving the efficiency of African trade corridors

Who are the stakeholders and what’s in it for them?

The African transport industry’s private sector players will have to accept that progress towards more effective regional economies will not come without its costs – the only viable way of improving the infrastructure, processes and systems that are supporting African corridors will be by way of collecting fees from end-users on a pay-for-use basis. The benefits should however far outweigh the costs to achieve this, writes Prof Alwyn Hoffman of North-west University

In a previous article (African Transport) I elaborated on the reasons why Africa is not enjoying its fair share of global economic progress, referring to the specific contribution that more efficient trade corridors could make to reverse this situation. The primary issues to be addressed in this respect were also outlined, and for the sake of continuity those arguments are repeated here to provide the perspective for this next article in the series:

* While Africa is exporting valuable resources to feed global economic growth, the lack of logistics efficiencies is detracting from Africa’s global competitiveness and hence is reducing the economic benefits enjoyed by Africa’s fast growing population.
* The primary cause of inefficient trade corridors is not any lack in the capabilities of Africa’s private sector operators – to the contrary, these players have been found to be amongst the most efficient on the globe. The culprits in this case are mostly governmental agencies responsible for cross-border processes, ineffective railway operations as well as the deteriorating road network.
* The root cause for this lack of efficiency on the side of many public sector role players involved in trade corridors does not seem to be lack of resources, skills or knowledge of best practices, but rather an overall lack of the required levels of governance – not only leading to ineffective management processes but also creating an environment where unethical practices prosper and where the incentive is removed for law-abiding players to stick to the rules.

This article will take one step closer towards a potential solution to the current state of affairs by considering the issues to be addressed before an improvement in the status quo could be realistically expected. More specifically I will identify the primary stakeholders whose cooperation will be essential to bring about change, and will then try to define the incentives for these stakeholders that will hopefully lead them to play their respective parts in progressing towards a more prosperous future.

The first important point to recognize is that public sector stakeholders, i.e. governmental agencies, will have to take the lead. While the vast majority of private sector stakeholders would gladly do their bit to streamline trade corridor operations, they are simply not in a position to change the rules of the game – it is and will remain the responsibility of governments to make (or not to make) these calls. And while a wide spectrum of governmental agencies are involved in the operation of trade corridors, it would seem that in most cases it is Customs that have the biggest influence regarding the way that corridors are operated.

Fairly intensive interactions with a number of Customs authorities on the continent and globally have brought to light a number of clear benefits that are sought by these agencies, given their primary responsibility of collecting duties:

* Firstly there is a need for more accurate transit and acquittal management systems to ensure that the status of consignments in transit are known at all times and that duties are paid in accordance with the rules of the country and/or customs union;
* Secondly there is a need to streamline the internal operations of customs by handling all information as far as practically possible on an electronic basis;
* Thirdly customs has the duty to facilitate regional trade by limiting to the minimum the obstacles caused by the duty collection process;
* Lastly customs strives to enforce governance onto their own operations, also by providing visibility and transparency to tax payers as far as the law would allow.

In principle all of the above can be enabled through an overarching system that spans across an entire customs region, including all corridors, from the relevant ports to the furthest border posts in consideration. Such an envisaged system should enforce consistent and uniform processes onto all players, including the way in which information is submitted and collected. The practical reality is however not that simple: this will require consensus from all customs authorities concerned, not only regarding a set of standard best practices, but, more problematically, regarding the physical systems to be used to collect and disseminate information. And it would seem that control over the respective duty collection processes and the information concerned is a key issue that is obstructing faster progress towards more streamlined processes along multi-national corridors (including the generally supported concept of One Stop Border Posts and Green Customs Lanes).

The second category of public sector players that has a major impact on corridors is the roads agencies. As pointed out in the previous article, the absence and/or lacking efficiency of rail operations in Africa has moved the bulk of inland freight transport onto the roads networks, leaving the roads agencies with a much larger burden than what the available resources would normally allow for. Observing recent developments in South Africa, the needs of roads agencies regarding improved corridor management can be listed as follows:

* Accurate monitoring of the actual load carried by each road forming part of the corridor network, to indicate not only the carrying capacity required but also the expected required maintenance needs, as well as potential income streams from tolling such roads;
* Law enforcement as far as overloading is concerned – recent studies have shown that on average 35 to 40 % of freight vehicles are outside of the legal payload limits, specifically in those sectors that have not yet started with some process of self-regulation;
* Collection of toll fees to implement the principle of pay-for-use, given that the tax base of most African nations will not allow the maintenance of the road network from public funds.

Once again it would seem that the specific need of the roads agencies are very well aligned with the needs of trade corridors in general regarding more effective management. The primary obstacle to implement the obviously needed systems across entire corridors would again appear to be the lack of uniform policies across national borders, and the lack of coordination between different initiatives to upgrade the roads infrastructure – typically a new road may be funded through foreign aid one side of the border, whilst the same road is still sadly in disrepair on the other side. This could however be addressed by giving responsibility to one legal entity to manage and maintain an entire multi-national corridor.

The third category of public sector players that should not be overlooked is the seaports, connecting continental corridors with trade routes serving the rest of the globe. Some of the challenges faced by Africa in this respect is the fact that global trade is fast moving towards containerized freight, and that the size of container vessels are ever increasing, making it difficult for many African ports to directly service some of the main sea routes. African ports can however go a long way towards improving the utilization of existing facilities by becoming more efficient in the following respects:

* More accurate visibility of the movement of freight along the connecting corridors, into the port and onto vessels and vice versa – this will limit delay times in the processing of vessels through a limited number of berths and will improve net throughput, reducing the current delays of typically several weeks to process freight through some ports.
* Improving the integrity of identifying freight and of the sealed status of containers – this will not only limit the risks of cargo owners and ports authorities alike, but will also eliminate unnecessary searching for and inspection of freight that is in customs bond, preventing above-board players from being subjected to unexpected delays.

Not surprisingly the above needs of sea ports can once again be served by an overarching corridor system operated by a single entity, providing consistent processes and information gathering systems that allow different stakeholders to coordinate their activities and to retain integrity of their cargo through multi-modal transport operations.

Having dealt with the key public sector players the next logical step is to consider the interests and viewpoints of private sector stakeholders. Whilst there is a multiplicity of such players, a simplified view would be to divide them into the following categories: cargo owners (some of whom handle their own logistics operations, with others outsourcing this activity to service providers); logistics companies providing comprehensive services end-to-end, including the physical handling of freight; service providers only focusing on information processing services (typically freight forwarders and clearing agents); and service providers specializing in some mode of physical transportation (hauliers, rail operators and shipping lines).

In general the needs of these private sector players as far as corridor operations are concerned can be summarized as follows:

* The availability of infrastructure that is well maintained, if necessary on a pay-for-use basis;
* The elimination as far as possible of bureaucratic processes that delay consignments and increase cycle times;
* Reasonable protection against losses en route, either through theft, damage or the payment of bribes to get consignments processed within reasonable time periods.

The majority of these players are forced by the competitive nature of the global economy to operate efficient processes and systems, and hence they are not necessarily in need of new systems as such. Their internal efficiencies are however hampered by the impact of lacking coordination with the operations, processes and systems of other players, including governmental agencies controlling the bottlenecks along most trade corridors. In addition to the need for a more effective service in general from government, most end-users of trade corridors will therefore benefit from the opportunity to exchange information with the rest of the corridor community, allowing them to better coordinate their own activities with those of other players whose services they depend on. Furthermore there is the need to retain visibility of documentation, processes and physical cargo once operations have been handed over to the next player in the chain, or whilst being subjected to inspections at ports or border posts.

Against this background I will try to summarize the specific benefits that each category of private sector stakeholder group would expect to see from corridors that are better managed:

* Cargo owners: improving the net speed of movement of freight and reducing losses resulting from loss of cargo.
* End-to-end logistics service providers: faster processing of the freight that they are responsible for, and the opportunity to provide additional value-added services by utilizing information collected from a corridor system.
* Freight forwarders and clearing agents: a similar opportunity to provide additional value-added services, and improving the quality of existing services to customers.
* Hauliers: improvement in the utilization of assets by reducing round trip times for trucks on long-haul routes, and better control over the performance of drivers.

It is clear from the above that, complementary to the situation as far as public sector players are concerned, most private sector corridor stakeholders will also benefit from a consistent set of processes, backed up by integrated end-to-end systems, that span across entire corridors. Such a system, operated by an impartial entity that is subject to scrutiny from all stakeholders, will not only provide much needed visibility to support improved efficiencies, but will also protect end-users from exploitation by officials that currently hide behind the lacking transparency of many corridor processes.

The above line of argumentation and the logical conclusions to be drawn are not really new in any respect – much debate has focused on bringing about the suggested changes. The million dollar question that is still in search of a satisfactory response remains: what should happen in practice to really change conditions on ground level? While I do not pretend to have the final answers, at least a few suggestions can be made to help pave the way towards more effective African trade corridors:

* The relevant authorities must reassess current priorities regarding the need for trade facilitation and must remove the obstacles that prevent the African continent from prospering in line with the expectations of its people. Current considerations regarding the specific preferences of Customs authorities that are preventing faster progress towards One Stop Border Posts and Green Custom Lanes should be carefully weighed against the cost that is currently paid by way of an uncompetitive logistical system impacting the economy of the entire region.

* Private sector players will have to accept that progress towards more effective regional economies that will increase their stake of the global economic pie will not come without its costs – the only viable way of improving the infrastructure, processes and systems that are supporting African corridors will be by way of collecting fees from end-users on a pay-for-use basis. The benefits should however far outweigh the costs to achieve this.

* It would seem that the only viable approach to change the status quo would be to establish multi-national corridor entities, possibly by way of Public-Private Partnerships, to ensure the support, commitment and active participation, not only of the primary end-users of these corridors, but more importantly of the respective governments without whose leadership this will remain an idealistic but elusive goal.

Prof Alwyn Hoffman
Northwest University
South Africa

Article supplied by Freight Into Africa

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