Regional infrastructure for trade facilitation – what is the impact on growth and poverty?

1 July 2015 13:30 - 15:00 GMT+01 (BST)
Public event

Chair

Dr. Ganeshan Wignaraja- Advisor, Economic Research and Regional Cooperation Department, Asian Development Bank.

Speakers

Louise Thomas- Head of Trade for Development, DFID (Introductory remarks)

Dr Marie- Agnès Jouanjean - Research Fellow, ODI

Prof Olivier Cadot - Director, Institut d’Economie Appliquee (CREA) - Institute of Applied Macroeconomics/Senior Fellow, Foundation for International Development Study and Research (FERDI)

Dr Ben Shepherd - Consultant, Developing Trade

Discussants

Gerald Makau Masila - Executive Director, Eastern Africa Grain Council

Jodie Keane - Economic Advisor, Commonwealth Secretariat

Frank Matsaert - Chief Executive Officer, TradeMark East Africa (TMEA)

Prof Jaime de Melo - Senior Fellow, Foundation for International Development Study and Research (FERDI)

Description
This session is a side event at the World Trade Organisation's (WTO) Fifth Global Aid for Trade Review in Geneva.

Preliminary findings suggest that improvements in regional infrastructure for trade facilitation in sub-Saharan Africa are very likely to result in growth and poverty reduction.

Regional infrastructure and regional integration can raise growth and productivity through increased trade, investment and competition.  The interaction between hard (e.g. roads, ports) and soft infrastructure (e.g. relevant transport services, regional standards) have also been found to promote impact.

Members of the project team will be presenting key findings from a literature review and preliminary findings from case studies and research papers. The discussions will feature a range of practical and academic experts.

To participate in this session, please register online here https://aid4traderegistration.wto.org on or before Friday 19 June 2015.

World Trade Organisation (WTO), Geneva

Summary

This session discussed the evidence on the impact of regional infrastructure for trade facilitation on growth and poverty reduction based on a DFID-funded research project led by ODI. The projects has the following research questions:

    ·    What is the evidence that improvements in regional infrastructure designed to increase cross-border trade in Sub-Saharan Africa (through reducing the costs of trade, including costs caused by delays – principally transport) result in poverty reduction: (1) indirectly as a result of economic growth; (2) directly?

  ·      What are the potential risks to the poor created by trade growth resulting from improvements in regional infrastructure?

·      What policy interventions have the capacity to increase benefits for the poor and mitigate potential harm to the poor?

To provide background analysis to the report, the project suggests a set of research papers and case studies organised around three clusters examining different scales of impact. The projects aims to highlight various elements of the theory of change from regional infrastructure to growth and poverty reduction:

·    Cluster 1: Effect on economic activity at the border and along trade corridors;

·  Cluster 2: Effect on the development of regional value chains;  

·  Cluster 3: Effect on firm level productivity.

Preliminary findings suggest that improvements in regional infrastructure for trade facilitation in sub-Saharan Africa (SSA) are very likely to result in growth and poverty reduction through both direct and indirect routes, although there may be specific negative effects on certain groups without complementary policies. Infrastructure reduces trade cost which increases trade; however, there is a lack of studies that isolate the specific effects of regional infrastructure. Regional infrastructure and regional integration can raise growth and productivity through increased trade, investment and competition. Hard (e.g. roads, ports) and soft infrastructure (e.g. relevant transport services, regional standards) interact in promoting impacts.

Presentations by the panellists

Louise Thomas made an introduction to the session emphasising the importance of the topic, followed by a few words from the chair, Ganeshan Wignaraja introducing the project’s objective and research questions.

The panel discussion started with a presentation by Marie-Agnes Jouanjean first emphasizing the relevance of taking a regional perspective in SSA. Evidence shows that on average, distance matters and that countries trade relatively more with their neighbours than with the rest of the world. However, African countries are relatively “outward looking” in their trade patterns, at least formally, and it can sometimes be easier to trade with the EU than with a neighbouring country. This is due in part to problems of infrastructure and trade regimes on the African continent.

One preliminary finding from the project is that it is crucial to have full pass-through of the reduction of trade costs to producers and consumers in order to have an effect on growth and poverty reduction. The complementarity between soft and hard infrastructure is essential. In particular, to have a poverty impact, the final mile matters, not only in hard infrastructure, but also for soft infrastructure.

Following on from this, Prof. Olivier Cadot and Dr. Ben Shepherd presented ongoing research papers from the project. Prof. Cadot uses data on night-light intensity from satellite imagery to investigate the effect of borders on economic activity along cross-border roads. His findings so far support the hypothesis that economic activity in SSA clusters in close proximity to borders which reflects informal trade that requires physical presence (changing of trucks etc). However, this effect has been decreasing between 1995 and 2013, suggesting that investment in border post modernisations and reforms of trade regimes have led to a “formalisation of trade”.

Dr. Ben Shepherd presented current progress from his research paper on “Infrastructure, Trade and Network Connectivity in Sub-Saharan Africa”. Exploring multi-regional input-output tables based on EORA data he showed that African countries are less involved in regional trade but engage in international trade with big trading blocs like the US, China and the EU. Both hard and soft infrastructure are amongst the determinants of the position of a country in the network of global value chains.

Among the discussants, Frank Matsaert focused on identifying direct and indirect pathways for poverty reduction. There are risks to the poor, for example, there will be adjustment cost at the macro level to any reform of trade regimes or investments in infrastructure and border posts. He called for export strategies for landlocked countries to help in the adjustment period.

Gerald Makau Masila added to the discussion by presenting a project of warehouse modernisation in East Africa and the challenges as well as benefits of harmonisation of standards in the region for smallholders. The process of increasing the awareness and implementation of the standards is ongoing. He mentioned the challenges in the shortage of skilled staff for grading products at the warehouse level, as well as laboratories etc.

Dr. Jodie Keane recommended the need to distinguish more clearly between vertically specialised and additive/resource based value chains and analyse the subsequent effects of inclusive growth and poverty reduction.

Finally, Prof. Jaime de Melo drew attention to the shift of focus from poverty reduction being defined entirely by targeting the very poor to also aiming to improve the lives of people with less than 25-30 dollar of income per day in China and the BRICS.

Questions and comments by the audience

Questions and comments of the audience focussed primarily on the large share of informal trade in Africa that is not captured in the official data. However, infrastructure improvements that reduce the time informal and small traders need to go through borders would lead to gains in household income and enable household investments in education. This would present an important effect of infrastructure investment that is not immediately captured by data.

Dr. Ben Shepherd pointed out that the main points brought up in his network analysis still stand despite the presence of informal trade. He mentioned a recent analysis in West Africa where it had indeed been difficult to find regional value chains as most value chains remained domestic. This suggests that regional trade agreements in some parts of Africa at least, are not yet effective on the ground and require further reforms and infrastructure improvements.

Another point of discussion centred on the risk and gains of containerisation to bring down the cost of trade and it was suggested that further research be conducted on the issue.

Conclusion

The panel concluded with an emphasis on the issue of finding pathways to promote the benefits to the poor from trade facilitation and disentangling the impact of investment in hard and soft infrastructure. Another point to address in the follow-up of the event is the question of how to finance those measures.