For use of information media - Not an official record
TAD/INF/PR/9931
INVESTING IN TRANSPORT IS AN INVESTMENT IN AFRICA’S FUTURE

Geneva, Switzerland, 20 October 1999

The high cost of transport in Africa -some 30 to 40 per cent above that in other developing regions- seriously undermines growth prospects in the continent. Ways of improving the efficiency of its transport links as a key to Africa’s trade competitiveness are being examined today and tomorrow by the UNCTAD Trade and Development Board.

On Monday, UNCTAD Secretary-General Rubens Ricupero told the Board in his opening address (see TAD/INF/2830) that, unless infrastructural bottlenecks were solved, particularly in transport, improved market access, even on preferential terms, would not solve the problem of Africa’s lack of competitiveness in world trade.

An UNCTAD study on "African transport infrastructure, trade and competitiveness" (TD/B/46/10), prepared for the Board, shows the comparative disadvantage of Africa in relation to other continents. On average, freight costs are 5 percentage points higher in sub-Saharan Africa than the average for all developing countries. In landlocked African countries, the situation is even worse, as costs are typically 10 per cent higher.

In 31 out of 43 countries in sub-Saharan Africa, freight costs on imports are 50 per cent higher than the average for developing countries. For exports, transport costs are over 30 per cent higher than those of competitors elsewhere in half of those product items exported by sea and four-fifths of those exported by air. For the top 15 export products from African countries to the United States, for example, the ad valorem transport costs are higher than those for their competitors in 80 per cent of the items.

The direct and indirect effects of high transport costs pervade the economy. They reduce the volume and worsen the terms of trade. The impact on the balance-of-payments is further aggravated by the need to import transport services. For almost half the sub-Saharan countries, transport payments absorb over 20 per cent of total foreign exchange earnings from exports. For three, they absorb over 50 per cent.

Particularly significant is the negative impact of poor transport infrastructure on rural development. For instance, there is evidence that some African farmers are unable or unwilling to specialize in high value fruit crops for export because of transport problems.

Inefficient public ownership and intervention, under-regulation and lack of investment are among the causes of high transport costs in Africa. Capital investment has been squeezed during the past 20 years as a result of sharp cuts in public spending under structural adjustment programmes.

Moreover, the existing transport infrastructure has not been maintained in many countries, owing to a lack of resources, as a result of high debt burdens, budget deficits and falling levels of official development assistance (ODA).

Remedies: ODA, Private Financing and Regional Cooperation

At today’s meeting of the UNCTAD Board, Mr. Ricupero mentioned as one option, the need to inject private finance in transport infrastructure development. But, he cautioned, one should be realistic. The areas to which the private sector would be attracted were limited. (In Asia and in Latin America private investment on average does not exceed 7 per cent of total infrastructure investment.)

Mr. Ricupero also saw a possibility of enhancing the attractiveness and effectiveness of risk-sharing products of multilateral institutions, in particular through guarantees against specific political risks, which deter private investment in commercially attractive ventures.

ODA should be increased, both in terms of quantity and of quality, he said. UNCTAD estimates that up to three-quarters of ODA allocated to infrastructure is tied. This tends to undermine international competition in procurement, to increase costs and can lead to the installation of inappropriate equipment.

Mr. Ricupero also stressed the need to promote the development of rural transport infrastructure, as this would integrate rural households into the market economy and would thus greatly reduce poverty.

UNCTAD advocates greater regional cooperation for transport infrastructure development as it creates economies of scale. In addition, it develops complementarity of interests between land-locked and coastal countries as transit infrastructure directly generates foreign exchange.

Mr. Ricupero mentioned the successful case of the development of the Maputo corridor, in southern Africa, as an example of how effective regional transport schemes could spur economic activity. The corridor development approach seeks to concentrate viable industrial investment projects within selected corridors connecting inland production areas to ports at the same time as infrastructure investment takes place. The revenue stream thus created renders the infrastructure investment attractive to private business.

Journalists are cordially invited to attend a Panel discussion on "African Transport Infrastructure, Trade and Competitiveness" on 21 October, from 10h00 to 13h00 (Palais des Nations, Room XXVI). Dr. Paul Jourdan, Coordinator of Special Projects, Department of Trade and Industry, Pretoria, will address "spatial development initiatives and infrastructural challenges in Southern Africa", and Mr. Adebayo Alade.Loba, Director, Global Project Finance Group, Investment Banking Department, Credit Suisse First Boston, New York, will speak about "infrastructural development in partnership with the private sector".