Since the 1980s, Kenya, Tanzania and Uganda have significantly reduced tariffs and trade policy restrictions on imports. As a result, effective protection on imports declined to 15 percent on average (by sector) by the early 2000s. Although they liberalised trade, exports did not increase to the extent hoped for. Constraints on production, especially of primary goods, or export supply response are likely reasons for this. High transport costs also play an important role.

African countries face particularly high transport costs, due to poor infrastructure and institutional inefficiencies. Research from the University of Nottingham, UK, with east African collaborators looks at the importance of transport costs and the extent to which this explains the poor export performance of east Africa. It examines transport costs for imports to, and exports from, the three countries, covering fourteen productive sectors of the economy. It compares the implicit subsidy (effective protection) on imports and implicit tax on exports due to transport costs, for early to mid 1990s and early 2000s. The research is a resource for policymakers as it estimates transport costs, distinguishes sectors, imports and exports and forms of transport (land, sea and air).

Increased trade openness is usually associated with export-led growth. In many sub-Saharan African countries, much of the poor economic growth between 1970 and 1995 is due to a combination of low openness (high protection) and high transport costs (equivalent to a tax on exports). In the three east African countries studied, the research finds that:

• Overall transport costs did not fall since the mid-1990s: for example, Uganda faces the highest transport costs and although land freight costs fell, sea freight costs rose.
• Overall, effective protection of imports due to transport costs remains around 15 percent on average and rose slightly, somewhat offsetting the reductions in tariffs: transport costs became a more important source of protection than trade policy.
• Transport costs for exports continued to be very high even in the early 2000s: effective taxation of exports due to transport costs was 40 percent for Kenya and Tanzania and around 50 percent for Uganda.

The high costs on east African exports constrain the local producers’ ability to meet the export demands. The research argues that it is essential for policymakers to support export diversification and trade expansion within Kenya, Tanzania and Uganda as well as to other African countries. Finally, it suggests:

• investing in improved port facilities: this is a major component of export costs: for example, improvements in the Dar-es-Salaam port reduced sea transport costs
• improving rail infrastructure would help: rail freight is important for bulk commodities
• road improvements would have the greatest impact if concentrated on integrating major production areas, markets and ports
• air freight products would require investment in storage and cooling facilities.

Source(s):
‘Trade openness, trade costs and growth: Why sub-Saharan Africa performs poorly’, CREDIT Research Paper 08, University of Nottingham, by J. Mbabazi, C. Milner and O. Morrissey, May 2006 (PDF) Full document.
‘Trade and transport costs in Uganda’, CREDIT Research Paper 09, University of Nottingham, by Nichodemus Rudaheranwa, May 2006 (PDF) Full document.
Further details about this research project 'Trade Policy and Transport Costs: How EU aid can promote export growth in East Africa' Full document.

Funded by: UK Department for International Development (EC-PREP project - EP/RO1/001)

id21 Research Highlight: 24 March 2006

Further Information:
Oliver Morrissey
Centre for Research in Economic Development and International Trade
(CREDIT)
School of Economics
Sir Clive Granger Building
University of Nottingham
Nottingham NG7 2RD
UK

Tel: +44 (0)115 9515475
Fax: +44 (0)115 951 4159
Contact the contributor: oliver.morrissey@nottingham.ac.uk

University of Nottingham, UK

Other related links:
'Infrastructure is the key to poverty reduction in Africa'

'The challenges facing landlocked developing countries'

'Improving rural road networks – how do poor people benefit?'

'Freeing up competition to finance infrastructure efficiently'

Trade related resources from Overseas Development Institute, UK