The existence of poor physical and institutional infrastructure remains a major obstacle to increasing intra-African trade and investment, a UN official has said.
Developing infrastructure and creating better links between countries is needed to transform the structure of regional economies in Eastern Africa to spur economic growth.
The absence of the necessary network of infrastructure such as roads and railways not only makes it hard for the region to trade within its self but also leads to high transport costs.
This was said during the, “Africa Roads and Rail Infrastructure” summit held in Kigali last week.
“Despite the market potential, Africa does not trade with itself. Transport costs in Eastern Africa average 30 percent of the value of exports and imports,” said Antonio Pedro, the director of the UN Economic Commission for Eastern Africa during a presentation at the Summit.
In Rwanda, freight costs currently account for 40 – 48 percent of import costs, the highest in the region.
According to UNCTAD’s Economic Development in Africa 2009 report, Africa currently has the world’s lowest shares of regional trade and investment at 9 percent of recorded flows of total external trade and 13percent of recorded flows of total inward foreign direct investment (FDI).
With five of the 15 African landlocked countries, Pedro argued that it is imperative to make the Eastern African landlocked countries land-linked.
“Despite efforts to dismantle trade restrictions, as we move to the establishment of common markets, barriers to trade in Africa are still numerous,” Pedro said.
In order to boost regional integration, the UN official observed that countries need to strengthen their regional physical infrastructure such as roads and railways.
According to World Bank’s Doing Business Report 2010, trading costs in Africa are twice those in high-income Organization for Economic Cooperation and Development (OECD) countries.
The key drivers for high transport costs are; poor railway and road transport infrastructure, inadequate maintenance, weak road density (7.59 km/100 sq. km) and missing links in transport networks.
Considering the high cost of infrastructure projects and in view of the limited financial capacities of individual African countries, planning at the supranational level and pooling resources to fund priority regional projects is the most realistic strategy for advancing regional integration.
To address financing gaps Pedro also suggested that countries should increase domestic mobilization and channel savings to infrastructure development.
Using innovative financial instruments such as infrastructure indexed bonds, levies and tapping remittances can also help raise finance.