Non-tariff barriers to trade in the East African Community: the case of road-transportation costs between Mombasa and Kigali through the Northern transport corridor
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In the last three decades, African countries have pursued regional trade agreements as a way of accelerating their economic development. Likewise, it is expected that the current regional economic integration process into the East Africa Community will foster economic development by attracting domestic and foreign private investments through the reduction or removal of tariffs and other barriers to trade. However, it is generally believed that despite the reduction or removal of tariffs on trade subsequent to regional economic integration, if freight costs and procedures within the regional block remain prohibitive, they will still restrict investment and trade flows in as much as higher shipping costs reduce returns on exported outputs as well as on imported inputs for local investments. The present study assessed the extent to which transportation costs constitute a barrier to trade within the East African Community by acting as an implicit tax on production and, consequently, preventing the realization of significant productivity gains. In order to delineate the scope, the present study focused on road transit transport destined to Rwanda from the seaport of Mombasa through the Northern Transport Corridor. Road freight costs were gathered and assessed as regard to (i) direct costs which are the actual costs incurred while shipping goods from the seaport of Mombasa to the consignee in Kigali, and (ii) indirect costs which are costs due to time-consuming procedures and issues in relation to transit cargo along the same route. Indirect costs were quantified (time-costing) using a mathematical formula that takes into account the price of the commodity, its interest rate (pipeline inventory), its depreciation rate and the total transit time. Furthermore, trade impediment due to road freight costs was computed using the Effective Rate of Protection (ERP) framework which is usually used to determine the extent to which explicit taxation protects the domestic market and, arguably, prohibits international trade. Among other findings, the present study established that current road-freight costs (direct and indirect), on a typical 21-day journey from the sea port of Mombasa to Kigali along the Northern Transport Corridor, constitute a trade barrier comparable to a tariff rate equivalent to 16.8% of the C.I.F. value of the transported goods. By way of recommendations, the present study noted that simplification and harmonization of transit transport documentation along the Northern Transport Corridor and across the entire East African Community could lead to immediate benefits in terms of reducing transit costs and time-consuming procedures. Moreover, in order to significantly reduce transportation costs within the regional block, EAC Members must mobilize financial resources and create public-private partnerships to develop and competitively operate existing and alternative modes of transportation including roads, railways, pipelines and airways.