World Bank warns of economic slump if SSA doesn't cut trade costs

Tuesday April 04 2023
A vegetable trader in Mombasa, Kenya

A vegetable trader at an open-air market in Mombasa, Kenya. Sub-Saharan Africa has the highest trade costs for agricultural products, which costed as much as 250 percent of actual tariff rates to trade. PHOTO | KEVIN ODIT | NMG


Sub-Saharan Africa (SSA) will need to cut trade costs by at least half to reinvigorate global trade which has been in decline since mid-last year, the World Bank has warned.

The lender said world economy growth rate is set to slump to a three-decade low if nothing is done urgently to boost productivity, labour supply, ramp up investment and trade, and harness the services sector.

In a report assessing the long-term implications of the Covid-19 pandemic and Russian invasion of Ukraine on the global economic growth rate, the World Bank said cutting trade costs in regions where they are highest could boost international trade and bolster the globe’s economic growth.

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And according to the report, SSA has the highest trade costs globally with the total costs including shipping, logistics, and regulation charges, amounting to about 130 percent of actual tariffs levied on traded commodities.

Specifically, SSA has the highest trade costs for agricultural products which cost as much as 250 percent of actual tariff rates to trade.


But besides the high trade costs, the region also has some of the highest tariffs on all goods compared to the rest of the globe. According to the report, tariffs in emerging and developing economies including SSA averaged eight percent, while that of advanced economies was less than two percent.

Lost decade threat

Countries in the region also participate in less regional trade agreements (RTAs) compared with nations in advanced economies. On average, African countries are in about 25 RTAs while developed economies are in about 90 such agreements with other countries, bolstering their cross-border trade.

Other factors hampering trade with SSA according to the report are high levels of trade uncertainty, poor logistics and a low Liner Shipping Connectivity Index, which measures how good a country’s transport networks are for international trade.

Traders selling clothes from Tanzania

Traders selling clothes from Tanzania during a sports event in Eldoret, Kenya. PHOTO | NMG

These issues have compounded on Africa’s trade with the rest of the globe slowing down economic growth, amidst an overall slump in international trade occasioned by the shocks last year.

Data by the United Nations Conference on Trade and Development (UNCTAD), shows that global trade rose to $32 trillion last year, but took a downward trajectory since last June and is projected to remain subdued for the rest of 2023.

In their latest Global Trade Update released last week, UNCTAD said Russia’s war with Ukraine will continue to negatively impact global trade in 2023. Additionally, inflation, rising interest rates, and debt sustainability concerns will slowdown global business activity World Bank warns that should the downward trend in trade persist, the average global economic growth rate will slump by a third to 2.2 percent in the decade to 2030, from the 6.6 percent recorded in the first decade of this century.

Read: West’s focus on Ukraine disadvantaging Africa

Indermit Gill, World Bank’s chief economist said a lost decade could be in the making and urgent action is needed to avert the looming slump.