The ECOWAS Trade Liberalization Scheme has many companies – and countries – playing a game of “What if?” What if businesses could move goods more quickly – at lower cost – in West Africa?
Delays at borders discourage business investment.
A new USAID Trade Hub study provides some of the answers. In short, an improved business environment would transform the West African economy – creating thousands of jobs and improving the lives of millions of the region’s citizens.
“Since ECOWAS was created in 1975, the major obstacle to its efforts has been the very real concern among Member States that harmonizing the trade rules would mean loss of revenue to the state,” explained Peter White, who conducted the study. “But our study shows more trade means more revenue even if customs duties are truly removed.
“Implementation of the ECOWAS Trade Liberalization Scheme will mean significantly more business – and increased revenue to the state, higher incomes for people and more economic activity.”
The study White led – to be published in October – involved interviews with dozens of companies across the region. Almost all said that the patchy implementation of rules and non-harmonized regulations and tariffs across the region have effectively stopped them from doing more business.
Consider the case of fruit juice.
Making fruit juice is competitively advantageous in West Africa – the tropical fruits to make high-quality product is readily available, the cost of labor is reasonable and consumer demand is only increasing. Yet in many countries, the juice is imported from outside of the region.
Uniform implementation of ECOWAS trade rules would lead to more business.
“We employ 400 people in Ghana making fruit juice,” explained a company manager that makes a variety of juices. “We could easily expand and we would. But we pay at least 30% duties and taxes carrying our product across the borders to Benin, Burkina Faso, Niger, Nigeria and Togo.
“The end result is the imports are cheaper. We cannot compete.”
That company’s story is hardly unique. In interview after interview, managers from companies as wide ranging as manufacturers of paint to makers of food staples told a similar tale.
“We sized our plant for an ECOWAS-wide market,” said a manager of a company that makes paint. “That didn’t happen and now we’re operating at 20 percent capacity.”
“If we could cross borders faster, we could make 12 trips to Accra instead of the current three each month,” said a manager of a company that manufactures furniture. “That would reduce our costs significantly.”
“Every trip there’s a new cost,” said an agricultural commodities trader. “We hire trucks for a three-day trip and it ends up taking two weeks. That increases our costs and ultimately consumers pay for that.”
“There is no sector for which rapid transport is more important than food, given its chronic need and perishability,” the study said. “More rapid and efficient transport of food is imperative. Whether food is sourced nationally, regionally or internationally, the need for faster and cheaper transport of food is urgent.”
Regional growth patterns make the argument clear: West Africa’s population is expected to double – to 600 million people – within 25 years. Food requirements, however, will grow at a faster rate, doubling in about 15 years.
“What people might not realize in that statement is the growing needs of the population means there are important opportunities for business,” said USAID Trade Hub Director Vanessa Adams. “That scenario should not scare people – it should inspire us to act. Decreasing delays at borders by streamlining procedures has real meaning and significance for preferred traders.”
One answer is express lanes at borders for those trucks carrying goods that should be traded freely in the region, said Dr. Sola Afolabi, the USAID Trade Hub Business Environment Director.
“Increased trade in West Africa must be everyone’s common goal,” Dr. Afolabi said. “Eliminating trade barriers will reduce the costs of doing business – and everyone will benefit. Member States will see increased revenues as business expands, consumers will see better prices at the market, and we will see more jobs, which will reduce poverty.”