# CONCEPT PAPER

# *COMESA CAADP PILLAR 2: RURAL INFRASTRUCTURE AND TRADE RELATED CAPACITIES FOR IMPROVED MARKET ACESS*[^1] 

**INTRODUCTION**

Africa, most of whose people are farmers, is unable to feed itself and
has been in this situation for many decades now. The number of
chronically undernourished people has risen from 173 million in 1990-92
to some 200 million in 1997-99. Of these, 194 million (34 percent of the
population) are in Sub-Saharan Africa which includes the COMESA region.
These proportions are applicable to COMESA and as such, COMESA is a net
importer of food and food related commodities.

Globalization and market liberalization has not helped the situation due
to constraints that are unique to the producers and traders of
agricultural products in the COMESA region. By and large, smallholder
farmers are ill equipped to extract the maximum from the new market
relations. They confront not only an uncertain production environment,
but also enormous constraints in physically accessing markets. They are
typically "isolated" and transportation costs are high, and in many
cases, there are few buyers of the produce within the production zones.

Poor farmers in COMESA are also constrained by lack of information about
the markets, lack of business and negotiating experience, and lack of a
collective organization which can give them the power they need to
interact on equal terms with other, generally larger and stronger,
market intermediaries. The result is poor terms of exchange and little
influence over what they are offered. Remunerative markets are an
essential element in progressively making the COMESA region viable for
agriculture entrepreneurship for income generation from well-functioning
markets. Credit sources are limited and once improved can offer the real
prospect of sustainable farmer investments needed for productive
agriculture in future.

The situation is often no better for the wholesalers who purchase farm
surplus and those who sell technical inputs and provide finance to
smallholders. In the wake of a history of limited \"space\" for the
operation of private traders and the absence of adequate sources of
investment finance an efficient private sector does not come up so fast.
The lack of basic infrastructure in many areas discourages the entry of
efficient and competitive private sector services and results in high
transaction costs, which translate directly into low prices to farmers.
Restrictive or non-supportive government policies further increase the
cost of doing business and constrain the development market access by
the private sector. Neither the poor nor rural economic growth is served
by an uncompetitive market structure.

From the foregoing, rural infrastructure plays a critical role in
poverty reduction, economic growth and empowerment for the COMESA rural
poor. The lack of adequate and reliable infrastructure touches the life
of every rural COMESA family daily. Hence, investments in rural
infrastructure, particularly rural roads, storage, processing and market
facilities, will therefore be required to support the anticipated growth
in agricultural production and improve competitiveness. Family efforts
to escape poverty and lift themselves above subsistence levels are
limited by the present poor access to markets, supplies and vital
information. Local roads and tracks are often impassable making it
difficult for rural families to access the rural economy.

COMESA governments and their development partners have an important role
to play in this area of market development, with three objectives in
mind: speeding up the rate of market development; removing barriers to
market access, both by special support in places where markets are slow
to develop spontaneously and by easing market participation of poorer
producers; and establishing a more equitable set of market relations
between producers and markets intermediaries.

### Rural Infrastructure and Improved Market access-current synopsis

The COMESA region's rural infrastructure is inadequate by almost any
measure and its road network is particularly underdeveloped. The people
face some of the longest distances to nearest large markets. A rapid
look at the overall scene compared to other regions reveals that  almost
50% of COMESA\'s population is landlocked - all other regions have less
than 10 percent; less than a 15% of COMESA inhabitants live within 100
km of the sea compared to over 40 percent for other developing regions;
rail freight in COMESA is under 20% of the total traffic, marine freight
capacity is about 10 percent, and air freight less than 1 percent; power
generation capacity per capita in COMESA is less than half of that in
either Asia or Latin America. The poor state of COMESA\'s infrastructure
reflects neglect of investment but also the fact that the level of
production cannot often justify the required investment and maintenance
costs.

COMESA\'s share of overall world trade is insignificant and continues to
decline with its exports accounting for less than 0.5% of global trade
despite COMESA having about 6% of the world population. These numbers
suggest that COMESA is in no position to influence world prices and must
be a price taker for most of what it exports, and such is the case for
its agricultural products.

COMESA is unable to gain from globalization due to severe competition
from industrial countries and the dominance of developed country market
opportunities for COMESA agricultural exports. There is persistent
difficulty with conditions of access to regional and international
markets despite progress made in the implementation of various
agreements. Trade access requires strengthening of supply-side
capability in COMESA countries too, without which they cannot take
advantage of new trading opportunities.

Given the hurdles COMESA continues to face in global markets, regional
integration is, despite its challenges, an important way forward for
COMESA countries and can be a learning ground for more ambitious global
trading if they can resolve the bottlenecks that constrain even the
limited existing trade opportunities. Attention is given to improving
COMESA countries\' trade-related capacities for better market access
through a number of policy and institutional related themes. These
include home grown technology development and transfer, vigorously
seeking access to developed countries markets, building capacity in
COMESA countries for effective use of the multilateral trading system;
strengthening food safety and quality control systems; and
diversification of the production and export base from low value-added
to high value-added products.

## CHALLENGES TO RURAL INFRASTRUCTURE DEVELOPMENT AND MARKET ACCESS

Rural Infrastructure Development and market access will require COMESA
to address a set of challenges nationally, regionally and
internationally, that include:

-   Low levels of past investments in rural infrastructure (such as
    roads, markets, storage, rural electrification, telecommunication
    etc.) essential for reducing transaction costs in farming and
    thereby increasing its competitiveness in serving production,
    processing and trade.

-   A sparse and dispersed domestic market expensive to serve due to
    lack of concentrated demand and low disposable incomes that inhibit
    consumption.

-   An international market where prices are falling and unstable and
    which is expensive to access due to small volumes being traded and
    long distances from COMESA\'s largely land-locked production sites.

-   Production is dominated by large numbers of unorganized and may
    unskilled persons and therefore little able to absorb new
    technologies for higher trade margins to support infrastructure
    investment. This is coupled by lack of a voice by both small and
    large-scale players in the farming community to contribute to
    infrastructure investment priorities in their communities.

-   COMESA has an obvious technology gap that it needs to deal with, in
    production, processing, storage, marketing, logistics, communication
    and transportation.

-   The withdrawal of the state from direct production functions towards
    creating and maintaining a conducive climate for private sector
    initiatives has at times been rushed and, in the absence of a sound
    private sector, has caused severe dislocation of production and farm
    trade leading to poor support services to rural communities.

-   Many of the countries have poorly defined property rights that are
    totally inadequate to satisfy requirements of serious investors at
    all levels of investment.

-   In parts of COMESA, the health status of farmers is deteriorating
    with the advent of HIV/AIDS. His has reduced both the production
    surplus as well as effective demand and hence weakening sources of
    support for rural infrastructure and market access.

-   Weak corporate governance at times robes the region resources for
    reinvestment.

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-   There is limited access to technology and low human capacity to
    adopt new skills making it necessary for COMESA to implement a
    strategy for home grown technology development and transfer
    following the Asian model.

-   Deal with institutional weaknesses for service provision to the
    entire agricultural chain from farm to national, regional and global
    markets.

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-   Weak policy and regulatory framework for agriculture to make it more
    supportive of both in rural areas and commercial private sector
    operations that make use of organized infrastructure investment
    facilities as well as market outlets.

Easing these constraints will result in a virtuous cycle to enhanced
rural infrastructure to support production and reduce hunger, increase
productivity, increase incomes and reduce poverty. These actions require
commitment of a high order. Regrettably, the past decades have revealed
that COMESA\'s governments themselves as well as bilateral and
multilateral development partners pay little attention to rural
infrastructure and market access.

## ACTION AREAS 

CAADP offers COMESA new opportunities to move forward with agricultural
development, placing this sector at the forefront of economic and social
progress. To succeed, COMESA will above all need to harness the
commitment and energies of its member countries but also to attract the
support of its partners, both traditional and new. It is essential that
resources mobilized are focused on key opportunities that can yield the
largest gains and that the selected priorities have potential to touch
the lives of a large number of COMESA\'s poor and hungry.

A primary need appears to be greater publicity for the CAADP and
constituency building for it. Within COMESA member states, the CAADP
process is currently better known to officials at the top in ministries
of agriculture, external affairs and the presidency. Still excluded from
dialogue are the ministries responsible for planning and budget, which
will in the end create the budget lines for the required increased
agricultural investments to meet NEPAD goals.

In view of this, the primary step for operationalization of COMESA's
CAADP must be building a constituency and ownership for itself. A
concerted publicity campaign is needed, using the most appropriate media
for the various sub-regions and societal groups. In addition, the
holding of a series of consultations at regional, sub-regional, and
national levels is a prerequisite for developing the sense of ownership
and generating the interest necessary for success. The primary targets
would be national governments, regional and sub-regional economic
organizations (including development banks), the commercial private
sector, civil society, and donors. Such meetings, both customer-designed
and opportunistically organized to take advantage of other meetings,
would sell the \"value-added\" of COMESA above and beyond national
programs.

The consultations would also provide forums for interpreting the main
CAADP pillars into specific priorities for COMESA\'s diverse national,
sub-regional and all-COMESA realities; for agreeing on necessary balance
between systemic interventions and project interventions requiring
investment. Following the building of a constituency, COMESA should,
with its partners, pursue four critical needs:

-   *Creating a basis for informed choice in setting rural
    infrastructure investment /intervention priorities* through
    analytical work to identify areas of agricultural production,
    agro-processing and agricultural trade where the region has or can
    relatively easily develop comparative advantage so that the choice
    of rural investments has a high probability of commercial success
    and sustainability. Such preparatory analysis is necessary also to
    draw attention to cases where COMESA countries might work at
    cross-purposes in their rural investments and so to suggest
    complementary investments among them ;

-   *Formulating and funding of additional concrete rural infrastructure
    projects* that can most usefully link up with CAADP intentions as
    well as formulating and funding of additional interventions to
    include both investment and systemic capacity/institutional/policy
    improvement interventions for domestic funding or technical
    co-operation;

-   *Integrating COMESA rural infrastructure programs into NEPAD
    development budgets and in* national development plans and plans of
    smaller Regional Economic Organizations in the region hence making
    COMESA be the leader in rural investment championing; and

-   *Concerted action to promote private sector engagement and interest
    in rural infrastructure development*. This will require that the
    private sector be a close partner from the earliest stages of
    constituency building and projects identification but also that
    COMESA governments should create the policy and institutional
    conditions to make rural infrastructure development attractive to
    private capital.

Given that CAADP has fundamentally political origins, it may prove
important to ensure collective co-chaired ministerial and private sector
oversight and support arrangements for this program Pillar to implement
the following:

1.  COMESA needs the right technological mix for the required
    development to take place. A broad based regional center of
    excellence for home grown technology development and transfer should
    be the starting point. This can take the form of a University owned
    jointly by COMESA member states and the private sector investor to
    address and develop tools for specific sector needs and to work with
    national centers to disseminate the same. This will be a common
    reference point to various institutions that are currently
    uncoordinated and which are not internationally recognized
    authorities in areas where they have the expertise.

2.  Ensure efficient physical infrastructure through increased
    investments, regulatory reforms and privatization in key
    infrastructure - including road/rail transport, communications,
    power, ports, shipping and transit facilities, harness modern
    information technology, and empower the private sector to
    participate in infrastructure financing and operation.

3.  Establish and maintain a sound macroeconomic policy framework for
    rural development and an open economy based on continued and
    enhanced economic reforms, liberalized exchange and trade systems
    and investment regimes, strengthened institutional, legal and
    regulatory systems, reformed state institutions that operate with
    transparency, accountability, competence and professionalism, and
    the rule of law.

4.  Encourage and promote the growth, diversification, and deepening of
    the financial sector so as to facilitate savings mobilization to
    meet the investment and working capital requirements of business,
    within the context of a deregulated but prudentially supervised
    system of financial intermediation.

5.  Remove obstacles to cross-border trade and investment, including
    harmonizing tax and investment codes to promote regional
    integration.

6.  Undertake measures to enhance the entrepreneurial, managerial and
    technical capacities of the rural private sector.

7.  Strengthen national and sub-regional mechanisms for investment and
    trade promotion by disseminating information about business
    opportunities, identifying and targeting prospective investors and
    export markets, servicing investors, and providing export credit and
    insurance schemes.

8.  Strengthen chambers of commerce, trade and professional
    associations, and regional networks to provide market information
    and training for their members, in order to promote participation in
    investment and exports.

9.  Organize dialogue between government and private sector to develop a
    shared vision of economic development strategy and remove
    constraints to private sector development including rural sector
    capacity building.

10. Strengthen and encourage the growth of micro, small, and
    medium-scale industries through appropriate technical support from
    service institutions and civil society, and improve industries\'
    access to capital by strengthening micro-financing schemes, with
    particular attention to rural entrepreneurs.

11. Provide assistance to improve technical and managerial capabilities
    of business enterprises by supporting technology acquisition,
    production improvements, and training and skills development.

There should be a permanent Regional Standing Public-Private Sector
Co-chaired Technical Advisory Team, consisting of Senior Officials, for
infrastructure, trade, and rural development. The Committee should meet
regularly and report to the Ministers on major emerging issues with
policy and investment implications.

***Investment requirements***

Following the general African experience, the majority of COMESA
countries have been exposed to years of fiscal austerity programs and
often of failure to find alternative sources of income to replace
declining revenues from weaker terms of trade in their traditional
markets. Levels of both ODA and private finance have fallen in real
terms. This lack of funding has contributed not only to insufficient
infrastructure construction but also to a lack of appropriate
maintenance - hence there are substantial needs for rehabilitation.

Investment requirements for rural infrastructure and trade-related
capacities for improved market access are a function of more general
socio-economic demands, in addition to underpinning the increased
agricultural production. However, a substantial proportion of the
existing rural road network is in a poor operational condition and,
consequently, investments will have to include the rehabilitation of
existing stock, as well as the construction of new works and overall
maintenance. The investment requirements in rural infrastructure and
other support to trade-related capacities for improved market access in
Africa amount to some US\$94 billion. Twenty percent of this is COMESA
requirement. In addition, associated recurrent operation and maintenance
requirements[^13^](http://www.fao.org/docrep/005/y6831e/y6831e-02.htm#P294_68030)
are estimated to total some US\$37 billion.

### POSSIBLE SOURCES OF INVESTMENT RESOURCES

### 1. COMESA Investment Contribution

It is against a background of re-emerging international recognition of
the importance of rural infrastructure that COMESA\'s own commitment to
funding rural agriculture supporting infrastructure should be seen.
Countries that can do without agriculture and still prosper are willing
to continue financing agriculture and related infrastructures heavily
and hence COMESA has no excuse for not doing it considering that 80
percent of the people depend on the sector.

It is important to note that the share for the foreign private sector
will be initially very low due to continuing perceptions of high risk in
the COMESA region. COMESA should work to correct this perception to
achieve full focus from the international investment community because
this will definitely benefit rural infrastructure and enhance market
access. Before this is achieved, then COMESA member states will have to
be the sole prime contributors to the process and budgetary provisions
should be made accordingly.

### 2. Public and Private Investments

Estimates of the likely distribution of financing between public and
private sources must remain, at this stage, highly conjectural and will
require specific country conditions to be taken into account. The total
incremental investment requirement for Africa would therefore amount to
about US\$15.7 billion per year between 2002 and 2015 including
operations and maintenance, thus drawing upon both national public and
private resources and upon international co-operation on financing for
development.

As elsewhere in the world, most COMESA development investments will
occur at national level; this is expected to continue. However, there is
growing recognition that some issues require regional approaches.
Therefore, the implementation of the CAADP pillar II program will also
be undertaken in co-operation with Regional Economic Organizations
namely East African Community, Intergovernmental Authority on
Development, and Transit Transport Coordination Authority of the
Northern Corridor among others.

### 3. Partnerships

References to public and private investments might be viewed as
proposing separation of action. In fact COMESA will need complementary
action by many parties and the key to success will be partnerships for
success. If, as recently as a decade ago, governments in the Region saw
themselves as the prime motors of economic development, today there is
increasing recognition by the governments themselves that their direct
role in economic activities is a more limited, though at the same time
more strategically important in creating conditions for growth. It is a
role which is focused particularly on the key area of establishing the
policy, legal and institutional framework which enables the private
sector to play the leading role in economic development, and in
selectively investing in key public goods which will catalyze
broad-based economic growth. This requires that governments in the
Region increasingly establish strategic partnerships with a range of
partners to achieve their development objectives, and that their
investments are targeted particularly at reducing transaction costs both
in public service and in the market place.

The private sector - beyond the small-scale producer - is a key partner.
The large-scale formal private sector - particularly agri-business, is
in a number of countries of the region probably the major development
partner for smallholder producers. Future progress depends on a
broad-based and equitable expansion of these relations - something that
will only happen on the basis of mutual interest. The commercial private
sector wants to make money. It can do so - and at the same time help
poor farmers make more money, if it expands its commercial relations
into a realm of self-organized smallholders who are aware of market
options. More and more governments in COMESA recognize the crucial role
that the private sector must play, and are willing to undertake
investments - in policies, institution-building as well in
infrastructure - which reduce the transaction costs that the private
sector faces in doing business with smallholder producers.

NGOs are increasingly recognized as having specialized skills in areas
of crucial importance for promoting rural development - particularly in
\`soft\' areas such as participatory planning, capacity building, group
development, etc. More and more governments in the Region are willing to
work in partnership with suitably experienced NGOs operating as service
providers and such arrangements should be strengthened in the future.

Partnerships exist not only at the national level but there should be
larger partnerships across the region among national governments,
sub-regional organizations, national farmers associations, and NGOs and
private sector organizations in different parts of the continent. Such
partnerships can provide the opportunity for lessons learnt in one
location to be applied in another; the exchange of technologies,
approaches and institutional arrangements; and the promotion of
investment within and across the continent.

## Impacts

The impact of the rural infrastructure and trade-related capacities for
improved market access program will be significant through its
mitigation of the current constraints placed on COMESA's competitiveness
by geography and the difficulty of accessing markets. Other direct
benefits will arise, in the short- and medium-term, such as stimulating
output and employment, promoting domestic market activity and market
integration, and facilitating access to regional and international
markets.

**KEY RECOMMENDED NEXT STEPS**

1.  Involve member states, national centers of excellence, NGO's, and
    the private sector in finalizing Regional Compact.

2.  Organize a regional meeting of the Reference Group of experts and
    policy makers to adopt the recommendations and establish ownership.

3.  Move the agenda to national platforms for implementation.

4.  Prepare a structured means of implementation monitoring and
    evaluation including a results framework for bench marking.

[^1]: This concept paper is highly informed by the ideas contained in
    the NEPAD Comprehensive Africa Agriculture Development program. Some
    sections quote directly from the AU/NEPAD/CAADP program.