# **1.  Introduction: African Trade Today and Challenges in Perspective**

Until the financial crisis of 2008, world trade and investment flows had risen annually over the past several decades. The trade performance of Sub-Saharan African countries, however, has been disappointing. Africa’s share of world exports has dropped by nearly two-thirds in the past three decades: from 2.9 percent in 1976 to 0.9 percent in 2006<sup>2</sup> . This implies that if Africa’s share of world exports had remained constant since the mid1970s, its export revenue would be approximately 10 times larger than its current value.

The high cost of trade—i.e., the cost of transporting goods and moving them across borders—are a major obstacle to African trade performance. A growing literature has gathered empirical evidence of the negative impact of trade costs on a country’s trade performance. High trade costs have a negative effect on country economic performance in several ways. For example, a country with relatively high trade costs confronts lower consumer welfare through higher prices of imported goods. Domestic producers are less competitive because inputs sourced outside the country are relatively more expensive. Direct evidence on border costs shows that tariff barriers are relatively low across all countries. Weak infrastructure and institutions, however, contribute to high trade costs along the logistics chain in Sub-Saharan African countries. Moreover, data and evidence suggest that African countries have some of the highest trade costs in the world.

Many of the slowest-growing economies in Africa are either engaged in conflict or have recently emerged from conflict. Geography has also played a major role in shaping the economic fortunes of African countries. Fifteen of them are landlocked<sup>3</sup> and about 40 percent of Africans live in these countries, which are dependent on the political stability, infrastructure, and institutional quality of their neighboring transit countries to reach overseas markets. A country’s remoteness from major world markets, especially the landlocked countries in Africa, tends to drive trade costs higher than would be the case in other developing countries.

All these conditions—combined with corruption, underdeveloped institutions, constraints on business competition, and weak governance—make international trade and investment in Africa costly. Reducing traditional trade barriers on African exports, such as tariffs, remain important and must continue to be at the center of multilateral negotiations. We argue, however, that Africa will not be able to benefit from continued lowering of tariffs and other trade barriers unless action is taken to lower trade costs in the region. Moreover, as empirical research has demonstrated, growth in exports can be a powerful engine for poverty alleviation. For example, farmers that are able to grow high-yield export crops are, on average, less poor than those that engage in subsistence farming. High trade costs prevent the full realization of gains from trade and can diminish the poverty reduction effect of export opportunities for African countries.

2 Figures computed from COMTRADE data available through the World Integrated Trade Solution (WITS).

> 3 The landlocked African countries are: Botswana, Burkina Faso, Burundi, Central African Republic, Chad, Ethiopia, Lesotho, Malawi, Mali, Niger, Rwanda, Swaziland, Uganda, Zambia, and Zimbabwe.

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