Okonjo-Iweala Seeks Lower Trade Cost to Boost Africa’s Economic Recovery

The Director-General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, has called for lower trade costs to boost Africa’s economic recovery.

Okonjo-Iweala said Wednesday at the opening ceremony of the 2021 meetings of the African Development Bank (AfDB), that record-high trade costs hinder the movement of goods.

She is calling for debt relief for African countries, adding that many countries are at risk of entering debt distress.

She said: “When thinking about how to use debt productively, it is paramount to think about how it is managed and what it is used for.

“Debt means to go into high yielding activities with high rates of returns. One potential area for high returns on investment is acting to lower what economists call trade cost, the cost associated with moving goods from the factory gates to the final consumer.

“This would raise the productive capacity of African economies, ultimately reducing debt burdens and helping build regional value chains and competitiveness of firms on the continent.

“Currently, moving manufactured goods across international borders costs roughly 2.7 times more than moving the same goods across the same distance domestically. Costs are even higher for agricultural goods and services.

“Shipping and logistic expenses often accounts for a significant share of these costs and are key factors of why trade cost between high-income countries and much lower than those among low-income countries.”

According to her, trade costs could be managed through channels like the African Continental Free Trade Area (AfCFTA), improving internet infrastructure to boost e-commerce, implementing regulatory reforms, and developing infrastructure in ports and roads.

She had earlier this month told WTO members that restoring and increasing the export performance of least developed countries (LDCs) in services trade should take a greater urgency in light of the COVID-19 crisis, which has seen LDCs suffer the steepest declines in services trade.

Okonjo-Iweala was speaking at a webinar on LDCs and services organised by the WTO’s Council for Trade in Services.

She highlighted the impact COVID-19 was having on LDCs’ services trade.

According to her, the pandemic has severely affected services that require in-person contact between suppliers and consumers, most notably the tourism and transport sectors, where LDCs have a relatively high footprint in global trade.

In 2020, LDC exports of travel/tourism and transport services fell by 69 per cent and 16 per cent, respectively, with total services export revenue loss of nearly $17 billion, she said.

“Decreased export revenues mean job losses and economic distress for people, along with increased financial and debt pressures for governments.

“Against this background, restoring and increasing the export performance of LDCs in services takes on even greater urgency.

“Services can help LDCs increase and diversify exports from more traditional agricultural products and commodities, reducing exposure to price volatility,” she added.

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