The World bank has stated that the cost of trade in Nigeria and Ethiopia is four to five times higher than what obtains in the United States due to insecurity, higher transportation costs, topography and poor road infrastructure.
In its Africa Pulse publication released on Monday , the global lender noted that market distortions across Africa results in price differences of imported food and non-food products, indicating lack of integration across African markets.
It stated, “Similarly, access to product markets is constrained, which prevents firms and farms from scaling up their production. In particular, the lack of connectivity and market integration means that markets are segmented, allowing firms or farms with market power to capture benefits, contributing to income inequality.”
“Studies from the Africa region consistently find spatial differences in prices of imported goods (food and non-food) as well as nontraded agricultural staples, indicating that markets are not well-integrated, and the retail prices of products are affected by distance. For instance, trade costs are four to five times higher in Ethiopia and Nigeria than in the United States, due to poor road infrastructure, low competition in the transportation sector, topography.”
The report concluded that the consequences of these distortions include preference of African producers to sell locally rather than export.
Furthermore, the report noted that frictions in the labour markets across Africa are as a result of high transport cost, elevated cost of screening workers and lack of information on labour opportunities.
Impact of state involvement in trade
The World Bank also captured the influence of state involvement through regulation in markets across Africa creating barriers to trade competition and investment. It noted the tendency for big players in such environments to set prices above market rate to the disadvantage of consumers, small competitors and workers.
It stated, “Global analysis of World Bank and Organisation for Economic Co-operation and Development indicators of product market regulations suggest that barriers to competition in product markets tend to be higher in African countries, due to a high degree of state involvement in markets, legal and administrative barriers to entrepreneurship, as well as barriers to trade and investment.”
It also stated that such anti-competitive market environment stifles innovation and further inhibits the growth trajectory in such economies.
