‘Logistics an Essential Ingredient of Development’

Jan 18 2010


IDN-InDepth NewsAnalysis

BERLIN (IDN) – Global development cooperation backed by financial grants or extremely low-interest and long-term loans, has for long been considered vital to overcoming the woes of middle-income and poor countries. But this can only be a drop in the ocean.

Of critical importance is that the developing countries improve their capacity to connect to international markets. The reason: world trade between countries is conducted via a network of increasingly linked logistics operators.

And the ease with which traders can use this network to link up with international markets depends in large part on country-specific factors such as trade procedures, transport and telecommunications, infrastructure, and the domestic market for support services, says a report released during World Bank president Robrt B. Zoellick’s Berlin visit on January 15.

The report ‘Connecting to Compete 2010: Trade Logistics and the Global Economy’ accompanies a survey, the second since 2007, and the ‘Logistics Performance Index’.

“Following our first survey, many developing countries have improved their capacity to connect to international markets, which is a key ingredient for competitiveness and economic growth,” writes Otaviano Canuto, World Bank Vice President for Poverty Reduction and Economic Management.

“But if developing countries want to come out of the crisis in a stronger and more competitive position, they need to invest in better trade logistics.”

The survey, ranking 155 economies on the ease of importing and exporting goods, is the result of a comprehensive review of nearly 1,000 international freight-forwarders and express carriers on the frontlines of world trade.

It explains how developing countries are doing per region: South Africa is the top performer from Africa; China from East Asia; Poland from Central and Eastern Europe; Brazil from Latin America; Lebanon from the Middle East; and India from South Asia.

Germany topped the list as the best-performing country, while Somalia was last. However, Uganda, along with Brazil, China and Bangladesh, moved up from their rankings in the first 2007 survey as part of an overall trend toward better trade logistics.

One of the survey’s goals is to identify the weakest links in the logistics chain, so countries can fix them, says World Bank trade economist Monica Alina Mustra, a main author of the report accompanying the survey.

“A country can have a quick look and see which one of these indicators is not performing as well as you’d expect. It’s a first signal as to which areas might need more attention,” adds Mustra.

After the first Logistics Performance Index was released in 2007, “a number of countries responded and said, OK, we don’t like where we are, what can we do to fix it?” states World Bank Trade Director Bernard Hoekman.

The World Bank has doubled its trade-related lending to $3.45 billion in financial year 2009, up from an average of $1.54 billion per year in financial years 2006-2008. About 35 percent of trade projects are in Africa. A majority of this lending is going to projects designed to facilitate trade and transportation.

The Bank conducts in its country-level activities in-depth trade and transport facilitation audits to dig deeper into particular segments of the logistics chain, including customs and roads.

The focus of projects such as those on trade corridors is increasingly regional so as to address the situation of landlocked developing countries such as Chad, Central African Republic, Uganda, Rwanda, and Burundi, or Afghanistan and Central Asia.

Several countries such as Indonesia, Vietnam, Colombia, and Tunisia have received help from the Bank to develop comprehensive strategies. These typically involve creation of Logistics Councils comprising representatives from transport, customs, government agencies and the private sector. The councils identify what needs to be done to fix trade bottlenecks and work to ensure that such changes happen.

“The private sector is a key player in terms of identifying where things aren’t working; also, a lot of the improvements have to involve the private sector,” says Hoekman.

The biggest logistics improvements come with policy changes and investments that address performance of infrastructure sectors like ports or road corridors, markets for logistics services such as trucking or customs brokerage, and efficiency of border clearance processes, adds Hoekman.

“Increasingly, the message from shippers is that customs is still a problem, but increasingly not the problem. It’s also the other agencies at the border. It’s partly related to security, food safety, health standards. It’s increasingly those types of agencies that are blocking rapid clearance of goods.”

A “single window” or a one-stop-shop for clearances, including tariff payments, food safety, health and security-related inspections, “is a big help to solve this latter problem,” says Hoekman.

The report’s main author Mustra maintains that Colombia’s improved ranking, from 82 to 72, on the Logistics Index is largely due to proactive policies including adoption of a comprehensive logistics strategy, which implemented a “single window” but also addressed reform in services and improvement in port management,

Such measures are catching on. The report finds positive trends in modernization of customs, increased use of information technology, and development of private logistics services.

“There was a bigger gap last time (2007) between the highest- and lowest-performing countries,” says report co-author and World Bank senior trade economist Jean-Francois Arvis.

“This time, people are relatively positive about the trends. Even in countries where things are not really going very well right now, things are improving. When you look at the scores and the numbers we are crunching, those are relatively better. It’s small, but there are encouraging signs. For policymakers, investing in this area can generate big pay-offs and be something visible,” states Arvis with an obvious satisfaction.

The World Bank Group has a number of projects designed to improve trade logistics in developing countries, says the report. The US$250 million East Africa Trade and Transport Facilitation Project improved the corridor infrastructure and upgraded the main border crossing between Uganda and Kenya at Malaba, reducing border crossing times from three days to three hours.

In Tunisia, a US$250 million operation is improving competitiveness by reducing trade costs and streamlining border clearance procedures. And in Afghanistan, the Bank is providing funding for a US$31.2 million project to modernize and computerize four major border crossings, increasing customs revenues from US$50 million when the project started in 2004 to over US$399 million in 2008.

In addition, the Bank is working with IBM, Microsoft and the Global Express Association as part of a public-private partnership on “Aid for Trade Facilitation.” The objective is to develop pilot projects in developing countries that apply innovative IT solutions to streamline border procedures. (IDN-InDepthNews/15.01.2010)

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