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Report: Improving Trade and Transport for Landlocked Countries


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Highlights
  • Many landlocked developing countries (LLDCs) face market-access issues specific to their geography.
  • The United Nation's Almaty Programme of Action, adopted in 2003, addresses these issues head-on.
  • This publication takes stock of the progress of that initiative and recommends actions going forward.

Context: The Almaty Programme of Action


Most landlocked developing countries (LLDCs) face specific constraints imposed by geography. They remain on the periphery of major markets. They exhibit lower per capita income compared to their transit neighbors, and they are usually dependent on their transit neighbors’ markets, infrastructure and institutions.

The Almaty Programme of Action, adopted by the United Nations in 2003, recognized that landlocked developing countries have specific needs in reducing their trade costs and promoting growth. The program and its implementation, including the support of international agencies like the World Bank, have been very much focused on connecting LLDCs to markets and the promotion of infrastructure complemented by “soft” investment, especially in measures facilitating trade, transportation, and transit.

This publication, Improving Trade and Transport for Landlocked Developing Countries: A Ten-Year Review, anticipates a renewal of the Programme of Action in November 2014. It reviews the progress to date of the initiative and provides an analysis of the current situation, constraints, and priorities of LLDCs. It also discusses potential solutions to reducing LLDCs’ access costs, and the contributions of the World Bank Group to that effort.

How the Economic Situation Has Improved in LLDCs

Since 2003, there has been incremental progress in the structural transformation of LLDCs. With little diversification in exports composition, LLDC countries are more vulnerable than their coastal neighbors. In the period after 2000, resource-rich LLDCs outperformed their resource-scarce peers in terms of real income and exports per capita. However, most of that growth was based on a surge in commodity prices in the last decade. Trade costs experienced by landlocked countries still remain very much above those of transit countries. They seriously constrain the transformation of the economies of the LLDCs.

But there have been many positive developments during the implementation of the Programme of Action.

  • Investment in access infrastructure has been given priority during this period. The World Bank Group, for instance, more than doubled its share of projects contributing to the Almaty objectives.
  • Furthermore, raising awareness of trade facilitation issues resulted in significant reduction in lead time to import and export on most corridors. Time in ports or at the borders has been reduced – sometimes dramatically as shown by the example of East Africa.
  • Facilitation and logistics indicators such as the LPI or the Doing Business show that, although LLDCs’ performance is lagging, they are slowly converging to the performance levels of their transit neighbors.
  • LLDCs have made also important progress in related dimensions of connectivity, such as the development of internet and Communications technology (ICT).

Progress has been slower in other areas. Such is the case of implementation of regional cooperation schemes to facilitate transit of goods, or reform of the services sector such as trucking. LLDCs are involved in many bilateral, regional, and even multi-lateral agreements. However, quite often, many transit agreements are written very loosely and do not always specify the ways governments can implement and administer them. Also, there are some overlaps and conflicts. Some agreements such as bilateral treaties tend to be protectionist, and not conducive to the development of quality services.

Priorities Going Forward

For the next decade, policy makers and development practitioners need to maintain focus in several areas to reduce trade costs and promote growth.

Infrastructure

  • To ensure the most efficient infrastructure cost recovery and maintenance of roads, LLDCs should adopt a vignette toll system.
  • For the railway system, one of the potential solutions is to connect railway infrastructure efforts with the extractive industry and require mining companies to raise capital for infrastructure buildings and maintenance. This would help LLDCs to achieve greater economies of scale.
  • Scheduled maintenance is highly desirable to prevent higher costs of deferring repairs.
  • It is important to explore innovative means to mobilize additional funds to build and maintain existing transport infrastructure, e.g. concessions or cross-border investment packages. Overall, LLDCs should make investments only when traffic is expected to achieve economies of scale to cover the operating costs.

Trade Facilitation

Despite significant progresses in trade facilitation, many challenges remain, especially in better integrating border management and facilitation of procedures beyond customs (interventions of other control agencies). The Bali Trade Facilitation Agreement offers help to LLDCs that rely on transit through third countries to access ports. However, it offers only a partial solution because its main focus is limited to customs administration, use of an IT system, and access to information. The Bali TF Agreement describes some aspects of the governance mechanism including establishment of a new Trade Facilitation Committee and possible subsidiary institutions, but much of it still needs to be finalized. The actual benefits of this FTA package will depend on the swift ratification of the agreement.

Reform of the Trucking Sector and Implementation of Transit Regimes

Finally, a push is overdue in two related areas, which are by nature regional and cross border: reform of the trucking sector and implementation of transit regimes. In most LLDCs, trucking remains a main mode of freight transportation so a system similar to an International Road Transport (TIR) system, in which customs control is operated in an internationally harmonized manner, would benefit many LLDCs. There have been some reforms to transit regimes, including initiatives to govern the cross-border movement of transport vehicles, but these have only achieved partial success. The new efforts should focus on improving the transit regime, reforming transport market regulation, optimizing multimodal and railroad potential, and exploring air cargo transportation.

More decisive action is needed to seriously address implementation barriers and to improve efficiency of transit systems, following the TIR or European transit principles. These should include:

  • Removing market distortions for international trucking and promoting incentives for quality and compliance (such measures can be complemented by capacity building);
  • Implementing a single international transit document (“carnet”) within a region, without resubmission at each border;
  • Developing a proper regional IT system that allows initiation, tracing, and termination across border of transit operation (Central America has implemented such as system recently, the TIM); and
  • Enacting a common guarantee system, the details of which would depend on the regional architecture of financial services.

World Bank Group Contributions

The World Bank Group (WBG) contributes to this agenda on at least three different levels:

1.      Publications and data sets that raise awareness and disseminate knowledge of what policies work and what do not work. These include in-depth publications on specific issues such as border management and corridor management.

2.      Promotion of technical assistance or investment projects in LLDCs or their transit countries to improve their connectivity (transport, ICT…). There have been more than 150 projects and US$15 billion in assistance (mostly IDA) over the period. The share of “Almaty” projects has tripled since 2003. Half of this support went to Africa, and 38% to Europe and Central Asia. In addition, the WBG targeted trade and transport facilitation reforms – especially on corridors – with the Trade Facilitation Facility, a trust fund set up in 2010.

3.      Other development assistance to LLDCs: In FY13-14 the WBG loaned about US$11 billion to LLDCs, including 37.5% in Africa and 25% in ECA, for about 170 projects.

  • 19% was related to transport and ICT
  • 12% was related to competitiveness
  • 14% was related to agriculture
  • 11% was related to urban development
  • 12% was related to health and education