Intuitively, lowering time and costs associated with crossing borders should be strongly associated with trade growth, diversification and economic expansion. Empirical economic studies which isolate the impact of breaking down border frictions confirm this.
For a typical shipment, the World Bank’s Doing Business study tracks the time associated with documentary and border compliance across countries. This graph measures the combined time of documentary and border compliance for both an import and export shipment. For example, for Oman, documentary and border compliance associated with an import is 7 and 70 hours respectively, while for an export, it is 7 and 52 hours respectively. Adding those four figures together reveals a combined time of 136 hours, as shown on the graph. The countries selected are significant emerging markets which have seen their time to import and export change significantly over the past four years.
As for the amount of time overall, there are evidently vast disparities across countries. Oman’s figure is almost five times lower than Egypt or Angola’s.
Note: For methodology, see here
Which countries have made strides in recent years? There are numerous examples across regions: Angola, Ghana and Ethiopia from Sub-Saharan Africa, Brazil and Argentina from South America, Qatar and Oman from the Middle East and Vietnam from Asia Pacific. There are several reasons why gains have been made, but one is common for many as is explored in the examples below.
Starting with those who have gone the other way, Egypt made trading across borders more difficult over the last few years by making the process of obtaining and processing documents more complex and by imposing a cap on foreign exchange deposits and withdrawals for imports. However, this cap was lifted in November 2017, when the last currency controls put in place after Egypt’s 2011 uprising were removed. A return to some degree of political and economic normalcy is now encouraging investors.
Elsewhere, Myanmar has suffered due to congestion at the Port of Yangon, which has seen its time to import and export increase by 108 hours. While logistics providers have seemingly flocked there in recent years to take advantage of a rapidly growing economy, investment in new port capacity is much needed.
As for the winners, Ghana has reduced its combined time to import and export a shipment by 470 hours. Firstly, it has upgraded infrastructure at the Port of Tema. Secondly, it has reduced compliance time for importing by developing electronic channels for submitting and collecting final classification and valuation reports. Lastly, it has also removed mandatory pre-arrival assessment inspection at origin for imported products.
Angola has also improved dramatically, cutting the average time for a shipment to cross its border by 300 hours. As part of its National Development Plan 2013-2017, Angola has significantly rehabilitated and upgraded the Port of Luanda, expanding terminals, adding new berths and acquiring equipment. This has resulted in improvements in handling processes and reduced border compliance time for both exports and imports.
The South American markets of Argentina and Brazil are also among the best performers. Argentina has reduced border time by 144 hours by introducing a new licensing system for importing, which reduced the time required for documentary compliance. For both imports and exports, its neighbour Brazil has reduced the time for documentary and border compliance by introducing an EDI system.
Oman has followed a similar path. It has introduced and subsequently improved an online single window/one-stop service that allows for fast electronic clearance of goods. Vietnam has also introduced an electronic customs clearance system in recent years.
A key distinction here is that of a customs Electronic Data Interchange (EDI) system and an electronic Single Window (SW). An EDI system allows for electronic processing of customs declaration, and connects customs authorities and customs brokers. An SW is the next step on, connecting more trade actors, such as exporters, importers, carriers, ports, agriculture, veterinary or other agencies. In theory, if all relevant actors use the single window, time is reduced the most, with traders only having to submit documents once instead of potentially having to deal with multiple government agencies separately.
The World Bank released for the first time last year a database (accessed here) which tracks the availability and status of implementation of Electronic Data Interchange (EDI) and Single Window (SW) systems, providing a thorough dataset on the adoption and level of sophistication of electronic customs platforms in 190 economies.
Any investor or shipper wanting to understand the nuances of trading, particularly in emerging markets, would be wise to understand the burden of borders and customs. In particular, it is important to understand which countries are making strides and which are behind the curve. A crucial area of competitiveness is the development of electronic customs systems, be they EDI systems or more advanced single window systems.
This area of trade facilitation promises great opportunity over the coming years, especially in emerging markets. We hear frequently that global trade policies have shifted their focus from tariffs to the somewhat nebulous term of non-tariff barriers. When people talk about breaking down non-tariff barriers, this is exactly the kind of reform that can deliver meaningful gains.
Source: Transport Intelligence, January 2, 2018
Author: David Buckby
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