Trade can be a perilous enterprise in the Horn of Africa, even in areas that aren’t torn by conflict. Most goods are moved by truck, and drivers must navigate congested, unsafe, and poorly maintained roads, where accidents and breakdowns are frequent. Some routes outside major cities have few fueling stations and poor road-side infrastructure, making road transportation hazardous and driving costs up and profits down.
Those obstacles help explain why the volume of trade among the seven countries in the region is the lowest in Africa, amounting to just 6 percent of GDP, compared with 13 percent for the continent. Some of the Horn’s countries are among Africa’s poorest.
The problems are daunting, but the region’s governments are taking bold steps to tackle them. They have launched the Horn of Africa Initiative (HoAI), with financial and technical support from the African Development Bank, the European Union, and the World Bank. The initiative has four pillars: improving infrastructure such as transport, energy, and digital networks; promoting trade and economic integration; building resilience to shocks such as pandemics and disasters; and strengthening human capital.
The development partners have committed a $15.89 billion priority package that aims to boost regional trade and economic integration, and by doing so, improve living standards and create more and better jobs for the region’s more than 200 million people. The hope, too, is that stronger commercial ties in the Horn will incentivize peacebuilding and raise the economic cost of disruptions to trade.It is a three-year plan that aims to reduce trade costs and facilitate the movement of goods and services across borders that have been described as the world’s “thickest,” meaning they are the hardest to cross.
A joint AfCFTA Secretariat-World Bank Report estimates that the agreement has the potential to raise incomes by 9 percent and lift 50 million Africans out of extreme poverty by 2035.
In March, Finance Ministers and senior officials from Djibouti, Ethiopia, Kenya, Somalia, and South Sudan met in Nairobi and reiterated the importance of promoting regional programs to achieve the objectives set under the HoAI. On trade and regional integration, the Ministers highlighted the significance of using the regional trade facilitation roadmap as a framework to develop a pilot program for implementing the AfCFTA in the region.and often not available in all languages of the Horn. Obtaining the needed documentation is also costly and time consuming.
As a result, dealers in cattle, leather goods, cereals and other wares prefer to trade informally, avoiding border procedures entirely. By some estimates, 80 percent of the region’s cross-border trade isn’t recorded; it supports some 17 million people along different value chains, including farmers, traders, livestock herders, fodder suppliers, and ranch owners. Instituting so-called simplified trade regimes – which lighten paperwork and exempt small shipments from customs duties – would help bring many small-scale traders into the formal economy.
South Sudan expects support in a wide range of areas, from removing physical barriers to conducting a comprehensive assessment of information technology needs. Somalia, among Africa’s poorest countries with a per capita GDP of $447, is seeking help to monitor non-tariff barriers and simplify transport-related policies and regulations. Djibouti, with its bustling port on the Gulf of Aden, is focusing on simplifying regulations, tracking cargo electronically, and reducing logistics costs along its transport corridors.
Kenya and Ethiopia, the region’s biggest economies, have made considerable progress in trade facilitation. For example, they have adopted a simplified trade regime and a system of cargo tracking electronically that reduces border delays by allowing remote monitoring of cargoes via GPS devices. Implementation of GPS tracking within Ethiopia is under way. While most initiatives are national in character, and gaps remain, there are good examples such as the joint Kenya-Ethiopia plan to conduct time-release studies that measures time required to clear goods across borders and identify constraints to the movement of goods. This will help harmonize key trade facilitation agreements between the countries.
These steps will encourage greater participation by the Horn’s businesses in regional and global value chains and help address the common development challenges the region faces.