World Bank Warns of Looming Economic Slump Unless SSA Cuts Trade Costs

The World Bank has issued a warning that Sub-Saharan Africa (SSA) needs to cut trade costs by at least 50% to reinvigorate global trade, which has been in decline since mid-2022. The lender stated that the global economy growth rate could slump to a three-decade low if urgent action is not taken to boost productivity, labour supply, investment, trade and harness the services sector. The report also assessed the long-term implications of the Covid-19 pandemic and the Russian invasion of Ukraine on the global economic growth rate. It stated that cutting trade costs in regions where they are highest could boost international trade and bolster the global economic growth. SSA has the highest trade costs globally, with the total costs including shipping, logistics, and regulation charges amounting to about 130% of actual tariffs levied on traded commodities.

According to the report, SSA also has some of the highest tariffs on all goods compared to the rest of the globe. Tariffs in emerging and developing economies including SSA averaged eight percent, while that of advanced economies was less than two percent. Besides the high trade costs, countries in the region also participate in fewer regional trade agreements (RTAs) compared with nations in advanced economies. On average, African countries are in about 25 RTAs while developed economies are in about 90 such agreements with other countries, bolstering their cross-border trade. Other factors hampering trade with SSA according to the report are high levels of trade uncertainty, poor logistics and a low Liner Shipping Connectivity Index, which measures how good a country’s transport networks are for international trade.

These issues have compounded Africa’s trade with the rest of the globe, slowing down economic growth amidst an overall slump in international trade occasioned by the shocks last year. The United Nations Conference on Trade and Development (UNCTAD) data shows that global trade rose to $32 trillion last year but took a downward trajectory since last June and is projected to remain subdued for the rest of 2023. In their latest Global Trade Update released last week, UNCTAD said Russia’s war with Ukraine will continue to negatively impact global trade in 2023. Additionally, inflation, rising interest rates, and debt sustainability concerns will slowdown global business activity. The World Bank warns that should the downward trend in trade persist, the average global economic growth rate will slump by a third to 2.2% in the decade to 2030 from the 6.6% recorded in the first decade of this century.

Indermit Gill, World Bank’s chief economist said a lost decade could be in the making, and urgent action is needed to avert the looming slump. To address this issue, SSA needs to focus on reducing trade costs by enhancing its trade facilitation processes, improving infrastructure, and enhancing competitiveness in the export sector. Reducing trade costs will enable the region to integrate more into the global trading system and increase intra-regional trade. This will lead to economic growth and the creation of jobs in the region.

In conclusion, SSA needs to take urgent action to reduce trade costs and boost economic growth. Cutting trade costs in regions where they are highest could boost international trade and bolster global economic growth. SSA should focus on reducing trade costs by enhancing trade facilitation processes, improving infrastructure, and enhancing competitiveness in the export sector. This will enable the region to integrate more into the global trading system and increase intra-regional trade, leading to economic growth and job creation in the region.