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African Economic Research Consortium (AERC)

The Business of Exporting: Transaction costs facing suppliers in Sub-Saharan Africa

Framework paper presented at the African Economic Research Consortium Collaborative Research Workshop on Export Supply Response Constraints in Sub-Saharan Africa Dar es Salaam, Tanzania

William M. Lyakurwa1

African Economic Research Consortium (AERC)

23–24 April 2007

SARPN acknowledges AERC as a source of this document:
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Despite Africa’s improved economic performance in recent years, the continent still lags in the area of trade competitiveness. Since trade is recognized as one of the core contributors to economic development (Azam et al., 2002), it follows that improving the investment climate and enhancing the capacity of African entrepreneurs to invest and engage in business are central to improving competitiveness. Yet Africa remains a high-cost, high-risk business environment. One estimate put the cost of doing business in Africa at 20–40% above that of other developing regions (World Bank, 2005). Transaction costs are high at every step of establishing and running a business. Roads and other infrastructure are usually inadequate to say the least, the policy regime is often uncertain, contract enforcement is costly if it exists and corruption permeates the regulatory environment. Competition is also strangled by the lopsided position of well connected companies and a concentrated industrial structure, where large firms hold very dominant market shares.

Addressing these constraints should be a priority of government in Africa, particularly the sub-Saharan region. The purpose of this paper is to give a broad overview of the difficulties SSA’s high transaction costs present to African exporters. The paper discusses transaction costs and market related problems facing African exporters at all the levels of export trade in the agricultural, horticultural and manufacturing subsectors. The idea is to provide a foundation for the country case studies in the collaborative research project on Export Supply Response Constraints conducted by the African Economic Research Consortium (AERC). The paper reviews the various types of transaction costs and highlights some statistics from numerous existing studies so that their methodologies can be assessed and possibly applied to the country case studies. In terms of the flow of the paper, we first look very briefly at historical downward trends in SSA’s trade position and loss of market share, and some of the factors contributing to the decline. We then review in detail production related constraints, other supply related constraints and financial constraints. These are followed by discussions of constraints to facilitation and to distribution channels. Recommendations for issues and approaches for the project’s country case studies close the presentation.

  1. The author is the Executive Director of the African Economic Research Consortium. The views expressed herein are his own and do not necessarily reflect those of the Consortium.

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