AfCFTA Friday #4: Non-tariff barriers (NTBs) 101
Understanding NTBs in-depth, their impact, and the main NTBs businesses in Africa face
The African Continental Free Trade Area (AfCFTA) aims to eliminate all non-tariff barriers (NTBs) progressively.
What are non-tariff barriers (NTBs)?
Non-tariff barriers are unnecessary measures imposed on businesses to hinder trade. A good example is unofficial checkpoints on the transport route to solicit bribes/illegal fines.
To understand how unofficial checkpoints might hinder trade, consider an agri-business from Kenya transporting vegetables to Nigeria via the Mombasa-Lagos road corridor—which starts in Mombasa, goes through Uganda, DRC, Central African Republic, and Cameroon, then terminates in Lagos.
If the transport lorry encounters five illegal checkpoints per country, each demanding $50 in bribes, the business will lose $1500 (6 countries x 5 checkpoints each x $50) by the time the truck gets to Nigeria.
For a small SME in Africa, that might be half of its profits. Losing that much might demoralize the SME owner so much that they end up quitting.
That is how NTBs hinder trade—they make it difficult for businesses to continue exporting across borders, although the market is available.
Why do countries impose NTBs?
Countries impose NTBs to compensate for reducing/eliminating tariffs.
A tariff is a tax paid on goods when imported across a border. When Tanzanian entrepreneurs export onions to Kenya, they must pay a certain documented amount as a tax. The tax is often a certain percentage of the total value of imported goods.
Tariffs have multiple benefits. They:
Protect emerging or inefficient local industries from external competition. Say Kenyan farmers have recently started growing onions on a large scale. The Kenyan government might impose tariffs to make importing onions from Tanzania so expensive that entrepreneurs will be forced to purchase onions from local farmers.
Protect the local/domestic market from foreign dumping. Dumping occurs when a foreign country that produces a lot of something exports it to another country and sells it lower than what it costs in the domestic market.
It makes it impossible for producers of the same product in the domestic market to compete. Tariffs make it expensive for foreign companies to export the product, which means they cannot sell it at a low price.
Raise revenue for the government. Aside from Pay as You Earn (PAYE) or business taxes, governments also raise money from tariffs on goods entering the country.
However, these benefits pale in comparison to the benefits of bilateral or regional trade agreements that lower/eliminate tariffs to increase trade between two or more countries.
For example, all the tariffs that Kenya can collect from Tanzania’s onion exporters are a fraction of the money the country gains by adhering to the East African Community trade agreement that allows Tanzanian onion traders to export to Kenya freely without paying tariffs.
Unfortunately, despite knowing the benefits of open trade, most countries react to trade agreements by increasing/imposing NTBs.
Why?
The countries are afraid that because tariffs no longer exist, business people from other countries will dominate the local market (it is an invalid fear).
Most business people in the country are still thinking nationally and are too stubborn to see the benefits of open trade
Selfish lobbying from businesses that benefit when NTBs are imposed on certain goods.
President Museveni gave a good example when he said that rice growers in Uganda had lobbied for NTBs/tariffs to prevent Tanzania’s rice from dominating the Uganda market.
The businesses did not care that Uganda’s rice was more expensive for consumers because Tanzania produces rice more efficiently.
That’s why countries impose NTBs, next is a look at the continent’s primary NTBs.
Main NTBs businesses in Africa face
Excessive paperwork that serves no purpose
Customs agents rejecting documents at the border for minor issues
Inability to service some requests because of inadequate facilities
Long queues at the border due to substandard facilities or arrogant personnel
A lack of transparency, for example, a lack of up-to-date information on procedures which, makes it impossible for exporters to prepare all the required documents on time
Illegal checkpoints on the major transport routes to solicit bribes and fines.
Lack of coordination between the different border agencies, which results in duplication of documents, delays and additional costs
Impact of NTBs and why it is important to eliminate them
Statistics show that if African countries could cut NTBs by only 25%, it would save the continent $21 billion annually.
NTBs increase the cost of exports. Because traders spend so much dealing with the NTBs, they opt to raise the cost of the goods to recoup the loss. An item that was supposed to cost $1 might end up costing $2 or more, hurting the consumer.
NTBs reduce competitiveness. NTBs scare entrepreneurs away, preventing them from setting up in different countries. That reduces competitiveness because varied entrepreneurs are not competing to deliver the best product to the consumer. In turn, innovation stagnates.
NTBs cause delays. When NTBs hamper entrepreneurs at every stage of the export process, delays occur. For example, if customs agents reject documents for minor errors, the goods will take a long time at the border. Such delays lead to loss of clients and profit.
NTBs cause loss of goods. If NTBs, such as excessive paperwork, make it impossible for the goods to clear the border, it will cause outright loss of goods. That is especially so if the goods are perishable.
All these effects of NTBs add up to one thing—reduced trade. Although countries reduce/eliminate tariffs to boost trade, the NTBs are so high that trade does not increase.
That is why AfCFTA is so keen on eliminating non-tariff barriers.
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If you missed the other #AfCFTA Friday issues, please feel free to check them out.
AfCFTA Friday #1: What is the AfCFTA and Why Does It Matter?
AfCFTA Friday #2: What are the opportunities contained in the AfCFTA
AfCFTA Friday #3: How the AfCFTA can contribute to climate change efforts in Africa