A report by the World Bank has revealed that the cost of trade in Nigeria is about five times higher than what obtains in the United States.
The report, Africa Pulse, which said the situation was the same in Ethiopia, blamed it on insecurity, higher transportation costs, topography and poor road infrastructure.
It pointed out that market distortions across Africa results in price differences of imported food and non-food products, indicating lack of integration across African markets.
The World Bank report further noted that access to product markets is constrained and prevents firms and farms from scaling up their production.
It particularly said the lack of connectivity and market integration meant that markets were segmented, allowing firms or farms with market power to capture benefits, contributing to income inequality.
According to the report, studies from the Africa region consistently find spatial differences in prices of imported goods (food and non-food) as well as non-traded agricultural staples, indicating that markets are not well-integrated, and the retail prices of products are affected by distance.
“For instance, trade costs are four to five times higher in Ethiopia and Nigeria than in the United States, due to poor road infrastructure, low competition in the transportation sector, topography,” the report added.
It highlighted the consequences of the distortions to include preference of African producers to sell locally rather than export, adding that frictions in the labour markets across Africa are as a result of high transport cost, elevated cost of screening workers and lack of information on labour opportunities.
The World Bank report also captured the influence of state involvement through regulation in markets across Africa creating barriers to trade competition and investment. It noted the tendency for big players in such environments to set prices above market rate to the disadvantage of consumers, small competitors and workers.
“Global analysis of World Bank and Organisation for Economic Co-operation and Development indicators of product market regulations suggest that barriers to competition in product markets tend to be higher in African countries, due to a high degree of state involvement in markets, legal and administrative barriers to entrepreneurship, as well as barriers to trade and investment,” the report noted.
It also stated that such anti-competitive market environment stifles innovation and further inhibits the growth trajectory in such economies.
