Hidden Costs

What keeps us poor? We need to ask this sort of question all the time because the answer might surprise us if we get a reply. This is not just a question for developing countries, but also a useful question for the more mature developed States who are themselves facing problems in sustaining the levels of income that they have become used to.

Eddie Cross

Most African countries have economies that are far from being self-sufficient. They are what economists call “open” economies. The USA is one of those countries that are much more self-sufficient – partly as a result of policy and partly because it is almost unique in being rich in all the resources essential for growth and economic activity. The Asian Tiger economies have all deliberately used foreign trade as a primary driver for growth. China and Japan both used such a model to secure their growth and status as the second and the third largest economies in the world.

Open economies must watch what we call their “bridging costs”. Simply put, this is the cost of transporting your imports and exports to and from markets outside your borders. For land locked States this is even more important as they are denied direct access to shipping – one of the most competitive and cost effective industries in the world. Many key innovations such as the emergence of the ubiquitous shipping container, have gone uncelebrated but they are perhaps one of the key elements in the rush for growth over the past 60 years.

The genius of the Silk Road project of China is that of a physically connected world. China knows, perhaps better than anyone, that if you are going to win the struggle for a place in the sun, you to have a highly competitive and efficient railway and port system. You will not see many ships flying the Chinese flag because they recognised that you can probably hire space on ships at a lower cost than you could provide it on your own.

When I was a junior economist working in agriculture in the 60’s, I was put in a working group to do a regional study of which Ports in southern Africa should be equipped to handle containers. This then directed investment in regional Ports and very largely determined the pattern of regional trade up to this day. The South Africans were clever – they controlled shipping services to our ports and these business interests were organised into a cartel. They controlled berthing rights in the South African Ports and those of us who had to use secondary Ports like Beira had to tranship – a costly exercise.

When I became the CEO of a major industrial exporter, I began to appreciate the stranglehold that South Africa had over regional trade. The South African system was not only corrupt, but also self-serving. Every country in the region that had to use South African railways and ports had to bear higher costs – effectively a tax on every citizen that lived north of the Limpopo. We had to ship our product by road from the north of Zimbabwe to Cape Town and then use facilities in the Port that were virtually a monopoly.

That was the main reason why I took up the need to get Mozambique Ports working again after the border was reopened at Independence in 1980. I persuaded business leaders in the region to join in the effort and we formed the Beira Corridor Group with over 1000 regional companies as members. In the next 4 years we spent close to US$700 million getting the Beira Port reopened and the rail road and pipeline systems working. At the end of this exercise half of all our trade was being rerouted through Beira.

It costs China US$1200 to send a container of goods from Shanghai to Chicago. It costs us nearly US$5000 to get a container of our exports to markets in the Far East and Europe. I watched a video clip the other day of a train from China to Germany in Europe, using the new Silk Road railway system. It was perhaps 3 kilometres long, carried a double tier of containers and was moving at a reasonable speed – perhaps 60 kilometres an hour. I can guarantee that the costs are substantially below those of moving the same cargo by ship to Rotterdam. By comparison, the rail, road, airport and port facilities of the USA are looking increasingly moth eaten and inefficient.

Why is China and other Eastern economies investing in African Ports and Railways – do you think that is to help Africa or is it to ensure that they can move their exports more effectively and at lower costs to key growing markets and to move raw materials from Africa to their own factories. By comparison just look at what we have done to the railway systems that our colonial masters left behind. They lie idle in the sun and rain, weeds growing up between the sleepers and the tracks twisted and bent. Today 90 per cent of our trade moves by road. The thousands of imported heavy duty trucks wrecking our roads and congesting our borders. At any one time you can google the border posts of Africa and see from space the thousands of trucks, not running productively on the roads but queueing at border posts. It takes a month to move 30 tonnes of cargo from Durban to Lubumbashi in the Congo.

We need to pay much more attention to these essential issues. We need our railways – just because you can phone a trucker and order a load to your client or Port does not solve the problem of costs – it exacerbates them. We can move a tonne of cargo by pipeline for US$ 1,5 cents per tonne/kilometre, a tonne by rail for 3 to 8 cents and by road for anything from 10 to 18 cents. There is also the issue of time – if your truck is stuck in queues for three weeks getting from Durban to Lubumbashi it will have cost you not less than US$3000 – US$100 per tonne on top of all your other costs. Corruption at the border will increase such costs. On exports of copper alone, the region is paying out US$250 million in such direct charges, every year, with nothing to show for it except higher profits for truckers.

Mozambique, with its 3000 kilometres of coastline is the gateway to the interior of southern Africa. We need to sit down with the Mozambique Government and agree as to how we are going to develop Mozambique Ports and railways. We need a new deep water Port to replace Beira which can never be developed on a truly competitive basis. We need to look at shipping schedules and agree as to how we are going to turn Mozambique Ports into major regional hubs.

Regional States have decided to route demand for refined fuel through Harare, this requires Beira and Maputo. How do we get a million tonnes of fuel a month through these ports and into the interior at least cost? Stage one must be by rail and pipeline – but eventually it must be pipeline. We need a road map to ascertain how we get there.

The DRC Congo is in the process of becoming one of the largest sources of key minerals and metals in the world – copper, cobalt and zinc. Planned investments of billions of dollars are underway, how we get their import and export products into the global market is a critical issue. We need to invest in our railways – tracks, train controls, rolling stock, people. We do not need high speed trains for intercity transport, we need goods trains that can move bulk cargoes at a decent speed across our rail lines and without stopping at our borders. We need to be able to move our bulk traffic at 5 cents a tonne/kilometre. Then we are in business and every dollar saved will go into more buying power by consumers, more productive jobs and higher export earnings.

Mundane, maybe, essential and urgent yes.

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