Transit infrastructure issues for landlocked developing countries (LLDCs)

1. Transit infrastructure issues for landlocked developing countries (LLDCs) Vincent Valentine, Officer-in-Charge, Transport Section, Trade Logistics Branch, Division on Technology and Logistics

2. Introduction • This research was undertaken in response to requests from landlocked and transit developing member States to analyse issues that affect their trade and its transport. [1] • The research addresses the current challenges and opportunities faced by landlocked developing countries (LLDCs) when making use of transit port facilities in neighbouring coastal countries. • [1] p107 Accra Accord

3. The main transport obstacles for LLDCs • Remoteness to sea (fewer trading partners and higher % of the transport chain using a lower efficiency transport mode). • Dependence on transport systems in neighbouring coastal countries. • It has been estimated that adding 1,000 km of sea transport costs $190 whereas adding the same distance for inland transport incurs an extra $1,380.[1] In other words, inland transport is seven times more costly. [1] Limao N. and Venables A.J. (2001), “Infrastructure, Geographical Disadvantage and Transport Costs”, World Bank Economic Review, Volume 15, Number 3.

4. Higher production costs of final goods • An increasing share of global trade consists of manufactured goods and components that are being used within globalized production processes. • High transport costs and long delivery times for imports lead to higher production costs of final goods, in other words, high transport costs “weigh heavily on the choice of production location for high-import-content, assembly-type industries”.[1] [1] Anwarul Chowdhury and Sandagdorj Erdenebileg: Geography Against Development: A Case for Landlocked Developing Countries, United Nations, New York, 2006.

5. Reliability is everything • Global supply chains consists of production of inputs from many countries increasing the need for reliable connections to suppliers and companies across borders. • It has been estimated that an increase of 10% in time taken to deliver cargo, the exports of a country will fall by 5%. [1] [1] Presentation by Mr. Ralph Carter, International Chamber of Commerce at the Forum on WTO, Trade Facilitation and the Private Sector in Developing Countries, UNCTAD and WTO, 15 February 2010.

6. Costs are equally important $5,300 $3,800 $1,500 Mombasa Kampala Dubai Approximate cost of transporting a FEU Kigali $4,000 $1,500 $5,500 Source: Presentation by Ms. Elizabeth Tamale, Principal Commercial Officer, Ministry of Tourism, Trade and Industry, Uganda at UNCTAD Ad Hoc Expert Meeting on Transit Ports Servicing Landlocked Developing Countries, 11 December 2009, Geneva.

7. Dubai – Mombasa 2,410nm (3,880 km) 73% of the distance and 27% of the cost

8. Mombasa – Kampala – 650m (1,045km) 20% of the distance and 69% of the cost

9. Nairobi – Kigali - 325 m (520km) 10% of the distance and 3% of the cost

10. Assumptions for higher transport cost in LLDCs • Recent thinking has shifted from attributing distances as the main determinant of high costs to identifying inefficiencies along the transport chain. • This shift in thinking is important as LLDCs countries were once thought to be "doomed" to economic failure or extremely disadvantaged by virtue of their given geographic location, but now new evidence is pointing to improvement of trade operations that would enhance competitiveness and ensure better economic growth through trade.[1] [1] Mackellar L., Wörgötter A. and Wörz J. (2002), “Economic Growth of Landlocked Countries”, in Chaloupek, G., Guger, A., Nowotny, E. and Schwödiauer, G., Ökonomie in Theorie und Praxis, Springer, Berlin.

11. Recent research has highlighted transit ports a major bottleneck for LLDCs. Changing focus from routes to ports Source: Jean Kizito KABANGUKA, SSATP Regional Coordinator E&S Africa 9/12/2009

12. Transit ports • …are ports belonging to countries neighbouring an LLDCs. • While some LLDCs have a choice of transit ports, others are limited by physical or economic constraints to just one. • Sometimes the LLDC is in a minority position in terms of its market share of port throughput while other times it can be a majority player. • Either way the result mostly the same…the LLDC is adversely affected.

13. Transit countries experiencing reduction in frequency of liner services Transit Country Landlocked Country Based upon UNCTAD’s Liner Shipping Connectivity Index 2009

14. Example I – A port servicing multiple LLDCs • The port of Dar Es Salaam is Tanzania’s main port thorough which around 95 per cent of its international trade passes. • The port is also the main transit ports for Burundi, Rwanda, and Uganda as well a viable alternative for landlocked Malawi, Zambia and the eastern part of Peoples Democratic Republic of Congo.

15. Handles around 8 million metric tonnes per annum including some 400,000 TEUs. 2.6km of quay length of which 550 is reserved for TEUs. Depth of 11.5 metres at its maximum, enabling it to cater for container vessels around the 3-4,000 TEU mark The main imports are: vehicles, cement, fertiliser… The principle exports are: sisal, tea, cotton… Dar es Salaam Port

16. Berth occupancy [1] • 2009 incentive measures introduced for shippers to clear their cargo at the port within 72 hours after discharge. • Previously tariff rates were around $20 per day for the first 30 days and thereafter $27 per day. • New conditions and rates mean that for domestic imports and exports shippers will pay $40 per day for storage rates from the second week that cargo remains in the port and $50 per day thereafter [2] [1] Report by Tanzania Port Authority August 2009 [2] http://allafrica.com/stories/200806300461.html

17. Transit cargo dwelling < 21 days in Dar es Salaam port Source: UNCTAD secretariat

18. Average container dwell times in Dar es Salaam Port (imports) [1] Report by Tanzania Port Authority August 2009

19. Transport mode using Dar es Salaam Port • Figures in tons [1] Report by Tanzania Port Authority August 2009

20. Mwanza port (and on to Uganda) TanzanianRailway network Moshi (and on to Kenya) Kigoma (and on to Brundi and Rwanda) Tanga Port Tabora Dar es Salaam 1.067 metre gauge leading to Lusaka (Zambia)

21. Mwanza port (and on to Uganda) 1230 km from Dar es Salaam Isaka (and on to Brundi and Rwanda) 990 km from Dar es Salaam and 30% more expensive than to Mwanza port Dar es Salaam Source: Arvis et al (2007) – Based on 2005 data

22. Rail exports from Dar es Salaam Port [1] Report by Tanzania Port Authority August 2009

23. Percentage of transit cargo and duration spent in Dar es Salaam port subsequent to incentives Source: UNCTAD secretariat a This data was collated subsequent to the incentive measures aimed at importers to improve cargo collection.

24. Example II - where a single landlocked country dominates transit cargo • The Port of Djibouti has a capacity to handle 1.5m TEUs annually and has a water depth of 18 meters. • In 2009 the estimate port throughput was around 300,000 TEUs. • Plans exists to increase throughput to 2-3 million TEUs.

25. Djibouti’s main customers • The Port of Djibouti’s main customers are from Ethiopia which became landlocked in 1993 after it ceded it’s coastline to the newly formed country of Eritrea. • Ethiopia has a population around 80 million persons, which is about 100 times larger than that of Djibouti. • Ethiopia imports around 98 per cent of its goods through the port of Djibouti and this means Ethiopian traders comprise of around 85 per cent of the customers for the port by volume.

26. Port Sudan (Sudan) 1,900 km Massawa (Eritrea) 1,163 km Distance from Addis Abba Assab (Eritrea) 882 km Djibouti (Djibouti) 918 km Berbera (Somalia) 937 km Mombassa (Kenya) 2,067 km

27. Challenges • Annually it is estimated that Ethiopian traders pay over US$700m in port fees each year.[1] This represents about 16 per cent of the total imports. • In 2008 the port of Djibouti reduced the free storage of transit cargo from 15 to 8 days. This has had the affect of increasing costs to importers of around US$20 per day for a FEU (Forty-Foot Equivalent Unit). • In 2007 the split between rail and road trafiic from Djibouti to Addis Ababa was 95% road and 5 per cent rail. [1] http://www.addisfortune.com/Dry%20Port%20at%20Mojo%20to%20Start%20Operations%20in%20Few%20Weeks.htm

28. Railways • Ethiopia has only one railroad, a narrow gauge track that connects the capital Addis Ababa with the port of Djibouti, a distance of 781 kilometres with a vertical elevation rising to 2,300m above sea level. The maximum slope reaches a gradient of 3 per cent and there are 79 curves with a radius smaller than 200 metres which seriously limits the carrying capacity of the trains.[1] • The railway is jointly owned with owned by the governments of Ethiopia and Djibouti with approximately 681km lying within Ethiopia and 100 in Djibouti. However, there are currently no rail services between Djibouti and Addis Ababa - the railway line is functional only as far as Dire Dawa (approximately half way between these two cities). Rehabilitated works are underway. [1] http://www.delken.ec.europa.eu/en/publications/Berbera%20Corridor%20Pre-feasibility%20Study%20-%20Final%20Report.pdf

29. Ways to overcome these challenges • To decrease it dependence upon Djibouti the Ethiopian government has been investing into alternative routes. One such example is the tar macadam of the road from Addis Ababa to Moyale in the south to the border with Kenya combined with the construction of a one-stop border post at Moyale to facilitate trade. • In 2009 the African Development Bank (AfDB) agreed to lend Kenya Sh12.5 billion (US$162m) for the tar macadam of 123 km of road between Marsabit and Turbi, towards the town of Moyale which borders Ethiopia in the north.

30. Ethiopian Shipping Lines (ESL) • Despite being landlocked Ethiopia has it own maritime fleet. Mainly consisting of multipurpose, Ro/Ro, general cargo and bulk vessels. All but one (Ro/Ro) are geared. • The new Dorelah Container Terminal at Djibouti is equipped with the modern post-panamax cranes capable of serving the largest container vessels afloat. • With its fleet of geared vessels ESL is not utilising the full benefit of the Dorelah Container Terminal. • A request for dedicated access to two berths at the old the Djibouti Port, by ESL to the port managers, was declined. Despite Ethiopia traffic representing around 85 per cent of Djibouti port throughput. [1] • [1] http://abbaymedia.com/News/?p=2654

31. The shortest distance from sea to border of an ECO landlocked country varies from 1,100 km (Afghanistan) to 3,500 km (Kazakhstan). ECO estimates indicate that travel over 3'000 km via railways adds and extra $4-5'000 per FEU. This figure only includes the railway transport fees and does not take into account other costs such as loading and unloading cargo, port charges, customs duties, warehousing, etc. Example III - A regional approach

32. Challenges • In Uzbekistan, the cost of transporting cement to international markets is so high relative to the price of the goods, that to be competitive, the price should be free of charge. • In Kazakhstan, it takes 93 days on average to move cargo from the factory gate to the nearest export port to fulfil all the customs, administrative and export requirements. • In Uzbekistan, 139 days are needed on average to import goods.[1] • [1] ECO and presentation of Mr. Anthony Pearce, International Road Federation (IRF) to the First Regional Workshop of Euro-Asian Transport Links Phase II: Facilitation of Euro-Asian Transport in the ECO Region, Tehran, Iran 27-29 April 2009.

33. Challenges • The region's transport challenges can be summarized into two broad categories: • (i) inappropriate trade infrastructure: missing links, weak conditions of roads and rail infrastructure, inadequate maintenance; and, • (ii) inefficient trade measures and policies: high tariffs, diverse regulations, cumbersome bureaucracies, heavy administrative and clearance requirements, transport quotas and licenses, requirements for transhipment, mandatory convoys, mandatory use of certain commercial services, problems in obtaining visas for professional drivers, transit fees, measures without prior or with short notice to traders, among others.[1] [1] Adapted from a presentation of Mr. Anthony Pearce, International Road Federation (IRF) to the First Regional Workshop of Euro-Asian Transport Links Phase II: Facilitation of Euro-Asian Transport in the ECO Region, Tehran, Iran 27-29 April 2009

34. Ways to overcome these challenges • ECO's aim is to have trains monitored and managed at regional level, rather than segmented and uncoordinated at national level by creating: • A Regional Monitoring and Management Train Centre. • Steering Committees with representation from customs and railways dealing with the creation of regional railway centers dealing with improvement of infrastructure including rehabilitation of segments and missing links. • A consultation mechanism that brings together Maritime Authorities in transit countries and Ministries of Transport in landlocked countries, at the level of Deputy Ministers. • ECO Logistics Providers Association Federation (ECOLPAF) uniting forwarders and logistics providers.

35. Study tours • Previous attempts to establish a dialogue to gather the needs of LLDCs failed to gather momentum as LLDCs lacked knowledge of processes with transit ports. • By establishing LLDC stakeholders' visits to transit ports a greater dialog has ensued.

36. Exchange of land • Another ECO initiative is the exchange of land between landlocked and transit countries for better direct access (approximately 10-12ha in one of Iran's seaports with railway access). • Two pilot ports in two transit countries have been selected including Bandar Abbas port in Iran. Negotiations have started between Iran and both Kazakhstan and Kyrgyzstan.

37. Conclusions • Geographical remoteness is not the problem …while high transport costs constitute an important barrier to trade, it is in the transit port where additional costs and time make a significant difference on LLDCs competitiveness. • Transit countries, and in particular transit ports, will benefit from higher volumes of trade associated with all users including those in LLDCs if port infrastructure combined with institutional measures are implemented.