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Delays and Unpredictability Matter More than Transport Costs for Development

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distant markets. This is, for instance, the case for most garment manufacturers operating under the African Growth and Opportunity Act (AGOA). In fact, this reliability problem will impact competitiveness ceteris paribus, even in the case of production for the local markets where the inputs and finished products somehow cancel out the differences in transport cost with competitors close to suppliers. A motorbike factory in Burkina Faso will have to import components or production kits from Asia and Europe, and it typically has to maintain two months’ worth of inventory to meet its production schedule for relatively small series. It can hardly compete with smuggled imports of assembled Asian bikes. Given that potential manufacturing activities in developing countries usually have limited added value, logistics costs have a marked impact on production margins. A 3 percent additional inventory cost represents 10 percent of a typical gross margin of 30 percent in labor-intensive manufacturing. Additional freight costs to supply inputs may add even more: a typical value of 40 feet of manufactured inputs for the light manufacturing industry in developing countries would be in the area of US$100,000, while bringing it from Asia to Africa would cost between US$5,000 and US$20,000, depending on the location. Unfortunately, those costs are not the only consequences of poor facilitation and logistics for transformation activities. There is at least one other constraint. In practice, sending parts or machinery can be arranged almost everywhere in developing countries, as international logistics operators or express carriers have large networks that can handle shipments anywhere on the globe in a matter of days. However, the price may be disproportionately high, perhaps higher than the value of the parts themselves (US$10 to US$100 per kilogram shipped). Unfortunately, in a nonperforming environment, exceptional shipments such as parts may be submitted to even more procedural hassles in transit than shipments of products regularly imported into the country. Bureaucrats may have difficulty dealing with valuation and classification, or they could simply be uncooperative.13

Backward Links: Sharing Services and Infrastructure with Imports Impacts the Reliability of Export Chains Except for large-scale mineral exports, exporters use infrastructure and services on routes and corridors that are primarily used for imports. As observed earlier, this situation often entails a freight rate discount, but it also means that the quality of services available for exports is dependent on the practices and business organization of the import supply chain.

The Cost of Being Landlocked  

This book proposes a new analytical framework to interpret and model the constraints faced by logistics chains in landlocked countries. The...

The Cost of Being Landlocked  

This book proposes a new analytical framework to interpret and model the constraints faced by logistics chains in landlocked countries. The...