EuropeAid

Political Economy at Work

Brussels - 11-12 January 2011

Paolo CiccarelliInfrastructure Unit (Transport)Directorate for Development and Cooperation

EuropeAid

The development chain in Transport

Transport Cost Reduction

Transport Price

Reduction

Socio- Economic

Growth

EuropeAidAnalysing Transport Prices and Costs

Transport Prices

Transport Costs

Profit Margin

Administrative Costs

Logistics Costs

VehicleOperating

Costs

EuropeAidHow to reduce Vehicle Operational Costs?

Historically (project approach):• Infrastructure rehabilitation projects;• Concentration on a single transport mode (roads);

Last 10/15 years (sector approach):• More focus on maintenance and Road Funds;• Capacity building for transport infrastructure

management (Road agencies, procurement,

concessions);

BUT• For Road Funds, a levy of at least 10 USD cents is

necessary, but only achieved in 4 countries;• For roads alone, under-maintenance leads to excess

capital spending of 2.4b USD a year;

EuropeAidHow to reduce Logistics Costs?Favour Regional Integration and Trade:

• Joint Border Posts

• Trade Facilitation Agreement in Regional Integration

BUT

• Including all delays, the speed on international corridors is on

average 10km/h (AICD)

5 5 5 5 4

7 9 9 6 6

36 6

2 3

6

6 6

6 6

10

15 15

8 9

0

5

10

15

20

25

30

35

40

45

Dakar Lomé Tema Conakry Abidjan

Ports

Jou

rs

Retards au Port Temps de Conduite Passages aux Frontières

Retards de Terminal Autres retards (Réparations, etc.)

Logistic Chain Productivity in West Africa (toward Bamako)

EuropeAidHow to reduce Administrative Costs?

Facilitate Transport Investments• Import Licenses• Vehicles registration

BUT• Truckers are racketed along

transport corridors

EuropeAid

By reducing Transport Costs, have we reduced Transport Prices?

Large investments together with other sector intervention:

o Some reduction of transport cost (not much as expected);

o Minimal or no reduction at all of transport prices.

Cost of providing services in Africa is higher than elsewhere

o Road freight tariff ($ per T/km):o Africa = 0.04-0.14; o Other countries = 0.01–0.04;

EuropeAidHigh Transport Prices: Cartels in the Road Freight

Excessive Profit Margins in West and Central Africa due to cartels and «freight sharing»

EuropeAidAddressing the New Challenges

Profit Margins

Administrative Costs

Logistics Costs

VehicleOperating

Costs

Rehabilitation

Maintenance

Infrastructure Management

Trade Facilitation

Cartels and protectionism

Trade Conventions not applied

« Tracasseries »

Not enough maintenance funds

Policies and Strategies inadequate

Budget not executed properly

Deregulation

EuropeAidFocusing on Governance in the Transport Sector

The Logical Chain can only hold if Governance is taken into account

Transport Cost Reduction

Transport Price

Reduction

Socio- Economic

Growth

Sector Governance

EuropeAidMoving forward• Promote a sector wide approach:

o Coherence of policy and strategy framework;o Realism and predictability of financing;o Restructured and reinforced institutions;o Efficient monitoring system;

• Support fiscal reforms:o Fuel levy, registration fees, import taxes;

• Enforce national and regional regulations:o Trade facilitation and axle load;

• Support competitive transport markets:o Policy dialogue;o Break the chain – coalition of interests;o Compensation schemes, social costs of reforms;

• Support intermodal transport:o Balance of investments roads/rail;o More transport interchanges.