As a result of insecurity, higher transportation costs, poor topography and bad roads, the cost of trade in Nigeria is four to five times higher than what is obtained in the United States, the World Bank has revealed.
In its latest Africa Pulse released, the global bank said market distortions across Africa result in high price differentials in imported food and non-food products, indicating a lack of integration across African markets.
“Similarly, access to product markets is constrained, which prevents firms and farms from scaling up production. In particular, the lack of connectivity and market integration means that markets are segmented, allowing firms or farms with market power to capture benefits, contributing to income inequality,” it stated.
It added that studies from the African 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 that retail prices of products are affected by distance.
It noted that food inflation and the weakening of domestic currencies are still major
drivers of inflation in Nigeria and other countries in the region.
According to the report, by February 2024, about one-third of the Sub-Saharan African countries with monthly available food price information (14 of 40 countries) had double-digit year-on-year rates of food inflation, with the fastest increases experienced in Ethiopia, Malawi, Nigeria, Sierra Leone, and Zimbabwe.
For instance, trade costs more in Nigeria than in the United States, due to poor road infrastructure, low competition in the transportation sector and poor topography.
The report concluded that the consequences of these distortions include the preference of African producers to sell locally rather than export. Furthermore, it noted that frictions in the labour markets across Africa are a result of high transport cost, elevated cost of screening workers and lack of information on labour opportunities.
The bank said the state involvement through regulation in markets across Africa also creates barriers to trade competition and investment. It also 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,” it noted.
It concluded by saying that such an anti-competitive market environment stifles innovation and further inhibits the growth trajectory of the economy.
THEGUARDIAN
