• February 17, 2015
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  • Trade

Moving Beyond the Landlock

Why transit is still important to landlocked developing countries.

Karlygash Dairabayeva | World Bank

Coming from a landlocked country myself (Kazakhstan), I was fascinated to participate in the 2nd UN Conference on landlocked developing countries (LLDCs) held in Austria this past November.

Representatives of 32 LLDCS and many other neighboring transit countries gathered to review progress of the Almaty Program of Action (APoA) over the last decade, and to discuss further ways to help countries overcome the downsides of being landlocked.

LLDCs, by definition, lack direct access to the sea and are therefore marginalized from major transportation and services networks. This means that any product these countries try to import or export relies on transit through another country.

LLDCs experience much higher costs of trade than their transit neighbours, reducing their ability to trade. LLDCs constitute a mere 1 percent share of world trade, while the transit coastal countries account for roughly 24 percent.

The majority of citizens in LLDCs falls into a category that has been coined the “bottom billion” in terms of average real GDP per capita.

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LLDCs experience much higher costs of trade than their transit neighbours, reducing their ability to trade

It is now widely recognized that distance alone or even the access infrastructure can explain the observed comparative disadvantage of LLDCs: according to recent estimate the cost of trade is 100% higher in the landlocked country, only one tenth can be tracked to additional freight expenses.

Poor logistics services in these countries is the major issue faced by traders, and more than construction of infrastructure it has to do with a combination of weak policies in areas such as regulations, facilitation at the border, transit system (I’ll explain below), or maintenance of infrastructure.

Without doubt, the APoA has raised awareness of the issues that landlocked countries face, and especially the role of policies in the landlocked but also transit countries it helped to achieve progress.

In many regions, including mine (Eurasia), high commodity prices have been linked with plummeting poverty rates in resource-rich LLDCs.

Potential Improvements

Consider this: roughly 80 percent of people in Azerbaijan and Kazakhstan lived on less than US$5 per day in 2000; by 2010, that number had fallen to fewer than 50 percent.

However, success in addressing the source of trade costs through the implementation of adequate policies have been mixed, and as recognized in Vienna persistence and shift in focus are imperative.

For instance, LLDCs have benefited from the general trends in improving border procedures and facilitating trade at clearance points. According to “Trading across Borders” data collected as part of the World Bank Group’s Doing Business project, it still took almost 47 (notional) days to import a 20-foot container in landlocked countries in 2014.

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LLDCs have benefited from the general trends in improving border procedures

That’s an improvement from 59 (notional) days in 2007, but is still a very noticeable gap in comparison to 25 days for importing the same container in transit countries (37 days in 2007).

One of the approaches to reduce the time spent at the border has been to set up a one-stop border post (OSBP), where border agencies interventions from both countries would be combined.

For instance, in Malaba, on Kenya’s western border with Uganda, container truck drivers have experienced a significant reduction in time that they spend at the border (from almost 2 days to less than 8-10 hours).

To further tackle the high transport and trade costs, landlocked countries are advised to look at a set of policies, including, but not limited to, better trade facilitation, boosting regional transport, trade, and ICT connectivity, improving cross-border logistics, and ensuring consistent investment along the transport corridors.

However these measures are by nature partial, improving supply chains to and from LLDCs imply coordination actions by a series of public and private actors in the countries of transit and in the destination country itself, something referred to as the transit regime. During the conference, regional cooperation and transit regime have been singled as area of slower progress.

It’s here that a renewed Program of Action should focus. It was especially interesting to see how clearly these messages came through while participating in the bilateral discussions between the World Bank team and representatives of respective landlocked countries’ governments.

First, while discussions involving several landlocked and transit neighbors seem to be more complex, they actually are very important because they allow for consistent and comprehensive action and investment decisions in the region.

I have noticed, however, that while all landlocked countries were in favor of greater regional cooperation when speaking as a group, preferences shifted when an individual country’s development agenda did not agree with that of a neighbor.

Take, for example, discussions on improved road and rail connections in Central Asia. Connecting a tourist destination in one country to a neighboring country through a new road link would allow for greater inflows of tourists from and exports of produce to this neighboring country and beyond.

However, that neighboring country seemed to be very reluctant to divert its own tourists to a neighboring country, preferring to support its own tourist destinations.

Second, the focus should be on implementing a transit regime.

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A well-designed transit regime actually reduces the need for border infrastructure and control

A transit regime is a set of operating procedures that governs how goods are transported between countries, implemented mostly by customs agencies. It is basically a document recognized by several transit countries that allows goods to move smoothly (without extensive border checks or import duties) through any transit country to a landlocked destination country.

Goods need to be sealed properly: the most famous reference is the return of Vladimir Lenin to Russia from Switzerland in 1917 when he and other Russian exiles have traveled onboard a sealed train going through Germany.

Another security for the country of transit is that the transit declaration is backed by a bond or insurance, which can be called when there is suspicion that the goods have not left the country. For instance, in my region, the financial guarantees are attached to the TIR carnet guaranteed by the International Transport Union (IRU).

Keeping it Simple

A well-designed and fully-implemented transit regime actually reduces the need for border infrastructure and control. The process at the border should be limited to fairly simple due diligence: check the manifest, check the seals used to secure vessels. It should not require a physical inspection.

However, a successful transit regime requires cooperation among several transit and landlocked countries. First, it requires a system based on a single international transit document. With such a regime in place within linked regions, traders would not need to resubmit documentation at every border post.

A prime example of just such a system is the single “carnet” document used under the International Road Transport agreement, a harmonized customs system known by its French acronym “TIR”. The TIR carnet facilitates trade among 68 parties to the agreement, across four continents.

​The TIR system is not a new idea (many African countries have incorporated its basic principles in their economic community agreements) but so far, with exception of Europe, it proved to be difficult to implement.

For these components to be in place, more needs to be done to build trust and cooperation among LLDCs and transit countries. As H.E. Luccock said once, “no one can whistle a symphony; it takes a whole orchestra to play it.” goldbrown2

This article first appeared on the World Bank blog, the Trade Post,  on January 22, 2015 and was republished with permission.

Karlygash Dairabayeva is a Consultant at the World Bank in Washington, DC.

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