In Washington: Alejandra Viveros (202) 473-4306
WASHINGTON, November 5, 2007 – Trade logistics, or the capacity to connect to international markets to ship goods, is critical for developing countries to improve their competitiveness, reap the benefits of globalization, and fight poverty more effectively in an increasingly integrated world, shows a new World Bank Group survey released today.
Connecting to Compete: Trade Logistics in the Global Economy, a study based on a world survey of international freight forwarders and express carriers, indicates that facilitating the capacity to connect firms, suppliers and consumers, is crucial in a world where predictability and reliability are becoming even more important than costs.
“Being able to connect to global markets is fast becoming a key aspect of a country’s capacity to compete, grow, attract investment, create jobs and reduce poverty,” said Danny Leipziger, World Bank Vice-President for Poverty Reduction and Economic Management. “But for those unable to connect, the costs of exclusion are large and growing.”
According to the study, which includes a Logistics Performance Index (LPI),1 Singapore, a major global transport and logistic hub, ranks first. At the other extreme are low-income countries, particularly those landlocked in Africa and Central Asia.
All developed countries turned out to be top performers –among the seven most industrialized nations, Germany ranks 3rd, Japan 6th, the U.K. 9th, Canada 10th, the U.S. 14th, France 18th, and Italy 22nd out of a total of 150 countries covered. There are also significant differences among developing countries with similar incomes. China and Chile, for instance, rank 30th and 32 respectively, while countries in higher income groups, such as oil producers, tend to perform below their potential.
“As a main driver of competitiveness, logistics can make you or break you as a country in today’s globalized world,” said Uri Dadush, World Bank Trade Director. “You can have very good customs, but poor performance in only one or two areas of the supply chain has serious repercussions in the country’s economic performance creating a perception of unreliability.”
Connecting to Compete: Trade Logistics in the Global Economy, a study headed by World Bank economists Jean Francois Arvis and Monica Alina Mustra, provides concrete examples. A distant country like Chile can sell fresh fish and perishable fruits to consumers in Asia, Europe, and North America thanks to well functioning supply chains. On the other extreme, importing a 20-foot container from Shanghai to N’djamena, the capital city of the landlocked country of Chad, takes about ten weeks at a cost of $6,500, as compared to the four weeks and less than $3,000 that it takes a landlocked country in Western or Central Europe to make the same shipment.
Another finding of the survey is that developing countries where trade has been central to their economy, perform better than others with similar incomes. Examples include South Africa (24), Africa’s top performer, Malaysia (27), Chile (32), and Turkey (34) among upper middle income countries; China (30) and Thailand (31) among the lower middle income, and India (39) and Vietnam (53) among the lower income.
In terms of how developing countries are doing per region, Korea (25) is the top performer from East Asia; Chile (32) from Latin America, followed by Argentina (45), and Mexico (56); India (39) from South Asia; Oman (48) from the Middle East; and Turkey (34) from Eastern Europe.
According toConnecting to Compete, success in improving logistics performance will also depend on the overall governance and institutional context. While solicitation of informal payments (e.g. bribes) is rare among the top 30 countries of the LPI, it turned out to be common among lower performers (about 50 percent of respondents.)
In addition, the study notes that individual reforms, such as customs modernization, need to be combined with improvements in all aspects of the supply chain. “Countries need to better coordinate border procedures with other agencies, improve telecommunications, information technology, physical infrastructure, and facilitate the functioning of competitive private services, such as trucking, customs brokering, and warehousing,” said Arvis.
“A comprehensive reform of logistics and trade facilitation is essential to close the logistic gap,” added Mustra. “There should be improvements in the markets for logistic services in order to reduce coordination failures, especially those attributed to public agencies active at the borders, and to build strong support for future change and economic development.”