Geography adds dramatically to the development challenges facing many landlocked developing countries (LLDCs). An inland location frequently results in high trade transaction costs, with logistics costs accounting for 30% of the GDP of LLDCs, double that of other emerging economies and three times that for developed countries. Half of all landlocked countries are classified as least developed, with a majority in Sub-Saharan Africa and many of the others in Central Asia.
Until recently solutions mainly focused on addressing these high costs by improving infrastructure and cross border cooperation. However, in many cases, lack of infrastructure is no longer a binding constraint and cross border cooperation has improved thanks to corridor based organizations promoting effective dialogue. Transit trade, however, is highly vulnerable to rent-seeking activities, inefficient bureaucratic procedures, and the inadequate provision of private sector services. The deficiencies extend to the reliability of supply chains particularly in the context of the small, distant markets served by many LLDCs. Recent Bank studies have identified high trade transaction costs attributable to other deficiencies in national trade and transport policies and in the governance of transit systems.
In light of a growing consensus on the need to give a greater priority to the needs of landlocked developing countries, the Bank has initiated a major project to develop new knowledge and begin to explore new approaches to deal with the critically important but frequently underperforming area of transit.
The Bank’s work in this area will start with research to establish a thorough understanding of the key issues involved and the problems that have thwarted previous reform efforts. Indeed, some core issues such as the efficacy of guarantee systems and regional cooperation efforts need to be reassessed after decades of ineffectiveness. The work will be based on a stock-taking of World Bank and donor experience complemented by a series of targeted field studies.
Key outputs of the project include a flagship publication and pilot projects targeting 1) transition of transit regime towards carnet based guarantee systems and 2) design of relevant and sustainable trade corridor performance measurement tools.
The program will be implemented over a period of two years. Given the cross-cutting nature of transit logistics, and the assessment of knowledge gaps, a wide spectrum of topics needs to be covered. The program has been designed so as to produce a staggered output of policy notes, working papers and case studies, from the early months of the program. This strategy maximizes interaction with experts and practitioners, allows for flexibility and adjustment, and fosters early dissemination
and rapid feedback. At the end of the program the project team will work with operational staff in the regions to design pilot initiatives in order to mainstream the proposed approaches.