October 25, 2011, Washington DC—Getting bananas from a farm in Uganda to a supermarket in Brussels is not just a question of good roads and fast ships. The fruit can also spoil in transit because of human failures: too many highway checkpoints, inefficient customs officers at the port, slow inspectors – all signs of thick, inefficient bureaucracy that, in the end, hurts some of the poorest farmers in the world.
The World Bank is tackling just such process-related trade problems with a $53 million trust fund called the Trade Facilitation Facility (TFF). The TFF, launched in 2009, is currently funding 31 small-scale and global projects around the world.
One initiative helps mango-processors in Mali and Burkina Faso get a better product to market; another provides advice to developing countries in world trade negotiations. The idea behind the TFF is “to recognize that trade is an engine of growth, and unfortunately low-income countries are not sufficiently competitive,” says Dominique Njinkeu, the trust fund manager.
A cardinal rule in economics is that free trade between countries improves the welfare of people around the world. One of the World Trade Organization’s main aims is to increase the ease of international trade by reducing the tariffs and other barriers that individual countries erect against goods entering their markets. But Njinkeu points out that the WTO can eradicate all the tariffs in the world and a Cameroonian farmer will still suffer.
In Njinkeu’s example, if a Cameroonian farmer can grow 18 kg of bananas—the amount in a standard box—for $2, he’s got a good start. That might be less than what it costs an Ecuadoran to grow the same product. But the Cameroonian farmer’s competitiveness begins to erode with transportation. The trip to the port in Douala might add a couple of dollars to the cost of the box of bananas, in part because of the payments the truck driver must pay at checkpoints along the way. Once the bananas arrive at the port, processing them costs more in fees and, perhaps, bribes. The $2 bananas may have become $10 bananas by the time they reach Brussels.
In Ecuador, a farmer might spend $3 growing a bunch of bananas. He starts at a disadvantage. But because the infrastructure in his country works more smoothly, he can get his product to Brussels for a total cost of $8. Thus, while the Cameroonian farmer may be a better, more efficient producer, his success is thwarted by his country’s management.
“Coming out of the farm, you were competitive in Cameroon,” Njinkeu said. “If you open markets everywhere, unless you bring the cost to $8 when it gets to Brussels, he [the Cameroonian farmer] will not be able to sell.”
World Bank projects in the transportation arena traditionally have focused on what is called “hard infrastructure”—road-building and port equipment, Njinkeu said. They operate primarily through large loans. The TFF, on the other hand, recognizes that big, expensive building projects need to be accompanied by “soft infrastructure,” such as the training of customs officers, or putting in place software systems that coordinate permit-making.
“People were putting a lot of money toward the hard infrastructure while forgetting the business environment,” Njinkeu said.
The TFF projects are much smaller, and often more politically nuanced, than construction. The goals might be to clear transportation corridors and gateways—roads and ports—of unnecessary bureaucracy and processing requirements. In the Cameroon example, a TFF project might focus on reducing the number of road checkpoints or streamlining the steps needed to get goods through a port. Or TFF projects might target producers, as in Mali and Burkina Faso, where a $300,000 TFF project is training agro-processors in a more efficient mango-drying method and testing the feasibility of making a new product—“mango bars”—that might have international appeal.
While the business environment is often not as expensive to fix as a road, it can take time and negotiation. The projects often address the thorny issue of corruption by standardizing permitting or inspections, making these processes more transparent and giving individual customs officers less discretion, Njinkeu said. In Cameroon, an anti-corruption project has already had great success, reducing processing time at the Douala port from 11 hours to three.
Read about the approved projects.