Estimating trade flows, describing trade relationships, and identifying barriers to cross-border trade between Cameroon and Nigeria

Report No: 78283 and ACS2876 Republic of Cameroon CM-Cross-Border Trade Between Nigeria and CEMAC Countries Estimating Trade Flows, Describing Trade Relationships, and Identifying Barriers to Cross-Border Trade between Cameroon and Nigeria May 7, 2013 AFTP3 AFRICA Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org.  Final Report Estimating Trade Flows, Describing Trade Relationships, and Identifying Barriers to Cross-Border Trade between Cameroon and Nigeria Acknowledgements This report was written by a team consisting of Mombert Hoppe (PRMPI, task team leader), Barbara Rippel (AFTPM), Elisa Gamberoni (PRMGE), José Daniel Reyes (PRMTR), Dirck Stryker, Mukhtar Amin, Abdoulbagui Mohamadou, Luc Foleu, Louis Ndumbe, and Perpetua Ahone (consultants). Peer reviewers were Paul Brenton (AFTPM), Ian Gillson (PRMTR), and Faustin-Ange Koyasse (AFPT3). Useful guidance and comments were received from Raju Singh, Peter Taniform, John Litwack, and Jean Kanyamuhanda. Maps have been cleared with GSD on October 19. The team is extremely grateful to Sylvie Ndze for administrative support, and for editing the final report.  Table of Content Executive Summary ......................................................................................................................... i Background ..................................................................................................................................... 1 Drivers for Cross-Border Trade ...................................................................................................... 4 Historical and Cultural Relations ................................................................................................ 4 Economic Factors........................................................................................................................ 8 Policy Distortions........................................................................................................................ 9 Reality of Cross-Border Trade ...................................................................................................... 14 Magnitude of Existing Trade Flows ......................................................................................... 16 Detailed estimates for trade flows and products ....................................................................... 18 Actors, Processes, and Procedures in Cross-Border Trade ........................................................... 22 Participants in Trade ................................................................................................................. 22 Trade Procedures in Practice .................................................................................................... 29 Barriers to Cross-Border Trade and Their Relative Importance ................................................... 35 Quantitative Assessment of Importance of Trade Barriers ....................................................... 42 Potential for Expanded Trade and Economic Activity ................................................................. 50 Response to Trade Stimulus...................................................................................................... 55 Main Findings and Prioritized Policy Recommendations ............................................................ 56 Policy recommendations ........................................................................................................... 60 Annex A: Case Studies ................................................................................................................. 66 Annex B: Assessment of Economic and Financial Impact of Enugu-Bamenda Road Improvement ....................................................................................................................................................... 75 Annex C: Official & Unofficial Payments along the Onitsha-Bamenda Corridor ....................... 76 Annex D: Benchmarking Cross-Border Trade between Cameroon and Nigeria .......................... 77 Annex E: Trade Policies in Cameroon and Nigeria ...................................................................... 81 Annex F: Major Trade Corridors between Cameroon and Nigeria .............................................. 91  Table of Tables Table 1: Overview of trade policies in Nigeria and Cameroon .................................................... 11 Table 2: Official data and estimates for bilateral non-oil trade flows .......................................... 17 Table 3: Volume and Value of Trade ........................................................................................... 19 Table 4: Volume and Value of Nigeria and Cameroon Produced Exports ................................... 22 Table 5: Minimum Import Tax Assessment in Far-North Customs Sector .................................. 31 Table 6: Minimum Import Tax Assessment in South-West, North-West, and South Customs Sectors ........................................................................................................................................... 31 Table 7: Frequency of Road Controls and Associated Costs ........................................................ 38 Table 8: Various Transfer Cost Scenarios along Onitsha- Bamenda Corridor ............................. 40 Table 9: Transfer costs along Onitsha-Bamenda corridor (USD per 20MT truck) ...................... 44 Table 10: Detailed transfer costs along Onitsha-Bamenda corridor (USD per 20MT truck) ....... 44 Table 11: Distances and transportation costs along various corridors (20-40MT trucks) ............ 46 Table 12: Price Margin Analysis for Selected Products along the Onitsha-Bamenda Corridor ... 49 Table 13: Price Margin Analysis for Rice and Paddy in the North .............................................. 49 Table 14: Actual and Projected Volumes of Trade along Onitsha – Bamenda Corridor ............. 56 Table 15: Policy Recommendations ............................................................................................. 64 Table A - 1: Price Margin Analysis for Vegetable Oil in the North (FCFA) ……………………71 Table A - 2. Realized Bilateral Trade vs. Trade Potential ............................................................ 79 Table of Figures Figure 1: Gross Margin Components – Cosmetics and Eru Trade ............................................... 48 Figure A - 1. Benchmarking Nigeria-Cameroon Cross-Border Trade ......................................... 78 Figure A - 2 . Benchmarking Nigeria-Cameroon Cross-border Trade ......................................... 79 Table of Maps Map 1: Overview of major corridors for cross-border trade......................................................... 15 Map 2: Corridors in the North ...................................................................................................... 92 Map 3: Land Corridors in the South ............................................................................................. 94  Executive Summary Official non-oil trade flows between Cameroon and Nigeria are extremely small. But there seems to be large potential for both countries to expand bilateral trade, and informal trade flows already take advantage of existing opportunities without being officially recorded. Particularly the large Nigerian market with its over 158 million consumers offers large opportunities for Cameroonian producers, as the Nigerian economy is set to continue to expand at a rapid pace, but there also seems to be significant scope for Nigeria to expand exports of a number of locally produced manufacturing goods. Removing barriers to trade between the two economic blocs in West and Central Africa is of strategic importance for closer economic integration among the economic blocs in West and Central Africa, and to generate an Africa-wide free trade area by 2017, an objective repeatedly stressed by African governments. Linking up the different economic groupings through improved infrastructure, better market access, greater transparency, and simplified border procedures could also help in supporting domestic reforms and those initiatives aiming at removing internal barriers within ECOWAS and CEMAC, where progress has been slow. Removing barriers to trade between the two blocks will particularly benefit those people living in border areas. The border areas in both countries are relatively remote from economic centers in their economies, and at the fringes of the two economic areas, ECOWAS and CEMAC. Generating linkages between these relatively isolated areas will increase the choice of consumers and allow producers to benefit from larger markets, better access to the intermediate inputs they need, and to allow them exploit economies of scale. This could generate substantial income and employment opportunities for the population in border areas but also beyond. It could also contribute to bringing down costs of key products such as food staples that are traded across borders, and help ensure a more reliable and affordable supply of foods and other essentials, especially for the most vulnerable members of the population. This report estimates that actual bilateral trade amounts to more than USD 230 million, significantly higher than the officially recorded non-oil trade flows of between USD 10 and 40 million. Of these, Nigerian-made exports are estimated at USD 176, consisting largely of cosmetics, plastics, footwear, and other general merchandise, while Cameroon-made exports are estimated at USD 62 million, largely consisting of paddy rice, soap, and agricultural products such as eru. Including large flows of re-exports that flow between the two countries and account for the largest share of bilateral goods flows, we estimate bilateral trade flows of approximately USD 1 billion. A large share of trade enters at official border crossings but value and volume of trade are significantly underreported, so most of the trade flows we observed are not technically illegal, but rather informal, as they are not fully recorded (we estimate they are under-reported by as much as a factor of 50). i Most trade between Cameroon and Nigeria takes place along 10 major corridors, both inland and on the coast. These cross-border corridors are linked in with domestic transport networks in each country, often covering long distances. Seven of these corridors are situated in the northern part of the border, two in the West, and the last corridor covers products that are transported by sea. The report estimates bilateral trade flows at a number of key border crossings. Trade policies such as numerous import and export bans and high statutory tariff rates severely distort the trading environment. Many of these policies are, however, not fully applied. In principle, both countries apply Most Favourite Nations tariffs at an average of 11.9 per cent in Nigeria and 19.1 per cent in Cameroon to imports from the partner. However, imports to Cameroon and Nigeria seem to pay less than statutory duty rates and can enter despite import bans such as in the case of rice. Generally, goods are traded despite existing import and export bans. Trade procedures remain extremely nontransparent—demanding multiple formal and informal payments—and actual trade relationships and barriers differ according to a large number of characteristics, making it nearly impossible to describe the “typical