Connecting Landlocked Developing Countries to Markets Trade Corridors in the 21

Connecting Landlocked

Developing Countries to

Markets

Trade Corridors in the 21st Century

Edited by

Jean-François Arvis, Robin Carruthers, Graham Smith, and Christopher Willoughby

CONFERENCE EDITION

1

A landlocked country has inherent disadvantages compared to countrieswith seacoasts and deep sea ports. Trade is more difficult because access tomost international markets is more costly. Developing countries that arelandlocked, many among the world’s poorest countries, have even greatereconomic disadvantages: typically they are isolated from major marketsand have small economies, limited natural resources, weak institutions,and, in many cases, a recent history of conflict. They also have dispropor-tionate numbers of poor people whose plight has drawn the attention ofthe international community.

In 2001, the United Nations (UN) set up a special office to address theneeds of the least developed countries, landlocked developing countries(LLDCs), and small island developing states.Thirty-one LLDCs joined thisgroup (listed in table 1.1). They are home to some 360 million people,more than 6 percent of the developing world’s population.The largest con-centration of landlocked countries and populations is in Sub-SaharanAfrica; the 15 fully landlocked African countries have a combined popula-tion of more than 220 million, nearly 30 percent of the region’s total. Sudanand the Democratic Republic of Congo, which account for 12 percent ofthe region’s population, are de facto landlocked, that is, they have only shortcoastlines, far from their cities. Seven other longer standing LLDCs are

C H A P T E R 1

Landlocked Developing Countriesand Their DevelopmentalChallenges: An Overview

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dispersed worldwide. They account for around 3 percent of the populationof two large regions: South Asia, with Afghanistan, Bhutan, and Nepal, andLatin America, with Bolivia and Paraguay. The two landlocked countries ofEast Asia, Laos and Mongolia, account for less than one-half of 1 percent ofthat region’s population.

2 Connecting Landlocked Developing Countries to Markets

Table 1.1 Landlocked Developing Countries

Region CountryPopulation

(million)GNI

($ billion)GNI (PPP)

per head ($)

Eastern Africa Burundi 8.5 0.9 330Ethiopia 79.0 17.6 780Rwanda 9.7 3.1 860Uganda 31.0 11.3 1,040

Southern Africa Botswana 1.9 11.5 12,880Lesotho 2.0 2.1 1,940Malawi 14.0 3.5 760Swaziland 1.1 2.9 4,890Zambia 12.0 9.2 1,190Zimbabwe 13.0 4.5 —

West Africa Burkina Faso 15.0 6.4 1,120Mali 12.0 6.1 1,040Niger 14.0 4.0 630

Central Africa Central Afr Rep 4.3 1.6 710Chad 11.0 5.8 1,280

South Asia Afghanistan — 8.1 —Bhutan 0.6 1.2 4,980Nepal 28.0 9.8 1,060

Central Asia Kazakhstan 15.0 77.7 9,600Kyrgyz Rep 5.2 3.2 1,980Tajikistan 6.7 3.1 1,710Turkmenistan 5.0 — 4,350Uzbekistan 27.0 19.7 2,430

Caucasus Armenia 3.0 7.9 5,870Azerbaijan 8.6 22.6 6,570

Eastern Europe FYR Macedonia 2.0 7.1 9,050Moldova 3.8 4.1 2,800

East Asia Lao PDR 5.9 3.7 2,080Mongolia 2.6 3.4 3,170

Latin America Bolivia 9.5 12.0 4,150Paraguay 6.1 10.5 4,520

Total 358.0 285.0

Source: World Bank data for 2007 or most recent year.GNI = gross national income; PPP = purchasing power parity.Note: The countries eligible to borrow from the World Bank (“Part Two Countries”) include three more LLDCs: Belarus, Kosovo, and Serbia, which have not joined the UN group.


In the 1960s through 1980s, LLDCs in Africa received economic aidand advice as part of the international community’s attention to Africaand other least-developed nations. However, they were given no specialconsideration as a group.

Since the 1960s, the international community has increased its effortsto improve international transport links for landlocked countries. Forexample, urgent assistance was provided to help develop trade routealternatives when political problems in the transit countries threatened tointerrupt operation of key routes to the sea, such as those from Zambiain the 1970s and Malawi in the 1980s. Efforts were made to enable Africaand other developing regions to open up their markets for internationalroad transport, applying elements of the reforms developed in Europeafter World War II.

In the 1990s, nine of the 15 former Soviet republics were added to thelist of landlocked countries when they gained independence, as werethree former Yugoslav republics (and a fourth, Bosnia, which is verynearly landlocked). Nine of these nations meet the UN defintion ofLLDC. They account for some 80 million people, or more than 15 per-cent of the total population of Eastern Europe and Central Asia. As theystruggled to set up international borders and border agencies and theirincome levels collapsed to less than half what they had been under theSoviet Union, these countries received financial aid and advice as part ofthe international community’s efforts to stabilize their economies in thedifficult transition period of the 1990s.

When the Cold War ended, the conviction that more open trade pro-motes economic growth gained prominence. The General Agreement onTariffs and Trade (GATT) was transformed into the World TradeOrganization (WTO) in 1995, and increasing numbers of countriessigned on. Also during the 1990s, the information technology revolutionand the development of the “Washington consensus,” an approach to helpreform the economies of crisis-wracked developing countries, greatlyexpanded world trade volumes and brought in many new players seekingto improve their competitiveness.

The WTO’s early focus was on lowering tariffs, mainly for imports. Asprogress was made on that front, the international community becamemore aware of the “softer” problems that are now listed under “facilitation,”and began to channel international efforts into identifying and finding solu-tions for the more acute problems.The current Doha Round of WTO nego-tiations, launched in 2001, seeks to extend trade benefits to countries notcaught up in the initial “globalization” boom, as Thomas L. Friedman

Landlocked Developing Countries and Their Developmental Challenges 3


describes in his book, The World Is Flat: A Brief History of the Twenty-FirstCentury.

The 1990s saw rising concern in the development community aboutthe special difficulties landlocked countries face in a world where eco-nomic development is increasingly dependent on trade. As a result, theMillennium Development Goals, which were adopted by the heads of allgovernments at the UN in September 2000, include explicit commitment“to address the special needs of landlocked developing countries.” Initiativesalso were launched at that time to make the world’s trading system moreinclusive.

As one of these initiatives, the UN organized the first global confer-ence on the problems of landlocked developing countries, held inAlmaty, Kazakhstan, in 2003. It brought together the internationalcommunity at the ministerial level to focus on ways to overcome thedifficulties of LLDCs and their transit neighbors in ensuring reliableand efficient transport. The resulting Almaty Programme of Actionstressed the need for major reforms over the next decade to overcomeinefficiencies as well as the need for investment to reduce operatingcosts and delays. The 2008 mid-term review of the program reportedsignificant, faster progress with some positive results already visible, butit called for acceleration to achieve solid improvements by 2013, thetenth anniversary of the Almaty conference.

Transit Neighbors and Trade Corridors: Relationship Issues

Most landlocked countries depend on one or two overland routes through“transit neighbors,” neighboring countries that have agreed to provideaccess to LLDCs to carry their international trade to and from the sea.Therelationship raises many potentially divisive issues: infrastructure provi-sion, maintenance and compensation; vehicle and driver entry rights,licensing, and insurance. Customs agneices of both parties fear that themerchandise will be disposed of en route without paying duties.Additionalissues relate to bilateral trade and transit of passengers between the LLDCand its transit neighbors. The evidence shows that LLDCs have indeedgenerally faced greater difficulties than coastal countries in expandinginternational trade and increasing their incomes.

Infrastructure SupportInfrastructure has had its ups and downs in the agendas of the interna-tional aid community. Since about 2000, infrastructure has regained



recognition as a critical requirement for growth, and funding for it hasrecovered. Some international corridors have benefited from this assis-tance, notably, the Northern Corridor in East Africa and the MaputoCorridor between South Africa and Mozambique.

Customs ReformAt the same time, international financial institutions have for the firsttime become substantially involved in customs reform—notably theTrade and Transport Facilitation for Southeast Europe program, underwhich the World Bank, European Union, and other donors supportedcustoms modernization and related reforms in eight Balkan countriesbetween 2000 and 2004. This involvement showed the importance ofmobilizing sustained support for such reforms from the trading com-munity (private sector), and also the importance of cross-border coop-eration among governmental agencies (for example, customs at pairedborder checkpoints).

Commodity Price FluctuationsIn the period from about 2003 to 2008, commodity prices—oil, min-erals, and foodstuffs—rose rapidly throughout the world, to the benefitof those landlocked countries rich in natural resources, in all regions.China became very active in purchasing raw materials, especially inAfrica. As a result, resource-rich LLDCs recorded fast economic growthand began to close the income gap with coastal neighbors. On the otherhand, those LLDCs that lacked natural resources faced ever harderchoices as their import bills soared and their trade deficits grew. At thesame time, some African LLDCs—notably, Ethiopia, Lesotho, andUganda—introduced policy measures to promote trade that proved effec-tive. Thus, in this period, some LLDCs made significant progress, whileothers faced ever greater economic hardship. What both groups had incommon is that they remained vulnerable to unforeseen sudden changesin commodity markets.

Further Efforts NeededA review by the UN of the progress under the Almaty Programme ofAction in 2008 showed some progress in pinpointing where “landlocked-ness” hurts and the reported progress in measuring its effects. Manyefforts so far had stressed infrastructure, technology, and legal instru-ments. However, these missed the social and political dynamics. First,infrastructure, while a necessary condition, was not sufficient: thanks to



large investments over the past two decades, landlocked countries nolonger suffer from bad roads much more than do the inland areas of tran-sit countries. Second, technology, while undoubtedly helpful, was notindispensable: the principles underpinning freedom of transit were inoperation for centuries before computers were invented. Third, it was notfor lack of legal instruments and treaties that success had been elusive. Ifanything, there were too many of these, since much of what they con-tained has not been implemented.

Impact of the Global Financial Crisis

The vulnerability of LLDCs became very clear when the global financialcrisis hit in 2008–09. The advocacy for freer trade had presumed thatexpanded trade was a “win-win” proposition for all participants—thoughevidence suggested that, within countries, income distribution had becomemore inequitable.The concern for LLDCs was that, because they had beenmissing out on expanded trade, they had been getting poorer—if notabsolutely, then at least relatively. Now many nations have responded tothe crisis by taking protectionist measures, which, if sustained, will reduceworld trade and leave everyone poorer. However, the World Bank advisesagainst protectionism, whether countries are coastal or landlocked.

It is noteworthy that, during this crisis, LLDCs with substantial naturalresources did well while commodity prices were high. Some can expect tofind themselves in crisis if the global slump continues, unless they canadjust their economies quickly. Diversifying their trade is one option foradjusting; this World bank advice to the other LLDCs is valid for them, too.

This brings us to the present study.The World Bank’s global perspectivegives it an advantage in detecting common features across regions, learningfrom the access problems and solutions of LLDCs in one region, and see-ing the potential for application of those lessons in other regions, fromMongolia to Bolivia, from Malawi to Armenia. The objective common toall LLDCs is to connect effectively to international markets throughaffordable and reliable supply chains.

A New Conceptual Framework

A review of the latest analytical research and evidence leads to theconclusion that the best prospect for LLDCs to overcome their inher-ent disadvantage is to focus on international corridors integrating fourelements: infrastructure, regulatory reform, cross-border cooperation,and private-sector support.



This conceptual framework for viewing the access problem of land-locked countries differs from the traditional vision on the part of gov-ernments that focussed on physical infrastructure and emphasizedcontrol, that is, the state-led access solution embodied in many treatiesstill in force. Instead, the environment needs to be created for the pri-vate sector to deliver affordable and reliable services. This puts the roleof policies and cross-border cooperation in a different perspective.

This report summarizes the authors’ conclusions from the above analy-sis, identifying the critical areas for action and cooperation and recommend-ing a policy and aid agenda for the international community, with an eyeto the Almaty Programme of Action target of achieving visible improve-ments by 2013.

The central objective of this book is to clarify the conceptual frame-work for a transit system for LLDCs and its components, what does anddoes not work. This framework is based on three major assumptions. Thefirst assumption is that, at the heart of a functioning transit system is aprivate/public partnership, a relationship between competent logisticsoperators and the authorities of the country of transit that is mutuallybeneficial and, in some sense, contractual. The second assumption is thatthe principles of working transit procedures are essentially universal andlow-tech, the fruit of millennia of evolution, with variants dependingupon the degree of regional integration. The third assumption is that,while managing transit is part of each country’s sovereignty, huge gainsmay be realized from integrating transit systems within a region.Very effi-cient systems developed in Europe after World War II are the de factobenchmarks for such transit regimes.

“Transit systems” refers here to the infrastructure, legal framework,institutions, and procedures serving trade corridors, seen as a whole.Conceptually a transit system must have the following components:

1. Political commitment to allow transit trade, formalized in treaties thatcan be bilateral, regional, or multilateral.

2. The physical infrastructure, including border checkpoint facilities.3. The capacity and competence of the public and private institutions

and people involved in the movement of goods along a trade corridorto include:• public agencies in the country of transit supervising the flow, mainly

customs and other agencies involved in controlling internationaltrade and transportation

• transportation services, including the trucking industry, customsbrokers, and freight forwarders.



4. The legal and administrative provisions and procedures for movinggoods, including:• Customs’ mechanisms for implementing the transit of goods• Complementary mechanisms to facilitate the movement of vehicles

and people, including vehicle regulations, visas for drivers, insur-ance, and law enforcement.

Structure of the Report

This book is organized as follows.Chapter 2 aims to show the importance for LLDCs of obtaining

affordable and dependable access. It reviews the commodities typicallyexported by LLDCs and notes their vulnerability to global shocks, suchas the commodity price boom of the past decade and the financial crisisthat followed in 2008–09, as well as regional and national conflicts andextreme weather. It presents recent evidence on the cost and time penal-ties incurred by the trade flows of LLDCs vis-à-vis their coastal neigh-bors, which fall especially on imports.

Chapter 3 focuses on the relationship between an LLDC and the tran-sit country or countries it relies on for access to its markets. It assesses thepolitical economy inherent in that relationship: what each party stands togain from it and what economic policies and institutional arrangementsshould be promoted to make the relationship beneficial to both sides,within the recommended framework of public-private cooperation. Inparticular, this chapter addresses the question of how an LLDC can gainleverage to ease the constraints imposed by the reality of its access to mar-kets depending on the goodwill and agreement of its neighbors.

Chapter 4 examines the concept of a transit corridor, with attention togood practice in its management and how its performance can be meas-ured consistently, in a way that best allows comparison across corridors.

The framework for the regional cooperation needed for trade andtransport is presented in chapter 5, which forms the core of this study.This chapter sets out the universal principles that should underpin a tran-sit system for LLDCs. The working details of the transit regime aredescribed in chapter 6, with reference to current experience in differentregions.

One of this study’s main policy recommendations is to reform the reg-ulation of the road transport industry for freight (trucking), encouragingthe development of high-quality service among firms operating acrossborders. Only through such quality improvement is the paradigm of



mutual trust between transporters and border control agencies likely tobe achieved. How this can be done is explored in chapter 7.

Although road transport will remain dominant in the flow of goodsalong most transit corridors, railways, air freight, and inland waterwaysoffer unrealized potential in certain markets. Chapter 8 examines theconditions under which these forms of transport can best play this role,and the policy implications for LLDCs. It also looks at the potential forfacilitating logistics services and e-commerce.

Chapter 9 concludes the book by bringing together the main policy rec-ommendations that emerged from the study. Most of these recommenda-tions are addressed to governments and private stakeholders involved intrade along transit corridors. But suggestions are also offered on how theinternational community can reorient its support to best effect.

Several appendixes provide supporting analysis of individual trade cor-ridors, institutional arrangements region by region, and regional transitsystems and regimes.

Vision for the Future

The implementation of the recommended conceptual framework and itsmain components will make landlocked developing countries more activeand successful participants in world trade. The framework does notrequire major investments or resources, but primarily a change of mind-set, departing from the vision of state-led access programs with emphasison infrastructure investment. Rather, the new vision for the future is thatof seamless transit systems involving mutually beneficial partnershipsbetween the governments of the landlocked and transit countries as wellas a more cooperative, facilitating relationship between them and the pri-vate logistic services operating in the trade corridors.This objective can beachieved in a relatively short time with a catalytical contribution frominternational agencies, not only in financial support and technical assis-tance, but also through harmonization of practices and procedures relatedto transit and the trade corridors.




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Website: www.worldbank.org/trade E-mail: [email protected]

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Connecting Landlocked Developing Countries to Markets Trade Corridors in the 21