Landlocked Developing Countries Face Unique Challenges on Trade and Economic Progress

By Milos Purkovic

On November 5, the United Nations concluded its second conference on landlocked developing countries (LLDCs) and produced a 10-year action plan designed to address their bottlenecks related to transit, trade, and infrastructure. According to the 2014 Human Development Report, nine of the poorest performing 15 countries are landlocked and face additional burdens in these areas critical for economic growth. Further, the UN conference highlights growing international recognition of “landlockedness” as a development issue and an opportunity for broad based economic growth. Below are key takeaways from the conference, and implications for development in LLDCs.

1.     Trade processes in LLDCs are more expensive, take more time, and have more steps than in average transit countries

In 2013, the cost for LLDCs to export and import a standard 20 foot container was over twice the average cost of shipping in transit countries. Additionally, export costs from 2006-2013 grew at a faster rate in LLDCs than in transit developing countries — roughly 38 percent compared to 26 percent. Import costs over the same period increased about 35 percent in LLDCs versus 22 percent in transit countries.

LLDCs reduced the average number of days needed to export a standard 20ft container between 2006 and 2013. However, it still takes almost double the number of days that transit developing countries take. Similarly, the average transit time for imports also dropped during the same period, but LLDCs still need three weeks longer to import a standard container when compared to transit countries.

Besides geographical constraints and remoteness to sea ports and other markets, LLDCs face some other challenges that further hamper their trade competitiveness. Most importantly, physical infrastructure development is still inadequate, which poses a major obstacle to landlocked developing countries’ utilization of their full trade potential. LLDCs also lack telecommunication infrastructure which plays and important role in increasing connectivity and facilitating international trade. Often complicated and disharmonized customs procedures and documentation requirements, as well as uncertainty in logistical services, continue to make transport costs high. Many LLDCs do not possess adequate human and institutional capacities in many areas, such as customs and border entities, transit transport agencies, the trade negotiation process and implementation of transit and trade facilitation agreements, including the World Trade Organization Agreement on Trade Facilitation, which leads to a lack of effective implementation.

2.     The proportion of intra-regional trade is very high for LLDCs

chart 2

LLDCs exhibit unusually high levels of intra-regional trade– it’s hard for these countries to trade with partners other than immediate neighbors given the burdensome trade processes in most LLDCs, and the high intra-regional trade reflects this reality.  This suggests that if LLDCs could become effective and efficient members of a regional trade bloc, the base of trading partners could be gradually expanded.  Thus, first focusing on regional trade may allow LLDCs to incubate target industries and capabilities necessary for broader trade.

3.     LLDCs Experience Slower Growth, Face Additional Development Costs

chart 3

The index above measures the difference between the actual level of development f a LLDC at time t and the potential level of development that the LLDC could have achieved at time t if it were not landlocked. The graph shows that vast majority of LLDCs face 10-30 percent development costs. On the other hand, countries such as Armenia, Paraguay, and Azerbaijan experience costs between 9% and 12%.  The average across all LLDCs indicates that development level is 22% than what it could be if the countries were not landlocked.

Establishing a secure, reliable and efficient transit transport infrastructure remains critical for LLDCs to reduce the high trading costs, improve their competitiveness and become fully integrated in the global market. Donors initiatives that encourage transparency, governance and institutional capacity building could play a catalytic role in moving this forward. Recognition of the unique challenges faced by LLDCs has only recently come into the spotlight, but is a topic worthy of additional thinking and resources from the international community.

Milos Purkovic is a researcher for the Project on Prosperity and Development at CSIS.

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