High transport costs hurt EAC member states

Dar es Salaam. When someone buys here a packet of one litre of juice made in the United Arab Emirates at Sh4,500, one has to bear in mind that 40 per cent of the price is the result of high transport cost, according to experts.

High transport cost, according to them, increases the cost of living and raises the cost of doing business.

However, most consumer goods that are subject to transportation can carry VAT, which in turn its cost is incurred by the final consumer.

The manager of Logistics Innovation for Trade (Lift) Fund, Mr Isaac Njoroge, says East African countries are among nations with highest freight and transport costs. “If you buy a bottle of drinking water whether the Kilimanjaro or Uhai brand, bear in mind that 40 per cent of its price constitutes transport costs.”

This means that any dealer, who strives to reap a maximum profit, has to set prices that cover 40 per cent of transport costs, apart from other factors for price determination like inflation, market forces pulled by demand and supply of traded goods and economic conditions of the country.

It is from this problem Trade Mark East Africa (TMEA) has established the Lift Fund aimed at reducing transport costs that raise the cost of doing business in the region, according to him.

Lift, according to experts, is a new development of financial tool for companies operating in the EAC transport and logistics sector funded by TMEA for mobilizing businesses to design new ways of reducing transport costs.

“The target is to reduce the transport cost by 15 per cent from the current 40 per cent in 2016,” Njoroge says.

He also calls upon private sector stakeholders to use such a fund set at $16 million (Sh25.5 billion) for submitting creative project proposals that will reduce transport costs and cost of doing business in the region.

Speaking at the launch of Lift Fund on December 18 this year, TMEA country director Josephat Kweka says the vehicle will contribute to a significant reduction in transport and other logistics related costs to increase competitiveness for traders in East Africa.

‘’This is a great opportunity for logistics and transport industry in Tanzania to accelerate efforts in reducing transport time and cost by leverage technology and breakthrough in ICT. I hope that the project will attract good project proposals, capable of bringing innovations in the industry,” he says.

Tanzania Truck Drivers Association chairman David Masanja says it is imperative for the fund to focus on training drivers of cross-border trucks and buses to avoid unnecessary costs resulting from reckless driving.

Mr Masanja also calls upon governments of EAC member states and transport stakeholders to find ways of reducing non–tariff barriers to trade. He cites weighbridges, road tolls and cumbersome cargo clearance documents.

According to this year’s report of Lift Fund, freight logistics costs in East Africa per km are more than 50 per cent higher than in the US and Europe.

“These costs seriously erode the competitiveness of goods exported by EA countries and increase the cost of living. For landlocked countries, transport costs can be as high as 75 per cent as the value of exports,” reads part of the report.

In the end, it is producers, farmers or final consumers and dealers who pay such a huge cost.

The World Bank estimates that these high costs reduce growth rates by up to one per cent annually and account for 40 per cent of higher consumer prices across East Africa and its neighbours, affecting almost 250 million people.