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REGIONAL TRADE IS PUNTED AS A FUTURE ENGINE OF GROWTH BUT WHO CONTROLS THE FINANCING AND INSURANCE OF CARGO?

27 Sep 2019

A not-insignificant debate is currently underway between experts on the establishment of so-called transport hubs, also designated in some cases as dry ports depending on where they are located.

Against the background of the crucial work done by the Walvis Bay Corridor Group, it has become apparent that the Port of Walvis Bay will continue to grow in physical capacity and in regional importance. It may be detrimental to other countries with similar ambitions like Angola, but I believe that Namibia’s infrastructure is so far ahead, and the demand from corridor users growing so fast that it will take another twenty years before any other corridor can compete with Walvis Bay.

Corridor development is a complex process dependent on many inputs from a range of stakeholders. It is also an ideal anchor for Public Private Partnership especially when every survey and outlook shows that demand will only continue to increase. This has led to the realisation that at least a certain percentage of the cargo volumes that will move through Walvis Bay must be expedited to move to other storage areas, either in relatively close proximity to the harbour, or somewhere along the route to the destination country, preferably where other trade links intersect like roads or other railroads linking various other destinations.

Now I know that there are academic differences between the proponents of transport hubs and I believe those are issues that will be settled over time as the most opportune localities crystallise from a mixture of demand versus cost. This, however, is not where I see the greatest opportunity for Namibia as a transit territory.

Almost thirty years ago, before any development plans and before any concerted, coordinated and synchronised policy architecture to guide our development, the philosophical question of where exactly we fit in in the regional scheme of development aspirations, was often debated.

I believe it was during one of the ensuing phases, shortly after 1994 when South African companies started casting their eyes at the huge untapped markets north of them, that there arose a consensus opinion that we will remain a transit territory for other people’s cargoes, for many, many years. This is where the corridor idea germinated.

At this point the focus is mostly physical with all the players looking at infrastructure like roads, rail, bridges and border posts with only a small concern for the services side like customs procedures, maintenance and sustenance of the thousands of corridor users.

But there is another opportunity in corridor services which I think holds much promise for Namibian enterprises but then it must be incorporated into longer-term strategic planning. Most important, we have to start refining the legal framework so that the required institutions can become operational and effective.

What I have in mind is a sub-sector of financial services and it revolves around financing and insurance.

Given that many of our development targets have now become regional targets, or at least shared strategies to tap into the vast potential to increase trade amongst the countries in the Southern African Development Community, and given that we are positioning Namibia as a transport corridor, there is also scope to develop the services structures that will promote regional trade through financial and insurance arrangements.

If the corridors, irrespective of what they transport, continue growing the way it has done for the past decade, it implies that cargo volumes will also increase, maybe not exponentially but certainly much faster than the rest of the domestic economy. This means that there will be huge cargo volumes that must be financed and insured.

This aspect of regional trade is often overlooked, in fact, other than some short references to the role of finance and insurance in promoting international (read regional) trade by Tralac, I have not come across any serious studies of how these two interact, or impact the ease of doing business. This is particularly important when you are looking at very large volumes that cross international borders.

Often when I raise these possibilities, people look at me like I am daft. Surely, no importer or exporter will dispatch or accept a cargo if it is not paid, and no sane transporter will assume responsibility for any cargo if it is not insured. Attesting to this are the two large directories used by customs to define and value the myriad of potential transactions before, during and after a cargo leaves its port of origin on its way to its port of dispatch.

It means that these functions all exist and are well-known and applied in international trade but I can assure you, very little if any, of that is done in Namibia. For instance, try finding a trade expert at any of the local banks, somebody with a really good grasp on international trade, and I guarantee you you will come up short. International trade experts are a rare animal in the local financial pasture.

Once we realise the enormous benefits that the local economy can garner from offering and facilitating cargo financing, then I believe a huge new door of opportunities will open for us. And since I suspect that this type of expertise will also be in high demand by traders in Angola, the DRC, Zambia, Zimbabwe and Botswana, it implies that there is a large field to harvest. The same applies to insurance.

South Africa has all the expertise it needs for international trade. This much is always immediately obvious when one attends any of the many meetings where trade agreements are discussed, but the same expertise north of the Orange and Limpopo is very scarce. This is the reason why we always depend on foreign technical expertise when we have to negotiate our own trade arrangements with other countries.

The long and short of my proposal is that we are all intent on making the transport (trade) corridors work from a physical point of view, but that we are very weak on the services aspect, in particular the financial side. If we start building the institutions and the capacity to offer both financing and insurance, we will tap into an industry the likes of which does not exist locally.

If we can help grow cargo volumes faster by facilitating their financing and insurance, then the spin-off will be that more and more revenue will flow into this activity, which in turn will boost the rate at which we establish and improve the physical infrastructure side.

By bringing the opportunities of trade financing and insurance home, so to speak, a self-reinforcing momentum will be created between the volume of cargo that transits Namibian territory, and the capacity of the corridors to continue handling ever-growing cargo volumes.

Ultimately, Namibia will still remain a small economy with little local production, but we will be able to assist all our neighbours in more ways than just moving their cargoes from one point to another.

SOURCE: Namibian Econimist

https://economist.com.na/47636/editors-desk/regional-trade-is-punted-as-a-future-engine-of-growth-but-who-controls-the-financing-and-insurance-of-cargo/

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