Reforms and the Regulatory Framework of African Ports

(D) AfricanBank 2010 Ch3 8/10/10 10:32 Page 76 CHAPTER 3 Reforms and the Regulatory Framework of African Ports With the growth in world trade spurred by Consequently, over the last 50 years, the the reduction in government-imposed port subsector has gone through significant transaction costs (e.g. customs levies and changes at the global level. One of the most tariffs), transport costs have become a much notable reforms is deregulation, which has more significant factor in overall trade costs, led to more competition. Prior to the as outlined in Chapter 1. This change has reforms, competition between ports was put pressure on the port subsector, which is almost nonexistent, and featured a few a key component in the logistics chain. major transport operators who controlled (D) AfricanBank 2010 Ch3 8/10/10 10:32 Page 77 Reforms and the Regulatory Framework of African Ports 77 the bulk of operations from port-to-port. As First, poor management contributes to a result of the deregulation, competition delays at the port level, as it slows the across ports has increased across several loading and unloading of cargo. Weak dimensions. institutions also increase delays at the First, a number of new ports have border, when cumbersome customs pro- emerged in Africa as part of the decentral- cedures slow the movement of goods at ization process and this has increased entry and exit. High taxes and customs fees, competition between ports at subregional sometimes accompanied by extortion along and national levels. Second, competition for the import–export chain, characterize those the port market has intensified as private countries with a weak regulatory frame- operators seek to win concessions. Third, on work.2 Third, they can lead to inefficient the shipping side, the explosion of maritime regulation and control of the fleet, leading services has led to the dismantlement of the to substandard safety levels and labor rights liner conferences1 that divided up the which ultimately cause delays and affect market with little or no competition across trade adversely. All these inefficiencies liners. Fourth, greater competition across contribute to high trade costs along the different modes of transport has put logistics chain. A key issue is whether pressure on the port subsector. If these regulatory reform can be successful in an reforms have contributed to improvements environment with weak governance at the in efficiency and a reduction in the cost of sectoral level. maritime services, the results have been Although institutional reforms have uneven, varying across subregions and taken place in the African port subsector, countries, depending on the institutional many countries have not yet adopted global environment. “best-practice” methods, resulting in a great This chapter focuses on institutions and disparity across several measures of port on the role of the regulatory framework in efficiency. To give an example, in North increasing the efficiency of maritime Africa, average port costs on 20-ft containers services. Weak institutions have a negative amount to Euro 370 in Casablanca, Euro 210 impact on trade through several channels. in Rades-Tunis, and Euro 70 in Alexandria. On the other hand, average port transit delays total 15 days in Alexandria, but only 1 A liner conference is an agreement between two or more shipping companies to provide a scheduled 9 days in Casablanca and Tunis (Kostianis, cargo and/or passenger service on a particular trade 2005). route under uniform rates and common terms. Since October 2008, the EU has banned liner conferences for shipping companies serving EU ports by 2 Empirical evidence in Kandiero and Wadhawan abolishing the Far East Freight Conference (FEFC), (2003) shows that trade performance as measured by following the example of their American trade openness (trade to GDP) will yield optimal counterparts. This decision implied the banning of benefits if the quality of institutions (i.e. less certain activities, in particular price fixing and corruption in customs) in developing countries is capacity regulation. improved substantially. (D) AfricanBank 2010 Ch3 8/10/10 10:32 Page 78 78 African Development Report 2010 Before designing and carrying out any This chapter then moves on to discuss port reforms, a detailed and complete broad trends in port reforms across African assessment of the objectives that the public subregions, contextualizing these within the sector is seeking to achieve should be drawn categories of port management models up. The participation of the private sector, presented previously. We then turn our even if deemed beneficial or resulting in attention to trends in the reform of the improvements in port efficiency, should not regulatory framework: the institutions, the be considered as an end in itself. Indeed, regulation of the fleet, and port manage- reforms to increase port privatization should ment. The final section of the chapter be a means to achieve precise and clear situates these African reforms within the public interest objectives, taking into global framework, using several indicators account economic and social needs. In this ranging from perceptions by business to context, the objectives of port sector reform more comparable and standardized could range from expanding/ modernizing measures drawn from aggregate indicators. container-handling capacity, to stimulating The comparisons show that progress is economic growth, to reducing government being made, although more efforts are expenditures on the sector, so that limited required to compete on a global scale. public funds can be channeled to other more pressing social needs. Private partici- Institutional Set-up of Port pation in port services, and more generally, Management in Africa in the infrastructure sector, is but one of the Globally, 80 percent of container traffic is many instruments available to solve specific handled by commercial global operators, problems and to achieve explicit public such as Dubai Ports, Hutchison, Port of interest objectives. Singapore Authority (PSA), and International This chapter reviews the reforms in the Container Terminal Services Inc. (ICTSI), port subsector in Africa, focusing on the who won concessions to invest and operate regulatory framework and several efficiency the world’s major common-user container indicators of port services. It also compares ports under the “landlord” scheme. In Africa, trade costs in Africa with those of other however, as discussed below, about 50–70 regions. The analysis encompasses port percent of traffic is still handled by public/ management models that range from fully government operators in tool ports or public state owned to fully privately owned (the service ports. It was observed that in a latter being when the private sector owns the considerable number of African ports, public hard infrastructure as well as delivering port sector ownership of the port infrastructure services). In view of fact that the quality of and superstructure, together with direct governance varies across countries and that involvement of the ministry in the provision ports deliver both public goods and private of port services, has generally been services, there is a need to adopt appropriate responsible for inefficiency and non- ownership and regulatory structures, which profitable performance. Two major generic are likely to be country-specific. reasons were highlighted in the Bank Review (D) AfricanBank 2010 Ch3 8/10/10 10:32 Page 79 Reforms and the Regulatory Framework of African Ports 79 of the Maritime Sector in Africa (AfDB, • Ports may face opposition to reforms 2001): from trade unions and vested (i) Regulation of tariff structures for interests, who oppose private sector ships and other services at levels investments that might reduce direct below the cost of providing such employment in their ports. services and some cases, even below the break-even point; and Alternative Forms of Port (ii) Overstaffing of the Port Authorities Administration (PA), resulting in government Port reform is complicated by several unique subsidy in regard to both recurrent characteristics. First, ports provide a and capital expenditures. This issue combination of public goods (e.g. the coastal will be discussed in the next chapter. protection works necessary to create port basins) and private goods (e.g. cranes, Several factors have contributed to this quays, and other “hard” infrastructure). The situation: public goods are indivisible and nonrival, • A large number of African ports are which excludes private sector involvement, too small to be commercially attract- thereby justifying public intervention for ive to private investors; their provision. This is important since these • Commercial and political uncertainties public goods create positive externalities in several African countries, which are (increases in trade and trade-related linked to the institutional and political services) and social benefits over and above environment, further deter private the market price that would be paid by investment; private commercial operators. Also, ports are • Many African ports operate in a increasingly integrated into global logistics monopolistic environment, while chains and the public benefits they provide complex cross-border procedures are taking on regional and global attributes. effectively limit inter-port competi- This complicates the administration of ports, tion.3 This makes it difficult for the which is in the hands of the port authority public sector to privatize the port (PA4) —

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