Working Together: A Catalyst for Economic Growth for LLDCs

Photo: Sunshine Seeds/Shutterstock.com

Life for a landlocked country can be hard. History is full of cities like Alexandria, Venice and Amsterdam that drew much of their wealth from maritime trade. And this is just what landlocked countries lack: access to the sea that in turn allows them to easily trade with everywhere else in the world. 

According to the UN definition, landlocked developing countries (LLDCs) face a whole host of challenges: lack of territorial access to the sea, remoteness and isolation from world markets, additional border crossings, cumbersome transit procedures, inefficient logistics systems, weak institutions and poor infrastructure. All of which incurs substantially higher transport and other trade transaction costs when compared to coastal countries. These high costs present a substantial barrier to economic growth and sustainable development. 

But geography is not fate. Not all landlocked developing countries are drawn on the map equally. Kazakhstan is 3,750 km from the sea, the longest distance in the LLDC club. Lesotho is entirely surrounded by South Africa. Then there’s Uzbekistan, the only doubly-landlocked developing country, in other words, it is surrounded on all sides by neighbors who are landlocked themselves. In all 16 LLDCs can be found in Africa, 10 in Asia, four in Europe and two in Latin America. Of these 32 countries without sea access, 16 are also classified as least developed. 

Hello, neighbor! 

So what is a geographically-isolated country to do? The answer lies in regional integration. 

Regional integration is more than just roads. It’s a whole system for developing both physical and institutional infrastructure to increase, as the World Bank puts it, the “flow of goods, services, capital, people and ideas.” Such integration is vital for LLDCs to achieve sustainable and inclusive economic growth, create decent jobs, and diversify their economies away from mineral dependence. 

Regional integration can also lower transport costs, increase foreign direct investment, and foster intraregional trade. Landlocked countries often face challenges in accessing international markets due to their geographical disadvantages, which inhibit their full participation in global production networks and isolate them from global markets. The solution lies in strengthening regional trade, transport, communication and energy networks, promoting harmonization of regional policies and developing coherent regional infrastructure and trade facilitation measures. Additionally, regional integration can provide opportunities for LLDCs to pool resources and enlarge markets, while stimulating national production, trade and investment. 

Port of call 

For the symbiotic relationship landlocked countries and their coastal neighbors can have, consider the example of landlocked Ethiopia, which has long relied on Djibouti’s ports for its trade (see box, page 33). Indeed, an estimated 90-95 percent of Ethiopia’s imported goods transit through its neighbor. Much of the expansion in Djibouti’s trade has been supported by the traditionally high demand for imported goods in Ethiopia, with the total value of imports increasing by 12.5 percent on average per year over the last decade. 

As the second most populous country in Africa after Nigeria, with 110 million inhabitants, Ethiopia has driven trade in East Africa despite years of crisis due to civil war and the COVID-19 pandemic. Between 2004 and 2019, Ethiopia had one of the world’s fastest-growing economies, averaging a GDP increase of 9.5 percent per year. It is expected to expand further as it rebounds from the pandemic, supporting economic growth in Djibouti as the two governments work together on several infrastructure projects. 

But shipping isn’t the only way to move goods. Multi-modal freight transport is being developed to reinforce sea-air cargo, which saw a significant increase from roughly 64 tons in 2021 to around 222 tons in 2022. For goods travelling between Ethiopia and China, sea-air transport offers access to 16 cities across 14 countries. Multi-modal freight between China and Djibouti is expected to save shipping companies eight hours by air and five days by sea. 

Deal or no deal? 

One key element of regional integration are cooperation frameworks. On average, each country is party to four regional trade agreements, with the number of agreements per country ranging from one to 11. Trading under the African Continental Free Trade Area (AfCFTA) agreement officially began in January 2021, with 13 LLDCs having ratified the pact so far. These countries have agreed to liberalize up to 97 percent of tariffs on intra-African trade. The World Bank estimates that by 2025, this agreement could boost Africa’s total exports by 29 percent, intracontinental trade by 81 percent and exports with the rest of the world by 19 percent. 

However, despite these numerous benefits, regional integration remains challenging, and not every initiative achieves its intended goals. Successful regional integration requires strong leadership, commitment and collaboration among stakeholders, along with addressing complex issues such as governance, security concerns and domestic politics. 

There are several successful regional integration initiatives for landlocked countries including: 

1. Common Market for Eastern and Southern Africa (COMESA): Aims to promote economic integration and development among its 21 member states, including landlocked Zambia, Zimbabwe, and Malawi. 
2. Southern African Development Community (SADC): Has 16 member states, including landlocked Botswana, Lesotho and Eswatini. 
3. Central Asia Regional Economic Cooperation (CAREC): A partnership of 11 countries including landlocked Afghanistan, Kazakhstan and Uzbekistan. 
4. Greater Mekong Subregion (GMS): Promotes economic growth and development among its six member states in Southeast Asia including landlocked Laos and Cambodia. 

These initiatives have helped to improve connectivity, reduce transportation costs, and increase trade among member states. They have also facilitated the sharing of knowledge and best practices, and promoted regional policies that enhance competitiveness and stimulate national production, trade and investment. 

Landlocked countries in Asia have achieved regional integration through various approaches focused on improving connectivity, lowering transport costs, and expanding trade. This is primarily due to prioritizing cooperation in a broad range of areas, going beyond traditional trade and trade facilitation to include investment, research and development, and policies aimed at accelerating regional industrial development and regional connectivity. 

Like most development challenges across the globe, overcoming them is made much easier through partnership and cooperation. For the many LLDCs dependent on their neighbors, that cooperation cannot happen quickly enough. 

Tadjoura Port Access Road Project 

In 2018, the OPEC Fund committed US$14 million towards co-financing the Tadjoura Port Access Road project in Djibouti. This project supports the economic and social development of the country, particularly its northern region. It contributed to the growth of maritime transport services in Djibouti and to reinforce regional integration with neighboring Ethiopia through the construction of a more efficient multimodal transport system combining ports, roads and railway infrastructure. It increased trade levels, while the increase in economic activity created jobs for over 200,000 people in one of the country’s most underprivileged areas. 

The road connects the Tadjoura- Balho road to the eastern and western entrances of the port. Heavy hydraulic and drainage works were performed in order for the road not to be affected by the occasional flooding of the riverbed. Sixty-five culverts (mainly pipes and watercourses), were built to ensure the smooth flow of water under the road. 

Better road infrastructure cuts transport costs, makes it easier for businesses to reach internal and external markets, and helps consumers access a greater diversity of goods at lower prices. The latter is particularly important for local markets. 

Overall the project boosted trade and commerce, contributing to the socio-economic development of the northern region of Djibouti. It enhanced the lives of the local communities, while also attracting foreign direct investment.