Trade costs as share of trade revenue
The quantitative analysis presented in this section addresses the primary issue for exporters from LDCs and SIDS of the current prohibitive costs of cross-border trade.
It suggests that around US$US90 billion could be added to Commonwealth trade if border and transportation costs, alongside the costs associated with the informal economy, could be reduced.
Trade costs are prohibitive for many countries across the Commonwealth. There are four economies for whom costs are higher than 100 per cent of the revenues received from trade. Another 34 economies have costs that are more than 50 per cent of the revenues they receive.
Trade costs as a share of trade revenue (2019)
Current: Commonwealth average trade costs as a share of trade revenue (2020)
Future with digtisation: Commonwealth average trade costs as a share of trade revenue (2026)
Currently, the irregularities across borders, long waiting times to get through border crossings, and the need to produce appropriate travel and transportation documents make cross-border trade difficult.
The implementation of smoother border crossings alone would reduce costs to an estimated US$99 per US$25,000 shipment. This is an estimated average 81 per cent reduction in border costs.
The amount of paperwork associated with trading across borders costs on average US$79 per US$25,000 shipment. This seems relatively small, but as many businesses engaged with crossing borders may be carrying much smaller shipments this is still a cost that needs to be reduced through Single Windows and Digital Identities.
Per US$25,000 unit reduction in border compliance costs by 2026 with digital trade facilitation (US$)
Current: Commonwealth average border compliance costs, per US$25,000 unit (2020)
Future with digtisation: Commonwealth average border compliance costs, per US$25,000 unit (2026)
All interviewees spoke of the challenges that Covid had presented for supply chains, pushing up import and transportation costs. SIDS are particularly vulnerable, but costs have risen across the world. These costs are made worse by the potential for border fraud and corruption, making the costs of transporting goods between countries extremely high.
We combine these two types of transportation costs to create an average cost across the Commonwealth of US$16,924 per US$25,000 shipment.
For many countries these costs are prohibitive. Making processes digital and reducing the likelihood of informal costs, could catalyse the most significant cost reduction in value terms.
Per US$25,000 unit reduction in transport costs (including informal) costs by 2026 with digital trade facilitation (US$)
Current: Commonwealth average transport cost, per US$25,000 unit (2020)
Future with digtisation: Commonwealth average transport cost, per US$25,000 unit (2026)
Reduction in trade costs, 2020-2026
It is not the most developed markets that would see the biggest benefits reduction in costs in trade terms. In these countries, production is at the higher end of the value and supply chain and so trade is less cost elastic meaning that at a country level, the total effect is smaller. Rather, it is in the market creation and enabling impact in LDCs and SIDS where the impact would be most felt.
Average Commonwealth cost reduction as a share of total trade to 2026 would be 13.5%.
SIDS would be the dominant beneficiaries in terms of total percentage reduction, account seven of the top ten beneficiaries.