Response to Trade Stimulus

Response to Trade Stimulus

155. 
     Improved road infrastructure along the Enugu-Bamenda corridor would divert existing traffic on other routes toward this corridor, and if procedures were formalized and informal payments reduced, higher profit margins would generate additional trade. At least some trade from the sea route and the Enugu-Abonshie–Kumbo corridor would likely shift towards the improved corridor.⁶⁵ Although being only a diversion of existing trade, it would represent a net gain because transport costs would be lower and there would be less need for unofficial payments. As consumers, producers, and traders respond to new market opportunities, trade flows are also likely to increase with prices to producers of exported products in both countries increasing, and consumer prices for imported goods falling.
     
156. 
     An overall conservative estimate of these effects would be a fourfold increase in the volume of trade passing along the Onitsha-Bamenda corridor and a growth in its value by three and one-half times. Table 14 presents estimates of the growth of trade based on both a diversion from other corridors and net expansion resulting from a reduction in trade barriers along the Onitsha-Bamenda corridor. The analysis is conservative in that it assumes that only about one-third of trade will be diverted to this corridor from routes to the north and by sea, given that the other corridors also serve different markets and sources of supply. On the other hand, the expansion of trade beyond that diverted is assumed to be fairly significant, with an elasticity of exports with respect to the percentage change in average net profit margins (taken from Table 12) equal to one. These estimates are conservative, as for example the traffic on the Melong-Dschang road following rehabilitation increased by 700 percent for persons, and nearly 35-fold for goods. Daily tonnage transported on the road has increased from 557 tons in 2003 to 19,791 tons in 2008.⁶⁶
     
157. 
     The estimated expansion of trade is predicated to result primarily from the traders’ reactions to new opportunities and their ability to increase marketing for export in the regions that have traditionally served as a source of supply. In Cameroon, this is primarily the North-West, South-West, and West Regions. In Nigeria it refers to the major production and collection centers in Enugu, Onitsha, Kano, Maiduguri, Aba, and Lagos. Expansion of trade with Cameroon from these cities and the larger population in Nigeria faces no constraints on either the demand or the supply side, given the relative size of the Nigerian and Cameroonian markets, so further expansion beyond that shown in Table 14 will depend primarily on demand and supply in Cameroon. On the demand side there would not appear to be much of a constraint given the large size of the market relative to the amount of trade involved. However, it may mean transporting the goods longer distances to additional urban centers such as Douala and Yaoundé. Tapping additional sources of supply will also involve enlarging the areas drawn upon to include the Littoral and Center Regions in addition to expanding into the South-West Region, in order to gain access to their cassava, plantain, and oil palm production. This will be possible to the extent that reductions in transport and transactions costs allow traders to go further afield.
     

158. 
     The increased trade flows that would result from the removal of restrictions to trade and that have been observed for similar projects would significantly increase the returns to investment for infrastructure projects. For example, traffic estimates that were used for the AfDB’s economic analysis for the Bamenda-Enugu corridor were based on past trend traffic growth rates (which were doubled for the post intervention period), but other analysis indicates that growth rates are significantly larger, with traffic volume initially more than doubling after partial intervention on a selected section. The actual internal rate of return is therefore likely to exceed the initially estimated 28%.