IE Transport

Evaluating the Impact of Improvements in Transport: The Case of Transport Corridors in Southern Africa: 

Evaluating the Impact of Improvements in Transport: The Case of Transport Corridors in Southern Africa Sandra Sequeira Harvard University August 31, 2006

Outline of the Discussion: 

Outline of the Discussion Motivation: Nexus between Transport, Trade and Growth Policy Intervention: Rehabilitating Transport Corridors Evaluation Project: Goal: measure micro-level impact of changes in transport costs Primary and auxiliary evaluation questions The importance of a micro approach Detailed research design: Empirical Strategy, Robustness of results Implementation Details

Trade, Transport and Growth: 

Trade, Transport and Growth Freight Costs Firms Trade Investment Congested Ports Non-performing Rail Poor maintenance of Roads GROWTH

Transport, Trade and Growth (Cont): 

Transport, Trade and Growth (Cont) Hummels (1998), Venables (1999), Yeats (1996) increasing importance of transport costs, especially for Sub Saharan Africa (SSA) SSA: commodity based economies, high volume, low value goods long distances, several border posts accumulated neglect of primary transport networks Goal: Reduce costs of exporting raw materials and importing inputs and final goods TRADE-LED GROWTH

Policy Goals: Guiding the Transport Infrastructure Shock: 

Policy Goals: Guiding the Transport Infrastructure Shock Important to understand: Extent, Determinants and Impact of transport Policies Impact of transport costs on firms Motivating questions: 'Do investments in transport infrastructure reduce transport costs for firms? To what extent and how do transport costs affect firm productivity, profits, employment generation and export propensity?'

Policy Intervention: What, Where, Why?: 

Policy Intervention: What, Where, Why? Project: Evaluation of Transport Improvements in South Africa and Mozambique Why? High impact area due to: High overland transport costs Long distances to ports Commodity based economies

Geographic Focus: 

Geographic Focus South Africa Important industrial, mining and agricultural region far from the coast (600 - 1,200 km) Current accelerating growth strategy constrained by transport (Eg: Import Parity Pricing, Limited Response to Asian Commodity Boom) Acute sense of importance of transport, 15-20% of GDP equivalence

Geographic Focus (cont): 

Geographic Focus (cont) Mozambique Third lowest road and railway densities in Southern and Eastern Africa Acute sense of importance of transport (product based studies: 60, 80% of product value) Historically a transport economy serving a strong hinterland (South Africa, Zimbabwe, Malawi, Zambia, Botswana, Swaziland)

Policy Intervention to be Evaluated: 

Policy Intervention to be Evaluated Promotion of Spatial Development Initiatives (SDIs) Goal: stimulate growth, trade and investment along key international transport corridors Strategy: bilateral agreements that identified cluster cross-sectoral investment opportunities for PPPs. Transport: the promotion of PPPs based on matching users to infrastructure providers Target Regions: key transnational transport corridors Expected Outcomes: virtuous cycle of expanding regional markets, increased regional integration, a regional approach to FDI, job creation, Small and Medium Size Enterprise (SMMEs) development, strengthened planning and managing capacity of local governments and rapid economic growth.

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SDIs in Southern and Eastern Africa

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Focus of the Evaluation Project: 

Focus of the Evaluation Project Maputo Development Corridor (MDC) consists of: Gauteng-Maputo toll road (2001) Private Port of Maputo (2004) Wittbank-Ressano Garcia Rail line (operational by the end of 2006) Why focus on the Rehabilitation of the Gauteng-Ressano Garcia Rail Link: i. Rail volumes guarantee ship calls at the port and justify regular dredging ii. Technological developments and containerization broadened the range of rail-friendly cargo, also rail relative cost-effectiveness. Allows for measurement of cross-industry and cross-firm effects iii. Development Debate Redux: role of rail in development and growth (Rostow, Fogel, Fishlow, etc): measuring the magnitude of the reduction in transportation costs associated with rail, who benefits, what are the effects on trade, structure of regional output, rise in per capita income, etc.

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Goal of Evaluation Project: 

Goal of Evaluation Project Empirical investigation aims to: i. Measure the impact of changes in transport on firm behavior, investment and growth. ii. Measure the interaction between transport modes and transport corridors iii. Contribute to the broader cost-benefit analysis on the cost-effectiveness of investments in transport

Evaluation Questions: 

Evaluation Questions Primary evaluation questions: i. Does introducing competition between transport corridors increase efficiency in the transport system and reduce transport costs for firms? ii. Do reductions in transport costs promote regional growth through improved trade and investment opportunities?

Evaluation Questions (cont.): 

Evaluation Questions (cont.) Auxiliary questions: a. Transport Analysis: i. Are investments in rail and road complements or substitutes? ii. What is the nature and magnitude of spillover or network effects across transport modes and transport corridors? b. Firm-level Analysis: i. Do investments in infrastructure translate into uniform reductions in unit transport costs for all commodities and firms? ii. Do changes in transport costs affect firm dynamics regarding investment patterns, export behavior, factor productivity and patterns of entry and exit from the market? iii. Is there variation on firms' responses to changes in transport costs?

Evaluation Questions (cont.): 

Evaluation Questions (cont.) c. Growth Analysis: i. Through which mechanisms do investments in transport infrastructure affect firms' productivity, investment and growth? ii. Are investments in transport infrastructure a cost- effective and sustainable strategy to promote growth? iii. Do SDIs cause convergence or divergence with other non-targeted regions? iv. Are the benefits commensurate with the costs? What are the social and economic rates of return to investments in transport?

Innovative Research Design: 

Innovative Research Design Policy Relevance: a. Learning potential for future SDIs: Policy Cascade through NEPAD b. The importance of micro-data: 1. Understanding distributional effects of transport investments leads to a more targeted demand-driven transport policy 2. Matching effects to different elements of transport corridor (rail, road, ports) 3. Survey methodology allows us to get at micro effects that escape macro evaluations concerning types of investment in transport: eg. trade off between transport time and cost for different firms and industries

Innovative Research Design (cont.): 

Innovative Research Design (cont.) c. New approach to impact evaluation of transport infrastructure: Existing studies on transport infrastructure are based on: 1) ex ante cost benefit analyses 2) aggregate inferences based on crude country level measurements of port efficiency, road density and length of railways and their impact on trade, investment and growth. Before and After analysis of distributional effects allows us to get at: Who benefited? By how much? Can we accurately measure the impact on trade, on employment, investment and growth?

Detailed Research Design Indicators: 

Detailed Research Design Indicators Estimating the Effect of Competition in the Transport System Secondary Data Collection along targeted and alternative corridors

II. Estimating the effect of transport corridors on growth and development: (Secondary Data Collection on treated and control regions) Indicators: 

II. Estimating the effect of transport corridors on growth and development: (Secondary Data Collection on treated and control regions) Indicators

II. Estimating the effect of transport corridors on growth and development (cont.) (Secondary Data Collection on treated and control regions) Indicators: 

II. Estimating the effect of transport corridors on growth and development (cont.) (Secondary Data Collection on treated and control regions) Indicators

III. Estimating the Effect of Transport Costs on Industries and Firms: (Primary Data Collection) : 

III. Estimating the Effect of Transport Costs on Industries and Firms: (Primary Data Collection) Empirical Strategy: i. Population of Interest ii. Sampling Criteria iii. Survey Output and Indicators iv. Robustness Tests v. Implementation

Empirical Strategy: 

Empirical Strategy i. Cross Sectoral Firm Level Survey Geographic Location: i. Treatment regions of Mpumalanga, Limpopo and Northeastern Gauteng in South Africa; Maputo, Southern Gaza and Southern Inhambane in Mozambique; ii. Control regions of Southern Gauteng, Kwazulu Natal, Western and Eastern Cape in South Africa and the Mozambican provinces of Northern Inhambane, Sofala, Manica, Nampula, Niassa and Zambézia

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Empirical Strategy (cont.): 

Empirical Strategy (cont.) ii. Sampling Criteria: 800 firms in South Africa and Mozambique Cross section of industries: Mining, Manufacturing, Retail, Tourism and Agribusiness. Stratified Random Sampling determined by industry, location and firm size

Empirical Strategy (cont.): 

Empirical Strategy (cont.) Treatment and control groups will be matched by propensity scores based on a vector of firm and industry level characteristics. iii. Survey output: Firm-level organizational, financial, transport and performance indicators Chief indicators: Profits, Factor Productivity, Investment and Risk, Export propensity, Inputs, Sales, Output mix.

iv. Robustness Tests: 

iv. Robustness Tests I. Durban and Maputo: de facto alternatives or complements? Is Maputo a real choice? Comparability of port technologies, cost and productivity Depth Productivity Storage Capacity Distances and Cost Safety

Durban Quay Lengths and Depths: 

Durban Quay Lengths and Depths

Durban vs Maputo (cont): 

Durban vs Maputo (cont) Productivity and Growth Potential: Berth Occupancy: 30% Maputo 100% Durban Crane Moves per hour: 15 TEU in both Safety: Maputo was first African certified ISPS port Storage Capacity: more in Durban but limited expansion, 3 days free storage less in Maputo but more potential for expansion, offering 21 days free storage

Road and Rail Distances (km): 

Road and Rail Distances (km)

Road and Rail Costs: 

Road and Rail Costs Road costs: Durban cheaper, more backhauling Rail costs: Maputo cheaper Port Charges: Maputo cheaper Unit: Rands per 20 ft container

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Historical Legacies- Path-Dependence of Route Choice? No In the past, ships would flip from Durban to Maputo depending on how many days delay. 45% of SA cargo in 1975 was going through Maputo. Most firms willing to undergo short-term relocation costs even if small cost savings per ton km Common Practice of 'Hedging' between Ports The 'Curse' of the Hub and Spoke Model? No clear consensus on the direction of the shipping industry Economies of flow from consolidation in hubs versus higher timing and inventory costs A system of more loops with smaller vessels bears less risk and could eventually turn out to be a cheaper option than running very large vessels on few loops. Most likely that both business models will prevail.

Nature and Expected Impact of the Intervention?: 

Nature and Expected Impact of the Intervention? Prior to the Intervention….expect change

Expected Impact of the Intervention: 

Expected Impact of the Intervention

Potential Growth of Port Throughput with Rail: 

Potential Growth of Port Throughput with Rail

Comparability of Treated and Control Areas?I- Variation on Geographic Location of Production: 

Comparability of Treated and Control Areas? I- Variation on Geographic Location of Production Sugar growing areas in South Africa are located on the coastal strip and hinterland around Durban as well as on the area east of Nelspruit, along the Maputo corridor. In Mozambique sugar grows in central provinces. Each of these areas is naturally placed in the catchment area of different corridors. Fruit: Western and Eastern Cape, Nelspruit, Mpumalanga, Limpopo, Nampula Retail: Gauteng, Western Cape, Durban, Maputo, Nampula Cashews: Central, Southern and Northern Mozambique Car Manufactures: Eastern Cape, Pretoria, Durban

Mining: 

Mining

Mining: 

Mining

II- Variation on Firm Size: 

II- Variation on Firm Size

Robustness Tests (cont.): 

Robustness Tests (cont.) Spurious Effect: Asymmetric Information? What drives the choice to ship through Maputo: Cost or information? Encouragement Design through MCLI (Maputo Corridor Logistics Initiative) Time Horizon: short enough to avoid confounding effects, long enough to see a difference. Preliminary qualitative research: 8 months Search for natural discontinuities based on: a. Geographic location b. Product characteristics

v. Implementation: 

v. Implementation Research Partners: Witts University, SA- Centre for Applied African Micro-Economic Research (CAAMER), Economics Department School of Development Studies, University of Kwazulu Natal, University of Cape Town Universidade Eduardo Mondlane Universidade Católica da Beira Stats SA, CSIR, INE

v. Implementation (cont.): 

v. Implementation (cont.) Advantages of University partner: - more cost effective - better use of local knowledge better acceptance of the surveying exercise due to higher credibility (problem of 'Survey Fatigue and Mistrust') - higher returns to knowledge generation promoting applied policy research at Universities (capacity building) incentives for sustainable ongoing data collection

Tentative Implementation Schedule: 

Tentative Implementation Schedule

Annex I- Trucking Industry: 

Annex I- Trucking Industry Proposed Project: Expansion of the Trucking Survey currently underway in 6 African countries to South Africa and Mozambique Goal: Measure the Impact of Investments in Rail Infrastructure on the Trucking Industry Methodology: before and after survey to a sample of 20 formal firms (PPS) and 30 owner truckers in each country Primary Evaluation Question: Do investments in rail infrastructure affect: i. The structure of the trucking industry? ii. The cost of trucking services? iii. Employment in the trucking industry?

Survey Data: 

Survey Data Ownership characteristics Indicators of firm productivity Percentage of backhaul trips Load factor (ratio of actual load to capacity on loaded trips) Level of competition in the trucking industry Exposure to corruption Exposure to overloading fines and choice of transport routes Average number of hours driven Major constraints for growth and formalization Nature of interactions with the formal sector

ANNEX-II: 

ANNEX-II Beira Corridor: Key Transport Infrastructure: Rail: a) Sena line connecting to Tete, including spur lines to the Moatize coal mines and to the Malawian border (600 km) b) Machipanda line connecting to the Zimbabwean border (300 km). Repairs and maintenance concessioned to the Beira Railroad Company (CCFB), a consortium dominated by the Indian Rites and Ircon International who also own the 25 year lease over the Machipanda line since 2004. Port of Beira concessioned in 1998 to Cornelder Mozambique. Undergoing significant change Main Problems: Dredging of port, delays with rail, Zimbabwe’s economic collapse Potential growth: vast Moatize hard coking coal deposits in Tete Province as well as mineral agri/fisheries, tourism, cotton and sugar industries along the Zambezi valley.

Beira Corridor: 

Beira Corridor

Nacala Corridor: 

Nacala Corridor Key Transport Infrastructure: Port of Nacala concessioned in 2005 to Corredor Desenvolvimento de Nacala (CDN)- consortium between Central East African Railways CEAR, Edlow Resources and Railroad Development Corporation Rail : Nacala-Lichinga, Nacala-Malawi Major Problems: unstable concession of port and rail, significant delays in the rehabilitation of the port and the major rail lines Potential for Growth: Capture significant cargo from Malawi and Zambia, CDN hold enormous potential in agriculture, forestry and fisheries, mining and tourism development.

Nacala Corridor: 

Nacala Corridor

Nacala Line Forecast (thousand tons): 

Nacala Line Forecast (thousand tons)

Machipanda Line Forecast (Thousand Tons): 

Machipanda Line Forecast (Thousand Tons)

Sena Line Forecast (Thousand Tons): 

Sena Line Forecast (Thousand Tons)

Mozambican Exports ($US Millions): 

Mozambican Exports ($US Millions)

Mozambican Imports ($US Millions): 

Mozambican Imports ($US Millions)