The Rural Transport Infrastructure and Marketing Linkage within the Context of the Sub-Regional Zambia-Malawi-Mozambique Growth Triangle
Abstract:
In our overall quest to evaluate the long-term direct benefits of the Eastern Province Feeder Road Project carried out in the period from 1996 to 2001, we want to investigate whether the accessibility improvements have translated into increased marketing activities. We consider how the reductions in the cost – broadly defined – of movement has affected the economic activities of private companies, individual traders, input suppliers, millers and NGOs in Chipata and Lundazi districts. The 1996 baseline study by Chiwele et al.,(1996)finds that the nature of the infrastructure and the road network connecting the surplus remote areas and the deficit regions in 1996 was one of the key reasons why the new grain marketing system at the end of this period remained undeveloped at the end of 1996. From our own 2005 follow-up survey we find that it is primarily small private companies that are more likely to have moved into these two districts as a consequence of the EPFRP. On the other hand, the entry by the large South African Clark Cotton Company in 1995 was linked to Zambia and South Africa’s SADC membership. In addition, it was mainly the ‘small-scale private companies’ engaged in ‘agricultural marketing’ which had made a positive relocation decision.
Key words: (Discrete Choice) Logit Model; Transport Infrastructure; Accessibility; Localization; Site Selection; Decision Making; Agricultural Marketing; Transportation; Regionalism; Firm level survey data; Zambia.
JEL-classification: C1; D21; F14; F15; L91;N57; N77; 055; Q13; Q17; R.
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1. Introduction
Escaping the poverty trap is highly unlikely without integration into a wider international economy. The lack of surplus resources for financing investment implies that external finance(e.g. Aid-for-Trade (AfT)) usually plays a critical role in generating the big push which is necessary in order for Least Developed Countries (LDCs) to move to a virtuous circle of productivity growth, employment generation and poverty reduction (ILO, 2005). But international trade is equally vital (UNCTAD 2004). In fact, trade policy has been a dominant element in determining the pattern of Zambia’s modern export-led economic growth due to the limitedsize of the domestic market and low domestic purchasing power.
In October 1985 Zambia began to shift to outward-oriented trade policies in when the Government of Zambia (GoRZ) adopted the foreign exchange auction system.[1]Non-tariff barriers (NTB) were eliminated, and tariff rates were rationalized. As a result, tariffs became the major remaining protective mechanism for traded goods(Hill 2004).
Due to Zambia's small domestic market, the GoRZ intendedthrough the fifth national development plan 2006-2010 to use its trade policies to takeadvantage of privileged external market opportunities granted by developed countries and to promote the diversification of the economy. In addition to active participation in multilateral trade,regional markets alsoprovide outlets for Zambian goods and services. In particular, the geographic proximity of regionalmarkets makes them attractive export destinations for products from small and medium sized enterprises (SMEs), aswell as from smallholder farmers, of which the latter constitutes the most important category of the 12 socio economic groups in Zambia(GoRZ 2006a).
Notwithstanding, the Zambia-Malawi-Mozambique-Growth Triangle (ZMM-GT)countries’ poor performance in the international market place can be attributed to a number of factors, such as, the lack of sufficient high gradeskills, the low level of technological knowhow, the low level of domestic savings, the inability oftheir economies to attract sufficient foreign capital, etc. In addition to these binding constraints however,there is empirical evidence to suggest that the poor state and inadequacy of the transport facilities and services in the countries impacted on the performance of their economies andcontributed to their inability to compete effectively in foreign markets(UNECA 2000).
It is therefore appropriate, toassess the role and relevance of the transport sectorwithin the ZMM-GT Initiative.Transport e.g. plays the role of an intermediate input in the production process, either directly or indirectly as a complement to otherfactors of production (e.g. securing inputs or getting output to the market place). Transport is alsoimportant to both the rural economy and the urban one, albeit, in different ways. In the rural economyimproved transport services could lead to lower input prices and thus to reduced production costs and helps create condition for expansion of agricultural production. In the urban context, the price and quality oftransportation does affect decisions by firms regarding where to locateand to a large extent theirproductivity. Transportation costs are a major part of total costs, affecting especially small firms andthe entry of new firms into an industry or market(UNECA 2000).
The geographical movements of firms, together with firm formation and expansion,decline and closure, influence the geographical distribution of economic activity atany point of time. The analysis of firm relocation aims to inform and contribute toregional policy guidance and has wider implication in regional planning policy. Three main categories of factors influencing firm migration can be found in theliterature (Lloyd and Dicken, 1977; van Dijk, Pellenbarg and Van Steen, 1999): (i)internal factors; (ii) location factors (site and situation); (iii) external factors (Brouwer et al., 2002).
One topic that needs more attention is the study of firm mobility on the local scale. Thus, we explore the effects of these factors (i.e. determinants of firm migration) on the decision to relocateto Eastern Province as a consequence of the Eastern Province Feeder Road Project (EPFRP)by employing data on firm’s relocation behavior in two districts in Zambia’s Eastern Province – Chipata and Lundazi –using individual data on firm and (re-) location characteristicsfrom a small sample of 50 firms drawn from our 2005 Business Survey.We concentrate on only one of the firm’s demographic key events, that is, firm migration.[2]
The dynamism behindthe expansion of regional trade in ZMM-GT and its concentration in certain agglomerations in Zambia’s Eastern Provincewill also be explored by answering the following key questions: Did the improvement of the feeder roads from 1996 to 2001 reduce the marketing costs? Is the expansion of trade in Eastern Province the result of implementation of rural transport infrastructure developmentprojects such as the EPFRP or vice-versa? What policies/measures could be taken by the low-income countries(LICs) themselves?To answer these questions, the same 2005business surveywas used. Moreover, the findings of a benchmark study carried out by (Chiwele, Muyatwa-Sipula et al. 1998)are compared with our results.
The remaining part of the paper is organized as follows: Section two presents our framework. Section three looks at data by identifyingthe Users of EPFRP and presenting the Most Relevant Cash Crops in Chipata and Lundazi districts. The role ofregional agreements is examined in section four by respectively focusing on the impact of the SADC on the market participants and that of the ZMM-GT. Sectionfive explores the nature of the feeder road constraint, and thereby explains the role of the 1996-2001 EPFRP as anengine of regional trade. The final section concludes the study by providing some policy implications.
2. Literature Review
Tackling the complexity of the links between rural transport infrastructure investment and rural development in a LDC/LIC contextseems clearer than in the OECD countries.The traditional development argument is that as there are fewer links in the network, the impacts would be easier to identify and causal relationships could be inferred. Transport investment would help open up new areas for agricultural production, create new markets for goods and link in isolated areas with the district centres.The weaker development argument suggests that if a region has all the economic factors present for growth, then its full potential will not be realized without further transport investment. This type of argument has been central to regional development theory (Hirschman, 1958; Hansen, 1965 referred to in Banister & Berechman, 2000).
In response to improvements in accessibility from infrastructure investment firms can increase their demand for infrastructure facilities (i.e. the trip generation effect). They may also change their trip pattern (i.e. the trip distribution effect); their choice of travel mode and their travel route (i.e. the modal split and trip assignment effects). They may relocate (i.e. the spatial location effect), or they may adopt all of these options. In turn, each of these effects will influence the degree of use (and the quality level) of transport which is in existence or which is being newly constructed (as well as accessibility) (Banister and Berechman 2000).
Four principal determinants characterize the network performance. Beginning with the accessibility and travel flows determinant it is obvious that, given the particular infrastructure investment, the performance of the network is measured primarily by such factors as:travel time savings between any pair of locations, by the resultant volume of traffic on each link and by changes in the relative accessibility of locations i and j (i, j = 1, ..., N). Similarly, users’ savings in vehicle operating costs such as in fuel and maintenance costs also constitute key indicators of network performance(Banister and Berechman 2000).
The industrial location theory, formulated in the beginning of the 20th century, focuses on thelocation factors determining the attractiveness of a site for firm location (pull factors). Relocation theory also takes into account the ‘push out’ of the present location (pushfactors). Relocation approaches are treated as a special case oflocation theories or are based on empirical analysis(Brouwer, Mariotti et al. 2002).
The neo-classical location theory focuses on the premise of the rationale firm that maximises profit in choosing the optimal location. The main forces driving firm relocation are transportation and labour costs. On the other hand, the behavioural location theory claims that the idea of ‘optimal’ decisions, and minimising and maximising, is a theoretical abstraction. Location theory argues for the strengthening of the centre with a concentration of economic activity. Yet, much of the historical evidence suggested that there was substantial variation between different cities and a weakening of the influence of the city. Regional development policies also assumed that investment in transport would help alleviate depressed industrial regions and open up rural areas by increasing their share of economic activity. Even here, the concentration arguments were being replaced by those promoting the spread of growth (i.e. balanced development) from the more prosperous regions (Banister and Berechman 2000).
Opposite these two approaches the institutional location theory views the location behaviour as the result of the outcome of a firm’s negotiation with suppliers, governments, labour unions and other institutions about prices, wages, taxes, subsidies, infrastructure, and other key factors in the production process of the firm (Pellenbarg, Wissen et al. 2002). Notwithstanding this criticism, most well known migration studies are primarily based on behavioural principles(van Dijk and Pellenbarg 2000; Brouwer, Mariotti et al. 2002).
The majority of the evidence to support the arguments comes from surveys of firms about their intentions to expand or relocate as a result of a new transport link (Banister and Berechman 2000). This is also the approach that we will follow.
3.The 1996 and 2005 Business Survey Methodologies
The aggregate viewsimplifies the more interesting actions of individual firms and people in their own decisions.Various other methods can be used to determine private sector responses to agricultural market liberalization and/or transport infrastructure improvements. Invariably, however, most researchers have employed survey methods that have identified traders and analysed the factors that stimulated their entry into the market.This survey approach is sufficient whereby a sample of traders can be framed and the study is aimed at identifying the characteristics of the traders, assessing the constraints they face in taking advantage of the opportunities presented by either trade liberalisation and/or infrastructure accessibility improvements (Chiwele et al., 1998).
We consider how the reductions in the cost – broadly defined – of movement has affected the economic activities of producers, millers and traders in Chipata and Lundazi districts within Zambia’s Eastern Province. To this effect, we will use a study by(Chiwele, Muyatwa-Sipula et al. 1996) as baseline, because it offers insights into the structure of the emerging private marketing system in Chipata and Lundazi districts in 1996 prior to the implementation of the EPFRP.
1996 BaselineSurvey Methodology
The starting point of the Chiwele et al. baseline study was the recognition that little was known about the factors that influence the capacity and willingness of private traders in Zambia to rapidly and efficiently enter into the markets from which government parastatal agencies had withdrawn. Nor was it known whether private traders were able to undertake all the functions performed by state agencies such as input supply (fertiliser and seed), provision of credit and grain marketing. Furthermore, questions about the nature of the market networks that had emerged – e.g. the way various players in the market (producers, traders and millers) relate to each other for storage, finance and transport – remained unanswered.Hence, Chiwele et al.’s study objectives were to provide answers to these questions.
The (Chiwele, Muyatwa-Sipula et al. 1998) study combines both questionnaire surveys and qualitative methods. To meet the goals of observing the response of private traders to liberalisation, determine the emerging networks, and analyse market efficiency, the authors conducted fieldwork in Zambia’s Eastern Province selected as the surplus province and Lusaka Province selected as the deficit province.
Two approaches were used to survey the traders. First, a list of traders was obtained from MAFF’s Food Security Division and traders operating in the survey areas were picked from the list.[3]Due to the small number of active more established traders that could be found, it was decided to interview all the traders. A total of 25 were interviewed (16 in Lundazi and 9 in Chipata North, see Annex A3).
This sample was supplemented by interviews with any trader the group encountered, a strategy that enabled researchers to capture the activities of small traders. Where possible, group discussions were also held with traders, these totalled four (three in Lundazi and one in Chipata) (Chiwele, Muyatwa-Sipula et al. 1998).
A list of 28 traders operating between Eastern Province and Lusaka was obtained from MAFF. Only ten of these could be identified and interviewed for reasons similar to those in Lundazi and Chipata North. In addition, 39 small traders were interviewed in the various markets of Lusaka Urban. In addition, two large millers were selected and interviewed. A questionnaire interview was conducted with all the traders, large and small (Chiwele, Muyatwa-Sipula et al. 1998).
Chiwele et al. conducted their fieldwork from 3 August 1996 to 24 August 1996.There were four checklists targeted at key informants, farmers and traders.
2005 Follow-up Business SurveyMethodology
Adequate transportation is considered to be one of several site location requirements that affect an area’s business costs, markets, and overall competitiveness for attracting business investment. Investment in transportation services and infrastructure may contribute to the economic vibrancy of a region by: Reducing business operating costs and increasing productivity (cf. Kingombe, 2009b); expanding the size of labour markets; and increasing business access to needed suppliers, services and materials.
In our overall quest to evaluate the long-term direct benefits of the EPFRP, in the 2005 follow-up study we investigate whetherthe accessibility improvements have translated into increased marketing activities, in the sense of inducing more traders, large as well as small-scale, to visit the villages within the zone of influence of the rehabilitated feeder roads.The long-term effect of the EPFRP, given the state of the network in 1996, is explored through a business questionnaire survey approach.
Fifty questionnaire interviews were carried out from August to September 2005 in respectively Chipata and Lundazi’s urban district centres, after we had listed all the relevant organizations in those two areas. Thefocus of the interview was on:The identification of the organization through a small number of background variables; the impact of the EPFRP; the vehicle operations costs and travel issues; socio-economic and stimulus issues; firm migration issues including decision to operate in, relocate to, expand activities in, and stay;[4] travel and economic improvement issues; business environment issues; and finally spill-over effects.Consequently, our master dataset contains 135 variables.
4. Identification of Geographical Movement of Firms due to the EPFRP
In the months immediately after the 1991 elections in Zambia, the new MMD government quickly removed subsidies on maize meal and fertilizer. This action was motivated by budget concerns and the need to promote agriculture, or reduce rural poverty. Hesitant to be blind-sided by the government reneging on its commitment to withdraw from maize and fertilizer marketing, private traders offered a limited response to market liberalization, which was seen by many officials as “inadequate.” This was precisely the outcome desired by those in government who sought to justify continued state involvement in agricultural marketingaccording to (McPherson 2004).
On this backdrop weanalyse and discuss the business migration eventbased upon our 2005 survey. A firm chooses a location from a number of alternatives. In doing so, it takeseconomic and/or non-economic factors into account (De Bok 2004).
Mobility profiles
Individual firms have a large variety in size, nature of its activity, region of origin and spatialrelations. To account for these relations themobility characteristics of firms can be used as dimensions for categorising all firms in groupswith similar mobility characteristics (i.e. mobility profiles). Our approach assumes thatthese mobility profiles are at least to some extent of influence on the location preferences of a firm(De Bok 2004).
The presented mobilityprofiles in table 4.1below are a result of an analysis on a number of mobility characteristics for allindustry branches (stratum). Table 4.1 indicates that private companies mainly concentrate their activities on: Agricultural Trade / Marketing (74%); Agro-Industry (13%) and Agricultural Processing (9%). In order to carry out their daily travel and operations activities in Chipata and Lundazi districts they use primarily: A Medium-to Heavy Truck (87%); Passenger cars (personal vehicles) (74%); or a Pickup van (70%). Land rovers (35%) and motorbikes (35%) are also widely used by the private companies.