13 Things You Didn’t Know About Informal Cross-Border Trade In Africa

By Dana Sanchez AFKI Original Published: August 16, 2016, 3:13 pm
cross-border trade in AfricaZimbabwe-South Africa border. Photo: SABC/Twitter

Informal cross-border trade constitutes the majority of informal activity in most African countries. In the 15-member Southern African Development Community (SADC), for example, informal cross-border trade makes up an estimated 30-to-40 percent of total intra-SADC trade, with an estimated value of $17.6 billion. Informal trade often involves smuggling goods and avoiding formal border processes. It is practiced by companies of all sizes, by individuals unemployed in the formal economy,  and by people who have jobs but wish to supplement their salaries.

Source: Business Day Live

Traders in Elegu, an border town important for Uganda-South Sudan trade. TradeMarkEA has helped train at least 4,000 women on business and exports in Uganda. Photo: Photo: TradeMarkEA

Traders in Elegu, an border town important for Uganda-South Sudan trade. TradeMarkEA has helped train at least 4,000 women on business and exports in Uganda. Photo: TradeMarkEA

Most African cross-border traders are women

Around 75 percent of people trading across African borders are women. They are vulnerable to abuse. They trade a variety of commodities from basic goods such as body lotions and tomatoes to luxury goods produced in other countries.

Sources: International Centre for Trade and Sustainable DevelopmentBusiness Day Live

Trucks head for Zimbabwe near the Beitbride border post in South Africa in 2008. Photo: Themba Hadebe/AP/csmonitor.com

Trucks head for Zimbabwe near the Beitbride border post in South Africa in 2008. Photo: Themba Hadebe/AP/csmonitor.com

Corruption disincentivizes women to go through formal border posts

If you are woman in sub-Saharan Africa, it’s probably faster, easier and cheaper to cross the border informally.If you live and work in a rural area, you are probably a trader. You’re probably carrying a variety of goods across the border several times a day or week, and your household depends on this as a major source of income. You probably face high taxes, complicated procedures and corrupt border officials. Some might want to harass you before they let you through. You may not be able to read or understand what duties apply to the goods you are trading. In this scenario, what is your incentive to go through the formal border post?

Source: World Economic Forum

Trucks at Kenya’s Malaba border point transport goods to Uganda. Photo: businessdailyafrica.com

Trucks at Kenya’s Malaba border point transport goods to Uganda. Photo: businessdailyafrica.com

The U.S. dollar is the medium of exchange in East African cross-border trade

Conventionally, businesses from the East African Community states involved in cross-border trade use the U.S. dollar as the medium of exchange.This requires that they have to convert their national currencies to the dollar before conducting transactions and later convert the currency back to their national currency.

Source:The New Times

Beitbridge border between Zimbabwe and South Africa. Photo: nehandaradio.com

Beitbridge border between Zimbabwe and South Africa. Photo: nehandaradio.com

About 43% of Africans are involved in cross border trade

Informal cross-border trade is so important for Africa that about 43 percent of Africans are involved in this form of commercial activity in the 19 countries that make up the Common Market for Eastern and Southern Africa (COMESA). It contributes to economic growth, job creation and food security for the majority of the region’s population.

Source: International Centre for Trade and Sustainable Development,

Protesters battle with Zimbabwean police in Harare. Photo: Tsvangirayi Mukwazhi/AP/The Guardian

Protesters battle with Zimbabwean police in Harare. Photo: Tsvangirayi Mukwazhi/AP/The Guardian

Messing with cross-border trade can start wars

The busiest border post in Southern Africa, the Beitbridge border between Zimbabwe and South Africa has been the site of violent protests since June.

The Zimbabwean government banned imports including basic commodities like body lotions, baked beans and bottled water. The government perceived informal imports as unfair competition to formal domestic industries. Products traded informally are often counterfeit goods sold at lower prices, not subject to import taxes, and cheaper than locally manufactured equivalents, the government said.

The ban was meant to support development of domestic industries, but it could further harm the fragile Zimbabwean economy, which has high unemployment and shortages of basic commodities and cash. The import bans are expected to encourage even more informal economic activity, especially across borders.

Source: Business Day Live

Photo: worldbank.org

Photo: worldbank.org

Informal trade in Africa creates jobs

Informal trade is common in Africa. An estimated 3 million metric tons of staple food commodities were traded informally in East Africa in 2013. Several hundred thousand tons of food cross Southern Africa’s borders via informal routes every year. It’s not only agricultural commodities. Informal trade includes small electronics, household appliances, clothes, shoes and cosmetics. This trade is essential for poverty reduction. It creates jobs, especially for vulnerable groups – women and youth and contributes to food security.

Source: World Economic Forum

Photo: your-bizbook.com

Photo: your-bizbook.com

High costs of intra-Africa trade hamper African integration

Intra-African trade costs around 50 percent more than trade across borders in East Asia, and is the highest of intra-regional costs of any developing region, according to the World Bank. Because of the high cost of cross-border trading, Africa has integrated with the rest of the world faster than with itself, said Anabel Gonzalez, director of trade competitiveness at World Bank, in a December 2015 brief, “Deepening African Integration: Intra-Africa Trade for Development and Poverty Reduction.”

Source: The Africa Report

US dollar as cross-border trade currency

Traders cross from Tanzania to Rwanda at Rusumo border. Photo: Timothy Kisambira/The New Times

Central banks in East Africa have agreed to phase out the U.S. dollar for cross border trade

East African Community member countries have agreed to phase out the dollar and promote trade using the various local currencies. The goal is to gradually phase out the dollar as the common currency in cross-border trade in the region. Central banks unanimously agreed to adopt an exchange rate shared daily across the region.

Source: The New Times

Photo: southernafricatrust.org

Photo: southernafricatrust.org

Costs vary depending on large vs. small, formal vs. informal

Small traders face big challenges. At the Mwami-Mchinji border post dividing Zambia and Malawi, for instance, small traders pay on average 62 percent more than large traders to informally move a ton of a commodities across the border, according to a Diagnostic Trade Integration Study for Zambia. A small trader would pay three times that amount if they were to go through the formal border post.

Source: World Economic Forum

Photo: blogs.worldbank.org

Photo: blogs.worldbank.org

What governments lose with informal cross-border trade

Informal cross-border trade involves bypassing border posts, concealing goods, under-reporting, false classification and under-invoicing. People who practice it evade taxes or fees imposed by governments. Traders also avoid administrative formalities in areas such as health, agriculture, security and immigration, which are perceived as expensive, complicated and time consuming.

Informal cross-border trade deprives governments of revenue and statistics. Some argue that the practice gives an unfair competitive advantage to informal sector traders over formal businesses. One argument is that informal trade affects the government’s ability to build roads and invest in small businesses.

Source: International Centre for Trade and Sustainable Development,

Border post. Photo: moWoza/mg.co.za

Border post. Photo: moWoza/mg.co.za

Informal cross-border trade in Africa provides goods unavailable domestically

Informal cross-border trade provides access to goods unavailable domestically. For example, in Zimbabwe, antiretrovirals used to treat HIV/AIDS are imported into the country illegally to meet domestic demand.

Traders are often forced to engage in informal trade because of barriers to entering the formal sector, including difficulty in getting access to visas or trading licenses, excessively long lines at borders, overcharging by customs officials, and ignorance of official procedures. Traders often face corruption, with officials soliciting sex or bribes in order to smuggle goods, and confiscation of goods.

Source: Business Day Live

In Malawi, World Bank funds improvements to a highway and border post to facilitate trade. Photo: Africa Maritime News

In Malawi, World Bank funds improvements to a highway and border post to facilitate trade. Photo: Africa Maritime News

Existing measures to help small traders at the border

The 19-member Common Market for Eastern and Southern Africa has tried to address some of the challenges for cross-border traders with the Simplified Trade Regime). Under this, traders carrying goods included in a pre-negotiated list worth up to $1,000 can clear them with little paperwork (using a simplified certificate of origin) and without inspection by clearing agents. The processing fee also has been lowered in a number of COMESA countries.

But if you go to the Mwami-Mchinji border and ask the revenue authorities for statistics on Simplified Trade Regime users per month, you will get a very disappointing figure: between five and 10. Then, if you look out across the landscape, you can see hundreds of small traders walking or cycling through the bush. Some do use the formal border but they do not know about the Simplified Trade Regime and end up paying more than they should.

Lack of awareness, mutual distrust and wrong information between traders and officials induce traders to stick with informality.

World Economic Forum

 

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