Untapped Potential: Africa’s Informal Cross-Border Trade

By James Akhungu

In the last one decade, African countries have come to a realization more than ever, the importance of trade to achieving sustainable growth.  The African Union through its eight Regional Economic Communities (RECs) has advocated for lowering of tariffs, established regimes to encourage foreign investments and pursued opportunities for greater regional integration: yet progress in trade facilitation is still low in many countries and progress is hampered by high cost and administrative difficulties at the borders.

Overtime, outdated and overly bureaucratic border clearance processes imposed by customs and other agencies are now seen as posing greater barriers to trade than tariffs do. Cumbersome systems, procedures and poor infrastructure both increase transaction cost and lengthen  delay to clearance of imports, exports and the transit goods. This has led to the thriving of the Informal Cross-Border Trade (ICBT), which accounts for about 43% of income to Africa’s population. The major players in ICBT – small unregistered players in trade, are vulnerable. This article argues that despite the flaws at the cross border areas, there exists untapped potential in the ICBT which can catapult intra-African trade which is currently less than 20%.

Firstly, a gender balance and mainstreaming approach should be envisaged towards ICBT. The World Bank survey in Democratic Republic of Congo found out that 85% of traders in ICBT are women led, yet 82% of the officials who regulate trade at cross border points are men. A Gender balance and mainstreaming approach envisages women realizing more economic benefits of formal trade towards intra-regional trade. Women traders are faced with myriad challenges, not limited to: bribes, sexual abuse and confiscation of goods. There is need to convene more forums by various trade stakeholders to articulate challenges and aspirations among the women entrepreneurs involved in cross border trade.

Secondly, there is need for member states in Africa to create more one-stop border posts. Trade Mark East Africa (TMEA) in 2016 through a baseline survey on time and traffic in East Africa found out that introduction of one-stop cross border posts led to reduction in border crossing time by about 80% as compared to similar period in 2011. This not only impacts on traders but creates a win situation for the revenue authorities because reduced time lag translates to less bribes, extortions and more trade transactions.

Thirdly, there is need to leverage upon technological innovation and artificial intelligence. Sauti Africa, a Kenyan based firm, is empowering women to trade legally and profitably across the borders (Kenya, Uganda and Tanzania) by use of mobile based trade platforms. The technology deployed is the use of USSD and SMS information system in low technology cross border environments in East Africa.

Fourthly, the RECs should research and innovate ways that can improve socio-economic cohesion among border communities. The Simplified Trade Regime (STR) as an instrument in trade should fully be adopted across the RECs. The STR main instruments are: custom document, certificate of origin, product list and consignment value. The STR purpose is simplifying the cross border trade amongst the small traders who are largely women and youth. The STR concept has been adopted by two RECs out of the eight: Common Market for Eastern and Southern Africa (COMESA) and East Africa Community (EAC). There is need for the other RECs to adopt it for trade uniformity to be achieved in the continent.

Finally, the Africa member states through African Continental Free Trade Area (AfCFTA), should emphasize the need of formalizing informal transactions and incentivizing informal traders to switch to formal trade. On 20th September 2019, Nigerian President Muhammadu Buhari ordered partial closing of its border with Benin to curb smuggling of rice and other commodities. This was attributed to illicit trade not only denying governments needed revenues but also hindered institutional growth. In as much as Nigeria is committed to AfCFTA, President Buhari stated that “AfCFTA must not only promote free trade, but legal trade of quality made-in-Africa goods”.

Simplification and formalization of the documentation process should be done since the players in ICBT have low literacy levels and trade in small amounts of low value goods. The compliance level of ICBT players can be increased by increasing access to finance to cover high Intra-African trade related fees and reducing the cross border fees.

Conclusively, ICBT is undeniably a source of employment and income for many people in Africa. Women who are the major players in ICBT stand to gain more if appropriate measures are undertaken. The RECS and respective countries should continuously revise data collection and monitoring tools of cross border for informed decision making. The regulatory and institutional framework should be revisited so as to formalize some of the ICBT activities and channel them to mainstream trade which may be beneficial to the respective country economies in the long run.