Lee-Roy Chetty
Lee-Roy Chetty

Informal cross-border trade should be formalised

Despite being a source of income for many living on the African continent, as much as 43%, informal cross-border trade is regarded as illegal.

Informal cross-border trade refers to trade in processed or non-processed merchandise that may be legal imports or exports on one side of the border and illicit on the other side and vice-versa, on account of not having been subjected to statutory border formalities such as customs clearance.

This trade has the ability to have positive macro-economic and social ramifications.

These include food security and income creation particularly for rural populations on the continent who would otherwise suffer from social exclusion.

If properly harnessed, informal cross-border trade also has the potential to support Africa’s ongoing efforts at addressing poverty alleviation.

Baseline surveys indicate that the majority of informal cross-border traders are women.

According to the United Nations Development Fund for Women, women constitute about 70% of the informal cross-border traders in the Southern African Development Community (SADC) region.

Most traders have no education and raise capital from their own resources. They are generally not bankable nor do they have assets that banks would accept as collateral. They can also be formally registered firms evading regulations and taxes or aiming to avoid border-crossing posts.

The types of merchandise traded are generally categorised as non-processed goods, manufactured goods and re-exports goods.

The lack of income generation and employment opportunities in the formal sector is a key factor for engaging in informal cross-border trade.

Nevertheless, within the SADC region, this trade has proven to have a positive impact on the economy, especially with regard to its potential to cushion the impact of food scarcity.

Although the key causes vary, theoretically speaking, the main determinants could be categorised as:

— Lack of trade facilitation;
— Inadequate border infrastructure;
— Limited access to finance;
— Limited market information;
— Corruption and insecurity;
— Limited knowledge, education; and
— Business management skills.

If properly harnessed this has the potential to support Africa’s on-going efforts at poverty alleviation. The prevalent belief that informal cross-border trade should be criminalised demonstrates policymakers’ failure to understand the underlying conditions and the potential impact on national and regional economies.

Moving forward it will be critical for African countries to establish and strengthen data collection and analytical capacities in order to effectively measure informal cross-border trade’s contribution to their respective economies and design appropriate policy responses.

The continent needs to create a policy, regulatory, institutional and business environment that enhances the role of informal cross-border traders, legitimises their activities (where the trade is found beneficial to the economy) and gradually mainstreams them into the formal economy.

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  • 5 Responses to “Informal cross-border trade should be formalised”

    1. Petronella Shiaka #

      I strongly agree that informal cross border trading should be formalised.

      However, I am struggling to get detailed information on studies conducted on Cross Border Traders. Has there been any detailed study on the profile of the cross border trader, goods and services purchased across the various SADC countries, amounts of monies spent to purchase goods & services. I would be most interested in learning more about the traders.

      Petronella

      November 21, 2012 at 5:15 pm
    2. Balt Verhagen #

      Informal cross-border trade is a symptom largely of poor governance in one or both sides of the border. An example is Zimbabwe. Into the nineties, structures there were roughly on par with those in South Africa, and there was little incentive to personally transport goods across the border. Zimbabweans earning a living here could remit their support for their families through reasonable, reliable and above all legal channels. Converted into Zimbabwean currency the buying power was similar on both sides of the border. Zimbabwe was a net exporter of food, that was always available and at affordable prices. Shops, often more basic than south of the LImpopo, were stocked with reasonably priced goods. The political upheavals in Zim, starting around 2000, changed all that. Food security was the first to suffer with the virtual collapse of commercial farming, the currency came under pressure as did financial institutions and the ability to readily and economically transfer currency. Increasingly, the most efficient way to support those back home was to go the grossly inefficient route of taking the goods that families need. With grossly rising prices informal cross-border trade, equally inefficient, was lucrative. Even today, with the use of international currencies, transferring monies can mean paying some 40% to the agent.

      Legitimising all this may be a stopgap, but good governance is the only solution.

      November 22, 2012 at 11:44 am
    3. greatgodpan #

      indeed it should be formalized,controlled and regulated……this will in turn help to control illegal cross border trading of arms,narcotics,stolen goods,illegal aliens and human trafficing…………….

      November 22, 2012 at 4:30 pm
    4. Is formalised trade free from
      - Lack of trade facilitation;
      - Inadequate border infrastructure;
      - Limited access to finance;
      - Limited market information;
      - Corruption and insecurity;
      - Limited knowledge, education; and
      - Business management skills?

      I venture that formalising informal trade would just add externalities to people who are already excluded from formal trade for one reason or another. It would make it harder for informal traders to earn their living, it would not help them. It would help the government in terms of finding another source of tax revenue, though, but just like our taxes in the formal sector, I fail to see how this is of net benefit to us.

      November 24, 2012 at 9:43 am
    5. jandr0 #

      @Garg: Spot on.

      Although probably subsumed under “Limited knowledge, education,” and “Business Management Skills,” I would specifically call out Financial Management Skills.

      Also concerned that governments would step in and regulate and tax even further. We need less unnecessary regulation, and less inefficient government interference, not more.

      November 24, 2012 at 6:31 pm

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