Potential of informal cross border trade in Africa

In March 2018, African heads of State gathered in Kigali to launch an initiative that will increase the level of intra African trade. The United Nations Economic Commission for Africa (UNECA) points out that the African Continental Free Trade Area (AfCFTA) is a move in the right direction for the continent, as it will cover a market of 1.2 billion people and a gross domestic product (GDP) of $2.5 trillion, across all 55 member States of the African Union. In terms of numbers of participating countries, AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organisation.

Considering that informal cross border trade (ICBT) is a source of income to about 43 per cent of Africa’s population, boosting informal cross border trade on the continent is an integral part of achieving sustainable development.

Further, small and medium-sized enterprises account for around 80 per cent of the region’s businesses. UNECA also indicates that women are estimated to account for around 70 per cent of informal cross border traders in Africa and are exposed to challenges such as harassment, violence, confiscation of goods and even imprisonment.

By and large, ICBT is largely practised by the officially unemployed and micro, small, and medium-sized enterprises, and is therefore also important for strategies of inclusion.An example of an intervention that is worth mentioning is one by TradeMark East Africa (TMEA) in a project in Rwanda aimed at increasing the economic power of women in informal cross-border trade.

The project started from scratch to identify women who were trading informally across borders, and who had no capital, in order to help them become registered and recognised, and build successful businesses. In over six years, support has been given to 63 co-operatives with over 3,000 members, of whom 98 per cent are women, in nine main border districts, by developing their knowledge and skills and helping them to gain access to finance and markets.

Another point worth noting is that 90 per cent of the firms within the African private sector are small and medium sized enterprises.

The Trade Law Centre highlights the fact that these businesses are limited in their participation in cross border trade due to tariffs, non-tariff barriers, complex customs and trade procedures, lack of access to finance and information, among other factors.

The lost opportunities in this sense are immense and can be viewed from different perspectives; the first is that of small businesses being limited in their revenue streams due to these restrictions. The other is that of governments losing out on potential revenue.

So far, 49 out of 55 countries have signed up for the AfCFTA. In order to maximise the benefits that could be accrued, some factors that require streamlining include strengthening intra-regional trade dispute resolution mechanisms and building the capacity of the manufacturing sector.

This would ensure that African governments leverage the access to a wider market for locally produced goods and create employment opportunities for their populace. Also, by reducing and simplifying tariffs and non-tariff barriers, AfCFTA would make it more affordable for informal traders to operate through formal channels, which offer more protection.

ALEX LITU, Informal economy analyst.

Source: Business Daily