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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