Transcript Informal Cross Border Trade In East Africa

Informal Cross Border
Trade In East Africa
Issues for EAC Regional Integration
and Economic Growth
By Victor Ogalo
CUTS ARC, Nairobi
[email protected]
BIEAC-II Regional Workshop,
May 27-28, 2010
Informal Cross- Border Trade
A significant proportion of cross-EAC border
trade is in the form of ICBT.
 Women constitute larger proportion of small
scale informal cross border trade.
 Despite efforts to promote trade integration
among EAC Partner States, formal trade links
is still facing several constraints.
 Some of these constraints push traders to
ICBT but there are also exclusive incentives/
advantages that promote existence of ICBT.
 While it may be relatively easy to eliminate
constraints to formal trading, the same may
not provide better incentives for traders in the
informal sector to turn to formal trading.
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Objective
How important is ICBT in EAC? How does it
affect EAC regional integration, esp., goals of
increasing production, trade, and investment?
 What is the nature of the link/relationship
between ICBT and formal trade?
 Can ICBT hamper EAC efforts to expand its
formal trading relationship? What could be
done to address challenges (or promote
benefits) of ICBT?
 What policy measures would have potential to
encourage traders switch from ICBT to formal
trade or coexist with limited challenges?
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Methodology
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Undertake an in-depth review and analysis of
existing studies/surveys on ICBT.
Where necessary, conduct targeted interviews
with key stakeholders at selected EAC borderpoints;
Consider expert inputs, opinions and insights
collected from presentation of the study at the
national and regional workshop to finalise it
for eventual dissemination within and across
EAC for policy advocacy.
Understanding ICBT
Definition and Magnitude
No universally accepted definition of the
informal sector to start with
 Many definitions:
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– unofficial, underground, hidden, invisible, shadow,
parallel, second, unrecorded, black, moonlighting,
unmeasured, unobserved economy,
 Juakali
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and mamalishe are sub-components of informality
Schneider (2006) defines the informal
economy as entailing a market-based
production of legal goods and services
that are deliberately concealed from public
authorities and escape detection in official
gross domestic product (GDP) statistics.
Reality of Informal Economy
Reality of Informal Economy
Key X-tics of ICBT in EAC
1. Nature of informality
Key X-tics of ICBT in EAC
2) Education and Gender
 Earlier studies showed low level of
education (most with primary education
and below) and most players women.
 Recent studies show cross-border trade
becoming complex and most participants
have above secondary education
– Majority fall in 20-40 years age bracket
– 44.2 percent have secondary
– 25.8 percent with professional/semiprofessional diploma and certificate
– 10 percent with degree constitute
Key X-tics of ICBT in EAC
3) Type of goods
 staple food commodities such as maize,
beans, rice, fish, groundnuts, bananas,
and even food aid that have a direct
impact on regional food security
 low quality consumer goods such as
shoes, clothes, textile and vehicle and
bicycle parts and even fake drugs
 some of the ICBT goods reflect the same
ones that benefit from export promotion
schemes, such as textiles.
Key X-tics of ICBT in EAC
4) Awareness of cross-border trade
regulations
 A remarkable finding:
– many ICBT traders are well aware of various
general provisions of the CU including most
of the regulatory requirements.
– However, they attribute their continued
engagement in ICBT to presence of physical
and technical barriers in formal trade.
– But also to incentives inherent in ICBT
– As well as to socio-economic problems
hindering beneficial engagement in formal
trading
Key X-tics of ICBT in EAC
5) Transport and storage facilities
 Long distance wholesalers key players.
 Once at border, towns, divide goods into
small quantities and involve different
modes of transport across the border.
 Main modes of transport used
– vehicles, bicycles, head/hand,
motorcycles, wheel chairs, animals
(donkeys), push carts, boats/canoe etc.
– People with disabilities on wheel chairs help
in moving small/light but valuable products
e.g. Sugar/salt/soap/cooking oil/plastics.
Key X-tics of ICBT in EAC
6) Size of consignments
 Flows usually consist of small quantities
 Where big consignments are involved
they usually divided into smaller
quantities to avoid attention when
passing across borders
 A significant amount of small quantities
passed through official crossing points.
 But it is done repeatedly and quantities
passed end up being significant
 Piled in stores which are jointly hired
until a reasonable volume is reached
State of ICBT in EAC
 Several
surveys have inadequately tried
to establish the profile, quantum and
impact of ICBT and factors that drive
growth of ICBT in EAC.
 Others (Masheti, 2009; UNECA, 2009)
have delved into gender dimensions
 Differing definitions of ―“ICBT” and
diverse monitoring methodologies
 independently of the methodology used,
all reviewed surveys suggest ICBT
represents a significant proportion of
regional cross-border trade in EAC
State of ICBT in EAC
Push/Pull Factors for ICBT Growth
1.
2.
3.
4.
Lack of knowledge of benefits of trading
within EAC and information on existing
trading opportunities.
Lack of written (or non-transparency in)
rules, meaning difficulty for trader to
know their rights.
Payment of customs duties on goods
that are not supposed to attract duties
because of lack of knowledge.
Complicated documents that have to be
filled in and complicated processes of
filling them.
Push/Pull Factors for ICBT Growth
5. Some traders lack proper documents to
enable them benefit from paying little
or no customs duty.
6. Payment of bribes (in the name of
‘facilitation payments’) to some corrupt
customs and border officials.
7. High transaction and compliance costs
8. Hard to acquire certificates of origin
issued away from border stations
9. Poor infrastructure to official border
posts push traders to other better roads
with no official border-crossing posts
Push/Pull Factors for ICBT Growth
10. Difficulties in getting entry permits e.g.
Until early 2010 Burundians require visa
provided at prohibitive costs in order to
enter Tanzania.
11. Non-recognition of partner state’s trade
documents where documents have not
been harmonised regionally;
12. Delays in processing of tax refunds is a
disincentive to doing formal trade.
13. Fear of robbery, loss of goods and no
safe affordable accommodation in border
towns.
Push/Pull Factors for ICBT Growth
14. Lack of jobs in the formal sector.
15. Increase in rural-urban migration in
search of non-existent employment.
16. Retrenchments, low pay in formal
jobs, inflation and currency devaluations
all create pressures on real wages and
search for informal income supplements.
17. Lack of proper education making some
traders timid of seeking apt information.
18. 90 day pass permits are an
inconvenience to continuous trade
Push/Pull Factors for ICBT Growth
19. Ease of entry into the ICBT.
20. Certain ICBT activities are profitable
and viable only to small businesses.
21. Currency depreciation e.g.,
depreciation of KSh. make imports from
Kenya somewhat expensive thereby
raising pressure for informal trade.
22. Tariff and cross-border price
differentials
23. Political stability and economic
recovery in neighbouring economies
Conclusions
a) Where no policies or hostile/strenuous country
policies exist to formal X-border trade, a
parallel ICBT is encouraged.
b) Trade is supposed to be freer in EAC but
customs officials hostile to even legal trade.
c) Tax evasion particularly in ICBT creates
unhealthy competition with those who have
paid often punitive taxes.
d) But greater harm to our economies is caused
by big formal traders in category B and C.
e) Informal economy here to stay as alternative
to lack of formal jobs; need to find them
enabling env’t without hurting our economies
Conclusions
e) Traders do not know essential basics of the
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CU Protocol and the opportunities and
challenges it poses in their day-to-day
activities despite
the Protocol having
provisions that are aimed at accruing
financial gains to traders within the EAC.
Traders exhibit no proper knowledge of
Provisions such as
a tariff-free environment (Articles 2 & 10),
substantive tax reduction, trade liberalization (Art 3-4),
a standard system of valuation of goods based on principles
of equity, uniformity and simplicity (Art 4),
reduction of trade documentation & adoption of common
standards of trade documentation and procedures (Art 6/7),
non discrimination of goods/traders among EAC members
(Art 15/21),
enabling subsidies (Art 17/18),
special economic arrangements Art 32)
Recommendations
Undertake aggressive publicity & dissemination
of the EAC Treaty, the CU Protocol, the
Community’s policies and other applicable laws
and principles as provided for under Article 39
of the Protocol.
 Involve non state actors in formulation &
implementation from design to implementation
 Educate government agencies on protocol
including attitude change among customs
officials and other border officials and monitor
compliance including to requirements of
international law/treaties and conventions.
 ICBT is worldwide reality and requires official
recognition including revising EAC CM to
recognise it and provide it apt environment
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