Informal trade is ubiquitous in Africa, but too often ignored

Fri Aug 31 2018
Ray Pierce (830 articles)

“THE border is like a river,” says Ronald Sembatya, “where somebody can come to get fish.” He is resting beside his wheelchair in the muddy no-man’s land between Uganda and Kenya. His disability makes it hard to find work elsewhere. But here he earns his “fish” by shuttling goods across the border, slotting a bag of flour or carton of eggs beneath the seat of his chair. Scores of other wheelchair-users trundle back and forth, their loads rarely inspected by officials. The local police commander says he has orders not to touch them. Stop a wheelchair, sighs a customs officer, and “people will lynch you”.

Informal trade is ubiquitous in Africa, but often, like Mr Sembatya’s wheelchair, tactfully ignored. He passes on a potholed track a few hundred metres from the main border post at Busia, a town straddling the frontier. Kenyan women tramp through the same puddles to buy cheap Ugandan tomatoes. Some traders deal in charcoal; other hoist sacks of maize onto bicycles, slipping truckloads across one bag at a time. Such trade shapes border communities. It also shapes national economies.

The prevalence of cross-border business challenges the idea that African countries, warped by colonialism, trade little with each other. True, four-fifths of official exports go to other continents. But statisticians in Uganda reckon that the country’s informal exports were worth $ 419m in 2016, equivalent to 17% of recorded trade. Perhaps 30-40% of trade in southern Africa is informal. In Benin, informal transit trade to Nigeria may account for a fifth of GDP.

Some informal traders run unregistered businesses, but pass through official border posts. Others dodge customs, but sell their goods into formal markets. In Nigeria cars and rice are smuggled by criminal syndicates. But many of Africa’s informal traders operate on a tiny scale, carrying a bundle of second-hand clothes or a basket of vegetables to market. Most of these small traders are women.

They follow trade routes established long before Europeans drew lines on maps. One study finds that grain prices differ across much of the Nigeria-Niger border, as they do at frontiers the world over, but that the difference shrinks where the same ethnic group lives on both sides. Even today, only a third of African borders are marked on the ground. Livestock herders in the Horn of Africa may be hundreds of miles from any border post; most of the cattle driven from Ethiopia to Sudan probably use unofficial crossings.

Traders also exploit opportunities for arbitrage. In the season of 2017-18 perhaps 100,000 tonnes of cocoa were smuggled from Ivory Coast into neighbouring Ghana, where farmers were paid more for the crop. And protectionism diverts trade from official channels. A recent study in Benin by the Centre d’Etudes Prospectives et d’Informations Internationales, a French think-tank, finds that raising tariffs by 10% makes it 12% likelier that a product is imported informally.

But informality cannot be reduced to smuggling. Many of the goods crossing at Busia are local farm produce, which can generally move duty-free within the East African Community. Even so, traders often prefer to use the unofficial panya (“rat”) routes. It is faster, say some. Others distrust the state. “If they just see this building, they fear,” says Margaret Katambi, a second-hand clothes trader, sitting near the imposing border post.

Using the panya routes is risky. If you meet a policeman he may demand bribes or confiscate goods, says Mariam Babu, who chairs an association of women traders. Sometimes a man might pose as a police officer, she says: “He can tell you, ‘Give me sex and I’ll give you back your goods.’” Things are particularly bad in the eastern Democratic Republic of Congo, where half of the traders surveyed by the World Bank in 2010 said they had experienced violence, threats or sexual harassment. In such lawless borderlands the lines between tax and extortion, and enforcement and assault, are all too frequently crossed.

In Busia the situation is improving, says Ms Babu. More than 1,200 women are members of her association, which regularly meets customs officials and police. Special customs procedures for goods worth less than $ 2,000 let traders obtain a simplified certificate of origin. A Kenyan startup called Sauti helps traders check prices, tariffs and exchange rates on their mobile phones.

The challenge is to manage smuggling while leaving space for small traders. Informal trade can empower women, reduce poverty and improve food security, says Francis Mangeni of the Common Market for Eastern and Southern Africa, a 21-country bloc. Governments are slowly coming round to that view. “These borders were imposed on us,” says Dicksons Kateshumbwa, Uganda’s top customs official. “So the worst thing you can do is say, ‘I am putting up a wall’.”

This article appeared in the Finance and economics section of the print edition under the headline “The river between”
Ray Pierce

Ray Pierce

Ray Pierce is a Senior Market Analyst. He has been covering Asian stock markets for many years.