Discussions

The need to factor informal cross border trade into the COMESA-EAC-SADC tripartite negotiations

The need to factor informal cross border trade into the COMESA-EAC-SADC tripartite negotiations

20 Mar 2013

Taku Fundira, tralac Researcher, discusses the need to factor informal cross border trade into the COMESA-EAC-SADC tripartite negotiations.

Regional integration is regarded as being at the core of development in Africa. The Abuja Treaty (1991) laid the groundwork for the creation of the African Economic Community (AEC) (UNECA 2010), motivated by a consensus that by merging its economies and pooling its capacities, endowments and energies, the continent can overcome its daunting development challenges. Attainment of the AEC is expected to be in stages, with the regional economic communities (RECs) serving as the building blocks.

In southern and eastern Africa, the Common Market for East and Southern Africa (COMESA); the East African Community (EAC) and the Southern African Development Community (SADC) decided to start negotiations to establish an expanded free trade agreement (FTA). The agreement launching the negotiations of the so-called COMESA-EAC-SADC FTA also referred to as the tripartite FTA (TFTA) was signed on 12 June 2011 at a Summit in Johannesburg. Efforts towards the establishment of the TFTA reinforce the fact that for Africa, regional integration remains the key strategy for African governments. However, questions have been raised regarding the extent to which informal cross border trade (ICBT) which is the subject of this discussion is factored into formal trade negotiations?

Informal cross-border trade refers to trade in legitimately produced goods and services, which escape the regulatory framework, set by the government, as such avoiding certain tax and regulatory burdens (Lesser and Moisé-Leeman, 2009). This trade constitutes a significant proportion of regional cross-border trade in many African countries with between 30-40% of total intra-SADC trade attributed to ICBT; while the average estimate value of ICBT from this region are an impressive US$17.6 billion annually (Afrika and Ajumbo, 2012). In East Africa, the informal economy in EAC, as with the rest of African countries, is largely comprised of micro, small and medium‐scale enterprises (MSMEs) that are seen as semi‐organised and unregulated. In Kenya, these enterprises are responsible for the employment of 7.5 million people or 80% of the country’s total employment outside small‐scale agriculture (Ogalo, 2010).

These figures highlight the important role ICBT can play to support Africa’s on-going efforts at addressing poverty alleviation by enhancing food security and income creation particularly for rural populations on the continent who would otherwise suffer from social exclusion. Despite ICBT’s potential ability to have positive macro-economic and social ramifications, informal cross border traders (ICBTs) remain largely unacknowledged in many policymaking platforms because data is not properly captured on their activities. Thus, another important question to ask is how can the envisaged TFTA address the needs and challenges that are faced by informal cross border traders (ICBTs)?

Current provisions or a number of policy instruments and protocols that are relevant to the informal trade sector exist at the regional level. However, it is also important to note that while the provisions of the protocols are relevant and important for informal traders, they do not seem to take an adequate account of the sector seriously and thus do not respond to its needs effectively. In most cases the protocols are silent on how informal traders or their associations can access the protocol in terms of being within the ambit of its provisions or whether they are considered as relevant actors in regional trade (Makombe, 2011).

In recent times, however, we are continuing to notice the recognition of ICBTs as a result of the lobbying being undertaken by cross border trading associations (CBTAs). In 2007, the RECs of COMESA and EAC, launched a simplified trade regime (STR) for selected types of commodities whereby small-scale traders benefit from a Simplified Customs Document and a Simplified Certificate of Origin, under which goods that are originating from member countries and whose value does not exceed USD 500 per consignment, qualify automatically for duty-free entry into the respective markets. The Certificate is issued at the border posts, to enable traders located in remote areas to benefit from the regime (Lesser and Moisé-Leeman, op. cit.).

Measures under discussion in the tripartite TFTA: While negotiations are currently underway, it is not known to what extent the final agreement would take into account the needs of ICBTs. There are no explicit indicators that show whether the plight of this group of traders is part of the agenda. It is only hoped that the recent evaluation of the STR undertaken for COMESA, which aims to facilitate ICBTs, will put credence to the need for a regional institutional structure dedicated to ensure facilitation of trading amongst ICBTs. As the “proof is in the pudding,” we can only talk of how far the negotiations have addressed the plight of ICBTs when they come to a conclusion.

Despite this shortcoming of the negotiation process, what is important is the fact that tangible programmes must be put in place that will ensure ICBTs are engaged at the policy level in order for governments to appreciate and understand in detail the extent and contribution that this sector can provide. Some questions that have been posed in several studies that remain relevant and worth noting in this discussion include;

  • What type of enabling environment is needed for ICBT? For example, in the context of how much can they be taxed without compromising compliance?

  • What standards need to apply to them?

  • Under what condition can the informal sector exist with the formal sector with little hurt to the economy?

  • Are there any proven administrative measures that have managed to get informal sector to formal sector?”

These are important questions that need to be addressed as we move forward. The questions are not new, but have been resonating amongst researchers and policymakers alike. We leave these important questions for future deliberations and research.

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Sources:

Afrika, J. K. and Ajumbo, G. 2012. Informal Cross Border Trade in Africa: Implications and Policy Recommendations. Africa Economic Brief, Volume 3, Issue 10, November 2012, African Development Bank. Available here.

Lesser, C. and Moisé-Leeman, E. 2009. Informal Cross-Border Trade and Trade Facilitation Reform in Sub-Saharan Africa. OECD Trade Policy Working Paper No. 86. Available here.

Makombe, P. F. 2011. Informal Cross Border Trade and SADC: The Search for Greater Recognition. Open Society Initiative for Southern Africa. Available here.

Ogalo, V. 2010. Informal CrossBorder Trade in EAC Implications for Regional Integration and Development. CUTS African Resource Centre, Nairobi. Available here.

UNECA 2010. Assessing Regional Integration in Africa IV: Enhancing Intra-African Trade, Economic Commission for Africa, Addis Ababa. Available here.