Small-scale cross-border trade can play a fundamental role in contributing to poverty reduction and food security across Africa. How can it be supported to ensure that it delivers its full development potential?

Sub-Saharan African economies have been inextricably linked for centuries. Traders, often belonging to the same ethnic group or family, have been regularly crossing what are now borders to exchange goods and services, giving rise to intense flows that account for a significant part of the continent’s total trade. Today, cross-border trade is a major feature of African economic and social landscapes: according to some estimates, it contributes to the income of about 43 percent of Africa’s entire population. Such trade supports livelihoods and creates employment, including for disadvantaged and marginalised groups.

Cross-border trade is also dominated by agricultural and livestock products, and so is an essential part of food security in many places. Hence, overall such trade is essential for welfare and poverty reduction. Cross-border trade is especially important in fragile and conflict-affected states (FCS), as it allows vulnerable populations to reconnect with the world and access goods and services that are key for their economic and social recovery. In such environments, trade also helps generate solidarity between border communities, and thus critically contributes to promoting peace and stability.

Cross-border trade typically happens at small scale, and is often dominated by women. Traders generally exchange small quantities of modest value, due to a variety of constraints including limited financing, poor-quality inputs, low capacity, lack of machinery, and inefficient marketing and distribution channels, among others. They may not necessarily be registered as formal business owners, yet generally do not operate with the specific goal of circumventing existing laws, applicable taxes, and relevant procedures. In fact, cross-border traders typically pass through official crossing points and even undergo formal clearance procedures, yet their consignments are often so small that they escape official records.[1]

Infrastructural, policy, procedural, and behavioural constraints at the border hinder traders’ ability to grow and formalise.Border infrastructure rarely caters for the needs of small-scale traders, often forcing them to share the clearance area with trucks and other vehicles, which increases insecurity and slows down procedures. Existing structures such as border offices and market stalls are often dilapidated, whilst toilets, lighting, and fencing are typically absent.

In addition, high customs duties, complex clearance procedures, cumbersome documentary requirements (often featuring centralised permit and licensing systems), along with unpredictable trade policies all contribute to raising trade costs. These tend to be highly regressive, affecting small operators disproportionately: for instance, a 2013 World Bank case study at the border between Zambia and the Democratic Republic of Congo (DRC) found that small-scale traders can pay up to 193 percent more than larger traders to clear a ton of maize through the formal channel. Only large, established operators who can leverage economies of scale are typically able to comply with existing requirements. Weak governance, low capacity, and poor behavior by border officials also contribute to increasing trade costs, and to making African borders unfriendly and unsafe for small-scale traders, especially women. Studies conducted at various border locations across Sub-Saharan Africa indicate that corruption and harassment (including gender-based violence against women) are regular features of cross-border trade.[2]

Small-scale cross-border trade can help drive poverty reduction in border areas

Income derived from small-scale trading activities is key to reduce poverty, yet its impact on long-term developmental outcomes needs to be investigated further. Traders make little profit from small-scale trade, with most of the revenue covering basic household needs such as food and schooling; as a result, re-investment in their businesses is difficult. Nevertheless, revenues from cross-border trade are often the main source of income for the households of cross-border traders. For example, a survey of more than 600 traders in the DRC and Rwanda found that cross-border trading activities provide the main source of family income for three out of four traders. The survey found that for measures such as quality of dwelling, access to electricity, type of cooking fuel used, and ownership of durable goods, the households of cross-border traders are as well off as the average urban household that is used as a comparator. Hence, trading activities are critical in allowing households in border areas to attain the level of welfare that is achieved by the typical household elsewhere in the country.

However, further analysis is required on how trading activities contribute to long-term developmental outcomes. Anecdotal evidence suggests that by contributing to household income, trading activities can help to empower women within households. This in turn can enhance their role in household decision making, resulting in increased expenditures on (higher quality and more varied) food, and hence lower child malnutrition rates, and increased attendance at school. These in turn contribute to higher productivity of future generations.

Small-scale traders want to expand their business, but face enormous challenges in doing so. In addition to the problems and costs they incur in crossing borders that were mentioned above, small-scale cross-border traders are constrained by lack of access to capital, limited knowledge of business procedures, and limitations on the distance they can travel from the border, both regulatory and logistical, for example in terms of access to appropriate transport. Few traders have bank accounts and collateral to secure even small loans is very difficult to leverage. The majority of traders want to enhance their limited business skills.

These challenges are particularly acute for women traders. They face greater barriers in obtaining finance, and programs to support capacity building often fail to take women into account. Where training is available, it is typically scheduled in a way that precludes participation by women traders, who already face the challenge of juggling family commitments and time for trading. All this, in turn, prevents them from taking full advantage of the gains from trade and undermines governments’ ability to use trade as a driver of growth and poverty reduction.

The state of play: ongoing initiatives to facilitate small-scale cross-border trade 

A number of governments are also implementing projects that specifically focus on small-scale trade. With support from the World Bank, the governments of the DRC, Rwanda, and Uganda, in cooperation with COMESA, are implementing the Great Lakes Trade Facilitation Project. This project seeks to facilitate cross-border trade by increasing the capacity for commerce and reducing the costs faced by traders, especially small-scale and women traders, at key borders in the Great Lakes region. The intervention funds targeted improvements in border infrastructure to cater for the needs of small-scale traders (such as pedestrian lanes, lighting, and fencing), along with the construction of border markets, and supports the simplification of policies and procedures for small-scale traders, training and capacity building of traders and officials, and the introduction of better monitoring and performance management for agencies operating at the border.

It also introduces a workers’ code of conduct to prevent and mitigate risks of gender-based violence (GBV) in trade-related infrastructure development works. One of the quick wins under the project has been the introduction of solar-powered lighting at borders between the DRC and Rwanda, which has not only improved the safety and security of traders and officials but has also led to an extension of border opening hours. This is of particular importance to small-scale women traders, as it allows them to better organise their trading activities around family commitments.

The way forward: what governments, donors, and practitioners can do

Ongoing trade facilitation interventions need to cater for the needs of small-scale traders, especially women. Governments and development partners are currently making concerted efforts to facilitate trade, increase productivity in export-oriented sectors, and improve competitiveness. However, these need to be better targeted to ensure that small-scale cross-border traders are reached by these interventions and that it is not just large traders who benefit. It is important that such interventions reflect the realities of small-scale cross-border trade, and especially the heavy involvement of women and the gender-specific constraints they typically face.

For Africa to achieve its regional trade potential, governments need to do more to support small-scale trade, specifically: (i) recognise the importance of small-scale trade both to the overall trade of the country and to the communities who undertake it; (ii) work to ensure that the rules and regulations governing trade are clear, transparent, and widely available at the border; (iii) simplify trade documents and regulatory requirements for small-scale traders; (iv) design interventions to facilitate trade in ways that benefit small-scale traders; (v) help address the risks that small-scale traders face in their trade-related activities, which are typically much greater than those faced by larger and well-connected traders; and (vi) recognise the important role of women in cross-border trade, target the removal of gender-related constraints, and tackle the particular challenges that women face in participating in trade and growing their business.

Removing obstacles to regional trade integration in Africa would be particularly beneficial to the poor, as they carry most of the small-scale, cross-border commerce that happens within the continent. The potential benefits include better food security, faster job creation, more poverty reduction, increased tax revenues for authorities, and better long-term developmental outcomes.

Paul Brenton is Lead Economist at the World Bank Group. Carmine Soprano is a Trade & Gender Specialist, World Bank Group.

This article is published under Bridges Africa, Volume 7 - Number 4, by the ICTSD.

[1] The distinction between ‘small-scale’ and ‘informal’ trade is important. In the existing literature, many sources refer to the phenomenon described in this article as “informal cross-border trade (ICBT)” – however, this often carries a negative connotation as ‘informal’ can be easily confused with ‘illegal’. It also inaccurately reflects the reality of trade flows on the ground, as traders may indistinctly use both formal and informal crossing channels depending on a variety of factors, such as the value of their consignment, the length of the queue at the border, or the mood of the individual official on duty. The preferred terminology for this article is ‘small-scale cross-border trade’.  

[2] World Bank. “Integrating Sierra Leone’s Small-scale Traders into the Formal Economy.” May 2016; World Bank. “Great Lakes Trade Facilitation Project”. Project Appraisal Document, September 2015; Brenton, Paul, et al. “Improving Behaviour at Borders to Promote Trade Formalization: the Charter for Cross-Border Traders.” World Bank, Policy Note No. 41, 2014; EASSI. “Women Informal Cross-Border Traders: Opportunities and Challenges in the East African Community.” EASSI, 2012; Brenton, Paul, et al. “Risky Business: Poor Women Cross-Border Traders in the Great Lakes Region of Africa.” World Bank, Africa Trade Policy Note 11, 2011.