AFRICA: Informal Cross-Border Traders Foster Entrepreneurship

• by Rebekah Kendal * - IPS/Big Issue South Africa (cape town)
• Saturday, September 24, 2011
• Inter Press Service

If Africa is to support and develop entrepreneurship - both in the informal and formal sectors - intra-regional trade is crucial, yet this has been overshadowed by international exports.

With the spread of well-known South African franchises throughout the region, it would be easy to assume that intra-regional trade in Africa - or at least in sub-Saharan Africa - is booming. However, that is far from the reality.

South Africa proudly lists its fourth largest export destination as Africa, claiming that trade with the rest of the continent jumped from roughly 6.17 billion dollars in 2001 to 13.3 billion dollars in 2007, and that trade with other countries in the South African Development Community (SADC) accounted for 8.4 billion of that total.

The anomaly is this: according to the CIA World Factbook, no single African country comes within the top five of South Africa's export or import partners. Further, according to a 2009 report for the United Nations Conference on Trade and Development, 'intra-African trade increased by an average of almost 14 percent per year between 1999 and 2006, while trade with the U.S. and China expanded by 26 percent and 61 percent respectively.'

Why then are the levels of intra-regional trade in Africa so low? Simon Freemantle, a senior analyst with Standard Bank's African Political Economy Unit, suggests the biggest impediment is a lack of infrastructure.

'Africa has the highest transport costs in the world and it is often cheaper to ship goods from Dar es Salaam to Europe than to export by road to the DRC (Democratic Republic of the Congo). Also, until recently, Africa's markets were often not of a sufficient size for market penetration. This is changing rapidly and infrastructure upgrades are still lagging. Landlocked African countries are the most vulnerable as they rely on the often decrepit infrastructure of neighbouring African countries for access to all global markets.'

Freemantle also believes that other factors impeding cross-border trade include corruption at borders - increasing costs and causing delays - and unsuitability of certain products themselves.

'Too often, export products are geared primarily for advanced economies and aren't suited to local tastes and budgets - a hangover largely from colonial times. As a result, there is no back-up market when demand slumps in these advanced economies,' he explains.

'Africa has invariably looked outside for the means of economic growth, and structurally speaking, countries need to begin to look to domestic and regional factors when determining products.'

Free Trade Protocol

The importance of intra-regional trade is that it creates greater economic resilience, provides the region with some level of protection and, of course, grows and supports African entrepreneurship.

Regional economic communities such as the SADC exist because of the importance of intra-regional trade. The Free Trade Protocol signed by SADC member countries sets out to create a Free Trade Area in Southern Africa. Although SADC countries have signed up to the Free Trade Protocol, it has yet to come into full force. Currently, agreements between individual countries allow for tariff reductions and duty-free quotas on the import and export of particular goods. This does not, however, apply to the informal sector.

'Small scale, or informal sector cross-traders are usually excluded from access to any tariff quota reductions as they do not apply to be part of them,' explains Sally Peberdy, associate professor at the Department of Geography at the University of the Western Cape.

'They pay duties based on the goods and personal allowances for particular goods. Research done by the Southern African Migration Project (SAMP) shows that although many evade paying duties and may only pay duties on some of the goods they carry, informal sector traders make a significant contribution to the duties collected at borders in the region.'

Yet the role that informal cross-border traders play in contributing to the formal economy - bolstering intra-regional trade and fostering entrepreneurship in Africa - is often overlooked.

According to the United Nations Economic Commission for Africa (UNECA), informal trade is the main source of job creation in Africa, accounting for 20-75 percent of employment in most countries. A notable exception is South Africa, where the last available figures in 2005 showed it accounts for only around 12 percent.

A 2002 research paper by Peberdy, entitled 'Hurdles to trade? South Africa's immigration policy and informal cross-border traders in the SADC', suggests that in some cases volumes of informal cross-border trade may even exceed volumes of formal trade between certain countries. Informal trade, driven by high levels of unemployment and a shortage of essential goods in the region, manages to fill the gaps left by an inadequate formal sector.

Trading illegally

'From research undertaken with SAMP suggests that, yes, informal - or small scale - cross-border trade should be seen as a benefit to the South African economy, regional economies and to the process of regional integration,' said Peberdy.

Cross-border traders do not qualify for a South African work permit and, as there is no specific trader's permit, this means that they must enter the country on a visitor's visa.

Not only does this mean that, technically, they are trading illegally in the country, it also means that there are no clear records of the number of cross-border traders operating in the region. Because of this, and the informal nature of the business, it is difficult to estimate the volume of goods being traded.

However, a SAMP study monitoring 20 land border posts in the SADC covering 11 countries over 10 days, gives some idea of the scope of cross-border trade. A total of 205,000 people were counted crossing through the borders, of whom 85,000 were traders. Some 5,500 transactions with custom officials were monitored and 4,500 traders interviewed.

The SAMP study found that traders comprised over 30 percent - and in some cases up to 75 percent - of people going through the monitored land border posts.

Peberdy notes that, '93 percent of the goods carried by traders were produced in the SADC - as opposed to formal trade where 49 percent of the goods were produced in South Africa. Types of goods mirrored formal trade patterns.'

Important economic function

Over the 10-day SAMP study period, the equivalent of 463,000 dollars was collected from a total of 1,780 traders at the 20 border posts monitored. Given that South African formal trade in the SADC region is worth at least 8.4 billion dollars a year, this is hardly a significant figure - even if one were to extrapolate it to account for the full year, factor in other border posts and unpaid duties, and work out the value of the goods traded rather than duties paid.

However, the fact that these traders continue to run their businesses successfully in spite of the disadvantages that they face when compared to formal traders, suggests that they are fulfilling an important economic function in the region. To facilitate them further, governments could rework the visa system to introduce a trader's permit and streamline customs duties by looking carefully at which goods duties are being charged on.

On top of this, Peberdy believes there needs to be a fundamental shift in attitude about the role that informal cross-border traders play in the regional economy.

'Probably the most important way at this stage [that governments could promote informal cross-border trade] would be to recognise small-scale/informal cross-border trade and its contribution to the region and regional economy and start to include it in policy formation.'

*Published under an agreement with Street News Service.

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

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