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Scope for attracting informal cereals trade into the formal sector

05 November 2014

The World Bank has published a policy paper on the scope for improving informal cross-border trade in maize, rice and beans, proposing the establishment of a ‘Charter for cross-border traders’. The charter would enshrine rights and obligations of both traders and officials, and would be aimed at promoting the formalisation of trade in cereals and beans. It would seek to build on existing departmental guidelines but would also introduce a credible complaint mechanism using toll-free phone lines and an effective performance measurement system.

The policy paper argues that allowing informal traders to integrate into the formal economy “would boost trade and the private sector base for future growth and development”. This is seen as particularly important for women, who are the majority of informal cross-border traders and for whom such trade is often the main or sole source of income.

At present, informal cross-border trade flows are substantial. It is estimated that in East Africa in 2013, 3 million tonnes of food staples were traded informally. In Southern Africa in 2011/12, informal cross-border trade in maize was estimated at 139,243 tonnes, rice at 8,485 tonnes and beans at 15,380 tonnes.

Currently the costs of cross-border transactions “remain expensive for small traders in Africa”. In a review of Malawi–Zambia border posts, costs were on average 62% more expensive for small traders than for formal sector traders. This, however, is less than the additional costs faced by small-scale traders if they trade formally – these are estimated to be 125% higher than for large-scale traders.

The situation in the Malawi–Zambia border area, which was the subject of a case study included in the policy paper, is seen as indicative of more general problems across the region. Factors increasing costs and driving informal trade include:

  • high customs duties and taxes;
  • time-consuming and inefficient border procedures;
  • opaque or arbitrary application of rules;
  • hostility and harassment by border officials of small-scale traders (particularly women);
  • trader registration and tax identification requirements;
  • the centralisation of administration of import and export licences and SPS certificates.

The paper maintains that while a range of simplified trade regimes have been launched to facilitate cross-border trade, “a host of registration and other requirements remain in place and increase small trader costs to uncompetitive levels.”

In August 2014, COMESA launched a dialogue with MPs from the region on how to ensure that arrangements for intra-regional trade in staple foods are made more transparent and predictable. The aim is to enlist the active support of MPs to ensure that ad hoc measures affecting imports and exports are less frequently used. The use of such measures generates “market gluts at the producer level”, thus depressing farm gate prices, and increases the costs of cross-border trade, to the detriment of consumers and food security objectives. 

Editorial comment

Establishing charters of rights and obligations aimed at improving the transparency and efficiency of border procedures, and reducing harassment of female traders can both be seen as essential practical steps to bring informal trade into the formal sector. However these steps need to be complemented by other policy measures.

Wider government policy needs to be consistently supportive of transparent and efficient trade arrangements. A number of recent experiences in the region highlight how broader government policy decisions can undermine efforts to create operational arrangements at border posts to facilitate trade. These include:

  • decisions by governments to ban exports and instruct law enforcement agencies to clamp down on informal trade, in a context where projections suggest a national harvest 32% higher than national consumption needs;
  • government moves to centralise the issuing of import licences, either on the grounds of strengthening controls over trade in GMO maize or as a means of ensuring national food security.

Greater consistency and transparency would appear to be needed at government policy level if border-based operational improvements are to be effective.

In Namibia, a positive step to strengthen transparent and efficient cross-border movements has been private sector association representatives working alongside customs officials in dealing with technical and administrative aspects of agricultural trade. The technical expertise on agricultural issues helps to ensure that technical and regulatory requirements are met, while expediting trade. 


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