Document Type

Migration Policy Series

Publication Date

2015

Department

Balsillie School of International Affairs

Abstract

Informal cross-border trade (ICBT) is a significant feature of regional trade and international mobility in Southern Africa. The exact number of participants and economic importance of this trade is unknown because no official statistics are collected. Despite its obvious presence at every border post throughout the SADC region, ICBT remains largely invisible to policy-makers. Indeed, in government circles it is more often associated with smuggling, tax evasion and illegality than with innovation, enterprise and job creation. On the research side, there is a growing body of case study evidence that ICBT plays a critical role in poverty alleviation, food security and household livelihoods in Southern Africa. But its overall character and significance is unknown. With this in mind, SAMP initiated a project to examine cross-border regional trade at a selection of important border posts throughout the region. This research led to a number of country reports that provided rich insights into ICBT in particular countries. This report combines the data collected by each of the country teams and analyses the data set as a whole.

The first issue addressed in the report is whether ICBT traders are a homogenous group. The research shows that this is far from being the case and that more attention needs to be paid to different types of traders and trading activity. Second, the report examines the activities of cross-border traders including the types of goods traded, the sources of those goods and where they are sold. While the majority of traders purchase goods from formal outlets in their countries of destination, most of these goods enter the informal economy on their return home. Third, the report examines financial transactions at the borders showing that most traders pay extremely small amounts of duty, which hardly justifies the effort of collecting it. On the other hand, only a small minority collect the VAT they are owed when they leave the country of purchase. Finally, the report itemizes the problems and challenges faced by informal traders when crossing borders.

In total, the SAMP survey covered 20 land border posts connecting 11 Southern African countries using a threefold methodology. First, all people crossing through the selected border posts were monitored over a 10-day period and the number of ICBT traders counted. Second, the interactions of traders with customs officials were observed and the types, value and volumes of goods declared and duties paid were recorded. Third, a sample of traders was interviewed using an origin and destination (O&D) survey. During the course of the exercise, more than 205,000 people, including 85,000 traders, were counted passing through these border posts. The transactions of over 5,500 traders with customs officials were monitored and over 4,500 traders were interviewed.

The study demonstrates that informal cross-border is a complex phenomenon and not uniform across the region, or even through border posts of the same country. However, the overall volume of trade, duties paid and VAT foregone, as well as the types of goods and where they are produced, indicate that this sector of regional trade should be given much greater attention and support by governments of the region as well as regional organizations such as the Common Market for Eastern and Southern Africa (COMESA), SADC and the Southern African Customs Union (SACU). The major findings at the regional level were as follows:

  • Demographically, women comprise a significant proportion of traders and constitute the majority of traders crossing through nearly half of the border posts surveyed, including one of the busiest at Beit Bridge between South Africa and Zimbabwe. At the same time, an unexpectedly large number of men were also involved in ICBT. Malawi and Zambia had significantly more male than female traders, for example.
  • Most ICBT is bilateral in character; that is, traders tend to operate between their home country and one other country. Trading into a third country is comparatively rare. At the same time, the vast majority of traders crossing into a country with goods to sell are citizens of that country. ICBT by traders of other nationalities is uncommon.
  • Although South Africa is a major source of goods purchased by traders, the absence of South African informal traders was very noticeable. The reasons why South Africans do not participate in ICBT requires further exploration but it stands in marked contrast to formal sector regional trade where South African companies predominate. ICBT is a neglected market opportunity for small-scale South African entrepreneurs and the obstacles to their participation need to be better understood.
  • The majority of traders travelled frequently to other countries for short visits (sometimes for less than a day) to buy goods to sell in their home country, or to sell goods that they had bought for that purpose in their home country. Only 13% of respondents bought and sold goods while travelling (two-way trading).
  • Frequency of tracel also varied both within and between countries, with traders in the Namibian (42%) and Zambian (25%) surveys being most likely to travel every day. Others travel at least once a week (Mozambique, 67%; Zambia, 34%). Some travel less frequently, but at least once a month. Very few stay more than a month in another country.
  • The types of goods carried by informal cross-border traders vary widely, but at most borders the trade was dominated by food, especially groceries and fresh produce. Again, there was considerable variability at different borders. New clothes, household and electrical goods comprised a significant proportion of the stock of some cross-border traders. Other goods identified in the survey included second-hand clothing, petrol, alcohol, car parts and construction materials.
  • Traders mostly source their goods from the formal sector of destination countries. A small proportion obtain their goods from informal markets in other countries. Many traders acted as wholesale importers of goods, selling the goods they carried across borders to vendors in informal markets. Others sold from their own stalls in informal markets, door to door, or to networks of family, friends and other individuals. A small proportion sold to retailers and restaurants in the formal sector.
  • The value of goods carried by traders indicates the complexity and diversity of this sector. A significant cohort of traders appeared to be survivalists as many said they carried less than ZAR500 worth of goods. However, at least some of these traders travel frequently with low-value loads, rather than infrequently with high-value loads. Most traders travelled with loads in the range of ZAR1,001-5,000. A small cohort of traders travelled with loads worth more than ZAR15,000.
  • Informal traders make a relatively significant contribution to duties collected at border posts. During the 10-day survey period at the 20 border posts, ZAR3,750,000 was collected from 1,780 traders. Duties collected varied between and within border posts. In some surveys the value of duties paid per trader was less than ZAR50. Interestingly, duties were being incorrectly collected at some borders between Southern African Customs Union countries (for example, between Botswana and Swaziland and South Africa). Traders said they were willing to pay duties, but wanted amounts reduced and the process to be more transparent.
  • Although most traders buy their goods in the formal sector, few claim VAT when leaving the country of purchase. Many did not know they could do this while others said that the systems are too complex and time consuming. Traders who do not claim VAT back make an unintended contribution to the fiscus of the country where they buy their goods.
  • Responses to questions about treatment from officials at the borders were generally positive but varied between and within border posts. Larger and busier posts generally received less favourable reviews.

The scope and scale of informal cross-border trade across the SADC suggests that it makes a significant contribution to regional trade and the retail economies of the region and is consistent with the stated aims of both the SADC and COMESA to promote intra-regional trade. Small-scale cross-border trade could, if promoted and supported, provide a route to the development of pro-poor trade policies that could have a direct impact at the household level. If trade policies for the region are to be successful, the activities of these entrepreneurs need to be included in planning processes. ICBT comprises a significant component of regional economic activity for most countries in Southern Africa. It is highly visible at border posts throughout the region. Only amongst policy-makers and governments does it remain largely invisible.

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