The Beitbridge border between Zimbabwe and South Africa, the busiest border post in Southern Africa, has been rocked by unprecedented violent protests since June. The protests largely concern the restrictive trade measures unexpectedly introduced by the Zimbabwean government, which included banning the importation of basic commodities like body creams, baked beans and bottled water.
While these measures were meant to support the development of domestic industries, they have the potential to do severe harm to the already fragile state of the Zimbabwean economy, characterised by significant unemployment and shortages of basic commodities and cash. These import bans are likely to spur increased informal economic activity, currently estimated to be at 60%, and in particular increase informal cross-border trade.
According to the International Labour Organisation, the informal economy refers to ‘all economic activities by workers or economic units that are – in law or practice – not covered or sufficiently covered by formal arrangements.’ This includes legitimately-produced goods and services that do not necessarily follow formal processes such as standards regulations, business registration or operational licenses.
It is estimated that the informal economy provides up to 70% of employment in sub-Saharan Africa, providing access to domestic goods and services that are not available through the formal economy, and bringing significant socio-economic benefits for those engaged in such activity. Governments typically disapprove of informal activity as it results in revenue losses, and the difficulty of regulating such activities can have negative effects such as increased criminality.
Informal cross-border trade constitutes the majority of informal activity in most African countries. In the Southern African Development Community (SADC), for example, it is estimated to make up 30 – 40% of total intra-SADC trade, with an estimated value of US$17.6 billion. Such trade is primarily characterised by smuggling goods and avoiding formal border processes. It is mainly practised by the unemployed, Small and Medium Enterprises and some large firms, and even employees desiring to supplement their salaries. Typically, women represent up to 70% of traders, trading a variety of commodities from basic to luxury goods produced in other countries.
Informal cross-border trade presents unique benefits to those engaging in such activities, but equally presents unique challenges.
One of the key benefits is the employment creation potential. In Zimbabwe, where unemployment is estimated at up to 90% when considering only the formal economy, it has created significant employment opportunities, with an estimated 5.7 million people currently employed in the informal economy. This in turn has significantly alleviated poverty for both the employed and unemployed. In Zimbabwe, where the average monthly income is between $100 - $300 (below the ZIMstat poverty line of $500 a month), this has significant implications for livelihoods. In addition, profits generated from such informal trade are often employed to sustain families, providing for their healthcare and education. More generally, informal cross-border trade provides access to goods that unavailable domestically. For example, in Zimbabwe, ARVs are imported into the country illegally to meet domestic demand.
Traders are often forced to engage in informal trade because of barriers to entering the formal sector, including difficulty in getting access to traveling documents or trading licenses, excessively long waiting times at borders, overcharging by customs officials, and lack of knowledge of official procedures. Equally, due to the nature of this trade and the lack of an adequate legal framework, traders are often faced with unique challenges. These include corruption, where officials solicit bribes in order to smuggle goods, sexual abuse and confiscation of goods
Governments are typically concerned about the negative aspects of informal cross-border trade. The Zimbabwean government imposed the import bans last month in part because it perceived informal imports to present unfair competition to domestic industries - products traded informally are often counterfeit goods sold at lower prices, not subject to import taxes, and simply cheaper than locally manufactured equivalents. Equally, considering that informal trade throughout SADC totalled more than $17.6 billion in 2012, it represents a significant revenue loss for governments.
By addressing challenges related to informal cross-border trade, both traders and governments stand to benefit. For traders, a more secure operating environment will likely lead to greater trade; while for governments, increased revenue will benefit countries as a whole. One way to achieve this is by bringing informal traders into the formal economy, which can be done through simplifying legislation and regulations governing trade, as well as educating traders on formal procedures.
Countries in SADC can learn from other regional economic communities, such as the Common Market of East and Southern Africa and the East African Community, where significant attention has been given to formalising cross-border trade. One measure has been the establishment of Simplified Trade Regimes, which simplify the rules and procedures for small traders and provide tax incentives for trading within the formal sector. Some countries cater expressly for the needs of small-scale traders at their borders, by providing information officers to assist with the correct procedures. Equally, these economic communities promote engagement with informal cross-border trade representatives, to ensure their needs are considered when policies and legislation are developed.
Ultimately, regardless of whether the import bans imposed by Zimbabwe continue or are rescinded, informal trade will continue. Governments in Southern Africa should look to counterparts on the continent who face similar conditions and challenges, and have made significant strides in regularising trade across borders. Doing so would allow both governments and traders to reap the benefits.
Written by Charisma Ncube, SAIIA/KAS Research Scholar in the Economic Diplomacy Programme at the South African Institute of International Affairs.This article was first published in the Business Day.