This is the lament of Maggie Lonely. Informal Cross Border Trade and SADC: The Search For Greater Recognition. Percy F. Makombe

Transcription

1 Informal Cross Border Trade and SADC: The Search For Greater Recognition Percy F. Makombe I trade between Malawi and Tanzania. Many border officials ask for bribes to make a smooth clearance. If you do not pay, it will cost a lot and may take several extra days. I have reported cases to the authorities but they asked me for receipts. Of course nobody gives receipts for bribes! It is also very difficult for a cross border trader to access low interest loans from national banks. You need to be very rich and have great security (Economic Justice Network 2010, page 3). This is the lament of Maggie Lonely Mhango a cross border trader from Malawi who has been involved in informal cross border trading (ICBT) for the past 15 years. Her situation aptly sums up the problems afflicting ICBT, especially women who are the majority of the informal traders. In southern Africa there has been a massive growth of informal cross border trade with women representing between percent (United Nations Development Fund for Women: 2010) of such traders in the region. The dwindling opportunities in formal employment have forced people to think of alternative ways of sustaining themselves and their families. It can be said that the actual economic and social integration of southern Africa is being spearheaded by what is happening in ICBT. In most Southern African Development Community (SADC) countries, informal border trade represents an important aspect of the economy, accounting for between percent of intra-sadc trade. Informal cross-border trade largely consists of those goods exchanged across borders either bypassing the official customs checks and recording points, or passing through these customs points while deliberately undervalued or unrecorded. The general negative perception of ICBT means that in practice it is viewed more as a threat needing control rather than a genuine economic activity. Issues such as registration requirements, access to finance and credit as well as the necessity to comply with business-related taxes are impediments as are some customs officials who take advantage of the traders lack of knowledge of custom procedures to harass them with the aim of extorting money from them. Unbridled liberalisation SADC countries have implemented not only unilateral trade reforms, but they have also accepted liberalisation under the Uruguay Round of trade negotiations. The pre- 44 Open Society Initiative for Southern Africa

2 Informal Cross Border Trade and SADC: The Search for Greater Recognition scribed policies of wholesale trade liberalisation, capital flow liberalisation, cost recovery in social services and diminution of the role of the State among other issues have systematically ruined the economies and societies of many developing countries. In spite of these policy prescriptions there has not been any significant real growth in Africa: For most African countries, real growth rates have remained low relative to their development goals. With only four countries recording an average real gross domestic growth rate of 7 per cent or more during , few African countries are positioned to achieve the Millennium Development Goals by 2015 (Africa Union, United Nations Economic Commission for Africa, 2007). Since the 1980s, governments in the SADC region have taken to pursuing policies prescribed by the international financial institutions, ranging from Structural Adjustment Programmes (SAPs) to Poverty Reduction Strategy Papers (PRSPs) to Poverty Reduction and Growth Facility (PRGF). Yet the current global economic crisis has exposed how the model of unbridled free markets, deregulation and ever-increasing competition has been risky and ill conceived. The economic and financial crisis has not only exposed the negative consequences of deregulation and the wholesale liberalisation of financial markets, but also of a flawed model of export orientation, import dependence and unbridled free trade. Competition unleashed by deregulating and liberalising the financial sector resulted in inefficient ever-more-profit strategies focused on high returns on capital rather than financing the economy. The collapse of the Berlin Wall in 1989 triggered a frenzy in which it was argued that progress and economic harmony would reign supreme if the market was allowed to self-regulate and the role of the government was restricted to that of the night watchman. But the economic harmony predicted by the prophets of unregulated markets has been elusive, much like chasing the wind. Much more evident, however, is the brutal economic reality of job losses spawned by unregulated markets. The global economic crisis is putting pressure on working conditions, wages and social protection worldwide. Massive job losses have forced people to seek alternative methods to sustain their livelihoods: For both men and women, the economic crisis has resulted in increased informalisation and vulnerability. Street vendors in numerous developing countries are suffering from the twin squeezes of increased competition from retrenched workers turning to a livelihood with low barriers to entry, and reduced consumer demand (Green et al 2010, page 9). Informal cross border trading opportunities This has seen among other things the burgeoning of informal cross border trade as people seek ways of escaping the poverty trap. The informal sector has become an important component of national economies in the region and a major contributor to their socio-economic progress. The economic and social situation in SADC has become more acute and the crisis of unemployment, poverty and HIV/AIDS cries out for attention. As the battle to survive intensifies, informal and cross border trade has become a viable alternative. People in the region are being drawn to it because of the changing socio-economic environment, where opportunities for formal employment are shrinking. But there are also many instances, certainly in the case of Zimbabwe at the height of the economic crisis in that country ( ), where even those who were employed were forced to resort to ICBT or were at least being supported through it. The story of Mavis Chiuto is poignant: I sent my children to school through cross border trade. Now they are married, but I still continue buying and selling things because the cost of life in Zimbabwe is now very expensive and you need to work. My son is a teacher but I look after him, because his salary can t buy even a bar of soap. (IRIN 12 September, 2008). In a study carried out for UNIFEM (2010), 75 percent of Swaziland s informal cross border traders and 43 percent of Zimbabwean traders interviewed said they would continue with ICBT even if the economic condition in their respective countries improved. What is sad is that many governments do not recognize informal trade and look upon it negatively as they associate it with criminal activity and tax evasion. However, robust informal trade has continued to thrive in SADC despite the negative labels attached to it. Open Society Initiative for Southern Africa 45

3 Building Vibrant and Tolerant Democracies Trade protocol and regional plans At the regional level, there are a number of policy instruments and protocols that are relevant to the informal trade sector. In 1996, SADC adopted a Protocol on Trade which addresses issues of relevance to informal traders such as transport issues; transportation and storage requirements pertaining to certain goods; exemptions from customs; customs legislation; import and export restrictions; and competition. The protocol further commits SADC member states to: raise awareness amongst their citizenry regarding the importance of trade to economic development; facilitate the strengthening of internal capacities to undertake trade effectively; strengthen national and regional infrastructure; involve the private sector in policy development; encourage SME participation; and harmonize laws and practice, as well as simplify and harmonize customs procedures. While the provisions of the protocol are relevant and important for informal traders, they do not seem to adequately take cognizance of the sector and thus do not respond to its needs effectively. It is unclear how informal traders or their associations can access the protocol in terms of being within the ambit of its provisions or whether they are considered as relevant actors in regional trade. The protocol speaks of trade in general and does not specifically mention informal cross border trade. Thus, there is a low level awareness of it among the informal cross border traders. There is also the added burden that it seems to lean heavily towards formal trade thus creating the perception that it is not really for informal traders. Another important regional instrument is the SADC Regional Indicative Strategic Development Plan (RISDP). According to RISDP, despite the seeming nonpresence of specific informal trade issues in the other SADC Protocols: the question of the informal sector both in terms of trade liberalization and actual production should be taken on board. Although there are no statistics, it is known that informal cross border trade is substantial and is thriving throughout the region. A large proportion of the population derives its livelihood from informal employment (SADC 2003). One of the priority intervention areas in the RISDP is trade liberalisation and development whose overall goal is to facilitate trade and financial liberalization, competitive and diversified industrial development and increased investment for deeper regional integration and poverty eradication throughout the establishment of a SADC Common Market. 1 In SADC, it is clear that the main instrument of trade liberalisation is the elimination of customs tariffs and non-tariff measures on substantial intra-sadc trade. The design and modalities for the phased elimination of tariffs, the prevailing non-tariff barriers (NTBs) and the restrictive rules of origin undermine the potential gains of the SADC Trade Protocol. On rules of origin, for instance, traders have been calling for the implementation of a simplified trade regime comprising a simplified certificate of origin. They have further called for support through the establishment of a favourable import and export duty regime where licensed small traders are charged less duty compared to established businesses. Sadly, SADC has not moved much on these demands although the Common Market for Eastern and Southern Africa (COMESA) has actively promoted the simplified trade regime. Twelve SADC Member States established the Free Trade Area (FTA) under the Protocol on Trade Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. FTA members have phased out tariffs on at least 85 percent of all goods that meet Rules of Origin and are traded in the region. Trading in these duty free goods eliminates cumbersome taxes. ICBTs can source cheaper raw materials from within the region duty free while the cumulative principle enables further processing and duty free exports within the region. ICBTs can use the opportunities availed by the FTA to maximize production of goods that qualify for duty free status and establish markets. The lack of convergence in SADC Member States external tariff and trade policies is also a threat to mutual cooperation and becomes unnecessarily unwieldy for informal cross border traders. What further complicates the situation is the fact that most SADC countries belong to more than one regional trade block. SADC countries arer members of five overlapping economic groups that include SADC, COMESA, East African Community (EAC), Southern African Customs Union (SACU) and Indian Ocean Community (IOC). These regional trade blocs do not necessarily have similar aims, and their over- 46 Open Society Initiative for Southern Africa

4 Informal Cross Border Trade and SADC: The Search for Greater Recognition lapping membership makes life difficult for informal cross border traders who would prefer harmonization in the trading regime. However, COMESA has gone a long way in trying to make the business of ICBT easier. For example, it has supported a Simplified Trading Regime (STR) for cross border traders. The idea behind STR is to simplify the trading procedures, which are currently regarded as being cumbersome and restrictive. Ten COMESA members namely Burundi, Democratic Republic of Congo (DRC), Ethiopia, Kenya, Malawi, Rwanda, Sudan, Uganda, Zambia and Zimbabwe have agreed to pilot the STR. The STR is an important development as it is an initiative of the cross border traders themselves. They were given an opportunity to discuss their concerns at a COMESA Council of Ministers. The discussions led to COMESA developing an STR to meet the traders demands. The STR applies to consignments of less than US$500 and is based on three components: a simplified customs document; a simplified certificate of origin; and a common list of products. According to the COMESA assistant secretary general Stephen Karangizi (2009) some of the key benefits of the STR include: Duty and quota free access to traders who currently have to pay duty for goods that should otherwise be free of duties; Reducing smuggling and use of unauthorized routes as there will be an incentive for informal traders to use formal channels and no longer any reason for them to smuggle goods across borders or to bribe border officials; and Mainstreaming cross-border trade from informal to formal which should lead to better data capture, improved planning and policy making, improved monitoring of trade flows and ultimately better information and reporting on the region s trade situation. The timeline for implementing STR is from February to the end of Protocol on the facilitation of movement of persons The free movement of people within SADC is important not just for informal cross border trading but to regional integration itself. The first SADC protocol on the free movement of people was rejected at the behest of Botswana, Namibia and South Africa who felt threatened by what they saw as making it easier for economic immigrants to enter their countries. Even the second attempt did not get the urgent attention that it deserved. As Makanza notes, a weak and less ambitious protocol on the Facilitation of Movement of People (1997) was Open Society Initiative for Southern Africa 47

5 Building Vibrant and Tolerant Democracies shelved by the SADC council of ministers in 2000 (Makanza 2010, page 6). It was only in 2003 that this discussion resumed, leading to its signing in However, the protocol is no longer that of FREE movement of people. Instead, it is one of FACILITATING that movement. Sadly, even this watered down version has only been signed by six counties: Lesotho, Mozambique, Namibia, South Africa, Swaziland and Zambia. What is worse is that only one country (Mozambique) has ratified it. The basic idea of this Protocol was to develop policies aimed at the progressive elimination of obstacles to the movement of people of the region into and within the territories of State Parties. Rather than make it easy for people of SADC to move freely within the region, it seems that the focus of SADC is to expedite the UNIVISA for external tourists to move freely (Muchabaiwa 2010, page 1). Food security and ICBT ICBT has contributed enormously to food security, for example in 2004 when there were food problems within the SADC region. Food security is defined by the Food Agricultural Organisation (FAO) as encompassing the ability of all consumers to have both physical and economic means of access to food requirement at all times (Macamo, 1999, page 46). The most important ingredients of food security include (i) ensuring adequacy of food supply, (ii) maintaining supply stability, and (iii) ensuring supplies for all consumers. In the quarter ending September 2004, informal trade in maize between six southern African countries through 24 monitored borders amounted to close to 36,000 metric tonnes (MT) as shown in the following table. Malawi accounted for about 94 percent of the trade, with the bulk of the maize sourced from Mozambique. Maize exports into Zambia, largely from Tanzania, accounted for about 2.5 percent while about 2.2 percent was exported to Zimbabwe from Zambia. Tanzania and the DRC received the least informal cross-border maize imports with MT and MT respectively. The reason why there was very little informal cross border maize trade between Zimbabwe and her neighbours is that Zimbabwe imposed restrictive import levies on any trader that crossed into the country with more than a single bag of rice and/or maize, including flour. Rice and maize both attracted import levies of US$3.56 per 50kg bag. As such, there was very little incentive for informal traders to deal in these commodities (FEWS NET 2004). Informal cross border traders through their networks and versatility were able to move maize around from surplus to deficit areas, thus cementing their role in the adequate and essential supply of food. They provided accessibility to maize and broke down the bulk for all types of consumers. They were not just traders selling deodorant and eggs but became critical to the food security equation in the region. ICBT has contributed not just in terms of personal upliftment but also in the area of regional food security. Gendered dynamics of informal trade As with other sectors, gender inequalities also manifest themselves in informal trade and affect the way in which women make their living. According to the International Labour Organisation (ILO) (1991, page 21) informal trade is the most important source of employment among self-employed women in sub-saharan Africa. Women therefore play a critical role in addressing vital issues of livelihoods such as food and income security. The SADC Gender Protocol is also critical for women in informal cross border trading, especially Article 17 on economic empowerment which states that: Informal cross-border trade in maize Source Destination July August September Total Tanzania Zambia Zambia Zimbabwe Zambia Malawi Malawi Zambia Zambia DRC Mozambique Malawi 9,918 12,818 10,622 33,358 Malawi Tanzania Tanzania Malawi Total traded 10,438 14,054 11,567 36,059.3 Source: FEWS NET Malawi 48 Open Society Initiative for Southern Africa

6 Informal Cross Border Trade and SADC: The Search for Greater Recognition States Parties shall, by 2015, adopt policies and enact laws which ensure equal access, benefit and opportunities for women and men in trade and entrepreneurship, taking into account the contribution of women in the formal and informal sectors. States Parties shall, by 2015, review their national trade and entrepreneurship policies, to make them gender responsive. The gender protocol is important because gender inequalities are also pronounced in informal trade. Since women make up the majority of informal traders, they are more directly affected than men in the way they make their living. For example, informal cross border trade contains a large degree of travel both within the country as well as across borders, making women more vulnerable to sexual harassment and abuse. There is further harassment when they get back to their home countries and start selling their wares: Women street vendors are continuously harassed by the police and civic authorities who regard their businesses as illegal. 2 Conclusion The increase in the informal market in all areas of economic activity is due to three main reasons. First, it has to do with an economic policy position that promotes total trade liberalisation. Second, it is linked to greater social and economic freedom arising from both economic and political liberalisation. And finally, it has to do with the decreasing size of the formal sector relative to the rest of the economy due to massive job losses as most of the governments in the region go through privatization. As the informal sector becomes an increasingly important component of the national economy and a major contributor to national socio-economic progress, it will be necessary for SADC member states to support ICBT as an integral aspect of regional trade. Some of the key things that need to be considered are: Simplification of the forms that have to be filled in at border posts so that they are not cumbersome and complicated for ICBT; Improved data collection in the region so that the contribution of ICBT in the economic development of the region is fully reflected; Implemention of a simplified trade regime comprising a simplified certificate of origin and specified customs documents for consignments not exceeding US$500, which will assist in mainstreaming ICBT into formal trade; Provision of designated trading places, such as Zambia s COMESA marke, which is a good example that can be improved upon; Informal cross border traders need to come up with strong national associations that can then represent them and articulate their issues; Information sharing and awareness building is important for the traders because sometimes they act out of ignorance and many believe evasion is best even when goods can cross duty free; SADC, the Southern African Customs Union and COMESA should harmonise their laws so that there is a Simplified Trade Regime; and Promote the provision of infrastructure services, including accommodation facilities close to borders as well as proper storage facilities. Percy F. Makombe is the Programmes Manager at the Economic Justice Network of the Fellowship of Christian Councils in Southern Africa. Endnotes 1 SADC, Southern African Development Community Regional Indicative Strategic Development Plan (RISDP), WLSA/ SARDC, Beyond Inequalities: Women in Swaziland, 1998 Bibliography African Union (2007). United Nations Economic Commission for Africa (UNECA) Accelerating Africa s development through diversification, ETHIOPIA: AU/UNECA. EJN (2010). Cross Border Testimonies. Cape Town: Economic Justice Network. Green, Duncan et al (2010). The Global Economic Crisis and Developing Countries: Impact and Response. London: Oxfam International. ILO (1991). The dilemma of the informal sector. Report of the Director General, Geneva: ILO. Karangizi, Stephen (2009) STR beneficial to our people. Opening Speech at a sub-regional meeting of Permanent Secretaries and Senior Officials of Pilot countries implementing STR held in Nairobi, Kenya 21st 22nd October, COMESA. Makanza, Tendai (2010). The Social and Human Dimensions of Regional Integration- The Missing Link. Harare: ANSA. Muchabaiwa, Bob Progress, challenges and prospects for the free movement of persons in SADC. Botswana: SADC-CNGO. OECD (2002). Informal employment and promoting the transition to a salaried economy. OECD. SADC (2003), Regional Indicative Strategic Development Plan, 2003 SADC Gaborone. UNIFEM (2010). Women in Informal Cross Border Trade in Southern Africa. Johannesburg: UNIFEM WLSA/ SARDC (1998). Beyond Inequalities: Women in Swaziland.WLSA. Open Society Initiative for Southern Africa 49