Unofficial cross-border trade benefits poor people in east Africa

In many African states cross-border trading is a major economic activity. ‘Unofficial’ cross-border trading in east Africa often represents the only type of exchange as poor infrastructure limits official trade between neighbouring states. However, fears about security after the September 11th attacks, in 2001 in the United States, are influencing recent policies concerning borders and could affect trade.

In many east African countries, distinctions between official and unofficial trade are sometimes meaningless. In Somalia - without a recognised government since 1991- there are no state laws to define differences between the official and unofficial economy. A study published by the Expert Group on Development Issues and the United Nations University analyses the benefits of ‘unofficial’ cross-border trade between Somalia and its neighbours Kenya and Ethiopia, for their local economies.

Somalia has benefited greatly from cross-border trade since the collapse of its government, with unofficial exports of cattle growing considerably in this period. The report finds that cross-border trading has become essential for supporting incomes of rural people living along the borders of the three countries. Although ‘unofficial’ trade is illegal in Kenya and Ethiopia, informal local agreements allow traders to function.

Trade in many cases is based on kinship, common language and other social relations that exist across borders and that benefit market and financial functions. Trust and fair practice are therefore critical because it is impossible to legally enforce any agreements. The research finds that while there are poor traders involved with trans-border cattle sales, many others are not so poor by local and regional standards. Further analysis finds that:

• The collapse of financial systems in some African countries has led their economies to rely on unofficial trans-border trade.
• Governments rarely acknowledge its positive dimensions and view unofficial trade as lost public revenue.
• Little information exists about the trade markets due to poor communication infrastructure and a lack of research.
• Trading activities are often hazardous due to a lack of security in many border areas.
• Illegal practices become legitimised as they are integrated into daily trading.

Unofficial cross-border trade in east Africa will continue to play an important role until alternative markets and income sources are found. Positive steps should be taken to support trans-border activities for the benefit of the regional economies. The research suggests that:

• Governments should focus on increasing their own revenue sources through customs and tax collection instead of spending resources trying to police and stop cross-border trade.
• Policies that acknowledge and encourage regional trade across borders would benefit local and national economies, and strengthen local food security.
• Three different levels of institutions need to be involved in discussions: the local officials at border crossings; national officials and diplomats; and organisations with a cross-border mandate focussing on trade and improved transport.
• Efforts should be made to support experienced traders in the region who play a critical role in supporting cross-border cattle trade.

Source(s):
‘Unofficial Trade When States are Weak: The Case of Cross-Border Commerce in the Horn of Africa’, Expert Group on Development Issues and World Institute for Development Economics Research, Research Paper No 2005/13, by Peter Little, April 2005 Full document.

id21 Research Highlight: 19 September 2005

Further Information:
Peter Little
Department of Anthropology
University of Kentucky
211 Lafferty Hall
Lexington
Kentucky, 40506-0024
USA

Tel: +1 (0)859 257 2710
Fax: + 1 (0)859 323 1959
Contact the contributor: pdlitt1@uky.edu

University of Kentucky, USA

United Nations University-World Institute for Development Economics Research (UNU-WIDER)
Katajanokanlaituri 6 B
00160 Helsinki
Finland

Tel: +358 (9) 615 9911
Fax: +358 (9) 615 9933
Contact the contributor: swallow@wider.unu.edu

World Institute for Development Economics Research (WIDER)

Other related links:
'Unofficial cross-border trade: globalisation in west Africa'

The Greater Horn of Africa and Regional Trade

'Unrecorded Cross-Border Trade Between Malawi and Neighboring Countries' from USAID

Publication on cross-border trade from the Organization for Social Science Research Eastern and Southern Africa

Informal Cross Border Food Trade in Southern Africa, SAPRN news