A business-friendly regulatory environment and a tax regime that favours small-scale traders are some of the incentives that will entice informal cross-border traders to formalise their business.
These recommendations are contained in a report dubbed “Formalization of informal trade in Africa, trends, experiences and socio-economic impacts”, that was conducted by Consumer Unity and Trusts Society (CUTS) with support from the Food and Agriculture Organisation.
It was launched in Kigali on Tuesday.
The study states that formalising these businesses need not require significant resources, adding that there are steps that can be taken to improve the delivery of services to business by government and in reducing mostly, administrative barriers, including unnecessary costs.
It shows that cross-border trade constitutes a major form of informal activity in most African countries; citing the Southern African Development Community (SADC), a 15-state bloc where such trade accounts for up to 40 per cent of total intra-SADC trade, with an estimated value of $17.6 billion.
Typically, the study indicates, women represent up to 70 per cent of informal cross-border traders on the continent, trading a variety of commodities either in raw or semi-processed form, including basic to luxury goods produced in other countries.
Underscoring further the importance of the sector, the study shows that informal trade is estimated to provide up to 70 per cent of employment in sub-Saharan Africa, providing access to domestic goods and services that are not available through the formal economy, and bringing significant socioeconomic 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 often lead to negative effects on overall economic growth
According to FAO Representative to Rwanda, Attaher Maiga, informal cross-border trade has been contributing about 42 per cent to Africa’s Gross Domestic Product (GDP).
Alice Twizeye, Director of External Trade at the Ministry of Trade, Industry and EAC Affairs, said that women account for about 80 per cent of informal cross-border traders in Rwanda, adding that the government has been supporting them through capacity building and access to finance.
She noted that informal cross-border trade contributed 30 per cent to Rwanda’s total exports.
She, however, said that, informal trade is sometimes considered as illegal or treated as not important business, which might be caused by lack of information.
A holistic support approach
Maiga noted that, generally, the informal sector is defined by low entry requirements, low set-up costs and small-scale operations.
Although the informal sector is generally labour intensive, he said, workers in the sector enjoy limited or no labour rights and lack access to standard social protection schemes, such as national insurance.
“We recognise that this sector is important to the economy, we recognise that women play an important role [in this sector]. So, we need to better facilitate the environment and also make policies that recognise that,” Maiga observed.
The study says that efforts to tackle corruption are likely to have a significant impact on restoring confidence of informal traders in public administration and their willingness to formalise.
CUTS Kenya director Clement Onyango said that formalising informal trade will reduce probably reduce corrupt bureaucratic procedures involved in cross-border trade, but noted that information is crucial to the attainment of this goal.
“We cannot make the right policies, if we do not have the right data, data is key,” he said.
The East African Community introduced a Simplified Certificate of Origin (SC00) in 2007 to be issued by customs officers at the border for consignments worth $1000 (about Rwf800,000) or less.
The move was in line with the Simplified Trade Regimes (STRs), which recognises that the majority of business people engaged in cross-border trade in developing countries are small-scale traders who find it extremely difficult to meet conventional customs requirements, especially “proof of origin of the goods being traded.’’