Simplifying Informal Cross-Border Traders Could Add FCFA 6.6 billion to the Public Purse

Introduction

Cameroon is the largest trading partner of the Economic and Monetary Community (CEMAC) countries, driven by a mix of formal ties that are, nonetheless, constrained by several factors. While trade among Central African countries is only 3%, the true figure is much higher as much of informal cross border trade is unreported. Informal cross border trade (ICBT) is defined as the commercial exchange of goods and services between neighboring countries that are not captured by customs, duties and government regulation. It is the plantain, cassava flour and tomato paste exported from Cameroon to Tchad that is not done through formal channels. In Cameroon, the magnitude and consequences of Informal Cross Border Trade (ICBT) is not widely studied or captured, causing official figures to misrepresent the true nature of cross-border trade in national accounts.

“For policymakers, it slows the formulation of appropriate policies, lowers revenues from cross-border trade and promotes harassment and corruption at our borders.”

What is the True Level of Unreported Trade Between Cameroon and its Neighbors?

Trade between Cameroon and its CEMAC neighbors are under-estimated by customs services, as strong informal socio-cultural ties between countries continue to drive ICBT. A paper by Nkendah (2013) finds that over 155,000 tons of agriculture and horticulture products were shipped from Cameroon to its neighbors in 2008, estimated at FCFA 38 billion or 0.4% of Gross Domestic Product (GDP). This suggest that unrecorded or informal trade represents up to 60 –80% of total trade based on today’s GDP numbers.

Informal Trade in Cameroon Mimic Similar Levels Observed Across Africa

ICBT also includes resale of goods and services that have been produced formally. For example, a Cameroonian informal sector trader can buy pasta or rice in Cameroon and resell this informally in Chad at a higher price. The level of ICBT in Cameroon is similar to that observes across Africa, where large informal sectors drive economic activity. The United Nations Economic Commission for Africa (UNECA) finds that ICBT ranges from $10 – $24 billion annually, representing between 30 – 72% of formal trade.

Why Do We Need to Understand Cross-Border Trade

There is abroad disconnect between policy and overall trade: While formal policy initiatives target only formal trader , there is a vast network of informal traders. Policymakers should understand that these border markets are regulated by different rules and networks to respond effectively – which  should go beyond mere formalization of these actors. Understanding the spatial location of such traders, their profiles and sources of finance as well as broader market functioning and impact of cross-border price volatility will allow more inclusive policies to emerge. For example, we have repeatedly called for a Simplified Trade Regime (STR) that allows traders to cross borders with goods valued at less than $2000 with minimal checks and a standardized fee equivalent to the value of their good – say 5% of the goods value.

Omission of cross-border trade from official statistics clouds the nature of integration across Central Africa. When trade taking outside institutions are omitted, it ignores institutions that have developed through solidarity, cultural and commercial networks. It leads to a distorted view of the business environment, slowing investment across Cameroon and the broader CEMAC region, exacerbating policy inertia on vital issues such as infrastructure and tax incentives.

Making ICBT Work for Informal Sector Workers

ICBT is facilitated by official positions of control, subjecting goods to solicitation by administrative officials that are not reflected in official statistics as bribery is generally unreported. By standardizing trade in unrecorded trade, fees and processes will be standardized, reducing corruption and arbitrary decision-making. By acknowledging ICBT, policymakers will reduce corruption and protect vulnerable informal sector traders that are ignored by national policies and regional agreements like the African Continental Free Trade Area (AfCFTA). Informal traders are overlooked by citizens and authorities and so protecting their rights are essential to protect their dignity, rights and support an environment where trade enhances human dignity. 

More Government Revenue: Policymakers – customs and the ministry of Finance – rely on customs and other taxes to finance the budget. Rather than allow huge amounts of potential fees to be lost to corruption, imposing a 5% fee on the value on goods less than $2000 crossing borders will enable the state generate revenues.

“Back of the envelop calculations point to the government raising up to $11.8 – $15 million USD or FCFA 6.6 billion, if they allow simpler rules for traders importing or exporting goods that are less than FCFA 1.2 million.”

Regularizing informal Trade will Bolster Food Security: 3 million people in central Africa are at risk of food insecurity. If traders can buy and sell goods below $2000 with a requirement to fill out a simplified rules of origin form and product safety document, they can trade more confidently across borders, creatin choice for consumers and bringing down food prices. Such an outcome will counter the effect of poor infrastructure, climate change and geopolitical uncertainty that increases the price of imported products.

Ensuring Inclusive Trade and Economic Development: By adopting a simplified trade regime that allows these vital traders to buy and sell across borders without formal paper work, authorities will guarantee their rights and inclusion in cross-border trade. A simplified trade regime means that informal traders importing or exporting FCFA 1.2million worth of goods only fill two forms; a Simplified Rules of Origin form and a Health and Safety Form. When Southern and East Africa removed burdensome administrative requirements and adopted a simplified trade regime, tax receipts increased by 10% and more informal traders declared their products.

“For a 5% fee on the imports and export of goods, Cameroon and central African informal traders will likely declare more of their products, contributing to FCFA 6.6 billion to the public purse.”  

Targeted Incentives that Reflect Broader Market Dynamics: Beyond simplifying trade procedures to promote declaring goods and increasing government revenues, an acknowledgement of ICBT will enable policymakers to design incentives that better serve informal traders as well as formal and established businesses.At present, there is a grey area for products imported into Cameroon that are less than FCFA 2 million. Some products require specific permits or technical authorization, which forces traders to import products using informal channels, discouraging both formalization and regular trade. Furthermore, failure to comply may result in a late fee of 50% worth of the value of imports. This subjects informal sector traders to rampant, indiscriminate and arbitrary prices at the border, which increases the cost of trade, encourages corruption and removes any protections for vulnerable traders, especially women.

Conlcusion

Policymakers must think about the millions of informal sector workers trading across Cameroon’s borders. To support formal trade that is vital for job creation, food security and livelihoods, we must implement a simpler trade regime. If traders trading products less than FCFA 1.2 million are not subject to burdensome requirements, this will support millions of traders and entrepreneurs while protecting them from arbitrary fees and harassment at the border. Implementing a Simplified Trade Regime (STR) will help policymakers collect better trade data and make informed decisions about how to support Cameroon’s trade with its neighbors.

Author

Henri Kouam, Executive Director