Effects of the Informal Cross Border Trade in Western Africa: A Study of Nigeria and Niger – Ahmodu-Tijani, Ismail Shola, and Dosunmu, Kazeem Olanrewaju

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Summary: In developing countries, informal cross-border trade plays a significant role as a driver of economic development and regional development in border communities. It is a coping mechanism for low-income households in the border communities as it relatively improves unemployment and poverty. Nigeria and Niger are encouraged to reach a bilateral agreement on building an enabling and gender-sensitive environment for informal cross-border traders to sustain their sources of livelihood.


Abstract

Informal Cross Border Trade (ICBT) plays an important role in developing countries and act as accelerator of economic development, regional development of the borderland areas. It is a crucial coping measure for poor households; especially when unemployment is high and it also address mass poverty if the rules governing it take into consideration the interests of the poor and vulnerable groups in society. This paper is aimed at examining the effects of informal cross border trade in western Africa: a study of Nigeria and Niger, its strength and weakness on National and Regional development which is western Africa. This is a literature and library based paper which reviews related literatures from journal articles, texts, seminar papers, online search engines for assessment of the concepts. This paper perceive the following issues in Informal Cross Border Trade, its problem and approaches, reasons for ICBT in Nigeria and Niger, critical analysis of determinants in Nigeria and Niger, the positive and negative effects on the two selected countries in western African and recommend on way forward. It finds out that ICBT enables small‐scale entrepreneurs to escape poverty and to meet the education, housing and other basic needs. It’s also source of family income to the unemployed and a source of employment to our second citizen as a result of early retirement. It recommends that there should be bilateral agreement between Nigeria and Niger on creating an enabling, gender-sensitive environment for informal cross border traders so that they can easily engage in economic activity in order to protect their livelihoods. There is need to design appropriate policy incentives by the duo country governance in order to gradually incorporate a thriving ICBT sector into the formal economy.

INTRODUCTION

Borders are artificially constructed, geographic or astronomic lines that form the boundary of a nation. Within this delimited boundary, a nation exercises power, jurisdiction and carries out its activities in accordance with the sovereignty of the State. the central government can curtail, restrict or totally ban the unauthorized movement of goods and people across such boundaries within the nation (Afolayan, 2000).The main socio-economic processes that take place across an international border are the movement of people and goods for trading activities and this movement is an integrative process that links people on both sides of the border on either mutuality or trading activities. ICBT breaks down artificially imposed policies, barriers, and generates interaction between the cross border traders. The movement of people at a border is considered being within a nationality rather than between two geo-political entities. Such movement of people would not normally be regarded as migration, particularly as the movers often stay for a short time. Since the movement occurs over an international boundary, is subject to legal restrictions and regulations, it also has to be regarded as international migration. The word informal is norms to the two environments but the governance of the two environs accept the official cross border trading called formal cross border trade. The paper seeks to respond to the gap identified in the literature on the marginality of informal cross-border traders because of the ‘informality’ attached to the trade.

After this introduction, the second section defines ICBT and its concept, The third section reviews problems of ICBT, approaches to ICBT, reasons for informal cross border trade in Nigeria and Niger, ICBT in Nigeria and Niger .The fourth section critically analyses the key determinants of ICBT in Nigeria and Niger while the fifth section evaluates its positive and negatives impacts on Nigeria and Niger. The last section is the conclusion by making relevant recommendations to Governments of Nigeria and Niger.

Informal Cross Border Trade (ICBT)

Informal cross border trade is a crucial coping measure for poor households, especially when unemployment is high. Informal cross-border trade (ICBT) constitutes a significant economic force in terms of the value of goods traded and majority of the participants are women. Trade has great potential to address mass poverty if the rules governing it take into consideration the interests of the poor and vulnerable groups in society.  Cross-border trading is an economic activity that involves activities within a nation (internal) and activities among nations that is international. The trading activity becomes complex when describing buying and selling at the border, where product exhibition can be regarded as a distinct activity which involves daily buying and selling, semi-formalized marketing activities and other transactions. This trading activity is in accordance to the terms and conditions of supply and demand. This is also the key movement of cross border activities with respect to Economic transactions across borderlands. The nature of exhibited products for informer cross border trading are textiles (material, ready-made clothes, second-hand clothes), foodstuffs such as polished rice, frozen chicken/turkey and tinned foods ,jewellery, tyres/motor spare parts, batteries/electronics, fairly used cars, and plastics/detergents (Afolayan, 2000 and Malungisa, 2015).

A large informal sector can pose problems for policymakers and the overall economic development of both countries. Informal enterprises may provide a short-term solution to a household’s livelihood needs, creating an economy with a higher proportion of formal enterprises and jobs is important to long-term welfare creation, stability and poverty reduction‖ (OECD, 2009). A large informal sector could indeed deprive governments of needed tax revenue which could be reinvested into infrastructure development and other national development priorities; it could influence the development of economic policy objectives by skewing the reliability of (trade, income and labour market) data; breed a culture of corruption in public administrations (including in Customs) and hinder further investments in local (formal) SMEs, which constitute the major part of the private sector in developing countries and are key to their economic development and growth. This sector plays a major role in most countries, especially developing countries (Nigeria and Niger). The importance of this sector has continued to be seen since the adverse effects experienced in these countries as a result of the Structural Adjustment Programs (SAPs) of the 1990s and the current financial crisis facing the world countries (Aluoch,2014).

Informal Cross Border Trade (ICBT) is a segment of informal sector which plays an important role in developing countries and act as accelerator of economic development and regional development of the borderland areas. Perception of public on the word informal means involving in illegal, while most governments still view that the activities of the informal cross border trade are illegal, irrespective of the benefits that ICBT has brought to the economies of borderlands as well as the country. According to Organization of Economic cooperation and Development (OECD) (2009) ICBT can be defined as “trade in legitimately produced goods and services, which escapes the regulatory framework set by the government, as such avoiding certain tax and regulatory burden”. This kind of trade does not necessarily consist of micro and small traders only but also big firms that give wrong size and grouping of their goods therefore being under invoiced or masking and smuggling goods in order to avoid custom duties and taxes.

These three different categories of informal cross-border traders have been able to build sustainable livelihoods. This categorization of cross borders traders is based on their motivation to conduct informal cross-border trade, main source of income, business  turnover and ploughing back of profits to business and ownership of trading license. People engaged in ICBT as survival strategy just to reduce the harsh economic condition in their environs, the push and pull causes of Informal Cross Border Trade (ICBT) are based on the lack of formal employment as a result of economic reforms, rural-urban migration and low wages. Mostly residents of contiguous (neighbouring) border areas across boundaries move daily to exploit differences in prices, wages, and regulatory practices because ICBT is significant contributor to poverty reduction, employment and wealth creation (Mzizi, 2010, Central Asia Regional Economic Cooperation, 2007).

Problems of ICBT

The migrant nature of informal cross-border trade has brought with it social stresses negatively affecting informal traders. The prevalent relationship between HIV, Ebola, Yellow fever and other viral diseases as a result of migration in western African and examined by African union and Ecowas. Cross-border traders exposed to HIV/AIDS are attributable to the nature of their occupation as well as the social and economic structures prevailing in the region. Most time people are facing challenges in terms of logistics, transporting goods from customs officials and other security agents within the border environs, paying extra money to drivers to bribe security agents, moving goods in different vehicles to beat security agents at check points among others (Jawando , Adeyemi, & Oguntola-Laguda,2012 and Malungisa, 2015 ).

Social protection is an instrument of the government for the citizenry in terms of amenities, welfare and social security which caters for their adequately protection against social, economic and other risks. This policy does not provide protection for informal traders because they perceived them of illegal practices while provisions of social security, medical schemes and insurance cover the formal cross border traders . The lack of social protection for the cross border traders reveals a negative side of informality (Malungisa, 2015). The legal and policy environment lags behind the needs of informal traders, credit is mainly restricted to formal businesses and banking regulations are often too stringent for informal traders to operate foreign currency accounts. Informal cross border traders are rendered vulnerable to HIV/AIDS, sexual harassment and corrupt officials because of inadequate social protection, complex procedures at border posts, and poor access to health services while abroad. The emerging trade regime is developing in ways that are gender insensitive. Informal traders are often harassed by government operations designed to ‘clean up’ the streets. Broader aspects of the legal system not directly related to trade, such as marriage laws, may also affect traders’ ability to trade (Afolayan, 2000 and Malungisa, 2015).

Approaches to ICBT

As Ellis and MacGaffey (1997) argue, ICBT complexity is best addressed by a multifaceted approach such as follows:

  1. Mirror trade data: This approach is always often used to assess the extent of smuggling; it involves comparing recorded imports of a country to total recorded exports from the rest of the world (ROW). If the source country‘s reported exports exceed the destination country‘s reported imports by more than can be explained by trade costs, smuggling is inferred .Intra- African smuggling, however, cannot be fully apprehended with mirror data, since official trade statistics from both the exporting and importing country fail to record this cross-border trade. For example, smuggling cannot be inferred directly from recorded Nigeria-Niger bilateral trade, which is very small as noted above as recorded by both Nigeria and Niger.
  2. Domestic customs data: Nigeria customs service always collect more information than they report in official statistics in national publications and reproduced in international organizations‘databases such as the IMF Direction of Trade and the UN comtrade. For example, in Benin and Togo, most goods arriving into the country are classified into categories for domestic use‘, re-exports and transit‘. Obtaining this information from customs and decoding it poses challenges, and probably requires on-site visits and contacts within the government.
  3. Price differences across borders: this is another approach that gives rise to ICBT and can be studied. If arbitrage through ICBT were perfect, such price differences would not be observable, but in fact, transport costs and other impediments to trade mean that price differences persist even in the face of large-scale ICBT. To the extent that observed price differences can be explained by different government policies, the prima facie case for expecting smuggling to occur is strengthened.
  4. Observation of Borders: this approach is best for analysing free flow of trade, A common approach to quantifying trade flows is observation of trader activities at border crossings. This method has the advantage of direct observation rather than inference and can be a crucial source of information for understanding the modalities of trade. However, it may be very difficult to obtain a full picture of some types of trade in this way, for various reasons. The number of trucks arriving at the border can be counted but the exact contents  of the trucks may not be easily ascertainable. Moreover, routes taken by ICBT are varied. Some traders cross at official border posts, with partial or full cooperation of customs officials, but others attempt to evade customs checkpoints, going through the bush or by water. In many instances, border posts are few and far between and it‘s difficult for traders to pass through official crossings even if they would prefer to do so.
  5. Interviews: The cross border trader may be suspicious of the motives of researchers and not be inclined to talk at all or if they do, may not reveal the full truth. Nevertheless, researchers have had considerable success with this method, particularly when trust is developed by repeated contacts over time. By obtaining the perspective of a diverse group  of participants and cross-checking their responses, one can eventually develop a detailed understanding of the operation of ICBT, how it has evolved over time and the key policy issues.

Reasons for Informal Cross Border Trade in Nigeria and Niger

A major reason for informal cross border trading is the comparatively high profit margin in the business activities and a wide difference in the exchange rates of the naira and the CFA franc. Goods originating from Nigeria are sold in exchange for the convertible currency, the CFA franc. Nigeria Petrol is sold at a price higher than the pump price, which makes it profitable and attractive to Nigerians seeking foreign exchange. There is no price control and mechanism in Nigeria but there is in Niger due to bad policy.

Government policy with respect to the importation of goods is more liberal in Niger than Nigeria. The tax on imported cars (new and used) is much higher in Nigeria; hence, Nigerians prefer to cross the border and buy their cars. Certain food items which have been banned in Nigeria and which are available in Niger are similarly imported through the back door. In addition, since the oil boom era, Nigerians have developed a taste for imported goods. There is, therefore, a ready market for such goods in Nigeria. Added to this is the fact that the goods are either cheaper, relative to Nigerian-made goods, or are considered to be of better quality.

ICBT in Nigeria and Niger

According to Afrika and Ajumbo (2012) Informal cross border trade is a trade with large proportion of the products traded within or exported from the region are raw or semi- processed, particularly agro-industrial products originating from or being destined to Niger. The Nigerian hub is one of the most active with informal exports going to countries like Benin, Niger, Chad and Cameroon. In Niger, it is estimated that tens of thousands of tons of Nigerian grains are sold annually and Informal trade in petroleum products has aid make Nigeria the major economic power in West Africa by supplying areas (especially rural ones) which are shunned by traditional international companies such as Total, Shell and BP but also national distribution companies.

Informal cross border trading is deeply rooted in West Africa’s cultural history. Lagos’ “Tinubu Square” was labeled after a famous Yoruba informal cross border trader by the name of Madam Efunroye Tinubu. Madam Tinubu owed her economic success and fame to massive, cross regional informal trading in salts and arms during the British colonial era. Madam Tinubu’s fame pales in comparison to the modern day women informal cross border traders of Togo known as the “Nana-Benz”. Then, as now, these women conduct their businesses on the regional and even international stage, drawing on a long history of trading experience   as   informal   cross   border   traders.   Large   and   multi‐directional   informal cross‐border trade of foodstuff, gold and manufactures exist in the Western African region because informal and formal cross-border trade takes place against a backdrop of insecurity to persons and goods from corrupt law-enforcement agencies or cross border robbing gangs or syndicates. Traders carrying money often run the risk of having money seized.

The insecurity of traders is compounded by the fact that border infrastructure (warehousing facilities, reliable transport, etc.) is inadequate and that traders often do not have valid travel documents. Despite the challenges, in West Africa, cross-border trade (both formal and informal) remains the most efficient, organized and deep-rooted system of trade in the sub- region. The commercial skills, experience and organizational infrastructure of cross-border networks represents invaluable resources for the development of effective West African trade.

Determinants of Informal Cross Border Trade in Nigeria and Niger.

A variety of factors are responsible for the spread of ICBT in my study location but key causes vary from one region to the other, the main determinants of ICBT in Africa can be categorized as follows:

Lack of trade facilitation: The trade facility along the border is lengthy and costly. Crossing formal borders can take days at times and costs of clearance, processing fees, tariffs and taxes are generally above the value of goods being traded informally. Documentary requirements should be reduced and regional tariff and custom duties, other existing tax regimes should be reviewed to factor in ICBT. Monitoring and cyber gadget should be used as a springboard to monitor and evaluate ICBT activities.

Inadequate border Infrastructure: Border infrastructure issues should be addressed in order to enhance the movement and security of traders and their goods. There should be necessary infrastructures like proper warehousing facilities, community markets, transport networks and especially functional and adequately staffed border institutions and agencies makes it unattractive, inefficient and sometimes downright dangerous to trade via formal routes.  Lack of adequate public and private transportation systems causes delays, forcing traders to miss community market days and their consumable goods especially agricultural produce to perish Limited access to finance also plays a prominent role since traders are not bankable and transactions are cash based or bartered. Most traders lack working capital and tangible business assets making it difficult for them to get financing.

Limited market information: this is one of the key determinants because it is difficult for informal cross border traders to tap into regional and local market opportunities. In most African regions, the provision of information on cross-border markets is at best, minimal. Since most traders operate outside regular business circles, market information on prices, demand and supply is generally not available to them. They generally rely on informal sometimes unreliable information networks. Information on policies, regulations, agreements and protocols for the facilitation of cross-border trade is equally difficult to obtain. These should be published in reader friendly language and conspicuously displayed at border points in order to enhance communication and expedite implementation. More must be done to provide market intelligence services at key border points to facilitate flow of information on prices, demand and supply but also policies and regulations affecting cross-border trade.

Corruption & Insecurity at the border: This bad action fuels ICBT and corrupt law- enforcement agencies abuse local traders’ lack of knowledge on customs procedures so as to influence their unethical practices (bribes). Traders carrying money run the risk of having money seized while some regions have recorded high incidences of rapes, lack of effective policing at border points and market ports increases the incidence of crimes against traders, forcing them to travel in groups to protect themselves, or simply use informal routes.

Low knowledge, Education and Business management skills: this is also at the basic of attention on ICBT because these traders are generally less educated and often lack basic business management skills. Business skills are generally acquired via traditional means and numeracy as well as literacy levels are notoriously low in some regions. This is exacerbated by a lack of knowledge and understanding of customs procedures and regional trade protocols. Conducting border community sensitization campaigns and empowering local traders with basic knowledge on management and customs procedures could go a long way solving ICBT issue.

Positive Impact of Cross Border Trading

  • ICBT contributes to the economies of both Nigeria and Niger in various ways. It enables small‐scale entrepreneurs to escape poverty and to meet the education, housing and other basic needs.
  • ICBT traders employ people in their home countries and in the countries where they source their goods; and its also a supplementary source of family income to people who are under‐employed and a source of employment to some people who were retrenched following economic restructuring that was occasioned by structural adjustment programmes (SAPs).
  • Judging from the monthly values of income that traders realise from ICBT, it is apparent that the majority of ICBT participants survive on more than US$2 a day which some of them would never have achieved under formal employment, especially considering the shrinking economies of the two countries.
  • The number of people indulging in ICBT having degree‐level education is rising. On the one hand, this is a pointer that that cross‐border trade is increasingly becoming more sophisticated, requiring better education for one to be able to interact and trade  smoothly across the borders; however, it also confirms that most university graduates these days are without jobs or starting capital to pursue formal business. Thus, an increasing number of them resort to informal businesses including ICBT as a form of employment and means of income generation.
  • A majority of the ICBT participants are between the age of 30 and 40 years. This is the age at which many people in both countries have married and have more responsibilities to take care of, but lack of formal sources income enhance motives and to meet their family responsibilities, given the realities of our ‘change’ economies.
  • ICBT encourage and give benefit of lower prices of the informally imported products since they evade a lot of transaction costs. The low prices they offer have sometimes increased competitive pressure on firms operating in the formal sector; in some cases, this has promoted price efficiency, especially, where the formal sector were initially raking in supernormal profits and an edge to the consumers.

Negative Impact of Cross Border Trading

  • The major fact and data on ICBT are not recorded in our national statistics because it’s not available which implies what has always been stated as GDP of Nigeria and Niger economies is often grossly underestimated. The consequences might actually be wrong perception about the real trade balances of these economies with each other, the trade benefits accruing to them from regional integration, and it might continue to give a wrong impression about the extent of the performance and direction of growth of regional trade in both countries since only formal trade statistics are used to make such analysis and judgments.
  • It is possible that as a result of the missing data on ICBT, both countries has been engaging in wrong policy prescriptions which might have led to some unintended negative impacts or unnecessary diversion of resources away from other important projects, thus impacting negatively the regional trade integration and development of both countries.
  • It is confirmed that formal firms are more productive than informal ones, due to scale and scope economies, access to capital and technology and more advanced methods of production and distribution. This suggests that significant productivity gains would be achieved in our economies by transferring production from low‐productivity informal firms to more productive formal firms or by facilitating the formalisation of informal firms. In that case, thus, the unfair competition from ICBT players may have the long‐run effect of reducing competition and as such may prevent the more productive formal firms from entering or expanding in the market.
  • A large informal sector could also deprive governments of needed tax revenue (such as VAT) which could have been reinvested into energy and infrastructure development, which are some of the critical priorities of both countries.
  • The presence of a large number of customs/immigration officers at the border and their exploitative behaviour.
  • Complained of experiencing a great deal of hassle at the checkpoint, this made crossing tedious.
  • The difficulty in obtaining travelling documents and the fluctuating exchange rate were also problems of cross border trading as stated by 6.5 % of the traders.
  • Language barrier is also key negatives because most Nigeria would speak english while the other participant in Niger will speak french.

CONCLUSION

Informal cross-border trade indicates a significant proportion of regional cross-border trade in Nigeria and Niger, for some selected goods, the volume of informal flows exceeds formal trade flows. Available literatures indicate that a substantial share of informal  flows  concerns staple food commodities (maize, rice, beans and cattle) and low quality consumer goods (clothes, shoes and electronic appliances). As a result of this, it shows that informal cross-border trade is mainly conducted by individual dealers and micro, small and medium- sized enterprises (MSMEs) and often consist of relatively small consignments of goods.

Informal trade has several short- and medium-term benefits (increasing food security, alleviating poverty and providing employment) and it is likely to lead to negative economic and developmental effects in the long run. Governments should therefore aim to better integrate and link informal trade with formal trade. This can be done by encouraging informal firms to register and formalise their domestic activities. Informal cross-border trade remains a vital part of rural economic activity and invisible integration. It benefits from ethnic groups across Africa’s borders since it minimizes language and cultural barriers unlike mutually unintelligible official English and Portuguese used by the state between Tanzania and Mozambique, respectively, or border anyin, nzima, awom, Sewfi, and baole are local languages of trade spoken on both sides; while Hausa is used across the Niger- Nigeria border.

Finally, ICBT will aid alleviate poverty and enhance regional food security; Nigeria and Niger should enhance its research and development on the ICBT sector in order to design more appropriate policy responses; ICBT which produces positive socio-economic ramifications should not be criminalized and it should be streamlined in National and regional trade strategies ( Afrika and Ajumbo,2012).


Recommendation(s):

  • Informal Cross Border Trade will aid in alleviating poverty and enhance regional food security, especially for border communities. Nigeria and Niger should invest in its research and development on the ICBT sector to design more appropriate policy responses that will integrate a robust ICBT industry into the formal economy sector .

About the Author:

– Ahmodu-Tijani, Ismail Shola – Nigeria Police Academy,Wudil,Kano, Nigeria

– Dosunmu,Kazeem Olanrewaju – Lagos State University,Ojo,Lagos,Nigeria

Source: ResearchGate

Keywords: ICBT, Nigeria, Niger, Crossbroder, Employment, Entrepreneur

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