Informal Cross-Border Trade in East African

Region: A Review on Antecedent and

Implications

By

BECO, Department of Management

Addis Ababa, Ethiopia

March 16, 2021
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 Introduction

Research Methods
Outline
Findings

Recommendation

Future Research

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 Introduction
• Global trade is evolving from time-to-time
– More focused on integration across nations
– Thus, countries are grouping themselves at regionally &
internationally.
• Example: In Eastern and Southern Africa (Ackello-Ogutu, 1996)
– East African Community (EAC) of 1919
– IGAD of 1996
– Common Market for Eastern and Southern Africa (COMESA) of
1982
– Cross-Border Initiative (CBI) of 1993

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 Introduction

• However, many of integration initiatives failed (Qobo, 2007)

& as of 2019 integration index relatively lower-0.327 out of

1(ECA, 2020)

• Therefore, a wider literature is calling a better integration via

“A New Regionalism”

– Cross Border Trade

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 Introduction

• Before the formation of integration initiatives, countries has

been exchanging goods and services along their borders

• In Africa, border trade is dated back to pre-colonial period in

the form of barter (Mohamadain and Hassan, 2015) to:

– Social interactions and economic exchange

– Form of resistance

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 Introduction
• Currently, border trade has taken formal and informal
nature.
• In Eastern Africa, Cross-Border Trade is more of informal
(Anghuie, 2003).
• Nkorobi(2015) noted that the ICBT is common to all East
African countries despite differences in income level and size
of participants.
– ranging from women selling cabbages to a registered
business

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 Introduction
• Prior studies were conducted on ICBT in East African countries
either separately or between one or more neighboring counties.
• Examples:
– Tanzania and her neighbors by Ackello-Ogutu (1998)
– Uganda by Ayoki and Obwona (2009)
– Rwanda by USAID (2013)
– East Sudan (border with Ethiopia and Eritrea) by Mohamadain and
Hassan (2015)
– Kenya and Uganda by Nkoroi (2015)
– Ethiopia and three neighboring countries by Hailemeskel eta al. (2016)
– Uganda by Uganda Revenue Authority, (2019)

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 Introduction
• Most studies were carried out focusing on Agricultural products
mainly livestock transaction through ICBT in East Africa and
beyond (Onyango, n.d; Jean-Guy and Gerald, 2012; Chibeu, 2013;
Mkuna, 2014; Wassie, 2016)

• However, variety of products exchanged via ICBT including

livestock, clothes, electronic devices, tobacco and cigarettes, fruits
and vegetables, minerals and forest resources, and food items mainly
rice (Ackello-Ogutu, 1996; Habtamu et al., 2016).

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 Introduction

• Country specific and product focused studies in the past, limits

our understanding of the general context of ICBT in East

Africa.

• Therefore, this review based study provides a holistic

perspective in terms of showing the context of ICBT at East

Africa regional level and across variety of products traded in

ICBT in the region.

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 Introduction

• Study Objectives:

– To assess the antecedents of ICBT in East Africa

– To investigate the implications of ICBT in East Africa

– To suggest theoretical framework for ICBT in East Africa

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 Research Methods
• Research Design:

– Narrative literature review

• Data Source:

– Google Scholar, Science Direct, JESTOR, Research Gate, and

Springer

– Published and unpublished studies were reviewed

– Time coverage: 1990 and 2020, 30 years

• Data analysis:

– Content analysis and narration

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 Findings
Antecedents of ICBT
Pushing factors Pulling factors
• High Cost of Formal Trade • Ease of entry into the country and
• Limited access to finance
into the trade flow
• Limited Market Information
• Inadequate Facilities & • The cross-border price differential
Infrastructure
• Lucrative markets and income
• High Tariff & Taxes
• Bureaucratic Licensing • Employment
• Corruption & Insecurity
• Shortage of Essential Commodities
• Poor Levels of Formal
Employment • Social and Ethnic Affinities
• Limited Knowledge & Business
Management Skills
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 Findings
Implications of ICBT
Positive Impacts
• Foreign exchange earnings
• Greater availability of goods
at affordable price
• Employment creation
• Income generation and the
improvement of welfare
Negative Impacts
• Health, Environment and
Safety risks
• Governments loosing
revenues
• Failure of inspection for
standardization
• Copyrights infringement &
competition from cheaper
(sub-standard) products
• Decline in price leads local
farmers with no markets
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 Findings
Theoretical Framework

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 Recommendation
• To Government:
– Strategies and policy solutions including:
• Balanced response to ICBT in the region via Partnership
rather than criminalization
• Use ICBT as entry point to formalization-SME’s
• Strengthening safeguards
• Making business easier
• Strengthen/establish ICBT data collection and analytical
capacities
• Service dimension need emphasis
• Practice good governance
• Encourage merger and acquisition for businesses at border

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 Recommendation
• For NGO’s, private, and International organizations:
• Promote policy dialogue
• Address issues related to access to finance especially for
rural communities
• Provide support to East African countries to develop
ICBT data collection and analytical capacities (Example:
GIZ)

• Study the contribution of informal networks to cross-

trade integration, etc

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 Recommendation

• For Regional Economic Communities:

– Implement strategies including:
• Establish or strengthen existing initiatives (e.g., CBI) suited
for ICBT
• Reduce documentary requirements and put in place
transparent procedures and processes
• Increase access to market information at key border points
• Accelerate the implementation of regional trade
agreements
• Integrate ICBT into regional trade strategies, etc

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 Limitation and Future research

• The findings and recommendations are based on desk or

narrative review of existing literature.

• This may limit the reliability, validity, and applicability

• However, it can provide valuable input for future systematic

review, meta analysis, and empirical inquiry.

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 Limitation and future research
• Future research should address:
– Empirical validation of theoretical framework for ICBT in East
Africa suggested in this study
– The role of merger and acquisition, particularly, for formal firms
involved in ICBT in the region
– The impact of ICBT on local community
– Border service and ICBT
– Formal business organizations and Informal Cross-Border Trade
– The role of ICBT for MSE’s development

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Thank You for Your Attention and Time!!!!

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