Informal cross-border trade key to generating employment, income in Africa

Informal cross-border trade (ICBT), a key component of intra-African trade, is essential in employment and income generation in Africa, a new report by the African Export-Import Bank (Afreximbank) has said.

The African Trade Report (ATR) 2020, an annual flagship publication by Afreximbank, was on Tuesday launched virtually.

Over the years, it has analysed major development in global trade and key factors that impacted during the review period.

“This year’s report examined trade and economic developments in Africa in 2019, a year dominated by trade wars and escalating tariffs that resulted in sharp deceleration of global trade growth. This has been compounded by COVID-19, and as a result, following a fall of 2.9 per cent last year, global trade is expected to shrink by 9.2 per cent in 2020,” it said.

According to the President of Afreximbank, Benedict Oramah, ICBT has sustained economic ties between communities and later grown beyond the communities to be a major driver of economic growth across Africa.

“Even though ICBT accounts for a significant proportion of domestic absorption and has become a major source of income for consumption smoothing, its contribution to GDP is hardly recognised,” he said while giving his remarks.

The report estimates that ICBT serves as a source of income for about 43 per cent of Africa’s population and is dominated by women.

“Global trade expected to contract by 9.2 per cent this year, having fallen by 2.9 per cent in 2019. Africa’s share of global trade was 2.7 per cent in 2019, below the 4 per cent figure of the 1970s. Informal cross-border trade which is a key component of intra-African trade is wide-spread in its composition.

“The African Trade Report estimates that in Eastern African, ICBT is very high and could be worth as much as 80 per cent of the value of formal trade in some countries. South Africa was the biggest contributor to Intra-African trade, accounting for 23 per cent of total trade, in 2019. The biggest jump came from DRC which became the second intra-African trading nation, accounting for 10.4 per cent of total intra-African trade and Nigeria was third with 7 per cent.”

It said the African continent remains overly dependent on the export of raw commodities, ”with oil and gas accounting for over 37 per cent of total exports.”

Importance of ICBT

Despite regional variations, the report highlighted the importance of ICBT for generating employment and income.

“In Southern Africa (the SADC block), female traders account for about 70 per cent of ICBT. In West Africa, food and agriculture products accounted for 30 per cent of intra-regional trade.”

According to the report, between January and August this year, Africa’s merchandise trade contracted by 12 per cent compared to the same period last year, with April and May emerging as the period witnessing the largest contractions.

“The outlook for 2021 is positive and Africa’s trade is expected to rebound strongly in 2021 as global economic activity picks up and demand for African exports increases.

“The share of Africa’s exports to Asia increased to 30.79 per cent in 2019 while the EU’s share decreased to 24.6. China and India have been the main drivers of the rising trade relationships between Africa and Asia, with China and India accounting for 27 per cent of Africa’s total merchandise exports in 2019.

“A similar pattern is also observed in the sourcing of imports by African countries. Even though the EU has historically been the largest market for Africa’s imports, its share of total African imports has been decreasing steadily and Asia has become as important as the EU.”