West African Cross-Border Trade: Trends and Opportunities
Cross-border trade is not a new phenomenon in West Africa. What are the major changes that made it evolve over time? And which barriers still hinder its development?
The signature of the agreement establishing the Continental Free Trade Area by forty-four African countries on 21 March 2018 in Kigali has revitalised talks on the issues surrounding cross-border trade in Africa in general, and in regional economic communities in particular. This renewed interest must be linked to one of the commitments made in the declaration adopted by African Union Heads of State in Malabo in 2014 – to triple the value of intra-African commercial trade by 2025. The experience of the Economic Community of West-African States, where the value of intra-community exchange is struggling to pass 12 percent of the region's commercial transactions – despite a trade liberalisation scheme that has been in place since 2003 – suggests, however, that the prevailing optimism should be tempered. Cross-border trade in particular, despite the qualitative changes that it has undergone over the last fifty years, still faces many obstacles that prevent it from fully fulfilling the role it is expected to play as a catalyst for growth and development in the region.
A mutating trend
There is no doubt that cross-border trade has been present in West Africa for centuries. Through the work of historians, the caravan trade can be traced back many centuries when it connected the Sahel and the forest regions through transactions in many products, ranging from cottons to spices, livestock, cola, and salt. These complementary exchanges contributed to a specific structuring of the regional trading area and encouraged the emergence of trans-territory trading networks.
From the fifteenth and sixteenth centuries onwards, European penetration changed trade flows in two ways: (i) a shift of trade towards the international market, with trafficking in slaves and raw materials, and (ii) the emergence of trade leveraging the opportunities created by disparities in economic, monetary, and fiscal policies between countries. There has been a certain intensification of the latter form of transactions since the 1940s with the monetary differentiations resulting from the introduction of the CFA franc in the French colonies and the pound in Great Britain’s colonies. Three major sub-areas or commercial networks have emerged around three hubs: Senegambia, dominated by Senegal; the Centre sub-area around Côte d'Ivoire and Ghana; and the Eastern sub-area around Nigeria. This dynamic has significantly contributed to one of the characteristics of West-African cross-border trade: the informalisation of a large proportion of transactions.
This informality is due in part to the practices of certain individual or company players who have chosen not to be registered, for various reasons, and in part to business practices that are in violation of national and regional regulations. Working informally allows these players to bypass the obstacles and bottlenecks generated by procedures, simplify border crossings, and reduce waiting and transit delays, which are detrimental to economic activities because they significantly increase costs and subject certain goods to the risk of deterioration.
Furthermore, part of cross-border trade benefits from the active or passive complicity of authorities and is therefore not recorded by national statistics. According to research conducted by the Laboratoire d’analyse régionale et d’expertise sociale, between 60 and 80 percent of petrol sold in Benin is smuggled in from Nigeria. Smuggling also affects cash crops: more than 10 percent of Côte d'Ivoire's cocoa beans are sold in Ghana, where prices are more attractive. Overall, in many West African sub-areas, the extent of cross-border trade is inversely proportional to the level of alignment of national policies. The policy disparities between Nigeria and the franc zone countries (Benin, Niger, Cameroon and Chad) explain the high level of informal exchanges in this sub-area. These exchanges cover an overwhelming majority of tradable commodities.
According to official statistics, intra-community trade represents less than 12 percent of the region's overall trade value, which corresponds to approximately 4.4 percent of GDP and a per capita transaction value of US$50 in 2015. Trade in agrifood products represents less than 10 percent of the value of intra-community transactions, despite the region's potential. West Africa produces approximately 65 million metric tons of grains, less than 3 percent of which fuels intraregional trade, in a region that still imports more than 6 million tons of this type of food each year. When it comes to livestock – nearly 200 million head, all species combined – cross-border trade covers less than 5 million head, forcing the region to depend on the international market for nearly 45 percent of its animal protein needs. The situation is even more striking when it comes to tubers and roots, which are still circulating very poorly within the region, due to a lack of sufficient added value, with the exception of a few flagship derivatives (Ivorian attiéké and yam semolina from Ghana and Nigeria).
Many barriers hinder the development of cross-border trade
Beyond the traditional issues that are often cited as barriers to the development of cross-border trade (disparities in economic, fiscal and monetary policies, cumbersome and complex procedures), the region seems to be suffering from two other trends that also hinder the development of its intra-community trade.
The first one is the fact that the region is too open to the international market. West Africa seems to be one of the regions in the world where local production protection rates are lowest, despite the creation of a fifth tariff band setting customs duty at 35 percent for 130 agrifood products in the Common External Tariff (CET). This situation leads to a peculiar trend: the recurrence of re-export trade. This is a quasi-official smuggling operation in which a country imports products in excess of its domestic needs under a domestic consumption system and then takes advantage of policy disparities to export them to a neighbouring market. Benin, whose national requirements are estimated at 400,000 metric tons of rice, imports on average 900,000 metric tons per year and re-exports more than 500,000 metric tons of smuggled rice to Nigeria. The non-enforcement of the principle of free practice within the customs union further promotes these informal forms of transactions.
The second trend is the low added value of domestic products, which circulate in the form of raw or semi-processed products, that are rarely fully regulated and standardised. This situation creates a significant gap between regional demand that is increasingly focused on this product category and regional supply. This has led to entire market segments being supplied by imports from the international market. These supplies mainly concern low-end, recycled and, increasingly, counterfeit products. In addition to endangering the health of the local population, this situation represents a serious barrier to regional trade, economic growth, and development in the region.
These trends must be considered in the context of the ambitions of the African Continental Free Trade Area, which aims to increase intra-African trade. Indeed, if radical reforms are not carried out in these countries, the African market could become easy prey for multinationals and counterfeit traders, who have the capacity to flood it with products of all kinds.
Possibilities for West African cross-border trade
Despite the challenges mentioned, the prospects for West-African cross-border trade are promising given the potential of the region, which doubles its population almost every twenty years, in addition to having a population that is still very young, is becoming increasingly urbanised, and whose consumption habits are changing. However, the use of this enormous asset relies on the implementation of aggressive policies to promote regional value chains and the implementation of incentivising reforms. The revision of the Common External Tariff, for which regional players and countries such as Nigeria are calling for the introduction of safeguard measures, will be a clear gauge of how much political authorities are aware of the real issues relating to the promotion of cross-border trade as a catalyst for economic development, job creation, and poverty reduction. The question remains whether these developments could be an effective response to the trend of informal trade, which seems to draw its strength from incomplete reforms, corruption, and weak statistical systems.
Author: Bio Goura Soulé, Programme Officer, Hub Rural