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«Malaba Mutukula Lwakhakha May 2007 FOREWORD The Informal Cross Border Trade (ICBT) Survey is an economic survey covering unrecorded trade ...»

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THE INFORMAL CROSS BORDER TRADE

SURVEY REPORT 2006

Malaba

Mutukula Lwakhakha

May 2007

FOREWORD

The Informal Cross Border Trade (ICBT) Survey is an economic survey covering unrecorded

trade transactions in goods across Uganda’s borders that are not included in official customs

data. This survey is the third in the series to be undertaken by UBOS and the Bank of Uganda.

The data was collected in 2006 from the fourteen main customs stations that experience large informal trade flows.

The information generated will contribute to the effective monitoring of the economy and formulation of appropriate trade policies that will impact on the external trade sector and the country’s economic development. The findings will further improve on the External Trade Statistics, Balance of Payment (BOP) Statistics and Gross Domestic Product (GDP) estimation.

Previous attempts to estimate informal trade by BOP and National Accounts compilers grossly understated its contribution to overall international merchandise trade statistics in the BOP Current Account.

The survey generated detailed information on commodities transacted, their direction of trade, the quantities and values that investors, policy makers, the business community, academia, and the general public will find useful for planning, decision making, and market research including food accessibility studies in the country. We therefore urge data users and stakeholders to make use of this valuation statistical resource to make informed decisions. Furthermore, the EAC Member States are welcome to share this statistical information to improve their trade statistics and for future collaboration in similar surveys to achieve synergy.

We are very grateful to the donors and stakeholders who contributed to the success of this survey. We particularly thank DFID for the financial support that facilitated fieldwork activities.

Special thanks also goes to the ICBT technical team, Enumerators, Customs Officers, Immigration Officers and Security Officials at designated border posts whose invaluable input led to the successful execution of the survey.

We look forward to this continued cooperation and contribution in similar future surveys.

J.B Male Mukasa Emmanuel Tumusime-Mutebile

EXECUTIVE DIRECTOR GOVERNOR BANK OF UGANDA

UGANDA BUREAU OF STATISTICS

ii

TABLE OF CONTENTS

DEFINITIONS

EXECUTIVE SUMMARY

CHAPTER ONE

INTRODUCTION

1.0 Background to Informal Cross-Border Trade Survey

1.1 Statement of the problem

1.2 Overall objective

1.3 Specific objectives

1.3.1 Scope and Coverage

1.4 Significance

1.5 CHAPTER TWO

METHODOLOGY

2.0 Selection of Customs Stations for monitoring

2.1 Selection of weeks for monitoring

2.2 Direct Observation Technique

2.3 Up-rating of Survey Results

2.4 The Up-rating Model

2.5 Estimation of missing data for un-monitored months

2.6 Interpolation Method

2.6.1 Extrapolation Method

2.6.2 Data Limitation

2.7 CHAPTER THREE

BORDER PROFILES

3.0 Background

3.1 Border Posts along the Uganda/Kenya Border

3.2 Busia

3.2.1 Malaba

3.2.2 Lwakhakha

3.2.3 Suam River

3.2.4 Border Posts along the Democratic Republic of Congo

3.3 Mpondwe

3.3.1 Ishasha River

3.3.2 Bunagana

3.3.3 Vurra

3.3.4 Odramachaku

3.3.5 Phaidha

3.3.6 Border Posts along the Tanzanian Border

3.4 Mutukula

3.4.1 Border Posts along the Rwanda Border

3.5 Mirama Hills

3.5.1 Katuna

3.5.2 Border Posts along the Sudan Border

3.6 Oraba

3.6.1 CHAPTER FOUR

4.0 FINDINGS AND ANALYSIS OF RESULTS

iii Introduction

4.1 Direction of Trade

4.2 A Comparison of Formal and Informal Trade Flows

4.3 Uganda’s Trade with East African Community Countries

4.4 Trade with Kenya in Major Agricultural and Industrial Products

4.4.1 Trade with Tanzania in Major Agricultural and Industrial Products

4.4.2 Trade with Rwanda in Major Agricultural and Industrial Products

4.4.3 2006 Overall Main Informal Exports

4.5 Trade flows by border station

4.7 Modes of Transport

4.8 CHAPTER FIVE

ICBT IMPLICATIONS, CONCLUSION AND RECOMMENDATIONS

5.0 Summary of the findings

5.1 Policy Implication

5.2 Food Security

5.2.1 Price Competitiveness of informal goods

5.2.2 Loss of revenue

5.2.3 Domestic Industrial competition

5.2.4 Conclusion and Recommendations

5.3 Challenges

5.4 Way Forward

5.5 APPENDEX I

REFERENCES

ivList of Tables

Table 1: 2006 Informal Exports and Imports by Country and Trade Balances.... 20 Table 2: A Comparison of Formal and Informal Trade Flows (‘000)

Table 3: 2006 Estimates of Informal Trade, by Product Category with neighbouring Countries (‘000 US $)

Table 4: 2006 Estimates of Informal Trade, by Product Category with neighbouring Countries (‘000 US $)





Table 5: 2006 Informal Exports, Imports and Trade Balances per Product Category (‘000 US $)

Table 6: 2006 Informal Exports and Imports for EAC Region and Trade Balances

Table 7: 2006 Overall Main Informal Exports of Industrial, Agricultural and the Other Products (in Shs and US $)

Table 8: 2006 Overall Informal Imports of Industrial, agricultural and other products (in Shs and US $)

Table 9: Informal Exports and Imports by Border Station, Value and Percentage share

Table 10: Modes of transport; Value and Percentage Share of Exports and Imports

Table 11: ICBT Exports by Destination, Commodity Type and Value (Shs & US$)

Table 12: ICBT Imports by Destination, Commodity Type and Value (Shs & US$)

Table 13: Exports by Customs Station, Commodity Type, Quantity and Value (Shs & US$)............ 38 Table 14: Imports by Customs Station, Commodity Type, Quantity and Value (Shs & US $).................. 41 List of Figures Figure 1: Map of Uganda showing Cross-Border Monitoring Customs stations (underlined)....... 11 Figure 2: A comparison of 2006 and 2005 Exports by Country of Destination

–  –  –

This report is based on estimates of the survey carried out in 2006 during the months of March, May, June, September and November. The ICBT monitoring covered fourteen main customs stations that experience large informal trade flows. The survey objectives included gathering information on the nature of unrecorded commodities transacted, their quantities and values, different modes of transport used for conveyance, and the direction of trade. It also sought to determine Uganda’s comparative and competitive advantage with respect to the traded commodities under informal trade.

In 2006, Uganda informally exported goods worth US $ 231.7 million and imported goods estimated at US $ 80.6 million thereby recording a trade surplus of US $ 151.1 million. On the other hand the recorded official exports and imports were valued at US $ 962.1 million and US $ 2,557.3 million respectively. This implies that Uganda’s overall export earnings from both trading arrangements (formal and informal trade) amounted to US $ 1.19 billion in 2006 compared to the combined export earnings of US $ 1.01 billion in 2005. The trade deficit resulting from both formal and informal is estimated at US $ 1,444.0 million in 2006.

All the five neighboring countries are actively involved in informal/unrecorded cross border trade in all product categories. Overall, Uganda earned US $ 117.9 million and US $ 112.8 million from export of industrial and agricultural goods respectively. The main exported agricultural product was fish valued at US $ 33.4 million, while the major imported industrial product was polythene bags whose imports bill was estimated at US $ 25.9 million. The summary of estimates of informal trade with Uganda’s neighbours is presented below.

Kenya

During 2006, Uganda exported to Kenya goods worth US $ 96.9 million, of which agricultural commodities accounted for US $ 75.0 million. This compares with an estimated exports value of US $ 107.0 in 2005. Meanwhile, Uganda’s imports from Kenya were estimated at US $ 63.9 million, of these, industrial products were valued at US $ 55.8 million. Overall, Uganda recorded an estimated trade surplus of US $ 33.0 million in 2006 compared to US $ 62.8 million in 2005.

The main agricultural and industrial products exported to Kenya were Maize and shoes (new and second hand shoes) whose earnings were valued at US $ 19.6 million and US $ 4.0 million respectively. Approximately 80 percent of Uganda’s imports transacted under informal trade originated from Kenya. Overall, Uganda had a comparative advantage in export of agricultural products, whereas Kenya export had a competitive advantage over industrial products.

Democratic Republic of Congo (DRC)

Uganda’s informal trade with the Democratic Republic of Congo (DRC) increased from US $ 73.9 million in 2005 to US $ 80.5 million in 2006. The total informal trade (imports and exports) with DRC was estimated at US $ 91.7 million with a trade surplus of US $ 69.2 million. Exports to DRC were dominated by industrial products valued at US $ 58.0 million, while agricultural products fetched US $ 21.8 million. Meanwhile imports from DRC were mainly agricultural commodities valued at US $ 8.9 million compared to imports of industrial products worth US $ 2.4 million.

Overall, Uganda had both comparative and competitive advantage in export of industrial and agricultural products to DRC which is less industrialized. It is important to note that the flow of agricultural goods was in both directions emphasizing the economic interdependence of both countries in terms of food security. DRC remained Uganda’s main export destination for industrial products in the region under unrecorded trade arrangement in 2005 and 2006. The busiest border posts along the DRC frontier were Mpondwe and Odramachaku. Fish was the main export to DRC whose earnings were estimated at US $ 19.5 million.

ixTanzania

Uganda’s unrecorded/informal export trade with Tanzania increased substantially from US $ 2.8 million in 2005 to US $ 21.5 million in 2006. The informal imports also increased from US $ 0.6 million to US $ 4.3 million in the same period. The leading agricultural exports to Tanzania were maize and beans, whose values were estimated at US $ 5.8 million (30,288 tones) and US $ 0.8 million (1,849 tones) respectively. Under industrial products category, the main exported commodity to Tanzania comprised of clothes (new and second hand clothes) which fetched US $

3.9 million.

The unprocessed coffee was the main imported agricultural product from Tanzania under unrecorded trade during the year 2006. Coffee imports accounted for US $ 0.9 million from an estimated volume of 2,010 tonnes. The recent inflows of unprocessed coffee from Tanzania and other neighbouring countries could be attributed to readily available market and favourable prices offered for the commodity under a liberalized trade environment. The other agricultural products that were imported included peas, beans and rice whose values were estimated at US $ 0.8 million (376 tones), US $ 0.6 million (1,095 tones) and US $ 0.4 million (585 tones) respectively.

Rwanda

Rwanda is a new EAC Member State whose trade with Uganda increased considerably in the last two years under informal/unrecorded trade. Uganda’s informal exports to Rwanda more than tripled from US $ 7.3 million in 2005 to US $ 25.0 million in 2006. Industrial products dominated the informal export commodities to Rwanda fetching an estimated US $ 17.9 million compared to agricultural products earnings of US $ 6.9 million. The main industrial products exported to Rwanda consisted of shoes, maize flour, and clothes whose earnings were estimated at US $ 4.6 million, US $ 4.3 million, and US $ 1.2 million respectively. Maize was the leading agricultural export whose earnings were estimated at US $ 1.6 million (7,697 tones); followed by root crops (Irish potatoes, sweet potatoes, cassava) which earned US $ 1.4 million, and then beans, bananas and ground nuts with earnings estimated at US $1.1 million, US $ 0.9 million and US $

0.3 Million respectively.

Conversely, Uganda’s major agricultural imports from Rwanda were fruits, peas, and, hides and skins whose combined value was estimated at US $ 0.5 million.

Sudan Trade between Uganda and Sudan grew significantly after the restoration of peace and security in the Southern Sudan. However, unrecorded exports to Sudan fell slightly from US $ 9.1 million in 2005 to US $ 7.8 million in 2006 due to insecurity caused by rebels along the border where some traders lost merchandise. Informal exports to Sudan comprised of mainly industrial products like soft drinks, mattresses, and wheat flour, while imports from there were mainly agricultural products like beans, maize, millet and sorghum. Fish was the leading export to Sudan whose earnings stood at US $ 0.9 million, followed by mattresses with US $ 0.8 million while Sodas fetched US $ 0.7 million.

Conclusion and Recommendations

The survey findings reveal that a substantial proportion of the informal trade involves agricultural commodities which have a direct implication on the regional food security. In general, Uganda has a comparative advantage in export of agricultural commodities although it imported similar products in small quantities from her neighbors. The export earnings of industrial products surpassed agricultural commodities during 2006. This stresses Uganda’s strategic position in the region in terms competitive and comparative advantage on all products compared to her less x industrialized neighbours like DRC, Sudan, and Rwanda. Kenya was the only country in the region where Uganda imported a significant portion of industrial products under unrecorded trade.



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