«Malaba Mutukula Lwakhakha May 2007 FOREWORD The Informal Cross Border Trade (ICBT) Survey is an economic survey covering unrecorded trade ...»
6.9 million (8.6 percent), and then mosquito nets accounted for US 3.3 million (4.1 percent). The other prominent industrial products that took a significant share of the imports bill were the cooking oil/fat with estimated value of US $ 2.3 million (2.9 percent), sugar was valued at US $ 1.5 million (1.8 percent), and Shoes imports valued at 1.1 million (1.4 percent) Rice was the main informal imported agricultural product whose expenditure was estimated at US $ 4.1 million accounting for 5.0 percent of the total informal imports bill share. The other main imported agricultural commodities were beans, unprocessed 29 coffee, bananas, peas, cassava, and potatoes. Most of the unprocessed coffee imports originated from Kenya, Tanzania and DRC due to readily available market and competitive prices offered for the crop in Uganda.
This part discusses the trade flows of exports and imports for each border station covered during the period 2006. The aggregated trade flows through each station are shown in Table 9. The figures of exports and imports by border station; commodity type, quantity and value are shown in Tables 13 and 14 of Appendix I.
Busia emerged as the busiest station under ICBT. The value of exports and imports through Busia were estimated at US $ 75.9 million (64.1 percent) and US $ 51.7 million (32.8 percent) respectively. The exported products through Busia were agricultural commodities mainly maize, beans, groundnuts and millet. Mpondwe along the DRC border ranked second with exports worth US $ 37.6 million (16.2 percent) and US $ 2.5 million (3.2 percent) of total imports. Odramachaku came third, with a share of 11.9 percent (US $ 27.5 million) and 1.8 percent (US $ 1.5 million) for exports and imports respectively. Mutukula ranked fourth with exports share of US $ 21.5 million (9.3 percent), while the imports share was only US $ 4.2 million (5.3 percent). The other stations that recorded significant informal trade flows were Malaba, Katuna and Oraba.
Malaba ranked second as the main crossing point for imports.
The survey revealed that 82.9 percent (US $ 192.0 million) of informal exports went through Busia, Mpondwe, Odramachaku, Mutukula, Katuna and Malaba border stations.
Mean while, 84.7 percent(US $ 64.0 million) of informal imports went through four border stations of Busia, Malaba Mutukula and Paidha.
Oraba which borders southern Sudan recorded 3.4 percent (US $ 7.8 million) of the informal trade transactions.
31 Wheel Chairs used by people with disabilities accounted for 11.6 percent (US $ 9.4 million) of imports and 0.3 percent (US $ 0.8 million) of exports. This suggests that people with disabilities are more engaged (interested) in aiding informal importers of industrial goods that account for 9.0 percent of all total imports, as compared to only 2.6 percent of agricultural imports. In so doing, they strategically position themselves to maximize earnings from transportation of imported goods, which are portable.
Others modes of transport include motorcycles and animals mainly donkeys contributed
0.4 percent (US $ 1.0 million) of exports and 0.2 percent (US $ 0.1 million) of imports transacted under informal arrangement for the period stated.
5.0 ICBT IMPLICATIONS, CONCLUSION AND RECOMMENDATIONSThis Chapter provides a summary of the survey findings; states the policy implications of informal trade activities and gives recommendations. It further provides challenges and the way forward.
5.1 Summary of the findings
The main findings of the survey are as follows:
1) Informal cross border trade between Uganda and her neighbours is significant. They involve transaction of large amounts of both agricultural and industrial products.
2) During 2006, Uganda’s informal exports were estimated at US $ 231.7 million while imports were valued at US $ 80.6 million with a trade surplus of US $ 151.1 million. The overall export earnings are worth US $ 1.19 billion from formal and informal trade in 2006 compared to an estimated value of US $ 1.01 billion in 2005.
3) Uganda had a comparative advantage in export of agricultural products to all neigbouring countries, Kenya being the biggest recipient. DRC was the main export destination for manufactured products from Uganda. The overall earnings from informal export of agricultural and industrial products were estimated at US $ 112.8 million and US $ 117.9 million respectively.
4) Fish and maize were the main informal exports among agricultural products whose earnings were estimated at US $ 33.4 million and US $ 27.0 million in 2006, respectively.
The main imported industrial product was polythene bags whose expenditure was estimated at US $ 25.9 million.
5) Vehicles and Bicycles were the main means of transport for informal exports while for imports, Hand/head and bicycles.
6) The biggest bulk of ICBT is concentrated at Busia and Malaba borders.
5.2 Policy Implication
The Informal trade transactions have far reaching economic consequences on the nations involved and the regional economic cooperation at large. If this trade is not monitored on a regular basis, intra-regional trade will always be understated in the Balance of payments and other economic statistics thus leading to poor policy formulation.
5.2.1 Food Security
The most exported products from Uganda under ICBT arrangement comprised of agricultural commodities, which have a direct implication on the food security of the country and the regional states. Items such as maize, beans, potatoes ground nuts and rice are sold in bulk, yet some parts of the country experience food shortage during prolonged drought. At the moment, there is no government policy in place to harness such abundant food resources during bumper harvest. The flow of foodstuff is in both directions, which highlights greater economic interdependence among the regional states on food security than was acknowledged before.
5.2.2 Price Competitiveness of informal goods Items traded under ICBT are raw materials with virtually no value added, which undermines their competitiveness in the regional and international markets. Besides, there are no proper quality control measures or standards followed under informal trade 33 hence commodities fetch low prices. Empirical evidence from both the pilot and main survey show that, formal traders earn much more per unit compared to their informal counterparts. There is need therefore to encourage farmers/traders to form cooperatives to bargain for favourable prices. Further more, establishing food silos at border posts to purchase agricultural commodities during bumper harvest in bulk would protect traders/farmers from price volatility.
5.2.3 Loss of revenue
The current difference in fiscal policy inherent in the region has encouraged ICBT, leading to tax evasion. Import duties are a major source of revenue to government. Most shops at border posts are stocked with merchandise procured in small quantities (especially manufactured goods like sugar, plastics, cooking oil, etc) from neighboring countries, denying government of import duty.
5.2.4 Domestic Industrial competition
Domestic industries face stiff competition from goods produced from neighbouring countries (especially manufactured goods from Kenya) whose industries are enjoying economies of scale. The goods are sold at cheap prices, which discourage consumption of domestic products which are expensive.
5.3 Conclusion and Recommendations
1. All in all, there was overwhelming evidence that a lot of informal trade exist between Uganda and her neighbours. The results give an anti thesis to the UNCTAD notion that there is no or little intra-Africa trade. It is recommended therefore that monitoring of unrecorded trade should be done regularly and its budget included in stakeholders’ Annual Budgets and Work Plans.
2. The agricultural products dominate the informal export sector among the goods exported to the neighboring countries during the period under review. The findings further show that Uganda has a comparative advantage in export of agricultural products under informal trade arrangement within the region, which should be further exploited through value addition to earn more foreign exchange. Moreover, value addition together with strict adherence to international standards would also enable Ugandan products to access EU and US markets under Everything But Arms (EBA) and AGOA initiatives respectively.
3. It is recommended that a policy framework should be formulated to guide informal trade activities where quality control and value addition issues take precedence to enable the traders earn more.
4. Regional states are therefore encouraged to harmonize their fiscal and trade policies to curb the adverse effects associated with ICBT activities on their economies.
The survey presents a number of challenges that the technical team has to surmount in order to enrich the information gathered and become more relevant to the users.
1. There is need to collect qualitative information to supplement quantitative data from border communities to assess the impact of ICBT. The technical issues of coverage and methodology especially estimating flows for un-monitored border posts and trade transactions through nearby crossing points need further refining.
2. The agricultural production cycles vary from region to region and season to season.
Considering that most commodities traded under ICBT are agricultural products, monitoring for a complete year to cover the entire agriculture cycle is necessary to capture seasonality. This poses the biggest challenge of raising adequate funds for the survey to cover a whole calendar year.
3. The monitoring of ICBT could be complicated if EAC becomes a common market where the entire region is considered as one country due to ever-changing policy environment.
4. Transforming the ICBT data into international commodity nomenclature such as Harmonized Commodity Coding and Description System (HS2002) and Standard International Trade Classifications (SITC) is crucial for easy integration of the data into the main external trade database. However, some of the items were recorded in local names that may not be found in these nomenclatures.
5. Furthermore, detailed analysis of ICBT data to assess the bias associated with the data collection techniques and estimation errors are challenges to be addressed by the technical team.
There is need to consolidate the already finished work and continuously seek for further improvement in order for the survey to generate adequate information (both qualitative and quantitative) needed by policy makers.
Specific issues of coverage for both the period of the survey and the border points monitored (from the current fourteen customs posts to twenty seven) including the airport and bus terminals need to be addressed urgently. These could widen the coverage and composition of goods transacted through these places that are likely to be somewhat different from those captured in the existing database.
More funds should be committed by the Government, stakeholders and the Development Partners for ICBT survey to be carried out on a permanent and Sustainable basis.
1. Ackello-Ogutu, Chris, (1996), “Methodologies for Estimating Informal Cross-border Trade in Eastern and Southern Africa”: A USAID SD Publication Series; Office of Sustainable Development Bureau for Africa.
2. A working Document on “Improvement of Intra-African Trade Statistics with emphasis on the use of Statistical Software Packages” by United Nations Economic and Social Council, of Economic Commission for Africa; October, 1999
3. Enock F. Ching’anda (1995), “Manual on Methods of Estimation of Missing International Trade Data in Africa”, a UNECA publication.
4. M.K Gupta etc (1996), Fundamentals of Statistics, Vol.2.