Cross Border Trade (CBT) has proved to be a reliable mechanism to achieve inclusive economic growth in any economy, however disaggregated markets limit the impact of Cross Border Trade.
African governments have spent years exploring ways of developing CBT but these have been met with limited success in South Africa. African Cross Border Trade is characterised by disaggregated and unorganised markets, which are exacerbated by a lack of quality supply, limiting the real potential of CBT.
But these disaggregated and poorly organised market conditions can be addressed through the establishment of formalised cross border markets (CBM) that enable trade through the provision of infrastructure, and services such as storage; consolidation and access to border agencies and trading platforms.
This would leverage the multiplier effect between market driven trade and economic enablement, helping to deliver increased economic and social returns.
Our experience demonstrates that disaggregated and disorganised trade impacts trade value and volume. Traders and brokers are affected at the point of sale because of process and infrastructure issues while farmers, service providers and markets are impacted due to a lack of working capital, limited market understanding and a lack of consistent quality supply.
Figure 1 – Cross Border Markets – Disaggregation versus Aggregation
Direct challenges of Disaggregated and Disorganised markets
There is a lack of efficient support services and infrastructure including product testing, agency coordination, border opening times, adequate weighbridges, and also a lack of storage capacity, which negatively affects the volume and value of products traded. Further, the inconsistent levying of taxes and duties results in the under declaration and informal trade of goods across borders. These challenges are further exacerbated by border delays and closures, a lack of alignment between agencies and countries as well as the confiscation of goods.
Indirect Challenges of disaggregated and disorganised markets
In addition to the direct challenges experienced as a result of disaggregated and disorganised markets, there are several indirect challenges that play out within the value chain and hinder the impact of CBT. The challenges play out in the backward and forward linkages as follows:
- Backward Linkages
There is an inconsistent supply of quality product which meets the necessary legal standards directly impacts affects the value and volume traded through the border markets. A lack of storage and varied product pricing also affects the consistency of supply. Within the source markets, there is limited access to funding across the supply side from farmer input material through to trader’s working capital which again limits the potential of quality supply.
- Forward Linkages
There is a lack of trader administrative compliance such as business registration, which affects the level of compliant trade, largely caused by a lack of interest and complexity of compliance. The inconsistent application of taxes further reduces compliance and encourages informal trade.
Inefficient border processes and delays in administration and product compliance results in a delay to trade and increases the trade cycle length and product losses. Furthermore, demand is limited by regional market access. Traders focus on serving local market demand, thus negatively impacting the price and consistency of demand for goods. Local market focus increases the risk of non-payment. Product export compliance further limits traders and access to new export markets.
How the implementation and operation of the CBM resolves challenges
The implementation and operation of a CBM establishes a trading platform which enables the resolution of trade related challenges. It is effective directly within the trading area and indirectly across the value chains of trade.
Figure 2 – CBM-enabled value chain
Direct CBM Impact
The CBM enables the aggregation of supply; providing a focal point for trade to occur more efficiently. This is achieved through the provision of improved cross border trade services such as access to product testing, a secure trading environment, storage facilities and business compliance support.
The CBM also acts as a central trading hub for trade, enabling enterprises to offer access to finance and market pricing information, as well as import and export services and product transport.
Indirect CMB Impact
There is coordination up and down the value chain with both the supply side including farmers, and also the demand side, through the establishment of new markets.
This coordination is critical in enabling cross border trade.
It ensures product quality and consistency of supply and demand, which is the basis for sustainable trade. The trade formalisation and organisation that a CBM provides is a catalyst for the development of the value chain to develop supply consistency and new market demand.
The effect of aggregated and organised markets
The development of cross-border markets and the support of value chains facilitates the establishment of economic drivers such as the consistency of supply and demand, market related pricing, and product quality all of which are key to developing trade value and volume.
The impact of an improvement of trade enabled via a CBM can be aligned to both social and economic benefit. From a social perspective there is an impact on job creation and social inclusion and from an economic perspective, one generates benefits from a trade and commercial perspective.
Figure 3 – Impact of Cross Border Markets from a Social and Economic Perspective
Conclusion
Formalised markets situated at border crossings such as CBMs facilitate the organisation and aggregation of cross border trade while providing a mechanism to develop industry value chains. Letsema’s experience in supporting the development of CBMs and industry value chains positions us as your partner to economic development in Sub-Saharan Africa.
