Towards a single African economic space Informal cross-border trade and the COMESA-EAC-SADC tripartite free trade area

Christopher Changwe Nshimbi

Introduction

This chapter interrogates the place of informal cross-border trade in Africa’s integration project, with a focus on Eastern and Southern Africa. The African Union (AU) enforced the African continental free trade area (AfCFTA) in May 2019 and envisages an African Economic Community (AEG) that will exist by 2028 and be built on eight regional economic communities (RECs).¹ Three of these RECs - Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and Southern African Development Community (SADC) - signed the COMESA-EAC-SADC tripartite free trade area (TFTA) agreement in June 2015. This establishes a single economic space of 26 of the 55 AU member states. Most of the 26 countries in the TFTA are members of more than one REC (see Table 5.1), a factor that motivated the creation of the TFTA.

This motivation is hinged on arguments that Africa probably has the highest number of regional organisations globally (Nshimbi, 2019). Many African countries hold multiple membership in those RECs. This complicates integration and makes it difficult to coordinate and allocate resources (Nshimbi, 2019). It generates conflict, inconsistencies and incompatibilities and also translates into higher transaction costs for governments and businesses (Gathii, 2011; Oloruntoba, 2020).

The TFTA covers about 17.3 million square-kilometres, stretching from Cape Town in Southern Africa to Cairo in North Africa and extending to Djibouti City in Eastern Africa. It represents a significant step towards continental integration and the AEC as envisaged in the 1991 Abuja Treaty for Establishing the African Economic Community. The TFTA also potentially represents a (readjustment of Africa’s economic dependence, socioeconomic and political problem, and asymmetries in historical Euro-African relationships (Bolarinwa, 2010; Nshimbi, 2019). It comprises approximately 600 million people, generates a US$1 trillion gross domestic product (GDP) and includes countries with diverse socioeconomic conditions (see Table 5.2). GDP per capita ranges from approximately US$601 in Tanzania to US$7,700 in Botswana. The countries in the region embraced

Table 5.1 COMESA-EAC-SADC TFTA member states: membership in TFTA RECs, 2019

Source: Compiled by author.

neoliberalism in the late 1980s and early 1990s (unevenly and moderately), liberalising their economies under the auspices of international financial institutions like the World Bank and International Monetary Fund (IMF). Progress in opening up to trade has been modest, going by the trade-to-GDP ratios displayed in Table 5.2. However, regulatory environments in these countries do not seem very conducive to business, as the high ease of doing business (EDB) values in Table 5.2 indicate.

Various forms of democracy define the governance systems in the respective countries of the TFTA. Some hotspots also characterise politics in some of them. Two significant ones, besides Egypt and Libya, threaten the peace, which is an important prerequisite for development and the success of the TFTA project. They include the Great Lakes region and Horn of Africa.² The 1990s and 2000s saw conflict concentrated in Rwanda, Burundi and the Democratic Republic of the Congo (DRC), and spilling into neighbouring countries. The regional consequences of the conflicts are reflected in the directions and places to which people are displaced. Similarly, the Horn of Africa, including Djibouti, Eritrea, Ethiopia

Table 5.3 National legislation of selected COMESA-EAC-SADC TFTA states and attitude towards ICBT

Source: Compiled by author from various pieces of legislation.

and Somalia, generates conflicts that result in displacements to as far as South Africa. Still, narratives of a conflict-ridden Africa and low levels of intra-African trade informed by such realities overlook longstanding cross-border interactions between actors at grassroots.

Africa also touts integration as the key strategy for accelerating socioeconomic transformation (UNECA, 2010). But the strategy seems to overlook actors obscured from mainstream economic activities and operating outside the state’s gaze (Turner, 2013). Informal cross-border traders (ICBTs) operate in the informal economy, which constitutes approximately 70% of the total economy in some African countries (McLachlan, 2005; Nshimbi & Moyo, 2017; Sommer & Nshimbi, 2018). Actors in the informal economy are real and need attention, if the TFTA is to facilitate inter- and intra-regional trade. This is worth emphasising. The literature presents two broad contrasting views regarding the informal economy and actors and activities therein. While one reduces the sector to criminal activities and lawbreaking, the other upholds the contribution of informal actors to sustaining livelihoods, employment and regional integration (Schneider & Enste, 2013; Nshimbi & Moyo, 2017).

Regional integration in Africa is linear a la customs union theory (Balassa, 1961). It is state-driven and focussed on trade, in which ICBTs engage too, albeit on a smaller and grassroots scale. The high levels of inequality and unemployment among youths (see Table 5.2) in TFTA countries underscore an important need that is apparently ignored. The data in Table 5.2 indicates that attention should be given to the informal sector. The high levels of unemployment in the countries listed in the table and the fact that economically active people (i.e. population aged 15-64) constitute majority of the populations in those countries corroborate literature on levels of informality in these countries being about 70% (McLachlan, 2005; Nshimbi & Moyo, 2017; Sommer & Nshimbi, 2018).

Table 5.2 also suggests that the business environment in which these youthful actors operate is difficult. The high EBD values (Table 5.2, last column) alluded to earlier suggest that the informally unemployed youths too, like formalised business entities, face difficulties conducting business in those countries.

Hence, the question arises whether policymakers in African RECs are conscious of and value the informal economy and informal cross-border trade. The reality of the informal sector and persistently high unemployment levels and initiatives of many unemployed youths to self-employ and engage in informal cross-border trade (Table 5.2; Nshimbi & Moyo, 2017; Nshimbi, Moyo & Oloruntoba, 2018) prompt the question: What place do the RECs in the TFTA initiative allot to informal cross-border trade in the broader vision of Africa economic integration? The aim is to establish whether African policymakers take due cognisance of the informal economy whenever negotiating regional integration. The chapter seeks evidence that reflects African policymakers’ recognition of informal cross-border trade and ICBTs as contributors to integration. It, therefore, examines the TFTA negotiation process. To the best of the author’s knowledge, no study has examined the TFTA vis-à-vis the informal economy and informal cross-border trade, especially the way in which the chapter theoretically attempts to integrate informal cross-border trade into the understanding of regional integration as postulated in neoclassical economics integration theory (Balassa, 1961). Empirically, the study is undertaken with the realisation that the informal economy, which tends to be stigmatised as backward, insignificant and illegal (Hart, 1973, 1985; Ponsaers et al., 2008; Webb et al., 2013), continues to face challenges in Africa. But some countries and RECs are seemingly gradually seeing the importance of the sector to livelihoods, employment and meeting other socioeconomic needs (Nshimbi, 2020). They see that it has a dynamic history, complexity, link to the formal sector and its contribution to regional integration.

Methodological approaches to understanding the place of informal cross-border trader in the COMESA-EAC-SADC TFTA

Relevant national, regional and continental policies/legislation and documents from TFTA negotiations as well as the literature on regional integration were thoroughly reviewed for the analysis presented in this chapter. The policies, legislation and documents crafted by policymakers and public officials were analysed because they reflect their thinking and preferences (Duncan, 2009; Tsebelis & Garrett, 2016; Harrison & Boyd, 2018). Interviews were also conducted with six relevant policymakers at secretariats and member states of the three RECs, and officials who had participated in TFTA negotiations. Eighty-four additional respondents included 54 ICBTs, eight health workers, eight school administrators, four workers in non-governmental organisations (NGOs), two local government officials and eight ordinary inhabitants from selected towns in Eastern and Southern African borderlands. The data collection exercise was intermittently

A single African economic space 81 conducted for a year, between September 2013 and November 2015. Respondents were asked to give views about ICBT, in view of the dominant understanding that ICBT is criminal and illegal. The ICBTs were initially randomly selected from cross-border trader’s association registers and the snowballing sampling method subsequently deployed. Interview responses were coded and thematically analysed according to the objectives and questions of the chapter.

All the countries listed in Table 5.2 are part of the TFTA and were selected because: the first three host the respective COMESA-EAC-SADC REC secretariats, and Egypt, Kenya and South Africa economically dominate their respective RECs vis-à-vis GDP. The policies, legislation and official documents obtained from secretariats were subjected to content analysis, from which key themes were distilled. Thus, a qualitative research design and content analysis as a methodology (Lawless & Chen, 2018) were used.

A major setback to the completeness of data used for the analysis relates to the difficulty in accessing interview respondents in the EAC. The period originally set for the data collection exercise there inadvertently coincided with rising violent extremism and attacks by insurgent militant groups such as al-Shabaab (International Crisis Group, 2014; Walker & Arif, 2014; Williams, 2014; Cheeseman, Kanyinga & Lynch, 2020). Consequently, the data collection exercise was called off. This unforeseen eventuality was mitigated by triangulating existing East African regional integration literature and reports on ICBT in that region with data collected in the COMESA and SADC regions. Besides, as Table 5.1 shows, Rwanda, Kenya and Uganda are simultaneously members of EAC and COMESA, where interviews were conducted.