Africa loses taxes as tariffs fuel illicit cross-border trade

The African Union faces a setback in its plan to create a single continental market in the next five years because a growing number of traders turn to informal channels to transact.

Restrictive rules of origin, strict immigration laws and conflicting customs procedures at official border crossing points, are denying governments billions of shillings in revenues, according to the World Bank Group.

The bank’s report titled De-Fragmenting Africa: Deepening Regional Trade Integration says that at least 90 per cent of commercial transactions in Africa are still conducted informally by traders seeking to avoid administrate barriers.

The restrictions, which defy benefits of economic integration hamper free movement of goods and services.

“Trade and non-trade barriers remain significant and fall most heavily and disproportionately on poor traders, most of whom are women,” Obiageli Ezekwesili, the World Bank’s Vice President for Africa said on Wednesday.

In professional services, strict regulatory and immigration policies in East Africa have been cited as barriers.

Others are de jure or de facto nationality requirements to practice domestic law in Kenya and Tanzania, limited recognition of foreign-licensed professionals, and work permit issues in most East African countries.

As a result, the report says, Tanzania has a shortage of teachers while Kenya has thousands of unemployed qualified teachers.

“Imagine the benefits of allowing African doctors, nurses, teacher, engineers and lawyers to practise anywhere in the continent, but responsibility for making this happen lies with countries first and foremost,” says Marcelo Giugale, the World Bank’s Africa director for Poverty Reduction and Economic Management.

The report states that the African Union Commission which has set itself a timeline of 2017 to install a free trade area comprising 53 nations has a Herculean task.

This comes as a big blow to Kenya which depends on the continent as the main outlet for its goods. Africa accounted for Sh188.9 billion of the Sh409 billion that Kenya earned from exports last year with earnings from Europe coming at a distant second with Sh109 billion.

With an average GDP growth of 7 per cent, firms in the region say exports to Africa could widen further if administrative barriers are removed.

According to the World Bank report, trade permits, export taxes, import licences, and frequent import/export bans have pushed traders to informal channels.

“African leaders must now work together to align the policies, institutions and investments needed to create a dynamic regional market on a scale worthy of Africa’s one billion people and its roughly $2 trillion economy,” Said Ms Ezekwesili, who initially served as Nigerian Minister of Extractive Industries.

In East Africa, Kenya has witnessed its export to Uganda drop for the first time in 10 years as a result of a cocktail of non-tariff barriers (NTBs) that include slow custom clearance, port congestion, and multiple roadblocks along northern corridor.