Crossing the border between Malawi and Zambia – How to convince informal traders to give up the ‘Zalewa’ route?
There is still room for improvement to facilitate the trade integration between Malawi and Zambia.
We recently took a trip hoping for smooth passage, but it took us two hours to cross the border at Mchinji, even though we had the Permanent Secretary for Trade on board - as well as officers from customs.
Besides the normal formalities on both the Malawi and Zambian side of the border, the main delay was linked to an insurance necessary for the Malawian bus to drive on Zambian roads.
This is the kind of non-tariff barrier that business people have lamented for years.
Malawi and Zambia, two neighbouring countries in Southern Africa who signed up to regional integration processes for quite some time. They both belong to COMESA since 1993, are members of the Tripartite initiative, and Zambia is currently chairing the negotiations of the free trade agreement. And since September 2012, both countries have reaffirmed their commitment to move faster on integration by signing up to the Accelerated Programme for Economic Integration (APEI), together with Mauritius, Seychelles and Mozambique.
So on the one hand, the two countries make strong political signals that trade integration is important to their development and a fundamental component of their vision for the future. Yet on the other hand the reality on the ground is not quite so rosy.
That said, last month the Ministries of Trade from Malawi and Zambia organised a joint meeting to discuss and validate their Diagnostic Trade Integration Study (DTIS), in cooperation with the World Bank. Never before had two countries done a joint consultation on their DTIS and the fact of having this consultation not just in the capital but close to the border, with many small cross-border traders was rather unique, and interesting.
An easier trading life. In theory
There exists a regime that aims to improve life for small traders; it is called the COMESA Simplified Trade Regime. But while trading is their daily bread and butter, several of the participating small traders had not even heard of it, let alone used it.
It applies to consignments of US$1,000 or less, and foresees a simplified certificate of origin, for a list of goods agreed between the two neighbouring COMESA countries, and avoids having a clearing agent, and paying duties on them. In addition, most of the border crossings now also have a Trade Information Desk, which helps traders fill out forms, and register complaints.
At first sight this sounds like a very sensible and good idea, as it could really make it easier and cheaper for small traders to cross the border with their products. This might result in bringing informal traders into the formal system.
But looking at the figures, the uptake of the programme is still surprisingly low.
Why? Actually it is quite simple: the traders in the room argued that the list of products is too limited, the threshold of US$1000 is rather low, the system is applied differently at different borders but most of all there are too many other hurdles!
To do formal business, you need a business registration number and tax ID (to be obtained in the capital), an export/import permit, a Non-GMO certificate, phytosanitary certificate (fumigation, etc.), foreign exchange documentation (required by Malawi), carbon tax, insurance card, ASYCUDA (required by Zambia), and the list goes on…
It is no wonder then that many of the traders have very little incentive to formalise their business and trade. Certainly for the smallest traders, the formalisation brings mainly major hassles and costs, while they can bike across to their neighbours using the informal Zalewa route without much trouble.
What followed was fruitful discussion among the government officials from both countries and traders, and a commitment on either side to continue the dialogue and find concrete solutions. See below for details.
No one in the room expected a trade charter or the simplified trade regime to be the panacea to solve the challenges that face traders in Southern Africa, but at least this open dialogue between the two countries’ officials and traders was a good step in addressing the key issues. What will it take to convince more traders to take the formal rather than the ‘Zalewa’ route? Is there a possibility to link the formalisation to better access to finance for those small traders who have the ambition to grow?
- The common goods list should be updated regularly and broadened on the basis of consultation with the relevant stakeholders, and passing it via the national working groups to the level of COMESA ministers.
- The unfair taxation on small traders should be eliminated or adjusted, by potentially creating a specific category for small traders under the Simplified Trade Regime. It was felt a lower tax-burden could bring more traders into the formal sector and ultimately result in higher tax revenue for the countries.
- A strong call for decentralising the registration bureaus to the border would be a big time and cost saving measure for many of the traders.
- Strengthening the cross border trade association to help sensitise their members, inform the policy process and offer concrete service.
- Jointly draft and agree on a Trade Charter in which the rights and obligations of both traders and custom officials is clearly spelled out. This should be accompanied by an adequate monitoring system that could register the complaints, measure the hours at the border etc. Facilitating the use of mobile phones in both accessing the information, procedures as well as the monitoring.
- The majority of the informal traders are women who face extra challenges in crossing the border due to a host of cultural barriers and lack of information. All participants agreed that special attention is required to address the serious bottlenecks female traders face. This could include specialised training of custom officers, having the women traders identify the relevant products to be included in the STR common list, make explicit reference to women’s rights and the importance of training in the trade charter.
The views expressed here are those of the author, and may not necessarily represent those of ECDPM.