Informal Trade in Africa
5.4 Characteristics of informal traders
It is estimated that about 60 to 70 per cent of African families are sustained by the informal sector, either directly as operators, or indirectly as beneficiaries of the serv-ices it provides. A method of classifying those engaged in informal trade is first to make a functional distinction between actors; and second, to identify characteristics intrinsic to their nature on the one hand, and to consider the social capital required for informal trade in unprocessed products as a factor of reducing transaction costs (Tassou, 2004; Yérima, 1995), on the other. This method extends to classifying mar-keting networks involved or established by these actors (Yérima, 2008).
Four types of individuals are commonly involved in trading unprocessed products:
wholesalers, including transporters/traders and producers/traders; semi-wholesalers;
collectors; and retailers. With these are the participants: transporters, shopkeepers, lodgers for the livestock trade and other facilitators who often serve as brokers or apprentices.
Business success of any of these types depends on the accumulation of practical know-how, economic capital or, at the very least, capital built on trust and social relations (Labazée and Grégoire, 1993). Informal traders organize themselves in many different ways: self-help groups, tontines, market associations and associations based on ethnic groups, among others. Some groups are well-structured and func-tion efficiently for the common good, the collective defense of members’ interests and official recognition from public authorities. They tend to bring together mem-bers from the same ethnic group who are working outside their country of origin.
Other groups will exercise control over the market, setting up barriers to entry.
Benin contains such groups, among associations of food produce traders. Irrespec-tive of their form, an analysis of their long-term effects on market efficiencies shows varying consequences.
Cross-border trade based on social/ethnic relationships and networks that source markets and arrange pricing levels and resources (credits/currencies deposits and so on) to sell and buy goods from neighbouring countries for resale at home, also has been stimulated by rising levels of unemployment, which has led many to enter the informal sector to earn a livelihood. In East Africa, for example, among the same ethnic groups living across borders such as the Afars, Somalis and the Borana Oromo, trust in ethnic trade relations and strong ethnic-based trade coalitions facili-tate the opening up of markets without formal contract or written agreements.
Relationships may exist among the various organizations but contribute little to the efficiency of cross-border trade. They offer a private, institutional approach to resolv-ing conflicts among members. Interpersonal relationships predominate in transac-tions in these micro-networks, which are the necessary social capital to lower trans-action costs. The traders rarely exploit the advantages of the group and may not even be aware of them. However, opportunistic relationships are created between trans-porters and associations of foodstuff traders. These relationships are often created through contracts for large orders of produce by the institutions supporting food security in the interior and along the coast. In such cases, the wholesalers benefit from the transporters’ ability to meet their contracted delivery deadlines efficiently.
5.4.1 The role of women in informal trade
Women play a prominent role in informal trade, and in informal business activities in particular. These few figures are proof enough: four to five million women in West Africa are involved in collecting, processing and marketing shea nuts and butter, bringing in an estimated 80 per cent of their income (Plunked and Stryker, 2002).
In Benin, women are 80 per cent of those involved in informal trade, and the figure rises to 95 per cent for informal marketing of unprocessed goods. These figures can be explained by the share women represent in the informal sector in general. In sub-Saharan Africa, where three out of four people are unofficially employed, the non-agricultural informal sector creates employment opportunities for 91.5 per cent of women, compared with 70.7 per cent of the men (FAO, 2008). Out of those who work in the informal sector, 60 per cent are women. In Freetown, the capital of Sierra Leone, 70 per cent of the active population is engaged in the informal sector.
The majority are women. In Lagos, Nigeria, that figure is 80 per cent (FAO, 2008).
These data confirm the ancient tradition of women dominating West Africa’s non-agricultural sector.
Indeed, Lagos’ “Tinubu Square” bears the name of a female trader famous among Yoruba cities during the second half of the 19th century. Madam Tinubu embod-ied the dynamism of pre-colonial Yoruba civilisations and a resistance to outside interference. She is alleged to have owed her economic success to weapons trading
between the coast and the interior. In the 1850s she played a critical political role in Lagos, but her presence so irritated the British that she is alleged to have gone back to her hometown, Abeokuta, in southwest Nigeria, to finance wars against the Abomey kingdom of Benin (Humarau, 1999).
Madam Tinubu’s fame has no doubt been surpassed by the rich merchant women of contemporary Togo, known as the “Nana-Benz.” While these women have fol-lowed varying routes to success, they share several characteristics. Then, as now, these women conduct their businesses on the regional, and even international, stage, drawing on a long history of trading experience as informal actors. This results in their economic success, rather than initiating it. The volume of trade that passes through their hands enables them to regularly increase their economic and social capital (Humarau, 1999) even if their absence from or minimal institutional repre-sentation in formal political decision-making tends to minimize the crucial role that they could play in the development of intra-African trade. The factors that bring them together also separate them from most of the small-scale West African trad-ers operating daily, who barely succeed in breaking even with their investments. All these groups constitute the major trading agents of both the formal and informal sectors.
Undoubtedly, women control the most efficient and dominant forms of the econ-omy—the informal sector—and in the final analysis they are best-suited to coping with economic crises and making contributions that far exceed their share of the population of sub-Saharan Africa (FAO, 2008). All the women in the informal sector in Africa go beyond the purely economic requirements of their trade when it comes to strategies adopted to initiate, control or strengthen their trading activities (Humarau, 1999), for they also ensure household food security and mitigate harm-ful economic and social effects.
5.4.2 Reasons for engaging in ICBT and informal trading networks
ICBT used to be practiced during colonial times and along post-colonial state boundaries, (Little, 2007), although it predated by several centuries the establish-ment of state boundaries. Communities and people from the regions interacted and traded without need of interfering with traditional practices or requiring formal registration for such trade. Once borders were established, ICBT became illegal.
Tariff and non-tariff barriers were imposed, disrupting economic activities. ICBT has, however, re-emerged and continued to flourish after independence.
Despite the fact that this form of trade is as old as the hills (Meillassoux, 1971;
Polanyi, 1972), very little is known of local and regional markets in sub-Saharan Africa, both in terms of their structure and in the magnitude of trade flows. In fact,
informal trade there appears to be poorly structured, given the existence of multiple forms of coordination of the tight social networks (Agier, 1983; Gregoire, 1986).
The predominant feature is flexibility, with each actor doing what resources permit, according to individual perceptions of market risk in terms of competition and the constraints of supply and demand. Market institutions undeniably have an effect on the market but, irrespective of the sector concerned, in most cases they do not impose any organization on the market. Informal trade, therefore, appears as a form of exchange without any observable rules. However, there may be specific group regulations for conflict resolution, lowering entry barriers to markets in certain cases or tacit price setting agreements.
ICBT has been practiced among homogeneous ethnic groups and communities that not only live along border areas but also are spread over long distances. For example, the Borana Oromo extend across 500 kilometres, from the Moyale border of Ethio-pia and Kenya point to Isiolo, about 200 kilometres from Nairobi. The Somali ethnic groups live on four sides of the Kenya, Ethiopian, Djibouti and Somali borders; the Afars, along the three borders of Djibouti, Eritrea and Ethiopia, and the Tigrays and Kunamas on both Eritrean and Ethiopian sides, across borders. These cases illustrate how, despite the long distances from the national central markets, informal trade promotes and enhances the timely availability of basic goods across borders to remote communities far from central national markets. For instance, Moyale is 773 kilometres from Addis Ababa and about 700 kilometres from Nairobi; Dowelle is 720 kilometres from Addis Ababa but only 105 kilometres from Djibouti; Wuchale is about 700 kilometres from Addis Ababa but only about 250 kilometres from the port city of Berbera.
Trading channels for manufactured goods are organized according to their zones of commerce. The most difficult to capture by public institutional recording systems are described by LARES as within the “quitus system”, (no VAT or customs duty required). A multiplicity of participants carry on cross-border trade between Nigeria and her neighbours (notably Benin, Togo, Ghana, Burkina Faso and the Niger).
These small-scale actors are forced to reduce the cost of clearing customs when they cross borders. They use informal transit services that load produce from all sources onto lorries, marked as packaged goods and transport them to their destinations after paying a token sum to customs.
Although the lack of standard organizations among Africa-wide informal trading activities has been emphasized, West Africa does exhibit two types of marketing networks: micro-networks that organize supply on a small scale at the borders, con-sisting predominantly of trade from nearby areas but also from the interior; and large trans-national or national networks that dominate trade in each sector, particu-larly unprocessed products and locally manufactured or imported products. Hausa, Yoruba, Ibo and Zerma traders control this sector in the eastern parts of the West
African region. In the Horn of Africa, secretly organized groups are created jointly to operate ICBT. Such clandestine cooperatives raise funds, organize purchases and sales of goods and livestock and arrange transport schedules across borders, even up to the national central markets (in Addis Ababa, Nairobi, Mogadishu, Berbera and Djibouti), probably through negotiations with custom and police officers, local militias and administrators.
Petroleum products follow distribution networks similar to the trading channels.
They work along micro-networks of information that determine the efficiency of transactions, the speed of reaction and the adaptive capacity of the actors to the vagaries of trading in these products. Information often flows very quickly in this area of cross-border trade, much more so than anywhere because the use of micro-networks, mobile telephones and especially the systematic grid of short circuits along the border zones composed of many information processing and dissemina-tion nodes. Here, particularly when it comes to the security of transacdissemina-tions, informa-tion is disseminated nearly cost-free. Each node and chain in the circuit processes information, ensuring that all the wholesalers and retailers receive the same informa-tion at the same time.