business

Oct. 13, 2021

NEO SENOKO

2 min read

Informal cross border trade threatens domestic industries

Informal cross border trade threatens domestic industries

Locally produced hats

Story highlights

  • Trade constitutes major form of informal economic activity in Lesotho
  • Provides sources of income to people without wage employment

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INFORMAL cross border trade, a safety net for unemployed people in the country, threatens the existence of domestic industries, with counterfeit goods normally sold at lower prices, not subject to import taxes, and simply cheaper than locally manufactured equivalents.

Informal cross border traders involve all economic activities by workers or economic units that are in law or practice not covered or sufficiently covered by formal arrangements operating in two or more countries.

The trade includes legitimately produced goods and services that do not necessarily follow formal processes such as standards, regulations and business registrations or operational licenses.

As a result, it represents a significant revenue loss for the Government.

“Beyond poverty and social issues, the prevalence of informal cross border trade is closely related to business environment rigidities characterised by weaknesses in three institutional areas of taxation, regulation and private property rights.

“Tax rates, tax administration and complicated business registration, licensing and inspection requirements are barriers that tend to prevent informal traders from formalising their activities,” said Lemohang Kobeli from the Khathang Tema Baitšokoli Association, a local business group that safe guards the interests and rights of informal traders.

Mr Kobeli made the remarks during the 15th session of the United Nations Conference of Trade and Development (UNCTAD), held under the theme, “bridging the gap between formal and informal cross border traders”.

Informal cross border trade constitutes a major form of informal economic activity in the country.

For example, according to Mr Kobeli, in the Southern African Development Community (SADC) area, it makes up an estimated 30 to 40 percent of total intra SADC trade, with an estimated value of $17.6 billion.

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Typically, women constitute about 70 percent of informal cross border traders in the region, trading a variety of commodities either in raw or semi processed items, including basic to luxury goods produced in other countries.

At regional level, informal cross border trade has proven to be responsive to shocks compared to formal trade as informal traders are able to import goods that are unavailable locally to meet domestic demand in times of crises.

On the other hand, the informal trade provides sources of income to people without wage employment, more importantly, the informal cross border trade promotes intrapreneurship skills of people without formal education.

 Mr Kobeli noted that the micro cross border trade has the potential of transforming informal cross border traders into formal businessmen and women.

 “The relationship between Government customs workers at border posts and informal cross border traders is that of uncertainty or ambivalent, this relationship can be rectified by the Government’s formal recognition of informal cross border traders as partners in national and regional economic integration,” he added.

He further warned that there is a need for more flexible business licensing processes for small enterprises who are mostly informal cross border traders.

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