However, a large part of cross-border trade between African countries is informal. It either avoids customs entirely, or goes through official posts but is not recorded. Informal trade is difficult to measure. Most studies have relied on estimates based on partial surveys, or on accounting exercises. They concluded that a substantial share of Africa’s regional trade was informal, on the order of 30% to 40%. [...]
Using this data, our study confirms that informal trade is, in effect, a vital part of the trade system. For example, informal trade makes up the major part of trade in domestic products between Benin and Nigeria. Official statistics underestimate total trade by 50% for imports, and by about 85% for exports. [...]
Our study also shows that formal and informal trade differ by product composition. Informal trade isn’t restricted to livestock and a few agricultural goods. Product and sector diversity is high. For example industrial products, such as textiles, agro-food, and transportation equipment are traded heavily on this channel. [...]
Reducing tariffs should help formalize some of this informal trade. But it is difficult to predict by how much. It’s possible that incentives to go informal remain high for many traders, even under the continent’s proposed free trade agreement, especially if preferential treatment is costly or difficult to obtain.
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