Formal trade statistics dramatically understate the actual volume of goods and value moving across many African borders, because a substantial share of cross-border trade — particularly among small traders — happens through informal channels that never appear in customs data. Understanding why traders choose informal routes is essential to designing formalisation policy that actually works.
Why Informal Trade Persists
- Documentation complexity — formal export procedures are often designed with larger businesses in mind, and are disproportionately burdensome for small-scale traders
- Cost — formal customs and certification fees can represent a much larger share of a small trader's transaction value than a larger exporter's
- Speed — informal crossings are often faster than formal ones, particularly where formal border infrastructure is under-resourced
- Limited awareness — many small traders simply are not aware of simplified trade regimes designed specifically for their scale of transaction
What Simplified Trade Regimes Get Right
Several regional simplified trade frameworks — designed specifically for small-scale cross-border traders — have shown real success where they reduce documentation to a manageable minimum and price certification proportionately to transaction size. Where these regimes are well implemented and well publicised at the border, formalisation rates measurably increase.
What Research Reveals
Field research into informal trade corridors consistently finds that the traders themselves are rational economic actors responding sensibly to the incentives in front of them — not simply avoiding a formal system out of habit. This matters for policy design: formalisation efforts that simply increase enforcement without addressing the underlying cost and complexity gap tend to push trade further into informal channels rather than formalising it, or shift it to less visible crossing points.
Traders do not choose informality out of preference for risk — they choose it because, for their scale of transaction, it is often genuinely the more rational option under the current formal alternative.
Implications for Policy
Effective formalisation policy starts from understanding the actual cost-benefit calculation facing small traders, not from assuming informality reflects ignorance or non-compliance. Simplified trade regimes, border-post-level trader education, and proportionate documentation requirements consistently outperform enforcement-first approaches in shifting trade into formal, measurable channels — with the added benefit of bringing that trade volume into national revenue and trade statistics.
Contact our Research & Policy team to discuss informal trade research or simplified trade regime design.