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A Research Report on

Policy Research on Cross-Border Trade

By:

HabtamuHailemeskel

Jemal Mohammed

AshenafiNegash

MulugetaGetu

December 2014

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By:

HabtamuHailemeskel

Jemal Mohammed

AshenafiNegash

MulugetaGetu

December 2014

1



By:

HabtamuHailemeskel

Jemal Mohammed

AshenafiNegash

MulugetaGetu

December 2014

2

ContentsAcronyms........................................................................................................................................ 3

List of Tables .................................................................................................................................. 4

List of Figures ................................................................................................................................. 5

Executive Summary........................................................................................................................ 6

1. Introduction ............................................................................................................................. 8

2. Methodology............................................................................................................................ 8

3. Literature Review .................................................................................................................... 9

3.1. The Dichotomy of Cross Border Trade: Formal and Informal ........................................ 9

3.2. Role of CBT for Pastoral Livelihood Improvement....................................................... 11

3.3. Participants of CBT and Distributions of Benefits......................................................... 13

3.4. Commodities of CBT ..................................................................................................... 14

3.5. Barriers of CBT.............................................................................................................. 14

4. Results and Discussion .......................................................................................................... 15

4.1. Formal/Official Cross Border Trade .............................................................................. 15

4.1.1. The Legal and Institutional Framework ...................................................................... 15

4.1.2. The Volume of the Formal Cross-border Trade .......................................................... 17

4.2. Informal Trade................................................................................................................ 20

4.3. Petty Periphery Cross Border Trade (PPCBT)............................................................... 23

4.3.1. The Structure of the Petty Periphery Trade Directives ........................................... 23

5. The Role of Cross Border Trade for the Livelihood of Pastoralists ......................................... 26

6. Challenges of Cross Border Trade ............................................................................................ 28

7. Recommendations ................................................................................................................. 30

List of References ......................................................................................................................... 33

Appendix....................................................................................................................................... 36

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ACRONYMS

NBE National Bank of EthiopiaERCA Ethiopian Revenue and Customs AuthorityICBT Informal Cross Border TradeCBT Cross-Border TradeMoT Ministry of TradeMoA Ministry of AgricultureMoI Ministry of IndustryPPCBT Petty Periphery Cross-Border TradeETB Ethiopian BirrToPs Pastoralists Transitioning out of Pastoralism

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LIST OF TABLES

Table 1: Formal Export of Ethiopia to Djibouti, Somalia and Kenya (1998-2014)

Table 2: Total value of official export by Country of destination (1998- 2014)

Table 3: Total value of formal export by commodity (1998- 2014)

Table 4: Seized import contraband products by trading item

Table 5: Seized import contraband products by reporting branch offices

Table 6: Source of income in the last 12 months (July 2013 –July 2014)

Table 7: Summary of the benefits of Cross border trade for Pastoralists

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LIST OF FIGURES

Figure 1: trend of formal export of Ethiopia to Somalia, Djibouti and Kenya from 1998 to 2014

Figure 2: formal cross border trade by country of destination

Figure 3: distribution of export by commodity (1998- 2014)

Figure 4: distribution of value of seized contraband import by commodity

Figure 5: Source of income in the last 12 months (July 2013 –July 2014)

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EXECUTIVE SUMMARY

This research is the examination of the challenges and prospects of cross-border trade inEthiopia. Cross-border trade is defined as the flow of goods and services across internationalland borders within a reach of duly defined area. It has two varieties-formal and informal. Theformer refers to trade in goods or services which is carried out by legally registered traders andfulfills all legal requirements of the trading countries while the later refers to movement of goodsin which all or part of the trading activity is unrecorded or unrecognized by the government, andwithout adherence to procedural requirements of all formal institutions. The formal cross-bordertrade is classified in to two: large scale formal trade and small scale formal trade. Ethiopia has alegal framework for the formal small scale trade which is often referred to as petty peripherytrade.

This research mainly focuses on the informal cross-border trade and formal petty periphery trade.The formal cross-border trade between Ethiopia and neighboring countries (Kenya, Somalia andDjibouti) is also analyzed using a time series datafrom the National Bank of Ethiopia.

Literatures explained that cross-border trade plays a critical role in providing alternative sourceof livelihood for pastoralists and underlined the fact that poor households tendency (in terms ofownership of cattle) to diversify livelihood sources is higher than wealthy households. It alsoensures the supply of food items from the surplus areas to deficit areas. Cross-border trade also isan important instrument to harness social relations and cultural understanding among tradingcommunities along borders. The major actors in this trading activity are individual traders,women and micro and small enterprises. Excessive government intervention, high cost oftransportation, lack of marketing information, lack of access to credit, feed and water shortages,high business risk and insecurity are the main challenges faced by cross-border traders.

The researchers, in addition to the literature review, have employed key-informant interviews,household survey and document analysis to determine the volume of trade, the items traded, thecontribution of cross-border trade for livelihood diversification, and the challenges and prospectsof the same.

The time series data for 17 years from the National Bank of Ethiopia revealed that the total valueof export of Ethiopia to Kenya, Djibouti and Somalia amounts to ETB 61 billion. Fruits andvegetables constitute the dominant share of this trade followed by live animals and chat. Theresearchers considered the size/volume of import and export contraband as the lowest lower limitof the informal trade as it can never be less than what is seized by authorities. It should be notedthat the size of informal cross-border trade can even be greater than the size of contraband whenone takes into consideration the limited seizing capacity of Ethiopian Revenues and CustomsAuthority and border controllers and the higher cost of formal trade. Accordingly, a two yearsdata (2012/13 & 2013/14) collected from ERCA shows that the volume of export contraband isETB 11.5 million for 2012/13 and 26 million ETB for 2013/14. Live animals constitute 35% of

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this contraband export followed by cereals (20%), pulses (19%), chat (19%) and others (7%).This indicates the possibility of engaging in the sale of highland agricultural products asalternative livelihood source for pastoralists and ToPs in addition to trade in livestock andlivestock products. On the other hand, the value of import contraband for the years 2012/13 and2013/14 is 245 ETB million and 270 million ETB respectively. Clothes constitute the dominantshare (54%) followed by electronic devices (16%), tobacco and cigarettes (8%), and food itemsmainly rice (5%).

Directives permitting small scale/petty cross-border trade were issued by the Ministry of Tradeto enable easy and affordable access for basic goods by pastoralists and to curb informal/illegaltrade. These directives limit the distance/places where the petty trade can legitimately take placeas well as the items to be traded. There is also a restriction on entry in to neighboring countries(it is only twice a month) for the purpose of petty trade as well as on the value of import andexport goods (the maximum being the value of ETB 20,000 per month in the Ethio-KenyaBorder and the minimum value being ETB 10,000 per month). Despite the coming in to force ofthese directives, implementation is far from being realized. The reasons relate with lack ofawareness of all stakeholders and coordination among them, very old list of items to be traded,restrictive capital ceiling and number of entries, absence of incentives for legal traders. Theresponse collected through a questionnaire shows that cross-border trade plays a vital role inimproving livelihood by serving as source of income, consumer goods and self-employment. 60per cent of respondents believe cross-border trade enables them to get higher prices. 69% of therespondents also generated income through selling their livestockin the last one year. 41% and51% of the respondents said that engagement in cross-border trade helps them to get clothes andfood items respectively. This is a very good indication that cross-border trade can serve as amechanism to generate income for business establishment and opportunities of business inactivities related with cross-border trade like fodder trading.

Absence of standard quarantine service, poor quality of animal varieties (owing to poor cattlemanagement, lack of sufficient fodder and the natural breeds of animals), increasing trends ofdefault on arrears that erode the trust between traders, absence of foreign exchange services toneighboring countries’ currencies, failure to implement the petty periphery trade directives areamong the challenges identifies by this research. Amendment of existing petty trade directives,provision of modern contract enforcement, provision of technical assistance for pastoralistsinvolved in fodder and cattle management and supporting and encouraging pastoralists, agro-pastoralists and ToPs to make use of the opportunity provided by the petty trade directivesthrough awareness creation are among the points recommended for action.

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1. INTRODUCTION

This research is mainly a policy research.It also incorporates quantitative data to back the policyrecommendations with strong empirical evidence. The research tries to answer the followingquestions:

Which laws and institutions govern the conduct of cross-border trade relevant to theproductions and demands of the pastoral communities (these include import-exportregulations, monetary regulations-especially with respect to currency used in cross-border trade, availability of custom duty posts, animal health institutions, qualitycontrol, infrastructure etc)?

What are the actual and potential legal, institutional, economic and political obstaclesfor cross-border trade?

What is the relationship between cross-border trade and resilience of pastoralists inPRIME operational areas?

How transaction takes place across borders in PRIME operational areas (Ethio-Djibouti, Ethio- Somalia, Ethio-Kenya). This includes identifying the key actors incross-border trade.

Are there available best alternatives for intervention in the expansion and increase ofcross-border trade in livestock and livestock products, animal feed and other fooditems?

What is the role of cross-border trade in livelihood diversification?

2. METHODOLOGY

For this study, both primary and secondary data werecollected in Addis Ababa and the threeclusters of PRIME operational areas including Afar, DireDawa, Ethiopian Somali RegionalState, BoranaZone of Oromia Regional State. The primary data was collected through keyinformant interviews and household survey. The key informants interviewed for the assessmentincludes domestic livestock traders, livestock exporters, milk exporters, retail traders, andexperts and officials ofdifferent federal,regional and local level government offices includingNational Bank of Ethiopia (NBE), Ethiopian Revenue and Customs Authority (ERCA), Ministryof Trade (MoT) and Ministry of Agriculture (MoA). A total of 23 organizations and 17 keyinformant traders were contacted for the study. Moreover, household data was collected from150 pastoralists in 4 villages of the Eastern and Southern Clusters of PRIME operational areasusing structured interview questionnaire. Two villages were randomly selectedfromvillageswithin 100 kilometers range from the national border of Ethiopia in the PRIME projectoperational districts of each cluster.

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3. LITERATURE REVIEW

3.1. The Dichotomy of Cross Border Trade: Formal and InformalCross border trade (CBT) is a trade which is carried out across national boundaries or betweenpeople or business entities of different countries. Kaminski and Mitra (2010) defined CBT as“the flow of goods and services across international land borders within a reach of up to 30kilometers”. CBT is broadly divided into two: formal and informal types of cross border trade.Formal cross border trade refers to the type of international trade in legal goods and serviceswhich is carried out by legally registered traders and fulfills all the legal requirements of thetrading countries. In case of formal cross border trade, all the necessary legal requirements aremet, administrative procedures are followed, the types and volume of items of trade are officiallyrecorded and all the necessary fees and taxes are paid. Informal cross border trade (ICBT), on theother hand, is defined differently by different authors and institutions. COMESA definesinformal cross border trade as trade which is not officially recorded and carried out by smallbusinesses in the region (member countries in eastern and southern Africa) (Njiwa, 2013).Higgins (2012) and Moisé-Leeman (2009) defined ICBT as legal but unregulated (unregistered,undocumented and officially unaccounted) trade.

ICBT involves large number of participants operating at a lower scale than the formal sector andcharacterized by easy entry and exit of firms (Dongala, 1993). Macamo (1998) identified threetypes of ICBT: trade by informal(unregistered) firms totally avoiding official formalities, tradeby formal(registered) firms which are fully evading trade related regulations and duties andtrade by formal firms which are partially evading trade related regulations and duties by resortinginto illegal practices such as under invoicing (reporting of lower quantity, weight and quality topay lower tax), mis-declaration of country of origin, misclassification of products, bribery ofcustom officials, etc.

Ethiopia has the largest livestock population in Africa and also the major cross border livestockexporter, unparalleled anywhere in Africa, mainly to Kenya, Djibouti, Somalia and Sudan.However, the officially recorded volume of live animal and meat export is almost negligible,though recently surging, compared to neighbors Somalia and Sudan (Aklilu and Catley, 2010).This hints massive volume of informal livestock export from Ethiopia. On the other hand, thegovernment should devise appropriate mechanisms and policies to improve the efficiency of theformal CBT system and induce participants of ICBT to go through the official system.Nevertheless, views regarding the ultimate future of ICBT are not unanimous among scholars.Little (2007) argued that ICBT should be encouraged on the ground that it is a normal marketresponse to regional price disparities and inefficient export regulations. Moreover, ICBT is asource of regional food security when the domestic production and market fails to meet fooddemands. Similarly, Eid (2014) on his analysis of cross border trade along the Ethiopian Somaliborders, argues that restrictions imposed by the Ethiopian government to halt ICBT benefits onlylarge cattle traders and has detrimental effects on the livelihood of herders and small traders.

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Contrarily, Lesser and Moisé-Leeman (2009) contended the wide spread practice of informalcross border trade in sub-Saharan Africa, despite its short run importance for poverty alleviation,on the following grounds:

…in the longer run, it is likely to have negative economic and developmental effects ,which might further marginalize Sub-Saharan African economies. First, informal cross-border trade creates ―unfair competition vis-à-vis formal traders, reduces theincentives to invest in the formal economy and lowers business opportunities inregional and global markets, which diminishes the prospects for private sector (andoverall economic) development in Sub-Saharan Africa. Second, informal cross-bordertrade lowers the efficiency of measures put in place to ensure health, safety andenvironmental protection. Agricultural commodities which are traded informally, forexample, escape sanitary and phytosanitary controls meant to ensure adequate foodsafety at home and avoid proliferation of diseases across borders. Third, informal tradeerodes government revenues. Millions of dollars are lost annually in unpaid customsduties and value-added tax (VAT). Such losses are particularly significant for Sub-Saharan African countries for which trade taxes still account for an average 25% oftotal tax revenue and where VAT collected at the border often represents more than50% of total VAT revenues. Finally, unregistered trade flows lead to unreliableexternal trade statistics which might hinder the formulation of appropriate trade andmacroeconomic policies.

Governments in the Horn of Africa usually overlook the economic importance of CBT due tolack of data on its economic contribution. As a result, CBT did not get policy supportproportional to its economic contribution in the region. Hence, data generation and research onthe role of CBT, particularly ICBT, is crucial to foster informed policy making in the region. Thedata for formal CBT mainly comes from official records. The measurement of ICBT, however, isvery challenging and costly as it is passes through remote and invisible routes to escape officialregulations and payments (Little, 2005). There are different methodologies to measure differentcategories of ICBT based on the type of institutional sets of rules that it evades. In general,quantitative assessment of ICBT involves monitoring trading activities in official and unofficialborder posts, border markets and using aggregate (secondary) data to capture trade gap (ECA,2013). To measure ICBT at a sub-national level, field surveys are recommended with traders,transporters, and consumers in the identified regions as well as key informant interviews withofficials from sub-national authorities (ECA, 2013; Nile Basin Initiative, 2012).

Although it is difficult to provide accurate figures on the share of formal and informal crossborder trades due to lack of data on the informal economic activity, different studies and roughestimations avow that the informal sector in general plays almost equal economic role with theformal sector in Africa (Lesser and Moisé-Leeman, 2009). The share of informal cross border

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trade from the total cross border trade among neighboring African countries might be evendisproportionately larger than the share of the formal economy. According to (Little, 2009)around 90% of the cross border trade along five Eastern African borders, including Ethiopia-Somaliland, Southern Somali-North Eastern Kenya, Western Ethiopia- Eastern Sudan, SouthernEthiopia – Northern Kenya and Northern Uganda – Southern Kenya, is informal cross bordertrade. According to Jabar et.al (2007), in 2005-06 the volume of informal live animal exportsfrom Ethiopia was estimated at 328,000 head of cattle and 1.1 million sheep and goats which ismore than seven times the volume of formal exports. Sintayehuet. al (2013), based on data fromdifferent sources, indicted that the informal cross border livestock export from Ethiopia duringthe years 1981–2001 is six times of the volume of formal export and twice of the value of export.

The trend of CBT in the Horn of Africa, though generally increasing over time, has shownsignificant volume fluctuations and change of patterns. The import ban by Middle Easterncountries in 1998 and 2001 due to fear of Rift Valley Fever led to reduction of livestock exportto the Middle East but increased volume of illegal (informal) trade of livestock of Ethiopiathrough Somalia and Kenya, and to a lesser extent through Sudan and Djibouti. As a result, crossborder trade, mainly in livestock, among pastoralists of southern Horn of Africa, includingEthiopia, Kenya and Somalia has been flourishing in the last two decades since the collapse ofSiadBarre government in Somalia at the beginning of the 1990s. The volume and direction of thelivestock trade has been heavily influenced by ethnic conflicts at the border and politicalsituations and relations of the three neighboring countries (Mahmoud, 2010).

The high transaction costs of export in terms of time and money due to excessive regulationsinvolving a number of ministries and agencies and related fees also contributed to the high levelof informal trade while limiting the growth of formal trade across the international borders ofEthiopia (Solomon et.al, 2003). Similarly, increased domestic meat demand due to populationgrowth and urbanization in Ethiopia coupled with absence of productivity growth might alsocontribute for the reduction of livestock export from Ethiopia in the last three decades (ibid).

ICBT along the Southern Horn of Africa is mainly carried out by traders of the same ethnicgroup on both sides of the border. While such ethnic network nurtures trust and security fortrades it makes the government effort to control cross border trade largely ineffective andcontributes for the growth of ICBT at the expense of formal CBT(Mahmoud, 2010;Abdurahman, 2014).

3.2. Role of CBT for Pastoral Livelihood ImprovementCross border trade plays crucial economic, political and social roles for pastoralists of southernhorn of Africa, including Ethiopia, Kenya and Somalia. It is a critical source of livelihood forpastoralists of the horn (Mahmoud, 2010) .The cross border trade network of the Horn of Africasupports more than 17 million people in the region including livestock producers, traders,trekkers, fodder produces and traders, brokers and other marketing service providers who earnstheir livelihood directly or indirectly from the trade (USAID, 2010).

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Aklilu and Catley (2010), analyzing therelationship between the livestock marketing behaviorand wealth among Somali and Borena pastoralists of Ethiopia, provided interesting analysis ofthe interaction between livelihood status of pastoral households and livestock marketengagement. According to the study, pastoralists in general are unwilling to sell livestock unlessthey are forced to do so with immediate cash need or drought. This is because “livestockprovides more rate of return than any other alternative livelihood activity. Moreover, poorhouseholds- owning smaller stock of livestock- tend to diversify their livelihood activities thanwealthier households because the later can entirely rely on the sale of livestock to generatesufficient cash but the former have few livestock to sale. The study further found that while over90% of all the pastoral households participated in marketing activity at least once during theperiod 2000‐2002,there is clear inverse correlation between number of marketing activities andwealth. This implies poor households depend on market more than well-off households andhence CBT significantly impacts on the livelihood of poor pastoral households in Ethiopia.

Cross border trade enhances food security through at least in two mechanisms (Little et.al, 2001).The first is through the supply of grain and other food items from surplus areas to deficit areaswhich makes food available and its price stable and affordable for the poor in the food deficitareas. Second, cross border trade helps traders to sell their products at relatively higher prices inthe international market and generate more income. It also keeps prices of domestic products upand incentivizes domestic producers produce more and generates more income. Cross bordertrade benefits not only producers and traders linked with the value chain but also creates businessopportunities for marketing service providers such as processors, transporters, storage facilityproviders, and market facilitators such as product graders and marketing information collectorsand disseminators (WB, 2007). Moreover, cross border trade creates employment and businessopportunities for ancillary services providers such as hotels, restaurants, cafeterias, livestockdrug vendors, commodity sellers, chat traders, holding ground and loading ramp providers,among others (Aklilu and Cathley, 2010). The income form cross border trade can also be animportant source of saving and capital to startup or strengthen alternative livelihood activitieswhich provide more income, employment and security for the household.

In addition to its benefit for pastoral households and trade, CBT, particularly formal cross bordertrade, is a source of revenue for public authorities through customs duty and charges, and hence asource of fund for infrastructural investment. However, African governments reap only smallproportion of the tax revenue from what they could potential get from CBT (Golub, 2014).Though the government could not directly tap tax revenue from ICBT, CBT indirectly increasestax revenue by widening tax base through its effect on the expansion of business andemployment opportunities in related and ancillary activities. It also creates employmentopportunities for local authorities or self‐appointed officials, tax collectors, movement permitissuers, watchmen, market attendants, and even armed guards in some cases (Aklilu and Cathley,2010). CBT also generates foreign exchange earnings for the economy.

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In addition to its importance of strengthening the livelihood of border communities, cross bordertrade harness social relations and cultural understanding among trading communities along theborder of trading nations and reduces ethnic conflicts (ibid). It also facilitates regional integrationpromotes efficiency. Hashim and Meagher (1999) conclude that “Cross-border trade offers, byfar, the most efficient financial and commercial infrastructure that is presently available forregional trade. It could, given the appropriate policy framework, contribute to the rapid andmassive expansive of markets for local industrial and agricultural goods”.

3.3. Participants of CBT and Distributions of BenefitsCBT is a means of livelihood for different sections of the pastoral community includingproducers, traders, livestock trekkers, fodder produces, brokers and other marketing serviceproviders who earns their livelihood directly or indirectly from the trade (USAID, 2010). Most ofthe participants of ICBT are individual traders, large proportion of which are womenand micro,small and medium sized enterprises (Gor, 2012). According to Little et.al(2001), around 50% ofthe participants in cross border trades in the Horn of Africa joined the sector in preceding 5-8years. This is considered as a sign of lack of viable alternative employment activities.

Women are active participants of CBT, particularly ICBT. The participation of women in crossborder trade enhances food security and reduces poverty among the vulnerable population aswomen usually constitute the poorer section of society compared to men as well as women arethe major dealers of food items, such as maize, fruits and milk (USAID, 2012). Yet, women havereaped very few direct benefits from cross-border trade, particularly livestock trade, though theymay indirectly benefit from the gains of their male family members. Most women engage inpetty ICBT in which the gains are not as lucrative as large scale livestock cross border tradewhich is mainly dominated by men. Women also pursue their trading activities under precarioussecurity conditions. In East Africa, many women rely on smugglers or intermediaries to movetheir goods across borders outside official custom posts. Such reliance on illegal methods canhave serious consequences for women’s safety, as they can be fined, imprisoned or otherwisecoerced by both smugglers and border officials (UNIFEM, 2009 as cited in Shaw, 2010).

While the CBT in food stuffs and household consumables across the Horn is dominated by thepoor, mainly womenas discussed above, many of the actors involved in cattle CBT are not poorby local and regional standards and only few are women. Indeed, there is considerable disparityin the volume of cattle that different CBT participants are able to command: about 20% of tradeaccount for 60% of the trade and 50% of traders control less than 15% of the trade (Little, 2005).Generally, large-scale male cattle traders based in Nairobi who also owns the means oftransportation benefit the most from the cross border livestock trade in the horn of Africa.Having the trucks to transport cattle gives these traders the flexibility to purchase livestock fromevery corner of the region (Little et.al, 2001).

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3.4. Commodities of CBTSo long as agriculture is the dominant mainstay of the people of eastern Africa, as manydeveloping countries, most trade in the region dominantly involves agricultural products such ascrops, livestock and livestock products. Among agricultural products, livestock, which is themajor product of pastoralists, is the main commodity of regional cross border trade in the horn ofAfrica, including Ethiopia (Little, 1998). Next to agricultural products, cross border trade in theregion involves manufactured consumable such sanitary and beauty products, medicines,footwear and textiles (Masinjila, 2008). According to Little (2005), the items of trade across theinternational borders of the Horn of Africa (Somaliland-Ethiopia and Somalia - Kenya borders)include livestock, cereals, processed and semi-processed food stuffs (such as pasta, sugar, wheatflour, and tea), kerosene, charcoal and chat.

3.5. Barriers of CBTCross border trade is vulnerable to various challenges that constrain its growth. One of thechallenges facing participants of CBT is excessive government intervention. Governmentinterventions in the forms of too manyregulations involving severalministries and offices,lengthy bureaucracy and unduly charges in visa issuance and export clearance, taxes, banning orrestricting movement of goods and vehicles through borders has been a major barrier for thegrowth of CBT, particularly formal CBT in the Horn of Africa. Despite the fact that CBT isimportant source of livelihood for the border community of the Horn of Africa, governments inthe region (such as in Ethiopia and Kenya) usually adopt hostile policies towards it on the groundthat governments cannot reap tax revenues from ICBT (Little, 2005; Pavanelo, 2009). However,it should be noted that even if governments cannot collect tax from the full size of the actualCBT carried out across their borders, CBT through its contribution for business expansion andemployment creation in the domestic economy widens the tax base of the economy. Hence, thecontribution of CBT for public revenue should also take into account its indirect contribution,and should not be overlooked.

The cross border trade in the horn of Africa also faces a lot of infrastructural, human resources,marketing and natural challenges. These include, among others, disease, high cost oftransportation, lack of marketing information, lack of access to credit, lack of marketinginfrastructure , inefficient marketing system, feed and water shortages, lack of trained manpower,high business risk, insecurity and low genetic potential (Simpkin, 2004; ESGPIP, 2011; WB,2007). Hence enhancing the performance of cross border trade to bolster its contribution forpastoral livelihood improvement requires resolving these problems.

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4. RESULTS AND DISCUSSION

4.1. Formal/Official Cross Border Trade

4.1.1. The Legal and Institutional FrameworkFormal/official cross border trade is defined as a trade which is recorded, recognized by relevantinstitutions, and carried out in consonance with the country’s required procedures(TegegneTeka&AlemayehuAzeze, 2002). The formal/official cross-border trade has twovarieties: large-scale cross-border trade carried out by enterprises which large financial capacityand petty cross-border trade involving poor low-income individuals. The latter is the focus ofthis research and it is discussed in detail in the next sections. The legal and institutionalframework for the large-scale cross border trade is discussed as follows:

The 1960 Commercial Code of Ethiopia: This law provides for the definition of traders andenumerates trading activities. It also governs the conduct of trade by sole proprietors andorganizations. The formation and governance of various types of business organization is alsogoverned by this law.

Commercial Registration and Business Licensing Proclamation No. 686/2010: As the above lawis very old some provisions are amended by this proclamation. The amendment specificallyapplies with respect to the list of commercial activities, commercial registration and licensing.This law takes into consideration the federal structure of Ethiopia’s government and apportionspowers for central government and regions accordingly. As the name indicates it sets rulesapplicable for commercial registration, licensing, and renewal of sole proprietors and local andforeign business organizations. It also stipulates the power of other government organs, such as,Ministry of Trade, Investment Agency, Ministry of Agriculture, Ministry of Industry andEthiopian Revenues and Customs Authority, in during and after registration of businesses.

Customs Proclamation No. 859/2014: This proclamation sets out the customs formalities thatexporters and importers should meet and the measures that will be taken for those who violatethe requirements. This law sets out that, as a general rule, any import or export goods shall besubject to customs declaration. Customs declaration is a form or document prepared by ERCA inwhich the details of import, export or transit goods are described for the accomplishment ofcustoms formalities.The details to be included in the declaration are transportation document,invoice, bank permit, packing list, certificate of origin. The details are provided under variousdirectives issued by ERCA including Directive No. 16/2001 and Directive No. 33/2001.

There are also institutions meant for enforcing these laws. Ministry of Trade is the major FederalGovernment executive organ entrusted with the powers pertaining to local and foreign trade. Its

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powers, among others, include: create conducive conditions for the promotion and developmentof the country’s export trade and extend support to exporters; control underinvoicing incooperation with ERCA; controlling the use of business licenses for unauthorized purposes;controlling the qualities of export and import goods; prohibit the importation and exportation ofgoods that do not comply with the requirements of the standards, and work with concernedorgans in this regard; and control the compliance of goods and services with the requirements ofmandatory Ethiopian standards.

ERCA is another institution that has roles in the regulation of CBT. It establishes custom poststhat serve as a legal entry and exit points for import/export trade across borders. In the past therewere only two official customs offices in Somali Region, located in Jigjiga and Kebri-bayah. Inearly 2010, the federal government made the decision to establish additional customs offices inthe border areas of Somali Region to curb informal trade in the region, both incoming andoutgoing (AbdurahmanEid, 2014). Some of these new customs offices are located in the borderarea between Somali Region and Somaliland, where the CBLT is active, including Togwajalle,Harshin, Hartashiekh, Daror and Gashamo. The establishment of the new customs officescoincided with three changes in trade policy. First was the lifting of a livestock import ban in late2009 by Saudi Arabia, which is the destination of 94 percent of livestock exports from the Hornof Africa, including Ethiopia. Secondly, in 2010 the federal government permitted all importantfood items to be imported duty free into Somali Region. The region’s population mostly usesinformally imported commodities, including many basic food items. This also enabled customsagents to closely monitor cross-border livestock flows. Thirdly, in the GTP, the government hasset an ambitious target of increasing export earnings from meat and live animal export. In orderto accomplish these tasks, ERCA is empowered to (as per Proc. No. 587/2008, Art. 8):

establish and implement modern revenue assessment and collection system;

Conduct study and research activities with greater emphasis to improve the enforcementof customs and tax laws, regulations and directives and the collection of other revenues;and based on the result of the study and research initiate laws and policies and implementthe same upon approval.

examine goods and means of transport entering into or departing from Ethiopia throughcustoms ports, frontier posts and other customs stations, and ensure that customsformalities are complied with;

provide information and appropriate support to the Federal Police in the control of illicittrafficking of goods and combating contraband; and cause appropriate actions be taken inaccordance with the law;

investigate customs and tax offences, institute and follow up criminal proceedings incourts; for the discharge of such responsibilities, organize its own prosecution andinvestigation units and supervise their performance;

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Federal Police Commission has the responsibility to organize and deploy police force to preventcriminal offences committed in violation of customs and tax laws. The Federal Police forceempowered to: control contraband activities; detect and apprehend criminal suspects and bringthem before courts of law; produce prosecutor’s witnesses to the court of law; seize contrabandgoods and submit to the Authority; accompany customs transit goods and vehicles directed totheir destiny; safeguard institutions, controlling stations and warehouses of the Authority whichare required to be safeguarded; safeguard customs checking points and national frontiers throughwhich illicit goods may be transited across the border; enforce security and order whenenforcement of seizure and foreclosure on tax debtors’ properties take place in accordance withthe law, and take legal action on those who obstruct or in any way disrupt the proceedings ofseizure and foreclosure (Proc. No. 587/2008, Art.18).

Because the large scale cross border trade involves convertible currencies and bankingprocedures like opening letters of credit by an importing country the National Bank of Ethiopia(NBE) and Commercial Banks have their own crucial responsibilities.

4.1.2. The Volume of the Formal Cross-border TradeThe data on the formal trade of Ethiopia with Djibouti, Kenya and Somali was obtained from theNational Bank of Ethiopia.We used time series data on the Export and Import of Ethiopia withits neighbors fromSeptember 1998 to June 2014. The total export value of Ethiopia to all of thethree countries during the stated period amounts ETB 61 billion. Somalia is the major exportdestination of Ethiopian products, among the other countries. Ethiopia’s formal export toSomalia amounts ETB 55 billion, while the value of export to Djibouti and Kenya amounts ETB5.84 billion and ETB 138 million, respectively. Hence, Somalia representsa major foreign marketfor Ethiopian products.

Regarding the composition of trading items, fruits and vegetablesare the dominant export itemsof Ethiopia to its neighboring countries, accounting for 66.65% of the total export value duringthe period, followed by live animals (25.56%) and chat (6.28%). This indicates that there ishigh potential of fruits and vegetables export to neighboring countries from irrigable agro-pastoralist areas of Afar, Somali and Oromia Regional States of Ethiopia, where PRIME projectoperates. Moreover, the finding of the studyreveals that live animal export is an indispensablesource of livelihood for Ethiopian pastoralists given that the pastoralist areas of Ethiopia are themajor sources of live animal export to neighboring countries. Hence, tackling theobstacles of liveanimal trade and export to neighboring countries should be an integral part of the developmentplan to enhance the livelihoods of pastoralists in Ethiopia.

The trend of export over the stated period was highly volatile with a yearly mean export of ETB3.6 billion and standard deviation of ETB 9 billion. This implies that though the export marketpotentially provides livelihood opportunity for Ethiopian pastoralists and agro-pastoralists, it alsopresents a major risk due to demand/price volatility and requires supportive government policiessuch as strengthening of the provision of insurance services for traders and pastoralists.

18

Table 1: Formal Export of Ethiopia to Djibouti, Somalia and Kenya (1998-2014)

Source: NBE, 2014

Figure 1: Trend of Formal Export of Ethiopia to Somalia, Djibouti and Kenya from 1998 to 2014(in millions: amount is in ETB)

010

000

2000

030

000

4000

0To

tal v

alue

of o

fficial

exp

ort

1995 2000 2005 2010 2015time

YearTotal value of official exportin ETB

1998 998,6091999 48,100,0002000 217,000,0002001 75,500,0002002 529,000,0002003 1,860,000,0002004 3,590,000,0002005 394,000,0002006 452,000,0002007 287,000,0002008 379,000,0002009 37,000,000,0002010 3,610,000,0002011 514,000,0002012 11,800,000,0002013 297,000,0002014 10,900,000

19

Table 2: Total Value of Official Export by Country of Destination (1998- 2014)

Source: NBE, 2014

Figure 2: Formal Cross-border Trade by Country of Destination

Djibouti Kenya

CountryTotal Value in ETB(1998-2014) percent

Djibouti 5,840,000,000 9.56Kenya 138,000,000 0.23Somalia 55,100,000,000 90.21Total 61,078,000,000 100

19


Source: NBE, 2014


Kenya Somalia



19


Source: NBE, 2014




20

Table 3: Total Value of Formal Export by Commodity (1998- 2014)

Source: NBE, 2014

Figure 3: Distribution of Export by Commodity (1998- 2014)

4.2. Informal TradeInformal cross border trade in this study refers to both the unofficial inflow and outflow of goodsacross the Ethiopian border. It is also defined as a “movement of goods in which all or part of thetrading activity is unrecorded or unrecognized by the government, and without adherence toprocedural requirements of all formal institutions” (FAO, 2008).Since data on informal /illegalcross border trade is not available in Ethiopia, we usedthe data of contraband goods seized bycustoms authority branches and federal police. This data, however, is not representative of thewhole informal trade as only part of it is seized. Yet it indicates how large would the informaltrade be by setting the lower limit. That is, the size of the informal trade can never be less than

ItemsValue of formal export(ETB) Percent

fruits andvegetables

40,673,439,21066.65

live animals 15,600,000,000 25.56chat 3,830,000,000 6.28others 923,253,261 1.51total 61,026,692,471 100

20


Source: NBE, 2014



fruits and vegetables

live animals

chat

others



40,673,439,21066.65


20


Source: NBE, 2014





40,673,439,21066.65


21

what is seized by authorities. The size of apprehended illegal trade depends on two factors: thesize of the illegal trade and the capacity of authorities to seize illegal traders.

Regarding thefirst factor, the customs authority officials admitted that the capacity of ERCA andfederal police to arrestillegal traders across the Ethiopian borders is limited. The officialsmentioned ethnic similarity on both sides of the border, long and plain borders of Ethiopia withneighboring countries, such as Somalia, logistical problems of the Federal police of Ethiopia,tacit agreements between border controllers and illegal traders and lack of cooperation amongthe public has weakened their capacity to seize illegal cross border traders along the Ethio-Djibouti, Ethio-Somali and Ethio-Kenya borders.

On the other hand, the size of the illegal trade depends on the relative cost of informal vs formalimport/export trade and the capacity of government authorities to control illegal trade. Theformal foreign trade of Ethiopia is highly centralized and not suitable for people living close tothe border far away from the center of the country. Import and export trade licenses can beissued only by the Federal Ministry of Trade located at Addis Ababa and its satellite office -theDire DawaForeign Trade Office. Hence, any trader who want get license for import and/orexport trade should go to Addis Ababa or Dire Dawaand need to stay many days or return manytimes and incur a lot of costs to these cities to get the license. Moreover, the imposition of fivetypes of taxes (Customs Duty, Excise Tax, Value Added Tax (VAT), Surtax and Withholdingtax)on importsof Ethiopia inflates the cost of formal import trade to Ethiopia.Hence, it is obviousthat formal foreign trade, particularly import, is too costly for pastoralists and small-scale traderslocated in pastoral area towns. Therefore, pastoralists and traders located near the Ethiopianborders either buy products brought from the center of the country, mainly Addis Ababa, at avery high price or resort to illegal trade and buy products at the nearest border town ofneighboring country at a low price taking all the risks of arrest by post controllers and federalpolice.

The two factors explained above imply that the volume of informal or illegal trade acrossEthiopian borders with Djibouti, Kenya and Somalia might be by far larger than what is seizedand reported by Ethiopian Revenue and Customs Authority branches. We caution, therefore, thatthe data on the value of seizedcontraband goods only sets the lower limit of the illegal trade andthe actual value would be much larger than it. We provided the analysis of the data on the valueof seized contraband goods reported by ERCA in 2012/13 and 2013/14 fiscal years below.

In 20012/13, contraband export goods worth of more 11.5 million Birr was seized and the nextfiscal year, 2013/14, the value increased by 126% and reached more than 26 million birr. Morethan 75% of the seized contraband goods are reported by Jigjiga ERCA branch which isconsistent with the volume of the formal export. Commodity wise, live animals, cereals, pulsesand chat constitute more than 90% of the value of seized contraband goods with percentageshares of 35%, 20%, 19% and 19%, respectively. The value of seized contraband export goods isby far lower than the value of formally exported goods. Moreover, while fruits and vegetables

22

overwhelmingly dominate the formal export trade, grain, live animal and chat are the mostimportant items of the informal trade.Live animal and chat also make a significant portion of theformal trade. This implies that while pastoralists would sell their main product, livestock, acrossthe border, traders in pastoral areas also sell highland agricultural products such as chat and grainto neighboring countries. Hence selling not only pastoralists’ products but also highlandagricultural products such as fruits and vegetables, grains and chat across the border would be animportant livelihood option for pastoralists and TOPs in PRIME project operating areas.

The value of seized contraband import goods in 2012/13 and 2013/14 was Birr 245 million andBirr 270 million, respectively. The geographical disparity observed in the export cross bordertrade is not observed in the latter case; 30%, 26%, 25% and 19% of the seized import goods werereported by Moyale, Jigjiga, Dire Dawa and Mille ERCA branch offices, respectively. In termsof trading commodities, clothes constitutes 54% of the total value while electronic devices,tobacco and cigarettes and food stuffs, mainly rice, constitute 16%, 8% and 5% of the totalreported value of seized smuggled goods, respectively.

Table 4: Seized Import Contraband Products by Trading item

Item description Share of value in 2012/13 and 2013/14 (%age)Clothes 54Electronic devices 16Tobacco and cigarettes 8Food stuffs 5Cosmetics 2Others 15Total 100

Source: ERCA, 2014

Figure 4: Distribution of Value of Seized Contraband Import by Commodity

22





Source: ERCA, 2014


Clothes

ElectronicDevicesTobacco andCigaretteFood Stuffs

Cosmetics

Others

22





Source: ERCA, 2014


23

Table 5: Seized Import Contraband Products by Reporting Branch Offices

Place Value (ETB) % shareMoyale 154,204,047.3 30Jigjiga 134,088,234.3 26Dire Dawa 128,512,170.3 25Mille 98,528,511 19

Source: ERCA, 2014

4.3. Petty Periphery Cross Border Trade (PPCBT)

4.3.1. The Structure of the Petty Periphery Trade DirectivesThe periphery cross border trade is a special type of formal cross border trading activity allowingEthiopians living close to the country’s border to the export and import limited amount of basiccommodities. This special cross border trade was initiated in 1994/95 fiscal year by theEthiopian Ministry of Trade. The trade requires traders to integrate both export trade and importtrade in a sense that the volume of import should be equivalent to the volume of export trade.The directives regulating the periphery trade in Ethio-Djibouti, Ethio-Kenya and Ethio-Somaliborders have the following common features (Note that the discussion is based on the latest pettyPeriphery cross-border trade directives. These are Petty Periphery Trade Directive No. 4/1992across the Ethio-Kenya Border, Directive No. 6/1997 across the Ethio-Djibouti Border andDirective No. 1/1995 across the Ethio-Somali Border. They are almost identical in theirstructure):

Purpose:The following are the purposes behind the permission of formal cross-border trade, asmentioned in the preamble of the directives:1. Allowing the people near the border to import some basic goods because the basic goods

frequently used by local populations living near the border do not reach the area in adequatequantity. Even if goods reached these locations, their prices would be so high due totransportation costs, they wouldbecome unaffordable forthe poor. Moreover, Ethiopians nearthe border might have different feeding habits and lifestyles and their food and othercommodity demands may not be completely met by domestic products. It is, therefore,imperative to allow the border people to buy their basic consumption items at the nearesttowns of the neighboring countries.

24

2. To curb illegal/informal trade across the border by allowing the people to freely import basiccommodities as well as adapting the people to accustom the formal trade procedures ofEthiopia and thereby checking the widespread informal trade across Ethiopian border.

Implementing Institutions: The implementing institutions are identified by the directivesgoverning petty periphery cross-border trade. The direct implementers are Regional TradeBureaus, woredatrade and industry offices, and customs authority established in duly recognizedcustom posts across borders. Regional trade bureaus are delegated by the Ministry of Trade toissue business license or to assign woreda trade offices to do the same. They are also required todetermine the prices of exported items for the purpose of monitoring whether traders complywith the capital restriction. Customs authorities are required to collect taxes and check whetherthe imported and exported items are those listed in the directives. They are also required to setthe prices for imported items to check whether traders comply with the capital restriction.

In addition, the Trade and Industry Bureaus of the Regional States delegated by the Ministry ofTrade are obliged to submit bi-annual reports as to the number of licenses and relicenses given intheir respective scope of influence, the list of unit tradable items’ price used and the challengesfaced during implementation. However, this obligation is hardly adhered to and this is one of thechallenges contributing towards failure of implementation of the directives. Branch Custom postsused as entry and exit points for petty traders import and export (Ethio-Djibouti-Dewele&Galafi;Ethio-Somali- Togowuchale, Alaybede, DebeleWeyni and Teferiber; Ethio-Kenya: Moyale) arealso required to submit quarter statistical reports on import and export through the petty tradescheme to the Ethiopian Revenue and Customs Authority (ERCA). ERCA is also expected reportto the Ministry of Trade and Industry (now the Ministry of Trade), for Ministry of InlandRevenue (which is not currently in the executive structure of the country) and the National Bankof Ethiopia. This is very important to ensure the formality of the trade and generate the requiredinformation for decision making purposes. However, it was never complied with sinceimplementation is not commenced yet.

Distance to be Covered: The area within which legal traders can reach through this scheme isdetermined by the directives in the three regions. With respect to the petty trade across Ethio-Djibouti and Ethio-Somalia borders this is provided in terms of the towns where cross-bordertrade can take place. Every Ethiopian residing in these areas can engage in this trade through theprocedural requirements mentioned in the directives. It is also required that the source as well asthe destination of importable and exportable items should be the towns mentioned in thedirectives. (The complete list of towns is indicated under Appendix A and B). However, the caseis different in the Ethio-Kenya border. Traders can engage in petty trading activity within 200kilometers radius from the town of Moyale.

Items to be traded: The items that traders can import/export through this scheme of petty tradeare listed in each directive (see annexesC, D, & E for the complete lists of exportable and

25

importable items in each region). Traders having a petty trader’s license can only import andexport items which are specifically indicated in the directives.

Capital Restriction and allowed number of entries: Traders engaged in petty trade operateswithin the capital limitation which is imposed on the value of the goods they want to import orexport. In the Ethio-Kenya border traders with petty trader license can import goods having avalue of 10,000 ETB per round and they are allowed only two entries per month. Traders cannotenter the Kenyan border more than two times in a month for importing/exporting goods.Therefore, the monthly capital limitation is 20,000 ETB. In the Ethio-Djibouti border the capitalrestriction and the number of entries allowed is not clear. However, there is indirect indication ofthe value of exports in the directive. It is stated that livestock can be exported twice a month intwo alternative ways. The first is that if the exporter wishes to export live animals of the samespecies, he/she can export three oxen, 3 camels or 30 sheep and goats per a single entry. Thesecond alternative is applicable when the exporter engaged in petty trade needs to export liveanimals of different variety at a time. In this case he can export one ox, 2 camels and seven goatsand sheep. Since the value is not clearly stipulated in the directives, this will certainly causedifficulty in implementation. In addition, it fails to provide sufficient flexibility for traders sinceit provides only two alternatives. Petty traders that need to trade in legitimate tradable itemsother than live animals are not provided with clear guidance too. Petty traders operating in townsalong the Ethio-Somalia border operates their business within the 10,000 ETB restriction permonth. Petty export trade in permitted items is free from payment of any kind of duties. Thetraders can export a maximum of 30 goats and sheep or 3 oxen 3 camels during a single round.The directive didn’t provide another alternative mix of animals if traders want export of thatkind. The number of entries per month is restricted to two rounds only.

Requirements for Licensing and renewal of license: Entry into petty periphery trade is nothampered by cumbersome regulatory procedures. In all the areas under study the traders arerequired by the directives only to fill in a very simplified form with two photographs and 25 birrpayment to get the license. It is clearly indicated in all Petty Periphery Trade directives that, inmatters not specifically covered by these directives, the Commercial Registration and BusinessLicensing Proclamation (Proc. No. 686/2010) and its amendment (Proc. No. 731/2012) will beapplicable.

The license should be renewed every year upon payment of 25 birr. Using the license as a coverfor illegal trading activities and failure to adhere to the obligations stipulated under the directivesamounts to the revocation of license and new license may not be given for a trader involved insuch activity. A trader will be totally banned from conducting a petty peripheral cross-bordertrade if he commits such crime for thrice.

Implementation and Enforcement:Though it has been more than a decade since the peripherycross border trade is initiated, it is not yet implemented in many border areas of the country. InMoyale it was implemented for one year (in 1993 E.C shortly after the coming into force of the

26

1992 Petty periphery trade directive) and a total of 245 traders were registered and licensed toengage in this trade. However, they cease to continue their business due to various factorsmentioned in the coming that deals with the challenges of petty periphery trade. Majority oftraders in the area are not indigenous inhabitants. They are coming from other parts of thecountry. Inhabitants are involved in the hidden transfer of goods (Interview with Moyale ERCABranch Office’s Enforcement Business Process Co-ordinator). Part of the areas lackadministrative commitment to take strong measure against illegal traders. We have learned that itwas never implemented in Afar Region/ Galafi despite the fact that the directive was amendedand improved three times since 1990 taking into account the challenges faced duringimplementation. In Somali regional state, the directive allows this trading activity in and around15 border towns but it is only in Togowuchale that some traders has taken the license since April2014.The directive applicable in the Ethio-Somali border is also amended three times since thefirst directive which was issued in 1990.

5. THE ROLE OF CROSS BORDER TRADE FOR THE

LIVELIHOOD OF PASTORALISTS

The finding of the study indicates that cross border trade plays an indispensable role for thelivelihood of pastoralists in the PRIME intervention areas-It is a source of income, consumergoods and employment. As per the survey data, 60% of the respondents are in favor of crossborder trade. Similarly, 60% of the respondents believe thatCBT enables them to get higher pricefor their livestock, which is a major product of pastoralists. Around 92% of the respondentsgenerated income in the last one year through selling their livestock across the border or sellingto livestock exporters. 69% of the income of the respondents in the last one year,2006 E.C, wasgenerated from the sale of livestock across the border or at border livestock markets. Moreover,18% of the income of respondents was generated from business activities. This might imply thatbeing close to the border and engagement in cross border related trade activities helpedpastoralists to generate capital for the establishment of businesses. Further, the cross border trademight open up business opportunities in allied activities. The traders participated in the keyinformants we contacted also avowed the importance of cross border trade as a source of capitalto establish household business. Likewise, 51% and 41% of the respondents said thatengagement in cross border trade helps them to obtain food items and clothes, respectively.

27

Table 6: Source of Income in the Last 12 Months (July 2013 –July 2014)

Source of incomeAmounted earned (inETB) percent

1 sale of livestock 985,540 692 Sale of crops 61,480 4

3own business/tradeactivities

256,16018

4 off-farm employment 59,370 45 Wage employment 45,031 36 Remittances 19,200 17 Other 0 0

Total 1,426,781 100Source:Own Survey, 2014

Figure 5:Source of Income in the Last 12 Months (July 2013 –July 2014)

Table 7: Summary of the Benefits of Cross border trade for Pastoralists

Description Number of respondents %Favour Cross border trade 93 60.39Get higher price forlivestock

91 59.48

Buy food 78 50.65Buy cloth 63 63

Source: Own Survey, 2014

Note: the percentages are computed from different bases

27





256,16018






91 59.48




sale of livestock

Sale of crops

own business/tradeactivitiesoff-farm employment

Wage employment

Remittances

27





256,16018






91 59.48




off-farm employment

28

6. CHALLENGES OF CROSS BORDER TRADE

The participants of the cross border trade in the PRIME project operational areas experienceseveral problems. The first of these problems is the contention between illegal/informal crossborder traders and the government. The traders, pastoralists and local authorities we interviewedfor this study complained that border controllers, particularly federal police, confiscate theiranimals even before entering the 15 kilometers-from-border zone which is set illegal by customsauthority. (Note that this zone is known as “customs frontier strip” as per the new customsproclamation (Art. 2 (44) of the Customs Proc. No. 859/2014). This proclamation also states thatthis area should be used for border crossing or transport of goods only by persons entitled to suchactivities on the basis of laws or international agreements.Goods seized in the customs stripsfrontier destined for illegal exportation are considered as contraband.They also mentioned theproblem of language barrier to communicate with federal police. Some others complain thatthere are pastoralists who are normally living and grazing their livestock within the prohibitedzone and that the law does not take the normal livelihoods of pastoralists in to account.Moreover, some livestock markets, such as that of Moyale, are normally within the 15 kilometerslimit from the border and banning the trekking of animals to such markets might conflict with thenormal livelihoods of pastoralists as well as traders in these areas. The pastoralists that weinterviewed for this study also complained that confiscation of livestock and other tradingcommodities by Federal Police is their major challenge in cross border trade. Though it isunderstandable that pastoralists and traders should be abided by the country’s international tradelaws, special legal windows, such as the periphery cross border trade initiative, should be createdand dully implemented to accommodate the situations of pastoralists living close to the country’sborder.

The second set of problems facing participants in the cross border are related to physicalinfrastructure. These include poor road infrastructures, lack of marketing infrastructures and lackof vehicles for transportation of people, animals and commodities.

The third problem encountering cross border trade of the study area, particularly livestock trade,isabsence of standard quarantine service in the country in general and the PRIME operationalareas in particular. Though the government and other private entities provide quarantine services,the services are not standardized and not acceptable by importers at the importing countries.Hence, the animals are re-quarantined in neighboring countries and traders do not haveincentives to take up the service. This problem is prevalent in the eastern cluster (Interview withThe Director for the Livestock market in the Agricultural and Livestock Bureau of EthiopianSomali Regional State).

The fourth problem that livestock traders and pastoralists who want to sale their livestock toexporters face is the poor quality of animal varieties. Particularly in Afar region, the weight ofmost of the animals does not meet the export requirements and hence they don’t attract exporters

29

nor fetch good price. Hence, traders and pastoralists are forced to go through the informal routeto export livestock to Djibouti. Few fatteners are the only formal exporters in the region. Butthere is large informal export of live animals to Djibouti through Dawaalee and Asaita markets.This problem is related to poor cattle management system, lack of sufficient fodder and thenatural breed of the animals.

The fifth problem of cross border trade is the breaking of the traditional institutions that nurturedtrust between buyers and sellers. Many livestock traders we interviewed for this study avowedthat default on arrear has been recently on rise and costing them a lot of money. We have learnedthat the negotiation of comprehensive bilateral agreement with Kenya, Somalia, Djibouti andSomaliland governing petty trade between border towns of Ethiopia and these countries isunderway and is expected to be finalized by current Ethiopian fiscal year (Interview with theDirector for Bilateral and Regional Trade Relation and Negotiation at MoT). This may avoidsome of the problems as there will be a due considered administrative or court intervention insuch cases.This should, however, be complemented with transforming the traditional exchangesystem with a legally enforceable contract.

The sixth problem is absence of foreign exchange services to neighboring countries’ currencies.Despite the large volume of trade between Ethiopia and its neighbors, Ethiopia does not provideofficial exchange services to neighboring countries’ currencies. Trading activities with Kenya,Somalia and Djibouti have to be conducted in one of the accepted foreign currencies by Ethiopia,mainly US Dollar. However, since US dollar is scarce in Ethiopia and the disbursement byEthiopian banks is so stringent, a great deal of the cross border transaction with Ethiopianneighboring countries is conducted underground or illegally using Ethiopian Birr and theneighboring countries’ currencies. The absence of sufficient exchange services restricts thetrading activities of Ethiopia with its neighbors and encourages informal/illegal trade. In someborder towns,exchange service for neighboring countries’ currencies is provided by informalmoney vendors over the streets. For example in Moyale, Kenyan Shilling is openly exchangedalongside the street by informal money vendors.

The seventhproblem is related to [lack of] enforcement of the petty periphery cross border trade.There are a lot of problems that hinder the commencement and smooth running of the PPCBT.The list of items is very old and didn’t reflect current needs of the intended beneficiaries. Theproblem is felt by MoT also, and it is now collecting information from regions as to the lists ofitems that the latter think should be included in the upcoming directive. Actually, the Ministrywas conducting the same survey in 2010 but survey findings were not utilized to amend thedirectives.The capital ceiling is very restrictive and was never updated to go along with theinflation. The latest amendment made is that of the Ethio-Somali Petty Periphery cross-bordertrade directive which took place in 1997 E.C/2004/05 G.C. The Ethio-Kenya petty trade directivewas never amended since its introduction in 1992 E.C/2000/01 G.C. Significant inflation tookplace after the Ethiopian millennium and that should have been considered. Traders cease tooperate petty trade because the maximum value of import/export goods permitted to be

30

exported/imported is significantly low.The petty traders/traders securing a license to import orexport via the periphery trade scheme didn’t receive any incentive and they should undergothrough all the procedures of customs except the regulatory requirements related with letter ofcredit and hard currency and duty free exportation of permitted items. Petty traders cannot winthe price competition with illegal traders both in local market and neighboring border towns. Thenumber of entries allowed per month is very few, only twice a month. This is the major source ofdissatisfaction among the traders in all regions (Interview withSisay Lemma andTeketelTesfaye). Concerned government authorities are also reluctant to implement the pettytrade directives. They feared that the PPCBT would exacerbate the existing informal (illegal)trade and makes controlling difficult because traders may use the license as cover for informaltrade and the imported items may also pass beyond the designated areas to the center where itcauses competitive disadvantage to formal trades. Moreover, there is lack of horizontalcoordination between the ministry of trade and customs authority and lack of verticalcoordination among the different tiers of these authorities at federal, regional and local levels.The regions failed to comply with the reporting requirements under the directives (Interviewwith YishakTekaligne).

7. RECOMMENDATIONS

Guarding borders by federal police in collaboration with regional police. This would help toavoid language and communication barriers between border controllers on one hand andtraders and pastoralists on the other hand.

Amending the cross border trade directives in such a way that the capital requirement areadjustedin line with the inflation and expanding the list of trading items to accommodate thedynamic demands of trade itself and the society living across borders.To this effect, thefindings of this study shall be communicated to MoT so as to initiate the necessaryamendments on the law/directive. Moreover, there should be commitment and effectivecoordination to implement the petty trade law by the Ministry of Trade, ERCA, RegionalTrade & Industry Bureaus and Woreda Trade and Industry Offices delegated by respectiveregional bureaus.PRIME can join efforts with Ministry of Trade with respect to facilitatingthe implementation of petty cross-border trade directives as well as the amendment of thesame. Amendement of the petty periphery trade directive applicable in the Ethio-Kenyaborder seems an imminent need as traders themselves clearly communicated the need foramendment for the administrative organ in the locality. However, in the Ethio-Somalia andEthio-Kenya border, implementation of the existing directives can take place andamendments can follow thereafter.

Providing modern contract enforcement mechanisms among cross border traders: This mightrequire establishing and strengthening government offices that provide contractual agreementservices and creating the awareness about the importance of legally enforceable contracts andcollaboration with neighboring country governments. PRIME can intervene in the form of

31

organizing awareness creation forums through providing training and consultancy servicesfor cross border trade.

Organizing a consultative workshop for organizations that might, directly or indirectly, affectcross border trade development in Ethiopia such as the Ministry of Trade, Ministry ofAgriculture, Ethiopian Revenue and Customs Authority, Ministry of Finance and EconomicDevelopment, Federal Police Commission, concerned regional governments, traders, pastoralcommunity leaders, pastoralist associations and cooperatives and delegates fromneighboring countries to discuss the issues of livestock trade development, implementation ofperiphery cross border trade and quarantine service provision in Ethiopia.

Providing technical assistance to pastoralists on fodder and cattle management throughtraining and awareness creation campaigns so that export earnings for pastoralists canincrease.PRIME project can provide this service through its activities under alternativelivelihood improvement.

Identifying potential fruit and vegetable producingagro-pastoralist and pastoralistswithinPRIME operational areas and encourage individual pastoralists, cooperatives andinvestors to produce and export fruits and vegetables to neighboring countries, particularlySomalia, and benefit from the nearby large markets for fruits and vegetables. PRIME projectcan conduct assessment to identify potential fruits and vegetable production areas andprovide technical support to existing and potential fruit and vegetable producers andexporters in its operational areas. PRIME should consider increasing the resilience ofpastoralists through this venue primarily because the areas designated for petty peripherytrade coincide with PRIME operation areas and it is a requirement under the directives thattradable items should be sourced from these places/areas. Awareness creation for pastoralistsliving within the specified radius or towns for the legitimate conduct of petty cross-bordertrade will contribute hugely towards self-employment of ToPs residing in the area. Theawareness creation is recommended to incorporate issues such as the requirements forlicense, the permitted exportable/importable goods, and incentives associated with pettytrade. They can either be petty traders or suppliers for petty traders.

The fact that cross-border trade of Ethiopia with Kenya, Djibouti and Somalia is highlyvolatile and presents a major risk due to fluctuation in demand/price requires policy and legalintervention from the government through strengthening the provision of insurance servicesfor cross-border traders.

One of the problems behind the resistance of traders to make use of the cross-border trade islack of incentive and the resulting inability to compete with illegal/informal traders. As dutyfree export is allowed for petty traders, it would be better if the same is applicable withrespect to import petty trade in the permitted items. It is known that income from customsduties and taxes applicable on imports will be forgone, but, as it is indicated in the literaturereview of this research, this will have a tremendous contribution for business expansion andemployment creation in the domestic economy and through widening the tax base of theeconomy.

32

Providing foreign exchange services to Kenyan Shilling, SomaliShilling and DjiboutiFrancso that importers and exporters in Ethiopia and the neighboring countries can easily getcurrencies for their trading activities. In addition to its benefit of boosting the volume ofexport and import trade between Ethiopia and its neighbors, providing exchange service toneighboring countries’ currencies would also reduce the demand for other hard currencies,such as US dollar, as exchanges can be made with local or neighboring countries’ currencies.

33

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GebreMariam, S., Amare, S., Baker, D., Solomon, A. and Davies, R. (2013).Study of theEthiopian live cattle and beef value chain.ILRI Discussion Paper 23. Nairobi:International Livestock Research Institute.

Golub, S. (2014).“Informal Cross-Border Trade and Smuggling in Africa,” forthcoming inthe Handbook on Trade and Development: Africa, edited by Oliver Morrissey, 2014.

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Laws

Customs Proclamation No. 859/2014, Federal NegaritGazeta, 20th Year, No. 82, Dec. 2014

Ministry of Trade, Petty Periphery Trade Directive No. 4/1992 across the Ethio-KenyaBorder,

Ministry of Trade, Directive No. 6/1997 across the Ethio-Djibouti Border

Ministry of Trade, Directive No. 1/1995 across the Ethio-Somalia Border

Definition of Powers and Duties of the Executive Organs of the Democratice Republic ofEthiopia Proclamation No. 691/2010, Federal NegaritGazeta, 17th Year, No. 1, Oct. 2010

Ethiopian Revenues and Customs Authority Establishment Proclamation No. 587/2008, FederalNegaritGazeta,14th Year, No.44, July, 2008

36

APPENDIX

Appendix A: Towns covered by petty trade in Ethio-Somali Border

AwebereShilabo

TogowechaleFerfer

DebelWeyniDoloBayo

EneguhDolo Ado

Bihodle Kudu Dumo

DudubDuruksi

Alay BedeyElanle

Bare

Appendix B: Towns covered by petty trade in Ethio-Djibouti Border:

Dich’otoDubti

MandaDetbahri

Elidar Logia

Asaita Mile

AfaboAfdera

37

Appendix C: Items on the petty trade list for trading activity across Ethio-Somali Border

Items to Be Exported Items to be imported upon payment ofcustoms duties& taxes

Sheep CigaretteGoat Thermos, glass, and plateCamel Joss-stickMilk sugarCattle Metal potForest Resin Dry nut

riceBattery/ with the dry cell batterySaltpastamacaroniwheat flourClothes customarily used by peoples living inthe borderSoap for clothes and bodyCarpet for floor covering and for worshipping

38

Appendix D: Items on Petty Trade List for Trading Activity across Ethio-Djibouti Border

Items to be exported Items to be imported upon payment of tariffand taxes

Animals/oxen, goat, sheep, camel/ CigaretteAnimal products/milk, butter, honey/ Thermos, glassesVegetables and fruits produced in the locality Cooking oil (Gallon as unit of volume)Spices Pasta, Macaroni, Wheat flour/Grained bean and pepper Milk powderArtifacts produced within the locality Grained coffee

SugarDry nutriceJuicesPacked foods/biscuitsMetal potsJoss-Stick and IncensesShoes/demanded by the residents in the areaTextiles/demanded by the residents in thelocalityRadio, fan, Air conditionerMatchesJarCarpets made of plastics and textilesBattery with Dry Cell Battery

39

Appendix E: Items on Petty Trade List for trading activity across Ethio-Kenya Border

Items to be exported Items to be Imported upon payment of tariffand tax

Crop /except cereals and oil seeds Cinnamon/Tea SpicesGinger SoapMace Tin/ Corrugated IronBlack cumin Jerry can and tubGarlic Lotion and cosmeticsFenugreek Exercise book/writing padsFruits and vegetables pencilEgg Shoes made of plasticsButter Paint used for house surface decorationIndustrial products produced in Ethiopia Salt

teaCooking oilKitchen utensilsUmbrellaMattress made of Sponge

40

Appendix F

Appendix F1: Value of Export Contraband Goods in ETB (2012/13 and 2013/14)

Commodities Dire Dawa Jigjiga Mille Moyalle Total Percent

2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13

Live Animals 0 0 5,984,018 7,105,260 61,650 27,500 0 0 13,178,428 34.92

Cereals 0 0 402,944.4 7,107,939 6,045 11,680 81,350 0 7,609,958 20.16

Pulses 0 0 7,820 7,110,618 18,660 17,170 45,000 0 71,99,268 19.08

Chat 2,645,037 2,888,460 0 0 154,800 73,200 0 1,348,306 7,109,803 18.84

Electronics 0 0 0 0 0 0 1,119,400 0 1,119,400 2.97

Fruits AndVegetables

0 0 346,962.2 2,679 0 0 0 0 349,641 1.07

Honey 0 0 0 102,139 0 0 47,840 38,400 188,379 0.93

Oil Seeds 0 0 61,497 117,080 0 0 0 0 178,577 0.50

Oil And Sugar 0 0 0 0 0 0 117,500 0 117,500 0.47

Fodder 0 0 5,112.9 16,146 90,450 0 0 0 111,709 0.31

Shisha/Hashish 0 0 0 0 0 0 83,200 7,200 90,400 0.30

Egg 0 0 12,708 41,400 0 0 0 0 54,108 0.24

Leather 0 0 0 19,990.55 0 0 0 0 19,991 0.14

Dairy Products 0 0 0 0 0 4,000 0 0 4,000 0.05

Alcohol 0 0 0 1,600 0 1,500 0 0 3,100 0.01

Macaroni 0 0 127.65 0 0 0 0 0 128 0.01

Others 81,556 99,788 29,955.71 14,870 4,700 5,000 16,8940 0 404,810 0.00

Total 2,726,593 2,988,248 6,851,146 21,639,721 336,305 140,050 1,663,230 1,393,906 37,739,199 100

Source: ERCA, 2014

41

Appendix F2: Value of Import Contraband Goods in ETB (2012/13 and 2013/14)

ImportItems

Dire Dawa Jigjiga Mille Moyale

Total

Percent2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14

Clothes 26,808,751 23,027,753 31,368,777 27,108,957 1,5047,656 9,609,661 59,085,02558,715,747 250,772,327

48.66

ElectronicsDevices 19,003,051 7,555,012 147,056 11,959,316 14,554,518 17,974,133 5,997,058 3,609,480 80,799,624

15.68

Others 5,186,483 3,945,743 14,031,651 10,433,540 2,339,059 1636251 6,517,299 8,473,963 52,563,99010.20

Tobacco andCigarettes 12,590,027 7,579,021 5,804,527 5,865,142 5,831,912 3,377,072 0 0 41,047,700

7.97

Food Stuffs 2,207,866 4,201,930 3,575,402 3,866,141 2,416,651 2,262,308 3,584,337 4,650,475 26,765,109 5.19

Second HandClothes 9,741,272 2,922,445 2,463,811 1,090,649 4,476,150 4,643,950 0 0 25,338,277

4.92

Cosmetics 1,678,588 818,118.6 14,68,532 1,619,631 948,000 1,147,607 1,221,387 1,611,746 10,513,609 2.04

Shoes 0 0 4,274,591 3,103,788 950,710 1,913,220 0 0 10,242,309 1.99

Medicines 840,870.5 405,240 1,218,692 1,538,388 1,384,595 3,842,580 156,005 268,525 9,654,895 1.87

Spare Parts 0 0 1,780,643 1,241,181 1,711,438 2,461,040 0 0 7,194,302 1.40

Vehicle 0 0 0 0 0 0 0 313,000 313,000 0.06

Chat 0 0 48,400 79,420 0 0 0 127,820 0.02

Total 78,056,908 50,455,262 66,182,082 67,906,152 49,660,689 48,867,822 76,561,1117,7642,936 515,332,963 100

Source: ERCA, 2014

42

Apendix G: List of Contacted Persons for Key Informant Interview

No.

Name ofInterviewee

Position/Responsibility/Expertise

Contact Addressemail phone

1 KelifaHussien

A/Director for Live Animaland Hide and Skin MarketingDirectorate

[email protected]

0911116049

2 YishakTekaligne

Director, Bilateral andRegional Trade Relation &Negotiation

[email protected]

+251115159047 (office)

3 TeketelTesfaye

Vice Head and TrainingCoordinator, MoyaleWoredaTrade and Industry Office

0464441912(Office) &0912438852

4 SisayLemma

Modernizing business licenseprocess owner,

0926617268

4 AbduGetachew

Livestock Marketing Expert,Afar Regional Pastoralist andAgricultural Bureau,

0935562988

5 Tedla Expert, Ethiopian SomaliRegional State, Moyale Districtpastoralist office

0919968716

6 Abdufetha Head, Ethiopian SomaliRegional State, Moyale DistrictTrade and Revenue Bureau

0911872084

7 MelkamuTsehay

Legal Observer, EthiopianRevenue and customsauthority, Moyale Branch

0910178849

9 MulukenWerede

Expert in legality of tradesupervision and control,Yabello Zone Trade andMarket Development Office

0916830382

10 BekeleTirbo Coordinator, ConsumerProtection process, YabelloZone and Market DevelopmentOffice

0911767272

11 GetachewMihiret

Contraband Control SeniorOfficer, Ethiopian Revenue andCustoms Authority

0910134138

12 TesfayeHadgu

Head, Dire Dawa ForeignTrade Office under the

0915080210

43

Ministry of Trade13 Daniel

G/MeskelDirector, Law EnforcementDirectorate, ERCA, Dire DawaBranch Office

+251257752117

14 MohammedAli Tahir

Trade Promotion ProcessOwner, Ethiopian SomaliNational Regional State TradeBureau

0915111820

15 ColonelTadesse

Head, ERCA, TogowuchaleBranch Office

0911443537

16 AhmednurMohammed

Agricultural Marketing andInput Supply Process Owner,Ethiopan Somali RegionalState Agriculture andLivestock Bureau

0915749134

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