Despite the benefits that trade facilitation initiatives such as the introduction of an eSW may yield for a wide range of stakeholders including clearing agents, importers and exporters and government agencies, like most trade reforms, the links between these types of investments and poverty reduction are not so clearly defined.
A recent study (Shepherd, 2014) has found that trade facilitation interventions can have direct effects on poverty by altering relative prices in agriculture and manufacturing. Although the study has not focused exclusively on eSW, the findings could be used to understand some of intended and unintended effects of such intervention on the poor. Trade facilitation efforts that reduce importing and exporting prices have different effects in different groups and may create winners and losers even among the poor. The nature and size of the effect depend on whether or not the particular groups of people are net producers or net consumers of traded goods, and whether or not these are exported.
Exporters tend to benefit from trade facilitation interventions. Shepherd (2014) highlights that ‘reducing transaction costs for exporters means that the overall wedge between the farm or factory gate price and the world price is reduced to some degree.’ As highlighted in the report, a number of factors affect farm and factory gate prices, and changes in transaction costs may not immediately translate into increased prices. Poor groups that may benefit includes those involved in the production of exportable goods such as cash crops like cocoa,
coffee or cotton. Other group that may benefit from lower export prices includes those employed by exporting firms. Lower export prices can also have the opposite effect by leading to higher domestic prices and negatively impacting net consumers of the exported good. According to the author, this could potentially increase poverty.
Similar dynamics happen with imports. When border procedures are streamlined, the price wedge between consumer prices and world price is reduced. A decrease in consumer prices increases purchasing power and allows for access of a greater range of goods. Poor groups that consume imported goods (e.g. rice or sugar) may benefit from lower prices, however poor groups involved in import-competing industries, and groups that are net consumers of exported goods, may be negatively impacted by trade facilitation interventions.
In East Africa, poor groups are particularly sensitive to changes in food prices. A WFP (2008) study found that vulnerable and chronically food insecure groups were ‘most likely to be impacted by increasing food and transport costs.’ The most food insecure groups tend to be households that rely on wage labour, handicrafts/artisans or those engaged in urban agriculture.
Simler (2010) found that poor households in Uganda tend to be net buyers of food staples, and therefore suffer welfare losses when food prices increase.
A literature review on links between poverty and trade facilitation26 has pointed out that whether informal cross border traders (ICBTs) are positively or negatively impacted by trade facilitation interventions is highly dependent on the characteristics of the traders. This depends on which category they fall into: ‘Categories A (unregistered traders or firms operating entirely outside the formal economy), B (registered firms fully evading trade-related regulations), or C (registered firms partially evading trade-related regulations)’ and it has to be considered in a case-by-case basis.
Besides the effect caused by price changes that can impact ICBTs as net consumers of imported/exported traded goods, for traders that fall under the Categories B and C the introduction of a eSW could be extremely beneficial since some of the trade constrains are particularly harsh on informal traders. Required documents, for example, ‘are generally issued in the city centres, miles away from the borders’ which can result in total loss of the goods (Afrika and Ajumbo, 2012). The improvement of clearance time of imported/exported goods associated with the introduction of the eSW can prevent losses of goods and have positive impacts on the income of these groups.
On the other hand, all categories of informal cross border traders may be negatively impacted by the introduction of eSW. Shepherd’s review (2014) on the links of trade facilitation and poverty suggests negative impacts of trade facilitation interventions on ICBTs. According to the author improvements in the trade facilitation environment may lead to a shift from informal to formal trade activities. He indicates that ‘formal trade is typically conducted by organized traders, at a much larger scale individually than informal trade currently is. The shift towards formalization of trade can therefore have negative implications for people involved in informal trade, if they are unable to find employment in the formal sector.’
Moreover, ICBTs could be less likely to benefit from interventions aiming at streamlining border and customs procedures such as the eSW. One example is the COMESA Simplified Trade Regimes (STR) system. Although it was designed ‘to overcome problems associated with small traders’ (Brenton et al., 2013), Afrika and Ajumbo (2012) indicated that ‘unfortunately, small-scale traders are generally unable to access STR benefits because of processing fees, low awareness on STR and its functioning and corruption.’ Similarly, research based on interviews with traders on the Burundi-Rwanda border found that traders are afraid that ‘more government involvement would place a double burden on them as they stood the risk of continuing to support the old informal structures of corruption that currently facilitates the trade as well as pay government formal taxes without requisite services’. (Masinjila, 2009).
