Doing Business in Benin Republic -Maximizing the Informal Economic Potential for Development

The phrase informal economy has been used frequently; it comprises economic activities that circumvent costs and are excluded from the benefits and rights incorporated in laws and administrative rules .  A significant aspect of informal economy is Informal Cross-border trade (ICBT). This may take two forms:  

  1. trade which occurs informally through formal channels; and
  2. trade which occurs entirely through informal channel.  

Informal cross-border trade (ICBT) involves distribution of goods across territorial borders, bypassing regulatory and administrative procedures [mfn]Blum, C (2014), “Cross-Border flows between Nigeria and Benin: What Are the Challenges for (Human) Security?” (Online) Available from: www.library.fes.de/pdf-files/bueros/nigeria/10883.pdf (accessed 12 October 2019)[/mfn] . ICBT is prevalent in Africa and has important implications for the functioning of African economies.

The evasion of customs duties through ICBT is a serious concern for many governments in Africa because these tariffs account for a sizeable share of public receipts.  The economy of Benin republic is heavily dependent on ICBT.

Overview of the Benin Republic (Benin)

Benin is a French-speaking West African country with a population of 11,175,692 and an economy heavily dependent on trade. The country’s access to the Atlantic Ocean through the port of Cotonou provides a major channel for regional and global trade .  As far back as 1960, Benin served as the center for flow of trade to neighboring countries and currently serves as “middle-man” for re-exportation of goods into Nigeria in particular, from European countries.

In terms of regional integration, Benin is a member of the Economic Community of West African States (ECOWAS), the West African Economic and Monetary Union (WAEMU) and the Community of Sahel-Saharan States (CEN-SAD) with about 70% of its exports going to the ECOWAS zone (particularly Nigeria) .  

ICBT in Benin Republic

In 2011, the national statistics of Benin identified 171 non-official border points to conduct a survey of ICBT. Although ICBT is common in most African countries, the volume of ICBT is particularly high in Benin republic where it operates in the open and is tolerated . 

A significant portion of revenue is lost by the government of Benin Republic through ICBT. Although, one may expect that the conscious efforts at trade liberalization in Africa should result in a reduction of informality, yet, the persistence of ICBT signals that enactment of policies to encourage trade liberalization is insufficient to tackle the prevalence of ICBT, particularly in low income economies like the Benin Republic . 

According to the World Bank Flagship report on the ease of doing business in 2019, Benin Republic ranks 153 out of 190 economies on the Ease of doing business scale. This report is generated from the comparison of existing business regulations in 190 economies and its effects on ease of doing business.

Despite the fact that Nigeria and Benin are members of the ECOWAS and WAEMU, implying the liberalization of trade across the borders of these countries, in reality, the volume of informal trade between these countries surpasses formal trade.

A major cause of the high rate of ICBT between Nigeria and Benin Republic is the disunity in trade and economic policies. Further, the differences in  the monetary regimes existing between both countries- Naira and Colonies Francaises d’Afrique (CFA) resulting in high import toll rates have spurred undeclared commercial activities and contributed to re-exportation activities in particular . The ineffective border control measures by government of both countries and high rate of corruption among Custom officials have also contributed to ICBT.

Impact of ICBT on Beninese Economic development

According to estimations, the informal economy represents 65 percent of Gross Domestic Product (GDP), engaging 90 percent of the labor force.

Custom evasion deprives the country of substantial revenue which contributes to the weakening of public institutions.  In the case of the Beninese economy which depends largely on its fiscal income collected through the port of Cotonou and the border customs officials, ICBT exposes the economy to loss of the substantial revenue which could be used for economic development [mfn]like this[/mfn] .

Asides having the world’s 26th worst human development index, the World Poverty Clock notes that over 5.1 million people in Benin live in extreme poverty. The United Nations Development Program, UNDP, also stated that 41 per cent of people living in the country are suffering from severe multidimensional poverty while 14.7 per cent are vulnerable to the condition .

Although primary education in the Benin republic has been free since 2007, nearly half a million of Beninese children are still excluded from primary education. A significant population of the labor force are involved in diverse forms of hard labor ranging from domestic helps, street vendors and farmworkers [mfn]Ibid note 12[/mfn] .  

Photo Credit: International Centre for Investigative Reporting

Road to Formalization of the Informal Sector

Generally, limited attention is being paid by policy makers to Informal economy in Africa, despite the impact of these activities on economic development, alleviation of poverty and regional integration.

Clearly, without quality data and information on the informal sector, trade policies and integration strategies in Africa have lower chances of success. As long as informality is prevalent in the most common economic activities, efforts to promote inclusive development through formal and informal education will be abortive.

Political and governance challenges are the foremost challenges to unleashing economic growth.  Government must not only focus on ensuring access to quality education, there must be a radical approach to eliminate child labor and illiteracy through viable economic policies.

A major driver of informality in any economy are the trade and regulatory policies. The government must enact policies which create a business-enabling environment, remove bureaucratic burdens and provide basic infrastructure to encourage formalization of trade, the major commercial activity in the economy.

A focus on creating a business friendly environment will position the economy as a formal market for regional and global trade, thereby, increasing the government revenue and providing sufficient fund for developmental projects.

BIBLIOGRAPHY

Reports

African Development Bank (2019), “African Economic Outlook 2019: Benin Economic Outlook”, ISBN 978-9938-882-87-2

www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/2019AEO/AEO_2019-EN.pdf

Blum, C (2014)   “Cross-Border flows between Nigeria and Benin: What Are the Challenges    for (Human) Security?”  www.library.fes.de/pdf-files/bueros/nigeria/10883.pdf

Food and Agriculture Organization of the United Nations, Regional Office for Africa, Accra(2017) “Formalization of Informal Trade in Africa, Trends, experiences and socio-economic impactswww.fao.org/3/a-i7603e.pdf         

Jarreau J, Mitaritonna C & Bensassi S (2016) “Determinants of Cross-Border Informal Trade: The Case of Benin” AGRODEP Working Paper 0034 www.agrodep.org/sites/default/files/AGRODEPWP0034.pdf

Leandro M, Andrew J, and Mehmet C (2017) “The Informal Economy in Sub-Saharan Africa: Size and Determinants”, International Monetary Fund Working Paper, July 2017, WP/17/156 www.imf.org/~/media/Files/Publications/WP/2017/wp17156.ashx

Mitaritonna C, Bensassi S & Jarreau J (2017) “Regional Integration and Informal Trade in Africa: Evidence from Benin’s Borders” No.2017-21-December Working Paper CEPII, www.cepii.fr/PDF_PUB/wp/2017/wp2017-21.pdf

World Bank Group Flagship Report (2019) “Doing business 2019, Training for Reform- Comparing Business Regulation for Domestic Firms in 190 Economies: Economy Profile Benin” 16th Edition, p.4 www.worldbank.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf

World Bank Group (2018) “Country Partnership Framework for Benin for the Period FY19-FY23” Report No.123031-BJ (Online) p.8 Available from: www.documents.worldbank.org/curated/en/643931531020663012/pdf/BENIN-NEW-CPF-06112018.pdf

Articles

Jarreau J, Mitaritonna C & Bensassi S, “Lifting the Lid on the black box of informal trade in Africa” September 24 2018 www.theconversation.com/lifting-the-lid-on-the-black-box-of-informal-trade-in-africa-102867       

Adebanjo K, “Pushed beyond Borders: Why Nigeria’s worsening economy isn’t stopping young Beninese migrants from seeking a better life (2)”, International Centre for Investigative Reporting October 12 2019 www.icirnigeria.org/pushed-beyond-borders-2/

mariamomotoshoo

Mariam Omotosho is a Lawyer and Researcher in Nigeria with interests in issues affecting Business, Trade Law and Commercial Dispute Resolution for global development.

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