Although levels of intra-regional trade in SSA are very low, informal cross-border trade (ICBT) is thriving almost everywhere in Africa. Informal trade can involve two types of illegality, in the goods themselves (e.g. narcotics) or in the manner of trading (evasion of customs duties and regulations). Both types of illegal trade occur in Africa. West Africa serves as an important locus for international trade by organized crime in narcotics, notably cocaine. However, although most informal trade is illegal in the narrow sense that it is unreported and fails to comply with statutory tax rates and other regulations, the products involved are generally not in themselves illegal to trade or use. This chapter focuses on unreported trade of legal goods, which has varying degrees of illegality in terms of its intentions and compliance with tax and regulatory statutes. The chapter surveys the literature on ICBT in Africa, beginning from the economic theory of smuggling, considering several quantitative and qualitative techniques to address welfare effects and policy implications. The discussion covers the social organization of cross-border trade, emphasizing the integration of ICBT with the informal sector, which plays a dominant role in most African economies. It addresses the causes of widespread ICBT, including: artificial and porous borders inherited from the colonial area; weak border enforcement; uncoordinated trade and other policies among neighbouring countries, leading to large price differences that provide the immediate impetus to smuggling; and ethnic and religious kinship groups straddling borders. Case studies in West and East Africa illustrate the issues.
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