Trade facilitation and formalisation of trade: Evidence from OSBPs in Uganda

  • Trade costs in East Africa remain high, weighing on regional trade. Many engage in informal cross-border trade (ICBT) to avoid these high trade costs. ICBT is substantial. In Uganda, informal exports to its neighbouring countries are estimated to be equal to 38 percent of formal exports to these countries.
  • This study examines what happens when trade costs are reduced, through the introduction of a border facility – a One Stop Border Post (OSBP) – which is aimed at reducing delays and corruption.
  • The findings revealed through an original dataset of 876 traders collected at two border towns between Uganda and Kenya suggest only 5% of traders have switched their main border-crossing route since the introduction of the OSBP. A quarter of the respondents who cross the border informally suggest that they would stop trading if the official border post were the only choice of route.
  • There are factors beyond official taxes that affect the prevalence of informal trade. Male traders and those who trade perishable products are more likely to trade informally. Other trade facilitation measures also matter, such as whether traders have participated in training sectors, and their knowledge of the Simplified Certificate of Origin.