CHAPTER
TWO:
LITERATURE
REVIEW
2.1 Conceptual Framework
The
low level and discrepancies of recorded intra-African trade flows have been
noted for at least 30 years Berg 1985, Yeats (1990). This situation has
continued or even expanded despite structural adjustment programs involving
trade liberalization and extensive integration schemes aiming to promote formal
integration. There are some 30 regional blocs
in Africa, and on average each of the 53 countries on the continent are members
of 4 often–overlapping groups (Yang and Gupta (2009). Yet official intra-African trade accounts for
only about 10 per cent of total African exports and imports, far below other
regions of the world Keane, Cali and Kennan (2010).
Casual
observation in the countries themselves, however, reveals that informal
cross-border trade (ICBT) is thriving almost everywhere in Africa. There have been numerous case studies of ICBT
in the last two decades, most by sociologists, anthropologists and political
scientists rather than economists.
2.2
Theoretical Framework
A
study carried out by Lesser and Moisé- Leeman (2009) cover many border areas in
Africa, including, among others: the Horn of Africa — Somalia, Ethiopia, Kenya,
Southern Africa — South Africa, Zimbabwe, Malawi, Zambia, Mozambique, Congo etc.
where smuggling is at its peak.
Informal
trade also known as smuggling, 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 Nigeria
thereby affecting the performance of local industries.
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 smuggling as it
affects the performance of our local industries in the country.
Smuggling
in Nigeria is flourishing due to a confluence of factors: long traditions of
regional trade preceding the colonial era; artificial borders imposed by the
colonial powers, largely maintained as African nations became independent
around the early 1960s; strong ethnic and religious ties uniting people across
the borders; uncoordinated and often highly interventionist policies,
particularly with regard to trade policies; weak state institutions, which undermine
the effectiveness of the enforcement of these policies, and widespread
corruption which reduces the legitimacy of the state and undermines tax morale;
inability of governments to control movements of people and goods across these
artificial borders; and widespread poverty and unemployment, which has spurred
both the demand for and supply of informal markets.
Cross-border
trade straddles the formal and informal sectors in a highly complex and
well-organized system that operates quite similarly in different
countries. For example re-exports start
with large formal enterprises that import goods through official channels and a
sophisticated distribution chain that then transships through informal
mechanisms, involving a network of large and small operators. The prevalence of smuggling can be documented
through an integrated analysis involving the volume of recorded trade flows and
case studies based on anecdotal information in the country.
ICBT
for sort, impede source of income, employment and sometimes, paradoxically,
government revenues. This trade rests on a fragile foundation, however, and is
unlikely to be conducive to long-term performance of local industries, given
its dependence on policy distortions and its underground character.
2.3
Empirical Studies
Although
smuggling may increase trade flows, i.e. lead to trade creation, but also
diverts legal trade into illegal smuggling, i.e., trade diversion. The net welfare effect is in general
ambiguous, as it is in classic customs union analysis.
Bhagwati
and Hansen (1973) argue that smuggling is generally harmful because in their
model trade diversion dominates.
Deardorff and Stolper (1990), using the same methodological framework,
argue, in effect, that under Nigerian conditions‘ of heavily misrepresented
government policies, trade creation tends to dominate. In these models, the
welfare effects of smuggling turn on the magnitude of the real resource cost
involved in smuggling compared to legal trade and on whether or not smuggling
wipes out legal trade or the two forms of trade occur simultaneously (parallel
trade).
2.3.1
Types Of Smuggling And Their Causes
There
are different kinds of smuggling with respect to the level of social
organization involved. Commercial smuggling is distinguished from petty smuggling
Defiem and Kelly, (2001). Commercial
smuggling involves the transportation of large quantities of commodities to be
sold for profit abroad. Petty smuggling applies to individuals crossing a
border to purchase goods at cheaper prices. Research has consistently shown
that petty smuggling is a widespread problem. Similarly, it has been observed
that national and international regulations have clearly been ineffective in
stemming the global problem of smuggling (Nadelmann 1993).
As
societies continue to increase in complexity in economic, political, and
cultural respects, traditional models of legal regulation and law enforcement
may become obsolete. As such, smuggling activities will continue to take
advantage of new- found opportunities in the global market.
With
reference to Nigeria, Akano (1986) pointed out that smuggling is one of the
commonest crimes across Nigerian borders and that it is rampant in the
West-Africa sub- region. He identified two causes of smuggling, especially
since 1974, namely; the protectionist policies of successive Nigerian
governments and the over active import demand preferences, especially of the
middle class elites, which have provided a congenial atmosphere for illegal
commodity trade to blossom over the year. In Nigeria, the trade protectionist
policies of successive Nigerian governments have resulted in either a total ban
or a restriction of the volume of trade flows to levels, which are below their
natural equilibrium. The protective measures could have been motivated by a
variety of needs such as revenue raising, conservation of foreign exchange,
restoration of balance in the external payment accounts and protection of local
infant industries. Nevertheless, they are inducement to smuggling activities.
Besides, the local industries are unable to meet up with local demands. Since
protection causes a divergence between the domestic price and world price of
the protected commodity, the former being higher, the prospect of buying cheap
abroad and selling dear at home clearly provides an incentive for the smugglers
to take risk of clandestine importation, especially if the perceived chances of
detection are low Akano, (1986).
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