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An Attempt to Estimating Informal Trade Across Tunisia’s Land Borders

Lotfi Ayadi, Nancy Benjamin, Sami Bensassi and Gaël Raballand

Abstract

This paper uses mirror statistics and research in the field to estimate the magnitude of Tunisia’s informal trade with Libya and Algeria. The aim is to assess the scale of this trade. The main findings show that informal trade represents an important part of the Tunisia’s bilateral trade with Libya and Algeria, accounting for more than half the official trade with Libya and more than official trade with Algeria. The main reasons behind this large-scale informal trade are differences in the levels of subsidies on either side of the border as well as the varying tax regimes. Tackling informal trade is not simply a question of stepping up the number of controls and sanctions, because differences in prices lead to informal trade (and to an increase in corruption levels among border officials) even in cases where the sanctions are severe.

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Introduction1

  • 1 The authors would like to thank Thomas Cantens, Anne Brockmeyer and two anonymous referees for comm (...)

1Events recently reported in the Tunisian press have highlighted the scale of the problems linked to informal trade in Tunisia (Leaders 2013a). Although most of the headlines focused on the illegal imports of fuel, many other products, such as manufactured goods, fruit and vegetables, and products from the Far East, are both imported and exported illegally. This situation has led many countries in the Maghreb to take a strong interest in the volume and nature of informal trade.

2As this study shows, it is worth knowing the magnitude of the economic activity which usually goes unmeasured, and how many citizens are making a living from conducting transactions in this subsector of commerce. These flows are especially significant for employment and income in border regions. Investigating informal trade can also contribute to redesign subsidy policies, as many heavily-subsidizing countries are interested to know how much of their subsidies spill over the borders into neighboring countries. Further, the low-subsidy countries can learn their degree of dependence on more heavily subsidized inputs from neighboring countries and estimate the impact of potential changes. A better understanding of informal trade in North Africa can also contribute to improve customs policy and port management: if large amounts of trade take place informally, this will affect the practices of those charged with implementing official policies.

3Another important aspect is related to the tax and tariff systems of North African countries, where, in principle, tariff and value added tax systems are managed with jointly-determined rates and through joint administration for imported goods. If however, customs officers are managing import taxes in a more ad hoc or location-specific manner, these two tax regimes must be understood not as closely integrated systems, but rather with disjointed implementation that allows a fair degree of local autonomy and discretion, responding to local circumstances. Informal trade will also affect total revenue collections. Finally, as trade and smuggling are often linked, and given the high degree of political turmoil in the region, governments are interested in the unrecorded channels used for informal trade and agents involved.

4Although informal trade is a relatively old phenomenon, which developed significantly in the last few years of the previous political regime (Meddeb 2012), it appears to have grown even more strongly following the revolutions in Tunisia and Libya. Following the Tunisian uprising, the border post at Ras Ajdir, on the Libyan border, was attacked and vandalized. Following a number of other problems and the closing of the border on two separate occasions, customs authorities were unable to properly control cross-border trade flows. As a result, informal trade levels are assumed to have risen.

5This report sets out to assess the scale of this trade between Tunisia and Libya and Tunisia and Algeria using a combination of three approaches: data on international trade, surveys at border posts, and interviews with traders. In this study, we use the methodologies already tried and tested in Sub-Saharan Africa and in Central Asia (Ackello-Ogutu 1997, Kaminski and Mitra 2012) and focus solely on informal trade and land borders and not on informal sector in general. Although some of the informal trade into Tunisia passes through the port of Tunis, this study does not take account of goods entering the country in this manner.

6It is difficult to give a precise definition of informal trade because practices differ from one border to the other. For the purposes of this study, informal trade is defined as the flow of goods that are unreported or incorrectly reported by the country’s customs authorities. This definition therefore covers a number of different aspects, including trade in goods passing through border posts with falsified customs declarations (in terms of the type or quantity of goods concerned) as well as smuggling (i.e., when goods cross the border without the knowledge of customs authorities) either through border posts or elsewhere along the border. However, this paper does not cover products that cannot be licitly traded in the country, such as weapons or drugs (see ICG 2013).

7A number of conclusions can be drawn from this study. Although informal trade accounts for only a small proportion of Tunisia’s total trade (less than 10% of total imports), it plays a significant role in bilateral trade with Libya and Algeria, and in certain sectors. While it accounts for more than half the country’s trade with Libya, it is harder to estimate the level of informal trade with Algeria because it is more widespread and clandestine. However, it is possible to estimate that roughly 25% of the fuel consumed in Tunisia is in the form of informal imports from Algeria. This is based on data from the Tunisian Refining Industries Company (STIR) showing fuel imports of 2,790 million tons as against national fuel consumption of 3,746 million tons. The main reasons behind this large-scale informal trade are differences in the levels of subsidies on either side of the border as well as the varying tax regimes. For example, the price of fuel in Algeria is around one-tenth of that in Tunisia.

8The growth in informal trade has a significant impact on several areas of the Tunisian economy. Fuel is cheaper, but government revenues are reduced, not only because goods are not subject to customs duties at the Tunisian border, but also because traders avoid paying value-added tax (VAT) provided they remain within the informal network. This loss of revenues can be significant.

9Moreover, this type of trade has an important economic and social impact in border regions. In many of these regions, informal trade is one of the most important economic activities – if not the most important – as is the case in Ben Gardane. Numerous individuals and organizations are involved in informal trade. While some are highly visible, such as transporters carrying the goods across the border, street vendors, and ad hoc traders (known informally as “ants”), others are less so, such as wholesalers, currency changers, and officials in the relevant administrations who are willing to turn a blind eye on the practice. This kind of trade also keeps many goods within budget for Tunisian consumers.

10Both the existing literature and the interviews conducted for the purpose of this study underline the pivotal role played by wholesalers, who control the supply chain and distribution network and are best informed about possible commercial opportunities that may arise as a result of changes in customs duties or tax rates. This finding was confirmed by Cantens et al. (2014).

11It is worth noting that the modus operandi differs according to whether trade takes place across the Libyan or Algerian border (see Map 1). According to customs authorities and those interviewed, the vast majority of informal trade across the Libyan border takes place through the official border post. However, this is not the case with trade across the Algerian border, where the role of border posts is marginal (with less than 2% of the volume of goods traded informally going through it). A major contributing factor is that prices differ greatly between Tunisia and Algeria – by a factor of five for a packet of cigarettes or a bottle of strong liquor or by a factor of ten for fuel – due to different tax and subsidies levels.

12Based on field surveys, the most worrying trend seems to be the current situation at the Libyan border with a certain laissez-faire from controlling agencies at the local level. The anti-smuggling plan announced in July 2013 is unlikely to address the problem, as it mainly focusses on equipment while it seems that internal controls are weaker and weaker. Despite an increase of seizures in 2013, they seem to account for less than 5% of the total estimates. Indeed, in 2012, the customs official seized for 48 million Tunisian dinars (TND) (Leaders 2013b). Tackling informal trade is no longer simply a question of stepping up the number of controls and sanctions because, as has been clearly shown in a number of countries, the profit opportunities due to the difference in prices are so great that informal trade continues even in cases where sanctions are severe.

13Our estimate of the scale of informal trade between Tunisia and Algeria and Tunisia and Libya is set out in the following sections. It is based on official trade data, using the mirror statistics methodology (Section 2) as well as on interviews conducted on site with customs officials and various individuals involved in informal trade (Section 3).

Map 1. Tunisia: main border posts

Map 1. Tunisia: main border posts

Source: Map Design Unit of The World Bank, 2014.

Preliminary Estimates Based on Official Trade Data

14Our preliminary estimates of trade between Tunisia and its neighbors is based on several works (Fisman and Wei 2009, Jean and Mitaritonna 2010, Berger and Nitsch 2012, Kaminski and Mitra 2012, Raballand et al. 2013) which evaluate the level of informal trade by using official trade data. This well-established approach that dates from the seminal work of Bhagwati (1967) is currently enjoying something of a revival as a result of new research into customs fraud. These studies propose using the gap between the levels of trade in the same product reported by importing and exporting countries in order to make an initial evaluation of informal trade levels (this is known as an approach based on mirror statistics). In principle, there is a minimum gap between reported values on each side of a border because exports are calculated in terms of Free On Board (FOB), excluding transport and insurance costs, while imports are calculated in terms of Cost, Insurance, Freight (CIF), including transport and insurance costs. This trade gap may grow as a result of classification errors or exchange rates (see Raballand et al. 2013 for more details). Nonetheless, Bhagwati (1967) suggested that when the disparity was more than 30% of the value of the imported product, these traditional explanations are no longer sufficient because beyond that threshold, the most likely reason for this gap is an under- or over-evaluation of imports or exports.

15The gap is calculated in the following manner for any given year and for any given pair of countries:

16where K corresponds to any category of goods as defined at the group level by the SITC, Revision 3.

17The initial analysis of trade date between Tunisia and Libya currently available at the international level reveals that very little published data recorded by the Libyan authorities are available. Data were provided for the period 2007 to 2010 only in the United Nations Trade Statistics Database (UN Comtrade). Furthermore, trade flows are recorded for only a small number of products (45) compared to Tunisia (274 over the four years concerned). While the Tunisian authorities identified on average 80 different types of goods entering the market from Libya, the Libyan authorities recorded the exports of only a dozen different types of goods over the same period. While the average annual value of the total trade flows recorded by the Tunisian authorities is US$ 508 million, it is just US$ 204 million for the Libyan authorities. Most of the published data concern trade in petroleum and gas, which account for 91% of the value of Libyan exports to Tunisia according to the Libyan authorities and 84% of Tunisian imports from Libya according to Tunisian authorities.

  • 2 The Standard International Trade Classification (SITC) is preferred over the harmonized system as n (...)

18There are significant gaps in the trade flows reported by the Libyan and Tunisian authorities (Figure 1). These gaps are particularly large for iron and steel bars (SITC code 676) and inorganic chemical elements (SITC code 522)2. For example, in 2008, exports of metal bars registered by the Libyan authorities as exported from Libya to Tunisia were 20 times higher than the number registered as imported by the Tunisian authorities. For 2007-2010, the average gap in percentage terms of the declared value is 269%. This figure is substantially distorted by the significant trade gaps identified for the products mentioned above. However, even when the most extreme figures are eliminated (those where the gap is greater than 100% of the value declared by the importer, i.e., in 8 out of 41 declarations), the average gap remains at 41% of the declared import value.

Figure 1. Gap as a proportion of import value for main products between Tunisia and Libya

Figure 1. Gap as a proportion of import value for main products between Tunisia and Libya

Data source: UN Comtrade.

19The situation differs wildly between Algeria and Tunisia. Between 2000 and 2011, a total of 1,141 trade flows between Algeria and Tunisia and Tunisia and Algeria were recorded in the COMTRADE database. Of these, 635 (55%) were registered on both sides of the border, 330 (29%) by the Algerian authorities only, and 176 (16%) by the Tunisian authorities only. The average annual value of these trade flows was estimated at US$ 272 million by the Algerian authorities and US$ 295 million by the Tunisian authorities.

20The trade value is due primarily to the dominance of trade in gas and petroleum, which accounted on average for 70% of Algeria’s exports to Tunisia according to the Algerian authorities and 76% of Tunisian imports according to the Tunisian authorities. This trade accounts for most of the gap in the total value of trade recorded by the two countries. As noted by Berger and Nitsch (2012), it is very common to see disparities in the data concerning imports and exports of petroleum and petroleum products, principally because of fluctuations in their price on the international market.

21The Tunisian authorities recorded data for imports of 68 different categories of products on average, while their Algerian counterparts recorded export data for 82 categories. Although there are gaps in the data (with 13 fewer categories on average per year), these are not as large as with Libya. However, there are significant gaps in terms of both value and volume. Annex 1 lists the 20 largest recorded gaps for a single product. For the most part, gaps are found in the trade in products used mainly in the construction industry, such as civil engineering and contractors’ plant and equipment (category 723), taps, cocks, valves, and similar appliances (747), plumbing and heating fixtures and fittings (812), and stone, sand, and gravel (273). In some sectors, the gap is significant across a number of years, such as with other meat and edible meat offals (category 012), fish (034), crustaceans, mollusks, and aquatic invertebrates (036), and vegetables (054). This is also true of groups of products covering measuring equipment and metallic tools (699). However, no trade gaps are recorded for some sectors where there is a strong likelihood of informal trade, such as with petroleum and telecommunications equipment. In the most extreme case (fresh fruit and vegetables), the export value was 30,000 times higher when recorded as exports by the Algerian authorities than when recorded as imports by the Tunisian authorities.

22In general, trade flows from Algeria to Tunisia are under-reported by the Tunisian authorities, with CIF figures lower than FOB in 55% of the cases. If the most extreme trade gap figures are ignored in order to avoid distortions from statistical outliers (accounting for 32% of declarations made by the two countries), the average trade gap is 27% of the value declared by the importer. However, if the most extreme figures are included, the average gap is 272 times the import value.

Estimates Based on Fieldwork

23As the data available are far from complete, it is not possible to estimate the scale of informal trade based on official trade statistics alone. For that reason, fieldwork was conducted on the Tunisia-Libya and Tunisia-Algeria borders. The aim of the interviews was to gather information on the current level of informal trade between Tunisia and its two neighbors. On May 1-9, 2013, questionnaires were handed out and completed by 192 individuals involved in informal trade at the crossing point at Ras Ajdir. Interviews were also conducted with customs officials at Ras Ajdir, Ben Gardane, and Médenine. The fieldwork on the Algerian border took place on May 25-29, 2013 in West-Central Tunisia, more specifically in the town of Kasserine, at the border crossing point at Bouchebka, and at various locations on the border.

24The estimates were made using two different methods. One estimate was based entirely on the information gathered during the fieldwork, while the second one was made using unit floor values based on data concerning modes of transport. As can be seen from Table 1, if both methods yielded roughly similar results, with a total of TND 1.8 billion including fuel from Algeria, the second method resulted in a higher estimate of the level of informal trade, most probably because of the under-reporting of value and/or volumes in the interviews.

Table 1. Comparison of estimates according to different methods, TND billion

Trade with Libya

Trade with Algeria

Total

Fieldwork estimates

0.6

1.2

1.8

Unit values

1.0

1.4

2.4

Source: authors’ computations. 1 TND = 0,644 USD.

Estimates of Informal Trade with Libya

25The border town of Ben Gardane is home to the leading wholesale and semi-wholesale market for goods arriving from Libya for distribution in the north and center of the country. These goods are shipped from the ports of Zliten, Misrata, or Tripoli to Ben Gardane, where they are stored and distributed to the rest of the country.

26The major wholesalers based in Ben Gardane play a key role in this process. They are few in number and tend to specialize in particular product lines. Haddar (2013) estimates that there are around 60 such wholesalers: 15 in textiles, 10 in food, 10 in electrical and electronic goods, 5 in tobacco, 5 in carpets, 5 in clothing and footwear, 3 in tires, 3 in hardware, 3 in cosmetics, and 2 in furniture. Based on their understanding of the levels of demand in the Tunisian market, they place orders abroad (mainly in China and Turkey), arrange to receive the goods in Libyan ports, and organize convoys of transporters to bring the goods from the Libyan ports to Ben Gardane. Goods from China are subject to very different levels of customs duties in the two countries (6% in Libya compared to 33% on average in Tunisia). In addition to customs duties, goods entering the country are also subject to various consumption taxes that are normally collected by the customs authorities, and these two duties together make the disparities between Tunisia and Libya all the more marked. While the combined tax burden in the former is around 84% of the import value, for the latter, it is a little over 6% of the import value.

27The transportation phase is complicated, and often involves unpacking and repacking merchandise on either side of the Ras Ajdir border post, usually in neighboring towns such as Zelten in Libya and Ben Gardane in Tunisia. The wholesalers also supply the various “Libya souks” that can now be found in most Tunisian towns and cities. Ad hoc and itinerant vendors (known as khawatta) also come to the Ben Gardane market to buy their goods. Their journey, which is described in detail by Meddeb (2012), brings them from all over Tunisia to the Libya souk in Ben Gardane, where they purchase the goods they ordered, using either their own funds or advances from their families, local businesses, or partners.

28For informal trade to work effectively, traders must be able to access significant sums of money in a short space of time. The major wholesale currency exchanges (or sarrafa) based in Ben Gardane have an effective monopoly in this area. Ben Gardane has become a major trading floor controlled by the wholesalers, who supply the 200-300 currency changers located along a road known locally as “Wall Street.” These currency changers easily meet the daily demands of informal traders, regardless of currency (Meddeb 2012), while the wholesalers themselves are usually involved in the larger transactions only.

29Informal trade between Tunisia and Libya consists not only of a network of trade flows punctuated by the physical intervention of individuals located primarily in Tunisia (Ben Gardane), Libya (Tripoli and Zliten), and China, but also by a network of cash flows punctuated by interventions in these countries as well as in Dubai, which appears to be the market of choice for paying Chinese suppliers, according to interviews conducted with forwarders.

30The major categories of goods passing through the Ras Ajdir border post are as follows: fuel, apples, bananas, textiles, shoes, household electrical goods (LCD TVs, satellite receivers), white goods (refrigerators, air conditioners), and tires. Import licenses are granted by the Ministry of trade for bananas but not for apples (Leaders 2013a). These goods are either heavily subsidized in Libya but not in Tunisia, such as fuel, for which subsidies in Libya cover 80% of the cost, or are much more heavily taxed in Tunisia than in Libya (all the other products listed above), leading to significant differences in price (see Table 2).

Table 2. Price of various goods in Tunisia and Libya, TND or equivalent

Product

Unit

Tunisian price

Libyan price

Cheese

kg

30

15

Corn oil

1 liter

3

1.2

Bananas

kg

3

1.5

Gasoline

1 liter

1.57

0.19

Fuel oil

1 liter

1.17

0.19

Air conditioners

12,000 BTU

900

560

Source: authors’ surveys. 1 TND = 0,644 USD.

31Table 3 compares import customs duties in Tunisia and Libya. Table 4 shows that the total tax burden on imports in Tunisia is always higher in Tunisia than in Libya where there is no consumption tax and where the total tax burden is always 6% + 100TND. The tariffs are the Most Favored Nation (MFN) rates levied by Tunisia on all its trading partners in line with its World Trade Organization (WTO) commitments. As Libya is not a member of the WTO, since 2005, it has been imposing a unilateral levy of 5.25% on almost all of its tariff lines. These rates are not the same as those applied under regional trading agreements such as the Euro-Mediterranean Free Trade Area (EuroMed) or the Greater Arab Free Trade Area (Gafta), which cover manufactured products. Rates applied under the terms of these agreements are more advantageous and are often virtually zero.

Table 3. Comparison of import customs duties in Tunisia and Libya, TND or equivalent

Import tax burden in Tunisia

Import tax burden in Libya

Total

Product

Custom Duty Tunisia

Custom Service Fee

Other

Custom Duty Libya

Custom Service Fee

Other

Tunisia

Libya

Bananas

36%

3%

0.5/kg

5.25%

0.75%

100

39% + 0.5/kg

6% + 100

Apples

36%

0.2/kg

39% + 0.2/kg

Cheese

36%

1.2/kg

39% + 1.2/kg

Tea

36%

39%

Roasted coffee

36%

39%

Juice

36%

39%

Chocolate

36%

3.8/kg

39% + 3.8/kg

Tires

27%

30%

Carpets

30%

33%

Clothing

30%

33%

Shoes

30%

33%

Refrigerators

30%

33%

Air conditioners

30%

10/1,000 BTU

33% + 10/1,000 BTU

TVs

30%

33%

Sources: Authors’ calculations, WTO, OTEXA. 1 TND = 0,644 USD.

Table 4. Total tax burden on imports in Tunisia

Total consumption tax burden

Total consumption tax burden

Total

Product

VAT

Consumption Tax

Advance over Income Tax

Other

Bananas

22.5%

0.0%

10.0%

2.0%

34.5%

> 87%

Apples

18.0%

0.0%

10.0%

2.0%

30.0%

> 81%

Cheese

22.5%

0.0%

10.0%

0.0%

32.5%

> 84%

Tea

18.0%

25.0%

0.0%

0.0%

43.0%

99%

Roasted coffee

18.0%

25.0%

0.0%

0.0%

43.0%

99%

Juice

22.5%

0.0%

10.0%

1.0%

33.5%

86%

Chocolate

22.5%

0.0%

10.0%

0.0%

32.5%

> 84%

Tires

22.5%

30.0%

0.0%

1.0%

53.5%

99.6%

Carpets

22.5%

0.0%

10.0%

1.0%

33.5%

77.6%

Clothing

22.5%

0.0%

10.0%

1.0%

33.5%

77.6%

Shoes

22.5%

0.0%

10.0%

1.0%

33.5%

77.6%

Refrigerator

22.5%

0.0%

10.0%

0.0%

32.5%

76.2%

Air conditioning

22.5%

10.0%

0.0%

0.0%

32.5%

> 76%

TVs

22.5%

0.0%

10.0%

1.0%

33.5%

77.6%

Sources: Authors’ calculations, WTO, OTEXA.

32Customs authorities at Ras Ajdir are well aware that these goods are being transported across the border. However, they allow the goods to cross the border for the payment of a TND 50 tax for commercial vehicles smaller than or equal to 25 m3 once the vehicle has been inspected. On receipt of this payment, customs officials authorize the vehicle to cross the border. According to local authorities, between 200 and 300 of these commercial vehicles cross the border into Tunisia every day (the border-post is opened 24 hours a day). To this figure must be added the 500-600 or so cars that transport fuel and smaller goods (for the most part small electronic goods and clothing) across the border. Finally, around 150-200 Libyan 38-ton trucks also cross the border into Tunisia.

33The information gathered at the Ras Ajdir crossing point enables us to estimate the number of vehicles, trucks, vans, and cars that cross the border each day as well as what they are transporting. The largest volumes concern fuel, clothing, and white goods. In value terms, the largest amounts concern electronic goods, with an average resale value of around TND 12,600 per load. Some products, including fruits such as apples and bananas, are almost entirely transported using small trucks and vans.

34In order to assess the value of informal trade flows through the Ras Ajdir border crossing point, we observed a number of vehicle types transporting each category of product. For each vehicle type and for each category of product, we calculated the average quantity being transported and an average value of the goods at the point of purchase and the point of sale. We calculated the proportion of each type of vehicle crossing the border each day, assuming that the sample observed was representative of daily vehicular traffic crossing the border. For example, in the responses to the questionnaires we distributed at the Ras Ajdir border crossing, there were 118 cars, of which 25 were carrying clothing. The local customs authorities register 500 cars passing through Ras Ajdir every day, or 1,000 over two days (the same time period as our fieldwork). Thus the 25 cars carrying clothing we observed would equate to 212 vehicles carrying clothing over a two-day period, or 106 per day. Once the proportion of each type of vehicle carrying a particular category of product across the border each day has been calculated, it is possible to derive an idea of the scale of daily traffic by multiplying this amount by the average quantity and average value of each load being transported. To arrive at an annual figure, we multiplied the daily figure by 320 days, taking into account the large number of Tunisian public holidays and the month of Ramadan.

35From the results presented in Tables 5 and 6, it is clear that the level of informal trade is significant, with goods worth around TND 600 million per year entering Tunisia informally from Libya via Ras Ajdir. This gives the traders involved in this cross-border business a profit of around TND 120 million, although the size of profits varies greatly according to the type of good being transported. Trade in fuel is larger by far than that for all the other products, both in terms of sale values and profits.

Table 5. Trade flows observed at the Ras Ajdir border crossing

Number of vehicles observed

Number of vehicles per day

Average quantity*

Average cost of load at point of purchase**

Average cost of load at point of sale**

Food products

Cars/Trucks and vans

5/4

21/14

185/7,520

1,618/2,333

1,758/3,860

Household goods

Cars/Trucks and vans

5/3

21/10

28/35

1,090/3,600

1,290/4,250

Other goods

Cars/Trucks and vans

1/2

4/7

0/1,000

2,000/10,000

2,800/15,000

Bananas

Cars/Trucks and vans

1/17

4/59

393/3,117

600/4,618

920/5,408

Shoes

Cars/Trucks and vans

0/2

0/7

0/1,500

0/11,250

0/13,000

White goods

Cars

19/9

81/31

20/48

1,026/2,822

1,100/3,353

Electronic equipment

Cars/Trucks and vans

7/3

30/10

13/75

884/12,667

1,041/13,600

Fuel

Cars/Trucks and vans

58/3

246/10

72/50

25/12

72/27

38-ton trucks

0

200

954

330

954

Tires

Cars/Trucks and vans

1/1

4/3

50/200

400/10,000

480/11,000

Apples

Cars/Trucks and vans

1/6

4/21

0/2,400

300/4,317

350/4,626

Carpets

Cars/Trucks and vans

5/2

21/7

25/30

1,090/1,800

1,220/1,900

Tea

Cars/Trucks and vans

0/3

0/10

0/803

0/9,800

0/11,700

Clothing

Cars/Trucks and vans

25/10

106/35

76/188

1,245/3,000

1,522/3,465

Notes: * per vehicle; ** per vehicle, in TND. Source: Authors’ calculations based on fieldwork. 1 TND = 0,644 USD.

Table 6. Assessment of annual trade flows through Ras Ajdir per category of product

Category of product

Annual value of load at point of purchase*

Annual value of load at point of sale*

Annual profit for traders*

Revenue from the TND 50 tax

Revenue from the current Tunisian tariff

Revenue from import consumer taxes

Total revenue

Food products

21.40

29.10

7.70

0.22

8.35

10.52

19.09

Household goods

19.39

22.95

3.56

0.17

6.40

9.03

15.60

Other goods

24.91

37.10

12.18

0.11

7.47

11.33

18.91

Bananas

88.01

103.25

15.23

0.94

67.38

53.61

121.93

Shoes

25.00

28.90

3.90

0.11

8.25

11.14

19.50

White goods

54.60

61.80

7.20

0.50

18.02

23.60

42.12

Gasoline

23.12

66.80

43.68

0.00

0.00

0.00

0.00

Tires

11.64

12.85

1.21

0.06

3.84

8.28

12.18

Apples

29.21

31.27

2.07

0.33

16.06

13.58

29.97

Carpets

11.39

12.49

1.10

0.11

3.76

5.070

8.94

Tea

32.70

39.00

6.30

0.17

12.75

19.54

32.46

Clothes

75.50

90.10

14.60

0.56

24.92

33.64

59.12

All goods

467.47

590.79

123.32

3.44

193.89

221.9

419.23

Notes: * In TND million over a period of 320 days (360 days less the month of Ramadan and national and religious holidays celebrated in Tunisia). Source: Authors' calculations based on fieldwork. 1 TND = 0,644 USD.

36Half the commercial vehicles crossing the border each day (or around 150) were found to be carrying goods such as milk, eggs, vegetables, and fertilizer from Tunisia into Libya, even though it is illegal to export food products under Tunisian law. Fertilizer sales to farmers are subsidized in Tunisia, which is not the case in Libya. Informal export trade most probably passes through the Ras Ajdir crossing point and takes place at night.

37Other goods, in particular tobacco, alcohol, and medicines, are not transported via the Ras Ajdir border crossing when entering (for tobacco and medicines) or leaving (alcohol and medicines) Tunisia. These goods are carried over the border in both directions via contraband routes through the Tunisian-Libyan Saharan route using convoys of all-terrain vehicles.

Estimates of Informal Trade with Algeria

38There are numerous crossing points on the Tunisia-Algeria border (Map 1). As a result, goods transported from Algeria do not appear to follow a well-defined route in the same way as cross border traffic between Tunisia and Libya. In addition, the particular demographic and geographic peculiarities of the Tunisia-Algeria border offer different opportunities from those on the Tunisia-Libya border. A large proportion of the border runs through a mountainous rather than a desert region, with the population strung out along the border and in some cases right on it (some villages are in fact divided by the border). As a result, there are many more opportunities for informal trade at the local level all along the border without needing to go through crossing points controlled by customs officials. According to the interviews we conducted, it is clear that there has been a steady increase in informal trade activities along substantial sections of the border in the last few years.

39Data gathered during the fieldwork conducted for this study show that the way in which informal trade functions is fairly simple. Tunisian buyers cross the border into Algeria, choose the goods they want, place their orders, and hire a transporter to carry the goods across the border into Tunisia. ICG (2013) confirms that Tunisian informal traders rarely cross the Algerian border waiting for at the border for transshipment. Payment for the goods and the transport is made when they arrive in Tunisia. Transport costs are around TND 200 for a van-load (around 1 ton) of ordinary goods, but can reach TND 1,000 for more sensitive products such as tobacco or alcohol (since the tax burden is even higher, which means that the potential profit is even higher with subsequent higher risks).

40In practice, neither the Tunisian nor the Algerian transporters ever set foot in the other country. The key stages in the transport of merchandise between Tunisia and Algeria are as follows:

  1. An Algerian transporter brings the merchandise from a point of sale in Algeria to an individual household on the Algerian side of the border.

  2. The homeowner hides the merchandise in his house until the opportune moment to take it to a pre-arranged point on the border and hand it over to his Tunisian neighbor, who is often a family member.

  3. The Tunisian homeowner then keeps the merchandise in his house on the border until it can be delivered.

  4. A Tunisian transporter goes to the house on the border, quickly loads his van (in certain cases, loading takes place in a specially adapted garage owned by the homeowner) and delivers the load to towns and villages near the border within a radius of roughly 50 km. If the goods are destined to be delivered further afield, other transporters take over the load.

41Although the border crossing point at Bouchebka is one of the most important on the Algerian border, there seems to be very little traffic there. According to the local authorities, informal trade takes place at points other than the official border crossings. Customs officials explained that the activity we observed at the crossing points was normal and that the number of border crossings was in line with the daily statistics for individuals and vehicles seen in 2012. This led us to look elsewhere for information, namely to traders and transporters of goods across the border living in Kasserine and in nearby border towns. An initial assessment showed that there is a considerable difference in prices for certain products. These price differences appear to be the main reason for informal cross-border trade in the region as can be seen in Table 7.

Table 7. Prices of various goods in Tunisia and Algeria, TND or equivalent

Product

Unit

Tunisian price

Algerian price

Cheese

kg

30

10

Roasted coffee

kg

9

4

Tea

kg

5

3

Juice

1 liter

2

1

Sparkling drinks

1.5 liter

2

1

Gasoline

1 liter

2

0

Fuel oil

1 liter

1

0

Round steel reinforcement bars

per ton

1,600

900

32" LCD TVs

per unit

770

450

Air conditioners

12,000 BTU

900

450

Foreign cigarettes

per packet

5

1

Source: Authors’ calculations based on fieldwork. 1 TND = 0,644 USD.

42The most common form of transport used in this type of informal trade is the van, with 3,000 of these vehicles being used to transport goods illegally across the Algerian-Tunisian border, according to those we interviewed. On average, these vans make one crossing per day.

43The responses to our questionnaires enabled us to draw up a table showing trade across the Tunisia-Libya border by type of product and vehicle. We assume, based on interviews, that one in seven of these vehicles is used in the Kasserine governorate, one of seven governorates along the Algeria-Tunisia border. Clearly, trade in fuel and fuel oil is the most important, involving 60% of the vehicles taking part in this activity. Traffic in cigarettes, which we did not see on the Tunisia-Libya border, accounts for the activity of around 7% of the vehicles.

44Table 8 sets out our assessment of the annual level of cross-border trade, showing that this is lower than the levels seen at the Ras Ajdir crossing point. Fuel accounts for a significant part of this trade (around 30% in value terms). Round steel reinforcement bars made in and sourced from Algeria are not normally subject to taxation under trade agreements between Algeria and Tunisia. The high level of informal trade in these goods is due to the fact that they are of inferior quality relative to that required in the Tunisian construction industry, where it has to meet certain resistance standards. This is a case of informal trade being used to avoid a non-tariff barrier.

Table 8. Assessment of annual trade flows through the Kasserine governorate per category of product

Category of product

Annual value of load at point of purchase

Annual value of load at point of sale

Annual profit for traders

Revenue from the current Tunisian tariff

Revenue from import consumer taxes

Total revenue

Bananas

9.91

12.60

2.69

8.12

6.22

14.34

Shoes

6.70

11.90

5.20

2.21

2.98

5.19

Air conditioners

41.30

52.30

11.00

24.69

21.45

46.13

Gasoline

86.60

99.20

12.60

0.00

0.00

0.00

Steel reinforcement bars

21.30

24.30

3.00

0.00

7.46

7.46

Fuel oil

9.88

11.30

1.42

0.00

0.00

0.00

Tires

34.7

50.50

15.80

10.41

24.13

34.54

Apples

9.06

11.10

2.04

5.23

4.29

9.52

Tobacco

23.00

27.50

4.50

4.14

41.80

45.94

Clothing

37.20

60.10

22.90

12.28

16.57

28.85

All goods

341.24

426.40

85.16

87.40

152.34

239.74

Source: Authors’ calculations based on fieldwork. 1 TND = 0,644 USD.

45Transport of fuel in the country is carried out in two or three different stages. Ad hoc zones for transferring, exchanging, and bulk buying or selling fuel have been set up at points close to the border and further inland, the best known of which is in Meguila on Highway 3, some 230 km from Tunis and 40 km from Kasserine. Informal fuel distribution points, which used to be limited to the border region, can now be found along every road in the country and are increasingly to be found on urban streets, even in the capital, Tunis.

46We noted that although there was a strong National Guard presence on all the roads in the region, they were also remarkably relaxed about the levels of informal trade. There were virtually no customs officials to be found, and the checks conducted by the few that were seen are easily spotted and avoided by smugglers. Part of the reason for this is the relative weakness of the national government following the January 14, 2011 revolution as well as the local security situation. There are also very few alternative solutions to encourage the development of these regions and thus reduce the high levels of unemployment that affect thousands of young people living there.

Extrapolation of Estimates of Informal Trade in Fuel from Algeria

47Informal trade in fuel has become significant in recent times as a result of the last two increases in the price of gasoline at the pump, which widened the gap in prices between the two neighboring countries, both of which are major oil producers, with gasoline now ten times as expensive in Tunisia as in Algeria. ICG (2013) states that fuel is the “king” product of informal trade to Tunisia. This goes hand in hand with a sharp decline in Tunisian household purchasing power over the last two years. Based on a variety of sources, the level of trade in fuel in the Kasserine governorate is similar to that in the other governorates along the Algerian border. If we assume that 60% of the 3,000 vans involved in informal trade are carrying fuel and that each one makes only a single trip each day with an average load of 1.6 m3 over a 320-day year, we can estimate that the amount of fuel imported informally is 921,600 m3 per year, with a sales value of around TND 882 million at $95 per barrel.

Estimates Based on Unit Values

48Estimates based on interviews alone are not sufficiently accurate due to a number of factors. In the case of interviews with transporters, for example, the quantities being transported are often under-reported, and there is often a lack of knowledge of the real value of the goods concerned. In some cases, the sample is simply not large enough. As a result, we tried to determine the volume and scope of informal cross-border trade using other data sources and through cross-checking to arrive at a figure closer to the reality. We cross checked data on the number and type of means of transport used in this form of trade. This allowed us to extrapolate the volume and value of goods concerned by informal trade.

49Nearly 1,000 Tunisian vehicles use the Ras Ajdir border crossing each day, specializing in informal trade between Libya and Tunisia. These consist of around 200 to 300 25 m3 trucks, 100 to 150 vans or small trucks, and 500 to 600 private cars. To calculate the volume of goods transported by these vehicles, we assume that 250 trucks can carry 3.5 tons each, or a total of 875 tons, 100 small trucks can carry 0.5 tons each, or a total of 50 tons, and 500 cars can carry 0.2 tons each, or a total of 100 tons. This puts the overall total at 1,025 tons per day, or 328,000 tons per year on the basis of a 320-day year, which excludes holidays.

50For the Algerian border, we estimate that 500 small vans cross the border carrying imported contraband (excluding fuel). In other words, this is 500 tons per day, or 160,000 tons per year. This makes an overall total for the two borders of 488,000 tons. If we take an average value of TND 3 per kg, we find a total value of TND 1,464 million, or roughly 4% of the total value of all imports (excluding fuel). Apart from apples and bananas, all the other products cost more than TND 3 per kg. Factoring in the figures for fuel imports, we compute a grand total of nearly TND 2,400 million, or more than 7% of Tunisia’s total imports.

Conclusion

51Our aim in this study was to assess the scale of informal trade between Tunisia and Libya and between Tunisia and Algeria. Because of a lack of detailed data on the registration and movement of goods across the borders, we employed a number of different calculation methods commonly used in this type of work in order to assess the extent of informal trade.

52Three main conclusions can be drawn from these estimates. Firstly, official statistics on trade between Tunisia and its neighboring countries are currently sketchy at best and should therefore be treated cautiously as it is probable that the level of informal trade is in fact greater than that of official respective bilateral trade. One positive aspect of this situation may be to highlight the fact that the level of regional integration is far higher than the official statistics would indicate, even if this integration has come as a result of differences in the tax and subsidies burden between countries.

53Secondly, differences in tax burden and in the resulting consumer sale prices are the main drivers of informal trade. At a time when numerous discussions are taking place about whether to cut fuel subsidies and in a context where fuel prices can differ by a ratio of 1:10, with further increases possible, it is important to remember that without greater harmonization of prices at the regional level, there is every chance that the level of informal trade will continue to grow. Therefore, this study calls for increased regional coordination between Tunisia and its neighbors in terms of tariffs, tax levels and subsidies.

54Thirdly, the economic and social importance of informal trade in the region means that any attempt to strengthen controls at the borders would probably be costly in terms of equipment and infrastructure and have limited impact, probably leading to higher levels of corruption among customs officials based on the border, further undermining government control. However, it is also important to gather more information about trade flows and the behavior of officials in order to limit illegal flows as much as possible since there are links between informal trade and illegal imports, such as weapons. Unfortunately, the emphasis is usually given to equipment whereas seizures remain probably extremely limited.

55Therefore, in the present context, what can be done? Global experiences in this field have shown that the strengthening of controls, especially with more technology, cannot alone cope with smuggling. A comprehensive policy should be undertaken, which should limit the incentives for smuggling, such as change the tariff policy for certain products and strengthen internal controls within Customs to limit the emergence of local deviant practices. In addition, it is very important to monitor data on seizures, number of declarations, average value and so on.

56With this end in view, it is important to analyze product by product the main drivers for informal exchange, for example tariff peaks for bananas and cheese or import prohibition for carpets and apples flooding the parallel markets in any case. For many products, such as those mentioned above, a revision of the tariff policy or import procedures is necessary and requires political decision.

57It is also important to strengthen cooperation with neighboring countries and consider informal cross-border trade and smuggling as a major concern during the various bilateral and multilateral meetings. In this regard, tax policies and subsidies harmonization should be a common goal to fight jointly smuggling and fraud.

58Political leadership should finally support a team for several years at the head of Customs with a mandate to strengthen internal controls of customs services. Whenever a Director-general changes every six months, any reform in this area is bound to fail. Customs authorities should strive to improve traceability of operations. For the time being, monitoring seizures is not of great interest since any increase usually goes in parallel with increased smuggling and does not capture the effectiveness of controls.

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Bibliography

Ackello-Ogutu C. 1997. Unrecorded cross-border trade between Kenya and Uganda. Washington DC, USAID Technical Paper 59.

Ayadi L, Benjamin N, Bensassi S, Raballand G. 2013. Estimating informal trade across Tunisia’s land borders. Washington DC, World Bank Policy Research Working Paper 6731.

Bhagwati J. 1967. Fiscal policies, the faking of foreign trade declarations, and the balance of payments. Bulletin of the Oxford University Institute of Economics and Statistics 29: 61–77.

Berger H, Nitsch V. 2012. Gotcha! A profile of smuggling in international trade. Berlin, CESifo Working Paper 2475.

Cantens T, Kaminski J, Raballand G, Tchouawou T. 2014. Customs, brokers, and informal sectors: A Cameroon case study. Washington DC, World Bank Policy Research Working Paper 6788.

Fisman R, Wei S-J. 2009. The smuggling of art and the art of smuggling: Uncovering the illicit trade in cultural property and antiques. Applied Economics 1: 82–96.

Haddar M. 2013. Rapport sur les relations économiques entre la Tunisie et la Libye auprès du Plan Régional d’Environnement et de Développement Durable du Gouvernorat de Médenine (PREDD) et de la Table Ronde Économique (TRE) à Médenine. Tunis.

ICG. 2013. La Tunisie des Frontières: Jihad et Contrebande. Brussels, International Crisis Group.

Jean S, Mitaritonna C. 2010. Determinants and pervasiveness of the evasion of customs duties. Paris, CEPII Working Paper 26.

Kaminski B, Mitra S. 2012. Borderless Bazaars and Regional Integration in Central Asia. Washington DC, World Bank.

Leaders. 2013a. La contrebande en Tunisie: voyage au cœur d’un système mafieux, July 7.

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Raballand G, Cantens T, Arenas G. 2013. Mirror trade statistics: A tool to help identify customs fraud, in Cantens T, Ireland R, Raballand G (eds) Reform by Numbers: Measurement Applied to Customs and Tax Administrations in Developing Countries. Washington DC, World Bank: 103–120.

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Annex

Annex 1. Summary of observations based on fieldwork and international statistical data

Category of goods

SITC code

Goods observed at the Algerian border

Goods observed at the Libyan border

Gap between Tunisia and Libya (% of import value)

Year last gap between Tunisia and Libya noted

Gap between Tunisia and Algeria (% of import value)

Year last gap between Tunisia and Algeria noted

Vegetables

054

No

No

***

2011

2011

Fruit and nuts (excluding oil nuts)

057

Yes

Yes

***

2010

66%

2011

Tea

074

No

Yes

*

*

*

*

Tobacco (processed)

122

Yes

No

*

*

*

*

Petroleum products

334

No

Yes

81%

2009

4%

2011

Rubber tires

625

Yes

Yes

***

2010

15%

2011

Floor coverings

659

No

Yes

315%

2009

269%

2003

Iron and steel bars

676

Yes

No

815%

2010

***

***

Television receivers

761

Yes

Yes

***

2009

45%

2007

Electrical power machinery

771

Yes

Yes

***

2009

10%

2010

Men's or boys’ coats, etc.

843

Yes

Yes

***

2011

***

2011

Footwear

851

Yes

Yes

***

2011

***

2011

Notes: * Not observed; *** Data not counter-balanced. Source: Authors.

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Notes

1 The authors would like to thank Thomas Cantens, Anne Brockmeyer and two anonymous referees for comments. The article builds on Ayadi et al. (2013).

2 The Standard International Trade Classification (SITC) is preferred over the harmonized system as no data is available for Libya in the United Nations Trade Statistics Database (UN Comtrade).

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List of illustrations

Title Map 1. Tunisia: main border posts
Caption Source: Map Design Unit of The World Bank, 2014.
URL http://articulo.revues.org/docannexe/image/2549/img-1.jpg
File image/jpeg, 1.0M
URL http://articulo.revues.org/docannexe/image/2549/img-2.png
File image/png, 4.4k
Title Figure 1. Gap as a proportion of import value for main products between Tunisia and Libya
Caption Data source: UN Comtrade.
URL http://articulo.revues.org/docannexe/image/2549/img-3.png
File image/png, 9.3k
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References

Electronic reference

Lotfi Ayadi, Nancy Benjamin, Sami Bensassi and Gaël Raballand, « An Attempt to Estimating Informal Trade Across Tunisia’s Land Borders », Articulo - Journal of Urban Research [Online], 10 | 2014, Online since 08 October 2014, connection on 23 June 2017. URL : http://articulo.revues.org/2549 ; DOI : 10.4000/articulo.2549

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About the authors

Lotfi Ayadi

Lotfi Ayadi is a consultant and a former director in the Tunisian customs. Email: lotfi.ayadi@yahoo.fr

Nancy Benjamin

Nancy Benjamin is a Senior Country Economist at the World Bank. Email: nbenjamin@worldbank.org

Sami Bensassi

Sami Bensassi is a Lecturer in Managerial Economics at the University of Birmingham, UK. Email: s.bensassi@bham.ac.uk

Gaël Raballand

Gaël Raballand is a Senior Public Sector and Governance Specialist at the World Bank. Email: graballand@worldbank.org

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Copyright

Creative Commons 3.0 – by-nc-nd, except for those images whose rights are reserved.

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