TAX EVASION

Moyale: Where illicit trade is thriving along porous borders

The newly commissioned One-Stop Border Post is giving hope to legit business

In Summary

• Excisable goods in Ethiopia go for more than half their selling price in Kenyan outlets

• 'High' taxation fuels illicit imports and exports as the border post charges 90% duty

An aerial view of the Kenya-Ethiopian border of Moyale
An aerial view of the Kenya-Ethiopian border of Moyale
Image: HANDOUT

When was the last time you bought a beer in a Kenyan bar or restaurant at 60 bob?

This would be way back beyond 2009, or more than 12 years ago, with the nearest price being in 2009, when the average price of a bottle of the popular beer Tusker was Sh90.24.

This is the current price in Moyale of a bottle of St George Beer, the most popular and oldest beer in Ethiopia.

Excisable goods in Ethiopia, such as alcoholic drinks, water, juices energy drinks and cigarettes, are more than half the selling price in outlets on the Kenyan side of the border.

What is considered high taxation in Kenya is said to fuel illicit trade at the Kenyan-Ethiopian border town of Moyale, which lies about 777km from Nairobi.

Most bar owners, hoteliers, retailers and other businesses in Kenya prefer getting their stocks from across the border, giving a wide berth to Kenyan-manufactured goods, which they consider overtaxed.

Lack of specified tariffs between the two countries makes it expensive to use formal border points, actually the only one, which is the newly opened Moyale One-Stop Border Post (OSBP).

Unlike the rest of Kenya's East African Community (EAC) member state peers Uganda, Tanzania, Rwanda, DR Congo and South Sudan, where traders enjoy up to zero duty-free movement of some locally manufactured goods, the story is different with the northern neighbour and most populous country in the region.

Currently, Kenya and Ethiopia trade under Comesa terms, which allow only a 10 per cent discount on exports from either country, meaning commodities attract up to 90 per cent of duty when officially moved across the border.

Existing porous borders, most within less than 5km of the OSBP, are the preferred routes for moving goods, as high taxation continues to fuel illict trade.

Traders say legitimate trade is simply “criminalised” by the high taxes.

“Nobody wants to use the official border because it will not make any business sense. You end up paying more than what you will make after sales,” Mohammed Guyo, a Kenyan cereals importer, told the Star.

A trench dug to close one of the many porous borders on the Ethiopian border
A trench dug to close one of the many porous borders on the Ethiopian border
Image: MARTIN MWITA
Nobody wants to use the official border because it will not make any business sense. You end up paying more than what you will make after sales
Mohammed Guyo

CAT AND MOUSE GAME

Boda bodas are the most preferred mode of moving goods, with most consignments moving from the Ethiopian side into Kenya.

Apart from the excisable goods being smuggled into the country, contraband sugar originating from Somalia is also big business at the border, according to Kenya Revenue Authority (KRA) officials.

Another product is diesel, currently selling at Sh60 a litre in Ethiopia, compared to Kenya's pump price of Sh109.8 per litre.

Other imports are beans, leather products (mainly shoes), tomatoes, onions and rice, most of which are smuggled.

Kenyan exports include utensils, plastic items and carrots (seasonal), where traders also prefer to use the porous borders to evade taxes.

“It is a game of cat and mouse. When arrested by Ethiopian government officials or Kenyan officials, you lose everything,” says Mohammed Walde, a businessman on the Kenyan side.

“However, people will not stop because they have to fend for families and legitimate trade is too expensive because of the taxes.”

Figures from the Anti-Counterfeit Authority indicate that the illicit trade cost Kenya Sh153 billion annually, which translates to Sh419 million daily in tax revenue. 

Trade in illicit goods, substandard and counterfeit products is a major challenge facing manufacturers, and the country at large, the Kenya Association of Manufacturers says.

"Not only do illicit products put the lives of citizens at risk, but they also cause unfair competition in the market for the genuine manufacturers, in addition to shrinking their already existing market share," KAM chief executive Phyllis Wakiaga told the Star.

It also robs the government of the much-needed revenue arising from tax evasion, she adds.

Ibrahim Siro, an Ethiopian beans exporter, blames his government for not being keen on opening up to trade with Kenya.

Ethiopian authorities agree that lack of a bilateral trade agreement is affecting trade.

“We agree there is a problem mainly on small-scale traders because there are no specific trade guidelines,” said Abreham Gudetta, process coordinator for international operations at the Ethiopian Customs Commission.

He spoke during a recent Kenya-Ethiopia traders forum at the OSBP.

Ethiopia's currency, birr, is stronger than the Kenyan shilling, currently exchanging at 2.41. This means Sh1,000 fetches ETB415.32.

Potential missed revenues cannot be quantified, according to KRA's Moyale OSBP station manager Joel Ndege, since there lacks consistency in cross-border trade.

The Moyale One-Stop Border Post
The Moyale One-Stop Border Post
Image: MARTIN MWITA

HOPE IN BORDER POST

Currently, the two countries are closely coordinating in operating the newly opened border point.

Kenya already has well-coordinated OSBPs with Uganda and Tanzania, which are Malaba (Kenya-Uganda border), Namanga and Holili-Taveta (Kenya-Tanzania).

Also in place are Isibania and Lunga Lunga, both on the Kenya-Tanzania border.

The OSBPs are the brainchild of the Trade Mark East Africa (TMEA), which has been instrumental in supporting trade in the region, with a keen focus on seamless cross-border movement.

With an OSBP, truckers or passengers only stop once, at the point of entry, as opposed to the previous requirements, where one would be required to first clear from the country they are exiting then stop again at the entry point.

The new module has seen government agencies stationed at either side of the OSBP to facilitate faster and on-time clearance.

The OSBPs on either side of the border were commissioned in December 2020 by President Uhuru Kenyatta and Prime Minister Abiy Ahmed.

It has reduced cargo clearance time from a previous up to three days to just one hour.

Both Kenyan and Ethiopian governments are counting on the border to open up trade between the two countries.

“The OSBP is a win-win for both countries. We are very positive about future trade with our good neighbours,” Ndege told the Star.

INFRASTRUCTURE 

To support the movement of cargo between the two countries, through the OSBP, the Kenyan government has constructed a 503km road from Isiolo to Moyale, linking it to the Isiolo-Meru and Nanyuki highways into other parts of the country.

The Ethiopian government has also put up a 500km road from Hawassa to Moyale, with the two highways being financed by the African Development Bank.

There are also plans to gazzette five more border points, namely Ilaret, Todonyang, Suftu, Rhamu and Malkamari, to encourage more legitimate trade.

The Ethiopian government is also coming up with guidelines on small-scale trading across the borders.

“The regulations are currently under formulation and they will include public input. Once in place, they will ease movement of goods and support growth of trade with Kenya,” Gudetta said.

He said the Ethiopian Finance and Trade ministries are closely working together on the regulations, which will also be discussed with their Kenyan counterparts to ensure a bilateral agreement is reached.

The Kenyan government, on the other hand, says it is ready to do business with Ethiopia.

“We are ready for business,” said Ndege, who is also the chairperson of  Moyale Border Management Committee, which brings together government agencies from the two countries.

KAM chief executive (Wakiaga) says the OSBP will facilitate genuine trade between Kenya and Ethiopia.

"The border post will support ongoing surveillance and enforcement initiatives against illicit trade in the country, being driven at our porous borders, including Western and Southern Kenya," she said.

Asna Hussein, Moyale chapter chairperson of Maendeleo Ya Wanawake, has since urged traders from either side to embrace the OSBP, while calling on the two governments to lower tariffs to encourage more trade.

“Let us not use panya routes in evading taxes but rather do legitimate trade. But we must also make it affordable mainly for small traders,” she said.

KRA's Moyale OSBP station manager Joel Ndege speaks during a stakeholders forum
KRA's Moyale OSBP station manager Joel Ndege speaks during a stakeholders forum
Image: MARTIN MWITA