Cooperatives help cross border traders stay in business during COVID-19

Originally published by THOMSON REUTERS FOUNDATION NEWS on 18 August 2020

Collective support can help communities with financial backing, advice and information

It’s March 2020 and a quarter of the world is in lockdown. In the small landlocked African country of Rwanda, the borders are unusually quiet. Instead of the bustle of thousands of cross border traders carrying all manner of goods on foot and by bicycle, now only cargo trucks are permitted to ferry essential goods such as food items between countries.

These measures, while necessary to contain the spread of COVID-19, have come at a great cost to traders, their families and cross-border communities.

Most of Rwanda’s cross border traders are women and rely on cross border trade as their sole source of income. Roughly half of Rwanda’s cross border traders are members of a cooperative, which enables them to receive financial backing, training, advice and information.

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To keep their businesses operating during COVID-19, all cross border traders have been required to consolidate their products and pay for space on border-crossing trucks. Traders who belong to a cooperative have not only been able to pool resources to cover the cost of cargo truck transportation, but they have also been able to access dividend payments and short-term low interest loans from their cooperatives to help them get through this challenging period.

It’s taken time to build trust in this new system - communication with trading partners has suffered due to network challenges, transport by truck can damage fragile goods leading to rejection by buyers, and buyers’ use of cash means payments need to travel back with truck drivers.

However for traders who do not belong to a cooperative, the cost of transporting goods via cargo truck has been prohibitive. Even the handful of businesses that have the necessary working capital are unable to operate unless they trade in goods deemed essential. Traders and their families have been relying on social welfare support to access food and medicine.

While thankfully there have been few confirmed cases of COVID-19 among traders, there has been a 20-30% reduction in trade at Rwanda’s borders. This is significant when you consider that trade with its neighbours makes up 40% of Rwanda’s total trade. The picture is similar across the East African Community, where informal cross border trade is pervasive.

Governments in the region have been doing what they can to ensure trade can still flow, by requiring strict adherence to health and safety measures such as mandatory screening, switching drivers at borders and the decontamination of trucks. The importance of international support to the region at this time – through development assistance, debt relief and other mechanisms – cannot be understated.

One of the biggest lessons to emerge from the pandemic is the important role cooperatives can play in helping traders to work collectively to stay in business during times of crisis.

In the short term, it will be important to improve governance and administrative electronic systems between cross border traders. Examples include having cooperatives elect trusted representatives to accompany goods in transit and to ensure that payments are received and transferred electronically to the correct trader. Enforceable legal contracts between buyers and sellers would also help to increase trust and transparency.

Finally, developing e-commerce infrastructure and capacity is paramount to effective trade in a post-COVID world. Rwanda is working towards a future where traders can use their smart phones to share market information such as location and price of their products, as well as contact information for negotiations between buyers and sellers. Such technology could also be harnessed by NGOs to provide tailored health and safety information to traders during a crisis, and a way for traders to communicate their needs or safety concerns.

In the longer term, transitioning cross border traders towards formality must be a priority, particularly in supporting smaller traders to overcome barriers to join cooperatives.

As COVID-19 rages on, East Africa is preparing itself for another crisis - a resurgence of one of the largest outbreaks of locusts in decades. Concern is growing that border restrictions may increase the food insecurity of traders and their families and impair the ability of the country to achieve the SDG goal of zero hunger. Now more than ever, collective support mechanisms such as cooperatives will help ensure that border communities can weather the storm and are in a stronger position to bounce back once these crises have passed.