Smarter Rules Unlock Small-Scale Trade and Better Livelihoods across Kenya and Ethiopia

Every morning at dawn, Amina approaches the Kenya–Ethiopia border with a crate of tomatoes carried on her head. Her produce must be sold quickly, as its freshness determines the price she receives. Before reaching the market, she faces a dilemma: should she follow the formal route, navigating paperwork, queues, and inspections, or take the informal path, which is faster but carries greater risks?

For thousands of small-scale traders like Amina, crossing the border is more than a routine journey. It is a daily calculation between opportunity and uncertainty.

Across Africa, small-scale cross-border trade supports the livelihoods and business operations of millions of people forming an essential backbone of local economies. Trade is an engine of growth that creates jobs, reduces poverty, and increases economic opportunities. Recognizing this, the governments of Kenya and Ethiopia signed a bilateral agreement in December 2025 establishing a Simplified Trade Regime (STR) at Moyale, the main official border crossing between the two countries.

The goal is to make cross-border trade easier for small traders by simplifying procedures and reducing administrative barriers. But turning good intentions into practical solutions is not always easy.

When Trade Regime Simplification Isn’t Simple Enough

Discussions on the implementation of an STR at Moyale began in 2021, involving multiple rounds of negotiations on product coverage, operational modalities, and alignment with the broader Common Market for Eastern and Southern Africa (COMESA) STR model. While the new regime streamlines border procedures and provides on-site support, several of its rules do not fully reflect traders’ daily practices. This gap has been documented in a series of World Bank supported Horn of Africa Initiative (HoAI) reports, including a dedicated research paper on an STR adapted for the region.

The World Bank Group has prioritized job creation as a pathway out of poverty. Over the next three decades, Africa will experience the fastest increase in working-age population of any region, with a net increase of about 740 million people by 2050. One of the key pillars of job creation is supporting business-friendly environments through fair and predictable policies that can help spur business creation and job growth for countries like Kenya and Ethiopia. Africa’s trade future depends on policies that respond to the realities of traders and small-scale firms, rather than on policy assumptions about how trade should be conducted in theory.

For instance, the regime does not provide customs duty exemptions. Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA), but it does not yet participate in its Free Trade Area. As a result, traders cannot access duty-free treatment. Instead, a bilateral 10% tariff reduction applies, but only if traders comply with COMESA rules of origin. For many of them who operate with limited documentation and literacy, meeting these requirements can be challenging.

Other provisions constrain the regime’s potential impact. The STR limits the value of goods to USD $1,000 per month per trader and restricts border crossings to once per week. These rules are designed to prevent larger businesses from exploiting simplified procedures by splitting shipments across multiple traders. In practice, however, they also limit legitimate small-scale commerce.

With modest margins, and most of goods traded at the border being perishable, traders depend on frequent crossings and rapid reinvestment of their earnings. Restricting such crossings slows cash flow and increases the risk of spoilage.

The regime also limits where traders can operate: within 50 kilometers on the Ethiopian side and 100 kilometers on the Kenyan side. While intended to ensure that the STR benefits accrue only to border communities, this restriction can prevent traders from accessing larger markets where they might earn better prices.

Designing Trade Rules Around Actual Traders

Experiences from other African nations suggest that simplified trade regimes work best when they reflect the realities of small-scale trade. Small adjustments can make a significant difference.

Allowing more frequent crossings helps traders maintain cash flow and move perishable goods quickly. Increasing value thresholds can allow them to grow their businesses while still benefiting from simplified procedures. More flexible duty arrangements could make formal trade more competitive than informal trade. Expanding the operating radius could help traders access larger markets and grow their businesses.

These kinds of adjustments have already proven effective in several countries within the COMESA region, where trader-friendly rules have helped increase formal trade volumes.

Women Small-Scale Traders and the Human Side of Cross-Border Trade

Understanding the human dimension of cross-border trade is equally important. In Moyale, most small-scale traders are women. Many manage trading activities alongside household responsibilities and rely heavily on informal networks for transport, credit, and market information.

When formal systems appear complicated or unpredictable, traders naturally fall back on familiar informal systems despite the risks involved.

This tendency is reinforced by perceived threats—such as unexpected taxes, fines, or confiscation of goods—which further discourage traders from using formal channels, especially when profit margins are already thin.

_{Traders attending a workshop and presentation about the Moyale STR. Photo: World Bank Group}

Testing Smarter Solutions

Recognizing these challenges, the Ministries of Trade of Kenya and Ethiopia have launched a six-month pilot initiative with a selected group of 50 traders from both countries. The pilot will test higher value thresholds, more frequent crossings, and procedural simplifications at the border. Observing traders’ responses will help refine the STR. It will also improve understanding of the economic and behavioral drivers of formalization.

Policy Lessons Beyond Moyale

The experience at Moyale highlights a broader lesson for trade facilitation across Africa: Cross-border trade thrives when policies reflect how people actually move goods, not just rules on paper.

When rules align with actual daily business practices, compliance becomes easier, informal trade declines, and borders turn from barriers into gateways of opportunity.

As discussions on a continent-wide STR framework advance, the Moyale pilot reminds us that effective trade policy begins with understanding the people who trade and that the system should ultimately work for them.

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Story by Danilo Desiderio and Ankur Huria