After finishing an undergraduate programme at the Addis Abeba University seven years ago, 28-year-old Zerihun (whose last name is withheld upon request) had little in the way of a promising career in his field: sociology. Born and raised in Addis Abeba, Zerihun eked out a living working as a schoolteacher, earning around 3,500 Br a month. He served as an instructor for three years before deciding on a major pivot.
He wanted to open a small clothing shop in the city, with 30,000 Br in savings and borrowed money from relatives. Zerihun's plan changed soon as his sister and a few people around convinced him it would be much more rewarding to try his luck in the thriving, yet clandestine, 'luggage trade'. His sister, in particular, was a significant influence as she had been involved in the trade for a few years at that point.
Four years ago, Zerihun made his first trip to Dubai, the most common destination for his newfound trade line. He bought a round-trip ticket for around 9,000 Br and exchanged his remaining savings into dollars to buy items he thought would be in demand here. He spent three nights in Dubai and returned with two bags full of clothes and other goods.
“I remember I only took five pieces of my own clothing when I made the trip," he said.
It took him a few months to sell off his goods, but he ended up netting 10,000 Br once he did. Zerihun had created a valuable trade network, developing connections with Dubai's suppliers, traders, buyers, and hoteliers. He has made 15 trips overseas since, mostly to Dubai, although he also travelled to Bangkok, Thailand, on a few occasions. He made up to 40,000 Br in profits for every trip, bringing in everything from clothes and laptops to television sets and mobile phones.
“Clothes are the easiest and less risky,” he told Fortune.
Zerihun is one of many traders who have been taking advantage of a directive issued by the Ministry of Finance four years ago, exempting airline passengers from paying duties on personal items brought in for non-trade purposes. But the rule opened the opportunity for illicit trade. People like Zerihun would make regular trips to the UAE, Thailand and Turkey to buy relatively inexpensive items, usually clothing, and sell them here.
These 'luggage traders' would unpack and remove the tags from the goods they bought abroad to pass them off as used or personal items. It is a well-recognised scheme to avoid paying duties at Addis Abeba Bole International Airport.
This came to an abrupt end last week after the authorities announced a decision to suspend the right of travellers to bring such items without paying duties. A circular was issued by the Customs Commission, emphasising items such as clothing and shoes, the fast-moving goods in the town's burgeoning boutique circle. Though the decision exempts travellers returning after more than a month, tourists and diplomats, the authorities would subject travellers with non-personal items to penalties. Repeat offenders could face criminal charges, too.
Many of the clothing shops in Addis Abeba depend on illicit trade to source their products. The illicit trade in clothing and shoes is estimated to have reached 48pc of the total market value.
The authorities say they were forced to clamp down on the illicit luggage trading partly due to pressure from businesses who import these items paying duties and tax. They could not compete with the luggage traders, although spending on clothing and shoes is the second-highest household expenditure in Ethiopia.
Ethiopia has lately become a destination for global apparel brands such as Calvin Klein, Tommy Hilfiger and H&M. But these are companies not allowed to sell in the local market, where import supplies 79pc of clothing and 56pc of shoes. These constituted close to two percent of the 14 billion dollars Ethiopia imported last year, but the illicit trade in clothing and shoes is estimated to have reached 48pc of the total market value.
Zerihun Assefa, head of the compliance division at the Customs Commission, says the latest move by the authorities stemmed partly from the persistent complaints filed by legitimate traders that import clothing and electronics, paying taxes and duties. They protested that the illiterate luggage trading was pushing them out of business.
Abdurahman Mohammed is one of these legitimate traders. An owner and manager of an importing company that bears his name, Abdurahman primarily deals in clothing sourced from Dubai or Bangkok, paying duties, which would sometimes add up to one dollar an item. He saw profit margins waning over the last three years, following the Ministry allowing travellers to bring personal belongings. Others in a similar situation resorted to getting involved in the informal and illicit trade to survive.
The thriving illicit trade was not only hurting his business but the government as well.
“The government knew the impact and how it was affecting the legitimate business,” Abdurahman said. "Yet, it was ignoring it."
It appears the growing volume of illicit trade has reached a point where it can no longer be ignored.
Customs authorities at the Bole International Airport saw close to 224 million Br and nearly 180 million Br worth of contraband imports and exports, respectively, last year. It grew to around 125 million Br and 30 million Br for the first four months of this fiscal year. The majority of these items were clothing and electronics.
The customs office turned a blind eye to most of the contraband trade out of respect for passengers and the airport's reputation, according to Zerihun. However, there was a serious problem.
“You can’t go through every item in the bags while the travellers are standing in long queues,” he said.
The rules failed to specify who is entitled to the privilege, leaving it open to interpretation by customs officers and, ultimately, misuse. Though the new rules allow travellers to bring in as many as 30 items of clothing, the limits have come at a somewhat awkward time. Senior government officials encourage Ethiopians abroad to visit home for Christmas, dubbing the call 'the Great Ethiopian Homecoming.' They want to see one million diaspora fly to Bole Airport in the coming month, despite the restrictions on luggage.
Those who come will bring personal items such as clothing for their relatives, often paying for extra and overweight pieces of luggage. They have the privilege to bring them without paying duties but will be forced to do so if customs officers designate their belongings as new.
“It's just a coincidence," Zerihun told Fortune. "We don’t plan to collect duties from the returning diaspora."
Experts differ from government officials and legitimate traders over the purpose of illicit luggage trading. The gap in meeting demand is the factor behind the growing illicit trade, according to Getachew Asfaw, a retired economist who follows the market closely. He observed that traders like Zerihun have been filling this gap in supply.
"If we can't produce enough locally or provide traders the forex to import, there's no question that such markets would be created to meet demand," he said.
Fundamental economics is one piece of the puzzle. Others challenge the legitimacy of the circular on legal technicalities. A directive issued by the Council of Ministers cannot be overwritten by a piece of a document signed by technocrats.
"It's only the Council that has the mandate to suspend or revoke directives it approved," said Daniel Fikadu, a lawyer.
He contends that the best way to deal with the concern is to include the illicit traders in the legal framework by registering them as legitimate businesses.
The change in the rule has been a piece of sombre news for those who own clothing shops in the capital. Many depend on items brought in through the airport or by illegal cross-border traders, whose contraband goods are known as "bonda."
For Nasir Fuad, who runs a small clothing shop with his brother in the Amist Kilo area, the clothes he buys from Kolfe Open Market are much better fashioned and cheaper to clean and sell at his shop than the ones he buys from Merkato in bulk. He buys the contraband clothes in Kolfe, while imported goods are widely available in Merkato.
“I only prefer to buy jeans from Merkato,” said Nasir.
Most of these products are made in China or Bangladesh, and he can make close to 200 Br in profit from a single pair. From shirts and jackets to t-shirts and sweaters, the Kolfe Open Market offers him and his brother better options at lower prices.
Zerihun, the customs officer, has also seen that clothing shops in the capital prefer bonda to other imported clothing.
“We've seen that the imported clothes are mostly preferred in areas outside Addis,” said Zerihun.
Nevertheless, his office has been trying to stem illicit trade through the airport and crossing border posts. Close to three billion Birr worth of contraband items being smuggled into the country were confiscated by the Customs Commission last year. Over the first four months of this year, 1.3 billion Birr worth of contraband was seized at 15 checkpoints across the country.
Bole International Airport accounts for eight percent of the seized goods, standing sixth on the list of contraband trade hotspots. Jigjiga leads the pack with 20pc while Hawassa and Dire Dawa follow, each seeing 14pc of the items confiscated at checkpoints within their boundaries.
Clothing makes up the bulk of confiscations at nearly a fifth of the monetary value. Food and beverage items follow with a little over 16pc. Vehicles seized while transporting contraband account for 15pc of the total, while electronics trail at 10pc.
Zerihun, the trader, has not travelled abroad in two months. He saw his business decline as travel restrictions brought on by the COVID-19 pandemic made things more complicated and expensive. He had been considering a career change before the authorities enforced the rule. Now, it is all but certain he will have to find another way of making a living.
PUBLISHED ON Dec 11,2021 [ VOL 22 , NO 1128]
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