By Athman Mohamed
All EAC and COMESA member states have legislations that require a customs bond or a guarantee to be taken out for the execution of a transit operation. Should the goods in transit be illegally disposed off for home consumption while in transit, the revenue authority of the affected country retrieves payable revenues and penalties from this guarantee.
Under the current nationally executed bond systems, these measures are applied in each country of transit, cause considerable expense, delays, and interference with the regional transport and trade.
The transit bonds in most cases have to be backed by bank/insurance guarantees, which, in turn ,are secured by collateral put upfront by the trader and can take a long time to acquit.
By some estimates, the amount of money tied up as transit bonds in the COMESA region is in excess of $1 billion on any given day. Freeing up this amount will improve the operating capital and provides further leverage in terms of enhancing their borrowing capacity for all traders in the region.
In the new scheme developed by TradeMark East Africa and key partners, the duties and taxes are collected at the port of entry and will serve as the bond/guarantee to the transit countries during transit and will (also) serve as the duties payable to country of destination. This provides the required security for the revenue authorities but removes the burden of bond costs from the trader as there are literally no bonds!
In its simplest form of operation, the trader pays in the applicable duties and taxes into an ESCROW-like bank account (or some other bank facility) whose parties are all the revenue authorities of the countries of transit. The facility is managed by a bank (or banks).
After the necessary customs declarations and approvals are done at the port of entry, the goods are released for transit. At each border control, a message is sent to the scheme manager signifying that the interest in monitoring the goods has passed from the revenue authority in the country of exit to the one in the country of entry.
If goods are lost in transit, the scheme manager will remit the amounts payable as duties and penalties to the deserving revenue authority. Otherwise, if the goods reached the destination safely, the amount is remitted to the revenue authority in destination country as the duties and taxes payable.
Unlike the regional and national bond schemes, this concept is not very administratively intensive. The banks’ core competency is to handle such money transfers, legislation and laws exist and the revenue authorities already have IT systems that can monitor the entry and exit of the transit goods at its border points.
In the long term, the scheme should potentially reduce the cost of doing business in the EAC region, assist in the reduction transportation costs and the costs of goods in the landlocked countries, hence making the region internationally competitive.
TradeMark East Africa has already developed a prototype of the system as part of preparing the proof of concept.
Further, the Stakeholders on the Central Corridor, led by the Tanzania Revenue Authority and the Burundi Revenue Authority have expressed interest in participating in the pilot slotted to start off in January-February 2011.
Stanbic, a regional bank, has already modified its products in order to test the scheme and is fully on board for the pilot while other banks (Standard Chartered and Barclays) are also keen to get on board.
Initially, the scheme will be tested using a few importers on import/export through the port of Dar Es Salaam to the cities of Kigali and Bujumbura.
To further understand the risks and the opportunities, TradeMark is also undertaking a 3-month long study to identify the relevant issues.
The author is an ICT specialist at TradeMark East Africa