Final Report | Evaluation of the COMESA/SADC Transit Management System

The COMESA/SADC members, particularly landlocked countries, experience high transport costs in their external trade transactions. For some countries the component of transport costs reaches as high as 55 percent of export costs. Part of these costs relates to the provision and management of Customs bond. This stems from the fact that in the movement of external trade, Customs law requires that a bond for each country of transit be secured for the goods, in the event that the goods are diverted into local use. Both COMESA and SADC have developed measures to address the Customs bond requirement, by putting in place Transit Management Systems (TMS) which provide for single bond throughout the transit period in place of multiple bonds.

COMESA finalized their provisions in 2005 while SADC finalized theirs in 2008. The two organizations have however seen the need to collaborate in their TMS systems, particularly in the light of recent developments in the region to form a Tripartite Free Trade Area of SADC, COMESA and EAC, so that there is one harmonized transit management system. COMESA and SADC agreed to undertake a study to review their existing systems with a view to coming up with a harmonized transit management regime, and therefore the mounting of this study with support from TradeMark Southern Africa. In accordance with the terms of reference, the study has taken a twofold approach. First was a desk review of existing TMS of the two RECs. This was followed by field visits to ten member countries of COMESA and SADC to confirm the actual status of implementation of the respective TMS in the RECs, byn meeting with and talking to government and private sector stakeholders.

The team also met with officials at COMESA and SADC head offices. During the field visits it was confirmed that COMESA undertook pilot operations of their TMS from 2007 to 2010 on the Northern Corridor covering Kenya, Uganda and Rwanda. Over 251 carnets, meaning over 251 transit runs, were undertaken, most of which, over 240, were on the import leg. The level of operations has been very low compared to potential transit traffic. For example it has been noted from the desk review that in February 2010 over 900 declarations per day were transmitted from Mombasa port through the Malaba border post between Kenya and Uganda, meaning some of this traffic could have been forwarded inland using the TMS.

The COMESA scheme was formally launched in March, 2010 but operations were soon halted because some Customs administrations had not put measures in place to transform the pilot test activities into mainstream operations. Operations are expected to resume in 2011. For the SADC TMS the trials first began in Malawi in 2008 ‐ 2009 on the sector Malawi to South Africa. The number of runs was very low, estimated at around 200 for the entire period according to verbal briefs obtained from stakeholders.

Trial runs on the sector DRC to South Africa followed, beginning in 2008 and are continuing to date. From an initial movement of 157 runs over the period 2008‐2009, the DRC‐South Africa runs have increased considerably and are currently estimated at around 1,000 trips per month or about 12,000 per year, conveying metals around 0.4 million tons per annum. The traffic is one directional, one commodity and no imports. For COMESA, the trial runs revealed a number of issues. It was observed that there was lack of awareness by field staff at border posts. The traffic was mainly one directional, only 11 exports and over 240 imports.

There was no recording of traffic performance indicators of transit times. On the cost of bond, it was not made clear. As such one major participant was using the cost of national bond for the transit. There were concerns of loss of business by SME clearing and forwarding agents, especially in Zambia and to some extent in Zimbabwe. An evaluation of the trials by COMESA was not made available to the team. For SADC the trial runs have also revealed a number of issues. Participants in Malawi complained of lack of post mortem meetings at local level. There was also problem of feedback of acquittals from South Africa.

There was concern by the SME clearing and forwarding sector of loss of business especially in Zambia. It was stated that much of their business was depended on transit bonds from handling DRC transits in particular. Some stakeholders expressed concern that there was lack of follow up instructions from SADC on the next stage of the TMS implementation program. The trial runs had some positive outcomes of transit times. For example, from Malawi to South Africa transit times showed improvement from some 9 days to 3‐4 days and from DRC to South Africa from some 15 days to 4‐5 days. In COMESA, in terms of full implementation of the scheme, there is none. There has been no traffic activity since 2010. The private sector stated that they were waiting for further guidance from COMESA.

For SADC, there is no full implementation, although there is regular and sizeable traffic continuing on the DRC to South Africa sector but one directional and one commodity. All member states in SADC stated that they were waiting for formal communication from the Secretariat of SADC to advise member states that they should start implementing the scheme. They also expected the Secretariat to give guidelines and to mount awareness missions of the scheme to members. It was noted that none of the member states has put the provisions of TMS into national law or regulations.

The study has reviewed the provisions of the TMSs of the two RECs, to see where the provisions could be harmonized by undertaking a gap analysis. The key provisions of the TMS consist of Customs Documentation, Transit Bond, ICT support for Data Exchange and Management Information System and Risk Management Tools.

The analysis has revealed that the two TMSs converge in a number of provisions. These include basic Customs documentation, application and use of ICT in the exchange of Customs data and Management information Systems, risk management tools. However in the area of bond provision, the two systems fall far apart. This is mainly due to the basic principles upon which the two systems are based.

The COMESA scheme is based on TIR principle of use of a Carnet as evidence of a bond and a network of sureties across the RCTG member states, while the SADC scheme is a bond taken by the principal bond holder who creates his own network of designated representatives through an inter‐agency agreement across the transit chain and who are collaterally party to the bond guarantee respectively in each transit country. Organizationally the COMESA system follows a well‐structured organization of sureties, but is unclear on the magnitude of financial costs of running the structures and also on the arrangements and cost of re‐insurance while the SADC scheme is simple but appears to have practical problems of extra territorial liability/responsibility between a bond holder and his designated representatives who may not have been witness to the purchase of the bond instrument, and whose core business may be clearing and forwarding and not financial instruments like a bond.

Despite the concerns as above the overall assessment is that the schemes should be implemented without delay, treated like a project with defined time framework and a joint project manager to oversee operations in both COMESA and SADC. The data gained from implementation will serve as a base for the necessary changes towards establishing the harmonized system, especially in the area of bond provision. This view is taken because the two TMSs have not really been tested in the field to analytically establish base data upon which to make necessary changes. It is recommended that when the implementation is underway other options of bond cover should be examined, in particular the use of a chain of bond guarantors by financial institutions across the RECs.

It is noted that with regard to ICT support of the system, no major difficulties are seen to harmonize. It was noted that all member states of the RECs are using ICT for customs processes, and, in a number of cases, are upgrading their systems. There is however need for member states to consult as they acquire new ICT facilities, to ensure compatibility with regional needs especially in areas linking regional transit gateways and SADCOM. ICT supports TMS in three main ways:

- Providing technology for basic Customs processes

- Providing pre arrival data exchange for sharing between authorities for quick transit clearance, management information related to TMS and institutional management functions

- Providing tools for risk assessment in the region and thereby reduce chances of cargo diversion and thereby lower the level of risk and level of transit bond SADC and COMESA at technical level have agreed on an ICT harmonized system on data transfer and MIS system, to be termed SADCOM.

It will have servers installed at COMESA head office in Lusaka, Zambia and SADC head office in Gaborone, Botswana but interconnected for data transfer. It is noted that the actual MIS management function will be outsourced and is recommended that the two RECs use the same provider to render the service. This would be the recommended business approach. SADC should therefore join the COMESA tender process to jointly identify the service provider. During the study it was highlighted throughout the RECs that the issue of infrastructure improvement should be taken as an integral part of TMS.

Thus there is need to improve border posts infrastructure and administration thereof, address weighbridge hassles and harmonize the charges, reduce numbers of road checks, address corruptive tendencies. These, it was emphasized, are adding large costs to the supply chain transit costs. These costs could be even more than the costs of provision of multiple bonds.

Authors: 
Stallard Mpata, in association with Puseletso Mwakalombe
Organisations: 
COMESA, SADC
Date: 
September 2011

Publication

Early Closure of TMSA Programme: The Secretary of State of the UK’s Department for International Development (DFID) has decided to terminate its financial contribution to TradeMark Southern Africa (TMSA), as announced on 4 December 2013. As DFID is the sole financier of the TMSA programme of support to the COMESA-EAC-SADC Tripartite, TMSA will officially be closed from 17 March 2014 instead of 31 October 2014. For more information about the TMSA closure, and for a summary of some of the more notable successes of the Tripartite achieved with TMSA support, please click here