The African Export-Import Bank (Afreximbank) is set to begin implementing its $1bn Continental Transit Guarantee Scheme, of which about $200m is earmarked for the COMESA region.
It comes after the signed the Instrument of Accession to the Inter-Surety Agreement for the Implementation of the COMESA Regional Customs Transit Guarantee/bond Agreement.
The Agreement was signed on Wednesday by Afreximbank President Benedict Oramah, and Elirehima Joshuo Doriye, Chairperson of the Council of Regional Customs Transit Guarantee (RCTG).
It sets the stage for the implementation of the Afreximbank African Collaborative Transit Guarantee Scheme (AACTGS). The programme is designed to facilitate the smooth transit of goods across Africa through a continent-wide single-technology enabled transit guarantee scheme.
Under the AACTGS, working with the African Union (AU), COMESA, and other Regional Economic Communities, Afreximbank will become a regional and continent-wide guarantor. As part of this, it will provide transit bonds covering the full range of borders that goods are required to cross.
The Bank will not displace existing operators but will work with them on a risk-sharing basis, and as a result boost their capacity to issue bonds at a local level.
Through the scheme, Afreximbank will ensure that, when goods do not complete their transit, sums are paid in line with the duties and taxes that would have been required, and enhancing tax collection for African countries.
In addition, the transit guarantees provided by the Bank will enable businesses to release working capital otherwise tied up as collateral against transit bonds, while also accelerating the movement of goods across borders.
By speeding up transit times and reducing costs, the scheme will provide a boost to African manufacturers. It will ensure they can easily access the inputs they need for their business and enabling them to pass savings on to consumers.
“The launch of the Afreximbank African Collaborative Transit Guarantee Scheme is a milestone in Africa’s journey towards deepening regional integration,” Oramah said, “A key tool for delivering on the vision of the African Continental Free Trade Area, the scheme will facilitate the seamless flow of goods in a connected Africa.”
He added, “It will accelerate trade, reduce the cost of trading, release capital for businesses investment, improve the bankability of intra-African trade, and in the end, reduce prices for consumers.”
Oramah also noted that the scheme’s launch in the COMESA region is a momentous occasion, but is also just the first step in a programme designed to be implemented across the entire continent.
With this scheme, the Cape to Cairo road project will become a financially viable cross-continental trade route, he added.
Currently, African states require businesses transiting goods through their countries to secure transit bonds. These protect against the risk that the goods remain in the markets they are passing through rather than continuing to their end destinations.
However, the limited implementation of regional transit guarantee schemes means traders are required to obtain national bonds for each border they cross. As a result, transit costs in African countries are 63% higher compared to the average in developed countries, and 135% higher than in Europe.
The average costs of freight as a percentage of the total value of imports is 11.4%, compared to 6.8% in developed nations. The cost of these are estimated at around $450 per truck per day. By implementing an effective transit guarantee scheme the continent will save more than $300m per year, studies show.