Trucks queue to pick up imported fertiliser being offloaded from a cargo
ship at Mombasa, East Africa’s biggest and busiest port. PHOTO FILE |
NATION
Businesses within the Common Market for Eastern and Southern
Africa (Comesa) could save up to $450 million in clearance documentation
once the bloc adopts blockchain technology for clearing imports.
Comesa
is looking to roll out a digital free trade area — the first in Africa —
modelled along the Malaysian Free Trade Zone, where parties to a
transaction are connected in real time through a web of ledgers that are
secure.
The application also supports generation of an
electronic certificate of origin whose authenticity can be verified
using national information technology systems.
This will be a marked break from the current practice which involves manual applications and physical presentation of documents to tax bodies and other government agencies that cause businesses delays.
This will be a marked break from the current practice which involves manual applications and physical presentation of documents to tax bodies and other government agencies that cause businesses delays.
Trade financiers could be the biggest losers once the system is in place.
“We
are rolling out the Digital FTA in 2018, beginning with willing member
states on the basis of the principle of variable geometry,” said Comesa
spokesman Mwangi Gakunga.
Last month, Comesa completed
the design and action plan of the Digital Free Trade Area, the
Electronic Certificate of Origin (e-CO) and their draft regulations.
Ending border queues
Piloting
of the digital FTA is expected to start in 15 of its 19 member states,
enabling large and small enterprises alike to trade using their
smartphones and tablets.
“The e-certificate of origin
is a good practice around the world but Comesa will be the first
regional economic bloc in Africa to have it as a regional FTA
instrument,” he added.
According to Comesa
Secretary-General Sindiso Ngwenya, the digital economic integration will
do away with long queues at border posts for goods and people moving
across borders.
“We have developed a mobile
application for cross-border traders which shall be launched in the
countries that are involved in the simplified trade regime. We shall
integrate them to Customs and other agencies and also to the Comesa
centre,” he said.
The participating countries are
Kenya, Uganda, Rwanda, Burundi, Democratic Republic of Congo, Sudan,
Ethiopia, Egypt, Seychelles, Malawi, Mauritius, Madagascar, Swaziland,
Zambia and Zimbabwe, which are all part of Comesa’s Simplified Trade
Regime that allows traders with goods valued at $1,000 or less to access
cross-border markets duty free.
Breakthrough
Exporters
from Uganda say this is a breakthrough in regional and international
trade, even though it comes with new risks and challenges, especially
member states that have not yet provided for e-CO laws.
“The
risks are there but they can be mitigated. There must be software to
prove that the electronic certificate of origin is authentic so that tax
authorities can read it,” says Chris Kaijuka, the managing director of
grain exporting company AfroKai Ltd.
Mr Kaijuka
welcomes the innovation but adds that he is keen to test the
effectiveness of the electronic certificate of origin in solving some of
the import-export hitches that traders face in the market.
“But
I welcome it. We wanted the e-certificate of origin which helps me on
taxation,” he says. “Someone brings in goods from outside Comesa but
declares them as of Comesa origin, which they are not,” Mr Kaijuka adds.
Diminished role for banks?
The
financial services sector for counterparties makes easy money in
international trade deals — globally totaling to $100 trillion — because
the importing party in most cases does not know or trust the exporting
company.
Within the Comesa region alone, some $450 million is paid to commercial banks annually to confirm letters of credit.
But
the bloc’s chief executive argues that soon this will be a thing of the
past because the Comesa digital FTA has “applications that can connect
Customs, commercial banks, ministries of finance and central banks in
real time, even when it comes to remittances.”
“Let’s
say you are an exporter from Zambia and you are exporting to Egypt, it
will be accounted for because all these parties will be able to access
that information simultaneously and this is through the block chain
application,” says Mr Ngwenya.
But a source at KCB Bank Uganda — one of the largest providers of trade finance — told The EastAfrican that it is too early for these innovations to reduce the role of commercial banks to the periphery in international trade.
“Customers still rely so much on banks to ensure payment,” he said.
Enabling laws
In
2014, the Comesa Council of Ministers decided that member states that
were ready to accept and use the e-CO should do so by July 31 of that
year.
The Council further directed member states whose
legal systems did not provide for e-COs to enact enabling laws as soon
as possible with the view to replace the manual certificates of origin
with the electronic certificates in a bid to speed up the process of
certification and facilitate trade in real time.
The
Council also wanted the designed digital applications to ensure that
they integrate small and medium enterprises – which make up over 90 per
cent of the employment base in Comesa for its 492 million citizens,
according to the bloc’s data.
In March this year,
Malaysia launched its digital free trade zone (DFTZ) – a global first –
that is expected to increase SMEs contribution to the country’s GDP,
which currently stands at 37 per cent, despite 97 per cent of businesses
in Malaysia being micro or small and micro enterprises.
According
to its website www.mydftz.com, the Malaysian DFTZ has the potential to
increase the SME goods export to $38 million, create over 60,000 jobs
and support $65 billion worth of goods moving through the DFTZ by 2025.
Observers say, over this period the DFTZ will double the growth rate of Malaysia’s SMEs goods export.
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