Customs Administration Reform and Modernization in anglophone Africa
Early 1990's to Mid-2010

Contributor Notes

Author’s E-Mail Address: jzake@imf.org

Anglophone African countries have been implementing reform and modernization initiatives in their Customs administrations. This paper outlines the progression of key reform and modernization initiatives in these countries since the early 1990s, and assesses the gap between these reforms and those of more modern Customs agencies. The review suggests that Customs administration reform and modernization initiatives in Anglophone African countries generally lag behind international good practice and it is necessary to speed up implementation if revenue, trade facilitation, and trade chain security objectives are to be achieved. The findings also have implications on the design of reform programs and focus of potential technical assistance for the outstanding reform agenda.

Abstract

Anglophone African countries have been implementing reform and modernization initiatives in their Customs administrations. This paper outlines the progression of key reform and modernization initiatives in these countries since the early 1990s, and assesses the gap between these reforms and those of more modern Customs agencies. The review suggests that Customs administration reform and modernization initiatives in Anglophone African countries generally lag behind international good practice and it is necessary to speed up implementation if revenue, trade facilitation, and trade chain security objectives are to be achieved. The findings also have implications on the design of reform programs and focus of potential technical assistance for the outstanding reform agenda.

I. Background and Reform Context

The socioeconomic environment in which Customs (and tax) administrations operate can have an impact on reform direction and the implementation pace. This section sets the context of Customs administration reform in Anglophone Africa from the early 1990s to mid-2010. It outlines the key country characteristics—social, economic, and development characteristics.

A. Basic Profile of Anglophone African Countries

The broad characteristics of the 19 Anglophone African countries are outlined below, with supporting details provided in Appendix I. It should be noted that Zimbabwe is a rather unique case and the footnote2 outlines the country’s circumstances that should be borne in mind when reading this paper.

Population—in 1990, the total Anglophone Africa population was about 220 million people (4.2 percent of the world population). Estimates for 2009 put the population at about 335 million or 4.9 percent of the world population, an increase of 50 percent over 1990. The population of these countries ranges from 87,000 in Seychelles to 150 million in Nigeria.

Income grouping—the world average GDP per capita in 2008 is estimated at about US$9,000, and the Anglophone African country average at about US$2,300 (see Appendix I–1.2). The majority of Anglophone African countries are below these averages—the median country is Lesotho at US$804—reflecting the relatively lower level of development.

Extractive natural resource endowmentall countries except Mauritius are either already well endowed and exploiting their mineral wealth (Botswana, Nigeria, South Africa, Tanzania, and Zambia) or are in the process of exploring this wealth (e.g., oil exploration is underway in The Gambia, Ghana, Kenya, Rwanda, Seychelles (offshore), and Uganda). Experience shows that a number of African countries that rely heavily on natural resources in their revenue mobilization efforts have often neglected non-oil revenue reform and modernization. This observation is supported by Bornhorst, Gupta, and Thornton (2008) who found a statistically significant negative relation between government revenues from natural resources and revenues from other domestic sources, with a typical result being that a 1 percentage point increase in hydrocarbon revenue (in relation to GDP) lowers nonhydrocarbon revenues by about 0.2 percent.

Post-conflict and low income countries under stresspost-conflict Anglophone African countries include Liberia, Rwanda, and Sierra Leone. The Gambia, Nigeria, and Sierra Leone are considered to be marginally fragile while Liberia and Zimbabwe are classified as severely stressed.3

The structure of the economy has implications for revenue mobilization and consequently, the degree to which reform and modernization needs to be undertaken. The broad economic structures of the Anglophone African countries (2008 and 2009 estimates—Appendix I–1.2) suggests that on average, agriculture contributes about 25 percent of the economy, industry 28 percent, and services 47 percent.

Tax to GDP ratiofor the period under review, the average non-oil tax to GDP ratio of the Anglophone African countries is about 21 percent (Appendix I–1.2), just below the World average of 23 percent. Countries with a ratio above the 20.5 percent average include Botswana, Ghana, Lesotho, Namibia, Seychelles, South Africa, Swaziland, and Liberia. At the extreme end is Zimbabwe with a non-oil tax contribution of 3.3 percent, but with high expectations of recovery to above 20 percent in 2010 onward. The seemingly high average tax to GDP ratios hides country-by-country differences and many continue to run fiscal deficits (see also Fofack, 2010).

Governance indicatorspolitical commitment is an important prerequisite to successful reform and modernization programs. Existence of good governance arrangements can be an indicator of the extent to which this commitment is likely to be forthcoming and, consequently, the potential for successful reform. Appendix I–1.3 provides a cross-sectional comparison of six governance indicators computed by the World Bank for 1998 and 2008.4

On average, governance within the Anglophone African countries appears to have improved slightly from -0.43 to -0.30 between 1998 and 2008 (see consolidated index in the last column of Appendix I–1.3). Mauritius and Botswana, Namibia and South Africa have the better governance indices in the Anglophone African group, and Sierra Leone, Liberia, Nigeria, and Zimbabwe come off worst.

B. Regional Trade Arrangements

Regional trading blocs are a common feature of trade arrangements in Anglophone Africa. In forming these blocs (Customs unions and free trade areas),5 the stated objective has always been economic cooperation for mutual benefit of member countries. All the Anglophone African countries belong to at least two regional trading blocs (see Table 1) but they also have bilateral and multilateral arrangements.6 Bilateral and multilateral trade arrangements include those with the European Union (EU),7 the U.S. African Growth Opportunity Act (AGOA), and also with each other.8

Table 1.

Anglophone African Countries: Membership of Regional Trade Organizations as of June 2010

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Source: Yongzheng Yang and, and Sanjeev Gupta (2005).

Seychelles is also a member of the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC).

Key: African Economic Community (AEC); Community of Sahel-Saharan States (CEN-SAD); Common Market for Eastern and Southern Africa (COMESA); East African Community/Customs Union (EAC/CU); Economic Community of Central African States (ECCAS)—includes other non-Anglophone African countries; Economic Community of Western African States (ECOWAS); Intergovernmental Authority on Development (IGAD); Mano River Union MRU; South African Customs Union (SACU); Southern African Development Community (SADC); and Economic Community for Great Lake Countries (ECGLC)—includes other non-Anglophone African countries.

For purposes of this paper, the most significant trading blocs in Anglophone Africa are: (1) the South African Customs Union (SACU)—the oldest Customs union formed in 1910; (2) the East African Community (EAC), originally founded in 1967, collapsed in 1977, and revived in mid-2000 between Kenya, Tanzania, and Uganda—Rwanda and Burundi (a Francophone country) joined the EAC in 2008; (3) the Economic Community of West African States (ECOWAS) founded in 1975; (4) COMESA formed in 1981; and (5) SADC, launched in 1980. ECOWAS, EAC, and SACU have a common external tariff (CET) that is used by member countries. It is only SACU that pools duty and excises on imports and shares them between the member countries using an agreed formula.9

C. Fiscal Importance of Customs Administrations in Anglophone Africa

Import duty collected by Customs Administrations forms an important contribution to domestic revenue collections in Anglophone African countries. Data in Table 2 shows import duty collections for the 19 countries averaging 27 percent of total tax revenue for the period 1994-2008—South Africa has the lowest proportion of 2.2 percent and Lesotho the highest at 61.7 percent. The median in the group is Zimbabwe with an average of 15.2 percent. The SACU countries share from a pool of customs and other import duty revenue that includes import excise duties. As such, from an import tariff collections perspective, the non-SACU countries perhaps provide a better picture, with collections ranging from an average of 12.2 percent for Tanzania to 50.1 percent for Sierra Leone. Over the period, the non-SACU Anglophone Southern Africa group had the lowest average import duty collections to total tax revenue of 19.0 percent.

Table 2.

Percentage of Import Duties to Total Tax Revenue

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Source: Appendix II, Table 2.Notes:

Sorted on 2006-2008.

Botswana, Lesotho, Namibia, South Africa and Zambia.

Malawi, Mauritius, Zambia and Zimbabwe.

Kenya, Rwanda, Seychelles, Tanzania and Uganda.

The Gambia, Ghana, Liberia and Nigeria.

The fiscal importance of Customs administrations in Anglophone Africa (and elsewhere) is amplified by the fact that these agencies also collect value added or sales taxes on imports at country borders; they also manage country export transactions and related documentation. Certified import and export declarations provide evidence that enables Value Added Tax (VAT) registered traders to claim their input tax or claim refunds on filing their VAT returns to domestic tax administrations. Culpeper and Bhushan (July/August 2010, p. 5) infer the fiscal importance of customs administrations when they state that, “…most low-income countries (LIC) are heavily dependent on trade taxes as a source of revenue, in large part because they are the easiest taxes to collect. About a third of non-resource tax revenue in [Sub-Saharan Africa] SSA comes from trade taxes…”

II. The Customs Administration Reform Agenda

The challenges of the 21st Century are placing massive demands on Customs administrations. Now, more than ever before, there is a need for Customs administrations to be more responsive. An understanding is required of issues such as globalization, the dynamics of international trade, the technicalities of the trade supply chain, emerging policy directions and the complexities of the global landscape.

Pravin Gordhan10

The basic strategy for modernizing Customs administration…is straightforward: establish transparent and simple rules and procedures [,] and foster voluntary compliance by building a system of self-assessment buttressed by well-designed audit policies. Implementing this, however, requires addressing a range of issues, involving links with trade policy, organizational reform, the use of new technologies, the appropriate nature and extent of private sector involvement, designing incentive systems to overcome governance issues—and many others.

Teresa Ter-Minassian11

A. Customs Administration Reform Challenges

The above conclusion by Gordhan in his treatise on the changing role of Customs administration is an apt introduction to the global challenges that Customs administrations face as borders become more open and responses to international trade changes become more pressing. Further, with the 2008/09 global economic crisis and the resultant stimulus packages, the need to preserve or create employment, and the attendant trade protectionism, puts a lot more pressure on Customs administrations to be responsive and deliver the administration of an increasing number of policy instruments.12 Ter-Minassian summarizes the strategic response to these challenges that is still valid today as it was when stated in 2003.

The role of Customs administration is increasingly focusing on trader facilitation and security of the trade supply chain, with revenue collection becoming a by-product. The September 11, 2001 terrorist attack on the United States heightened security concerns of the supply chain. A typical high-level flow of goods is depicted in Figure 1 (there are many variants), and the place of Customs (at origin and destination) in that chain. The trading community and Customs administrations have to cope with a multiplicity of buyers, suppliers, origins—and related rules that determine national product source and applicable tariffs, destinations, commodity types, and classification, valuation differences depending on a number of variables that include quality and origin, nontariff barriers—all-in-all, a complex and dynamic trade environment. Despite these complexities, knowledge of the supply chain, especially of the key players (origin and destination countries, intermediaries, and final consumers), is very important in planning the balance between trade facilitation, compliance management and security of the trade supply chain. In designing reform and modernization programs, Customs administrations are likely to quickly realize the tensions between, for example, the need to balance extensive pre-inspection of shipments with (for those countries that are more revenue-focused) the use of risk-based approaches that emphasize post-release controls.13

Figure 1.
Figure 1.

High-Level Illustration of the International Trade Supply Chain

Citation: IMF Working Papers 2011, 184; 10.5089/9781462309283.001.A001

B. Characteristics of Modern Customs Administrations

The Revised Kyoto Convention is the generally accepted reference point for the key principles of Customs administration modernization. Use of these principles (summarized in Box 1) in designing and implementing a Customs administration reform programs results in a number of benefits14 that include: improved voluntary compliance; increased revenue (still an important national revenue contributor in Anglophone African countries); simplified processes and procedures; greater institutional efficiency; reduced transactions costs to government, trade and the Customs administration; and economic growth. Additionally, modernized Customs administrations usually exhibit the following characteristics: (1) self-assessment; (2) the use of risk-based approaches to compliance management; (3) a service orientation that includes the broad provision of information to and engagement with the private sector supported by swift dispute resolution mechanisms; (4) full automation of transactions processing and management information support; and (5) extensive use of trader segmentation to implement appropriate compliance and trade facilitation strategies. Table 3 also provides a broad comparison between traditional and modern Customs organizations.

Table 3.

Traditional Compared to Modern Customs Administration

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Source: www.Worldbank.org/transport/tr_facil/docs/lane.pdf.

C. Customs Administration Reform Drivers

Akin to domestic tax administration, Customs administration reform in Anglophone Africa has been largely driven by domestic, regional, and international demands. On the domestic front, revenue enhancements designed to close national budget deficits and finance poverty reduction strategies are key considerations. Complaints by the private sector about Customs administration inefficiencies and the consequential impact on costs of doing business is another. Regional and international drivers include: (1) peer pressure, particularly for Customs administrations who are members of the World Customs Organization (WCO), and other regional trade, revenue or Customs-centric organizations; (2) the drive for trade facilitation and reducing the costs of doing business for the international trading community;15 and (3) pressure to include security safeguards in Customs processes and procedures, including receipt of advance manifests to strengthen risk management and profiling.

Basic Principles and Expected Benefits of Customs Administration Reform

Basic reform principles

Simple, appropriate legislation. By its very nature, customs legislation can be complex. Nevertheless, it is generally acknowledged that simpler legislation can create an environment for increased trader compliance.

Streamlined, up-to-date processes and procedures. Complicated procedures that are difficult to administer impose added costs to the trade community and reduce the efficiency and cost-effectiveness of controls. Therefore, it is important that procedures be streamlined and automated to the greatest extent possible.

Compliance management controls based on effective post-clearance verification. Controls prior to the release of goods, including physical inspections, have a role to play in improving compliance. However, such controls are not the most effective for verification of tariff classification, valuation, exemptions, and origin determination. Post-clearance controls are necessary to identify and correct inconsistencies in the application of legislation and procedures at the time of release and to assist in the identification of potential fraud.

Expected benefits of Customs administration reform and modernization include:

  • Increased government revenues;

  • Overall reduction in the costs of doing business for all stakeholders (for example, government, Customs administration, brokers, transporters, importers and financial institutions);

  • More effective detection of non-compliance using risk-based approaches;

  • Improved security of international transactions through strengthened control of high risk transactions;

  • Simplified, transparent and more efficient clearance procedures;

  • More predictable and faster movement of goods, including transit goods;

  • Increased trade, improved economic performance and enhanced competitiveness that encourages foreign and domestic direct investment;

  • Better coordination and streamlining of roles and responsibilities between Customs and other government border and regulatory agencies; and

  • Reduced rent-seeking opportunities due to more efficient, transparent and simplified systems.

III. Key Customs Administration Reforms in Anglophone Africa

This section outlines the key reform initiatives in Anglophone Africa including: compliance with international conventions and standards, organizational arrangements, ethics and integrity, tariff reform, Customs processes and procedures, one-stop-border points (OSBPs) and information technology developments. The role of pre-shipment/destination inspection (PSI/DSI) services in Anglophone Africa’s Customs administration reform is discussed briefly.

A. Conformity with International Conventions and Standards

Globally, Customs administrations subscribe to a number of conventions and standards, the main ones being: (1) the Harmonized Commodity Description and Coding System (HS code); (2) the WTO Agreement on Customs Value (ACV); (3) the revised International Convention on the Simplification and Harmonization of Customs Procedures (Revised Kyoto Convention); (4) the revised Arusha Declaration on Customs Integrity; and (5) more recently the WCO Framework of Standards to Secure and Facilitate Global Trade (SAFE) program. Table 4 summarizes the conformity status of the countries.

Table 4.

Anglophone-Africa Country Accession to Select International Organizations, Conventions, and Standards

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Source: WTO and WCO.

Use of the HS code—as of end-July 2010, 138 countries worldwide had formally acceded to the use of the HS code—including 16 of the 19 Anglophone African countries. The exceptions are: The Gambia, Seychelles, and Sierra Leone—it would appear that these countries have just not got around to formally acceding to the convention. They nevertheless apply the HS code in their Customs operations but are technically not bound by the guidelines of the HS convention.16 Of the 16 acceding countries, only Kenya and Liberia were reported to be using the HS 2002 rather than the HS 2007 versions.17 Kenya has since (in July 2010) notified the WCO on the use of HS 2007.

The Revised Kyoto Convention—up to January 2010, the convention had 68 signatories worldwide of which only Botswana, Lesotho, Mauritius, Namibia, South Africa, Uganda, Zambia, and Zimbabwe are from Anglophone Africa. It is not clear why the other countries have not acceded to the convention because many of them subscribe to its principles. It should also be noted that accession imposes stricter accountabilities and is a legal act that binds the signatory to the obligations of the convention. From the available information and experience of FAD field missions to some Anglophone African countries, accession by some of the countries appears to be more of a formality than intent to implement the convention’s provisions. An audit of adherence to the Convention’s provisions would be very instructive.

The WTO Agreement on Customs Valuation (ACV)— by June 2010, 17 of the 19 Anglophone African countries were full members of the WTO. The exceptions were Liberia (has observer status), and Seychelles. Further, other than The Gambia, Liberia, Nigeria, and Seychelles which are still using the Brussels Definition of Value, the other 15 countries are currently using ACV. All the five SACU member countries, Malawi and Zimbabwe implemented the ACV at its inception (January 1995) as they were already using the transactions value-based GATT valuation code in their Customs operations. The other 10 Anglophone African countries invoked the five-year grace period to allow for capacity building and adjustment. The SACU members use FOB country of export as the valuation base while the others use cost, insurance, and freight (CIF) value at destination. There is anecdotal evidence that many of the countries do not implement strictly the provisions of ACV and this has often led to disputes with the trading community.

WCO SAFE program and related developments—as of May 2010, all the 19 Anglophone African countries had expressed their intention to implement the SAFE program. By the same date, the WCO had conducted needs assessment (diagnostic) missions (Phase I) in all the countries except Liberia and Seychelles. Further assistance is being provided in Phase II to 12 of the 17 Phase I beneficiary countries other than Botswana, The Gambia, Namibia, Sierra Leone, and Zimbabwe. Phase II assistance includes, amongst others, capacity-building in strategic planning, post-clearance audit (PCA), trade facilitation, information and communication technology, the framework of standards, and change management.

B. Organizational Arrangements18

Administratively integrated Customs and tax administrations are dominant in Anglophone Africa. Other than Liberia and Nigeria, which have separate tax and Customs agencies, the other countries bring the administration of Customs and tax under one organization—a revenue authority. The revenue authority model was implemented starting with Uganda in 1991, and quickly spread to the other countries, generally spurred on by development partners, particularly the United Kingdom’s Department of International Development (DfID). Ghana is the most recent country (2009) to adopt the revenue authority governance model combining a number of separate revenue services for value-added tax (VAT), income tax and Customs under one structural umbrella—these services were hitherto coordinated by a central governing board under the ministry of finance. Customs operations are still run by a distinct Customs service within the revenue authorities except for South Africa and Zimbabwe where there is no clear corporate level organizational delineation between tax and Customs—distinct Customs houses and border management stations exist at the operational level. However, there are indications that both South Africa and Zimbabwe are moving toward a more distinct delineation of Customs operations.19

Some observations

Generally, headquarters operational policy functions are still poorly developed in Anglophone Africa with very centralized management practices which require all approvals/decisions to be referred upward to the highest levels of the organization. It is therefore not uncommon for the heads of Customs to intervene in the majority of cases, leaving very little time for strategic planning, articulation of value-adding directions and managing in a visionary manner. A headquarters structure, staffed with a small professional and experienced team adds critical value to the organization by: (a) developing and documenting the operational policies and procedures to ensure their consistent application throughout the organization; (b) developing and disseminating strategic and operational plans to the field delivery offices; and (c) using appropriate indicators to monitor operational performance against plans. Through this kind of feedback, improvements to policies, processes, and procedures can be made.

C. Ethics and Integrity

Corruption in Africa generally, and in Customs administration specifically, has been widely documented (for example, see Stasavage and Daubrée, 1998, and Hors, 2001). The demand and receipt of bribes by revenue administration staff subverts tax compliance, undermines governance, and concerns many stakeholders. Organizations such as Transparency International have prominently exposed the issue of corruption. All the Anglophone African countries are signatories to the revised Arusha Declaration on Integrity in Customs that tasks individual member countries to implement the framework.20 Measures taken by some of the countries and revenue agencies/Customs administrations include: (1) passage of national anticorruption legislation; (2) creation of anticorruption agencies or Ombudsmen offices; (3) development of revenue agency-specific anticorruption strategies that are aligned to national policy; (4) increased accountability through national auditor general investigations and representation before parliamentary accountability committees; (5) declaration of assets by revenue/Customs administration staff; (6) creation of specific staff internal affairs units and staff disciplinary frameworks; (7) establishment of ad hoc commissions of enquiry into revenue agency corruption; and (8) prosecution of offenders (revenue agency staff and taxpayers).

Customs administrations do not operate in a vacuum, and national ethical attitudes and practices have important behavioral bearing. Any Customs (and domestic tax) administration and its staff will be particularly at risk in a generally corrupt environment where governance and accountability are lacking. In this context, therefore, Figure 2, sourced from the World Bank’s governance indicators, shows the extent of corruption perceptions for Anglophone African countries for a select number of years (2008, 2004, and 1998).21 A comparison is also made with the top five ranked countries in controlling corruption.

Figure 2.
Figure 2.

Control of Corruption in Anglophone Africa

Citation: IMF Working Papers 2011, 184; 10.5089/9781462309283.001.A001

It is clear that for the period 1998 to 2008, the majority of Anglophone African countries were struggling to contain corruption. Botswana, Namibia, Mauritius, South Africa, and Seychelles appear to have had relatively better success in addressing this problem. Lesotho and Rwanda registered improvements in 2008 bringing the number of countries scoring above zero to 7. Of the other 12 countries, Ghana made credible progress in the 2008 rankings while Zimbabwe continued to deteriorate. Comparatively, Finland, Singapore, Denmark, Iceland, and New Zealand topped the world rankings in 2008 and the gap between them and Anglophone Africa is quite wide.

D. Tariff Reform

An important reform in Customs administration is usually the rationalization and simplification of the tariff structure. The extent of tariff reform in Anglophone Africa can be gleaned from the various trade policy reviews carried out in most of these countries22 by the WTO. A survey of these and IMF staff country and TA reports indicates that most of these countries rationalized, simplified, and reduced the number of tariff bands to enhance their external competitiveness and reduce discretionary behavior in their Customs administrations. The World Bank’s (2007) Global Monitoring Report confirms this general trend for a number of Anglophone African countries (Ghana, Nigeria, Kenya, Tanzania, and Zambia) during the period 2000–06 in which tariff reductions and overall trade restrictiveness is reported to have declined. A summary for each bloc of countries is shown in the matrix that follows (page 19).

On the whole, there appears to have been some effort in rationalizing the tariff structure by all countries. The impact on revenue has not been that significant though—the average Customs and other import duties as a percentage of GDP remained flat for the period 1994– 2008 (see Appendix II, Table 4). It would also appear that more tariff rationalization is required by some Anglophone African countries, especially those in SACU.

E. Customs Processes and Procedures

The revised Kyoto Convention proposes that countries should reform existing Customs practices to further facilitate the movement of goods. Further, Customs administration should adopt modern business process re-engineering (transformation) techniques to identify inefficient or redundant activities for streamlining or elimination. Risk management approaches are strongly advocated as are special Customs clearance schemes for the most compliant traders. The use of PCA controls and information technology tools are strongly recommended (see also Keen (2003), Section 5).

Valuation reforms

The WTO ACV—as outlined above, 17 of the 19 Anglophone African countries were full members of the WTO as of June 2010, with the exception of Liberia and Seychelles. Further, 10 Anglophone African countries concerned about the possible reduction in Customs revenue invoked the five-year grace period before implementing the principles of the ACV. However, the Customs revenue reduction concerns are generally not borne out. A review of pre- and post-accession Customs duty as a percentage of GDP for seven countries (see Table 5) suggests that: (1) revenue declines are evident pre-ACV implementation (Ghana, Mauritius, Rwanda, and Tanzania); and (2) some countries (Ghana, Mauritius, Rwanda, and Uganda) increased the revenue take during the year of implementation but none sustained it thereafter.

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Examination of the SACU Customs tariff structure shows numerous ad valorem rates ranging from 0–96 percent, many specific and formula-related rates and clearly a complex structure to manage.

The WTO trade policy review reports were published for The Gambia in February 2004; February 2001 in Ghana; June 1998 and April 2005 for Nigeria; and February 2005 in Sierra Leone.

The World Bank estimated average tariff rates show the following trend: The Gambia–13.5 percent in 1996 to 11.8 percent in 2002; Ghana–17.5 percent in 1994 to 14.5 percent in 2003; Nigeria–33.0 percent in 1994 to 30.6 percent in 2003; and Sierra Leone–39.5 percent in 1994 to 15.9 percent in 2002 (http://siteresources.worldbank.org/INTRANETTRADE/Resources/tar2002.xls).

The higher 50 percent tariff rate was to be reviewed by end-2007 (see Nigeria: Authorities’ Letter, Policy Statement and Technical Memorandum of Understanding).

Comprising Kenya, Tanzania, and Uganda. Rwanda implemented the protocols of the EAC Customs Union in by July 2008.

See Stotsky, Janet, and others (September 2001).

This would necessarily be true in all instances where there is no domestic production, that is, import tax would be equivalent to consumption tax.

See Christian Schiller, and John Bristow (November 1995).

Table 5.

Customs and Other Import Duties for Selected Countries—Pre- and Post-Implementation of the Agreement on Customs Valuation

(In percent of GDP)

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Source: Appendix Table 4.
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Trade facilitation

The SAFE diagnostic missions observed that the general trend is toward simplification of processes and trade facilitation even though attaining these ideals remains a major challenge. A few Anglophone African countries conducted time release studies (TRS) with the assistance of the WCO starting with the mid-2000s—Kenya (2004 and 2007), Malawi (2005), Rwanda (2007), Uganda (2008), Tanzania (2005), and Zambia (2007). The 2007 Kenya repeat study suggested that facilitation had deteriorated rather than improved. Comparative data available on the efficiency of Customs processes from the World Bank’s Development Indicators for 2006 and 2009 are indicative of recent progress in reforming Customs administration processes. Table 6 summarizes the performance of Anglophone Africa and also compares the group with the top five world ranked countries. The following are the key observations:

  • South Africa, Uganda, and Mauritius exceeded the 2009 World average rating of 2.59; and with Tanzania, The Gambia, and Ghana, they performed above the Sub-Saharan Africa average. The worst performers during this period were Botswana, Namibia, and Rwanda.

  • Continuous modernization and customer-centric approaches appear to have played an important part in South Africa’s ranking, while evidence of increased automation played a part in the other countries. In the case of Rwanda, FAD revenue administration analysis confirmed very high Customs release times in excess of nine days for both air and land cargo in 2007.

Table 6.

Efficiency Rating of Customs Processes in Anglophone Africa Between 2006 and 2009 1/

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Source: World Bank Development Indicators: Logistics Performance Index.

Sorted on 2009.

Risk management and PCA

With the exception of South Africa, risk management and PCAs approaches were generally uncommon throughout Anglophone Africa until after 2006, and even now they are still at a very nascent stage. Business intelligence and analytical skills are generally still very weak and will take some time to develop. A number of Customs staff in these countries have been exposed to the principles of risk management and intelligence, but the challenge is one of implementation, that is, placing the function appropriately in the Customs administration organizational structure and recruiting qualified staff to man the function.

A start (2006) has been made in some countries with the assistance of FAD TA (e.g., in Kenya, Tanzania, and Uganda) to establish the function but it is early days yet. An important issue in risk management is the knowledge of trade patterns and operators, for example, knowing the major textile or second-hand vehicle import sources, the major importers and the associated compliance risks—origin, valuation, tariff, packaging, means of conveyance, and the routes used. Segmentation in Customs administration is just starting as part of risk management but no full analyses have yet been completed. FAD missions have been able to illustrate the power of organizing Customs (and tax) business around identifiable segments that have very high turnovers in the first instance, and pay substantial revenues. An illustration of the large importers’ segment for selected Anglophone African countries is shown in Table 7.

Table 7.

Large Importers Contributing 70–80 Percent of Customs Revenue

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Source: IMF Country Reports.

With most Customs revenues being recovered from fewer than 10 percent of the importing community, a special program (such as an Authorized Economic Operator (AEO) scheme) is warranted to maximize trade facilitation to this group while at the same time implementing stringent safeguards against noncompliance. The identification of such traders for enhanced clearance schemes—in line with the revised Kyoto Convention—and use of the PCA as a means of verifying compliance are important reform enhancement measures. This concept can be stretched to implementing dedicated large trader control offices, akin to the large taxpayer management offices (LTOs) in domestic tax administrations. The refined processes and procedures for this group would be extended to the 20–30 percent of “non-large” importers as uniformity and equity in process application are embraced. Greater efficiency will likely generate better compliance and more revenue in the process.23

Use of AEO schemes

Implementation by Anglophone Africa of the full SAFE framework AEO program, that includes security of the supply chain, is at a very nascent stage.24 In 2008, Botswana, Namibia, and South Africa agreed to implement a fully accredited AEO program. As of March 2009, only South Africa has legislated and was implementing the AEO accreditation scheme; Botswana had no formalized scheme but was according fast-track treatment to compliant traders; and Namibia had elements of facilitation under its normal cargo clearance procedures.25 Some other Anglophone African countries did start a process of fasttracking/facilitating compliant taxpayers after 2007, but with greater focus on revenue rather than supply chain security. For example, limited accredited trader facilitation programs were started by Tanzania in 2007, Rwanda and Kenya during 2008, and Uganda during the first half of 2010. The EAC is in the process of developing a regional AEO program and so is SADC, the latter also includes the SACU countries.

F. Pre-shipment/Destination Inspection Services

Several Anglophone African countries tried to address revenue and corruption concerns by engaging pre-shipment inspection/destination inspection (PSI/DI) companies in the mid-1990s. The PSI/DI companies particularly addressed the issues of valuation, classification and origin, and in some instances, at the behest of the central banks, capital flight.

Only 8 of the 19 Anglophone African countries have not used PSI/DI. These include Mauritius, Seychelles, Zambia, and the five SACU countries. Some utilized and then discontinued these services from mid-1990s, for example, Uganda (2002), Kenya (2005), Malawi (2007). Key issues in discarding the services were complaints from traders that they were paying an unnecessary cost (usually about 1 percent of CIF value above a designated import value threshold). Additionally, the skills of Customs officers in their “bread-and-butter” functions of valuation, classification, and origin determination were being lost. As at mid-2010, The Gambia, Ghana, Liberia, Nigeria, Sierra Leone, Tanzania, and Zimbabwe were still using these services.

There is no overwhelming evidence to suggest that the bottom-line (Customs revenue) improved dramatically following the use of PSI/DI). With concerns of declining core competencies of customs officials, some PSI/DI companies are transforming their operations and business models. For example, in Ghana, where primarily destination inspection is used, the DI companies have teamed up with the Ghana Link Network Services to manage the community-based TradeNet system (Ghana Community Network Services Limited (GCNet)) that was incorporated in November 2000. In Nigeria, the companies have also partnered with the authorities to manage the Global Scan TradeNet system installed in 2006. Tanzania still has a DI contract running through 2011, and is refocusing on skills acquisition especially management of the risk management system of the DI company. The new business model of PSI/DI companies investing in community-based networks in partnership with local companies and their ability to reduce the compliance costs to traders needs a cost-benefit review—imports are still subjected to a fee that is used to finance the TradeNet system. The key lesson is that where inspection services are used, care must be taken not to erode core Customs administration skills and transfer knowledge from the inspection company to the Customs administration staff.

G. Coordinated Border Management

The increase in international movement of people and trade, and security threats across borders are driving the need for closer and coordinated border management between countries. In this regard, some Anglophone African countries have started the juxtaposition of neighboring country border Customs administration staff in a one-stop Customs administration post to manage, at one site, cargo (and people) inflows and outflows from either country.26

In Anglophone Africa, plans to introduce OSBPs started in the mid-2000s with support from development partners including the United States Agency for International Development (USAID), DfID, and Japan International Cooperation Agency. Two OSBPs were opened: one between Kenya and Uganda at the Malaba border in June 2006, and another at Chirundu on the Zambia/Zimbabwe border in December 2009. The current operational modality is a memorandum of understanding between the countries, and for each country to process the declaration and collect their own tariffs, taxes, and fees. The commencement of the one-stop border operation at Malaba confirmed the necessity of a cross-border automated information systems interface between the Kenya’s Simba and Uganda’s Automated System for Customs Data (ASYCUDA). This was achieved through joint development of a Revenue Authorities Digital Data Exchange (RADDEX) system that is being continually enhanced. The OSBP at Malaba is said to have improved clearance times27 and more are points are planned to include other border services such as the police, immigration, and standards regulatory agencies.

H. Information Technology Reforms

Background

The automation of Customs processes in Anglophone Africa started during the early 1980s (see Table 8), the key objective being, at that time, to automate the clerical aspects of trader declarations processing and minimize errors by declarants. South Africa had the earliest start with the introduction of the Customs Automated Processing of Entries (CAPE) system in 1981 that was conceived during the late 1970s, followed by Mauritius in the late 1980s following the development of the ASYCUDA by the United Nations Conference on Trade and Development (UNCTAD) in 1984. Kenya implemented its automated system (Boffin) in 1989 and Rwanda introduced the early version of ASYCUDA in 1989.

Table 8.

Automated Customs Administration Systems in Anglophone African Countries at mid-June 2010

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Country reports.

The mid-1990s saw 10 other countries start automating their Customs administration processes. Seychelles and Swaziland automated in 2007, Sierra Leone in January 2010, while Lesotho and Liberia were in the process of implementing automated systems as of mid-2010. All countries implementing ASYCUDA, other than Botswana and Nigeria, had their projects financed by development partners—primarily the DfID, the United Nations Development Program (UNDP), the EU, the Danish Development Agency (DANIDA), and the World Bank. Beneficiary countries were required to contribute counterpart funding of about 10 percent of the project cost. Implementation costs of the early ASYCUDA versions (excluding subsequent upgrades) were in the range of U$500,000–US$5 million, depending on the scope.28 In the face of declining donor financing, coupled with the global recession, developing countries should consciously and systemically plan the scope and financing of such (inevitable) information technology projects from own resources—including the recurrent costs of sustaining the systems.

Customs administration automation is dominated by ASYCUDA. Of the 19 countries, 14 are using ASYCUDA, and one (Lesotho) is at the development stage. Mauritius and Ghana originally used ASYCUDA but replaced it with bespoke systems that were capable of integrating into community-based single window applications29 using Singapore’s TradeNet as a model. The earlier transactions-centric versions of ASYCUDA were gradually upgraded to include greater functionality that supports direct trader input, basic risk management using the selectivity modules, transit cargo management, and the ability to handle the attachment of electronic support documentation.

Community-based networks

A new generation of Customs applications that encourage the use of community-based networks is beginning to take root. Such networks aim to allow all parties to a transaction to lodge standardized information and documents electronically from a single virtual point dubbed, “single window.” This concept allows individual data elements to be submitted once for all purposes and also to: (1) reduce declarations processing times from days to minutes; (2) reduce the cost of doing business and in the process, increase business activity; (3) eliminate multiple and duplicate data capture points—capture data at the first point of declaration and avail this to all regulatory agencies to perform their duties; and (4) enable traders to access the information database including tacking the status of cargo clearance. The community based networks are typically managed by a joint venture company of the public and private sectors. Each partner subscribes an amount of share capital and the running costs are sustained by transaction fees paid by the users/traders.

Advance cargo information systems

For purposes of providing advance cargo information to destination countries, efforts to automate cross-border Customs declarations information started in the mid-1990s. The Anglophone East African countries took the lead by developing the RADDEX system that enables cross-border transmission of declarations data. Initiation of the concept occurred during the mid-1990s in a bid for Uganda to receive advance cargo information from Kenya and Tanzania. Serious efforts to develop a robust system occurred around 2005 with a joint in-house application development by Kenya and Uganda. RADDEX was then implemented in October 2007. The USAID extended support to enhance the system further. Rwanda and Tanzania were linked to the system in mid-2008 to exchange information with Kenya and Uganda. The system was also subsequently launched between Tanzania and Malawi in January 2010.30

Key observations

Automation of Customs processes was an important catalyst in reforming Customs administration processes and procedures in the early 1990s. Automation forces a structured operational discipline and in this instance, it seems to have eliminated some mundane and repetitive manual processes in the early 1990s. Implementation of automation during this period also introduced project management discipline in order to deliver the application within cost and on time. For example, that the majority of Anglophone African countries are already using or plan to implement ASYCUDA, suggests a high degree of comfort with a proven system and its implementation methodology.

Some Customs administrations in Anglophone Africa have noted a few challenges with the existing applications. For example, at an August 2009 IMF East AFRITAC workshop on Customs administration automation systems, participants pointed out a number of unavailable system functionalities which could strengthen controls and provide better value in using the IT systems. These are summarized in Box 2.

Despite progress in automation, full utilization of the automated systems’ functionality is still weak. FAD Customs administration missions have often observed less than satisfactory analytical use of the available Customs data especially in enhancing risk management approaches—the thrust is still primarily on transactions processing. Some administrations attribute this situation to the minimal data-mining capabilities of the applications but this is not necessarily true. Additionally, sharing of information between tax and Customs administrations is still very weak, despite the relative ease with which it can be achieved. The interface development between RADDEX and the dissimilar Simba 2005 and ASYCUDA platforms is an example what can be done to improve information exchange use electronic tools to enhance trade profiling for purposes of trade facilitation through risk management based approaches.

Some Challenges Encountered in Customs Administration Automation

  • Warehouse guarantee management—there is manual intervention in managing warehousing accounts rather than the systems performing the debits and credits automatically.

  • Manifest control—in some systems, only the package and weight of a consignment are used as key identifiers to reconcile the manifest. Key fields such as importer or taxpayer identification number are not used and the chances that a consignment with the same number of packages and weight are high.

  • Temporary imports—these may not have guarantee accounts assigned in the system. Some countries have designed workarounds, thus introducing system integrity and compliance risks through offline management of consignments.

  • Valuation—some systems are unable to assign values by item, and rather only assign the HS codes. Further, some systems do not have provision for a valuation reference database which means procuring separate systems and interfacing them with the primary application.

  • Selectivity—automatic updating of importer profiles is not available and is one reason for risk management approaches not being used systematically—they have to be created manually or using offline applications.

  • Reports—some systems do not provide for report access levels and rights, and report generation is not flexible enough to meet the requirements of the user, including generating the routine performance indicators.

Source: Proceedings of the August 2009 IMF East AFRITAC workshop on Customs administration automation systems held in Nairobi, Kenya.

IV. Broad Reform and Regional Trade Arrangement Impacts

A number of issues arise from the reform environment and efforts. This section outlines the key issues and impact of Anglophone Africa’s Customs administration reforms on a number of fronts including: revenue mobilization, regional trade arrangements, and the fight against corruption.

A. Impact on Revenue Mobilization

Despite the reforms, Customs duty collections in Anglophone Africa generally declined over the review period pointing toward a mix of low trader compliance levels, anecdotal evidence of high levels of exemptions and import preferences, and a lot of room for improvement. For the Anglophone African countries as a group, Figure 3 shows a general recovery of merchandise imports from a slump during the period 1997 to 2002 when they bottomed-out at 39 percent of GDP. A steady recovery is observed right through 2008. Customs duties as a percentage of GDP remained generally flat; and the rate of Customs duty recovery from merchandise imports (collected Customs tariff rate) declined from 16 percent in 1994 to 11 percent in 2008 despite generally high import levels. However, it is noted that for the country groups as a whole, collections showed some resilience during the period of import slump, contributing between 23–29 percent to total taxes (see Appendix Table 3). Customs duty contributions to total non-oil revenue also declined during the period and have not yet recovered to their pre-1995 levels of slightly over 30 percent. It should be noted, however, that individual country performance varies widely and no generalized conclusions can be adduced.

Figure 3.
Figure 3.

All Anglophone Africa—Merchandise Imports and Customs Duties (% of GDP)

Citation: IMF Working Papers 2011, 184; 10.5089/9781462309283.001.A001

At the individual country level, Figure 4 shows the collected Customs tariff rates for 1997, 2002, and 2008 sorted on the latest year. The receipts by Swaziland, Lesotho, Namibia, and Botswana stand out and clearly illustrate the impact of the Customs revenue pool in SACU— South Africa seems to receive proportionally lower pooled revenues. Nevertheless, contributions to the tax coffers of the SACU countries show an increase over the period, particularly in 2008. Of the other countries, the collected Customs tariff rates average about 6.3 percent—at the upper end, Sierra Leone achieved a collected rate of 16.7 percent; Kenya (6.1 percent) was just below the mean of 6.3 percent; and at the lower end is Ghana (2.4 percent) and Zimbabwe (1.9 percent).

Figure 4.
Figure 4.

Country Profiles—Collected Customs Tariff Rate (%)

Citation: IMF Working Papers 2011, 184; 10.5089/9781462309283.001.A001

Some quarters may argue that the flat nature or decline in revenue proceeds from imports is a deliberate policy to substitute the volatile import duties with domestic taxes, particularly the VAT. While this could be true, the inefficiencies observed in the Anglophone Africa Customs administrations suggest that the substitution could be occurring more by default than deliberate planning. Further, because Customs administrations collect import VAT on behalf of domestic taxes, and certify international trade transactions for purposes of input tax credits, the inefficiencies of Customs have a spillover effect to domestic revenue, consequentially putting it at risk. Therefore, in planning reform and modernization, countries should clearly assess the impact of Customs administration on the domestic tax base and accordingly take a keen interest in aligning the reform of interdependent functions and responsibilities.

Duty exemptions seem to have played a role in the decline of duty collections. Although a country-by-country analysis of exemptions on imports was not possible in this study, IMF mission visits to a number of Anglophone African countries have identified exemptions as a critical issue. These observations are supported by Culpeper and Bhushan (July/August 2010)—even though some of the countries cited are not in Anglophone Africa when they state that:

The prevalence of exemptions significantly undermines duty revenues. In 2006/7 in [sic] Tanzania, import tax exemptions amounted to 32 percent of total duty revenue. In 2006 in Burundi, 60 percent of imports were exempted either in part or in full from paying tax or duties resulting in a loss equivalent to 65.5 percent of duty revenues. In Ethiopia in 2007, customs exemptions amounted to 4.5 percent of GDP.

B. Impact on Ethics and Integrity

The prospects for effective customs administration reform and modernization in a corruption-riddled environment are dire as chances of success are more limited than in countries where corruption is more controlled. A comparison of 2008 and 2009 data on controlling corruption, the efficiency of Customs processes, and the collected tariff rate (see Table 9) shows mixed results. Better control of corruption does not necessarily translate into better Customs processes or a necessarily better collected customs tariff rate—reflecting varied trade policy intentions, tariff rates and the efficiency of compliance management regimes.

Table 9.

Comparing Control of Corruption, Collected Customs Tariff, and Customs Efficiency

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Sources: Table 5, Appendix 1, and Appendix 2-Table 5.

Range of: -2.5 = less control to +2.5 = better control.

Ranking: 1 = low to 5 = high.

Notwithstanding the assessment above, there is wide acknowledgement that corruption needs to be addressed. All the Anglophone African countries have implemented some form of anticorruption strategy, and are also signatories to international anticorruption conventions. It can be argued that a well designed and implemented Customs administration modernization program will go a long way to enhance integrity notwithstanding the societal values in which the Customs administration operates and the commitment to fighting the vice by the authorities. Imam and Jacobs (November 2007)31 note that those countries that have implemented comprehensive revenue reform and modernization programs have had a mitigating impact on corruption—in Anglophone Africa, examples would include Ghana, Rwanda, South Africa, Tanzania, and Zambia.

C. Impact of Regional Trade Arrangements

Most Anglophone African countries have to effectively manage trader compliance with rules of origin, but despite anecdotal evidence of the lack of capacity, many continue to negotiate more trade arrangements. Multilateral or bilateral trading commitments generally entail preferential tariff treatment of goods using defined rules of origin. In circumstances where a country is committed to more than one trading arrangement, each with different requirements, capacity to manage the multiplicity of rules of origin, and predictability for customs administration and traders become critical issues. The lack of capacity generally complicates tariff management and provides opportunities for origin fraud and abuse. With little likelihood of members pulling out of the multiple regional trade arrangements, and presumably minimal chance of harmonizing rules of origin, the remedy seems to lie in better inter-customs administration cooperation, supplemented by strong intelligence and risk management approaches, and robust information technology systems.

It is observed that opportunities for deeper inter-country customs cooperation have not been fully exploited despite countries being members of various trading blocs. These opportunities include: harmonization of customs processes and procedures; and joint intelligence and risk management systems through the extensive sharing of information on customs declarations, traders and passenger clearance. The regional electronic interface of customs automated systems is still in its infancy with successful attempts having only been made recently, for example, in the use of RADDEX to link the Kenya and Uganda automated Customs administration systems.

It is also of note that revenue pooling and sharing arrangements are proving to be a difficult issue in SACU and more recently in the EAC. In the latter case, the partner states had set July 1, 2010 to start collecting customs revenue at the first point of entry into the customs territory and then share it out using an agreed formula, just as SACU is doing. However, due to lack of agreement and preparedness, the measure was postponed to a future date. South Africa also called for the review of the SACU revenue sharing formula in early 2010 given the negative effects on imports revenue by the global financial crisis. There are indications that the 2002 formula is placing a larger burden on the country.32

V. The Outstanding Reforms Agenda

FAD TA support to a number of Anglophone African Customs administration reforms can be traced back to the mid-1990s. The guidance provided revolves around four key areas outlined in Keen 2003, namely: (1) establishing coherent trade policies and clear legislation; (2) adopting modern, simple procedures; (3) increasing self-assessment by traders, supported by a movement away from physical and toward post-release controls; and (4) ensuring organizational structures and human resources practices conducive to effectiveness and integrity in Customs administration. Further, that the Customs administration must be free of political interference, have a clear mandate in the law, and be organizationally placed so that it can interact closely with other branches of revenue administration.

A. Outstanding Reforms

The same reform issues addressed since the early-1990s are still observed to recur during the late 2000s. A review of FAD technical assistance assessments of Customs administration reform progress in 13 of the 19 Anglophone African countries33 during 2006 to mid-2010, identify common weaknesses and outstanding reform issues that may vary by country, but are still present in their Customs administrations. These are summarized in Table 10 below:

Table 10.

Summary of Outstanding Customs Administration Reform Areas

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Diagnostic assessments by the WCO that cover Anglophone Africa lend credence to the FAD findings,34 indicating that: (1) although most of the countries assessed recognize the principles of modern Customs management such as use of risk management, PCA, and advance binding rulings, implementation is still inadequate; and (2) a number of countries still focus on revenue collection and a large percentage of physical inspections, the latter stance reflecting some distrust of risk management techniques and the belief that more inspections mean more revenue.

B. Conclusion

Since the early 1990s, Customs administration reform progress in Anglophone African countries has been relatively slow and is yet to yield the desired revenue and trade facilitation impacts. Nevertheless, it is observed that countries with stronger economic and resource capacity such as South Africa have made considerable progress. Noticeable process improvements have also occurred in Ghana, Mauritius, Sierra Leone, Tanzania, and Uganda. Control of corruption is observed to be better in the SACU countries (other than Swaziland), Mauritius, Seychelles, and Rwanda. The latter also stands out as a strong reformer. The other key conclusions are:

  • Anglophone Africa’s Customs administration reforms have been prominent in the tariff and automation areas, with the latter also influencing process and procedural reforms. However, comprehensive reforms that impact revenue or trade facilitation in a significant way are yet to materialize.

  • Almost all Anglophone African countries recognized early the importance of automation in revenue administration reform. Implementation of Customs automation appears to have been more successful and lasting than the other reforms. ASYCUDA is the predominant automated system with the early versions having been implemented from the early-1990s. Automation also forced some process and procedural changes to fit the technology.

  • Customs administration reforms revolve around “efficient cargo management” which includes managing and facilitating the process flows, participants in these flows, and integrity of the supply chain and related processes. If efficiently managed through robust, simplified, and secure systems, the revenue and other benefits are consequential. This approach has implications for process development and associated TA to reforming countries.

  • Risk management principles were only just beginning to be implemented (post-2007) and are still in their infancy. They are an important input in focusing resources on areas of highest compliance risks. Additionally, automated risk management is so far available only in basic form and the use of more robust business intelligence tools would be beneficial. Focusing on cargo management using risk-based approaches is likely to yield greater benefits to reform-minded Customs administrations.

  • Customs reforms should be strategically aligned to those in domestic tax so that in facilitating trade and reducing the costs of doing business, gross margins can improve and consequentially domestic revenue. Moreover, with the international trend of declining taxes from international trade, strengthening domestic tax administration to recover all taxes due from taxpayers involved in international trade (and domestic) transactions becomes even more urgent. An approach to TA that supports a holistic and integrated tax, trade and Customs reform strategy appears indispensable for significant progress to be made.

  • A number of areas need further research, including: (1) the impact of Customs administration reforms on importation (and foreign direct investment) levels; (2) the extent that Customs administration reforms supported domestic tax revenue growth especially in the light of widespread reduction in tariffs; (3) potential benefits of aligning domestic tax and Customs administration reforms; (4) focus of future value-adding reform and TA; and (5) implementation compliance to the provisions of the Revised Kyoto Convention and the Agreement on Customs Valuation.

Customs Administration Reform and Modernization in anglophone Africa: Early 1990's to Mid-2010
Author: Mr. Justin O Zake