58871 investment climate April 2010 IN PRACTICE TRADE LOGISTICS no. 10 Ghana Leads West Africa in Transit Reform Cumbersome transit and customs procedures hinder trade and economic Luc De Wulf development. Ghana has modified several features of its transit system Luc De Wulf is a macro as part of efforts to improve road-based trade in West Africa. Since 2006 economist who in recent the country's transit reforms have cut the time to process and transport years has focused on trade facilitation and customs goods crossing the country from five to three days, significantly lowering management. He is the transport costs. Applying lessons from Ghana could catalyze broader co-editor of the Customs Modernization Handbook transit reforms in West Africa and other developing regions. published in 2005 by the World Bank. Complex border procedures increase the costs are not available, it is widely accepted that before This note is one in a series of importing and exporting goods. Members 2006 transit times for the 818 kilometers between developed by the Trade of the Economic Community of West African Tema and Paga (Ghana's border post with Burkina Logistics team of the World States (ECOWAS), as well as of the West African Faso) exceeded 5 days, with slightly faster times Bank Group's Investment Economic and Monetary Union and other regional for containerized trucks than other trucks. In and bilateral groups, have been discussing reforms late 2006 these transit times, including transit Climate Advisory Services. to facilitate transit in West Africa since ECOWAS formalities and documentation, fell to 3.3 days The series focuses on imple- members signed an agreement on inter-state road for containerized trucks, 3.4 days for non- mentation aspects of recent transit (ISRT) in 1982.1 containerized trucks, and 2.3 days for vehicles. trade reform initiatives and In 2008 transit times were further reduced to risk management issues. The In recent years Ghana has pursued aggressive 3 days for bulk and containerized vehicles.3 Trade Logistics team advises reforms to make its trade, port, and transit more competitive, often working with its landlocked governments in developing trade partners. In the second quarter of 2008 most Key reforms of ghana's and transition economies transit trade originating from Tema--Ghana's transit system on improving their import, main port--went to the landlocked countries of export, and risk management Burkina Faso (40 percent of the total), Mali (24 Following international best practices, Ghana's systems and procedures to percent), and Niger (21 percent).2 Tema competes policymakers sought to develop several features increase their potential for for transit trade with other port cities--Cotonou of a well-functioning transit system: (Benin), Abidjan (Côte d'Ivoire), Lomé (Togo)-- trade and investment. that originate shipments to the same countries. A sealing system for transport containers to ensure that trucks could undertake transit Ghana began reengineering its transit procedures journeys without discharging cargo inside the in early 2006, and reforms have significantly cut country and not need to be monitored by transit times and costs. Though pre-reform data customs officers throughout the journeys. Payment guarantees to ensure that customs transit guarantees were granted by several agencies could recover duties lost if transit goods were in Ghana. But in 2006 the State Insurance discharged inside Ghana. Company was granted a monopoly to do so, and the formula for calculating the guarantee fee was Authorization of operators to provide some changed from 0.5 percent of the value of the cargo guarantee that agents participating in transit to 0.5 percent of the taxes and duties at risk. No trade were well trained and followed guidelines. fee is charged for shipments that would have incurred no taxes and duties and for which Ghana's A documentation system to enable transit customs department does not request a guarantee documents issued at the start of transit from the transit operator. journeys to be accepted by transport and customs authorities along transit corridors. The State Insurance Company is now connected to the customs management system and has real-time Electronic tracking systems enabling access to the data needed to verify and release transit customs to locate transit vehicles and guide guarantees. Most transit bonds are now promptly intervention forces (including customs staff) released, and customs staff is being trained to enter if abnormal behavior was identified. all information at border crossings. Sealing system But these guarantees are currently valid only in Before 2006, transit shipments were sealed by Ghana. When leaving Ghana, a transit operator must customs to prevent goods from being removed from acquire a transit guarantee for the other country-- or added to trucks.4 Only containers were sealed in requiring another bureaucratic process and expense. Ghana, and non-containerized transit trucks had to Ghana's guarantee reform was intended to be a travel in convoys escorted by customs officers. first step toward instituting a liberalized "chain of guarantors" agreed to at a 2006 conference attended Non-containerized trucks accounted for 85 percent by most transit guarantors in West Africa. Under of shipments, and the slow and expensive system that agreement the transit fees paid at the beginning did not sufficiently protect duty-related revenue. of transit journeys would be shared between the Technical or mechanical problems affecting one guarantors of the countries through which transit truck stopped entire convoys. Trucks and paperwork vehicles pass. However, the agreement needs to come had to be aggregated for the entire convoy at border into effect in the landlocked partner countries. crossings. Escort officers often failed to perform their duties in supervising the cargo movement Authorization of operators along the corridor. Ideally, national transit organizations are responsible for regulating transit operators. Moreover, only In 2007 Ghana introduced a new system for operators that abide by transit rules, can mobilize sealing trucks after consulting with domestic transit guarantees, and operate acceptable vehicles truckers as well as the authorities and truck should be allowed to participate in transit trade. operators of neighboring landlocked countries. Ghana's government rejected a proposal that would Customs officers now supervise the sealing of have certified for transit only those vehicles meeting trucks at the beginning of their journeys based on criteria such as roadworthiness, safety, and quality ECOWAS ISRT procedures. Each container is standards. This position was taken both for political sealed with a conventional lock, eliminating the reasons--excluding some transport vehicles would need for more technologically sophisticated raise strong opposition from the transport sector-- techniques. Non-containerized trucks are sealed and because the region does not yet have the with tarpaulins held with nylon straps attached to necessary harmonized regulations nor reliable testing metal rings on the body of the truck--a low-tech procedures. Instead, Ghana chose to authorize a system that has proven to be highly reliable. selected set of owners and their vehicles. Payment guarantees Documentation system Guarantee bonds are usually issued to ensure that Customs departments should have reliable a customs department receives import duties, documentation systems for controlling the start taxes, and other charges if shipments are unloaded and end of transit procedures. Documents issued unlawfully in the country of transit. Historically, by customs authorities at the origin of transit IN PRACTICE TRAdE logIsTICs 2 shipments should be verified by customs posts in Leveraging Ghana's example each transit country, permitting the timely lifting Ghana's evolving national transit system can inspire of the guarantee bond attached to the shipment. reforms elsewhere in ECOWAS. Some progress has In Ghana document flow was entirely manual been made: before an electronic system was introduced. Transit guarantees could be freed only when Truck sealing. Sealing methods for trucks in paper-based proofs of exit of transit operations Burkina Faso and Mali are evolving to meet were physically returned to customs headquarters those in Ghana, and regional momentum should Progress on regional in Accra or Tema. increase once a regional tracking system under development becomes operational (see below). transit issues can only The transit module of the new customs management occur with greater system was launched at Paga in 2006, connecting Payment guarantees. In 2006 ECOWAS the border crossing to the customs authorities members adopted a proposal to create a cooperation between in Tema. By February 2007 all external border chain of eventual guarantors and fee-sharing posts with transit journeys originating in Tema arrangements covering all transit through national customs were electronically connected to the customs West Africa. In March 2009 the transit authorities. management system. Transit guarantees are now guarantors of Ghana, Burkina Faso, and Mali released immediately on arrival at a Ghanaian border signed an agreement to settle all outstanding crossing. Also, the system was modified to permit issues so that the system can be activated as trucks that transport sub-consignments--those soon as the ISRT becomes operational. covered by one customs declaration and bill of lading--to depart as soon as the individual transport Documentation. The West African Economic vehicle is ready, without having to wait for other and Monetary Union (WAEMU) is trucks covered by the same customs declaration. spearheading efforts to initiate the IRST, based on electronic sharing and exchange Electronic tracking systems of the appropriate documentation, and has Lacking a modern vehicle tracking system, Ghana's focused on creating such a system in specific customs department operated several mobile corridors rather than across the WAEMU control units. But those units led to complaints or ECOWAS. The IRST convention signed of harassment and demands for bribes. So, since between the authorities of Ghana, Mali, and September 2007 the customs service has used Burkina Faso in May 2006 is a first step. transponders to track transit trucks between Tema But this convention still needs to be ratified and Paga in real time. by Ghana's Parliament. Once that happens, the electronic ISRT could become effective A public-private partnership company (GCNET) as soon as the electronic infrastructure is in that also operates Ghana's single window for goods place along the trade corridor to ensure that declarations runs the tracking system. Each transit IRST electronic documents travel seamlessly vehicle pays a fee for this service, a cost that is through the customs management system approximately the same as what was formerly paid with full legal validity. for the customs escort. In addition, cameras installed at Ghana's territorial entry and exit points, as well Tracking systems. Ghana and Mali are as inland transit check points, verify the integrity studying the extension of Ghana's satellite- of transit vehicles and their loads. based truck tracking system throughout their segments of the Tema-Bamako corridor. In the meantime Mali's transport and customs Lessons--and suggestions authorities are testing another GPS-based for regional reform system, which if approved would be adopted in late 2010. Installing the same system Effective policies to increase regional transit require region-wide could lead to significant benefits cooperation between landlocked countries and and synergies. those with access to sea and port facilities. Although members of ECOWAS signed an agreement on the Involving customs administrations. Progress ISRT in 1982, significant steps toward regional on regional transit issues can only occur with reforms remain limited in the ECOWAS region. greater cooperation between national customs IN PRACTICE TRAdE logIsTICs 3 in PRAcTice authorities. Controlling customs risk in a when-needed basis. This experience, including regional transit requires high-level cooperation the project's underlying legal framework and The Investment Climate IN between the customs administrations of the operational modalities, could inform the plans for different countries. The transit program being other juxtaposed border posts in the region. Still, PRACTICE note series is published initiated by the WAEMU, ECOWAS, and much preparatory work will be needed before more by the Investment Climate national transport authorities would benefit such border posts can be opened. Advisory Services of the World from greater involvement by the national Bank Group. It discusses practical customs authorities. considerations and approaches conclusion for implementing reforms that Addressing regional issues A number of issues need to be resolved before regional Ghana's transit reforms have streamlined and aim to improve the business transit issues can be streamlined. modernized the country's customs and transit. environment. The findings, Though Ghana's progress on its national transit interpretations, and conclusions Reducing nontariff barriers. Nontariff system has not come easily, the main elements of its included in this note are those of barriers along transit journeys--especially transit reforms can be reproduced in countries where the author and do not necessarily the many inspections, document checks, and there is the necessary political will to overcome reflect the views of the Executive related bribes--have long attracted complaints resistance to change. from transit operators in the region. This Directors of the World Bank or the situation creates substantial delays, raises the The spread of Ghanaian transit reforms also shows governments they represent. cost of doing business, and ultimately makes that reforms in one country can create a foundation countries and businesses along the transit for more widespread regional reforms. Reforms in corridor less competitive. Data collected by the each of these critical transit elements are being About the investment West Africa Trade Hub indicate that the costs evaluated, and in some cases adopted, by other climate Advisory and delays of these nontariff barriers have not West African countries, particularly by Ghana's major improved in recent years.5 trading partners, Burkina Faso and Mali. Much work services remains to be done, however, to simplify transit and Replacing anticompetitive practices. trade in West Africa. A great deal of coordination The Investment Climate Advisory Anticompetitive practices such as rigid between the countries--with the full participation Services of the World Bank Group transport business fixed shares must be of their customs administrations--is still required. helps governments implement replaced with practices that encourage Nontariff barriers need to be reduced to make competition among transport operators. the most of the hard-won transit improvements. reforms to improve their business The reduction in these sharing agreements For more information, contact Uma Subramanian, environments and encourage and has significantly reduced transit fees in Global Product Leader, Trade Logistics (usubramanian@ retain investment, thus fostering countries that have abandoned this practice. worldbank.org). competitive markets, growth, and Governments should lean on their transport job creation. Funding is provided sectors to liberalize this trade and foster by the World Bank Group (IFC, external competitiveness. endnotes MIGA, and the World Bank) and Several countries in the region have agreed in 1 See ECOWAS Commission web site: http:// over 15 donor partners working principle to operate one-stop border posts in which www.comm.ecowas.int. through the multidonor FIAS the border agencies of the neighboring countries 2 Data provided by Ghana Community platform. would work together to streamline border-crossing Network Services (GCNET). operations. Under the guidance and assistance of 3 Ibid. the WAEMU and after many years of preparation, 4 For illustrative purposes, this discussion a border post on the Burkina Faso­Togo border is focuses on road transport. expected to be operational in 2010. Each country 5 The most recent data on nontariff barriers will take responsibility only for incoming traffic, are available at the West Africa Trade Hub and sharing of information will take place on web site: http://www.watradehub.com. International Finance Corporation World Bank Group WWW.WbGinvesTmenTcLimATe.oRG