Launching the COMESA Customs Union: The Secretary General Talks

TNI: The launch of the Customs Union has been postponed several times in the past. Why is now the time right to launch the Customs Union? Ngwenya: The launch of the COMESA Customs Union has become an irreversible process. First and foremost, what is forgotten in Africa is that regional cooperation, regional economic integration is essentially a politically driven project. Politically driven on the basis of shared values and objectives in terms of creating wealth, in terms of creating a zone of prosperity. The financial crisis, which resulted in one of the worst global economic recessions, is also a wakeup call for our countries because what is being demonstrated through regional integration is that there have been no cancellation of orders for products traded within the region although we know there has been cancellation of orders for exports outside because demand for our products is now depressed. We also know that it is difficult for us to get credit – trade credit there is an estimated shortfall of anything from US$80-100 billion in terms of trade financing but we have also launched our Regional Payments and Settlements System which will no longer use letters of credit because it will be financed through the accounts by commercial banks which are pre-funded by central banks. In the current trade of US$15.2 billion, we estimate that the region has been paying US$500 million for confirming letters of credit and the trade transaction. Now we estimate that our clearing house is going to reduce that trade (there will be a 1 percent or less transaction fee – because they still have to charge for the service) US$75-80 million. So all these combination of factors have situated the customs union in a better position because it is not only the CU but also supported by financial payment facilities that we have established. TNI: How do you expect to collect and distribute revenue collected? Ngwenya: It is very simple. You can collect revenue from customs duties at the port of entry, then you transfer it to the destination country. This will be achieved in the medium term as it would require that COMESA puts in place a revolving fund which will ensure that the revenue is promptly transferred to the receiving country. If you collect US$20 million, you transfer US$20 million to that country. It will work because we launched the Regional Payments Settlement System in Victoria falls, which can be used to credit the account within 24 hours. In fact, governments will be better off under that revenue collection system because at times it takes about one month for goods to move in transit from the port of entry to the country. In the mean time the government does not have revenue. Whereas if you collect it there, within 24 hours the government will have the revenue. Now the second way to collect revenue is to collect revenue and put it in a common pool where you distribute it according to a formula. Now we cannot do that at this point in time, for the simple reason that our governments still depend heavily on trade taxes but this is the ultimate objective of COMESA. TNI: How will COMESA facilitate this process? Ngwenya: In order for us to fast track revenue collection and forward, it to the recipient countries, we suggest that under the aid for trade programme – in partnership with the EU, our biggest partner – we could set up a revolving fund which is not going to be a grant, but which is going to be used only to make sure that the monies are paid. If you put up a revolving fund for US$200 million you should be able to get the governments to get all their money, because you have a fund from which you are paying what has been 7

collected, and you then put the money that you have forwarded into that revolving fund, and then do away with transit and all these problems. You do away with the current problems of goods in transit that get diverted into transit countries and cause injury to domestic businesses that are paying their taxes. It will also eliminate the corruption that is associated with the movement of transit traffic – some of these reforms will strike at the core of corruption. (…)

Link to: http://ictsd.net/i/news/tni/54826/