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Another step toward the creation of the African continental market: first multi-border customs transit bond issued in Zambia

In 2019, the African Export-Import Bank (AfreximBank) launched the idea of a continental transit guarantee system able to cover the risk of loss of import duties for customs authorities in the event that goods moving under a transit procedure and crossing the territory of more African countries, are diverted while in transit. The project, called AfreximBank African Collaborative Transit Guarantee Scheme(AACTGS), aims at promoting intra-African trade under the African Continental Free Trade Area (AfCFTA), by facilitating the movement of goods across the continent through the replacement of the multiple national bonds (which are expensive and cause unnecessary delays at the borders), with a more efficient system of regional or continental bonds/guarantees. Because of these objectives, the AACTGS is considered as an AfCFTA-flagship initiative, whose implementation is expected to produce cost savings for African companies of more than 300 million USD per year because of the reduced transit burden.

The main characteristic of the AACTGS, as its name suggests (African Collaborative Transit Guarantee Scheme), is that it will be implemented in collaboration with a group of local guarantors affiliated to AfreximBank, represented by insurance companies or other financial institutions in the different African countries, with the Bank acting as a regional and continent-wide surety providing transit bonds covering the full range of borders that goods are required to cross.

On 10 March 2021 AfreximBank concluded an Agreement with COMESA to pilot the initial implementation of such scheme in this region. This Agreement was intended to set a path for the progressive expansion of the ACTGS to other Regional Economic Communities (RECs) and, in future, to the entire Continent.

On 24th October 2023, Afreximbank officially announced the issuance of a first US$10 million transit bond in favour of an insurance company in Zambia (Innovate General Insurance), by committing to provide counter guarantees and boost the capacity of the latter to issue bonds to Clearing and Forwarding Agents in Zambia. This is expected to facilitate the transportation of goods across the almost 5,700 km of borders that the country shares with its 8 neighbouring States.

The ACTGS basically has two main modalities of intervention: 1) direct and 2) indirect.

In the direct modality, AfreximBank issues transit bonds directly to eligible beneficiaries including traders, freight forwarders, clearing agents or carriers, initially for coverage of intra-REC transit operations, and in future for transit operations at inter-REC level. The transit guarantee needs to be purchased by the beneficiaries in advance of the transit operation, and will be activated once the transit operation is commenced. In case of irregularities, Afreximbank refunds Customs of the revenue losses (customs duties and other taxes), by initiating a claim procedure towards the beneficiaries that obtained the guarantee. The transit bond will cover the actual duties and taxes that are supposed to be paid by the beneficiary and its cost will be covered by a premium to be paid by the bondholder to be calculated on the basis on its level of risk and the customs value of the goods.

In the indirect modality, AfreximBank will provide support to primary local sureties and national guarantors that already issue transit bonds at a local level, by sharing with them the risk of irregular discharge of transit through the offer of a counterparty guarantee or a reassurance, particularly for high-risk operations. Both the counterparty guarantee and the reassurance are specifically aimed at boosting the capacity of local financial institutions to issue transit bonds, by providing Customs with an additional guarantee underwritten by AfreximBank.

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