The changing role of customs in developing and fragile countries

29/05/2015

By David Turney

The world is getting smaller; a global network of trade, communication and transportation is merging and integrating industries, societies, products, ideas and cultures. International trade in manufactured goods grew an estimated 100 times from $95 bn to $12 tn in the 50 years after 1955. Most countries have opened up their borders to attract trade and many are members of free trade areas and customs unions, such as the European Union and East African Community.

In the past, customs services were focused on tax collection at borders, but now they are removing barriers to facilitate trade. This means a reduction in customs revenue collected at borders, but on the other hand an increase in trade and economic growth, and higher domestic tax as a result.

However, domestic revenue mobilisation not only requires sophisticated procedures and systems, but also a diversified economy and a broad base of business activity. Increasing government revenue from domestic tax in the near term is therefore not an option for many developing and fragile countries. In these instances, customs services will continue to play a key role in revenue collection at borders, as well as supporting trade facilitation in the longer-term.

In South Sudan, conflict forced the suspension of oil production, which has dried up funds for basic public services and infrastructure. In addition to this, little confidence in the government, weak tax administration, and a large informal economy means domestic tax is hard to mobilise. The government is therefore reliant on customs revenues, predominantly at the border with Uganda, which accounts for 80% of its trade. Since the start of 2013, Adam Smith International has been working with TradeMark East Africa to help modernise the customs service.

This assistance has helped increase customs revenue in the immediate term by developing legislative and policy reforms, and implementing improved processes and procedures. The first quarter of 2015 saw the highest customs revenue collection ever, an increase of 56% compared to the first quarter of 2013.

Aside from raising immediate revenue, our technical assistance is also looking to the future, and the need to facilitate trade to support broad-based economic growth and higher domestic tax revenues. We helped create a modern organisational and human resources structure, strengthened ethics and integrity which encourages legitimate trade, helped establish inter-agency coordination of local and regional customs and border management agencies, promoted the adoption of a modern legal and policy framework, supported the introduction of a cargo management system at the border with Uganda, and are helping with moves towards a one-stop-border-post with Uganda.

This support for trade facilitation has already achieved a very important impact. Revised processes have been developed for the effective clearance of humanitarian aid. Up to 100 World Food Programme trucks cross the border from Uganda each day, and clearance times have been cut from an average of two to four days to less than one day, greatly speeding up the aid effort. This bodes well for service efficiency improvements in future that will facilitate trade more broadly.

Support to customs in developing and fragile states raises all-important revenue immediately, and can also pave the way for longer-term efforts to facilitate trade through service improvements, removal of trade barriers, and participation in regional customs unions and free trade areas. In this way technical assistance can support public finances in the immediate future, while also helping promote long-term economic growth that creates income and wealth, and a virtuous cycle of evermore stable public finances.