By reducing the time and costs of trading, integrated transit mechanisms are important for boosting trade and enhancing competitiveness in landlocked countries. The net impact of reductions in trade costs – including through transit facilitation – on households, firms and governments, can be positive depending on how complementary investments and regulations are at the national and regional levels.

The adoption of the Transports Internationaux Routiers (TIR) system is one viable option to facilitate trade in the East African Community, particularly by increasing transparency in trade facilitation. Through the Export Promotion Council of Kenya (EPC) the Government of Kenya requested technical assistance from the Commonwealth Secretariat to develop a strategic action plan to institutionalise the Convention on International Transport of Goods Under Cover of TIR Carnets (TIR Convention), an international transit system.

Prevailing situation

Landlocked countries experience isolation, lack of territorial access to the sea, remoteness from world markets, and high transport and transit costs. These factors impose serious constraints on socio-economic development including trade competitiveness and the potential for productive integration in the global economy. Of the five countries in the East African Community (EAC), Burundi, Rwanda and Uganda are landlocked. In order to reduce the region’s cargo transit costs and delays, Kenya has taken an initiative to institutionalise international transit regime, TIR. Kenya’s standalone implementation of the TIR would have limited benefit and impact. To be effective, TIR should be rolled out within EAC.

The TIR initiative in Kenya should be a trigger for neighbouring countries, particularly EAC Member States, to also consider ratification. It is anticipated that the EAC Secretariat will recognise the advantages of the system for exports, through transit countries to African continental and global destinations. Intra-regional trade, which is of strategic importance to the East African region, is set to grow with the operationalisation of the Tripartite Free Trade Area (TFTA), the proposed African free trade agreement between the Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC) and East African Community (EAC). The TIR can increase transparency in the freight forwarding and trucking sector but governments might have to support entry in the market (by supporting upgrades to domestic fleets) and enhance competition (by reducing non-tariff barriers to logistic services) to allow the system to substantially increase the efficiency of trade logistics. Importantly, the TIR has the potential to add value to existing road transport instruments.

TIR landscape in East Africa

The geographical location of Kenya, combined with the status of Mombasa as a key transit port for neighbouring economies, particularly EAC Member States, as depicted in the map below, underlines the rationale for ratifying and implementing the TIR Convention. Both the Northern Corridor and the planned LAPSSET Corridor, fed by an enhanced Lamu Port, would derive significant benefit from a transit regime streamlined within a TIR environment. The planned improvements in Mombasa Port and the surrounding infrastructure should affirm the position of the facility as the principal transit port for East Africa, the implementation of TIR can only further support this desire. Additionally, planned multimodal innovation, particularly involving railway modernisation and expansion, would benefit from the TIR environment.

Multimodal operations are just as dependant on sound processes and procedures, of which TIR is one, for success as they are on infrastructure development. New transit regimes such as the Electronic Cargo Tracking System (ECTS), have proved to be important trade and transit facilitation innovations but much more needs to be done to reduce transit times and transport costs in the region. Transit delays are generally due to bureaucratic border formalities, lack of integrated border management and unreliable transport and/or haulage units. Leakage of transit cargoes into the EAC domestic economies is a concern for revenue authorities, which have introduced measures such as ECTS to mitigate this risk. As the only internationally recognised transit facilitation protocol, TIR would clearly enhance regional transit via Kenyan ports. The international guarantee and supply chain security elements would combine to improve cross-border trading systems involving transit.

Findings of feasibility study to institutionalise TIR in Kenya

The Export Promotion Council of Kenya (EPC) worked with the Trade Competitiveness Section of the Trade Division in the Commonwealth Secretariat to develop a strategic plan of action to institutionalise the TIR Convention.

Prior to developing the strategic action plan in 2015 a feasibility study was conducted. Through comprehensive research, discussions and stakeholder interviews it was concluded that significant benefits would accrue from the introduction of TIR as an option for transit arrangements, both in Kenya and in the EAC Region.

Kenya was ranked 74 in the 2014 World Bank Logistics Performance Index rising from 122 in the 2012 survey, and it was placed second in the top 10 low-income performers. The Trading Across Borders section of the International Finance Corporation’s (IFC) Ease of Doing Business Report for 2015 ranks Kenya at 153 against a ranking of 152 in the 2014 report. This slight fall may seem insignificant but it suggests that trade facilitation implementation may be stalling or slowing down. However, the Logistics Performance Index result is encouraging. Taken together these results suggest that appropriate trade facilitation tools may be required to address any slowdown in trade facilitation benefits. In the context of new initiatives the results also indicate the logistics environment has reached a level of maturity that would make the implementation of TIR very feasible.

All key stakeholders were engaged at all stages of the study. Several multi-stakeholder sensitisation and dissemination workshops were held in Nairobi and Mombasa. The TIR concept was well received as stakeholders recognised the trade facilitation implications of the introduction of TIR. There was general consensus on achieving export growth both for Kenya and regionally by facilitating cross-border trade and reducing the cost of transportation to enhance overall competitiveness. The TIR system was recognised as being a potential element of this process.

In order to meet TIR standards transport operators will have to be persuaded that increased investment in their fleets will benefit their businesses. The business case will need to be robustly articulated:

• TIR is seen as a quality guarantee and will attract increased business to the operator.

• Newer vehicles use less fuel resulting in considerable savings in variable costs.

• Newer vehicles will be more reliable, require less maintenance and give better value.

• Reduced border delays will provide for more efficient utilisation of vehicles.

• May be possible to link with Authorised Economic Operators (AEO) accreditation for transport operators.

• There would be sound economic and environmental benefits in encouraging procurement of new units focussing on funding mechanisms to procure TIR compliant vehicles and/or consider a possible leasing option.

Concerns were expressed that TIR could become an additional cost to trade rather than a facilitation initiative. Although this is not the case, it will be important to emphasise and quantify the benefits to trade of faster more efficient and secure transit operations. The key will be to control any tendency for transport operators to pass on the cost of fleet enhancement to the trade, as most traders may be unwilling to pay higher inland haulage costs. Any increase in average inland haulage costs could also adversely impact on Kenya’s rating in the IFC Ease of Doing Business report since it would run counter to the benefits of introducing TIR. Any cost-benefit analysis must be holistic and include savings as a result of elements such as improved supply chain security, reduced transit times, potential for lower insurance premiums and improved supply chain predictability for traders.

What are the advantages for Kenya?

The implementation of the TIR system will be an important catalyst for increased exports from Kenya. The feasibility study identified the following advantages:

• Reduced transit times and thus cost in relation to transit cargoes.

• Facilitation of exports and imports to and from trading partners in Europe, the Middle East and other regions where the TIR Carnet is in use.

• Mitigation of risk to transit cargo entering the domestic market and consequential loss of revenue.

• Adds value to multimodal operations, particularly as railway infrastructure comes on line.

• More competitive exports outside the EAC Region (and inside prior to full Single Custom Territory implementation.)

• Improved road haulage fleet, increased efficiency in road transport and environmental benefits.

• Incentive for regional harmonisation of practice for transit cargoes.

• Improved supply chain security with consequential benefit to Government of Kenya and trade.

• Improved supply chain security with consequential benefit to government and the trade sector.

• The TIR system is highly automated with applications that permit electronic predeclarations to customs authorities, risk management and real time traceability of the Carnet. The eTIR system should be able to link with national customs systems such as AYSCUDA and Single Window.

• Kenya will become the ‘thought leader’ on TIR in the EAC region and a central player in its implementation.

From the Kenya Revenue Authority’s (KRA) perspective initial indications are that TIR, as a trade facilitation measure will enhance risk management in relation to transit cargoes. The international guarantee system will cover leakages of transit cargoes when they do occur so that revenue due will be ultimately protected. Whilst the new system of duty pre-payment in Mombasa also mitigates risk of loss TIR could provide an efficient alternative or parallel system with added value benefits.

Due to the importance of Kenya’s economy in the region and the significance of Mombasa Port, Kenya should be an obvious choice for the first country to ratify TIR in sub-Saharan Africa. Consequential benefits of TIR will be greatly expanded if neighbouring countries follow this lead and ratify the convention.

Outcome of the Commonwealth Secretariat intervention

TIR appears to be feasible in Kenya and would also be beneficial to the region if implemented. Transit times and border procedures for exports out of the region via the coastal ports would be reduced thereby lowering costs and increasing export competitiveness.

Institutionalising the TIR initiative in Kenya will likely prompt neighbouring countries, particularly EAC and Northern Corridor Member States, to also consider ratification. It is anticipated that the EAC Secretariat will recognise the advantages of the system for exports through transit countries to African continental and global destinations.

Intra-regional trade, which is of strategic importance to the region, is set to grow with the operationalisation of the Tripartite. The TIR has the potential to add value to existing road transport and trade facilitation instruments.

Implementation of TIR for the region’s imports, if the regional legal framework allows, could enable goods moving under TIR to be released from the coastal ports very quickly. They would move under customs control with a secure guarantee, paying duties and undergoing final clearance at the final destination. TIR would therefore reduce border delays and help clear the ports. Importantly it would also solve the challenge around repayment of duties to another customs authority should goods disappear in the transit country after duties have already been paid in the destination country.

This intervention by the Commonwealth Secretariat has led the East African Community Secretariat to consider incorporating TIR in the EAC Transport Strategy and Regional Roads Sector Development Programme. The EAC Secretariat is also considering TIR as an option in its upcoming study of regional transit schemes, which is due to get underway in 2016. There is a move to propose the ratification of TIR to the EAC Council of Ministers as an option for trade facilitation, subject to any other required studies and stakeholder buy-in, including by the revenue authorities.

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Sujeevan Perera is an adviser in the Trade Division. He contributes to the design and implementation of initiatives related to trade facilitation, customs modernisation, supply chain audits, port productivity and market development and leads the section’s work programme on trade facilitation.

Trade Express shares information and lessons learned from recent Commonwealth Secretariat interventions. Articles discuss design and implementation processes; in particular, practical solutions for the perennial problems surrounding appropriate trade policy design, advocacy and strategic trade interventions.