The Africa Export Import Bank announced that it had issued the first ever bond under its Transit Guarantee Scheme. The bond, valued at $10 million, was issued in favour Innovate General Insurance, a Zambian company. It is expected to boost the company’s capacity to issue bonds to clearing and forwarding agents in the country.
Why it matters
African trade faces significant challenges that lead to higher costs and decreased efficiency. One major issue is the requirement to insure goods in transit through third-party countries against the risk of being held in those countries instead of reaching their intended destination. This forces traders to obtain bonds in each country the goods pass through on their way to the destination. As a result, transit costs in Africa are 63% higher on average than in developed countries and 135% higher than in Europe. Delays also cost traders an average of $450 per day, and the percentage of import value spent on freight costs is 11.4% in Africa, compared to 6.8% in developed nations. Overall, this system effectively imposes a $300 million surcharge on trade within the continent. Afrieximbank’s solution, the transit guarantee scheme, allows traders to transport goods through countries without the need to secure bonds for each country they pass through. This initiative aims to reduce trade barriers and enhance the efficiency of African trade.
Go deeper
Afreximbank’s African Collaborative Transit Guarantee Scheme (AATGS) was created by the bank with the aim of streamlining the movement of goods across various national customs borders. This initiative is geared towards enhancing efficiency and reducing the time required for border clearances. The US$1 billion Collaborative Guarantee Scheme is anticipated to boost cross-border trade in Africa, resulting in annual savings of approximately US$300 million in transit costs for the continent. As a Pan-African Multilateral Financial Institution, Afreximbank has the capability to empower national surety providers, enabling them to issue bonds at cost-effective rates and thereby facilitating intra-African trade under the African Continental Free Trade Agreement (AfCFTA).
The Collaborative Guarantee Scheme, a flagship initiative of AfCFTA, is being carried out in cooperation with the AfCFTA Secretariat and various Regional Economic Communities. The provision of this facility to IGI, which will facilitate the transportation of goods across its extensive 5,700 km of borders with eight neighboring countries, signifies the realization of the broader partnership between Afreximbank and the COMESA Council of Regional Customs Transit Guarantee (RCTG-Council).
What they are saying
Prof Benedict Oramah, President and Chairman of the Board of Afreximbank said “this milestone is a realisation of the aspirations of Africa’s foreleaders about six decades ago at the inaugural meeting of the Organisation of African Unity (OAU). We have, through this breakthrough, inched closer to the emergence of a single continental integrated market and dismantling the 110 borders that divided the continent into atomistic countries.”
Mr Luwa Luwabelwa, Director, Innovate General Insurance, also commented that “the capacity provided by Afreximbank is timely and will allow the issuance of more affordable transit bonds to its clients, who are Clearing and Freight Forwarding Agents and most of them are Small and Medium Enterprises.”