African governments are increasingly talking with multinational companies about ways to improve their countries’ business and customs environments, according to Charles Brewer, the sub-Saharan Africa managing director of mail services company DHL Express.
According to Brewer, when DHL first entered the African market 34 years ago, a lot of effort went into trying to meet with African government officials to try and talk about reforming customs regulations and policies to improve the country’s trade and business environment.
“I think the biggest change, over the last 34 years, is that more and more of those same governments are now coming to us and saying, ‘help us to be significantly better’,” said Brewer in an interview with How we made it in Africa.
The 2012 DHL Global Connectedness Index – which measures and analyses the global connectedness of 140 countries by their participation in international flows of products and services, capital, information and people – ranks sub-Saharan Africa as the least connected region in the world. Nevertheless, the top five countries to increase their performance in these rankings were Mozambique, Togo, Ghana, Guinea, and Zambia.
Brewer said that an example of how African governments are taking steps to try and improve their business environment and connectedness can be seen in a recent visit by Gabon’s customs officials to Nigeria. The Global Express Operators group, of which DHL is a founding member, identified Gabon as the most problematic customs environment in the world, ranking it at the bottom in terms of the average number of days that it takes a dutiable item to get through customs. For this reason Gabon officials, with DHL, visited Nigeria to look at, and learn from, one of the better performing customs environments in sub-Saharan Africa, according to Brewer.
“In the past we would have had to beg and really push to try make that happen, but now they are coming to us and saying we really want to learn how to be better,” added Brewer. “They fully recognise that the easier it is to bring goods in and out of a country, the more sustainable your economy is going to be, the more business you are going to do, and the more trade you are going to have.”
DHL’s Connectedness Index ranks Morocco as the top African country, in 38th place, out of 140 countries in terms of global connectedness. South Africa (48th) is the highest ranked in sub-Saharan Africa and is in third place in Africa, just behind Mauritius (46th). Nigeria follows South Africa at 49th place.
Brewer, who is based in Cape Town, said that South Africa has both positives and negatives in terms of its customs environment.
“On the positive side they have a reform programme in place right now. It’s called the Customs Modernisation Programme, which is all about trying to make the customs environment the best it can be. That’s really positive.”
However, South Africa lacks a formal de minimus, which is the value threshold at which one can bring goods into a country without incurring duties and VAT. Angola is the only country in sub-Saharan Africa that has a formal de minimus and the rest, including South Africa, operate under an informal de minimus, which can be described as a gentleman’s agreement between express operators and customs on a certain value.
“So it’s like going through the green lane at the airport, that’s what we refer to as a de minimus in the industry we work in,” explained Brewer. “If you have a high de minimus (the value is high) lots of goods coming into the country come through the green lane and are at your door – whether you are a personal shipper or business shipper – very quickly. If you have a very low de minimus, the goods coming into a country sit at customs, there are physical inspections, there is a high charge to you as a recipient on duty and VAT, and it takes time for it to come through.”
Australia is an example of how a higher de minimus can increase a country’s trade. In 2010 Australia increased their de minimus and imported goods to the value of AU$1,000 (US$1,021) were exempt. “This led to the exponential growth of inbound shipments and, more importantly, resulted in the culture of online shopping in Australia maturing overnight,” according to Brewer.
South Africa has an informal arrangement where they allow goods up to the value of R500 (US$55.10) to be duty-free. “You can’t buy an awful lot that’s less than R500,” said Brewer. “So in essence what South Africa is saying to an importer and someone shipping into South Africa, is that anything you send is going to go through formal clearance (which takes time) and will have a high duty and VAT. It kind of puts you off doing it.”
Brewer added that e-commerce and online shopping can be seriously impacted by this. “If you wanted to buy something online in South Africa and bring it in; if it’s more than R500 you are going to have to have it sit in customs and pay high duty and VAT and in many cases that’s 50-75% of the cost of transportation. So it’s more expensive to buy the polo shirt online than it is going to the V&A Waterfront [in Cape Town]. You just don’t bother.”
“And secondly, linked to that, you can only do it three times as a personal shipper before you have to register as a formal importer,” continued Brewer. “Which is making doing business globally in South Africa, and in Africa generally, quite complex, quite cumbersome, slow and very expensive.”
Brewer concluded that the tricky customs regimes seen generally across Africa can be detrimental to a country’s business environment. “The sooner Africa recognises that one of their roots to sustainable economic growth is having good, free, connected, easy borders – the better.”