Mozambique

Author:Anthony Mwangi
Pages:49-64
SUMMARY

Background. Regional and Preferential Trading Arrangements. Economic Reform Program. Customs Reform Objectives and Innovative Approach. Funding. Key Institutional Reform Elements. External Support. Intertek Testing Services. Accompanying Trade and Fiscal Reform. Components of Reform. New Customs Code. Change Management. Staff, Pay, and Training. Integrity and Corruption Issues. Information and... (see full summary)

 
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Page 49

Mozambique's reform of its customs operations was initiated in a difficult postconflict environment, which was characterized by a substantial disruption of government services. The approach chosen was unique in that it relied heavily on outside contractors to manage customs services for some time while preparing national authorities to assume full responsibility for them. This experience contains useful lessons for other customs organizations that face similar circumstances.

Background

Mozambique is located in southern Africa and has borders with Malawi, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe. It has a population of 18.1 million and a total surface area of 489,192 square miles, with 2,841 miles of land borders and 1,535 miles of coastline.

Regional and Preferential Trading Arrangements

Mozambique is a member of the Southern African Development Community (SADC) and of the Cross-Border Initiative. Under the SADC trade protocol, many goods exported from Mozambique, largely raw materials, are exempt from duties in other SADC member countries. Mozambique has signed a preferential trade agreement with South Africa and is currently negotiating bilateral trade agreements with Algeria, Cuba, Egypt, India, Kenya, Malawi, Mauritius, Russia, Zambia, and Zimbabwe. Mozambique's exports enjoy preferential access to the European Union market (under the Cotonou Agreement) and to the markets of industrial countries in general through the Generalized System of Preferences. In addition, Mozambique's exports are eligible for duty-free import into the United States for commodities that qualify for the Africa Growth Opportunity Act. Mozambique is also a member of the World Trade Organization (WTO) and the World Customs Organization (WCO), and it has signed many of the agreements and declarations of those organizations.1

Economic Reform Program

After Mozambique achieved independence in 1975, its economy contracted severely during the next Page 50 10 years because of civil war and because of inadequate economic policies. In 1987, the government launched its Economic Rehabilitation Program with the support of the International Monetary Fund (IMF), the World Bank, and bilateral donors. The major reforms undertaken under the Economic Rehabilitation Program include (a) unifying and stabilizing the exchange rate, (b) eliminating most price controls, (c) privatizing public enterprises, (d) introducing extensive financial sector reforms, and (e) undertaking significant tariff reform and trade liberalization. Mozambique has made impressive economic gains under the program. During 1987-97, real gross domestic product and exports grew, on average, by 6.8 percent and 15.6 percent, respectively. However, Mozambique remains a relatively poor country-its gross per capita income was US$210 in 2001-with social indicators that are below average for countries in Sub-Saharan Africa.

A key component in the overall process of economic reform was the 1995 decision by the minister of planning and finance to reform and modernize the customs service, primarily to improve the government's revenue-raising capacities and to control trade and transit flows better. The key features of the reform were the creation of a special unit to initiate and oversee the reforms and the engagement of foreign companies to manage key parts of the reform process and implement preshipment inspection (PSI) procedures.

Customs Reform Objectives and Innovative Approach

The government initiated customs reforms to accomplish the following:

* Increase budget revenue. Customs revenues had been on a downward trend since 1992. In 1994, this trend accelerated when a large volume of imports was exempted from import duties under a variety of special programs. In addition, extremely high customs duties encouraged tariff evasion.

* Facilitate legitimate trade by combating corruption and smuggling:

- Domestic industries, the sugar and tobacco industries in particular, complained repeatedly that they could not compete with smugglers in the domestic market.

- Civil society criticized the government for a lack of transparency in customs operations, for poor management, and above all for a lack of perceived dedication to tackling corruption.

- Smuggling rings were firmly entrenched in Mozambican society, and many believed that without a drastic change in customs management, breaking them up would be difficult.

* Create a modern, effective, and reliable customs administration capable of sustaining and building on improvements made during the reform program.

During the end of 1994 and the early part of 1995, the government, together with multilateral donor agencies (in particular, the IMF and the World Bank), agreed on a drastic reform of the customs administration to enhance revenue mobilization and ease trade impediments. The approach selected to solve those problems was a combination of drastic trade liberalization and radical reform and modernization of the customs administration. The latter would cover all key aspects of the customs administration: legislation, structures, management competencies, operational methods, staff training, asset acquisition and management, auditing, enforcement, and a comprehensive anticorruption program. Novel aspects of the approach were to bring in external expertise to manage customs operations and to rely on PSI services to help determine the dutiable value of imports.

Funding

The U.K. Department for International Development (DFID) helped prepare the contract with Crown Agents (the details of which are explained later) and contributed about US$16 million of the total US$37 million cost of the first three years of the contract. The government financed the balance of US$21 million. The IMF supported the reform by providing a legal specialist from 1996 to July 1999. The World Bank provided financing for the Technical Unit for Restructuring Customs (TURC; Unitade Técnica de Reforma das Alfãndegas, or UTRA, in Portuguese) from its inception in 1995 until December 1999. The United Nations Development Programme paid for a customs specialist and a part-time macroeconomist.

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In view of the need to sustain and build on the successes of the first phase of the reforms, and following a comprehensive contract compliance investigation carried out by the DFID, the government approved a six-month extension to the initial three-year contract with Crown Agents, which was followed by a further contract of three years to consolidate the reforms. The cost of the extension and consolidation phases amounted to US$26 million, of which the government financed US$15 million and the DFID paid US$11 million. With the eventual scaling down of Crown Agents' activities, Crown Agents' fees fell substantially, and for the last year of the consolidation phase they amounted to only about one-third of what had been budgeted for the first year of that phase. The DFID also helped fund a further extension of the contract with Crown Agents for two years (starting in mid-2003), with the objective of strengthening the capacities of the customs agency and helping set up the Central Revenue Authority.

Key Institutional Reform Elements

The minister for planning and finance created TURC in 1995 to manage the reform process. A Mozambican senior manager headed the unit, supported by consultants provided by the IMF and the United Nations Development Programme. Although the private sector was not directly represented, its participation was ensured through strong coordination with the Customs Higher Technical Council, which has a large number of private sector representatives. Strong participation by the private sector in the reform was guaranteed when the proposed new customs legislation was discussed in the council. The plan was for TURC to manage key policy aspects of the ongoing work of the customs administration and to accomplish the following:

* coordinate customs restructuring and represent the minister of finance in all matters relating to customs reform, including serving as a liaison to both private and public sector institutions inside and outside the country

* coordinate the drafting of all customs legislation, including the Tariff Code and customs procedures

* establish the links required with other ministries in light of the needs of the customs restructuring process

* prepare and manage the bidding process for selecting companies that would manage customs services and carry out PSI of imported goods

* supervise the execution of the contract by the successful bidders to ensure that the government gained the maximum benefit from their services

* manage the computerization of customs services.

External Support

In 1996, TURC invited international bids for a company to implement the customs reform process. The major elements of the terms of reference were as follows:

* take over the complete management of customs, including training

* appoint key customs officials to perform the contracted functions in accordance with local employment laws

* supervise imports and other external trade operations subject to the customs legislation,...

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