Egypt may join a $1bn continental transit guarantee scheme from AfreximBank

Egypt could join in a new $1 billion continental transit guarantee scheme from the African Export-Import Bank (Afreximbank), which is designed to encourage trade across Africa by improving tax collection and cutting back on trade costs.

The new scheme will “help remove bottlenecks” in implementing the new African Continental Free Trade Zone (AfCFTA) and could be a boon for trade through the Cairo-Cape Town highway, Kanayo Awani, AfreximBank’s Managing Director for Intra-African Trade, told The Africa Report.

AfreximBank recently launched the scheme with a pilot $ 200 million agreement to cover the COMESA region, which includes Egypt. Afreximbank aims to issue the first transit bonds in the third quarter of 2020.

What is the scheme?

The plan will see AfreximBank act as a regional and continent-wide guarantor for trade by providing transit bonds covering the full range of borders that goods are required to cross, Awani said. Transit bonds are a kind of ins. given to freight shippers to protect against the risk of goods being disposed of in transit countries.

Without regional transit assurance schemes, traders are required to obtain national bonds for each border they cross, driving up transit costs.

Africa currently has no regional transit framework, pushing transit costs in African countries such as Egypt to be more than 150 percent higher than the average in Europe.

Transit assurance provided by the African lender would enable businesses to release working capital otherwise tied up as collateral against transit bonds, while also accelerating the movement of trade exports. The scheme will also ensure that when goods make a U-turn, the duties and taxes due would still be settled.