Transit traders operating within the East African Community have begun the process of setting up an integrated track-and-trace (T&T) system for product movements across common borders to cut down on annual revenue losses of up to $6 billion across the region due to illicit trade flows.

The initiative is being led by the East African Business Council (EABC) based on options such as modelling it on a similar, fully digitised European Union system that is already functioning or requiring each EAC member state to establish its own T&T system first and then merge them for the region.

Bringing the idea to fruition will depend on discussions with the EAC secretariat and governments on the costs involved and how to cover those costs in a public-private partnership scenario.

There have been growing concerns that revenue leakages from counterfeit and contraband product exchanges, piracy, smuggling, paper-based documentation processes and other supply chain security deficiencies were seriously hurting profit margins in regional trade flows.

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Meeting in Dar es Salaam on May 15 to chart out a framework for a regional T&T project, traders from Tanzania, Kenya, Rwanda, Burundi, South Sudan, Uganda and the Democratic Republic of Congo pointed to several unique challenges to making such a system workable in the region.

They cited quibbles between countries over rules of product origin and questions over the financial capacity of small businesses including start-ups to go fully digital in the face of poot turnover and low profits.

The EU’s T&T system was established in 2019 to mainly monitor illicit trade in tobacco products, formed the basis premise for a day-long discussion. On the plus side, the EAC already has in place integrated Customs procedures, administrative and legal mechanisms to streamline cross-border trade

Hafiz Choudhury, an international tax consultant from US-based M Group Inc, pointed out that close coordination would be important in running a proper T&T system “within governments and between governments.”

“Based on the firm trade collaboration systems that already exist within the EAC, it shouldn’t be difficult for the same spirit to be applied in setting up a T&T system that benefits everyone from governments to traders,” he said.

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Cobus de Hart from Oxford Economics Africa, a South African business strategy think-tank, proposed that EAC countries pool monetary and technical resources to prop up the system under centralised management by the EAC Secretariat.

The EU system involves applying unique identifier (UI) codes on packs, cartons and shipping cases to monitor their real-time movement across borders and supply chain from production or importation to the first retail outlet.

Other key characteristics are anti-tampering devices on production lines, central repositories storing key data and information for EU member states to access and share for coordinated supply chain oversight, and enhanced aggregation capabilities to improve tracking throughout the process.

Rwanda already has a fully-fledged T&T system in place that is worth emulating by partner states of the bloc.

Nadia Berwa of the Rwanda Revenue Authority explained that the system was introduced with new digital tax stamps to keep tabs on the movements of imported or locally produced liquors, wines and cigarettes along the supply chain.

The stamps are affixed using automatic applicator machines at manufacturer’s location and the products are then fed into a production control system fitted with human machine interface, high-speed cameras, hand-held QR code scanning devices for activation, a mobile verification application that can be downloaded by consumers and RRA inspectors from Google Play Store, and other sophisticated software.

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“Through this system we can track and trace any substandard products on the market,” Ms Berwa said.

According to World Economic Forum estimates, illicit trade drains up to $2.2 trillion from the global economy, or 3 percent of global GDP, every year. Other adverse implications include the proliferation of food and beverage products that do not follow strict regulatory requirements on standards, health warnings, and ingredients such as illegal substances.

A recent EAC secretariat report showed that total intra-EAC trade grew by 11.2 percent from $9.81 billion in 2021 to $10.91 billion in 2022, while its percentage share to EAC total trade including other parts of the world stood at 15 percent in 2022.

On the other hand, the EABC reported last year that the value of trade between EAC countries dropped by more than 33 percent ($1.8 billion) from $5.4 billion to $3.6 billion in the same period, mainly due to declining trade in cereals and mineral fuels.

It was noted that while most EAC governments have adopted digital technologies such as electronic cargo tracking systems in recent years, their focus has been more on tax verification and tax stamp authentication rather than plugging loopholes in imports/exports declaration, rules of origin and Intellectual Property Rights protection across shared borders.

EABC executive director John Bosco Kalisa said the Council would sit down with the EAC secretariat to work on an action plan to take the integrated T&T system idea to the next level based on the workshop’s recommendations on fully digitizing regional product traceability, documentation processes, and data sharing between national enforcement agencies alongside tax administration.

However, de Hart of Oxford Economics Africa also cautioned that T&T systems were not a «silver bullet» solution to fixing the illicit trade problem but needed to go hand-in-hand with related mechanisms such as anti-counterfeit controls and harmonised trade and customs regimes.