BUSINESS PROCESS ANALYSIS - International …...Introduction 1 Chapter 1 Trade context for BPA in...

BUSINESS PROCESS ANALYSIS

EXPORT OF PULSES AND SPICES FROM ETHIOPIA

BUSINESS PROCESS ANALYSIS: EXPORT OF PULSES AND SPICES FROM ETHIOPIA

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Acknowledgements

Md. Tariqur Rahman, international consultant, is the author of this report. He was assisted by Tilahun Esmael Kassahun, an Ethiopia-based national consultant, for this study. The authors are solely responsible for the information and views presented in the report.

The consultants’ team acknowledges with gratitude the contributions of a number of people towards the process of this business process analysis (BPA), without whose participation the project would not have succeeded.

The authors would like to express their deep gratitude and appreciation to Andrew Huelin, Associate Programme Adviser, Trade Facilitation and Policy for Business (TFPB), International Trade Centre (ITC), Geneva, for his overall oversight, feedback and in-depth comments and guidance from the inception to the finishing of the report, including his participation in field interviews in Ethiopia and Djibouti.

The authors also benefited from guidance of with Rajesh Aggarwal, Chief, TFPB, ITC Geneva and Mohammad Saeed, Senior Trade Facilitation Adviser, TFPB, ITC.

Vanessa Finaughty edited the report and Isabelle Jouve, Associate Programme Adviser, TFPB, ITC, prepared the copy for printing.


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Contents

Acknowledgements iii Acronyms and Abbreviations vii

Introduction 1

Chapter 1 Trade context for BPA in Ethiopia 4

1. Overview of Ethiopia’s export performance 6 2. Methodology of the study 7 3. Review of literatures 8

Chapter 2 Analysis of export processes and procedures of selected items from Ethiopia 9

1. Export process: Pulses and spices exports from Ethiopia 9

Chapter 3 Concluding observations and policy options 15

Annex Buy: Finalize purchase order 17

References 50

Table 1. Major economic indicators of SITA countries in 2014 4 Table 2. Over time change of export process in Ethiopia: WEF 5 Table 3. SITA countries: Logistics Performance Index 2014 5 Table 4. Comparative statistics of trading across borders indicators for SITA countries 5 Table 5. Trend of Ethiopian pulse exports (FOB value in ‘000 US$) 6 Table 6. Trend of Ethiopian spice exports (FOB value in ‘000 US$) 7 Table 7. Time procedure for exports from Ethiopia 12 Table 8. Core business process and stakeholders involved in the export process from Ethiopia 13 Figure 1. Use case diagram of core export processes from Ethiopia 12


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Acronyms and Abbreviations

Unless otherwise specified, all references to dollars ($) are to United States dollars, and all references to tons are to metric tons.

The following abbreviations are used:

GDP Gross domestic product EEPA Ethiopian Export Promotion Agency ERCA Ethiopian Revenues and Customs Authority ESA Ethiopian Standard Agency WTO World Trade Organization TFA Trade Facilitation Agreement TF Trade facilitation WDI World Development Indicators ITC International Trade Centre EPOSPEA Ethiopian Pulses, Oilseeds and Spices Processors-Exporters Association TTM Trade Transaction Modeling UML Unified Modelling Language C&F Clearing and forwarding L/C Letter of credit MINAGRI Ministry of Agriculture and Animal Resources CFA Clearing and forwarding agent PO Purchase order NBE National Bank of Ethiopia COQ Certificate of quality TIN Tax identification number EIR Equipment interchange receipt


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Introduction

Ethiopia is a landlocked country situated in the Horn of Africa. With an area of 1.14 million square kilometres, it is the African continent’s second biggest country. Ethiopia is bordered by Somalia and Djibouti in the east, Sudan in the west, Kenya in the south and Eritrea in the north. In 2014, Ethiopia was the second fastest-growing economy in the world, with a gross domestic product (GDP) growth rate of 10.28% (WDI, 20161). Although the country is still one of the poorest countries in the world, with a per capita GDP of only US$ 573 in 2014, over the period of 2003 to 2014, it has managed to achieve an astonishing 11% GDP growth rate on average. The country is predominantly an agrarian where agriculture contributes more than 70% in total employment and more than 40% in total GDP. The share of international trade to its GDP is more than 40%, of which imports contribute more than two-thirds. This high share of imports to exports creates pressure on the foreign exchange management for Ethiopia. In this backdrop, it is crucial for the country to enhance its foreign earnings where increase of export can play a vital role.

Ethiopia has a diversified climate that is suitable for production of a variety of crops. Historically, the country is famous for its production of spices and pulses such as cumin, pepper, coriander, ginger, turmeric and so on. Now, these items can be a major source of export earnings for the country. However, the export and import procedures for items are quite long and cumbersome, which undermines the country’s competitiveness in the global market. In the face of sharp reduction of tariff in international trade, one of the major sources of increasing competiveness for the traded items of any country remains in the ability to supply goods in the fastest possible time. This fact has shifted the focus of any country towards improving the status of trade facilitation measures.

Countries that are pursuing trade-led economic growth and development, improving the preconditions of trade across borders, such as problematic regulatory procedures and documentation, inefficient transport and logistics facilities and services, are crucial. Countries can improve their competitiveness by reducing the time and costs required for completing documentary and regulatory requirements involved in the process of exporting or importing any goods. Sometimes, these costs can be a substantial part of the value of the traded items, especially if the value of time required is taken into account. The significance of trade facilitation by simplifying the regulatory process and procedures of cross-border trade, improving the conditions of transit procedures, and increased and efficient use of information and communication facilities has gained momentum and due importance in recent times.

Completion of any cross-border trade requires fulfilling regulatory and documentary requirements involving parties from both private and public sectors. To perform any such transaction completely, it requires harmonization and cooperation among many actors, service providers and regulators from both home country and partner country. Failure to meet these regulatory and documentary requirements or lack of proper coordination among the actors involved entails significant delays to complete the whole process of importing and exporting, which eventually increases the costs of the items being traded. Improving the procedural and regulatory requirements through necessary reforms such as reducing the amount of certification needed and decentralization or online availability of services can have a significant impact on the predictability of the whole business process and profitability for the parties involved.

In general, although parties involved in cross-border trade are aware of the importance of rationalization of procedural requirements for import and exports, only a few of them have in-depth understanding of the whole process. This lack of complete understanding of the whole process makes it harder for policymakers and other stakeholders involved to scrutinize and improve the loopholes. On top of that, the efficiency of these steps varies based on the specific nature of the products being traded. In this background, carrying out a detailed analysis of procedural requirements examining all commercial, transport, regulatory and financial procedures along with time and costs involved at each step can help to identify and address the areas and scope to improve the whole process. For this purpose, a product- or item-specific business process analysis (BPA) can serve as a systematic approach.

1 World Development Indicators (WDI) (2016). The World Bank. Available from http://data.worldbank.org/data-catalog/world-development-indicators (accessed on 21 March 2016).


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Being a landlocked country, Ethiopia is already in a disadvantageous position in carrying out international trade, as it has to use another country’s seaport, for example, Djibouti. To sustain the impressive growth performance, Ethiopia needs to improve its competitiveness in international trade as well. One of the policy options in this regard can be reforming its administrative and procedural requirements in the process of service delivery. In this endeavour, this product-specific analysis of the export process for pulses and spices is hoped to assist the policymakers and stakeholders to identify areas of improvement in the coming days to stay ahead of the global export market for these particular items.


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Chapter 1 Trade context for BPA in Ethiopia

The Federal Democratic Republic of Ethiopia is the second largest country in Africa, with a population of slightly more than 100 million. The country is one of the poorest countries in the Horn of Africa and is trying to change that by achieving accelerated economic growth by leveraging industrialization and international trade both at global and regional level from its predominant agrarian economy. Recently, the country is maintaining a high economic growth and is among the top 10 performers in terms of growth of gross domestic product (GDP). In terms of major economic characteristics, Ethiopia resembles its neighbouring countries, but it is still falling behind the Sub-Saharan standards on many frontiers, such as per capita GDP, and trade to GDP ratio (table 1).

Table 1. Major economic indicators of SITA countries in 2014 Indicator name Ethiopia Rwanda Kenya Tanzania Low income Sub-Saharan

Africa2 GDP per capita (constant 2005 US$) 445.62 314.52 658.71 600.66 415.67 1 045.86

GDP growth (annual %) 6.96 9.94 5.33 6.97 6.22 4.24

Agriculture; value-added (% of GDP) 33.12 42.33 30.27 31.47 32.30 13.96

Industry; value-added (% of GDP) 14.36 15.43 19.36 24.99 21.54 27.61

Manufacturing; value-added (% of GDP) 4.84 4.17 11.11 6.09 8.71 (2013) 10.95

Services, etc.; value-added (% of GDP) 52.51 42.25 50.37 43.54 46.16 58.40

Trade (% of GDP) 45.48 41.18 50.28 49.37 65.18 61.80

Merchandise trade (% of GDP) 40.47 43.09 40.07 34.64 51.79 48.10 Source: WDI (World Development Indicators), The World Bank (accessed on 25 November 2015).

Following trade liberalization and removal of other restrictions such as quotas, international trade of all types of goods and services have increased rapidly. Without ensuring effective and efficient movements of goods, countries cannot reap the highest benefits from the trade liberalization. This cross-border movement of goods requires meeting a vast number of national and international rules and regulations applicable both in the exporting and importing countries. Fulfilling these rules and regulations very often involves burdensome documentation involving a number of stakeholders from both private and public sectors, which delays the whole process. For exporters and importers, failure to meet these requirements properly delays the process of sending and receiving goods between them. This increases the costs by adding more time to the whole process. This extra cost of transferring goods from one country to another country reduces the profitability of the parties involved (IFC, 2006).

Along with its natural disadvantages of being landlocked, doing business in Ethiopia is costly due to high costs of transaction, transportation and administration (Teklu & Negus, 2011). Kassahun (2015) also pointed to the high cost of doing business across borders as one of the major challenges for Ethiopia in doing cross-border trade. With regard to trade facilitation indicators, Ethiopia performs significantly better than the average of Sub-Saharan African and low-income countries in areas such as streamlining procedures, harmonization and simplification of documents, and automation. Ethiopia has already started using ASYCUDA++ at multiple border crossings and the Ethiopian Revenue Authority (RRA) has a call centre to provide adequate and timely responses to traders. As a national enquiry point and notification authority, the Ethiopian Standard Agency (ESA) provides importers and exporters with the latest information on standards, technical regulations and conformity assessment procedures available in the Ethiopian market and other external markets targeted by Ethiopian exporters. However, Ethiopia is still not a signatory of the World Trade Organization (WTO) Trade Facilitation Agreement (TFA) at Bali in December 2013, which is hoped to reduce border transaction costs for Ethiopian exporters and importers, which could be taken as a commitment from Ethiopia to improve the status of trade facilitation (TF).

2 All income levels.


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Ethiopia is trying to boost its regional and international economic integration through a private sector-led economy. Being landlocked is a major disadvantage for Ethiopia to be competitive in the international trade, as exporters have to go through other countries (mostly Djibouti) to ship their goods, which adds a substantial cost, with high transport costs and procedural delays. In this endeavour, the government has taken a number of initiatives to simplify the international trade process and procedures, such as establishing a single-window system for customs clearance, which has already generated noticeable benefits for traders. However, from table 2, we can’t see much improvement during the 10 years in the case of the export process.

Table 2. Over time change of export process in Ethiopia: WEF (1=extremely inefficient to 7=extremely efficient)

Indicator name 2005 2010 2013 2014 Documents to export (number) 8 8 8 8

Time to export (days) 47 45 44 44

Cost to export (US$ per container) 2 037 2 180 2 180 2 380

Burden of customs procedure N/A 3.63 3.1 2.9 Source: World Development Indicators (WDI), The World Bank (accessed on 25 November 2015). Note: Burden of customs procedure (1=extremely inefficient to 7=extremely efficient).

To promote Ethiopian exports, the Ethiopian Export Promotion Agency (EEPA) has been established. The EEPA provides different services including improving export procedures, export training, conducting market research for export items, matchmaking of Ethiopian exporters with foreign buyers, providing trade-related information, and participating in regional and international trade fairs. The EEPA also scrutinizes rules, laws and regulations to make export-related requirements and instructions conducive for exports. As a country, Ethiopia is not such a high performer, even in terms of regional comparison. Ethiopia only outperforms Tanzania when it comes to logistics performance or efficient handling of cross-border trade (table 3 and table 4). The country performs very poorly compared to high-income countries. Even in comparison to other nearby countries such as Rwanda or Kenya, Ethiopia takes quite long to handle its export process. This long time requirement increases the cost of exporting, which is eroding the competitiveness of its export sector to some extent.

Table 3. SITA countries: Logistics Performance Index 2014

Economy name

Overall LPI rank Customs Infrastructure International

shipments Logistics

competence Tracking

and tracing

Timeliness

Ethiopia 104 102 134 121 96 97 78

Rwanda 80 89 113 88 92 68 63

Kenya 74 151 102 50 90 60 45

Tanzania 138 135 114 137 145 150 107

Uganda3 66 44 89 60 76 114 60 Source: World Bank, Logistics Performance Index (accessed on 21 September 2015).

Table 4. Comparative statistics of trading across borders indicators for SITA countries

Economy name Rank DTF

Time to export: Border

compliance (hours)

Time to export: Documentary

compliance (hours)

Cost to export: Border

compliance (US$)

Cost to export: Documentary

compliance (US$)

3 For Uganda, the statistics are for 2010.


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Ethiopia 166 39.8 57 126 144 175 Kenya 131 57.83 21 19 143 191 Rwanda 156 45.17 97 42 183 110 Tanzania 180 20.21 96 96 1 160 275 Uganda 128 58.6 77 64 287 102 Singapore 41 89.35 12 4 335 37

OECD high income

– 93.33 15.2 4.5 159.9 35.6

Source: Doing Business, The World Bank (accessed on 8 October 2015).

With the significant reduction in tariff and quotas for most of the items being traded across the border, the issue of delivering goods and services in time and at low costs is a key factor in determining the competiveness of a country in global trade. In this regard, improved trade facilitation is likely to result in better competitiveness for domestic industries, by reducing unnecessary bureaucratic requirements and harmonizing relevant processes. From this perspective, a thorough analysis and understanding of the product-specific business process involving all commercial, transport, regulatory and financial procedures is believed to have a profound impact on the overall international trade procedures through elimination of administrative and procedural constraints (Hossain & Rahman, 2011). As the process and procedures of cross-border trade vary greatly depending on the nature of the specific product in question, for a better understanding and identifying key areas for change to improve these steps, an analysis of product-specific business processes is very much needed.

1. Overview of Ethiopia’s export performance The volume of merchandize exports from Ethiopia is not that big and only a handful items constitute the majority shares. Within the 2010/11 to 2014/15 period, the country has registered a moderate export growth, but spices’ growth is negative (table 5 and table 6).

Table 5. Trend of Ethiopian pulse exports (FOB value in ‘000 US$) Sr. no.

Type 2010/11 2012/13 2014/15 Growth Volume Value Volume Value Volume Value

1 Haricot bean 102 026 57 932 183 458 122 626 151 639 98 793 70.53

2 Horse bean 41 027 24 166 35 981 21 746 38 552 18 945 (21.60)

3 Chick peas 61 536 39 639 73 953 48 193 47 461 23 812 (39.93)

4 Lentils 3 683 3 243 – – – – N/A

5 Green mung beans

8 619 10 802 17 396 16 712 22 719 27 821 N/A

6 Lupin 5 283 1 397 6 394 1 834 5 671 1 742 24.69

7 Peas 412 230 – – – – N/A

8 Vetch 1 909 905 5 924 3 049 6 243 2 535 N/A

9 Soya beans 1 380 656 34 411 19 183 27 475 13 296 N/A 10 Others – – 1 4 92 68 N/A

11 White pea beans – – – – 41 631 33 181 N/A

Grand total 225 875 138 970 357 518 233 347 341 483 220 193 58.45 Source: Ethiopian Pulses, Oilseeds and Spices Processors-Exporters Association (EPOSPEA) Note: Figures in parentheses indicate negative growth.


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Table 6. Trend of Ethiopian spice exports (FOB value in ‘000 US$) Sr. no.

Type 2010/11 2012/13 2014/15 Growth Volume Fob

value Volume Fob

value Volume Fob

value 1 Ginger 7 345 22 323 11 638 13 327 3,606 7 959 (64.34)

2 Cumin seed 1 441 4 951 1 782 2 679 2 662 5 562 12.34

3 Turmeric 1 449 2 499 3 712 2 307 4 679 3 532 41.35

4 Pepper 1 423 2 138 4 036 6 804 2 504 5 971 N/A

5 Cardamoms 208 1 015 60 319 128 584 (42.48)

6 Other spices, nes 179 286 689 1 116 403 637 122.75

7 Coriander 257 196 1 463 956 3 971 4 291 2 089.52

8 Long pepper 10 15 – – 54 134 796.6

9 Basil 7 11 – – – – (100)

10 Spice mixtures 4 10 4 11 0.33 3.2 (68.5)

11 Fenu Greek 13 8 – – 63 55 587.13

12 Timez 4 5 – – – – (100)

13 Saffron 2 1 41 25 7 5 404

Grand total 12 342 33 458 23 425 27 544 18 077.3 28 733.2 (14.12) Source: Ethiopian Pulses, Oilseeds and Spices Processors-Exporters Association (EPOSPEA). Note: Figures in parentheses indicate negative growth.

2. Methodology of the study This study has focussed on the export process and procedures for chick peas, pigeon peas, green gram, yellow gram, kidney beans (pulses sector) as well as turmeric, African bird’s eye chilli and ginger (spices sector) for Ethiopia. Under this project, we have studied the steps, actors, documents, time and cost involved in the overall transaction procedure and identified areas of improvements to facilitate border trade of these items.

The Business Process Analysis Guide to Simplify Trade Procedures4 has been used as a guide for this study. This guide is based on Trade Transaction Modeling (TTM), which is a flowchart that identifies the people or organizations involved in each step of the export or import process, and uses Unified Modelling Language (UML) activity diagrams to represent the steps in a trade transaction, over time, related to the agent or organization responsible for the action (UNCTAD, 2007). Using activity diagrams, TTM provides a better way of communicating the logical paths of a trade transaction to all concerned parties. Most of the studies on the trade transaction processes are industry specific supply chain based. They map the supply process primarily in the internal market and those that are focussed on international trade have identified the process under a border heading of the activities involved or at a disaggregated level of a single broad step of the overall trade process. The standard procedure of process analysis is associated with identifying the steps involved in completing the cycle, starting from getting an order for export or placing an order for import and the time required to complete each stage, with associated costs both in accounting and economic terms.

Necessary information for the analyses was collected through face-to-face interviews and telephonic communication with the relevant stakeholders, including persons from government agencies, entrepreneurs or exporters, clearing and forwarding (C&F) agents, and association members. We also compared the collected information with relevant secondary sources, literature and reports.

4 UNNExT, UNESCAP and UNECE (2009).


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3. Review of literatures A typical export process involves 27 parties, more than 40 documents and more than 300 copies of documents, and the average customs transaction involves 20 to 30 parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times), and the rekeying of 60%–70% of all data at least once (UNECE, 2007). This long and cumbersome documentation not only slows the overall business process, but also adds up a significant amount of costs, which makes the business less competitive.

Although the exact amount of benefit out of improved and efficient trade process and procedures as a result of better trade facilitation measures (e.g. reduction of number of documentation) varies from country to country and product to product, the direction of change is always positive (Nathan, 2009). With the help of a fragmented international trade transaction process, Alavi (2005) estimated the positive benefits of shifting paper-based trade documentation to paperless trade. Using a gravity model simulation exercise for 75 countries on their manufacturing trade, Wilson et al. (2005) found substantive benefits as well as scope of improvement for trade facilitation, where trade facilitation measures might include both “border” and “inside the border” elements.5

In their study on the apparel industry, Bangladesh, Gereffic and Memedovic, (2003) pointed out the importance of improved trade facilitation measures that require simplification of the trade process and procedures in order to reduce the lead time to remain competitive in this byer-driven market, along with cheap labour cost.

From the brief survey of relevant literatures in the field, we can easily see the importance of improving the status of trade process, especially for a country like Ethiopia, which is trying its best to improve its economic conditions. One major step in this regard can be to improve its competitiveness in the global market. As part of this aspiration, streamlining the process and procedures of international trade will have a significant benefit.

5 “Border” elements include port efficiency and customs administration, and “inside the border” elements, such as domestic regulatory environment and the infrastructure to enable e-business usage.


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Chapter 2 Analysis of export processes and procedures of selected items from Ethiopia

1. Export process: Pulses and spices exports from Ethiopia Step 1: Buy: Finalize purchase order

Based on a buyer’s interest to purchase an item, the exporter prepares a price quotation and terms of trade, which includes the delivery date, quality of item, packaging instructions and payment options. The quotation is then sent to the importer for approval. If the buyer is satisfied with the terms and conditions on the quotation, the importer confirms his or her intention to purchase the item and the parties sign a commercial invoice; otherwise, the buyer gets back to the exporter to negotiate the terms of trade. After necessary modifications, the document is returned to the exporter and, once both parties agree on the terms, they finalize the contract. The process of communication between the importer and the exporter is mainly through exchange of e-mails. If required, however, supporting documents are sent through courier services and voice calls or even Skype.

Step 2.1: Obtain letter of credit (L/C)

The exporter sends a request to open the letter of credit to the importer. Then the importer instructs his or her bank to prepare a letter of credit, and the importer’s bank prepares a draft letter of credit and sends it to the exporter’s bank. The exporter’s bank receives the draft letter of credit and forwards it to the exporter. The exporter receives the letter of credit and checks the terms and conditions. If the exporter is satisfied, the importer makes the agreed payment and notifies the exporter about the payment made.

Step 2.2: Ship: Obtain bank export permit

The exporter already has an export business license. The exporter prepares and submits the necessary documents – i.e. business registration, commercial invoice, packing list and export business license. The exporter’s bank receives the application and verifies whether the item is an exportable item and whether prices are realistic. If the officer in charge is satisfied, the exporter’s bank issues the bank export permit. The National Bank of Ethiopia receives a copy of the bank export permit as well as supporting documents.

Step 2.3: Ship: Clean products and obtain cleaning certificate

The exporter contacts the authorized cleaning company for a quotation if the exporter doesn’t have a cleaning facility. For this step, the exporter needs to ensure that the items are ready stocked, either at the exporter’s premises or at the warehouse of the cleaning company, and graded based on the buyer’s requirement. The cleaning company starts cleaning the items based on the required quality, agreed on between the exporter and the buyer. Once the required level of refinement is achieved, the company issues a certificate. However, some items, such as ginger and turmeric, need to be cleaned manually, so the time required at this step varies according to the nature of the items.

Step 2.4: Ship: Obtain fumigation certificate

In this step, the exporter contracts some fumigation companies if he or she does not have a preferred one already and asks for the quotation. Normally, every exporter has its own preferred company. Before booking the visit by the fumigation company, the exporter cleans goods and arranges at warehouse or container. Then the fumigation company comes and does the fumigation depending on the nature of the products and requirements set by the importers. It takes around four hours on average to do the fumigation. However, after the fumigation, it normally takes about 72 hours to complete the fumigation process. Then they conduct a pre-inspection and, if the sample test meets all requirements, the pre-inspection certificate is issued.

Step 2.5: Ship: Obtain quality certificates

Once the products are graded and cleaned according to the buyer’s requirements, the exporter applies for a quality certificate to the standardization authority, along with copies of the commercial invoice, packing


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list and any other required information and the proof of payment. The exporter arranges the authorized inspection agency to inspect the product and collect a sample. During the visit, the inspector(s) or representative(s) from the testing authority collects samples and performs the inspection and performs the required testing in their laboratory. If any problem or mismatch is found between the sample and commercial invoice, the exporter is asked to rectify it. Once the inspector is satisfied with the product quality, he or she issues the lab test report to the exporter.

Step 2.6: Ship: Obtain phytosanitary certificate

For this certificate, the exporter first needs to apply to the Ministry of Agriculture, by filling in a form and providing copies of the commercial invoice, cleaning certificate, quality certificate and packing list. Before the application for the phytosanitary certificate, the exporter needs to make sure that the items are already graded and cleaned according to the buyer’s requirements and have the quality certificate. The exporter arranges a time to visit the warehouse for the Ministry of Agriculture and Animal Resources (MINAGRI) inspector. The inspector(s) from the testing authority collects samples and performs the inspection. If any problem or mismatch is found between the samples and commercial invoice, the exporter is asked to rectify it. Once the inspector is satisfied with the product quality, he or she issues the lab test report to the exporter. The exporter receives a phytosanitary certificate at the end. As a requirement, people from the fumigation company need to be present at the site during the MINAGRI inspector’s visit.

Step 2.7: Arrange local transport

The exporter contacts inland haulage or, in some cases, uses his or her own company vehicle to transfer the goods from the warehouse. Once the two parties agree on the terms and conditions, they fix a time to pick up the goods from the exporter’s premises. Inland haulage collects the goods from the exporter’s premises and brings to the place of customs inspection.

Step 2.8: Ship: Load goods/stuff cargo

Once the exporter has the quality and phytosanitary certificates, he or she requests the transitor (licensed customs broker) to send a vehicle to load the goods. Parallel to sending the cargo to the exporter’s premise or warehouse, the transitor makes the declaration and submits all the documents to customs. If the declaration is accepted, the transitor immediately submits the request to customs to assign an inspector. After getting the request from the exporter, customs assigns an inspector to inspect the goods. The transitor instructs the transporter to take the container to the factory site. The transporter takes the container to the customs facility, where the inspector checks the samples and oversees the stuffing of cargo and, finally, puts the seal on the container.

Step 2.9: Declare customs online

This step is completed by the exporter’s agent; i.e. the transitor company or CFA. The CFA submits the required documents (the commercial invoice, packing list, certificate of origin, certificate of quality and insurance policy) on Ethiopian Revenues and Customs Authority’s website.

Step 2.10: Obtain customs clearance

Upon finding the documentation provided by the CFA satisfactory, customs authorities issue customs clearance; i.e. exit note. The exporter’s agent then acknowledges receipt of the customs clearance. The CFA then acknowledges the receipt of the clearance.

Step 2.11: Move goods to Djibouti

As per the transport contract, the inland transport company collects the goods from the pre-agreed place and transports them to the port.

Once the transporter leaves the ERCA facilities at Kaliti, the first stop is the ERCA facility in Mile. In Mile, the ERCA officer receives the documents and checks them for accuracy and completeness. If everything is in order, the ERCA officer in Mile stamps them. Obtaining the stamps ensures that the transporter takes a certain route to the border. At Galafi border post, the transporter provides the documents to the ERCA officer. The ERCA border officer scrutinizes the documents and updates the ASYCUDA++ system to state


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that the goods have left the country and closes the Customs declaration. Based on this, the ERCA officer issues the validation letter, which is sent via the ASYCUDA++ system to the transitor. The transporter continues the journey by crossing the border into Djibouti. The driver can cross the border with an Ethiopian ID card and the truck must have third party insurance for Djibouti. This insurance for the truck can be obtained in Addis Ababa.

Step 2.12: Enter the port and stow cargo on vessel

This step involves a number of parallel activities by the shipping line and port authority. On arrival, the CFA requests entry of the vehicle into the port area. The port authority or private depot then records details of the truck and container and issues an entry pass, allowing the truck and container to enter the controlled area. The date and time of entry of the truck and container is officially recorded. The goods are then taken to the designated area where cargo inspection is to take place. The shipping agent coordinates handling of the container at the terminal and moves it to the berth area with permission from the port authority. It is the responsibility of the shipping agent to prepare a container loading list and a container list message to be used for berthing the container and stowing it on the designated vessel in a coordinated manner. While the container is in the process of being stowed onto the vessel, the shipping agent prepares the final bill of lading, which is supplied to the CFA. Parallel to this process, the port authority prepares a list of outward-going containers to be stowed on the vessel and ensures that the shipping line verifies the list. Once all these activities are completed and the cargo release order is received from customs, the ship sets sail as per schedule.

Step 2.13: Ship: Obtain certificate of origin (Chamber of Commerce)

The exporter pays and takes a blank certificate of origin from the Ethiopian Chamber of Commerce and Sectoral Association. The exporter completes the blank certificate of origin, signs it and submits it, together with relevant documents. An officer from the Chamber of Commerce checks the supporting documents and assesses if the exporter is eligible for the certificate of origin. If the application file meets the criteria, a note of the shipment date is made. Then rules of origin officer at the Chamber of Commerce issues and signs the certificate of origin. The exporter takes the signed certificate of origin to the documentation section to get it stamped. The exporter receives the certificate of origin.

Step 2.14: Arrange documents

The exporter collates all the documents that will be needed by the importer to receive the consignment in the importing country. Then the exporter sends an e-mail notifying the importer of the shipment, along with soft copies of the documents. Within two to seven days, the exporter sends original copies of those documents by courier.

Step 3: Pay

The payment for the exporter depends on the terms and conditions set in the commercial invoice. In general, exporters receive a part of their export value upon the first presentation of the supporting documents. Once the exporter notifies the importer about the shipment and sends the copies of the required documents, the importer usually transfers the agreed percentage of money to the exporter’s bank account. However, for the full payment, exporters might have to wait for some time (until the coffee is released by the importer).


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Figure 1. Use case diagram of core export processes from Ethiopia

Table 7. Time procedure for exports from Ethiopia Step Core business process Private/public Average cost

US$ (ton) Time required (days)

Min. Max. Avg. 1 Finalize purchase order Private 0 2 4 3 2.1 Obtain L/C advice Private/public 0 0.06 0.188 0.16 2.2 Obtain bank permit Private 10 to 25 1 3 2 2.3 Clean products and obtain cleaning

certificate Private 10 to 15 1 4 2.5 2.4 Obtain fumigation certificate

Private 0.25 1 2 1.5 2.5 Obtain quality certificates

Private/public 1 0.02 0.5 0.27 2.6 Obtain phytosanitary certificate

Private 5 to 10 0.25 0.5 0.5 2.7 Arrange local transportation

Private/public 5.5 to 6.5 0.5 0.75 0.875 2.8 Load goods/stuff cargo Private/public 3 0.125 0.5 0.375 2.9 Declare customs online

Private/public 1.75 0.125 2 1.125 2.10 Obtain customs clearance

Private Included in the declaration cost 2 4 3


13

2.11 Move goods to Djibouti Private/public 50 to 60 2 3 2.5 2.12 Enter into the port and stow cargo on

the vessel Private/public 0.75 to 0.80 1 1.5 1.25 2.13 Obtain certificate of origin Private 0 0.01 0.02 0.015 2.14 Arrange documents Private/public 0 0.02 0.04 0.03 3 Pay Private 0 2 5 3.5

Table 8. Core business process and stakeholders involved in the export process from Ethiopia

Expo

rter

s

Impo

rter

s

Min

istr

y of

Agr

icul

ture

(MIN

AG

RI)

Min

istr

y of

Tra

de

Cle

anin

g co

mpa

ny

Fum

igat

ion

com

pany

Stan

dard

izat

ion

auth

ority

(con

form

ity

asse

ssm

ent e

nter

pris

e/la

bora

tory

)

Ethi

opia

n C

ham

ber o

f Com

mer

ce a

nd

Sect

oral

Ass

ocia

tion

Logi

stic

s co

mpa

ny

Loca

l tra

nspo

rtat

ion

Ship

ping

com

pany

Insu

ranc

e co

mpa

ny

Cust

oms

auth

ority

(ERC

A)

ERCA

Djib

outi

Port

aut

horit

y

Expo

rter

’s b

ank

Impo

rter

’s b

ank

Djib

outi

cust

oms

auth

ority

1.1 Finalize purchase order

Χ Χ

2.1 Obtain L/C advice

Χ Χ Χ Χ

2.2 Obtain bank permit

Χ Χ

2.3 Clean products and obtain cleaning certificate

Χ Χ

2.4 Obtain fumigation certificate

Χ Χ Χ Χ

2.5 Obtain quality certificates

Χ Χ Χ

2.6 Obtain phytosanitary certificate

Χ Χ

2.7 Arrange local transportation

Χ Χ

2.8 Load goods/stuff cargo

Χ Χ

2.9 Declare customs online

Χ Χ Χ


14

2.10 Obtain customs clearance

Χ Χ Χ

2.11 Move goods to Djibouti

Χ Χ Χ Χ

2.12 Enter the port and stow cargo on the vessel of departure

Χ Χ Χ

2.13 Obtain certificate of origin

Χ Χ

2.14 Arrange documents

Χ Χ

3. Pay Χ Χ Χ Χ


15

Chapter 3 Concluding observations and policy options

From our field-based interview, we have found Ethiopia’s export business process to be quite lengthy and cumbersome, as it requires many steps. However, a part of the long procedure, in terms of documents required, parties involved and time required to perform those activities, can be attributed to the nature of export items from Ethiopia. As the items are agricultural items, they need to go through a number of testing and certifications, which are not required for industrial or manufactured items in general. That being said, we have found some of the steps are unnecessarily cumbersome or fragmented service is provided, which adds up time and cost in the process. Based on our interviews with the stakeholders and secondary information, following are the recommendations that the policymakers can consider implementing to make Ethiopia’s export sector more competitive.

• Issue of delinquency list: Some exporters have mentioned this as a big challenge in the export business. As part of foreign exchange control, the Ethiopian Government is very strict on monitoring the export amount declared during the stage of obtaining the bank permit and the actual amount of money entering into the exporter’s bank account. If any mismatch is found, even the slightest, the exporter is put on a “delinquency list” and is not given an export permit for the next time. For exporters, this is a very big fear. The foreign exchange control mechanism is full of cumbersome procedures. For instance, the whole process of bank permit issuance is cumbersome for exporters. Although the process of obtaining a bank export permit takes only one hour, the whole process, including preparation of necessary documents and waiting times, etc., amounts to at least half a day to a full day. The national bank can collect information on price, quantity and quality from customs through an online gateway, which will minimize the time requirement and increase transparency. Ethiopia’s foreign exchange policy is focussed on capital flight control, by focussing on balancing the inflow of foreign currency in Ethiopia to make it equal to the quantity and quality of goods exported. This policy can be changed towards promotion of trade and investments from its current focus. This means that, if the national bank integrates its network to customs’ network, it could get everything it wants from the customs declaration. To monitor foreign currency inflows, the commercial banks could transmit the incoming payment information from foreign sources to the NBE. This notification can be done through an online platform for easy and quick process. This notification, together with the payment information, will be sufficient for NBE to balance the accounts. Exporters also have an incentive to register their incoming payments from exports in order to avoid penalties from the NBE in case they do not balance their NBE account in time.

• Inefficiency at customs: This problem arises because of the frequent change of officers at customs. The reason behind this is to prevent the officials being corrupted. Due to the fact that the Ethiopian Revenues and Customs Authority keeps changing the inspectors at customs very often, officers are not able to be efficient. This delays the checking procedures very often. Also, there is a lack of infrastructure starting from basic infrastructure such as working space and waiting areas for the exporters or their representatives to checking facilities such as scanning of items loaded into trucks or containers. The process of keeping the records is still manual, but it can be digitalized, which would give easy access to information and quick sharing with other agencies involved in the process, such as NBE. Also, customs officials’ capacity needs to be improved by providing necessary training, so that they can be equipped with the best international practices. In Ethiopia, all exports are subject to physical inspection. The physical inspection takes place either at the customs facility or at the exporters’ premises, but this is not the same procedure that is followed for imports. In the case of imports, Ethiopia has already introduced the concept of authorized economic operators (AEO), a system that allows the eligible importers not to subject their goods to inspection all the time. This privilege is not offered to exporters. The benefits are restricted to imports, such as exemptions from physical inspection if the cargo is low risk, reduced price verifications in the import declaration and copies accepted (as long as originals are provided within 30 days). However, in order to facilitate export trade, a risk management system could also be applied for exports. This would allow customs to prioritize high-risk and high-damage cargo for inspections while only doing random inspections of other cargo from time to time. There is no need for cargo to go to customs’ warehouse and wait in a long line all the time. There are plenty of mechanisms for customs to accredit ethical exporters with many years of experience the status of authorized exporters so that they can be audited later. The customs authority has already agreed to implement risk management


16

in exports, but no timeline has been set. In this case, development partners such as ITC and UNCTAD can help to build human capacity to implement these initiatives.

• Phytosanitary certificate: Although this is not a big problem, it is an issue when it comes exporting to Russia. Russian importers ask for not only the phytosanitary certificate, but also the result of the analysis for the certificate. However, the Ministry of Agriculture does not issue the certificate of analysis (i.e. detailed results), as it’s beyond their mandate. This creates a problem for exporters who wish to export to Russia. To address the issue, the Ethiopian Ministry of Agriculture can sit with the Russian counterpart and mitigate it through bilateral trade negotiations.

• Supply of container: Ethiopia imports more than what it exports. Hence, the inflow of containers inside the country is more than it needs to support its export. Normally, finding cargo for export purposes is not a problem for the exporters. However, sometimes, to support a big project, the government takes control of most of the empty containers, which creates a short supply for export businesses.

• Container load: Although there is no restriction on the load limit for cargo, there is a maximum load amount from the road authority to maintain road condition. Due to the load limit on the road, sometimes, even if the load exceeds the limit only slightly, the exporter needs to use an extra vehicle to transport the goods, which adds to the cost substantially. This is not a regulation particularly targeted to trade, but it affects trade from time to time. A slight increase of the axle load limits will reduce the vehicle operating costs for traders. Also, with the introduction of the new railway, this problem might be minimized.

• Multimodal transportation: Ethiopian Shipping & Logistics Service Enterprise (ESLSE) is the only multimodal transport operator (MTO) that is owned by the state. The lack of a competitive environment is likely to have a negative impact on cost reduction and improvement of efficiency in the transportation system. In this regard, stakeholders from all spheres should work together to increase the efficiency by encouraging further completion from private sectors.

• One-stop service centre: A one-stop service centre or single enquiry point for export and import processes and procedures can be helpful to newcomers in these fields. In this regard, a website can be operated for wide and easy accessibility. The product- or sector-specific BPA can be used as an input to develop the handbook and the website for this purpose. The Ethiopian Revenues and Customs Authority or the Chamber can manage the project and development partners like ITC can support the initial phase. An online presence of some services that exporters need, but need not go in person all the time to obtain, can be given priority. For instance, a chamber body, sectorial association or export development agency can issue the certificate of origin online if that is supported by the Ethiopian Government. However, to reap the benefit of this online system, the country needs to ensure quality and reliable Internet facilities, which is lacking at present. Due to slow and unreliable Internet services, people sometimes have to wait a long time, even when accessing ASYCUDA++.

• Port efficiency: As Ethiopia does not have any direct access to a sea port, it relies heavily on the services of the Port of Djibouti for its maritime trade. However, there are a few problems in using the Port of Djibouti, including abrupt changes of policies and fees, limited hour of operations, which is mainly due to the unfavourable weather when working during the middle of the day. Ethiopia, in collaboration with the countries through which most of its international trade is handled (i.e. Djibouti), can carry an in-depth study to identify the problem areas in port operations. Further cooperation with its neighbouring countries, especially with Djibouti, can help Ethiopia to be more competitive in the global market by increasing efficiency.

• New markets: Finding new markets should be emphasized to increase the amount of exports and get better prices for Ethiopia’s goods, especially considering the rise of many emerging and developing countries who might be prospective buyers for many of Ethiopia’s export items.


17

Annex Buy: Finalize purchase order

Topic Description Process name Buy

Rules and regulations N/A

Stakeholders Exporter Importer

Precondition Exporter has an export permit from relevant authority. Exporter has a list of prospective buyers.

Description

1.1 Exporter prepares quotation and sales terms and sends it to importer, usually via e-mail. 1.2 Importer reviews the quotation and sales terms and determines if they are acceptable. If not, importer may request a revised quoted price and sales terms. 1.3 Once both parties agree on the terms and conditions, importer confirms the purchase and issues purchase order (PO) to exporter. 1.4 Exporter issues proforma invoice after receiving the PO.

Output criteria to complete the business process

Exporter and importer deal with a contract known as a commercial invoice.

Average time to complete 3 working days

Average costs involved N/A


18

2.1 Ship: Obtain letter of credit (L/C) advice

Topic Description

Name of process area Ship

Name of business process 2.1) Obtain letter of credit (L/C) advice

Related laws, rules and regulations

Bank internal directive

Process participants Exporter (or representative) Exporter’s bank Importer Importer’s bank

Input and criteria to begin the business process

Sales contract

Activities and associated documentary requirements

2.1.1 The exporter sends a request to open the letter of credit to the importer. 2.1.2 The importer receives the request to open the letter of credit. 2.1.3 The importer instructs the importer’s bank to prepare a letter of credit. 2.1.4 The importer’s bank prepares a draft letter of credit and sends it to the exporter’s bank. 2.1.5 The exporter’s bank receives the draft letter of credit and forwards it to the exporter. 2.1.6 The exporter receives the letter of credit and scrutinizes all terms. - If the terms are not acceptable, the exporter requests the importer to make amendments. - If the terms are acceptable, then: 2.1.7 The importer makes the agreed payment and notifies the exporter about the payment made. 2.1.8 The importer’s bank executes the payment. - The exporter receives the letter of credit advice. - The exporter’s bank’s trade services department receives the payment. 2.1.9 The trade services department notifies the customer relations officer in the branch office about the payment made. 2.1.10 The customer relations officer in the branch office of the exporter’s bank notifies the exporter. 2.1.11 The exporter receives the notification about the importer payment under the letter of credit.


Open letter of credit. Obtained letter of credit advice.

Average time required to complete this business process

1.5 hours



19


20

2.2 Ship: Obtain bank permit

Topic Description

Name of process area 2.Ship

Name of business process 2.2 Obtain bank permit

Related laws, rules and regulations

Commercial code Banking proclamation The National Bank of Ethiopia Establishment (as amended) Proclamation No. 591/2008

Process participants Exporter (or representative) Exporter’s bank National Bank of Ethiopia (NBE)


Business registration Commercial invoice Packing list Export business license


2.2.1 Exporter prepares and submits the necessary documents. 2.2.2 The exporter’s bank receives the application. 2.2.3 Exporter’s bank verifies whether the item is an exportable item and whether prices are realistic. - If the requirements are not met, the process is terminated. - If the requirements are met, then: 2.2.4 The exporter’s bank issues the bank export permit. 2.2.5 The exporter receives the bank export permit, and the National Bank of Ethiopia receives a copy of the bank export permit as well as supporting documents. 2.2.6 The National Bank of Ethiopia registers the export in its database under the exporter’s registration number.


Bank export permit


1–3 hours

Average costs involved US$ 10–US$ 25 per ton


21


22

2.3 Ship: Clean products and obtain cleaning certificate

Topic Description Name of process area Ship Process name 2.3) Clean products and obtain cleaning certificate Rules and regulations N/A

Stakeholders Exporter Cleaning company

Precondition Goods are already stocked either at exporter’s premises or at the cleaning company’s warehouse.

Description

2.3.1 The exporter contacts the authorized cleaning company for a quotation if the exporter doesn’t have a cleaning facility. The goods are already graded based on the buyer’s requirements. 2.3.3 The cleaning company starts cleaning the items based on the required level agreed on between the exporter and the buyer. 2.3.4 Once the required level of refinement is achieved, the company issues a certificate. 2.3.5 Then the company packs the items and prepares the packing list.


Receive cleaning certificate. Prepares packing list.

Average time to complete 2 working days (however, this time varies depending on the nature of goods, as some items, like ginger and turmeric, are cleaned manually)



23

2.4 Ship: Obtain fumigation certificate

Topic Description Name of a process area Ship Name of business process 2.4) Obtain fumigation certificate Related laws, rules and regulations N/A

Process participants Exporter (or representative) Fumigation company


Exporter cleans goods and organizes goods at warehouse or container.


2.4.1 Exporter cleans goods and organizes goods at warehouse or container. 2.4.2 Fumigation company issues a quotation for the service. 2.4.3 Fumigation is conducted. 2.4.4 Exporter makes payment. 2.4.5 Exporter brings bill of lading. 2.4.6 Fumigation company receives payment. 2.4.7 If the sample test meets all requirements, the pre-inspection certificate is issued. 2.4.8 Exporter receives fumigation certificate.


Pre-inspection certificate is issued and received by the exporter.


3 days

Average costs involved US$ 1–US$ 1.5 per ton


24

2.5 Ship: Obtain quality certificates

Topic Description Process name 2.5) Obtain quality certificates Rules and regulations N/A

Stakeholders Exporter Standardization authority

Precondition Items are already graded and cleaned according to the buyer’s requirements.

Description

2.5.1 The exporter requests a certificate of quality (COQ) via letter or e-mail, along with copies of the commercial invoice, packing list and any other required information, plus the proof of payment. 2.5.2 The exporter arranges the authorized inspection agency to inspect the product and collect samples. 2.5.3 The inspector(s) from the testing authority collect samples and performs the inspection. If any problem or mismatch is found between the samples and commercial invoice, the exporter is asked to rectify it. 2.5.4 Once the inspector is satisfied with the product quality, he or she issues the lab test report to the exporter.


The exporter gets a lab test report.

Average time to complete 1.5 working days

Average costs involved US$ 1


25

2.6 Ship: Obtain phytosanitary certificate

Topic Description Process name 2.6) Obtain phytosanitary certificate Rules and regulations N/A

Stakeholders Exporter Ministry of Agriculture

Precondition Items are already graded and cleaned according to the buyer’s requirements. The fumigation company is present at the site during the visit from the Ministry of Agriculture’s inspector.

Description

2.6.1 The exporter applies for a phytosanitary certificate from the Ministry of Agriculture (MINAGRI) by filling in a form and submitting it, along with copies of the commercial Invoice, cleaning certificate, quality certificate and packing list. 2.6.2 The exporter arranges a time for the MINAGRI inspector to visit the warehouse. 2.6.3 The inspector(s) from the testing authority collects samples and performs the inspection. If any problem or mismatch is found between the samples and commercial invoice, the exporter is asked to rectify it. 2.6.4 Once the inspector is satisfied with the product quality, he or she issues the certificate to the exporter.


The exporter receives a phytosanitary certificate.

Average time to complete 1 hour

Average costs involved US$ 5–US$ 10


26

2.7 Ship: Arrange local transportation

Topic Description Name of process area Ship Process name 2.7 Arrange local transportation Rules and regulations N/A

Stakeholders Exporter Inland haulage

Precondition Exporter has an export contract.

Description

2.7.1 Exporter contacts inland haulage or, in some cases, exporter uses its own company vehicle to transport goods. 2.7.2 Once the two parties agree on the terms and conditions, they fix a time to pick up the goods from the exporter’s premises. 2.7.3 Inland haulage picks up the goods from the exporter’s premises and brings to the place of customs inspection.


The items are on the cargo carrier.

Average time to complete Varies depending on the location of the exporter

Average costs involved US$ 5.5–US$ 6.5 per ton (this varies greatly depending upon the distance from the exporter’s location)


27

2.8 Ship: Load goods/stuff cargo

Topic Description Name of process area Ship Name of business process 2.8) Load goods/stuff cargo

Related laws, rules and regulations Ethiopian Revenues and Customs Authority Establishment Proclamation

Process participants Exporter (or representative) Transitor (licensed customs broker) Ethiopian Revenues and Customs Authority Transporter


Exporter has obtained a certificate of quality and phytosanitary certificate.


2.8.1 Once the transitor (licensed customs broker) makes the declaration and submits all the documents to customs, it receives acceptance of the declaration. 2.8.2 The transitor immediately submits the request to customs to assign an inspector. 2.8.3 Customs receives the request. 2.8.4 Customs assigns an inspector. 2.8.5 The transitor then instructs the exporter to prepare goods for inspection. 2.8.6 The transitor also instructs the transporter to take the container to the factory. 2.8.7 Transporter receives instruction. 2.8.8 Parallel to the above, the exporter prepares the goods for inspection. 2.8.9 The exporter also sends his own vehicle to pick up the inspector from the customs compound. 2.8.10 The exporter receives inspector. 2.8.11 Transporter takes container to factory site. 2.8.12 Exporter also receives container. 2.8.13 Exporter stuffs the container at factory site in the presence of transitor and customs inspector. 2.8.14 Inspector checks samples and oversees the stuffing of cargo. 2.8.15 The inspector finally puts the seal on the container.


Inspector puts seal on the container


1 day

Average costs involved US$ 3


28


29

2.9 Ship: Declare customs online

Topic Description

Name of process area Ship Name of business process 2.9) Declare customs online

Related laws, rules and regulations Customs Proclamation No. 859/2014

Process participants Exporter (or representative) Transitor Ethiopian Revenues and Customs Authority (ERCA)


Bank export permit Business license Tax identification number (TIN) Packing list Invoice


2.9.1 Exporter prepares all necessary documents and submits it to the transitor. 2.9.2 The transitor receives the documents and checks them for completeness and accuracy. 2.9.3 The transitor makes the export declaration electronically. 2.9.4 The transitor prints, signs and stamps the print-out of the online declaration and attaches all necessary documents. 2.9.5 The transitor submits the declaration together with other documents to ERCA. 2.9.6 ERCA receives the application file and checks it for accuracy and completeness. 2.9.7 ERCA scrutinizes the declaration and all attached documents. - If the requirements are not met, ERCA requests transitor to make amendments to the declaration file. Possibly, a penalty will be issued depending on the seriousness of the error. - If the requirements are met, then: 2.9.8 ERCA issues an acceptance of declaration letter. 2.9.9 The transitor receives the acceptance of declaration letter and notifies the exporter. 2.9.10 The exporter receives the acceptance of declaration letter.


Acceptance of declaration letter


1 hour–2 days

Average costs involved US$ 1.75 per declaration


30


31

2.10 Ship: Obtain customs clearance

Topic Description Name of process area Ship Process name 2.10 Obtain customs clearance Rules and regulations Customs Proclamation No. 859/2014

Stakeholders Exporter or representative Logistics Customs

Precondition Exporter or representative has already submitted the required documents for customs clearance.

Description

2.10.1 Upon finding the documentation provided by the exporter or representative satisfactory, customs authorities issue customs clearance; i.e. exit note. 2.10.2 The exporter’s agent acknowledges receipt of the customs clearance. 2.10.3 A driver of inland haulage presents the equipment interchange receipt and goods transition control list to the customs officer. 2.10.4 Customs officer verifies the information received with the actual consignment and the information recorded in the system. If customs’ paperless system indicates that the consignment is not subject to further inspection, the customs officer can release the consignment from the sub-gate right away. 2.10.5 If it is indicated in customs’ paperless system that this particular consignment is randomly selected for inspection, a driver of inland haulage has to transfer the container to the point of inspection. 2.10.6 Customs officer inspects the cargo. If misconduct is not found, the customs officer can release the consignment from the sub-gate right away. 2.10.7 The actual quantity of goods to be exported will be recorded in the system. The exporter will be notified of this amount. If misconduct is found, the customs officer records a misconduct case, which requires further investigation.


Goods are ready to get out of the customs inspections area and are on the way to the port of shipment.

Average time to complete 1 day

Average costs involved N/A (fee is already paid during the online submission)


32

2.11 Ship: Move goods to Djibouti

Topic Description

Process name 2.11) Move goods to Djibouti Rules and regulations Ethiopian Roads Authority (ERA) Proclamation No. 80/1997

Stakeholders Exporter or representative Inland haulage Customs

Precondition The goods are already at the port’s gate.

Description

2.11.1 Driver presents the equipment interchange receipt (EIR) at the gate and requests to enter port container yard. 2.11.2 Customs official verifies documents. If not in order or missing documents, informs exporter provide the missing documents. 2.11.3 Deputy chief assigns an inspector to inspect the container’s seal for authenticity. 2.11.4 The container undergoes scanning by the concessionaire. Port authority’s officer allows truck to enter port container yard, and container goes through customs clearance. 2.11.5 Driver proceeds to pay port fees for loading and unloading container and stevedoring charges to the port authority’s billing department. 2.11.6 Port authority’s officer enters data into single-window computer system, which informs the stevedoring department to proceed with loading and unloading. The data is also shared with the carrier (shipping line) to prepare a load list for the cargo. 2.11.7 Port authority’s worker moves the container from container yard to the dockside to stow onto the vessel.


The consignment is ready to be shipped.

Average time to complete 2–3 days



33


34

2.12 Ship: Enter the port and stow cargo on vessel

Topic Description Process name 2.12) Enter the port and stow cargo on vessel Rules and regulations Convention on the International Maritime Organization

Stakeholders

Exporter or representative Customs Carrier (shipping line) Port authority

Precondition The consignment has already been released from the customs area. Carrier has already received permission from the marine department to leave port of departure.

Description

2.12.1 Ship agent prepares bill of lading to exporter and manifest to the customs department through paperless system. 2.12.2 Ship agent prepares container loading list for port authority. 2.12.3 Ship agent sends bill of lading to exporter. 2.12.4 The port authority prepares a list of outward-going containers to be stowed on the vessel and ensures that the shipping line verifies the list. 2.12.5 Once all these activities are completed and the cargo release order is received from customs, the ship sets sail as per schedule.


The ship is on the move with the consignment.

Average time to complete 1–1.5 days

Average costs involved US$ 0.75–US$ 0.80


35


36

2.13 Ship: Obtain certificate of origin from Chamber of Commerce

Topic Description

Process name Ship

Name of business process 2.13) Obtain certificate of origin from Chamber of Commerce

Related laws, rules and regulations International trade agreements

Process participants Exporter (or representative) Ethiopian Chamber of Commerce and Sectoral Association


Certificate of origin form (four copies) Business registration certificate and export business license TIN


2.13.1 The exporter pays for and takes a blank certificate of origin form. 2.13.2 Chamber receives the cash payment. 2.15.3 Chamber issues a payment receipt. 2.13.4 The exporter completes the blank certificate of origin form, signs it and submits it together with relevant documents. 2.13.5 Chamber’s trade and investment office cross-checks the supporting documents and assesses if the exporter is eligible for the certificate of origin. - If the application file does not meet the criteria, the process is terminated. - If the application file meets the criteria, a note of the shipment date is taken. 2.13.6 Rules of origin officer of Chamber issues and signs the certificate of origin. 2.13.7 The exporter takes the signed certificate of origin to the documentation section to get it stamped. 2.13.8 The exporter receives the certificate of origin.


Certificate of origin


0.01–0.02 days



37


38

2.14 Ship: Prepare documents required by importer

Topic Description Process name 2.14) Prepare documents required by importer

Rules and regulations Uniform Customs and Practice for Documentary Credits, UCP 600 (ICC Publication No. 600)

Stakeholders

Exporter or representative Importer Logistics Shipping line

Precondition The consignment is already on the ship and set for movement.

Description

2.14.1 The exporter or representative collates all the documents that will be needed by the importer to receive the consignment in the importing country, which includes the commercial invoice, packing list, certificate of origin, certificate of quality, insurance certificate and bill of lading. 2.14.2 The exporter sends an e-mail notifying the importer of the shipment, along with soft copies of the documents. Within two to seven days, the exporter sends original copies of those documents by courier.


Importer receives and acknowledges the receipt of import documentation.

Average time to complete 15 to 30 minutes

Average costs involved N/A (except for the courier fee to send the hardcopy documents)


39

2.15 Ship: Obtain certificate of origin (customs) (optional)

Topic Description Name of a process area Ship Name of business process 2.15) Obtain certificate of origin (customs) Related laws, rules and regulations Various relevant international agreements

Process participants Exporter (or representative) Customs


Written application for status Certificate of origin form


2.15.1 The exporter makes a written application to customs for status. 2.15.2 Customs receives application. 2.15.3 Customs assesses the goods by visiting the factory. 2.15.4 Customs provides criteria. 2.15.5 Exporter chooses criteria. 2.15.6 For a particular shipment, the exporter then buys a blank certificate and submits it to customs together with other documents such as the bill of lading and invoice. 2.15.7 Customs cross-checks the supporting documents, assesses if the criteria are correct and takes note of the shipment date. 2.15.8 Responsible officer issues and signs the certificate. 2.15.9 The exporter takes the certificate to the documents section to get it stamped. 2.15.10 The exporter receives the certificate.


Certificate of origin is issued by customs and received by the exporter.


10–15 minutes

Average costs involved US$ 0.25


40


41

3. Pay: Description of activities

Topic Description Process name 3. Pay

Rules and regulations Uniform Customs and Practice for Documentary Credits, UCP 600 (ICC Publication No. 600)

Stakeholders Exporter and exporter’s bank Importer and importer’s bank

Precondition Exporter and importer conclude sales contract and trade terms.

Description

3.1 Exporter prepares and sends documents (e.g. invoice, packing list and bill of lading) to importer. 3.2 Importer receives documents. Importer goes through import declaration process. 3.3 Importer prepares cash or money in the account for transfer when the due comes. 3.4 Importer’s bank receives transferred money. 3.5 Importer’s bank review and payment or direct debit from importer. 3.6 Importer’s bank sends money orders to exporter’s bank. 3.7 Exporter’s bank is debited from importer’s bank. 3.8 Fee deducted before transfer to exporter’s account. 3.9 Exporter checks and receives money.


The contract is fulfilled and finishes the whole process.

Average time to complete 2–5 days



42


43

Table: Export process of pulses and spices from Ethiopia and recommendations for improvement

Core business process (use case)

Observations Recommendations

Procedural requirements

Data and documentary requirements

Transparency and predictability

Finalize purchase order

Finalization of the sales contract is quite straight forward, as it involves only two parties, both of whom are private.

Quotation Purchase order Proforma invoice (PI)

Direct communication between the importer and the exporter, through exchange of e-mails, phone or Skype conversations. These are in line with the layout of international trade documents, which includes the delivery date, quality of item, packaging instructions and payment options.

Improving the communication technologies, such as Internet connectivity, will ease the process by enabling reliable and faster correspondence among stakeholders inside the country and outside.

Obtain L/C advice

This step involves interaction among the exporters, importers and their respective banks.

Bank application Proforma invoice Export permit (copy) The payment advice needs to contain a specific reference to the export and sales contract.

This is quite a standard approach, as it is guided by the Uniform Customs and Practice for Documentary Credits (UCP) (current version is UCP 600).

There is scope to improve the procedure through wide, faster and reliable use of an online platform, which requires improvement of Internet speed and coverage.

Obtain bank permit

The exporter’s bank receives and verifies the application. After verification, if the officer in charge is satisfied, the exporter’s bank issues the bank export permit. The National Bank of Ethiopia (NBE) receives a copy of the bank export permit, along with supporting documents.

Business registration Export business license Commercial invoice Copy of authenticated letter of credit Bank permit for export of the goods duly completed, signed and sealed Two original invoices duly completed, signed and sealed Packing list The bank export permit form has four copies (one each for the exporter's bank, the NBE, ERCA and the exporter). This is being completed manually with carbon paper. All documents are then submitted to the customer relations officer of the commercial bank. Names and full addresses of parties to each transaction. Type of currency and amount. INCOTERMS agreed upon between the parties (for import/export). Short description of

Proclamation No. 591/2008, The National Bank of Ethiopia Establishment (as amended) Proclamation. National Bank of Ethiopia, Directive No. FXD/07/1998: “To transfer National Bank of Ethiopia's foreign exchange functions to commercial banks”, dated 31 August 1998. The National Bank of Ethiopia (NBE) oversees this process. It regularly provides and updates commercial banks with the latest price information on various commodities so they can advise on pricing of export items if requested by their customer.

There should be some online platform to connect all the organs related to the export process for data and information sharing, in order to make the process faster and find any mismatch very easily.


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commodities or service of the transaction.

Clean products and obtain cleaning certificate

If the exporter does not have his or her own cleaning facility, he or she contacts the authorized cleaning company for a quotation. The exporter ensures that the items are ready stocked either on the exporter’s premises or at the cleaning company’s warehouse and graded based on the buyer’s requirement. One the required level of cleaning is achieved, the company issues a cleaning certificate.

Commercial invoice Packing list

This is a private step that involves exporters and cleaning companies.

A one-stop facility can be built for export promotion. On the premises, exporters will get support for services like cleaning, fumigation, inspection for phytosanitary and storage.

Obtain fumigation certificate

Once the goods are cleaned and properly stocked, the exporter contracts fumigation companies and asks for quotations. On average, it takes four hours to do the fumigation and it takes about 72 hours to complete the whole fumigation process. Then the company conducts a pre-inspection and, if the sample test meets all requirements, the pre-inspection certificate is issued.

Description of the goods (commercial invoice) and location of the warehouses

The fumigation process and requirements can be made available online. The certificate can be issued online, which will save travel time and cost for the exporter.

Obtain quality certificates

Exporter applies for quality certificate to the Ethiopian Conformity Assessment Enterprise (ECAE). The exporter arranges with the authorized inspection agency to inspect the product. The inspector (or inspectors) from the testing authority collects samples, and performs inspection and required testing in their laboratory. If the inspector is satisfied with the product quality, an inspector issues the lab test report to the exporter.

Application form Commercial invoice Proof of payment

The Ethiopian Conformity Assessment Enterprise (ECAE). Establishment Council of Ministers Regulation No. 196/2010. There is no SPS notification authority or SPS enquiry point. Eventually, the SPS notification authority is expected to be established under the responsibility of the Ministry of Trade, and the SPS enquiry point under that of the Ministry of Agriculture. A TBT inquiry point has been established under the overview of Ethiopian Standards

The test results can be issued online, which the exporter can print and use for the next level. Even the standardization authority can directly send the results to the importer or to the respective authority who issues the quality certificate (Ministry of Trade, in this case).


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Agency. However, the office does not operate fully and only limited demands are presented from local exporters.

Obtain phytosanitary certificate

The exporter applies for a phytosanitary certificate from the Ministry of Agriculture (MINAGRI). The exporter arranges a time for the MINAGRI inspector to visit the warehouse. Once satisfied, the inspector issues the certificate to the exporter.

Application form Cleaning certificate Quality certificate Application form Commercial invoice Any container shall be marked with the information specifying the nature of the contents, the place where produced or obtained, where plants or other articles were propagated, the name and address of the shipper, owners or person forwarding, and the name and address of the consignee.

Plant quarantine regulation (Council of Ministers Regulations no. 4/1992). The Ministry of Agriculture oversees the process. Ethiopia is a member of the Codex Alimentarius Commission, the International Plant Protection Convention (IPPC) and the International Office of Epizootics (OIE) and, therefore, applies international standards guidelines issued by these organizations.

The process can be automated so that the process of application for the inspector’s visit and collection of the certificate can be made online. This will save time and cost and make the overall process transparent. Russian importers ask for not only the certificate, but also the result of the analysis, which the Ministry of Agriculture does not issue. This creates a problem for exporters who wish to export to Russia. To address the issue, the Ethiopian Government can sit with the Russian counterpart and mitigate it through bilateral trade negotiations.

Arrange local transportation

If the exporter does not have his or her own transportation, he or she contacts an inland haulage company. Once the parties agree on the terms and conditions, they fix a time to pick up the goods from the exporter’s premises. Inland haulage collects the goods from the exporter’s premises and brings them to the place of customs inspection.

Description of the goods Amount of goods (number of containers) Location of the warehouses Vehicle plate number Drivers’ identities

When supporting big projects, the government sometimes takes control of most of the containers, which creates a short supply for export businesses. A mechanism could be developed to address these issues upfront.

Load goods/stuff cargo

Once the goods are ready for customs inspection, the exporter asks the customs broker to send a vehicle to load the goods. Parallel to sending the cargo to the exporter’s premises or warehouse, the transitor makes the declaration.

Quality certificates Phytosanitary certificates

There are no specific rules or regulations here.

The sequencing of cleaning, testing, fumigating and obtaining phytosanitary certificates can be harmonized in such a way that the time required to perform all these functions can be reduced to the minimum. In this regard, a one-stop facility can improve efficiency.


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Declare customs online

This step is completed by the exporter’s agent; i.e. the transitor company or CFA. The CFA submits the online declaration to Ethiopia Revenues and Customs Authority.

Commercial invoice Packing list Certificate of origin Certificate of quality Business registration license Export business license Tax identification number (TIN) Bank export permit (copy for ERCA) Power of attorney letter As a first step, the transitor checks the documents for completeness and accuracy. Then the transitor makes the customs declaration online via the Automated System for Customs Data (ASYCUDA++). Once the declaration is submitted, it must be printed, stamped and signed by the transitor and becomes part of the customs declaration file. In addition, the above-mentioned documents are attached to the declaration. The declaration file is subsequently submitted to ERCA.

Ethiopia Revenues and Customs Authority, Customs Proclamation No. 859/2014. ERCA has its own website and agents that are registered to use ASYCUDA++ have access to the system from their office. However, not all transitor offices are equipped with an ASYCUDA++ connection. In such cases, the transitor first completes a customs declaration manually and submits the manual declaration to the customs clearing agency, the DTI. The DTI staff keys in the manual declaration and prints a copy for verification by the transitor. Once the transitor verifies the accuracy of the data, the declaration is sent to customs and a final print-out is produced. Using the DTI comes at a service charge of ETB 150 for single-product shipments (one HS-Code). For additional product types, there is an additional fee of ETB 2 per product. This process takes 15–30 minutes.

The online declaration process sometimes takes a long time due to the bad Internet connection. The business community can work together with the government to improve this situation by ensuring the maximum benefit of ICT.

Obtain customs clearance

The transitor submits the request to customs to assign an inspector for inspection of the goods. Customs assigns an inspector to inspect the goods. Inspector checks samples and also the checks the submitted documents. Once the inspector is satisfied, he or she puts the seal on the container and issues an exit note.

Commercial invoice Packing list Certificate of origin Certificate of quality

The frequent change of officers at customs doesn’t permit the officials to be efficient. This delays the checking procedures very often. Also, there is a lack of infrastructure starting from basic infrastructure such as working space and waiting areas for the exporters or their representatives to checking facilities

The capacity of the customs officials needs to be improved by providing necessary training, so that they can be equipped with the best international practices. In order to facilitate export, a risk-based inspection system could be introduced and also applied for exports. This would allow customs to prioritize high-risk and high-damage cargo for inspection while only doing random


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such as scanning of items loaded in trucks or containers. The process of keeping the records is still manual, but can be digitalized, which will give easy access to information and quick sharing with other agencies involved in the process, such as NBE. All exports are subject to physical inspection. The physical inspection takes place either at the customs facility or at the exporters’ premises.

inspections of other cargo from time to time. The customs authority has already agreed to implement risk management in exports, but no timeline has been set. In this case, development partners such as ITC and UNCTAD can help to build human capacity to implement these initiatives.

Move goods to Djibouti

As per the transport contract, the inland transport company collects the goods from the pre-agreed place and transports them to the port.

Commercial invoice Packing list Certificate of origin Certificate of quality Customs exit note

With the operationalization of the railway track, the process will be faster. Government should make a strategic plan to connect the rail network with major business areas. Increase competition in providing multimodal transportation service.

Enter the port of departure and stow cargo on the vessel

This step involves a number of parallel activities by the shipping line and the port authority. On arrival, the CFA requests entry of the vehicle into the port area. The port records details of the truck and container and issues an entry pass allowing the truck and container to enter the controlled area. The date and time of entry of the truck and container is officially recorded. The goods are then taken to the designated area where cargo inspection is to take place. The shipping agent coordinates handling of the container at the terminal and moves it to the berth area with permission from the port authority. While the container is

Officials at the port verify seals on the container and accept the truck into the yard, and signs the cargo acceptance form. The shipping line prepares the draft bill of lading for the agent to confirm all details, upon confirmation of which the bill of lading is issued. Agent collects bill of lading from shipping line and forwards it to the exporter.

International Convention for the Safety of Life at Sea (SOLAS), 1974, as amended. International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto and by the Protocol of 1997(MARPOL). International Convention on Standards of Training, Certification and Watch-keeping for Seafarers (STCW) as amended, including the 1995 and 2010 Manila amendments.

The guidelines or instructions regarding port handling can be made available on the port website. A way needs to be found to enable the Port of Djibouti to remain operational for longer hours. Data requirements can be harmonized.

http://www.imo.org/en/About/Conventions/ListOfConventions/Pages/International-Convention-for-the-Safety-of-Life-at-Sea-(SOLAS),-1974.aspx

http://www.imo.org/en/About/Conventions/ListOfConventions/Pages/International-Convention-for-the-Prevention-of-Pollution-from-Ships-(MARPOL).aspx

http://www.imo.org/en/About/Conventions/ListOfConventions/Pages/International-Convention-on-Standards-of-Training,-Certification-and-Watchkeeping-for-Seafarers-(STCW).aspx


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in the process of being stowed onto the vessel, the shipping agent prepares the final bill of lading, which is supplied to the CFA. Parallel to this process, the port authority prepares a list of outward-going containers to be stowed on the vessel and ensures that the shipping line verifies the list. Once all these activities are completed and the cargo release order is received from customs, the ship sets sail as per schedule.

Obtain certificate of origin (Chamber of Commerce)

The exporter pays and takes a blank certificate of origin form from the Ethiopian Chamber of Commerce and Sectoral Association. The exporter completes the blank certificate of origin form, signs it and submits it together with relevant documents. An officer from the Chamber checks the supporting documents and assesses if the exporter is eligible for the certificate of origin. If the application file meets the criteria, a note is made of the shipment date. The Chamber’s rules of origin officer issues and signs the certificate of origin. The exporter takes the signed certificate of origin to the documentation section to get it stamped. The exporter receives the certificate of origin.

Business registration Export business license Commercial invoice Tax identification number (TIN)

Application needs to be made in person. The Chamber has similar offices in Tigray Region, Mekele Town and Dire Dawa. Other regions are serviced from the Addis Ababa office.

This step can be simplified by allowing online application and issue of the certificate, which will save the time and cost of travelling to the Chamber every time.

Prepare the documents required by the importer

The exporter collects all the documents required by the importer to receive the consignment in the importing country. Then the exporter sends an e-mail notifying the importer of the shipment, along with soft copies of the documents.

Commercial invoice Packing list Certificate of origin Certificate of quality Insurance certificate Bill of lading

International Chamber of Commerce (ICC) Uniform Customs and Practice for Documentary Credits, UCP 600, (ICC Publication No. 600)

Exporters can be trained to prepare or organize the documentary requirements for export business. Short courses or training on this can be introduced or conducted on a regular basis, combining both national and international


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Shortly thereafter, the exporter sends original copies of those documents by courier.

professionals in this field.

Pay

The payment for the exporter depends on the terms and conditions set in the commercial invoice. Normally, exporters get an agreed percentage of export value upon the first presentation of the supporting documents. Once the exporter notifies the importer about the shipment and sends the copies of the required documents, the importer transfers the agreed percentage of money to the exporter’s bank account. However, for the full payment, exporters might have to wait for some time (until the coffee is released by the importer).

Commercial invoice Packing list Certificate of origin Certificate of quality Insurance certificate Bill of lading

International Chamber of Commerce (ICC) Uniform Customs and Practice for Documentary Credits, UCP 600, (ICC Publication No. 600)

More professionals in the banking sector can be trained for better understanding of trade finance. Professionals can be encouraged to get certificates like the Certificate for Documentary Credit Specialists (CDCS).


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References

Alavi, Hamid (2005). Paperless Trade: Implementation Experience and the Way Ahead. UN/CEFACT Executive Forum. Geneva.

Gereffi, Gary and Olga Memedovic (2003). The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries Sectoral Studies Series. United National Industrial Development Organization. Geneva.

Hossain, Syed Saifuddin and Rahman, MdTariqur (2011). Facilitating Trade through Simplification of Trade Processes and Procedures in Bangladesh. Working Paper Series No. 93. Bangkok. Asia-Pacific Research and Training Network on Trade (ARTNeT). Available from www.unescap.org/sites/default/files/AWP%20No.%2093.pdf.

International Finance Corporation (2006). Reforming the Regulatory Procedures for Import and Export: Guide for Practitioners.

Kassahun, T. E. (2015). Trade Facilitation in Ethiopia: The Role of WTO Accession in Domestic Reform. Mizan Law Review, vol. 8, no. 1. Available from www.dx.doi.org/10.4314/mlr.v8i1.5.

Teklu, T. and Negus, E. (2011). The Impact of Border Clearance Procedures on the Cost of Doing Business in Ethiopia. The Addis Ababa Chamber of Commerce and Sectoral Associations. Private Sector Development Hub. Available from www.ethiopianchamber.com/data/sites/1/psd-hub-publications/the-impact-of-border-clearance-procedures-on-the-cost-of-doing.pdf.

Nathan Associates Inc. and Werner International (2007). Factory-Level Value Chain Analysis of Cambodia’s Apparel Industry.

Nathan Associates Inc. (2009). Holistic Modernization of the International Trade Transaction Process. USA.

Palpacuer, Florence (2006). The global sourcing patterns of French clothing retailers. Environment and Planning A 38(12), pp. 2271–2283.

United Nations Conference on Trade and Development (2007). Trade transaction modelling, Trust Fund for Trade Facilitation Negotiations, technical note no. 20. Available from www.unctad.org/en/Docs/TN20_TradeTransactionModelling.pdf.

United Nations Conference on Trade and Development (2007). UN/CEFACT Framework of Standards for Paperless Trade: Digital Documents, Single Window, Data Harmonization and Capacity Building, ESCWA Regional Workshop. Cairo. Available from http://css.escwa.org.lb/edgd/503/5.pdf.

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