An impact analysis of customs risk management processes in South Africa

Abstract

The role of customs administrations has undergone a major paradigm shift in modern times with a greater emphasis on protecting socio-economic interests from fiscal and non-fiscal threats, especially given the increased flow of goods internationally. Historically, many customs administrations have used risk-averse approaches, requiring 100 per cent inspection of all shipments, conveyances, crews and passengers. These outdated approaches would have brought vast networks of increased global trade to a halt; therefore, there was a need for customs administrations to apply risk management practices. These applications have maintained a safe, secure environment while facilitating the flow of global trade. Since there is limited literature available to explain the impact of customs risk management on trade, especially in the southern African region, this thesis sets out to fill the gap. It presents an impact analysis of customs risk management practices from a South African perspective. This thesis is presented in the form of three independent articles, each addressing various interrelated aspects. Article 1 investigates the current customs risk management models employed around the world and compares them to the model currently employed by South Africa's customs administration. The emphasis of the investigation is on the increased role that the private sector plays in securing the end-to-end supply chain and shifting away some responsibility from customs administration as prescribed by the WCO SAFE Pillar II and other forms of economic operator programmes. The article shows that several countries (e.g. the US, UK, EU) are currently at different stages of developing new performance measurement models based on the relationship between customs and business. Although South Africa has a similar programme (the 'preferred trader' or PT) in place, progress has been slow. The article finally makes recommendations towards a best practice customs risk model based on numerous risk factors, such as entity, transactional, cargo and commercial risk, to improve the risk engine that South African customs employs. This, in turn, should solve many of the problems mentioned in articles 2 and 3. Article 2 explores the effectiveness of the current customs risk management practices and their impact on trade in South Africa. It further explores whether inefficient customs processes or unnecessary customs delays impact on the seamless flow of cargo, commonly indicating a low-risk score. Given that multiple factors affect the customs process, it is essential to identify the areas of worst performance and their common underlying causes to progress towards improved solutions. The research defines the most important process outcomes from a trade (industry) and customs perspective, identifies the key input factors and extracts the performance measures from the data exchanged between the customs administration and cargo consignors between September 2014 and September 2016. The study measures the time it took to complete the customs process per category and the effectiveness of the customs administration in screening consignments for inspection. This article highlights the need for improved customs processes in the South African context to ensure more efficient trade. The results show that of all shipments that were delayed by customs, more than 90 per cent were delayed unnecessarily, which is an indication of inefficient risk identification in the South African customs process. Article 3 examines the quantified impact of customs delays using a case study on the vertical tyre market in South Africa. Against the backdrop of increased flows of tyre imports into South Africa, the article uses transaction-level flows between the South African customs administration (SARS) and consignors of tyres imported into South Africa between January 2017 and April 2018 (16 months). The article indicates that a customs delay in the vertical tyre market in South Africa results in an average direct cost increase of 3.8 per cent of customs value for the imports and adds an additional 4.8 days to the end-to-end supply chain. In addition to the direct impact, customs delays also have a lasting indirect impact on cost and time, differing in range from one tyre importer to another. This article also highlights the need for improved customs processes in the South African context to ensure more efficient trade in the vertical tyre market. Collectively, this thesis contributes to the limited literature on customs efficiency in southern Africa. It reveals that there is a need for improved customs risk management processes in the South African context to facilitate trade more efficiently. The results of the study indicate that the role of customs administration in the twenty-first century is no longer as static as before and must evolve to meet the dynamic demands of global trade in a modern, technology-driven era. The responsibility of securing a safe, efficient and transparent trading environment no longer rests with customs administration alone but should include stronger collaboration with the private sector. Finally, customs risk management should start before the transactions are concluded, with efficient profiling and screening of operators, and continue after transactions are concluded with post-clearance audits.