Sacu reforms plod on
Botswana, Lesotho, Namibia and Swaziland will receive a huge blow from SA Customs Union
Four of South Africa’s neighbouring countries belonging to the century-old Southern African Customs Union (Sacu) will have holes blown in their national budgets this year because of an imminent “Sacu revenue shock”. The International Monetary Fund has projected that the revenue shock will mean customs revenue in the BLNS member states (Botswana, Lesotho, Namibia and Swaziland) falling by between 23% (in Botswana) and 34% (in Swaziland).
This graphically illustrates the continued reliance of the BLNS countries on the customs union, despite years of ineffectual reform talks.
The money they will lose represents a massive proportion of total government revenue in all four of the countries (see graphic).
Meanwhile, ministers of finance and trade from all five members of Sacu met in Muldersdrift, Gauteng, this week for a ministerial retreat.
In South Africa’s budget review in February, Treasury said the retreat would decide “how the review of the revenue-sharing formula is to proceed”.
After the retreat this week, however, a noncommittal statement was issued that scarcely mentioned the revenue issue or other practical steps.
“The ministers agreed on a set of principles which would guide further engagement on the Sacu agenda,” Treasury said.
Responding to questions in an emailed statement, Treasury said “participants ... recommitted to working together to ensure the customs union serves all members’ interests in a fair and equitable way”.
Gerhard Erasmus, an associate of the Trade Law Centre in Stellenbosch, said: “This retreat has been positive. I hear the atmosphere was quite accommodating, but no dramatic decisions were made.”
The revenue-sharing formula stems from the 2002 revision of the Sacu agreement.
It has been criticised from all sides for either costing South Africa too much or crippling the rest of the region, depending on where you stand.
Through the formula, South Africa “donates” much of its customs revenue to the other four governments. In return, South Africa effectively gets to control trade policy for the region – and guarantees tariff-free access to the regional market for its companies.
Erasmus said it was “facile” to call the Sacu payments – which amounted to R50 billion last year – a subsidy. 4 0
He said South Africa had been “adamant” it would not lose the policy power that Sacu granted it.
The Sacu revenue system was, however, fundamentally unsustainable over time, he said.
Further liberalising trade was the overarching logic of developments in trade agreements globally.
With each tariff that disappeared, the revenue in the Sacu pool fell, he said. “Sacu is a declining, unsustainable entity over time.” The Sacu that exists is not the Sacu that was envisaged on paper in 2002. Institutions like a Sacu Tribunal and a Sacu Tariff Board simply weren’t established, despite their being part of the 2002 deal.
“An alternative modus operandi set in with Itac [the International Trade Administration Commission] in Pretoria administrating tariffs,” said Erasmus. Itac is South Africa’s tariff regulator. “One question is, what would you replace the revenue formula with?”
A plan to pool the money into a development fund for regional industrialisation has been mooted from the South African side before.
“If I were advising one of the BLNS [states], I would be extremely concerned. I’ve lost my policy space, now I lose my revenue, and all I get in return is a fund subject to South Africa’s idea of industrialisation,” he said.