SA’s pricey neigh­bours

Finweek English Edition - - Indepth - By Natalie Greve

Crit­ics say that South Africa should with­draw from the South­ern African Cus­toms Union, as it costs SA bil­lions a year in cus­toms rev­enue that is paid over as ‘sub­si­dies’ to the other mem­bers of the union.

the South­ern African Cus­toms Union (Sacu) is now 128 years old and in its fourth it­er­a­tion. First es­tab­lished in 1889 be­tween the Bri­tish Colony of the Cape of Good Hope and the Or­ange Free State Boer Repub­lic to pro­mote eco­nomic de­vel­op­ment through re­gional co­or­di­na­tion of trade, the agree­ment to­day sets out poli­cies that dic­tate the terms of trade be­tween the five re­gional mem­ber states.

But de­spite be­ing the world’s old­est cus­toms union, and hav­ing un­der­gone sev­eral amend­ments to its trade and cus­toms poli­cies, South Africa, Botswana, Le­sotho, Namibia and Swazi­land re­main dis­sat­is­fied about what each coun­try claims are na­tion­ally prej­u­di­cial rules and poli­cies.

The eco­nomic struc­ture of the union links the mem­ber states by a sin­gle tar­iff and no cus­toms du­ties be­tween them. The mem­ber states form a sin­gle cus­toms ter­ri­tory in which tar­iffs and other bar­ri­ers are elim­i­nated on all trade be­tween the mem­ber states for prod­ucts orig­i­nat­ing in th­ese coun­tries. A com­mon ex­ter­nal tar­iff also ap­plies to non-mem­bers of Sacu.

How­ever, fol­low­ing the most re­cent re­work­ing of the rev­enue-shar­ing for­mula in 2002, the new cus­toms com­po­nent rapidly drew crit­i­cism from the union’s largest mem­ber – South Africa – af­ter it be­came clear that the state was ex­pected to es­sen­tially “do­nate” much of its cus­toms rev­enue to its four union peers.

The Botswana-Le­sotho-Namibia-Swazi­land (BLNS) group­ing has, how­ever, con­sis­tently main­tained that the share of rev­enue from the com­mon cus­toms Sacu pool is jus­ti­fi­able given the de facto con­trol that SA ex­erts over the re­gion’s tar­iff pol­icy.

The cur­rent struc­ture of the for­mula is such that BLNS mem­ber states get a sig­nif­i­cant share of their rev­enue from the cus­toms com­po­nent, while SA re­ceives more than 90% of its share from the ex­cise com­po­nent.

“The last time I looked, SA would be some R18bn bet­ter off if it could tear up the cus­toms sub­sidy por­tion of the rev­enue-shar­ing for­mula, but I think this has in­creased sig­nif­i­cantly,” says Pro­fes­sor Ro­man Gryn­berg from the fac­ulty of eco­nom­ics and man­age­ment sci­ences at the Uni­ver­sity of Namibia.

Stalled re­form

The topic of Sacu re­form has been on the agenda for sev­eral years, but the Econ­o­mist In­tel­li­gence Unit (EIU) says that BLNS re­liance on Sacu trans­fers, cou­pled with diplo­matic sen­si­tiv­ity, means that lit­tle head­way has been made.

For­mer fi­nance min­is­ter Nh­lanhla Nene told Par­lia­ment’s fi­nance com­mit­tee in 2015 that the ex­ist­ing union frame­work was un­fair on SA, which was in ef­fect sub­si­dis­ing the four other mem­bers.

“South African data show that trans­fers to Sacu rose from R43.4bn in fis­cal year 2012/13 to a pro­vi­sional R51.7bn in 2014/15, equiv­a­lent to 5.4% of South Africa’s to­tal rev­enue and 1.3% of GDP,” the EIU said at the time. “No­tably, Sacu’s R51.7bn al­lo­ca­tion in 2014/15 ac­counted for al­most twothirds of cus­toms du­ties col­lected, leav­ing SA with just one-third, de­spite be­ing re­spon­si­ble for the vast ma­jor­ity of trade. South Africa is in ef­fect los­ing about R30bn a year com­pared with a fairer for­mula, which is detri­men­tal for the cur­rent ac­count.”

Gryn­berg ex­plains that, due to de­lays in the re­lease of trade statis­tics, Sacu rev­enues are ad­justed with a three-year lag. Rev­enues for 2017/18 are thus based on trade data of 2014/15. Ac­cord­ing to statis­tics pro­vided by Sacu, to­tal cus­toms rev­enue in 2017/18 will amount to R57.16bn, with Botswana re­ceiv­ing R20.56bn of this, Namibia R17.30bn, Swazi­land R5.42bn and Le­sotho R4.59bn. De­spite mak­ing to­tal pay­ments over the pe­riod of R43.14bn, SA will re­ceive only R9.28bn in cus­toms rev­enue.

Over the years, the BLNS coun­tries have grown in­creas­ingly de­pen­dent on the Sacu rev­enue.

Ac­cord­ing to a 2015 pa­per by the In­sti­tute for Se­cu­rity Stud­ies, at the time, the union funded 50% of Swazi­land’s en­tire gov­ern­ment rev­enue, 44% of Le­sotho’s, 35% of Namibia’s and 30% of Botswana’s.

Price­wa­ter­house­Coop­ers tech­ni­cal tax ex­pert Kyle Mandy

Cather­ine Grant-Makok­era For­mer diplo­mat and se­nior con­sul­tant at Tutwa Con­sult­ing

Kyle Mandy Tech­ni­cal tax ex­pert at Price­wa­ter­house­Coop­ers

Malusi Gi­gaba Min­is­ter of fi­nance

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