SA’s pricey neighbours
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.
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