Has the oldest customs union run its course?
It’s under fire because other members pay more for materials and products
THE Brexit vote, an unsteady EU and nationalistic support for Donald Trump in the US can all be seen in the context of an underperforming global economy. But a resurgence in protectionism should not imperil African attempts at integration.
Last month Finance Minister Pravin Gordhan hosted a retreat for his peers from Botswana, Lesotho, Namibia and Swaziland — the four neighbouring states that, together with South Africa, form the Southern African Customs Union.
Established in 1910, the oldest customs union in the world was initially designed to facilitate the Union of South Africa’s domination of regional trade and the suppression of the industrialisation of its immediate neighbours.
The aims of the customs union under apartheid were no different and the legacy is that the four other members derive between a third and three-quarters of their annual GDP from a customs revenue sharing agreement to which South Africa contributes very nearly all the revenue but earns less than half the proceeds of R46-billion.
This presents the Department of Trade and Industry some tough choices: maintain the status quo and lose out on valuable contributions to the fiscus, or deprive our neighbours of revenue in a harsh global economic environment.
South Africa’s role as chair of the union comes to an end on Friday, with no clear change to the status quo in sight.
The union acts as a unified bloc and tariffs put in place to protect South African business — such as that on steel imports requested by ArcelorMittal SA and granted in 2015 — apply to all five members. This arrangement is under fire because it means the other members pay more for certain raw materials and products like steel or motor vehicles.
But Trudi Hartzenberg, executive director of trade law organisation Tralac, said greater regional co-operation should not be sacrificed at the altar of equitable revenue distribution.
“What’s evident from the trade figures is that Africa is increasingly important for South Africa in terms of markets for services and goods. Our companies are well represented on the continent, with good market penetration and in many cases first-mover advantage.”
Although South Africa’s manufactured goods may not be as competitive as those from Asia, Hartzenberg said our exports remained competitive on the continent.
“African integration does not have to follow the EU blueprint. We need an Africa-specific model of integration that addresses a lack of infrastructure and connectivity — in communications, logistics and distribution — and energy networks. Regulatory harmonisation will lower the costs of doing business on the continent,” she said.
Although the impetus for tariff reduction now seems muted as globalisation retreats and economies aim for protectionist measures, Hartzenberg said Africa needed to work on trade facilitation, making borders and the movement of goods and services more efficient.
“It will be a pity if we were to revert to raising barriers again. When it comes to services, these are highly integrated markets. In Windhoek or Gaborone, South African firms are everywhere. Botswana and Namibia consistently rank among our top 10 export destinations every year. That is significant for us.”
Trade and Industry Minister Rob Davies said African regional integration was imperative, despite a move away from unity on other continents.
“It has a different conceptual framework to the processes of globalisation or regionalism elsewhere. The case for regionalism in Africa is to move up the value chain, to industrialise.”
With the commodity super-cycle at an end, South Africa needs to move on from playing a “typical” African economic role as a primary producer of raw commodities. But Davies warned against charging towards becoming a knowledge economy at the expense of manufacturing.
“The creation of a regional market is the only basis on which we can promote BUSTLING: Windhoek traffic with South African brands in the background deep economic diversification and industrialisation. It’s not going as fast as many had thought, and requires careful negotiation. But when it comes to development integration the reason intra-regional trade in Africa has been low is that we haven’t been producing what other markets nearby are looking for.”
Davies said the development of infrastructure, negotiation of tariffs and identifying the kinds of goods to manufacture went hand in hand.
“Our neighbours’ future lies in being part of the value chain of which South Africa is part. In many respects, though, the Southern African Development Community has outpaced Sacu.
“Sacu was not historically a developmental integration arrangement — it was fundamentally a relationship of convenience based on redistributive revenue sharing,” said Davies.
“Yes, if we deprive our neighbours of revenue it will imperil their fiscal base, but we haven’t got a single cent of revenue that’s been used to support cross-border infrastructure projects. We need to work together on projects and get results that work for all of us.”
Stanlib chief economist Kevin Lings agreed that unfavourable moves by other global regions might delay, but should not scupper attempts at integration in Africa and that it need not be an absolute exercise involving the dropping of all tariffs or controls.
Lings said infrastructure should be prioritised ahead of the free flow of people and capital, based on the example of the East African Economic Community, which has benefited from infrastructure linkages and sustained relatively high levels of recent economic growth.
In many respects, though, the Southern African Development Community has outpaced Sacu
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