Call to diversify as customs union largesse is trimmed
SOUTH Africa wants to change the way the century-old Southern African Customs Union (Sacu) is run.
This country transfers billions of rands every year to its neighbours in the customs union to help fund their budgets.
By the end of the year to March, R43.4-billion will have been transferred to Botswana, Lesotho, Namibia and Swaziland, the other members of the customs union. This is forecast to rise to R51.7-billion next year, R57.3-billion in fiscal 2016 and R59.7-billion in 2017.
The billions in customs revenue earned by the five member countries are divided between them based on their share of intra-union transfers.
Because South Africa imports little from the other members, it gets a very small portion of the revenue and ends up paying them an estimated R18-billion a year more than would be the case if the customs union didn’t exist, according to Roman Grynberg, senior research fellow at the Botswana Institute for Development Policy Analysis.
Critics of the union have been unhappy about the support the union gives to Botswana, which has a higher per capita income than South Africa, and to Swaziland, where the money is used to help prop up the dictatorship of King Mswati, one of the richest monarchs in the world.
But cutting off the revenue would have a devastating effect on Botswana, Lesotho, Namibia and Swaziland, which rely on the customs union for 30% to 60% of their income.
The finance ministers of all four countries have urged their governments to diversify their revenue sources and reduce their reliance on the customs union.
This week, the South African Treasury said the government was working with the other members of the customs union “to ensure that a greater share of the common revenue pool is spent on investment and on increasing the region’s production potential”.
Matthew Stern, managing director of DNA Economics, said there was a growing recognition among all members that unionwide development projects might make more sense than using the revenue for shortterm budget support.
“The real challenge is how to get alternative government revenue streams, especially for Swaziland and Lesotho, which depend on union revenues for a disproportionately high share of their overall budget. How do you close the gap if a chunk of that money is diverted to regional projects?”
Grynberg said there was uncertainty about South Africa’s plans for the union.
“The current revenue sharing is based on an apartheid-era arrangement, which has to end, and the sooner the better. Botswana and Namibia have more diversified economies, and can probably adapt. But I don’t know if it is doable for Swaziland and Lesotho,” he said.
Opening up South Africa’s labour market to allow their citizens to work here would be necessary.
“[This is] happening in any case. Yes, there will be opposition from the unions, but the worst thing for local workers is not migration, is illegal migration, which allows migrants to undercut local labour,” Grynberg said.
“If South Africa doesn’t move patiently and prudently with any reforms, it runs the risk of not only destabilising Sacu but of creating at least two insolvent states in and on its borders.”