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New way to cut the Sacu cake

 IF YOU opened the Southern African Development Community (Sadc) home page last year it would have told you that by the end of 2010 a customs union was supposed to be in place among the 15 Sadc members.

This no longer appears on the website.

A customs union is one in which members decide collectively on a common external tariff for goods coming from outside the area.

All goods traded internally are supposed to be duty free.

Sadc is at present a free-trade area in which all goods traded are duty-free but there is no common external tariff.

Such a tariff has existed for 100 years between the Southern African Customs Union (Sacu) countries (South Africa, Botswana, Lesotho, Namibia and Swaziland), which are also all members of Sadc. But, like many things that people don’t want, the 2010 Sadc customs union deadline was just allowed to slip.

There are several reasons.

First, the Sacu countries use a revenue-sharing formula that South Africa hates because it is a massive burden on its treasury and until a more equitable formula is figured out Sacu will not agree to extend the customs union to the other 10 members of the Sadc.

As one South African official put it: “As soon as you started to discuss the Sadc customs union at a meeting the non-Sacu members of Sadc would say they want the Sacu revenue-sharing formula, something to which none of the Sacu members will agree.”

As two separate revenue-sharing systems in one customs union is unfeasible, until this issue is resolved no Sadc customs union is possible.

Second, Southern African countries have kept a watch on the Sacu integration process and don’t like what they see.

South Africa has grabbed all the production benefits — almost everything produced for the Sacu market is made in South Africa.

This is what economists call polarisation, when one country in a common area gets all the benefits.

As a result, although Sadc members are signing all sorts of trade agreements to liberalise trade, the trade ministers are going home and raising ever more non-tariff barriers because they do not believe that liberalisation will benefit anyone other than South Africa.

Third, South African business no longer needs Sadc integration and the South African government does not want it.

South African ministers may make lovely speeches at both Sacu and Sadc meetings about their support for deepening integration but behind closed doors their officials say the opposite.

The nature of trade in southern Africa has changed profoundly since the end of apartheid and whereas South Africa once exported goods to all the Sacu and most of the Sadc countries it now exports both wholesale and retail firms that are South African-owned or based in the country and increasingly dominate all the Southern Africa retail trade.

Every day their trucks, loaded with South African goods, rumble across borders bound for South African-owned outlets located throughout the Sacu and Sadc countries.

South Africa knows that this will continue whether or not there is a common customs union.

 All it wants is free trade.

South Africa is now also playing in the big league — it is now a member of Bric, which includes Brazil, Russia, India and China, and does not want its trade policy dictated by a bunch of small developing countries, which is what would happen under Sadc customs union.

What is emerging in the region is a dangerous cocktail that is undermining Southern African integration.

While South Africa sees itself as the paymaster of Sacu, it will have no ongoing commercial interest in deepening integration.

The Sadc countries, on the other hand, see themselves as victims of a hegemonic South Africa to which all the benefits of a customs union accrue and in which Sacu countries pay high prices to protect South African-made cars and clothes.

The only thing South Africa wants from regional trade policy and strongly supports is a free trade agreement between the Sadc, the East African Community and the Common Market for Eastern and Southern Africa — a modern-day version of Cecil John Rhodes’s 19th-century desire to paint the map pink from the Cape to Cairo.

Meetings are under way among officials of the Sacu countries to consider the first issue blocking further Sadc integration: the Sacu revenue-sharing formula.

They are considering a report that, if implemented, would have far-reaching implications for Sacu and may well result in its demise.

The draft report proposes a huge increase in customs and excise revenue for South Africa, upwards of R12 billion a year, at the expense of Botswana, Namibia and Swaziland.

Under this proposal Botswana would be the greatest loser, paying two-thirds or up to R8 billion of South Africa’s R12 billion increase in revenue.

By a clever sleight of hand Lesotho, the poorest Sacu member, would be slightly better off, dividing it from its traditional allies in Sacu.

The Sacu secretariat’s consultants proposed a formula that would see revenue decline by a maximum of two percent of GDP a year in Botswana, Namibia and Swaziland for a period of eight years.

According to the Sacu report these decreases were seen as “incremental” and not as a decrease of catastrophic proportions.

Nothing could be further from the truth.

Swaziland, which gets more than 60 percent of its revenue from Sacu transfers, would suffer without these funds.

The implications for Namibia and Botswana would also be serious.

For Botswana, the most prosperous and stable Sacu country, a two percent annual decline in revenue over the eight years between 2012 and 2020, followed by what will almost certainly be an even more substantial decline in diamond-mining revenue as the huge Jwaneng diamond mine starts to wind down, will have dire long-term consequences for the country.

The current Sacu proposals will serve only to increase the perception of inequity in Sacu.

South Africa, which stands to receive an additional R12 billion in revenue, has already gained most of the production benefits from Sacu, which stems in no small part from the billions in subsidies it has offered industry to locate in South Africa.

Late last year the South African trade minister announced a further R13 billion in subsidies for firms to locate themselves in South Africa, something no small Sacu country like Botswana can hope to compete with.

Sacu’s new proposals will not attract more members into Sacu or help to create the Sadc customs union but, if accepted, will create long-term economic instability in all South Africa’s near neighbours and may well turn Swaziland, the most vulnerable of all Sacu members, into a failed state.

These proposals will almost certainly be rejected and should be rejected by South Africa’s leaders if they are truly concerned about the stability of the region rather than their revenue flows.

Professor Grynberg is a senior research fellow at the Botswana Institute of Development Policy Analysis. This article first appeared in the Mail and Guardian.

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