Celebrating 100 Years of SACU
By Thembi Mabula
SACU (Southern African Customs Union) has made it through loads of odds to celebrate a full century which elapsed on June 29, 2010, making it the oldest Customs Union in the world and perhaps one of the most functional regional economic integration in Africa. SACU comes from a Customs Union Agreement (CUA) formed in 1910 between the then Union of South Africa and the High Commission Territories of Bechuanaland, Basutoland and Swaziland. With the advent of independence for these territories, the agreement was updated and on December 11, 1969 it was relaunched as the SACU with the signing of an agreement between the Republic of South Africa, Botswana, Lesotho and Swaziland. The updated union officially entered into force on March 1, 1970. After Namibia's independence from South Africa in 1990, it joined SACU as its fifth member. Initially the union was administered by South Africa, a member state, together with Botswana, Lesotho, Namibia and Swaziland (BLNS).
Challenges at 100 Years
While SACU may be 100 not out (in Cricket parlance), the sustainability of the union is increasingly very shaky in the face of various modern era challenges. The acquisition and sharing of revenues underpins the challenges that are rocking the core of the union.
The economic structure of the union links the member states by a single tariff and there are no customs duties between them. The member states form a single customs territory in which the tariffs and other barriers are eliminated on all trade between member states for products originating in these countries and there is a common external tariff that applies to non-members of SACU (SACU website, 2007). The union collects duties and the revenue accumulated is shared among the member states on a quarterly basis. The global economic meltdown experienced in 2009 across the global markets also affected SACU imports and exports drastically forcing it to implement austerity and cost reduction measures for the member countries. Consequently, revenues have dropped sharply since the global economic crisis. Due to the global meltdown, according to SACU chair, Namibia’s total revenue from the tariff pool is down by 40%. This will have a drastic impact on Namibia’s national budget, which largely depends on SACU revenue flows (Van den Bosch, 2010).
South Africa, a major and dominant member state due to its giant economy, responsible for over 90% of the region’s gross domestic product (GDP), is seriously considering terminating its SACU membership with the approval by some major structures in the country which agree that SACU is a liability to the progress of the South African economy. Furthermore, in South Africa there is a consensus in official structures that the country cannot afford to indefinitely carry the fiscal burden imposed on it by the revenue sharing formula (Draper, Dube, 2010). Yet the absence of South Africa renders the union very fragile.
The revenue is shared among members according to a revenue-sharing formula, as described in the SACU agreement. This formula has been much contested, but no agreements have ever been reached to finalise it. South Africa is the custodian of the revenue pool. Only the BLNS member states' shares are calculated with South Africa receiving the residual. South Africa, being the strongest economy in the region, is not happy with its small share any longer and has requested to change the system of ‘enhanced payments’, which it says favours the BLNS countries. An abrupt withdrawal of the revenues will have dire economic, social and political consequences for the BLNS states and would severely affect Swaziland and Lesotho, since they cannot sustain their budgets with their small internal revenues.
Lesotho and Swaziland are the most heavily dependent members on SACU shares. Their small economies seriously need SACU revenue, which constitutes 70% of their budgets. Lesotho and Swaziland derive more than half of their national budgets from the customs union, while Botswana’s relies on 29% of SACU revenue, according to its central bank. Only South Africa is less dependent on the union, as it receives a residual payout, after all other member countries have received their share (Van den Bosch, 2010). Namibia is greatly concerned about this development, because it will have a significant impact on its national budget, while Botswana is at the moment well sustained by its diamond deposits, but the future spells danger even for them as the deposits are getting depleted and they will have to dig deeper to get to deeply embedded deposits. At the moment, they are still doing open cast mining, but they are bound to sooner than later feel the SACU revenues squeeze.
There is a further sore point of disagreement within the world’s oldest customs union over the Economic Partnership Agreements (EPA) that regulate market access between SACU and the European Union (EU). Botswana, Lesotho and Swaziland have willingly decided to sign the trade agreements with the EU as these work in their favour, while Namibia and South Africa have strongly demanded that before they sign the EU must remove the clause about the Most Favoured Nation (MFN), which would automatically extend SACU’s trade allowances to third parties. Namibia and South Africa will be obliged to find their own measures of protecting their borders from the leakage of EPA goods. Also, different Common External Tariff (CET) regimes applied to different SACU member states exacerbate differences; a major rift is looming and threatens a split amongst the member states. This has caused persistent quarrels over the future of the Customs Union. South Africa may decide to pursue its own trade pathway or even join customs union with countries that have bigger economies, like the SADC or the COMESA blocs.
Prospects of Giant Intra-African Trade
SACU is also facing terrible threats from prospective giant intra-African trade giants. Major southern Africa and Eastern Africa organisations, like SADC and COMESA (Common Market for East and Southern Africa), have initiated their own customs unions, which are likely to entice South Africa. Both SADC and COMESA customs are in the process of being refined. Having decided that SADC should move to a Customs Union (CU) by 2010, the task now facing the region is to identify the options and select modalities. The essential feature of a Customs Union, differentiating it from other forms of regional integration (which may operate in parallel), is its treatment of tariff and non-tariff barriers to trade in goods and the distribution of revenue collected on these goods (SADC Secretariat Report, 3 September 2007). COMESA also launched its customs union in Zimbabwe during the 13th Summit of the COMESA Heads of State and Government, which was held in Victoria Falls, Zimbabwe (COMOSA website, 2010). There are ongoing tripartite free trade discussions between COMESA, SADC and the East African Community, which seek to reach agreements on regionalising trade in East and Southern Africa. This will dwarf SACU and furthermore attract South Africa.
Resolving the EPAs is difficult and adding to the impasse is finding the way out of the revenue sharing formula. South Africa has seemingly been pushed to the edge. What if it decided to pull out of SACU? The BLNS countries are currently exercising intensive care options to redeem SACU with a pleading attitude to big brother South Africa not to vacate. What seems paramount to them is to defend the revenue share, which directly speaks to their immediate budgets at home. If left alone, they face the challenge to immediately replace the revenues they are currently receiving from SACU and the mountain seems to be steep, because, for example, Lesotho and Swaziland have to each climb a 70% budget gradient to get safely to the pinnacle of the mountain. They have to quickly source loans to cover the gap. Alternatively, the two can leave Botswana and Namibia to find their own way and lose their sovereignty status and become part of South Africa, if South Africa is willing to take them in. Nambia and Botswana are far from being comfortable about the collapse of SACU, since the revenues they get constitute significant portions of their budgets as well. As for South Africa, the revenue they get from SACU is but a supplement to their financially sound budget. The risk South Africa is likely to face is that if SACU continues to survive, South Africa will face a high tariff rate from its traditional trading partners, which will continue to be the market South Africa needs, but for their survival the BLNS countries will raise their tariffs to increase the revenues they dearly need at home. South Africa is likely to get better and acquire trading partners and sign agreements without having to first consult SACU.
Conclusion
In conclusion, SACU has narrowed its vision to revenue sharing, but it is time they looked out into other broader economic options as a regional trade union. Finally, it is important to acknowledge that SACU is fully aware that the Customs Union is not just about revenue sharing. Issues of trade facilitation, harmonisation of policies, and cooperation among member states to harness investment in the region are equally important. This is the principle that the new SACU Vision and Mission underscores (Keynote Address by Executive Secretary of SACU).
References:
• Van den Bosch. S. 2010. Unexpected Low Custom Revenue Causes Budget Short falls. Accessed online http://ipsnews.net/news.asp?idnews=50700. Retrieved 20/09/2010.
• SACU Website. 2007. SACU 100 Years Old, What is SACU. Accessed online:
http://www.sacu.int/main.php?include=about/what_is.html&menu=menus/leftmenu.html. Retrieved 20/09/2010.
• SADC Secretariat Report. 3 September 2007.Evaluation of an Appropriate Model for a SADC Customs Union – Policy Brief; Accessed online:
http://www.dnafrica.com/fileuploads/FILE_063020080158_FILE_062520080527_SADC%20CU%20Options%20and%20Choices%20-%20Policy%20Brief.pdf. Retrieved: 20/09/2010.
• COMOSA website. 2010. COMOSA Lauches Its own Customs Union. Accessed Online:
http://www.comesa.int/lang-en/component/content/article/34-general-news/168-comesa-launches-its-customs-union. Retrieved: 20/09/2010.
• SACU Website: Keynote Address Delivered by Tswelepele Moremi, Executive Secretary of SACU. Accessed Online: http://www.sacu.int/docs/speeches/2010/sp0520.pdf. Retrieved 20/09/2010.
SACU (Southern African Customs Union) has made it through loads of odds to celebrate a full century which elapsed on June 29, 2010, making it the oldest Customs Union in the world and perhaps one of the most functional regional economic integration in Africa. SACU comes from a Customs Union Agreement (CUA) formed in 1910 between the then Union of South Africa and the High Commission Territories of Bechuanaland, Basutoland and Swaziland. With the advent of independence for these territories, the agreement was updated and on December 11, 1969 it was relaunched as the SACU with the signing of an agreement between the Republic of South Africa, Botswana, Lesotho and Swaziland. The updated union officially entered into force on March 1, 1970. After Namibia's independence from South Africa in 1990, it joined SACU as its fifth member. Initially the union was administered by South Africa, a member state, together with Botswana, Lesotho, Namibia and Swaziland (BLNS).
Challenges at 100 Years
While SACU may be 100 not out (in Cricket parlance), the sustainability of the union is increasingly very shaky in the face of various modern era challenges. The acquisition and sharing of revenues underpins the challenges that are rocking the core of the union.
The economic structure of the union links the member states by a single tariff and there are no customs duties between them. The member states form a single customs territory in which the tariffs and other barriers are eliminated on all trade between member states for products originating in these countries and there is a common external tariff that applies to non-members of SACU (SACU website, 2007). The union collects duties and the revenue accumulated is shared among the member states on a quarterly basis. The global economic meltdown experienced in 2009 across the global markets also affected SACU imports and exports drastically forcing it to implement austerity and cost reduction measures for the member countries. Consequently, revenues have dropped sharply since the global economic crisis. Due to the global meltdown, according to SACU chair, Namibia’s total revenue from the tariff pool is down by 40%. This will have a drastic impact on Namibia’s national budget, which largely depends on SACU revenue flows (Van den Bosch, 2010).
South Africa, a major and dominant member state due to its giant economy, responsible for over 90% of the region’s gross domestic product (GDP), is seriously considering terminating its SACU membership with the approval by some major structures in the country which agree that SACU is a liability to the progress of the South African economy. Furthermore, in South Africa there is a consensus in official structures that the country cannot afford to indefinitely carry the fiscal burden imposed on it by the revenue sharing formula (Draper, Dube, 2010). Yet the absence of South Africa renders the union very fragile.
The revenue is shared among members according to a revenue-sharing formula, as described in the SACU agreement. This formula has been much contested, but no agreements have ever been reached to finalise it. South Africa is the custodian of the revenue pool. Only the BLNS member states' shares are calculated with South Africa receiving the residual. South Africa, being the strongest economy in the region, is not happy with its small share any longer and has requested to change the system of ‘enhanced payments’, which it says favours the BLNS countries. An abrupt withdrawal of the revenues will have dire economic, social and political consequences for the BLNS states and would severely affect Swaziland and Lesotho, since they cannot sustain their budgets with their small internal revenues.
Lesotho and Swaziland are the most heavily dependent members on SACU shares. Their small economies seriously need SACU revenue, which constitutes 70% of their budgets. Lesotho and Swaziland derive more than half of their national budgets from the customs union, while Botswana’s relies on 29% of SACU revenue, according to its central bank. Only South Africa is less dependent on the union, as it receives a residual payout, after all other member countries have received their share (Van den Bosch, 2010). Namibia is greatly concerned about this development, because it will have a significant impact on its national budget, while Botswana is at the moment well sustained by its diamond deposits, but the future spells danger even for them as the deposits are getting depleted and they will have to dig deeper to get to deeply embedded deposits. At the moment, they are still doing open cast mining, but they are bound to sooner than later feel the SACU revenues squeeze.
There is a further sore point of disagreement within the world’s oldest customs union over the Economic Partnership Agreements (EPA) that regulate market access between SACU and the European Union (EU). Botswana, Lesotho and Swaziland have willingly decided to sign the trade agreements with the EU as these work in their favour, while Namibia and South Africa have strongly demanded that before they sign the EU must remove the clause about the Most Favoured Nation (MFN), which would automatically extend SACU’s trade allowances to third parties. Namibia and South Africa will be obliged to find their own measures of protecting their borders from the leakage of EPA goods. Also, different Common External Tariff (CET) regimes applied to different SACU member states exacerbate differences; a major rift is looming and threatens a split amongst the member states. This has caused persistent quarrels over the future of the Customs Union. South Africa may decide to pursue its own trade pathway or even join customs union with countries that have bigger economies, like the SADC or the COMESA blocs.
Prospects of Giant Intra-African Trade
SACU is also facing terrible threats from prospective giant intra-African trade giants. Major southern Africa and Eastern Africa organisations, like SADC and COMESA (Common Market for East and Southern Africa), have initiated their own customs unions, which are likely to entice South Africa. Both SADC and COMESA customs are in the process of being refined. Having decided that SADC should move to a Customs Union (CU) by 2010, the task now facing the region is to identify the options and select modalities. The essential feature of a Customs Union, differentiating it from other forms of regional integration (which may operate in parallel), is its treatment of tariff and non-tariff barriers to trade in goods and the distribution of revenue collected on these goods (SADC Secretariat Report, 3 September 2007). COMESA also launched its customs union in Zimbabwe during the 13th Summit of the COMESA Heads of State and Government, which was held in Victoria Falls, Zimbabwe (COMOSA website, 2010). There are ongoing tripartite free trade discussions between COMESA, SADC and the East African Community, which seek to reach agreements on regionalising trade in East and Southern Africa. This will dwarf SACU and furthermore attract South Africa.
Resolving the EPAs is difficult and adding to the impasse is finding the way out of the revenue sharing formula. South Africa has seemingly been pushed to the edge. What if it decided to pull out of SACU? The BLNS countries are currently exercising intensive care options to redeem SACU with a pleading attitude to big brother South Africa not to vacate. What seems paramount to them is to defend the revenue share, which directly speaks to their immediate budgets at home. If left alone, they face the challenge to immediately replace the revenues they are currently receiving from SACU and the mountain seems to be steep, because, for example, Lesotho and Swaziland have to each climb a 70% budget gradient to get safely to the pinnacle of the mountain. They have to quickly source loans to cover the gap. Alternatively, the two can leave Botswana and Namibia to find their own way and lose their sovereignty status and become part of South Africa, if South Africa is willing to take them in. Nambia and Botswana are far from being comfortable about the collapse of SACU, since the revenues they get constitute significant portions of their budgets as well. As for South Africa, the revenue they get from SACU is but a supplement to their financially sound budget. The risk South Africa is likely to face is that if SACU continues to survive, South Africa will face a high tariff rate from its traditional trading partners, which will continue to be the market South Africa needs, but for their survival the BLNS countries will raise their tariffs to increase the revenues they dearly need at home. South Africa is likely to get better and acquire trading partners and sign agreements without having to first consult SACU.
Conclusion
In conclusion, SACU has narrowed its vision to revenue sharing, but it is time they looked out into other broader economic options as a regional trade union. Finally, it is important to acknowledge that SACU is fully aware that the Customs Union is not just about revenue sharing. Issues of trade facilitation, harmonisation of policies, and cooperation among member states to harness investment in the region are equally important. This is the principle that the new SACU Vision and Mission underscores (Keynote Address by Executive Secretary of SACU).
References:
• Van den Bosch. S. 2010. Unexpected Low Custom Revenue Causes Budget Short falls. Accessed online http://ipsnews.net/news.asp?idnews=50700. Retrieved 20/09/2010.
• SACU Website. 2007. SACU 100 Years Old, What is SACU. Accessed online:
http://www.sacu.int/main.php?include=about/what_is.html&menu=menus/leftmenu.html. Retrieved 20/09/2010.
• SADC Secretariat Report. 3 September 2007.Evaluation of an Appropriate Model for a SADC Customs Union – Policy Brief; Accessed online:
http://www.dnafrica.com/fileuploads/FILE_063020080158_FILE_062520080527_SADC%20CU%20Options%20and%20Choices%20-%20Policy%20Brief.pdf. Retrieved: 20/09/2010.
• COMOSA website. 2010. COMOSA Lauches Its own Customs Union. Accessed Online:
http://www.comesa.int/lang-en/component/content/article/34-general-news/168-comesa-launches-its-customs-union. Retrieved: 20/09/2010.
• SACU Website: Keynote Address Delivered by Tswelepele Moremi, Executive Secretary of SACU. Accessed Online: http://www.sacu.int/docs/speeches/2010/sp0520.pdf. Retrieved 20/09/2010.