Archives For revenue sharing

Namibia-coat-of-armsA financial analyst has expressed concern about Namibia’s reliance on revenue from the Southern Africa Customs Union (SACU), saying the government needs to diversify its source of revenue.

James Cumming, Head of Research at Simonis Storm Securities told a Namibia Chamber of Commerce and Industry post budget meeting that he is concerned about over reliance of budget revenue from the SACU pool, saying 35% to 40% of tax revenue is from the SACU.

He explained that government needs to diversify its revenue sources as future adjustments to the SACU revenue formula could lead to lower revenue from this agreement.

The Minister of Finance, Saara Kuugongelwa-Amadhila, told the meeting that sources of revenue have been increasing and are expected to grow over the next three years. She said new sources of revenue have been identified with preliminary studies already underway in order to secure a consistent revenue stream in the future.

Leonard Kamwi, head of advocacy and research at the Chamber, said he was disappointed that previous budgets had failed to reconcile expenditure on education with the resulting output, which has been below par. He said it is not enough for the government to target sectors in their wholesome but rather target the prospective beneficiaries. “The budget should target specific necessary skill sets as opposed to the whole sector,” said Kamwi.

Kuugongelwa-Amadhila defended the proposed export tax on natural resources, indicating it was meant to minimise the disparities that arise from the exploitation of Namibia’s naturally endowed resources. Source: The Namibian

Windhoek:  The century-old five-member Southern African Customs Union is a stumbling block to the region’s economic integration agenda and has become a liability whose continued existence is no longer sustainable, analysts say.  They add that SACU, which comprises Botswana, Lesotho, Namibia, Swaziland and South Africa (the major contributor to the revenue pool), can best serve the region if it is integrated into the Southern African Development Community.

The Southern Times understands that the dominant feeling in the South Africa and BLNS governments is that SACU’s structural weaknesses prohibit it from advancing long-term regional strategic interests.  South Africa doles out billions of rand to BLNS under a revenue sharing agreement.

However, authorities in South Africa realise that the wider SADC market offers greater economic and strategic interests than the SACU enclave. South Africa has also apparently realised that economically and politically, its interests are better advanced through SADC than SACU. 

These are some of the findings of a study by Dr Sehlare Makgetlaneng, the head of governance and democracy research at Pretoria-based think-tank, Africa Institute of South Africa (AISA).

The Southern Times is in possession of an advance copy of the 2011 study in which key decision-makers in member states voiced their opinions on the usefulness of SACU to regional integration, economic development within the BLNS and South Africa’s weakening interest in the customs union.

The AISA study raises pertinent questions on what BLNS would do if SACU were disbanded. The over-dependence on SACU revenue ‑ vis-à-vis BLNS’s failure to come up with viable alternative revenue sources, lack of manufacturing capacity and a captive market for South African products ‑ also raises pertinent questions on BLNS’s future economic strategies.

That SACU has failed to address strategic economic interests of BLNS is bluntly captured by Namibia’s deputy Trade and Industry Deputy Minister Tjekero Tweya.  He says, “Namibia has been insane for 21 years of independence without a production capacity to produce even a toothpick. The same reason why we import toothpicks from China is because we need them, so we need to work on our production capacity and improve ways of collecting revenue.”

AISA lauds Namibia for establishing strategic partnerships within SADC to advance its economic and political interests.

According to the study, South Africa’s view is that SACU does not serve the regional economic powerhouse’s interests and even without the arrangement, trade with BLNS will continue under the aegis of SADC. Pretoria regards Zimbabwe, Mozambique, Zambia, Malawi, the DRC and Angola as more strategic to its economic goals.

“SACU may become a liability in the advancement of South Africa’s interests in the region and the continent particularly if South Africa is not able to effectively and structurally transform it to serve the popular interests of the region,” the AISA study says.

SACU’s mission is to “serve as an engine for regional integration and development, industrial and economic diversification and expansion of intra-regional trade and investment” among other things. For SACU, the issue is its transformation into SADC. South Africa’s contribution to Southern African regional integration is best and effective through SADC, not SACU. SACU is largely a revenue sharing and trade facilitation organisation. It is not the organisation through which to advance Southern African regional integration,” the research says.

AISA dismisses long-held suggestions that SACU could be used as a platform to establish a SADC customs union.  The customs union’s structural weaknesses make it an undesirable model for regional integration.  The research points out that if other SADC members want to join SACU, they have to address their tariff schedules and international obligations under the World Trade Organisation.

SACU’s present revenue-sharing formula also presents a challenge to admitting new members.

AISA says the formula is structured for a win-win situation among members but does not encourage a win-win solution to problems inherent in the contribution to the revenue pool and the way the pool is shared.

“It is a zero sum game in terms of the way it is shared. It is a definite pool. If one member gets more, another member gets less. If two SADC members who trade more with other SACU members are admitted, their membership will have a significant revenue change within SACU. The revenue sharing formula is determined on the basis of SACU intra-trade,” AISA’s Makgetlaneng says.

The revenue sharing formula is the obstacle to admitting other SADC members into the bloc.  South Africa contributes 98 percent to the revenue pool, which is then shared according to intra-SACU trade or imports.  The more South Africa trades with its partners in the region and beyond, the more the revenue pool grows.

“BLNS import more from South Africa and when the distribution formula is applied these countries get the average of 90 percent of customs revenue. In other words, South Africa compensates them for buying more from itself.”

His sentiments dovetail with previous suggestions from South Africa to establish a development fund in which revenue is ring-fenced and used to finance infrastructural projects that benefit SADC.  The study says that this view is strongly opposed by Botswana and Namibia, which claim entitlement to SACU revenue and have argued that as independent nations, they should spend it as they wish.

But AISA argues that since South Africa has a trade surplus with BLNS, it sets the tariffs within the customs bloc, clearly depriving the BLNS policy room to determine tariffs.

“This study has proved that SACU currently serves as a stumbling block to Southern African regional integration. Its revenue-sharing formula is the obstacle to the admission of other SADC countries as its members. The position that it is bound to absorb other SADC countries and even COMESA countries as its members is opposed by SACU officials, scholars and researchers interviewed by the author.

“They maintain that it is not possible for SACU to absorb other SADC countries as its members. Their position is that BLNS are structurally opposed to the admission of other countries as SACU members. As SACU revenue sharing is currently structured, they (BLNS) have no material interests to see other countries joining SACU as members,” Makgetlaneng says.

AISA maintains that SACU’s interests do not serve the region’s long-term socio-political, economic and security interests and implores South Africa to oversee integration of the union into SADC.

“The reality that SADC takes primacy in terms of importance in Southern Africa is such that SACU cannot be sustained in the long-term. Preparations should be made for it to no longer serve as a sub-group within SADC. It should be integrated into SADC. South Africa should prepare itself for SACU’s integration into SADC. It should strategically and tactically ensure that SACU is integrated into SADC. This will be the qualitative step forward towards the reduction and elimination of the weak links in SADC’s chain driving regional integration,” AISA’s chief researcher, Makgetlaneng, suggests. Original source: Southern Times