A new revenue sharing formula in the Southern African Customs Union (SACU) is intended to boost development but has met with resistance from the governments of poorer states in the sub-region that are interested in “just getting the money”. Differences over the economic partnership agreements (EPAs) with the EU nearly tore the customs union apart in 2010; now the issue of the revenue sharing formula has become equally contentious.

The South African Treasury Department wants a revision of the formula.

Smaller member states Botswana, Lesotho, Namibia and Swaziland (BLNS) argue that SACU’s common external tariff (CET) gives South Africa an instrument to protect its own industry, while the level playing field in the union makes it hard for the peripheral countries to build their own industrial bases and compete with their much larger neighbour’s products and services. For this they deserve to be compensated, they argue.

A lot of time was spent on working out the formulation of a new mechanism, but nothing definite was decided on.

Certain trade commentators warned against an “unrealistic” perception of the balance of power in SACU. South Africa feels that it cannot be expected to receive less than what it’s due. At the same time within the BLNS countries there is a shocking lack of understanding of the realities. The South African Treasury is frustrated over having to hand over so much money, without having control over it. It is proposed that South Africa should top up the revenues for reasons of political stability and economic policy but the formula shouldn’t just focus on trade, rather stimulate development.

The current revision of the SACU agreement is mainly inspired by the recession and a couple of years of experience with the current revenue formula, which South Africa now wants to renegotiate. Such changes are not significant enough to drive the process. A leaked draft report on the proposed changes to the formula has caused an outcry in the BLNS, being pitted heavily in favour of South Africa. Countries are still studying the report with a final decision expected in April 2011.

One of the options on the table is to increase the development component of the pool with funds, for instance, going to regional infrastructure projects instead of state coffers. It is however doubtful that countries like Swaziland and Lesotho will be keen on that. For them, it is more important than anything else to get the money.

It is therefore obvious that the current one sided focus, where South Africa compensates the SACU states for their inability to improve their economic plight or maintain domestic fiscal discipline will remain a burden on ‘big brother of the south’ unless some lessons of ‘tough love’ are brought bear on the region. It makes one wonder how on earth SADC let alone an African Union can ever materialize under such mentality.

Original article dated 28 March 2011 featured on allAfrica.com