How SA can save R18bn – by playing hard ball

March 10, 2014 — 2 Comments

Southern_Africa_Panorama_MapSouth Africa is a member of the Southern African Customs Union (Sacu), which consists of Botswana, Lesotho, Namibia and Swaziland (BLNS), the oldest customs union in Africa but apart from this prestige, is Sacu worth the time?

In an article by Professor Roman Grynberg, he asked whether Sacu is a “dead man walking?” and I wish to follow-up on this. A recent article appearing on the World Bank’s website states that even if poor countries are neighbours, it is often more difficult for them to trade with each other than it is for them to trade with distant countries that are wealthy.

The Sacu agreement is principally about the issue of distributing customs revenue earned by the five members on their international trade with other countries. The distribution of this revenue is based on each country’s share of intra-Sacu imports and so favours the smaller members.

South Africa, for example, imports very little from within the region and so ends up paying the BLNS about R15bn to R18bn per year more than it would if Sacu did not exist.

If we are paying R15bn to R18bn per annum to be in a union with questionable benefits, why do we not exit the agreement?

For one, the SADC free trade agreement which was implemented in 2008, gives South Africa a “get out of jail free card” through providing South African exports similar but not identical market access to that available under Sacu.

We could thus “walk away from Sacu at any moment, save R15bn to R18bn and South African exports would still continue to flow across the Limpopo basin in more or less the same uninterrupted way.” (Grynberg, 2014).

Another reason, according to Grynberg, is that an “economic catastrophe” may result if South Africa exits. Swaziland and Lesotho are between 60% to 70% dependent on the Sacu for revenues, Botswana and Namibia are somewhat less dependent at 30% to 40%.

I feel though that this may be the very same reason that there will not be a major reform of the revenue-sharing formula. Would you want to cede even a third of your income?

So what should South Africa do? I think it is firstly important to note that of our SADC neighbours, South Africa earns the most from its exports to Zambia, Zimbabwe and Mozambique – none of which is in the Sacu.

This is perhaps not surprising when considering the findings of the World Bank and realising that nearly all of South Africa’s top trading partners are in the northern hemisphere.

The BLNS countries, interestingly enough, fall in the bottom 5 of our SADC trade partners and so should we worry so much about an “economic catastrophe” in the BLNS when they don’t buy our goods in any case?

What it comes down to, I feel, is that South Africa needs to play hard ball. By this I mean South Africa needs to be committed to actually exiting the Sacu agreement because it is only when the BLNS realise that we are serious and that there is the real threat of them losing 30% to 70% of their revenue that they will agree to a new revenue-sharing formula. After all, something is better than nothing. Source: Fin24

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2 responses to How SA can save R18bn – by playing hard ball

  1. 

    Hi Mike,

    Great that youre reading the tradebeat website. However, I have two issues with your piece.

    First, I assume youre aware of the recent revisions to SARS trade statistics, which now reflect SA exports to the BLNS? On the face of it they reveal that those countries are in fact a major market for SA, collectively our biggest in Africa by some margin. Of course they dont break down re-exports, but you might want to have a look at this issue and consider adapting your view.

    Second, if the budget support (thats essentially what the SACU transfer is) were cut off tomorrow, the civil services of Lesotho and Swaziland, and perhaps Namibia, would collapse overnight. The ensuing government meltdown and consequent economic collapse would send a flood of people across our borders. I wonder how destabilising that would be for SA, wracked as we are with xenophobia, high unemployment, and service delivery protests?

    Would you consider posting an updated piece on the tradebeat site to add to our SACU series?

    Regards,

    From: What Happened to the Portcullis? Reply-To: What Happened to the Portcullis? Date: Monday 10 March 2014 at 8:26 PM To: Peter Draper Subject: [New post] How SA can save R18bn by playing hard ball

    WordPress.com Mike Poverello posted: “South Africa is a member of the Southern African Customs Union (Sacu), which consists of Botswana, Lesotho, Namibia and Swaziland (BLNS), the oldest customs union in Africa but apart from this prestige, is Sacu worth the time? In an article by Professor “

    • 

      Hullo Peter,
      Thanks for your great observation and insight. I guess we have to be pragmatic in this and exhibit caution against rashness – i.e. hardball. After all (as you quite rightly allude to) there are human beings unwittingly implicated in this.
      I would be delighted to make a contribution to tradebeat. However, I would first like to share a few observations and comments with you in regard to RSA and regional integration.
      Regards,
      Mike

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