AfCFTA Postpones Implementation of Agreement

The Secretary-General the Africa Continental Free Trade Area (AfCFTA), Mr. Wamkele Mene, yesterday announced the postponement of the implementation of the AfCFTA agreement scheduled for July 1, 2020, citing the COVID-19 pandemic.

Mene said: “It is obviously not possible to commence trade as we had intended on 1 July under the current circumstances.

“I think that’s the responsible thing to do. I don’t think it would be appropriate when people are dying to be focused on meeting the 1 July deadline. Instead all governments should be allowed to concentrate their efforts on fighting the pandemic and saving lives at home.”

Mene did not disclose the targeted implementation date, but there were strong speculations that the new commencement date might be January 2021. “The political commitment remains, the political will remains to integrate Africa’s market and to implement the agreement as was intended,” he said.

The AfCFTA was promoted as having the capacity to bring about $3.4 trillion intra-African trade with 1.3 billion people across Africa and constitute the largest new trading bloc since the World Trade Organisation was formed in 1994.

According to the Head, Division of International Economics Relations, Nigeria Institute of International Affairs (NIIA), Dr. Efem N. Ubi, the postponement of the take-off date was in order to enable African countries focus fully on surviving the threat from COVID-19.

“The focus should be on sustaining our economy and see how we can win the war against COVID-19 by managing what we have. And the most important thing for the post COVID-19 economy is for African countries to focus on the kind of education that will promote science and technology that will transit the continent from a primary producer to a manufacturing economy. The focus onward should be science, technology, agriculture and health so that Africans can produce and have things to trade among themselves,” Ubi said.

Source: This Day Live, Nigeria, 29 April 2020

AfCFTA – an uphill struggle in quest for regional trade on the continent

Picture : Bloomberg.com

The following article was published by Bloomberg and sketches the day-to-day hardship for cross border trucking through Africa. In a sense it asks the very questions and challenges which the average African asks in regard to the highly anticipated free trade area. While rules of origin and tariffs form the basis of trade across borders, together with freedom of movement of people, these will mean nothing if African people receive no benefit. As globalisation appears to falter across Europe and the West, it begs the question whether this is in fact is the solution for Africa; particularly for the reason that many believe globalisation itself is an extension of capitalism which some of the African states are at loggerheads with. Moreover, how many of these countries can forego the much need Customs revenue to sustain their economies, let alone losing political autonomy – only time will tell.

Nyoni Nsukuzimbi drives his 40-ton Freightliner for just over half a day from Johannesburg to the Beitbridge border post with Zimbabwe. At the frontier town—little more than a gas station and a KFC—he sits in a line for two to three days, in temperatures reaching 104F, waiting for his documents to be processed.

That’s only the start of a journey Nsukuzimbi makes maybe twice a month. Driving 550 miles farther north gets him to the Chirundu border post on the Zambian frontier. There, starting at a bridge across the Zambezi River, trucks snake back miles into the bush. “There’s no water, there’s no toilets, there are lions,” says the 40-year-old Zimbabwean. He leans out of the Freightliner’s cab over the hot asphalt, wearing a white T-shirt and a weary expression. “It’s terrible.”

By the time he gets his load of tiny plastic beads—the kind used in many manufacturing processes—to a factory on the outskirts of Zambia’s capital, Lusaka, he’s been on the road for as many as 10 days to traverse just 1,000 miles. Nsukuzimbi’s trials are typical of truck drivers across Africa, where border bureaucracy, corrupt officials seeking bribes, and a myriad of regulations that vary from country to country have stymied attempts to boost intra-African trade.

The continent’s leaders say they’re acting to change all that. Fifty-three of its 54 nations have signed up to join only Eritrea, which rivals North Korea in its isolation from the outside world, hasn’t. The African Union-led agreement is designed to establish the world’s biggest free-trade zone by area, encompassing a combined economy of $2.5 trillion and a market of 1.2 billion people. Agreed in May 2019, the pact is meant to take effect in July and be fully operational by 2030. “The AfCFTA,” South African President Cyril Ramaphosa said in his Oct. 7 weekly letter to the nation, “will be a game-changer, both for South Africa and the rest of the continent.”

It has to be if African economies are ever going to achieve their potential. Africa lags behind other regions in terms of internal trade, with intracontinental commerce accounting for only 15% of total trade, compared with 58% in Asia and more than 70% in Europe. As a result, supermarket shelves in cities such as Luanda, Angola, and Abidjan, Ivory Coast, are lined with goods imported from the countries that once colonized them, Portugal and France.

By lowering or eliminating cross-border tariffs on 90% of African-produced goods, the new regulations are supposed to facilitate the movement of capital and people and create a liberalized market for services. “We haven’t seen as much institutional will for a large African Union project before,” says Kobi Annan, an analyst at Songhai Advisory in Ghana. “The time frame is a little ambitious, but we will get there.”

President Nana Akufo-Addo of Ghana and other heads of state joined Ramaphosa in hailing the agreement, but a number of the businesspeople who are supposed to benefit from it are skeptical. “Many of these governments depend on that duty income. I don’t see how that’s ever going to disappear,” says Tertius Carstens, the chief executive officer of Pioneer Foods Group Ltd., a South African maker of fruit juices and cereal that’s being acquired by PepsiCo Inc. for about $1.7 billion. “Politically it sounds good; practically it’s going to be a nightmare to implement, and I expect resistance.”

Under the rules, small countries such as Malawi, whose central government gets 7.7% of its revenue from taxes on international trade and transactions, will forgo much-needed income, at least initially. By contrast, relatively industrialized nations like Egypt, Kenya, and South Africa will benefit from the outset. “AfCFTA will require huge trade-offs from political leaders,” says Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “They will need to think beyond short-term election cycles and sovereignty in policymaking.”

Taking those disparities into account, the AfCFTA may allow poorer countries such as Ethiopia 15 years to comply with the trade regime, whereas South Africa and other more developed nations must do so within five. To further soften the effects on weaker economies, Africa could follow the lead of the European Union, says Axel Pougin de La Maissoneuve, deputy head of the trade and private sector unit in the European Commission’s Directorate General for Development and International Cooperation. The EU adopted a redistribution model to offset potential losses by Greece, Portugal, and other countries.

There may be structural impediments to the AfCFTA’s ambitions. Iron ore, oil, and other raw materials headed for markets such as China make up about half of the continent’s exports. “African countries don’t produce the goods that are demanded by consumers and businesses in other African countries,” says Trudi Hartzenberg, executive director of the Tralac Trade Law Center in Stellenbosch, South Africa.

Trust and tension over illicit activity are also obstacles. Beginning in August, Nigeria shut its land borders to halt a surge in the smuggling of rice and other foodstuffs. In September, South Africa drew continentwide opprobrium after a recurrence of the anti-immigrant riots that have periodically rocked the nation. This could hinder the AfCFTA’s provisions for the free movement of people.

Considering all of these roadblocks, a skeptic would be forgiven for giving the AfCFTA little chance of success. And yet there are already at least eight trade communities up and running on the continent. While these are mostly regional groupings, some countries belong to more than one bloc, creating overlap. The AfCFTA won’t immediately replace these regional blocs; rather, it’s designed to harmonize standards and rules, easing trade between them, and to eventually consolidate the smaller associations under the continent­wide agreement.

The benefits of the comprehensive agreement are plain to see. It could, for example, limit the sort of unilateral stumbling blocks Pioneer Foods’ Carstens had to deal with in 2019: Zimbabwe insisted that all duties be paid in U.S. dollars; Ghana and Kenya demanded that shippers purchase special stickers from government officials to affix to all packaging to prevent smuggling.

The African Export-Import Bank estimates intra-African trade could increase by 52% during the first year after the pact is implemented and more than double during the first decade. The AfCFTA represents a “new pan-Africanism” and is “a pragmatic realization” that African countries need to unite to achieve better deals with trading partners, says Carlos Lopes, the former executive secretary of the United Nations Economic Commission for Africa and one of the architects of the agreement.

From his closer-to-the-ground vantage point, Olisaemeka Anieze also sees possible benefits. He’s relocating from South Africa, where he sold secondhand clothes, to his home country of Nigeria, where he wants to farm fish and possibly export them to neighboring countries. “God willing,” he says, “if the free-trade agreement comes through, Africa can hold its own.”

In the meantime, there are those roads. About 80% of African trade travels over them, according to Tralac. The World Bank estimates the poor state of highways and other infrastructure cuts productivity by as much as 40%.

If the AfCFTA can trim the red tape, at least driving the roads will be more bearable, says David Myende, 38, a South African trucker resting after crossing the border post into South Africa on the way back from delivering a load to the Zambian mining town of Ndola. “The trip is short, the borders are long,” he says. “They’re really long when you’re laden, and customs officers can keep you waiting up to four or five days to clear your goods.” 

Source: article by Anthony Sguazzin, Prinesha Naidoo and Brian Latham, Bloomberg, 30 January 2020

AU – Online tool to remove Trade Barriers in Africa goes live

An online platform developed by UNCTAD and the African Union to help remove non-tariff barriers to trade in Africa became operational on 13 January.

Traders and businesses moving goods across the continent can now instantly report the challenges they encounter, such as quotas, excessive import documents or unjustified packaging requirements.

The tool, tradebarriers.africa, will help African governments monitor and eliminate such barriers, which slow the movement of goods and cost importers and exporters in the region billions annually.

An UNCTAD report shows that African countries could gain US$20 billion each year by tackling such barriers at the continental level – much more than the $3.6 billion they could pick up by eliminating tariffs.

“Non-tariff barriers are the main obstacles to trade between African countries,” said Pamela Coke-Hamilton, director of UNCTAD’s trade division.

“That’s why the success of the African Continental Free Trade Area depends in part on how well governments can track and remove them,” she said, referring to the agreement signed by African governments to create a single, continent-wide market for goods and services.

The AfCFTA, which entered into force in May 2019, is expected to boost intra-African trade, which at 16% is low compared to other regional blocs. For example, 68% of the European Union’s trade take place among EU nations. For the Asian region, the share is 60%.

The agreement requires member countries to remove tariffs on 90% of goods. But negotiators realized that non-tariff barriers must also be addressed and called for a reporting, monitoring and elimination mechanism.

The online platform built by UNCTAD and the African Union is a direct response to that demand.

Hands-on training

Complaints logged on the platform will be monitored by government officials in each nation and a special coordination unit that’s housed in the AfCFTA secretariat.

The unit will be responsible for verifying a complaint. Once verified, officials in the countries concerned will be tasked with addressing the issue within set timelines prescribed by the AfCFTA agreement.

Hands-on training

UNCTAD and the African Union trained 60 public officials and business representatives from across Africa on how to use the tool in December 2019 in Nairobi, Kenya.

They practiced logging and responding to complaints, in addition to learning more about non-tariff barriers and their effects on trade and business opportunities.

“The AfCFTA non-tariff barriers mechanism is a transparent tool that will help small businesses reach African markets,” said Ndah Ali Abu, a senior official at Nigeria’s trade ministry, who will manage complaints concerning Africa’s largest economy.

UNCTAD and the African Union first presented tradebarriers.africa in July 2019 during the launch of the AfCFTA’s operational phase at the 12th African Union Extraordinary Summit in Niamey, Niger.

Following the official presentation, they conducted multiple simulation exercises with business and government representatives to identify any possible operational challenges.

Lost in translation

One of the challenges was linguistic. Africa is home to more than 1,000 languages. So the person who logs a complaint may speak a different language from the official in charge of dealing with the issue.

Such would be the case, for example, if an English-speaking truck driver from Ghana logged a complaint about the number of import documents required to deliver Ghanaian cocoa to importers in Togo – a complaint that would be sent to French-speaking Togolese officials.

“For the online tool to be effective, communication must be instantaneous,” said Christian Knebel, an UNCTAD economist working on the project.

The solution, he said, was to add a plug-in to the online platform that automatically translates between Arabic, English, French, Portuguese and Swahili – languages that are widely spoken across the continent. More languages are being added.

UNCTAD’s work on the AfCFTA non-tariff barriers mechanism is funded by the German government.

Source: UNCTAG.ORG, 17 January 2020

SADC Border posts under the spotlight

GEC

Land borders in the SADC region are critical zones for unlocking economic development, regional value chains and trade. In this light the Global Economic Governance Africa programme is working with the Zimbabwe Trade Forum and the University of Zambia to look at two case studies on the border regions around Beitbridge and Chirundu. The borders, between South Africa and Zimbabwe, and Zimbabwe and Zambia, represent critical links in the North-South Corridor and are vital in both regional development initiatives as well as bilateral ones between the countries.

The seminar, attended by trade experts, policy makers and researchers from South Africa and the region discussed the field research findings of a study at the Beitbridge and Chirundu border posts conducted on behalf of the programme in June 2018.

The following presentation documents should be of interest to all parties concerned with inter regional trade and trade facilitation development initiatives.

It is also worthwhile to visit Tutwa Consulting’s webpage as it explains how the surveys were conducted and provides salient features in relation to each of the border posts concerned which may not necessarily be apparent in the presentation documents as such.

Source: Tutwa Consulting

WCO News – February 2018

wconews_85

This edition of WCO News features a special dossier on the theme chosen by the WCO for 2018, namely “A secure business environment for economic development”, with articles presenting initiatives and related projects that contribute to creating such an environment. The articles touch on authorized economic operators, national committees on trade facilitation, coordinated border management, performance measurement, e-commerce, data analysis, and partnerships with the private sector.

For sub-Saharan African readers, look out for the write up of the Customs systems interconnectivity and the challenges and opportunities for Customs administrations in the SACU region.

Other highlights include articles on Customs systems interconnectivity in the Southern African Customs Union, on the experience of a young Nigerian Customs officer who participated in the Strategic Management and Intellectual Property Rights Programme at Tokyo’s Aoyama Gakuin University, on how the WCO West and Central Africa region is using data to monitor Customs modernization in the region, and on the benefits that can be derived by facilitating transit procedures.

Source: WCO, February 2018

Republic of Ireland – warns UK against using border as Brexit bargaining chip

Irish flag

Following Britain’s recent utterances that it will not rule out the possibility that the EU may retain oversight of customs controls at UK borders after it leaves the bloc, the Irish government has warned UK authorities it will not be used as a “pawn” in Brexit negotiations, reports News Letter, UK.

Foreign Affairs Minister Simon Coveney said he does not want the issue of the Irish border to be used by the UK government as a tool to pressurise the EU for broader trade agreements.

Mr Coveney also said that sufficient progress on the future of the Irish border has not been made during Brexit talks.

Speaking ahead of a meeting with Northern Ireland Secretary of State James Brokenshire in Dublin on Tuesday Mr Coveney said: “We do not want the Irish issue, the border issue, to be used as a pawn to try to pressurise for broader trade agreements.”

He added: “Sufficient progress (on the issues facing the island of Ireland post-Brexit) hasn’t been made to date.”

He warned that in order for Brexit negotiations to move onto the next phase “measurable and real progress” is needed.

Before the meeting Mr Brokenshire insisted there was no possibility of the UK staying within a customs union post Brexit.

He said that to do so would prevent the UK from negotiating international trade deals.However, following a meeting with the Irish and British Chamber of Commerce he said there would be a period of implementation where the UK would adhere closely to the existing customs union.

“We think it is important there is an implementation period where the UK would adhere closely to the existing customs union,” said Mr Brokenshire. “But ultimately it is about the UK being able to negotiate international trade deals.

We want to harness those freedoms. If we were to remain in the customs union that would prevent us from doing so. “We are leaving EU, customs union and single market. We have set out options as to how we can achieve that frictionless trade,” he added.

However, Mr Coveney said the Irish Government believes the best way to progress “the complexity of Britain leaving the European Union is for Britain to remain very close to the single market and effectively to remain part of the customs union.”

He added: “That would certainly make the issues on the island of Ireland an awful lot easier to manage. “But of course the British Government’s stated position is not in agreement with that but that doesn’t mean we won’t continue to advocate for that.

“In the absence of that it is up to the British government to come up with flexible and imaginative solutions to actually try to deal with the specific island of Ireland issues.” Source: Newsletter.co.uk, author Mc Aleese. D, August 22, 2017.

UK’s “New Customs Partnership” – may grant Europe oversight of the Customs border

UK Brexit

Reuters reports that Britain will not rule out the possibility that the EU may retain oversight of customs controls at UK borders after it leaves the bloc, as the country seeks ways to keep unhindered access to EU markets following Brexit.

Last week, the UK published a policy document proposing two possible models for customs arrangements between Britain and the EU after withdrawal from the EU in 2019.

The first model was a “highly streamlined customs arrangement”, which involved the reintroduction of a customs border but which envisaged electronic tracking of shipments, rather than physical checks of goods and documents at the border.

An alternative proposal was the “new customs partnership”, which would remove the need for a customs border between the UK and EU altogether.

Under this model, the UK would operate as if it was still part of the bloc for customs purposes. British goods would be exported tariff-free and Britain would levy EU tariffs on goods coming into the UK for onward passage to the EU directly or as components in UK exports.

Lawyers said there would be a need for a mechanism to oversee the “new customs partnership” to ensure that the UK was correctly monitoring goods coming into the UK and destined for Europe.

The EU’s system of movement of goods across EU borders without checks works on the basis all members closely monitor shipments coming into the bloc from outside, to ensure the correct tariffs are paid and that goods meet EU standards.

The antifraud agency of the EU polices customs agencies across Europe to ensure that they are correctly monitoring imports. Source: Reuters, Bergin T, August 21, 2017

WCO – Strengthening Customs Business Partner Relationships in the SACU Region

CP Mission 16_01_465_ Successful Stakeholders Training

During November 2016, 16 Customs officers from SACU member administrations received training in the area of successful stakeholder consultation. The training was facilitated by Accredited WCO Experts from the SACU region. As a result of the workshop, participants drafted National Stakeholder Consultation action plans which outline the administration’s national effort in necessary interaction with key stakeholders. The action plans will be used to guide and improve cooperation with businesses in the implementation of the Preferred Trader Programme once they are approved by the Member administrations. Source: WCO

SACU – All’s not fair in proposed Customs Union reforms

SACU mapThe Southern African Customs Union (SACU) is an almost invisible organisation. Yet it has arguably had a profound impact on South Africa’s economic and even political relations with its much smaller neighbours – and on those four small countries themselves. But there are also deep differences among its five members – the others are Botswana, Lesotho, Namibia and Swaziland (BLNS) – about what the essential nature of SACU should be.

This weekend, SACU ministers will be meeting in South Africa for a retreat to try once again to set a new strategic direction, a roadmap into the future, for this critical body.

The leaders of the member countries will meet in a summit, also in South Africa, sometime before 15 July – when South Africa’s term as SACU chairs ends – to adopt or reject this roadmap. The aim of the changes in the SACU treaty would be to turn it ‘from an arrangement of convenience held together by a redistributive revenue formula to a development integration instrument,’ South African Trade and Industry Minister Rob Davies said during a press briefing in Kasane, Botswana, last Friday.

Davies said there were still ‘lots of differences’ among SACU members, which they had been unable to resolve despite years of negotiations.

SACU was founded in 1910 – the year South Africa was also created. Since then, the common external tariff it created has functioned as an instrument for the much larger South Africa to support the much smaller BLNS economically, by re-distributing to them a disproportionate share the customs tariffs collected at the external borders. Or, depending on your point of view, to relegate them to being passive markets for South African products.

The new African National Congress government, which came to power in 1994, ‘democratised’ relations with the BLNS by creating a Council of Ministers to make decisions by consensus in a new post-apartheid SACU treaty, which came into force in 2004. But the basic deal remained the same, as Davies implicitly acknowledged in last Friday’s briefing when he said: ‘we have historically just set the tariffs on behalf of SACU … and … in return for that, provided compensation … in the revenue-sharing formula.’

Also read – SACU Retreat announced by President Zuma

The re-distributive revenue-sharing formula has been hugely important for the government revenues of the BLNS. In South Africa’s 2015-2016 budget year, for example, the total revenue pool was expected to be about R84 billion, of which the BLNS would receive R46 billion – according to Xolelwa Mlumbi-Peter, Acting Deputy Director-General in South Africa’s Department of Trade and Industry, in a briefing to the parliamentary portfolio committee on trade and industry last year. She added that South Africa contributes about 98% of the total pool, while BLNS receive about 55% of the proceeds.

That meant South Africa was losing – or re-distributing – about R44.3 billion in that budget year, as de facto ‘direct budgetary support’ to the BLNS, to use the language of Western development aid.

‘This is seen as “compensation” for BLNS’s lack of policy discretion to determine tariffs, and for the price-raising effects of being subjected to tariffs that primarily protect SA industry,’ Mlumbi-Peter said.

A glaring example of that dynamic is South Africa’s maintenance of import tariffs on foreign automobiles to protect its own automobile industry. That, of course, makes automobiles more expensive in the BLNS countries.

And should South Africa choose instead to grant rebates on some tariffs – for example to encourage imports of inputs into South African industrial production – this would also impact negatively on the BLNS by reducing their tariff revenues, Mlumbi-Peter suggested.

In 2011, South African President Jacob Zuma chaired a SACU summit to review these inherent disparities. It agreed on a five-point plan to change SACU’s fundamentals, including a review of the revenue-sharing formula; prioritising work on regional cross-border industrial development, including creating value chains and regional infrastructure; promoting trade facilitation measures at borders; developing SACU institutions; and strengthening cooperation in external trade negotiations.

Nonetheless, as Davies said in Kasane, ‘we haven’t really been able to reach an understanding of what does development integration in SACU mean.’ And so Zuma had just completed a tour of visits to his counterparts in the BLNS countries to discuss these plans, and the upcoming retreat and summit. Davies said Zuma had found the BLNS leaders ‘flexible’ – though regional officials suggest otherwise.

Does South Africa, as the only really industrialised nation in SACU, not have inherent and irreconcilable differences with the rest of the body? Davies acknowledges that South Africa – with about 85% of the combined population, and about 90% of the combined GDP – also has most of the industries that demand tariff protection.

Nevertheless, he added, ‘We are all committed on paper to seeing tariffs as tools of industrial development… But there is also an obvious temptation for a number of other countries to see the revenue implications as more important.’ And, he did not add, there is also a growing feeling in South Africa that it could do with that R44 billion a year or thereabouts, which it gives to the BLNS every year.

The coincidence of the signing, on 10 June, of the Economic Partnership Agreement (EPA) between the European Union (EU) and the Southern African Development Community (SADC), and the attempt to revive SACU, underscored an ironic analogy of South Africa’s and the EU’s predicaments.

Also read – Historic Economic Partnership Agreement between EU and SADC 

With the EPA, the EU hopes to shift its relations with the SADC nations away from the traditional donor-recipient type of arrangement, to one of more equal and normal trade and industrial partners. That, essentially, is what South Africa is also hoping to achieve with its proposed reforms of SACU.

But it’s hard to see how South Africa is going to convince the BLNS to give up R44 billion a year of hard cash in hand, in exchange for the rather dubious future benefits of being absorbed into South Africa’s industrial development chains.

Source: Peter Fabricius – ISS Consultant.

Historic Economic Partnership Agreement between EU and SADC

EU SADC EPAThe EU has signed an Economic Partnership Agreement (EPA) on 10 June 2016 with the SADC EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland. Angola has an option to join the agreement in future.

The other six members of the Southern African Development Community region – the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe – are negotiating Economic Partnership Agreements with the EU as part of other regional groups, namely Central Africa or Eastern and Southern Africa.

For specific details on the key envisaged benefits of the agreement click here!

The EU-SADC EPA is the first EPA signed between the EU and an African region, with an East African agreement expected to follow in a few months, but with the West African agreement having met fresh resistance. EU Trade Commissioner Cecilia Malmström stressed at the signing ceremony the developmental bias in the agreement, which extended duty- and quota-free access to all SADC EPA members, except South Africa. Africa’s most developed economy has an existing reciprocal trade framework known as the Trade and Development Cooperation Agreement, which came into force in 2000.

South Africa, meanwhile, had secured improved access to the EU market on a range of agricultural products, as well as greater policy space to introduce export taxes. EU statistics show that bilateral trade between South Africa and the EU stood at €44.8-billion in 2015, with the balance tilted in favour of European exports to South Africa, which stood at €25.4-billion. This improved access had been facilitated in large part by South Africa’s concession on so-called geographical indications (GIs) – 252 European names used to identify agricultural products based on the region from which they originate and the specific process used in their production, such as Champagne and Feta cheese. In return, the EU has agreed to recognise over 100 South African GIs, including Rooibos and Honeybush teas, Karoo lamb and various wines.Sources: EU Commission and Engineering News

 

 

Is the Latest FTA Another Booby Prize for Africa?

COMESA-SADC-EAC-TripartiteAround 2008, most Southern African countries began to realise that the great ambition found on the SADC website at that time of moving from a SADC free trade area to a customs union by 2012 was not going to happen.

The SADC website had a very EU-like regional integration agenda.

This is not surprising given that the great sugar daddy in Brussels basically funds the entire organisation. SADC wanted to replicate the EU linear model – first a free trade area where the countries trade freely among themselves; then a customs union where the members agree to a common tariff; and then a common market where all goods, services, capital and labour flow freely. Finally, SADC was to complete the copy of the EU by creating a monetary union.

This flattering imitation of the EU was obvious – the Brussels paymaster pays and we all happily follow their model into Kwame Nkrumah’s vision of a united Africa. But the ugly problem was, as ever, African history.

The less than subtle British also wanted a customs union in Africa. So, in 1910 they just created one – the Southern African Customs Union (SACU), which, like the proverbial bicycle without any pedals, still manages to stand because it is padded with money.

When the British implemented SACU after the Anglo-Boer War, there was no need for polite and time consuming subtleties of contemporary African consensus building. The Union of South Africa and the British high commissioner signed on behalf of the protectorates of Basutoland, Bechuanaland and Swaziland – not a black person in sight unless they were serving the tea.

Almost a century later those who designed the EU-like agenda for SADC’s integration conveniently forgot their history and somehow assumed that a customs union could be readily grafted on the SADC free trade area which was already in existence.

But there cannot be two external tariffs and, therefore, either SACU or SADC as a customs union had to go. And the difficulty that SADC faced with creating a customs union is that no one is ready to sacrifice national interests for a broader common good.

Free trade areas are relatively easy, they can be easily fudged, but customs unions are hard work because all the countries that are members have to agree to the external tariff.

In the meantime, the apartheid regime in Pretoria realised that it desperately needed to buy friends and influence enemies and so in 1969 it changed SACU from a regular customs union to one where the share of revenue from customs was derived from share of regional trade.

Normally, customs unions divide the revenue poll based on what economists call the ‘destination principle’. This meant that countries get the revenue depending on what imports were destined for that country. So if 5% of imports were destined for, say, Botswana, it would get 5% of the revenue.

But the SACU formula was purposely designed by South Africa to make the BLS (Botswana, Lesotho and Swaziland as members) completely dependent upon transfers from Pretoria by basing the formula on the share of intra-SACU trade and not external trade.

The oddity was that with the end of apartheid, things actually got even worse after the 2002 SACU re-negotiations because Pretoria agreed to a formula that made Botswana, Lesotho, Swaziland and newly independent Namibia get their share of customs revenue from SACU based on the share of intra-SACU imports.

SA imports almost nothing from SACU countries and the BLNS countries import almost everything from SA and so they get a huge amount of revenue. Many officials in Pretoria deeply resent the subsidies in SACU.

When the other SADC members saw how much money the BLNS countries were getting from Sacu, whenever the issue of a SADC customs union came up their response was – ‘me too please, we want the same formula!’

So, a SADC customs union would have eaten into the massive transfers (about N$20 billion per year) that Namibia and the rest of the BLNS states get each year from Pretoria and there was no way they were going to agree, and so the SADC customs union was not a realistic possibility.

After the obvious end of the SADC negotiations for a customs union, African negotiators began to look around for something that would keep them off the unemployment lines. The infamous African ‘spaghetti junction’ of the East African Community, Comesa and SADC with its overlapping membership became the next target. If you can’t form a customs union then just get a bigger FTA (free trade area).

Now this year, finally, an FTA has been signed but it has also been fudged. Few really want to give the highly competitive Egyptian producers free trade access to their African markets.

Ostensibly, we are moving to negotiate a continental free trade area which will finally begin the process of fulfilling of Nkrumah’s dream of a united Africa. But instead, what we have is Cecil John Rhodes’s dream of a market from Cape to Cairo – almost; no deepening of the African economic relationship into a customs union; just a widening to the north and west.

Free trade areas are a nice step forward but they normally require no real sacrifice of economic interests.

Europeans are guilty of many cruelties in Africa but none so absurd or spiteful as the ridiculous lines they drew on the map of the African continent in 1884 at the Berlin Conference when they divided up the continent. The Belgian barbarism in the Congo may fade from human memory and the wounds of apartheid may heal over time but African leaders will struggle to completely eliminate those economic and political lines from the map of Africa.

It is those lines and some petty “sovereign” economic interests that are the main reason why a billion dynamic people in Africa with such incredible natural resources continue to live in poverty. The Namibian (An opinion piece by Roman Grynberg, professor of economics at the University of Namibia.)

Time to pull the plug on SACU?

SACU logoPeter Fabricus, Foreign Editor, Independent Newspapers through the Institute of Security Studies writes an insightful and balanced article on the history and current state of the Southern African Customs Union (SACU).

The formula that determines how the customs and excise revenues gathered in the Southern African Customs Union (SACU) are distributed among its members looks, to a layperson, dauntingly complex. But this formula has had an enormous impact on the economic and even political development of the five SACU member states; South Africa, Botswana, Lesotho, Namibia and Swaziland.

The impact has arguably been greatest on South Africa’s neighbours, the four smaller member states that are often referred to simply as the BLNS. But it has also had an impact on South Africa.

SACU was founded in 1910, the year the Union of South Africa came into existence, and is the oldest surviving customs union in the world. Originally it distributed customs revenue from the common external trade tariffs in proportion to each country’s trade..

So, South Africa received nearly 99%. Surprisingly, South Africa’s apartheid government radically revised the revenue-sharing formula (RSF) in 1969 after Botswana, Lesotho and Swaziland had become independent. This gave each of the BLS members first 142% and later 177% of their revenue dues, calculated on both external and intra-SACU imports, with South Africa receiving only what was left. But this apparent economic generosity from Pretoria almost certainly masked a political intention to keep its neighbours dependent and in its fold, as the rest of the world was increasingly turning against it.

However, as Roman Grynberg and Masedi Motswapong of the Botswana Institute for Development Policy Analysis pointed out in their paper, SACU Revenue Sharing Formula: The History of An Equation, the 1969 formula became increasingly unviable for South Africa as it had been de-linked from the common revenue pool. This threatened to burden Pretoria with a commitment to pay out to the BLS states more than the total amount in the pool.

The African National Congress government saw the dangers when it took office in 1994 and soon began negotiations with the BLNS states for a new formula. That was agreed in 2002 and implemented in 2004. But although the 2002 RSF eliminated the risk that the payouts to the BLNS might exceed the whole revenue pool, it actually increased the share of the pool accruing to the BLNS at the expense of South Africa – as Grynberg and Motswapong also observe.

The new RSF was based on three separate components. The first divided the customs revenue pool proportional to each member state’s share of intra-SACU imports. Because of the growing imports of the BLNS states from the ever-mightier South Africa, this meant most of the common customs pool went to the BLNS. This proportion is increasing – but never to more than the entire pool.

The second component of the RSF divided 85% of the pool of excise duties (the taxes on domestic production) in direct proportion to the share of the gross domestic product (GDP) of each of the SACU members. The remaining 15% of the excise duties became a development component, distributed in inverse proportion to the GDP per capita of each member. So the poorest members of SACU would receive a disproportionate share of this element of the excise.

Over the years the BLNS countries have grown increasingly dependent on the SACU revenue. It now funds 50% of Swaziland’s entire government revenue, 44% of Lesotho’s, 35% of Namibia’s and 30% of Botswana’s. Because of its own growing fiscal constraints, Pretoria launched a review of the formula in 2010. But this review got bogged down over major disagreements and seems to have gone nowhere.

In his budget speech this month, Finance Minister Nhlanhla Nene raised the issue again, calling for a ‘revised and improved revenue-sharing arrangement,’ and Parliament’s two finance committees examined it. National Treasury spokesperson Jabulani Sikhakhane told ISS Today that while efforts to reform the SACU formula are ongoing, ‘progress has unfortunately been arduously slow.’

Budget documents show that in 2014-15, South Africa paid out some R51.7 billion to the BNLS countries out of a total estimated revenue pool of R80 billion, and was projected to pay out R51 billion again in 2015-16. Kyle Mandy, a PricewaterhouseCoopers technical tax expert, told Parliament’s two finance committees last week that South Africa was paying about R30 billion a year more than it would otherwise under the SACU RSF. He said South Africa contributed about 97% of the customs revenue pool and received only about 17% of it.

The R51.7 billion payout to the BLNS this year represents about 5% of South Africa’s total of R979 billion in tax revenue, a substantial ‘subsidisation’ that was no longer affordable at a time of growing fiscal constraint, which had forced Nene to increase taxes, Mandy said.

He noted that the SACU revenue had allowed all but Namibia of the BLNS countries to set their taxes below South Africa’s. ‘This means South Africa is subsidising the BLS countries to compete with South Africa for investment with their more attractive taxes,’ he said in an interview.

‘This is not sustainable for anyone. It locks the BLNS countries into dependency on South Africa. They have neglected their own fiscal systems. But the moment that the revenue fluctuates, [as Nene’s budget predicted it would in 2016-17, dropping to R36.5 million], it puts them in a difficult position. When South Africa sneezes, they catch flu.’

But what to do about this? Some, like political analyst Mzukisi Qobo, have called for a total overhaul of the SACU agreement, which would make explicit that SACU is a disguised South African development project. The development aid would become transparent and could be tied to conditions such as democratic government.

That is on the face of it an attractive solution, offering the opportunity of leveraging democracy in Swaziland, in particular, by placing a conditional foot on its lifeline of SACU revenues. But Grynberg warns that a sudden withdrawal of the vital direct budgetary support which SACU customs and excise revenues provides, could implode both Swaziland and Lesotho and provoke economic crises in Namibia and even Botswana.

He also points out that the RSF is not plain charity by South Africa to its smaller neighbours. The formula has essentially just compensated them for the cost-raising and polarising effects of SACU – that the BLNS countries have generally had to pay more for imported goods over the years than they would have otherwise done because of import tariffs designed to protect South African industries; and because the duty-free trade within SACU has tended to attract investment to larger South Africa.

Meanwhile, South Africa has benefitted from a ready market for its much larger manufacturing machine. Grynberg wrote in a more recent article for the Botswana journal, Mmegi, that the South African government was thinking of pulling out of SACU because it couldn’t get its way in the negotiations to revise the RSF; and because the 2005 Southern African Development Community Free Trade Agreement now gave it duty-free access to the BLNS countries without the need to pay the re-distributive SACU customs revenues.

It was only President Jacob Zuma who was preventing this, because he didn’t want to go down in history ‘as the man who crippled the Namibian and Botswana economies and created two more “Zimbabwes” – i.e. Swaziland and Lesotho – right on the country’s border.’ Pretoria’s decision had turned SACU into a ‘dead man walking, just waiting for someone to pull the switch and end its life.’

Grynberg strongly advised the BLNS to prevent this by accepting that the political reality that underpinned the RSF of SACU no longer existed. He says that it should be transformed into a purely development community without the formula, but with mutually agreed spending on development – mainly in the BLNS. He suggested, though, that this radical change would take at least 10 to 15 years to phase in.

All very well. But isn’t that what SADC is supposed to be already? Which suggests that it might be time to take the 105-year-old dead man off life support.

Source: Institute of Secutity Studies (ISS)

Related articles

Comesa-EAC-SADC Tripartite FTA to be launched Mid-December 2014

TripartiteLogoAfrica’s longstanding vision is an integrated, prosperous and united continent. This vision will come closer to reality in December when the largest integrated market covering 26 countries in eastern and southern Africa is established.

Commonly known as the Tripartite Free Trade Area (TFTA), the integrated market will comprise the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC).

The establishment of a single and enlarged market is expected to boost intra-regional trade and deepen regional integration through improved investment flows and enhanced competition.

In fact, this integrated arrangement will create a combined population of some 625 million people covering half of the member states of the African Union (AU) and a Gross Domestic Product of about US$1.2 trillion.

According to a statement released by COMESA, which is spearheading the implementation process as chair of the Tripartite Taskforce, the proposed Grand FTA will be launched in December during a Tripartite Summit to be held in Egypt.

This follows a series of intense consultations and negotiations that have been going on since 2008 when the three regional economic communities made a commitment to jointly work together in regional integration during their historic summit held in Kampala, Uganda.

The commitment shown by the three economic communities has now proved fruitful as the Grand FTA is within sight and becoming a reality. Source: sardc.net

How SA can save R18bn – by playing hard ball

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

Related ‘must read’ articles

SACU revenue dependence raises concerns

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