Category / Revenue Sharing

by Mike Poverello

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

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by Mike Poverello

SACU’s Choice – ‘Common policy or irrelevance’

imagesCA31PQJGThe Minister of Trade and Industry, Dr Rob Davies briefed the Parliamentary Portfolio Committee on Trade and Industry regarding the progress on the implementation of the five-point plan in Cape Town. This is a work programme which was approved by the 2nd Southern Africa Customs Union (SACU) Summit convened by President Zuma in 2011 premised on the following pillars;

  1. Work programme on cross-border industrial development;
  2. Trade facilitation;
  3. Development of SACU institutions;
  4. Unified engagement in trade negotiations and
  5. The review of the revenue sharing arrangement.

The five-point plan emerged from realization by SACU Member States of a need to move SACU beyond an arrangement held together only by the common external tariffs and the revenue sharing arrangement to an integration project that promotes real economy development in the region.

Minister Davies noted that progress on the implementation of pillars of the five- point plan is uneven. SACU has registered good progress on trade facilitation and there is greater unity of purpose in negotiations with third parties (Economic Partnership Agreement (EPA), SACU-India and Tripartite Free Trade Area).

However, there is limited progress on the review of the revenue sharing arrangement and hence lack of adequate financial support for the implementation of cross-border industrial and infrastructure development projects. The SACU revenue pool is raised by South Africa from customs and excise duties. Mr Davies told MPs that in 2013-14 the total disbursement from the revenue pool would be about R70bn of which the BLNS countries would receive about R48bn. There is also lack of progress on the development of SACU institutions as a result of divergences in policy perspectives and priorities of Member States.

Enabling provisions provide for the establishment of National Bodies and a SACU Tariff Board. The SACU Tariff Board will make recommendations to Council on tariffs and trade remedies. Davies added that, until these institutions are established, functions are delegated to the International Trade Administration Commission (ITAC) in SA.

The minister warned that the lack of agreed policies would hinder effective decision-making on regional integration and industrialisation, which had made little progress since the 2011 summit convened by President Jacob Zuma. South Africa believes SACU needs to move “firmly towards a deeper development and integration”.

Minister Davies said SACU risked becoming “increasingly irrelevant” as an institution if it did not develop beyond operating a common external tariff, and a “highly redistributive” revenue-sharing arrangement. The lack of progress in developing new SACU institutions was primarily due to policy and priority differences among members. “Against this background South Africa needs to reassess how best to advance development and integration in SACU.”

Among the disagreements on tariff setting between South Africa and its neighbours highlighted by Mr Davies, was that South Africa saw tariffs as a tool of industrial policy while they regarded them as a means of raising revenue. For example, the other Sacu members wanted to include the revenue “lost” on import tariff rebates offered by South Africa into the revenue pool.

The pool provides these countries with a major source of their national budget. Rebates were seen as revenue foregone for which additional compensation should be sought. South Africa, on the other hand, argues that the rebates (for example on automotive imports) are part of its total tariff package and serve to attract investment and boost imports and therefore, contribute to expanding the revenue pool, not diminishing it.

He emphasised the development of a common approach on trade and industrial policy as the prerequisite for establishing effective SACU institutions in future.

He highlighted that a discussion on appropriate decision-making procedures on sensitive trade and industry matters that takes into account SACU-wide impacts is required. Source: The Department of Trade & Industry, and BD Live.

by Mike Poverello

WCO/SACU – IT Connectivity and Data Exchange

WCO-SACU IT Interconnectivity and Data Exchange Conference

On the occasion of International Customs Day, in January earlier this year, the World Customs Organisation dedicated 2012 as the year “Connectivity”, which encapsulates people connectivity, institutional connectivity and information connectivity among the members of the global Customs community.

Over the last week and a half delegates from the WCO, SACU, UNCTAD, SADC and COMESA have been hosted at SARS, Pretoria to discuss and deliberate over an approach to implement ‘IT connectivity’ within the Southern African region. During the first week representatives from UNCTAD, SACU and SARS were briefed on important developments at the WCO on IT-Interconnectivity and Information Exchange. We were privileged to have Mr. Satya Prasad Sahu, Technical officer from the WCO – a leading expert in all matters of ICT in international customs matters – present the developments towards finalisation of a future international customs standard called “Globally Networked Customs” (GNC). It entails a structured approach that will enable customs authorities to formulate and document bilateral or regional ‘standards’ on a variety of Customs-to-Customs topics, for instance Authorised Economic Operators, Cross Border Information Exchange, Risk Management, etc. A representative from UNCTAD presented a synopsis of the proposed ‘cloud computing solution’ which the Trans Kalahari Corridor (TKC) plans to pilot between Namibia and Botswana along the TKC route in the next few months. During the course of this week, delegates , under the guidance of Satya, prepared a proposed approach for information exchange between members of the Southern African Customs Region. This document is based on the GNC Utility Block structure (defined by the ad Hoc Committee on Globally Networked Customs at the WCO) and served as the basis for discussion for Week 2.

Mr. SP Sahu (WCO) and delegates from SACU SecretariatWeek 2 saw the arrival of customs and IT representatives from COMESA, SADC, UNCTAD, SACU as well as a delegation from Mozambique Customs. Mr. Sahu was invited to chair the session, given his vast experience on the subject matter as well as international experience in national and regional customs ICT programmes. Delegates were treated to various lectures on the GNC, a comprehensive overview of developments on ASYCUDA (Customs solution developed by UNCTAD), various updates from within the customs region – Botswana, Namibia, Lesotho, Swaziland, Mozambique and SARS. Beyers Theron informed delegates of ongoing developments of the SARS Customs Modernisation Programme as well as key implications for neighbouring countries. SARS presented a live demonstration of SARS’ Service Manager solution, navigating through all the functionality now available to SARS Customs officials. Of significant interest to all was the new iPod inspection tool. This technology is given prominent feature in the latest edition of WCO News.

A large portion of the week was, however, spent on deliberating the proposed scope and content of the draft Utility Block on Information Exchange in the Southern African Region. Significant progress was been made to attain first, a common understanding of the scope as well as the implications this has for participating countries. Delegates will return home with a product with which to create awareness and solicit support in their respective countries. Over the next few months SARS will engage both SACU and SADCOM (combined SADC and COMESA trading blocs) to establish firm commitments for information exchange with customs administrations in these regions. This conference is significant for SARS and South Africa as a whole as it provides a uniform, standardised and practical approach for engagement with other international trading partners. To view photographs of the conference please click here!

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by Mike Poverello

SACU now a liability – telling it as it is

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

by Mike Poverello

Southern Africa: Eyeing the Money, Not Development

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