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At least 30 representatives of the Southern African Customs Union (SACU) recently met in Maseru – capital of the ‘Mountain Kingdom’ – Lesotho, to undertake a 5-day training workshop on the WCO Data Model, between 29 May to 2 June.

The training formed part of capacity building support to Member States to implement IT connectivity and information exchange between SACU Customs Administration. The training was facilitated by WCO Data Model Expert, Mr Carl Wilbers from South African Revenue Service (SARS) and GEFEG.FX software tool Expert, Mr. Martin Krusch from GEFEG, Germany.

The recent ratification of Annex E to the SACU agreement – on the use of Customs-2-Customs (C-2-C) Data Exchange between member states – paves the way for participating countries to exchange data within the terms of the agreement on the basis of the GNC Utility Block, also greed to by the respective member states. It also coincides with recent work on the establishment of a SACU Unique Consignment Reference (UCR) which must be implemented by the SACU countries in all export and transit data exchanges between themselves, respectively.

Just recently, in May 2017, the heads of SACU Customs administrations were presented a prototype demonstration of data exchange between the respective systems of the South African Revenue Service and the Swaziland Revenue Authority.

The WCO Data Model provides a maximum framework of standardized and harmonized sets of data and standard electronic messages (XML and EDIFACT) to be submitted by Trade for Cross-Border Regulatory Agencies such as Customs to accomplish formalities for the arrival, departure, transit and release of goods, means of transport and persons in international cross border trade.

The course was extremely comprehensive, providing SACU customs users the full spectrum of the power and capability which the GEFEG.FX software tool brings to the WCO’s Data Model. GEFEG is also the de facto Customs data modelling and data mapping tool for several customs and border authorities worldwide. It significantly enhances what was once very tedious work and simplifies the process of mapping data, ensuring that the user maintains alignment and consistency with the most up-to-date version of WCO data model. One of the more significant capabilities of the GEFEG.FX software is its reporting and publishing capability. For examples of this please visit the CITES electronic permitting toolkit and the EU Customs Data Model webpages, respectively. Pretty awesome indeed!

Users had the opportunity of mapping the SACU agreed data fields both manually as well as using the tool. The SACU group was able to add additional enhancements to its agreed data model, providing an added benefit of the work session.

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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 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.

WCO Capacity Building Magazine 3rd Edition.ashxThe WCO – Sub – Saharan African Customs Modernization Programme funded by the government of Sweden comprises four projects, namely the WCO- EAC CREATe , the WCO– SACU Connect, the WCO– WACAM and the WCO– INAMA Projects. In their totality, the projects support regional Customs Unions in Africa in their mission to facilitate trade without compromising the security of their country and the safety of their citizens. The newsletter will appear quarterly and will inform on ongoing tasks as well as give an overview of future activities. Source: WCO

ESA_Regional-WS_South-AfricaThe WCO Regional Workshop on Strategic Initiatives for Trade Facilitation and the Implementation of the WTO Trade Facilitation Agreement (TFA) – Mercator Programme – for the WCO East and Southern Africa (ESA) region was held from 15 to 17 September 2015 in Johannesburg, South Africa. It was hosted by the South African Revenue Service (SARS) representing the WCO Vice Chair of the ESA region, and financially supported by the United Kingdom Department for International Development (UK DFID) and the Ministry for Foreign Affairs of Finland. More than 100 participants from 21 ESA Members (Customs, Trade Ministries/equivalent Ministries), the WTO and other international organizations, development partners and the private sector participated in the event.

The Workshop was opened by the Commissioner of SARS, Mr. Thomas Moyane. He expressed his view that the WCO Mercator Programme created significant conditions for contributing to intra-African as well as international trade facilitation benefits. As Vice Chair of the ESA region, he hoped that the Workshop could recommend immediate actions for the region.

The Workshop raised a lot of interest and active discussions from a variety of well-prepared and informative presentations, including the role of the WCO in TFA implementation;  TFA regulations such as Article 23.2 on National Committees on Trade Facilitation (NCTF) and specific national and (sub-)regional examples of implementation approaches; experiences of Trade Ministries and several partner institutions active in the region; and discussions on further approaches to Capacity Building and TFA implementation, including in cooperation with Development Partners.

The region agreed on next steps forward, including on a regional focus on the establishment and maintenance of NCTFs (for instance further provision of replies to the respective WCO survey; identification of the situation within ESA Members); reporting the outcomes of the Workshop to the ESA Regional Steering Committee; encouragement of ESA Members who are not yet Contracting Parties to the Revised Kyoto Convention to accede to it as soon as possible (and/or to identify related Capacity Building needs) – as one concrete way to also support TFA implementation; and responsibility of the ROCB and the Vice Chair to continue collecting and publishing information on ongoing Capacity Building projects and work of partner organizations such as SADC, COMESA, SACU and UNCTAD especially in the TF(A) area in the region – while encouraging Members and partner organizations to share such information.

The Workshop was successfully concluded with positive feedback from Members, partner organizations and development partners. A summary document on the discussions held during the Workshop is currently under finalization by the Vice Chair’s office and the ROCB and will be circulated to all participants of the Workshop in due course. Source: WCO

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.)

SACU IT Connectivity ConferenceRepresentatives from the Southern African Customs Union (SACU) gathered in Johannesburg, South Africa recently to refine requirements towards the development IT connectivity and electronic data exchange to facilitate cross-border customs clearance in the region. The workshop was convened by the SACU Secretariat under the sponsorship of the Swedish government and technical support from the World Customs Organisation.

Work already commenced way back in 2012 on this initiative. Progress in the main has been hampered by the legal agreement which to date not all members of the Customs Union have ratified. One of the features of this initiative, however, has been the continuity of support rendered by the WCO.

This event was indeed fortunate to secure – once again – the services of S.P. Sahu, former head of Information Technology at the WCO. After his secondment to the WCO he is now back in his home country where he is the Commissioner for Single Window based in Delhi, India.

S.P’s years of experience in both the technical and operational spheres of customs and the international supply chain enable him to articulate concepts and solutions in a manner which are practical and simple to understand. The workshop recognised the need to accelerate border processes and to this end the border process should be limited to physical examination, inspection, release; declaration processes should be done away from borders.

While simple enough in theory, the notion of clearance away from borders could pose challenges. Many of Africa’s borders – including those of a ‘One Stop’ kind – have not fully embraced the need to integrate processing and synchronize Customs activities. The challenge posed by ‘regional integration’ is one of surrendering national imperatives for a common regional good. It imposes a co-ordination of and development towards ‘regional objectives’ with the same level of purpose as national states do for their domestic agenda’s. In the case of SACU, it challenges member state’s stance on what real benefits the customs union should aspire to, beyond the mere sharing of the common revenue pool.

The outcome of the workshop resulted in a more refined, do-able scope and objective. With Mr. Sahu’s experience and guidance, the revised Utility Block (UB) speaks to all facets (legal, operational and technical) of the ‘regional agreement’ to the extent it specifies in the required detail the programme of action required on the part of the member stats as well as the SACU Secretariat. Refinement of the UB includes the removal from scope of the Release Message, Manifest Information and bond/guarantee message for the purpose of simplification of customs processes.

What remains are –

  • An Export & Transit Message – which includes the Unique Consignment Reference (UCR) validated and approved by the Export/Exit country.
  • An Arrival Confirmation/Notification Message – where the arrival date time would be when the import country recognises goods as received and places the goods under its customs procedure.
  • A Control Results Message – which includes the results of data matching, inspection and risk assessment based on agreed business rules.

In support of the above, SACU recently agreed on a framework of a UCR which must be further discussed and agreed upon by the respective member states. The UCR is a structured reference number which will be used by customs administrations of the respective member states to ‘link up’ import declaration data with the corresponding ‘export declaration’ data electronically exchanged by the export country.

Regional traders who have electronic clearance and forwarding capability will also play a role in the exchange of data through the exchange of the UCR on export and transit information with their counterparts or clients in the destination country. Once the exchange of data is operational between member states, it will be imperative for the importer to receive/obtain the UCR from the exporting country and apply it to his/her import declaration when making clearance with Customs.

The SACU Utility block will be tabled at a future Permanent Technical Committee meeting of the WCO for consideration and approval. A Utility Block is a concept structure which is proposed under the WCO’s Globally Networked Customs (GNC) initiative which seeks to aid and assist its members in the operationalisation of Mutual Administrative Assistance agreements.

WCO Sub-Saharan Customs Modernisation Programme NewsletterHerewith a new newsletter informing about developments of Capacity Building Projects in Sub- Saharan African Customs Unions as sponsored by the government of Sweden. The project includes the WCO- EAC CREATE Project, the WCO- WACAM Project, The SACU Connect Project and the WCO INAMA Project.

With this newsletter we share with you updates about ongoing activities as well as an outlook for the events of the upcoming months. Click this hyperlink to download the newsletter.

Whilst this newsletter can only provide a snapshot of key developments, it may raise your awareness and encourage you to address us for more detailed publications or to contact us. Source: WCO

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

LRA Trade PortalThe Lesotho Revenue Authority (LRA) has undertaken an extensive Customs Modernisation Programme aimed at simplifying the processes and reducing the costs of ‘doing business’ at the border. Earlier this week, the LRA launched the Lesotho Trade Portal as an introduction of the first portion of these reforms which brings a commitment to transparency for all border users on expectations and procedures.  The launch of the portal will be followed by an introduction of simplified border procedures supported by the implementation of modern computerised systems using ASYCUDA World.

The LRA has been reorganising its structure the past year aligning it with organisational strategy, and alongside that as a result of the modernisation, there will be extensive restructuring to promote efficiency and professionalism in customs and across the LRA. Staff members are undergoing extensive training to prepare for the introduction of the new systems.

To facilitate legitimate trade and enhance compliance LRA will introduce risk based controls to enable legitimate trade to pass more freely through the border posts and following the recent pilot project, there will be a full introduction of a ‘Preferred Trader Scheme’ offering additional facilitation benefits to compliant traders.

Through use of modern technology LRA will speed up the inspection process as they will be coordinated and organised from dedicated inspection areas. There will eventually be an introduction of inland clearance to improve service delivery and clearance time.

To protect legitimate trade and reduce market distortion, there will be targeted anti-smuggling activities. This will be for deterrence of illicit and illegal goods as well as to protect the nation from prohibited importation of goods.

The Lesotho Business Partnership Forum has also voiced its unanimous approval of the Lesotho Trade Portal. It believes this milestone represents a major breakthrough in the relationship between business and government. It reveals a level of transparency in procedures and processes which business can only welcome as a sign of a more constructive and open approach to the management of government affairs.

Similarly, the traders and general public will participate in an extensive publicity campaign with announcement in the media as to how to get involved and benefit from the reforms.  A key tool in this process to keep everyone on the loop, will be the News section of Lesotho Trade Portal itself. This will be supported by an extensive communications programme and an education programme targeted at regular border users. Source: Lesotho Revenue Authority

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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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

WCO ESA_Snapseed

Participants from all 24 members of the WCO’s Eastern and South African region attended the forum. [SARS]

Customs officials from 24 eastern and southern African countries met in Pretoria this week to share knowledge and experience with regard to the successful modernisation of Customs administrations.

Opening the three-day forum, Erich Kieck, the World Customs Organisation’s Director for Capacity Building hailed it as a record breaking event.

“This is the first forum where all 24 members of the Eastern and Southern African region (ESA) of the WCO were all in attendance,” he noted. Also attending were officials from the WCO, SACU, the African Development Bank, Finland, the East African Community and the UK’s Department for International Development (DFID).

Michael Keen in the 2003 publication “Changing Customs: Challenges and Strategies for the Reform of Customs Administrations” said – “the point of modernisation is to reduce impediments to trade – manifested in the costs of both administration incurred by government and compliance incurred by business – to the minimum consistent with the policy objectives that the customs administration is called on to implement, ensuring that the rules of the trade game are enforced with minimum further disruption”

The three-day event witnessed several case studies on Customs modernisation in the region, interspersed with robust discussion amongst members. The conference also received a keynote addressed by Mr. Xavier Carim, SA Representative to World Trade Organisation (WTO), which provided first hand insight to delegates on recent events at Bali and more specifically the WTO’s Agreement on Trade Facilitation.

The WCO’s Capacity Building Directorate will be publishing a compendium of case studies on Customs Modernisation in the ESA region during the course of 2014.

WCO ESA members – Angola, Botswana, Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Somalia, South Sudan, Swaziland, South Africa, Tanzania, Uganda, Zambia and Zimbabwe.

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Source: SARS

600px-Flag_of_Swaziland.svgMartin Gobizandla Dlamini, the new Minister of Finance, is aware of the challenges of the country’s economy in case South Africa pulls out of the Southern African Customs Union (SACU).

However, the minister warned against pressing the panic button. He said there were no pellucid pointers that South Africa might pull out of the union.

Asked what measures were in place to sustain the country economically if South Africa pulled out or reviewed the revenue sharing formula to the negative, he said: “Let us cross the bridge when we get there. I am aware that South Africa calls for changes in the revenue sharing formula. This is a matter that has been on the table for quite some time.”

“I can’t comment now on how to survive with or without SACU receipts but I can mention that we are a sovereign state.” He did not expand on the sovereignty of Swaziland. Dlamini said SACU member states would meet in February 2014 for a strategic session.

These are South Africa, Namibia, Swaziland and Lesotho. “We were to meet in February in the first place, to discuss strategies on how to modernise SACU and make it relevant to our needs. It’s not like we are going there for shocks or breaking news about South Africa’s position on SACU,” said Dlamini, the former Governor of the Central Bank of Swaziland.

The country’s Gross Domestic Product (GDP) stands at E37 billion for 2012 while that of South Africa is E3.8 trillion as at 2012. In the absence of SACU, Swaziland is left with a few companies that add value to the economy in terms of taxes. They include among others Conco Swaziland which is understood to be contributing 40 per cent to the GDP, which translates to E14.9 billion and the sugar belt companies; Royal Swaziland Sugar Corporation (RSSC) which makes a turnover in excess of E1 billion and Illovo Group’s subsidiary Ubombo Sugar Limited (USL). Illovo Sugar has a 60 per cent shareholding at Ubombo Sugar while the remaining 40 per cent is held by Tibiyo Taka Ngwane, a royal entity held in trust for the Swazi nation. To Illovo Group’s profits, Ubombo Sugar contributed E272 million.

Bongani Mtshali, the acting Chief Executive Officer (CEO) of the Federation of Swaziland Employers and Chamber of Commerce (FSE&CC), said the country could be in a very bad economic situation if South Africa were to pull out of SACU. He said the economic problem could still persist even if the revenue derived from the union was decreased. Mtshali advised Swazis to expand the revenue base and work hand in hand with the Swaziland Revenue Authority (SRA) in its collection of domestic taxes.

The taxes include company tax, pay-as-you-earn, sales tax, casino tax and value added tax. He said people and companies should be encouraged to honour tax obligations. He also called for business innovation. “We will be able to produce and sell if we innovate,” he said. He said there was a need to have an innovation institution of some sort to produce talent, nurture and release it for productivity.

As it were, he said, it was suicidal to depend entirely on SACU revenue. It can be said that over 60 per cent of the country’s budget comes from the union. The SRA collects over E3 billion and this money cannot finance the national budget of E11.5 billion.

Ministries that can save Swaziland from an economic crisis are the Ministry of Commerce, Trade and Industry; Ministry of Agriculture, Ministry of Natural Resources and Energy and the Ministry of Economic Planning and Development.

It can be said that Swaziland is an agricultural economy but the closure of the factory at SAPPI Usuthu and destruction of timber at Mondi by veld fires, spelled doom to the economic outlook of the country. It can also be said that the country’s mainstay product is now sugar.

Despite maize being the country’s staple food, government spent E123 million on maize imports from South Africa last year. This year, preliminary figures indicated that government could spend E95 million on maize imports.

The import price has decreased because the country recorded a higher maize harvest of 82 000 metric tonnes compared to 76 000 tonnes recorded the previous year.

Swaziland is still clutching at straws in terms of food security. The unemployment rate is also high as there had been no massive investments witnessed on the shores.

Jabulile Mashwama, Minister of Natural Resources and Energy, said there were plans to expand the mining sector and reopen closed ones like Dvokolwako Diamond Mine.

There are only two official mines currently operational; Maloma Colliery, which made an export revenue of E126 million in the 2011/2012 financial year and Salgaocar which extracts iron ore from dumps at Ngwenya Iron Ore Mine.

Mashwama, the minister, said she would give details on the programme to revive the mining sector at a later stage. She hinted that the nation could also bank its hopes on her ministry for job creation and revitalisation of the economy.

Gideon Dlamini, the Minister of Commerce, Trade and Industry, has been given a task to industrialise the economy as one of the five-point plan by SACU. The industry minister was reported out of the country and was not reachable through his mobile phone. Source: Times of Swaziland

South Africa has been courting major player Botswana’s support for changes to SACU.

South Africa has been courting major player Botswana’s support for changes to SACU. (Mail & Guardian)

The Mail & Guardian reveals that South Africa has requested an urgent meeting with members of the Southern African Customs Union (SACU) for as early as ­February next year in what could be a make-or-break conference for the struggling union.

In July this year, a clearly frustrated Trade and Industry Minister Rob Davies told Parliament that there had been little progress on a 2011 agreement intended to advance the region’s development integration, and it was stifling its real ­economic development.

South Africa’s payments to SACU currently amount to R48.3-billion annually – a substantial amount, considering the budget deficit is presently R146.9-billion, an estimated 4.5% of gross domestic product.

In the past, South Africa has had some room to reposition itself, but as Finance Minister Pravin Gordhan has pointed out, the South African fiscus has come under a lot of pressure as a result of factors such as the global slowdown, reduction in demand from countries such as China for commodities, and reduced demand from trade partners such as the European Union.

South Africa, which according to research data, last year contributed 1.26% of its GDP, or about 98% of the pool of customs and excise duties that are shared between union countries including Swaziland, Botswana, Lesotho and Namibia, wants a percentage of this money to be set aside for regional and industrial development.

The four countries receive 55% of the proceeds, and are greatly dependent on this money, which makes up between 25% and 60% of their budget revenue. South Africa has very little direct benefit, except when it comes to exporting to these countries. It receives few imports.

Changing the revenue-sharing arrangement

Efforts to change the revenue-sharing arrangement so that money can be set aside for regional development would result in less money going into the coffers of these countries.

It would also mean that a portion of the revenue that South Africa’s SACU partners now receive with no strings attached would in future include restrictions on how it is spent.

A source close to the department said adjustments to the revenue-sharing arrangement and the promotion of regional and industrial development were issues on which the South African government was not willing to budge.

So seriously is South Africa viewing the lack of progress on the 2011 agreement, a document prepared for Cabinet discussion includes pulling out of SACU as one of its options, a source told the Mail & Guardian.

This could not be confirmed by the government, but two senior sources said South Africa was very aware of the dependence of its neighbours on income from the customs union, in particular Swaziland and Lesotho, and the impact its collapse could have on these economies.

Professor Jannie Rossouw of the University of South Africa’s department of economics believes a new revenue-sharing arrangement is essential for the long-term sustainability of SACU countries.

South Africa’s contribution

He also said that South Africa’s contribution as it presently stands should be recognised as development aid and treated as such by the international community.

Between 2002 and 2013, total transfers amounted to 0.92% of South Africa’s GDP, which exceeds the international benchmark of 0.7% set by the Organisation for Economic Co-operation and Development, he said in his research.

“It is noteworthy that South Africa transfers nearly all customs collections to SACU countries. Total collection since 2002 amounted to about R249-billion, while transfers to SACU were about R242-billion,” Rossouw said. The South African Revenue Service (SARS) recognises that inclusion of trade with Sacu would have a substantial impact on South Africa’s ­official trade balance.

South Africa’s total trade deficit for 2012 was R116.9-billion and, according to SARS, had trade with the union been included, it would have been much reduced to R34.6-billion.

South Africa has budgeted to increase its allocation to SACU from R42.3-billion in the 2012-2013 financial year to R43.3-billion this financial year and in the 2014/2015 financial year.

In 2002, the SACU agreement was modified to include higher allocations for the most vulnerable countries, Swaziland and Lesotho, and it established a council of ministers, which introduced a requirement for key issues to be decided jointly. In 2011, a summit was convened by President Jacob Zuma in which a five-point plan was established to advance regional integration.

Review of the revenue-sharing arrangement

This involved a review of the revenue-sharing arrangement; prioritising regional cross-border industrial development; making cross-border trade easier; developing SACU ­institutions such as the National Bodies (entrusted with receiving requests for tariff changes) and a SACU tariff board that would eventually take over the functions of South Africa’s International Trade Administration Commission (ITAC); and the development of a unified approach to trade negotiations with third parties.

Davies told Parliament that there had been little progress in the past three years on these five issues.

Xavier Carim, the director general of the international trade division of the department of trade and industry, said there had been positive developments regarding agreements on trade negotiations, such as those with the European Union and India on trade, and progress had been made on the development of SACU institutions, but progress was slow on the other issues.

Davies told Parliament it was difficult to develop common policy among countries that varied dramatically in economic size, ­population and levels of economic, legislative and institutional development.

He cited differences over approaches to tariff settings as an example.

“South Africa views tariffs as tools of industrial policy, while for other countries tariffs are viewed as a source of revenue,” Davies said.

A proposal that cause all the problem

“A key problem that led to differences was the proposal by one member for lower tariffs to import goods from global sources that were cheapest, which ultimately undermined the industry of another member. This was primarily an issue of countries who viewed themselves as consumers rather than producers.”

The South African government is trying diplomacy as its first option. A senior government source said issues around SACU made up a large part of talks last week between Botswana and South Africa on the establishment of co-operative agreements on trade, transport and border co-operation.

Catherine Grant of the South African Institute of International Affairs said Botswana had long been considered the leader of the four countries. It would make sense for South Africa to bring Botswana on board before the meeting.

Grant said the SACU agreement needed to be re-examined and modernised.

“There needs to be a review of the revenue-sharing formula that is less opaque and is easier to understand. The present system is complicated, making it hard to work out exactly how much countries are getting. It’s clear that Rob Davies feels hamstrung by SACU and has done for some time, because decisions cannot be made without the agreement of all five members, who have different needs and requirements.”

The trade balance is one of the elements that resulted in South Africa’s current account, which has recorded significant deficits in recent months, coming in as high as 6.5% of GDP in the second quarter of 2013.

Trade between South Africa and SACU has always been recorded, but for historical reasons it has been kept separate from official international trade statistics. Source: Mail & Guradian