By Hilary Mare
A ministerial retreat held in South Africa last week comprising of Finance Ministers of the five SACU member states has given an indication that a review of the revenue-sharing formula is imminent -a change that would have hole blown in the budgets of BLNS member states (Botswana, Lesotho, Namibia and Swaziland).
According to a presentation made by South Africa during the retreat, it says the formula redesign could reduce volatility, ensure that the development component was spent on addressing structural impediments and achieving the original SACU goals.
“A redesign of the formula should facilitate stronger trade links,” said RSA’s presentation.
These views come as no surprise as in South Africa’s budget review in February; the South African treasury said the retreat would decide “how the review of the revenue-sharing formula is to proceed”. “Participants … recommitted to working together to ensure the customs union serves all members’ interests in a fair and equitable way,” an official in the South African treasury was quoted saying soon after the retreat.
The International Monetary Fund has projected that the revenue shock will see customs revenue in the BLNS member states falling drastically.
The revenue-sharing formula stems from the 2002 revision of the Sacu agreement.
It has been criticised from all sides for either costing South Africa too much or crippling the rest of the region, depending on where you stand. Through the formula, South Africa ‘donates’ much of its customs revenue to the other four governments. In return, South Africa effectively gets to control trade policy for the region – and guarantees tariff-free access to the regional market for its companies.
The Trade Law Centre in Stellenbosch has also quoted its associate Gerhard Erasmus saying: “If I were advising one of the BLNS [states], I would be extremely concerned. I’ve lost my policy space, now I lose my revenue, and all I get in return is a fund subject to South Africa’s idea of industrialisation”.
On the other hand, it is also notable that the SACU system keeps the BLNS governments afloat, but has many negative consequences for them as well. South Africa’s protectionist policies raise the prices of goods in their countries, even while they protect industries that only exist in South Africa. The tariffs that defend South Africa’s auto manufacturing industry, for example, make cars expensive in the rest of SACU. Roman Grynberg, an economist at the University of Namibia, recently pointed out that this means that Namibia is “subsidising” Botswana because it exports diamonds to the De Beers polishing facilities there. This reduces Namibia’s relative entitlement to SACU revenue. If Namibia had its own customs system, this would not affect its government revenue at all.
During the inauguration of the SACU headquarters last year, President Hage Geingob also proposed for a review of the revenue sharing formulae saying that there must also be a review of the intellectual property, industrial development, and its industrial policy while strengthening the capacity of the SACU Secretariat. “I, therefore, call upon all our member states to work together to further deepen and strengthen work on the priority areas of focus of SACU, including a review of the revenue sharing model, intellectual property, industrial development, industrial policy, and strengthening the capacity of the SACU Secretariat, amongst others,” he said.
-Additional reporting by News24
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