…Schlettwein looks to leverage benefits
By Hilary Mare
THE impasse and uncertainty on the future of Southern African Customs Union (SACU), particularly the revenue sharing model, has been resolved and a programme of work on addressing policy and institutional matters has been adopted,” Finance Minister Calle Schlettwein has revealed.
Since 2013, the issue of revenue sharing has prompted South Africa to engage other SACU member states, in a bid to review the neighbouring country’s contributions to the union.
“The implementation of this programme has commenced. The resolution on the impasse is a positive recent development, as a result of open engagement at council and heads of state and government levels,” Schlettwein told Confidente.
South Africa is the dominant economy within the union, and has a significantly more developed industrial sector, compared to those of the other SACU members.
This inequality has led to a number of imbalances, not least when it comes to revenue sharing. Increasing pressure on the South African budget, as a result of, inter alia, the recent global economic slowdown and a reduced demand from key trading partners, such as China and the European Union, resulted in a renewed push to review South Africa’s contributions to the union.
According to South Africa’s Minister of Trade and Industry, Rob Davies, the country currently pays about R48 billion to the customs union annually, which constitutes around 98 percent of the common pool of customs and excise duties shared amongst SACU members.
Of this revenue pool, 55 percent is distributed to Botswana, Lesotho, Namibia and Swaziland.
This is in line with the revenue sharing formula agreed upon in 2002, which allocates customs revenue according to each country’s share of intra-SACU imports. There is also a development component, which is allocated according to a country’s Gross Domestic Product (GDP) per capita, in order to assist less developed SACU members.
“Within this framework, the envisaged review of the revenue sharing formula will be guided by the principle that, ‘no member should be worse off’, as a result of the review.
“This position was reaffirmed at the 5th Summit of SACU Heads of State and Government in June this year in Swaziland, where the importance of SACU in deepening regional integration, industrialisation and economic diversification was further stressed,” Schlettwein said.
“The SACU vision and work programme going forward also emphasises the repositioning SACU to take advantage of regional and global economic development.”
The current formula was implemented for the first time in December 2004. But the five member states have since acknowledged that it has a number of challenges, while the recent global financial crisis also exposed some weaknesses in the structure of arrangement.
In fact, the formula has emerged as a key point of contention between the five member countries, with South Africa in particular arguing that it was serving to undermine the adoption of more strategic trade and investment policies. This unhappiness has also heightened uncertainty about the future of SACU, with tensions having flared last year, when Botswana, Lesotho and Swaziland signed the controversial interim Economic Partnership Agreement (EPA) with the European Union (EU), while South Africa and Namibia refused to do so.
During his 22 April 2010 address, on the occasion of the commemoration of the SACU centenary in Windhoek, South African President Jacob Zuma even cautioned that, “if we cannot pursue the unfinished business of the EPA negotiations as a united group, the future of SACU is undoubtedly in question”.
South Africa is also of the view that the revenue sharing formula has become an impediment to the adoption of common industrial and trade policies, which could foster deeper integration. For this reason, there has been some talk of “downgrading” SACU, from a customs union to a free trade agreement. Currently, the formula uses three components to calculate revenue shares for member states – a customs component, an excise component and a development component.
The customs share is allocated on the basis of each country’s share of intra-SACU imports, the excise element is allocated on the basis of each country’s share of GDP, while the development component is fixed at 15 percent of total excise revenue, and is distributed according to the inverse of each country’s per capita GDP.
In other words, the smaller countries, in what is also the world’s oldest customs’ union, benefit on an asymmetrical basis, while South Africa receives more than 90 percent of its share from the excise component.
Talking about the prospects for the future, Schlettwein, reiterated Namibia’s need to leverage the opportunities presented by the SACU pool.
“Due to the historical evolution of SACU economies, the SACU market is generally homogeneous, in terms of its product range, which limits intra-SACU trade. We virtually produce the same range of products, and the comparative advantages are generally weak.
“Taking into consideration the opportunities presented by the SACU policy commitment and new work programme, as well as the market access opportunities under the Free Trade Area, the question to be raised is how best Namibia can leverage these opportunities, to contribute to the national objectives of economic expansion, industrial development, job creation and poverty eradication,” he said.
Confidente. Lifting the Lid. Copyright © 2015