How SA can save R18bn
Fin24

How SA can save R18bn

2014-02-20 07:09

SOUTH 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 our 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.

Sources:

Arvis, J-F., Oliver, J. & Shepherd, B. (2014). Why Is Trade More Costly For Poor Countries? A New Database Gives Us Some Answers. Blogs.worldbank.org [Online].
 
Grynberg, R. (2014). Sacu: Dead man walking? The Trade Beat [Online].

- Fin24

* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS. Views expressed are his own.

Comments
  • Marven Shuta - 2014-02-20 08:06

    Its the other way around. How R18bn can save south africa.

      Andre Jacobs - 2014-02-20 12:26

      Fire zuma and his many wives.

  • Kyri Demetriades - 2014-02-20 14:09

    Another brilliant example of good governance

  • Owen Walker - 2014-02-20 14:28

    Nay, we should be trying to build a bigger southern African state. We should add moz, zim and zambia to SACU. Then try to go for monetary union. The bigger the common market the more powerful we all are. A federation of southern African states based on pre colonial boundaries would make a far better nation. Your idea of separating south Africa from southern Africa is not visionary.

      Nazeem Samodien - 2014-02-20 16:48

      Well the SADC essentially aims at a common monetary union as well. Personally I think that Regional Bodies such as the SADC should get their house in order before attempting a common monetary market. For instance the SADC needs to fix up its membership issues, too many of its members belong to multiple political and economical blocs (Zambia is part of the Common Market for Eastern and Southern Africa, and Tanzania is a member of the East African Community, Angola & the Democratic Republic of the Congo are members of the Economic Community of Central African States, The Democratic Republic of the Congo, Swaziland, Madagascar, Mauritius, Zambia and Zimbabwe belong to the Common Market for Eastern and Southern Africa. Countries such as Zambia, Mauritius, Madagascar and Tanzania would prefer to be in alternative political and economic blocs, the SADC should make it clear that membership to other blocs means a removal out of the SADC. If the SADC cannot get all their members to commit to one economic and political bloc then it will struggle going forward.

  • Ingwenya Phambili - 2014-02-20 14:31

    However on the flip side...if we exit SACU then Swaziland and Lesotho suffer economic collapse...considering that the combined population of the two kingdoms is more than 3 million. They will descend upon us and we cannot stop them and will end up paying more than the envisaged 18 billion. Therefore let us remain in SACU to save ourselves far more problems.

      Nazeem Samodien - 2014-02-20 16:50

      Well 2/3 of Lesotho's working population currently resides in South Africa because of work opportunities so it shouldn't be too drastic. there's actually a sizeable part of the Basotho population that wants South Africa to Annex Lesotho. Not too sure about Swaziland.

  • Isme Bru - 2014-02-20 15:30

    "How SA can save R18bn"!You mean R18bn could become available to be squandered by Zoomba and his cronies!

  • Chris Van Der Merwe - 2014-02-21 05:46

    So this is were the money for the toll roads was spend!

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