Transfer cuts a big blow for SA’s neighbouring states

22 February 2010, Business Day
URL: http://www.businessday.co.za/articles/Content.aspx?id=94129

Johannesburg:  Members of the Southern African Customs Union (Sacu) were dealt a heavy , if expected, blow by the government’s announcement of smaller transfers to the union’s members. The members are SA, Botswana, Lesotho, Namibia and Swaziland.

SA administers the customs and excise revenues collected in the region and dispenses them based on a formula in which a disproportionate share goes to Botswana, Lesotho, Namibia and Swaziland, known as the BLNS countries.  An estimated amount is paid each year and adjusted two years later when actual figures are reconciled.

In the October mini-budget, SA warned customs and excise receipts would drop by about 20% compared with 2008.

Yesterday, Finance Minister Pravin Gordhan said customs revenue was volatile and in the past 18 months SA’s import growth had slowed considerably. Because of the slowdown in customs revenue in 2008- 09, the transfer to Sacu members had been adjusted downwards by R4,5bn for the 2010- 11 fiscal year to R14,9bn.  The 2011- 12 transfer would also have to be adjusted downwards, to R11,2bn from an estimated R21bn.  This would have a significant impact on the budgets of the BLNS countries, Gordhan said.

The future of Sacu has been under discussion for the past few years, partly as a result of interim trading agreements signed by some members with the European Union (EU) and because of moves towards greater regional trade integration in southern Africa.

At one stage last year it appeared SA would withdraw from Sacu altogether, although this would have been a politically awkward tactic both from an African and a global perspective, because of members’ dependence on help from SA.

For some Sacu members, revenues from the tariff pool represent more than half their total fiscal income, leading the World Trade Organisation, in its November review, to urge members to move ahead on product and market diversification.

Trudi Hartzenberg, executive director of the Trade Law Centre for Southern Africa, said the drop in collections last year resulted not only from the global economic crisis but also from the tariff phase-down within, for example, the SA-EU Trade and Development Agreement.

Although this underscored the importance of economic diversification for the members of Sacu, their options were very limited, Hartzenberg said. On top of this, SA had apparently notified its fellow Sacu members that it wished to renegotiate the revenue-sharing formula and to make other changes to the Sacu agreement.

One possibility would be to take excise tax out of the pool. Excise tax is largely contributed by South African consumers.  “This process, we understand, is getting under way at the moment — with great concern being expressed in the BLNS countries,” Hartzenberg said.

The BLNS countries had started to look at other customs unions globally for alternative formulas for sharing revenue.  One important discussion area for Sacu members, Hartzenberg said, could be regional development funds, which could focus on issues such as infrastructure projects and would also be in SA’s own interests .