SACU: SA 'giving away' 1% of its GDP

22 February 2010, Business Report
URL: http://www.busrep.co.za/index.php?fSectionId=552&fArticleId=5358926

Johannesburg:  South Africa was giving away more than 1 percent of its gross domestic product (GDP) - about R28 billion in the 2009/10 budget - to its poor neighbours, a Johannesburg-based economist revealed last week. 

Mike Schussler, an economist at Economists.co.za, said this money was more than developed countries, such as Norway and Sweden, were giving to their destitute neighbours.  Schussler said giving away so much money was "silly" considering that South Africa was a developing economy.

Schussler added that South Africa needed a fairer system that gave more of the customs duties to us and would "help us grow our economy".

However, Frans Cronje, the deputy chief executive of the South African Institute of Race Relations, said South Africa did not only have nine provinces to take care of but had to consider that its neighbours were highly dependent on it.  "These neighbours are no different from Limpopo, Gauteng and other provinces. South Africa should strive for greater economic integration with them because the results of not doing so are too ghastly to contemplate," Cronje said.  "Once this country cuts excise duties, it will see a greater influx of illegal immigrants, increasing crime and healthcare problems."

According to Schussler, giving away such a huge chunk of the GDP was a result of a deal negotiated by the apartheid government in the Southern African Customs Union (Sacu) in the advent of economic sanctions against South Africa.  This was also the apartheid government's attempt to keep Swaziland, Lesotho, Namibia and Botswana on its side.

Later governments renegotiated the deal on even more favourable terms to the receiving countries.  Schussler said this meant the more imports South Africa and its neighbours had, the bigger the payments to them.   "Already, a country like Lesotho gets 90 percent of its entire budget from these payments. Swaziland is not far behind. Botswana and Namibia receive fairly large parts of their budget from this as well," Schussler said. "I am sure they look forward to the budget, just like us."

He said this deal needed to be renegotiated because sanctions were not in place any more.

Peter Draper, the head of the trade programme at the South African Institute of International Affairs, said he did not think that South Africa was "giving away" this money.  "This arose out of a formula agreed to by all members. South Africa is handing over what it is obliged to do. These countries feel they are (entitled) to the money because there was a treaty signed," Draper said.

He said it would be difficult to stop this because those governments survived on these revenue transfers. He said doing so would see many people flocking to this country.  "And remember we have xenophobia... I think a sensible way would be to introduce a development fund for these countries," Draper said.