Trade in the Southern African Customs Union (SACU)

The Southern African Customs Union (SACU) emerged in its modern form as a result of a June 29, 1910 agreement. It is based on an earlier trade openness agreement established by the 1889 Customs Union Convention between the then British Colony of Cape of Good Hope and the Orange Free State Boer Republic. It is the world’s oldest customs union. The five countries comprising SACU are: Botswana, Lesotho, Namibia, South Africa and Swaziland. All members maintain a common external tariff on all goods imported into the union in addition to sharing a common pool of customs revenues. Moreover, members enjoy duty-free movement of manufactured products, not subject to any quantities restrictions, within the union.

This analytical brief surveys the role trade has played in SACU since 2000, highlighting, in part, each member economy’s performance following the global recession brought about by the 2008 financial crisis. The analysis investigates trade patterns, primarily from 2000 through 2015, in an attempt to understand the evolution of SACU’s relationships with other regional partners. Additionally, the analysis examines the United States’ efforts in promoting trade capacity building in the region as well as the trade relationship between the region and the U.S. More specifically, the analysis provides an overview of U.S. imports from SACU for goods eligible under the African Growth and Opportunity Act (AGOA).

SACU trade with regional and global partners: Exports since 2000

Data from the IMF, Direction of Trade Statistics database reveals a significant increase in the value of exports from SACU since 2000. Exports are broken down by five partner regions: Asia (ASI), the United States (US), the European Union (EU), Sub-Saharan Africa (AFR), and the Rest of the world. ASI and AFR groupings are based on USAID regional groupings. Broken down by destination, total exports steadily increased for each partner region up to the global recession in 2008. Nevertheless, the region recovered fairly rapidly as the total value of exports, expressed in current $US, rebounded to $135 billion by 2011, a 29 percent improvement over 2008 figures. While exports to all the major regions listed increased, the rankings of SACU’s preferred export partners have undergone a major reorganization since 2000. The European Union (EU), which received at least 40 percent of annual SACU exports from 2001 to 2006, experienced the most noticeable change as the proportion of exports destined for its economies decreased to 21 percent by 2014. The proportion of SACU exports destined for Sub-Saharan African economies averaged roughly 12 percent over the same period while the U.S. received, on average, 10 percent of all exports from the region. Asia emerged as the favorite destination from SACU exports as it attracted 45 percent of total exports in 2014. In all, the total value of exports from SACU, in current $US, grew by 262 percent from 2001 to 2014. South Africa alone provided, on average, 92 percent of total SACU exports to the world per year (IMF, Direction of Trade Statistics).

SACU intra-regional trade

South Africa, SACU’s largest economy, exported roughly $ 9.8 billion to the other member countries in 2015. Most of the South African goods traded within SACU borders were: machinery and transport equipment, mainly subcategorized under road motor vehicles and electrical machinery and appliances($ 2.5 billion); manufactured goods classified chiefly by material, iron and steel and other manufactures of metal along with textile yarn and fabrics for the most part, ($ 1.9 billion); minerals fuels, lubricants and related materials, mainly comprised of petroleum and petroleum products ($ 1.6 billion), and food and live animals, mainly fruits and vegetables and cereals and cereal preparations ($ 1.4 billion). South Africa’s exports in 2015 by SACU partner were as follows: Botswana ($ 3.8 billion), Namibia ($ 3.8 billion), and Swaziland ($ 1.2 billion) Lesotho ($ 1 billion) (UN Comtrade).

Namibia’s exports to the other SACU members totaled $ 1.8 billion in 2014, down from 2.6 billion in 2013. In 2014, 43 percent of Namibia’s exports to the other SACU members went to South Africa and 55 percent went to Botswana. Namibia was the only SACU economy for which South Africa was not the biggest export partner in 2014. In 2000, however, South Africa received roughly 98 percent of all SACU exports from Namibia. The value of manufactured goods classified chiefly by material, 99 percent of which is comprised of diamonds, not industrial, not set or strung, exported to Botswana from Namibia rose from $ 99 thousand in 2000 to $ 905 million in 2014 (UN Comtrade).

Botswana exported $ 1.5 billion to the other SACU members in 2014, up from 993 million in 2013. 61 percent of Botswana’s SACU exports went to South Africa and 38 percent to Namibia. Namibia went from receiving 2.7 percent of Botswana’s exports in 2000 to capturing close to 40 percent in 2014. This is due to the considerable increase in the value of manufactured goods classified chiefly by material, also mainly nonindustrial loose diamonds, from $ 485 thousand in 2000 to $ 557 million in 2014 (UN Comtrade).

As for Swaziland, the latest figures from the UN Comtrade database, last reported in 2007, indicate 924 million in total exports to the other SACU members, 96 percent of which went to South Africa. These were mostly perfume materials, toilet and cleansing preparations as well as chemical products and preparations. Lesotho, with SACU exports totaling $ 327 million in 2012, the last year reported, sent 98 percent of its goods to South Africa that year.

US trade relationship with SACU

On 16 July 2008, SACU Trade ministers and the US Trade Representative signed a Trade and Investment Development Cooperation Agreement (TIDCA) after previous Free Trade Agreement (FTA) negotiations between the United and State and SACU were suspended in 2006. According to the US Trade Representative, “divergent views on the scope and level of ambition for a FTA” were to blame. The TIDCA is meant to serve as a vehicle for continued collaboration between the two parties to solidify a foundation for future collaboration, particularly keeping as its long-term goal a future FTA.

US-SACU trade

Total (two-way) trade between the United States and SACU was estimated, in current $US, at $16.3 billion in 2014, a 106 percent increase from 2000. 2014 U.S. imports from SACU were $ 9.5 compared to $ 4.6 billion in 2000. Likewise, U.S. exports to SACU more than doubled, growing from $ 3.3 billion in 2000 to $ 6.8 billion in 2014. About 89 percent of SACU goods destined for the U.S. market in 2014 came from South Africa. South Africa has provided, since 2000, at least 85 percent of the total value of SACU goods sent to the U.S. U.S. imports from SACU in 2014, broken down by member country were: South Africa ($ 8.5 billion), Lesotho ($ 373 million), Botswana ($ 324 million), Namibia ($ 257 million), and Swaziland ($ 86 million) (UN Comtrade).

According to UN Comtrade, the $ 6.8 billion worth of goods exported from the U.S. to SACU in 2014 can be grouped into the following major categories: machinery and transport equipment ($ 3.5 billion), chemicals and related products ($ 822 million) and manufactured goods classified chiefly by material ($ 716 million). U.S. exports of food and live animals totaled $ 187 million in 2014, down 17 percent from 2013. U.S. exports significantly increased to all but one SACU member. Since 2000, U.S. exports grew for Namibia (by 327 percent), Lesotho (by 183 percent), South Africa (by 106 percent), and Botswana (by 68 percent). For Swaziland, conversely, the total value of U.S. exports diminished by 62 percent between 2000 and 2014. This is due to decreases of 5, 89, and 95 percent respectively in the value of U.S. exports of machinery and transport equipment, miscellaneous manufactured articles, and manufactured goods classified chiefly by material to Swaziland over that period.

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Trade in the East African Community

The East African Community (EAC) is a vibrant economic community that set ambitious goals for deepening its integration. Three steps toward integration were launched – the customs union (2005), the common market (2010), and the monetary union (2013). Now, the five participating countries of Burundi, Kenya, Rwanda, Tanzania, and Uganda seek to introduce a single currency by 2024. The East African Heads of State view these changes as pivotal towards the ultimate goal of a political federation, under the understanding that it not only engenders the free movement of goods, services, and capital throughout the region, but also improves the welfare of the general population through sustained and inclusive growth.

Additionally, in July 2013, President Barack Obama announced Trade Africa, a new partnership to increase trade within Africa as well as between Africa and global markets. The White House noted: “The EAC is an economic success story, and represents a market with significant opportunity for U.S. exports and investment.” The program initially focused on the EAC and set four goals for this initial phase:

• Double intra-regional trade in the EAC;

• Increase EAC exports to the United States by 40 percent;

• Reduce by 15 percent the average time needed to import or export a container from the ports of Mombasa or Dar es Salaam to land-locked Burundi and Rwanda in the EAC’s interior; and

• Decrease by 30 percent the average time a truck takes to transit selected borders.

This brief examines the EAC’s trade patterns and the United States’ role in promoting EAC trade.

Overview of the East African Community

Trade assumes a major role in the economies of the EAC member countries. In 2014, trade as a percent of GDP for EAC members ranged from 41 to 50 percent, which is below the average of developing countries in Sub-Saharan Africa at 60 percent. Yet when trade is examined more closely, exports as a percent of GDP are less significant ranging from 3 to 11 percent across the EAC. For example, Tanzania’s trade as a percent of GDP is 49 percent, while its exports as a percent of GDP are 8 percent. Similar to many developing countries, EAC countries import more than they export. Exports from EAC to the rest of the world have more than quadrupled since 2000 and grown by 126 percent since 2006. According to the International Monetary Fund’s Direction of Trade Statistics, the U.S. imports about $698 million from the EAC, whereas the European Union (E.U.) imports $2.72 billion. Additionally, about $2.3 billion is traded within the EAC.

The E.U. is one of the largest recipients of goods from the EAC with trade increasing by 65 percent since 2006. Its three largest imports from the EAC are ‘coffee, tea, mate, spices’; ‘live trees, plants, bulbs, cut flowers’; and ‘tobacco’. ‘Coffee, tea, mate, and spices’ is the largest E.U. import from Burundi, Rwanda, and Uganda constituting 86 percent, 48 percent, and 52 percent respectively of each country’s total exports to the E.U. Kenya exports $1.55 billion to the E.U., of which 34 percent is ‘live trees, plants, bulbs, cut flowers’. With this, Kenya accounts for 51 percent of the EAC’s total exports to the E.U. Tanzania’s largest export is tobacco at $219.6 million or 27 percent of its total exports to the E.U.

Trade within the East African Community

According to the IMF Direction of Trade Statistics, trade within the EAC has grown by 135 percent since 2006. Intra-regional exports vary substantially by country. Kenya’s total value of intra-EAC exports is $1.51 billion, while Burundi totals $14.98 million. Additionally, 22.64 percent of Kenya’s total exports are traded within the EAC, while 17.28 percent of Burundi’s total exports are traded intra-regionally. Kenya’s largest exports to the EAC by commodity are cement and petroleum at $75.98 million and $77.34 million respectively. Uganda is the largest importer of these products at about $56 million for each category, while Burundi imports the least. Burundi’s largest import by category from Kenya is mineral or chemical fertilizers at $9.17 million.

Tanzania’s largest intra-regionally traded commodities are cereals/maize as well as wadding, felts, and nonwoven materials, totaling $97.39 million and $63.38 million respectively. The total value of Tanzania’s intra-EAC exports is $317.56 million, of which the commodities mentioned above equal 51 percent. Kenya imports the most cereals/ maize from Tanzania at $94.08 million. It is important to note that the share of Tanzania’s exports going to EAC members is only 7.91 percent, demonstrating that most Tanzanian exports are traded outside the EAC. Meanwhile, Rwanda has the lowest share of exports traded among EAC members at 7.34 percent and Uganda has the largest at 23.67 percent.

Trade with the United States

Since 2006, EAC trade with the U.S. more than doubled. The U.S. not only encourages trade through its trade capacity building, but also through the African Growth and Opportunity Act (AGOA). AGOA offers preferential access to U.S. markets for certain exports from East Africa, such as qualifying apparel and textile articles. All five EAC member countries are eligible for preferences under AGOA. Kenya utilizes AGOA extensively for trade preferences in order to gain access to the U.S. market for its apparel industry. According to UN Comtrade, 74 percent of Kenya’s total exports to the United States were in the apparel industry in 2013 (the most recently available year). AGOA was recently renewed in June of 2015 for another ten years

Since the launch of Trade Africa in 2013, the EAC increased exports to the U.S. by $223 million. Articles of apparel and clothing accessories is the largest broad category, accounting for nearly half of EAC exports to the U.S. This category is predominantly exported by Kenya and Tanzania at $258 million and $11 million respectively. ‘Coffees, tea, mate, and spices’ is also an important category totaling about $87.8 million in exports from the EAC. This category is produced in all five EAC member countries. ‘Coffees, tea, mate, and spices’ totals 89 percent of Burundi’s and 42 percent of Uganda’s total exports to the U.S. ‘Boilers, machinery, and mechanical appliances’ comprise five percent of exports (or $25.2 million) from the EAC to the U.S. and are exported from Kenya, Tanzania, and Uganda. Tanzania’s total exports in this category equal $22.4 million, of which $20 million is comprised of rotary internal combustion piston engines.

According to the World Bank’s World Development Indicators, the time to export in days varies significantly by country. The ‘time to export in days’ indicator is defined as the total number of calendar days that are necessary in order to comply with all procedures required to export goods. The time calculation for a procedure starts from the moment it is initiated and runs until it is completed.

Tanzania takes the shortest time to export at 18 days and also has the lowest cost to export at $1,090 per container. Burundi takes the longest to export at 32 days and trade constitutes the smallest percent of GDP at 41 percent. Its cost to export is also the second highest at $2,905 per container. Rwanda has the highest cost to export at $3,245, but it’s time to export is the average among the EAC members at 26 days. The high cost to export from Burundi and Rwanda is most likely due to the landlocked locations of the countries. Trade as percent of GDP is highest at 50 percent in Kenya.