As projections suggest slow growth in world trade, which in turn implies fewer trade opportunities for the Southern African Customs Union (SACU), South Africa continues to call for the redesign of the revenue sharing formula.

According to a presentation made by the Republic of South Africa during the recently held SACU Ministerial Retreat, South Africa says the formula redesign could reduce volatility, ensure that the development component was spend on addressing structural impediments and achieving the original SACU goals. 

“A redesign of the formula should facilitate stronger trade links,” said RSA’s presentation. 

According to the International Monetary Fund (IMF) recent growth forecasts have tended to be revised downward, while growth continues to underperform expectations. 

Expectations for 2015 world growth were revised from 3.9 percent in 2014, to 3.5 percent in 2015, against an estimated outcome of 3.1 percent with large downward revisions on emerging market economies. 

Forecasts for 2016 and 2017 suggested growth trajectories significantly lower than previously anticipated. 

“IMF projections suggest slow growth in world trade over the next three years which implies fewer trade opportunities for SACU with the rest of the world,” said South Africa. 

South Africa distributes a large portion of the SACU revenue to other member countries, in line with development objectives.

According to the republic, SACU revenue to South Africa constituted roughly 1.5 percent of the Gross Domestic Product (GDP) while Lesotho and Swaziland received the largest benefit relative to GDP, 45 and 35 percent relatively. 

The republic decries that although the SACU development component was distributed in favour of less developed members, Swaziland and Lesotho, the development impact has been low.

Using the case of Poland, the republic argued that well structured funds could change the fortune of countries. 

In 2004, Poland was below the threshold of 75 percent of the European Union (EU) average in GDP per inhabitant. This resulted in large developmental funds flowing to Poland from the EU. Between 2004 and 2015, various projects were implemented to address Poland’s underdevelopment compared to other countries which resulted to large investment in programmes to support human capital, innovation small and medium enterprise development, and the environment. 

“No development funds were spent on general government consumption expenditure, including government wages. Funds were well managed,” insisted South Africa. 

The republic said as a result in the case of Poland, average growth between 2010 and 2015 was 3.1 percent, compared to 1.2 percent in the rest of the EU. The unemployment rate fell from 19.0 percent in 2004 to 9.2 percent in 2014. 

With the low growth, low tax revenue and large downside risks, high volatility of revenue, weak fiscal balances in some countries and large unemployment, structural impediments despite development funding, and divergence of levels of development, the republic felt the redesign of the formula could be appropriate. 

It also called for member states to address non-tariff barriers to trade and realign policies and regional value chains to provide new opportunities for all countries and they should be supported through regional industrial policy.

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Around the web

Sacu reforms plod on (City Press)

Four of South Africa’s neighbouring countries belonging to the century-old Southern African Customs Union (Sacu) will have holes blown in their national budgets this year because of an imminent “Sacu revenue shock”.

Gerhard Erasmus, an associate of the Trade Law Centre in Stellenbosch, said: “This retreat has been positive. I hear the atmosphere was quite accommodating, but no dramatic decisions were made.”

The revenue-sharing formula stems from the 2002 revision of the Sacu agreement. It has been criticised from all sides for either costing South Africa too much or crippling the rest of the region, depending on where you stand.

“If I were advising one of the BLNS [states], I would be extremely concerned. I’ve lost my policy space, now I lose my revenue, and all I get in return is a fund subject to South Africa’s idea of industrialisation,” he said.

Tension in SACU revealed by the SADC EPA (Namibia Economist)

When Namibia together with South Africa, Botswana, Mozambique, Swaziland and Lesotho, the so-called SADC EPA Group, signed an Economic Partnership Agreement (EPA) with the European Union earlier this month, it was only a day after the South African president announced that a ministerial retreat will be convened for the members of the Southern African Customs Union. These developments are too close to be coincidence and it smacks of a pre-emptive move by the South African government to salvage its waning control over the region through the customs union.

tralac points out that the ministerial retreat is long overdue, mostly because a proper legal framework is lacking and this includes a tribunal similar to the now-defunct SADC Tribunal of which the white elephant building still stands in Windhoek’s central business district.

The biggest obstacle to SACU to turn from a customs union dominated by the biggest partner, into a “vehicle for regional integration” is exactly the difference in size of the member economies.