SA groans under SACU

South Africa Treasury Director-General Lesetja Kganyago was quoted by a South African weekly calling for a review of the SACU agreement.

He said the deal will force South Africa to pay a third of the year’s N$30 billion to Botswana, Lesotho, Namibia and Swaziland.

SACU came into existence in 1969. The aim of the regional customs union is to maintain free trade between member states at the same time providing for a common external tariff .

All revenue collected is pooled in South Africa’s national revenue fund and revenue acrued to member states is calculated from a share of customs pool, a share of excise pool and a share of developmental component.

Kganyago said that unless the formula for sharing SACU’s revenues is changed to allow for the disproportionate volume of South Africa imports compared with the union’s other members, the infrastructure development ahead of the 2010 World Cup could push South Africa’s payments to even higher over the next three years.

South Africa’s obligations to its four SACU members have shot up from N$19.7 billion in February this year to N$29.2 billion.

“The SACU formula will have to be reviewed, we can’t continue this way,” Kganyago was quoted as saying.

The new SACU formula came into agreement two years ago and it is designed to share the customs and excise levies collected at SACU borders equitably in relation to trade.

A small development component was also included to promote growth in some of the weakest and smallest economies in the partner countries.

With rising South African imports, which have driven the country’s current account deficit to a record 6.3 percent this year, the formula is proving to be deeply flawed, Kganyago said.

He added that South Africa would have to contribute more to its neighbours as its imports continue to rise.

South Africa paid N$14.1 billion to Botswana, Lesotho, Namibia and Swaziland, the BLNS group in the financial year to March this year.

Under a transitional arrangement, which is in place because of the new agreement and payment formula, South Africa is also going to top the amount with an additional N$2 billion in 2006.

Kganyago said that SACU secretariat, which is based in Windhoek, had launched an audit of trade flaws and revenue distribution in the union but added that in the meantime, South Africa would still ‘have these big transfers.’

He added that South Africa’s payments to SACU account for a considerable chunk of the country’s current account deficit.

“The deficit is about 6.1 percent but if you strip out the SACU payment, it would be 5.8 percent,” Kganyago said.

Johannesburg based Standard Bank group economist for Botswana, DRC, Lesotho, Namibia and Swaziland Jan Duvenage noted that the customs pool is divided according to a formula, which is based on trade within the union.

Duvenage said that because South Africa exports more to its neighbours than it imports from them, the revenue split favours the BLNS group whilst South Africa gets only 10 percent from the revue pool.

Duvenage said that Swaziland, Lesotho and Namibia depend on SACU for up to 60 percent of their national revenue, a situation, which he said it not sustainable.

“South Africa’s imports have gone up and this means that the SACU revenue payments have also gone up.

But the burden for South Africa comes on the development component where the country has to help the smaller economies,” Duvenage said.

November 2006
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