SACU optimistic of economic recovery in 2017

By Magreth Nunuhe

WINDHOEK–THE Southern African Customs Union (SACU) is optimistic of economic recovery in 2017, driven by improved commodity prices despite poor performance in member states and across the region last year.

Many countries in Sub-Sahara Africa saw their creditworthiness being downgraded to negative by global rating agency Moody’s Investors Services at the beginning of this year.

The downgrade reflected the liquidity stress facing commodity-dependent countries, subdued economic growth, and persistent political risk.

And Moody’s predicts that Sub-Saharan African economies will continue to face commodity-induced liquidity stress in 2017, with recurring fiscal deficits amid challenging financing conditions.

But SACU’s manager for corporate communications, Kungo Mabogo, says there are positive signs.

“According to the IMF World Economic Outlook update for January 2017, global economic growth is projected to grow by 3.1 percent in 2016 before recovering to 3.4 percent in 2017.

“Growth prospects in the Sub-Saharan African region in 2017 is expected to improve compared to 2016 at the back of improvements in commodity prices, as most of the regional economies are predominantly commodity exporters.

“As a result, growth in the Sub-Saharan African region for 2017 is projected at 2.8 percent compared to 1.6 percent in 2016. A similar trend is expected in the SACU region which is predominantly a commodity exporter.

“The sign of revival shown in commodity prices if sustained, can be expected to ease the pressure on the SACU economies, which may trigger a recovery in investment and act as an upside risk to the regional prospects.

“For the year 2016, the average growth in SACU is projected to have increased to 2.3 percent from 1.7 percent in 2015 and the region is further expected to moderately increase in 2017.

“Overall, the credit rating agencies only revised their outlook from stable to negative given the afore mentioned global economic outlook and potential debt threats,” Mabogo said in an emailed response to The Southern Times.

And despite economies headwinds experienced in 2016, SACU has provided an expanded market over the years for its member states, by offering member countries immediate duty-free access to a market size of about 58 million consumers.

The customs union’s receipts have also strengthened public revenue growth and the state capacity to increasingly fund the budget and provide increasing public services for member states.

“The percentage share of revenue shares distributed for SACU member countries in 2016/2017 are 20 percent for Botswana, 6 percent for Lesotho, 18 percent for Namibia, 50 percent for South Africa and 7 percent for Swaziland,” Mabogo said.

SACU determines the revenue share based on how much will be collected during a particular year. An audit is run at the end of the year to establish how much was collected and then compared to what was projected.

However, there have been concerns regarding SACU Common External Tariff (CET), that it might have adversely affected on smaller economies – Botswana, Lesotho, Namibia, Swaziland (BLNS) – economies through structural constraint which adversely impacts on consumer welfare and economic activity in the BLNS economies due to higher prices of imports from the rest of the world and the price dynamics of intra-union imports.

Mabogo explained that: “Tariffs are used as a form of protection of domestic industry against competition with imports. In general terms tariff makes a good to be expensive to the importing country, but one should also note that tariffs are also a source of revenue for the domestic governments.

“South Africa accounts for most of the goods imported by the BLNS, hence, the SACU revenue-sharing formulae is structured such that the customs component is shared based on intra-SACU imports.

This to some extent compensates BLNS for the adverse impacts arising from economic polarisation and price-raising effects attributable to the common external tariff.”

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