As the Southern African Customs Union (SACU) revenue sharing formula debate rages on, it would be best for Swaziland to start exploring other trade options within the region to increase its revenue base, experts have advised.

In the past few weeks, South Africa has been voicing out its discontent on the revenue sharing formula, arguing that it loses about E30 billion that it would otherwise be entitled to if the distribution of revenue were equitable. In a commentary about tax proposals for the 2015 South African budget, accounting firm PwC slammed the revenue sharing formula agreed to by SACU, arguing that a more equitable sharing of the customs revenue pool would see South Africa entitled to at least 80% of the pool.

Economist Christopher Fakudze said Swaziland needed to improve its terms of trade via the Common Market for Eastern and Southern Africa (COMESA) provision as an alternate trade arrangement.

“We need a shift in the mindset from direct dependence on the external revenue pool (in the SACU context) to other collection strategies derived from expanded quantities of produce  that take care of virtually all WTO (World Trade Organisation) commodity nomenclatures,” he said. 

Fakudze said the idea was to go full-swing in trade participation, of course, “bearing in mind that we are yet to learn lessons from the Swaziland experience”.

The 105-year-old customs union agreement between the member states; South Africa and Botswana, Lesotho, Namibia and Swaziland (BLNS) distributes revenue collected on import duties and excise based on a number of criteria. The import duty revenue is collected on all imports coming into the customs union from outside. Excise duties are distributed by the members based on the share of the gross domestic product (GDP) of the countries involved. The excise revenue goes mostly to South Africa, which is by far the largest economy, but import duties are distributed based on a formula that calculates each country’s portion based on its share of intra-SACU imports.

This results in the bulk of the revenues going to the BLNS countries because they export almost nothing to South Africa and import almost everything from South Africa. 

South Africa argues that in 2014, it exported E132 billion to the four countries, but imported only E28 billion. The ‘big brother’ further says the E104 billion surplus, therefore, formed the basis for what is, in effect, a massive export subsidy to the BLNS countries. “All the member states have a key interest in a future SACU that does not regress on regional Integration,” said another local economist, who preferred anonymity. “Economically, the BLNS countries cannot survive without South Africa’s support and politically, South Africa cannot afford to have any more failed states on its doorstep.”

Outcome

He said the outcome of SACU’s current dilemma would also affect the broader regional integration agenda, adding that if regional integration is seen to result in tangible benefits for participants, a strengthened SACU could have positive spin-off effects for the Southern African Development Community (SADC), COMESA and the tripartite process.

Experts say all the SACU member states have to grapple with a key policy debate, that of SADC’s ambition to eventually become a customs union as the five SACU countries are all members of SADC, while Swaziland is also a member of COMESA, which launched its own customs union in June 2009.

“Unless Swaziland acts like Ethiopia, which currently applies a 10% reduction on tariffs and has commissioned a study to estimate the effect of further reductions on the national economy, the SACU threats might create hazards for Swaziland,” said Fakudze. He said this was more especially because Namibia and Swaziland were currently consulting SACU so as to comply with their obligations of tariff reduction.

Adding, Fakudze said the most important implication to monitor was a bridge of any of the treaties, as most believed it was quite strange to be a member of multiple customs unions.

Asked on the implications for Swaziland if it were to be pressured into choosing one customs union, he said; “Some caution would have to be exercised whenever there is an undertaking.

“Otherwise, both customs unions stand to oppose any subsidies that distort or threaten to distort competition in the form of preferential treatment to the producers to encourage the production of a particular commodity or taking certain steps that would affect inter-trade between member countries.”

Fakudze said, for instance, any member country was entitled to apply a compensation fee on an imported product from another member country to counteract a direct or indirect subsidy amount imposed on exports or production of similar products in the country of origin according to the regulations set by the council.

Adding, another economist said the collapse of SACU could either be a move away from integration or strengthen SADC, as the foremost regional organisation that also includes South Africa. 

Noted

It must be noted that while the COMESA customs union was launched in 2009, implementation has somewhat stalled. Former Uganda Revenue Authority Customs Commissioner Peter Malinga, who later worked for COMESA, said the European Union (EU) eventually withdrew its technical support after five years of no progress.

“This was after the first three years elapsed and COMESA was given a two-year extension for implementation of the customs union, which also elapsed, resulting in the funds being withdrawn,” he said recently during a workshop in Arusha, Tanzania.

Malinga said there was no outcome even after five years of the process but “just meetings held and nothing tangible being done, hence no implementation”. However, a Tripartite Free Trade Agreement between and among SADC members and COMESA is envisaged to be launched in June this year, with expectations of a larger market of around 625 million people, representing 58% of Africa’s GDP.