….Changing the terms of the game
Talks of South Africa’s displeasure regarding the revenue sharing formula are finally starting to surface, and wide reforms could be on the cards, despite economists warning that changes might cripple smaller members. South Africa, Botswana, Lesotho, Namibia and Swaziland make up the Southern African Customs Union (SACU).
The Customs Union Agreement concluded on 11 December 1969 no longer adequately caters for the needs of a customs union in the 21st century and should therefore be aligned with current developments in international trade relations;
After holding talks with the government of Botswana on Tuesday, President Jacob Zuma led a powerful delegation consisting of Cabinet ministers and finance officials to Namibia which was primarily arranged to talk about SACU matters.
The closed-door meeting lasted less than two hours saw Zuma and his team engage President Hage Geingob and his team of ministers and other government officials. Zuma said the aim of the visit was part of an ongoing process undertaken by South Africa to visit all SACU member states.
Although security officials informed the media that Zuma would not be taking any questions at the end of the meeting, those who formed part of the closed-door discussions said “it seems South Africa wants the sharing formula to be relooked”.
In a study on the review of the revenue sharing agreement to develop additional options on a new revenue sharing was completed in 2010 already.
“One of the issues President Zuma spoke about was that South Africa is not benefitting the way it should from the revenue pool. Because, despite the other four members importing most goods from South Africa and getting tax exemptions, they still get surplus money from the pool,” said a source who was in the meeting.
The key objectives of this work is to achieve balanced economic development and deal with the effects of economic polarisation and industrial concentration. “We are in the process of visiting SACU member states we thought we should do so because we are chairing SACU and due to the importance of SACU. We believe that this would be necessary if we take into account interactions that took place between member states and discussions that have not succeeded to come to a conclusion,” Zuma said.
Furthermore, SACU has a Common Revenue Pool, which is presently managed by South Africa on behalf of the SACU Member States.
The Revenue is shared amongst the Member States through a revenue sharing formula that is calculated from three basic components, custom duties – allocated according to each country’s share of total intra-SACU trade, excluding re-exports; excise – 85 percent of the excise revenue is distributed on the basis of each country’s share of total SACU GDP and a Development component – fixed at 15% of total excise revenue, is distributed according to the inverse of each country’s GDP per capita and the distribution is weighed in favor of the less developed Member States.
Despite the smaller nations importing more goods from South Arica, the sharing formula has come under intense scrutiny from economist in South Africa who claim that the current agreement disadvantages South Africa.
Except for South Africa, SACU revenue accounts for a relatively large portion of the national budget of Botswana, Lesotho, Swaziland and Namibia. South Africa’s recent economic woes have also led to increased calls for the SADC powerhouse to call for reforms.
What Namibia owes SACU
Namibia has to repay the Southern African Customs Union (SACU) N$2.9 billion in the current financial year, as its share of the estimated N$7.6 billion shortfall incurred by the common revenue pool. This repayment is over and above the projected downward adjustments in SACU receipts associated with the slowdown in the South African economy.
“A significant share of this downward revision, amounting to N$2.96 billion is due to the combination of the repayment for the deficit in the SACU Common Revenue Pool and the revised lower projections for the Pool going forward. Downward adjustments are also made to the domestic revenue outlook, in line with the revised economic outlook,” said Finance minister Calle Schlettwein when he tabled the Appropriation Amendment Bill (Mid-Year Budget).
The major drag and significant risk for revenue growth is the projected reduction of SACU revenues on account of a lower growth outlook for the South African economy, Schlettwein said.