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Sacu initiates review of contentious revenue-sharing formula

21st June 2010

By: Terence Creamer
Creamer Media Editor


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The Southern African Customs Union (Sacu), which is commemorating its centenary this year, has initiated an independent evaluation of the prevailing revenue-sharing agreement, in line with a recent Sacu Council of Ministers resolution.

The Sacu secretariat, which is based in Windhoek, Namibia, recently issued a request for consultants to bid for the compilation of a study into the structure and operation of the agreement and submissions were due by June 21.


Therefore, the study, which is expected to take 12 weeks to complete, would not be concluded by July 15, when South Africa will host a Sacu Heads of State summit to "discuss the challenges facing the union".

The current formula was implemented for the first time in December 2004. But the five member States have since acknowledged that it has a number of challenges, while the recent global financial crisis also exposed some weaknesses in the structure of arrangement.


In fact, the formula has emerged as a key point of contention between the five member countries, namely Botswana, Lesotho, Namibia, South Africa and Swaziland, with South Africa, in particular, arguing that it was serving to undermine the adoption of more strategic trade and investment policies.

This unhappiness has also heightened uncertainty about the future of Sacu, with tensions having flared last year, when Botswana, Lesotho and Swaziland signed the controversial interim Economic Partnership Agreement (EPA) with the European Union (EU), while South Africa and Namibia refused to do so.

During his April 22, 2010, address on the occasion of the commemoration of the Sacu centenary, in Windhoek, South Africa's President Jacob Zuma even cautioned that, "if we cannot pursue the unfinished business of the EPA negotiations as a united group, the future of Sacu is undoubtedly in question".

But South Africa is also of the view that the revenue-sharing formula has become an impediment to the adoption of common industrial and trade policies that could foster deeper integration. For this reason, there has been some talk of "downgrading" Sacu from a customs union, possibly to a free trade agreement.

Currently, the formula uses three components to calculate revenue shares for member States: a customs component, an excise component and a development component.

The customs share is allocated on the basis of each country's share of intra-Sacu imports, the excise element is allocated on the basis of each country's share of gross domestic product (GDP), while the development component is fixed at 15% of total excise revenue, and is distributed according to the inverse of each country's per capita GDP.

In other words, the smaller countries in what is also the world's oldest custom's union, benefit on an asymmetrical basis, while South Africa receives more than 90% of its share from the excise component.

The Sacu secretariat wants an independent consultant to evaluate the current arrangement and to propose options that could be used as a basis for the negotiation of a new revenue-sharing arrangement.

Areas that will, thus, be covered by the study include:

- An assessment of the objectives and rationale for the existing arrangement.

- The development of the objectives of the proposed revenue-sharing arrangement including its distributive mechanism.

- And, an outline of the links between the proposed revenue-sharing arrangement and the key policy objectives of the customs union.

A guiding principle of the assessment would be to propose solutions that were aligned to the promotion of competitiveness, industrial development, intraregional trade and deeper regional integration.

However, any attempt to modify the formula could heighten tensions further among the five partners and could also have consequences for both business and political relations in the region.

A leading trade policy expert has also cautioned that any move to "downgrade" the relationship, could have material consequences. In fact, South African Institute of International Affairs (SAIIA) trade programme head Peter Draper has argued that the true costs and benefits of any possible change should be subjected to proper research.

The SAIIA's own initial research has shown that trade in goods alone is already fairly "substantial". In fact, its study shows that goods traded with Sacu members accounted for about 10% of South African exports between 2001 and 2007.

Further, much of the exports from Botswana, Namibia and Swaziland to South Africa were more value-added in nature than exports to key EU trading partners over the same period. Therefore, any dissolution could have implications that have not been fully thought through, including the creation of unnecessary political tensions and/or the erection of trade barriers, such as the institution of import taxes.



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