/ 4 February 2011

SA customs shake-up to hit neighbours

The Southern Africa Customs Union (Sacu) is considering a major overhaul of revenue-sharing that will see South Africa keeping a far bigger slice of pooled customs receipts, according to a policy document.

Conversely, Swaziland, a landlocked absolute monarchy, will see a “substantial” drop in its overwhelming source of revenue and could ultimately be driven into bankruptcy.

The review paper drawn up by an Australian consultancy and obtained by Reuters on Thursday recommended an eight-year adjustment period for the new revenue-sharing formula, starting in 2012, to minimise the shock to already vulnerable economies.

According to the International Monetary Fund (IMF), Sacu revenues account for nearly two-thirds of official receipts in Swaziland and Lesotho, just over a third in Namibia and 25% in diamond-rich Botswana.

The world’s oldest customs union, which celebrated its 100th birthday last year, is still debating the proposals, under which South Africa’s share of pooled customs receipts would rise to 72% in 2019 from 50% in 2012.

Africa’s biggest economy accounts for about 85% of Sacu takings, but it pays out much of that to its smaller neighbours under a complicated revenue-sharing formula that dates back to 1969.

The redistribution was officially devised as a way of compensating its smaller neighbours for South African tariff policy and its virtual monopoly on attracting external investment thanks to its sheer size.

However, the white-minority apartheid government that led South Africa until 1994 also painted the Sacu as an altruistic subsidy of its poorer black neighbours to deflect international criticism of its attitude towards Africans.

Now that South Africa has a democratically elected government, that argument no longer applies, and a recession in 2009 piled the pressure on Pretoria to halt what many South Africans see as a bankrolling of its neighbours.

Swazi squeeze
Under the proposed revisions, Swaziland’s share of Sacu receipts would fall to 3% by 2019 from 9% in 2012 — cuts that will go down well with opponents of King Mswati III but which could herald disaster for an already ailing economy.

Botswana’s share would fall to 6,7% from 17% and Namibia’s would drop to 9% from 15%.

However, Lesotho, a mountainous kingdom entirely surrounded by South Africa, would see its share rise to 9% from 8,5%, the document said.

Despite the desire for increased revenues, the revision of the Sacu formula presents South Africa with a conundrum.

A drop in funds could mean bankruptcy for Swaziland, which already has one of the world’s highest HIV/Aids infection rates, and South Africa would be likely to find itself picking up the pieces as migrants flood across the border.

“Unfortunately it may be pretty short-sighted for South Africa — squeezing the other countries for something that doesn’t ultimately matter that much for South Africa,” said Razia Khan, head of Africa research at Standard Chartered.

“If there are countries that are in better economic shape on its borders, that ultimately is good for South Africa.”

Last April, credit rating agency Fitch cut its long-term outlook on Lesotho to negative from stable, citing lower Sacu receipts as a result of South Africa’s recession. – Reuters