Customs union gives added economic clout

We welcome the widening debate on the future of the Southern Afri­can Customs Union. But I want to set the record straight on the South African government’s approach to the union and to correct misconceptions.

It has been argued that South Africa is intent only on collecting more revenue from the union, that the union’s significance lies in its being a “captive market” for our exports and that South Africa’s economic vision is increasingly insular and focused on Brazil, Russia, India and China (“New knife to cut Sacu pie“, Mail & Guardian, July 29).

The government is deeply committed to fostering mutually beneficial regional integration in Southern Africa, particularly in the union. In partnership with Botswana, Lesotho, Namibia and Swaziland, we have forged a common vision and work programme to consolidate the customs union, so that it remains relevant, effective and benefits all.

This work programme has five pillars: promoting regional industrial development, trade facilitation, reviewing the revenue arrangement, establishing common institutions and building a framework for unified engagement in trade negotiations with third parties.

Within the context of this programme, South Africa supports a review of the revenue-sharing formula. The recent global economic crisis, which led to a sharp contraction in the size of the revenue pool, is a sober reminder that continuing dependence on a volatile source of finance carries enormous risks. Our objective for the review is to establish an arrangement that offers greater predictability in the sharing of revenue and supports our work on regional industrial and infrastructure development.

We challenge the view that South Africa “subsidises” the union because it provides a “captive market” for our exports. This may have been the case under the apartheid regime but now, in the context of new global dynamics, the union’s value will lie in its ability to be transformed into a vehicle for deepening regional integration within a developmental perspective, as an anchor in the Southern African Development Community (SADC) and as a platform for harmonised engagement in wider global trade relations. We already have the elements that would allow us to advance to a common market and even monetary union.

Because industries have historically been concentrated in South Africa, an important and challenging element of our programme is to promote regional industrial development.
Extensive literature and the practical experience of successful developing countries tell us that moving on to a path characterised by increasing returns of scale requires identifying and building on value-added productive activities. The union is well placed to play an important role in the region’s industrial development.

It joins several smaller and less developed economies in a customs union with the most industrialised country on the continent. We have agreed that, while we are building an overall policy framework for regional industrialisation, we should identify specific areas of collaboration and develop ways to build cross-border complementary value chains.

Our objectives are to upgrade and link the region’s industrial base and to establish a broader spread of regional manufacturing.

Possible collaborations
Areas of possible collaboration include agricultural processing, clothing, automotive and component manufacturing and minerals beneficiation. We need to nurture and defend our industrial base and broaden it to enhance competitiveness so that the region can compete more effectively in global markets.

Our programme on regional industrial development is complemented by work on trade facilitation and the identification of cross-border “hard” infrastructure projects to reduce transaction costs and speed up the transit of goods and services across the borders within the union. We are also developing principles and procedures for unified engagements with external trading partners.

South Africa’s economic vision is broad and integrated. African development remains the priority of our economic foreign policy and has become more compelling as the prospects for growth and development in Africa have vastly improved.

But to realise the potential, we must address the challenges of inadequate infrastructure, small and fragmented markets, inadequate diversification of industrial output, similar product ranges resulting in relatively little trade potential and the lack of vertical integration in production. The answer lies in promoting developmental regional integration with targeted programmes to address these fundamental constraints.

As the most closely integrated group in Southern and East Africa, we believe that the customs union can be an anchor or nucleus for deeper integration throughout SADC. The customs union can play a similar role in the tripartite free-trade agreement negotiations launched in South Africa in June between it, the East African Community and the Common Market for Eastern and Southern Africa.

A consolidated customs union provides a stronger basis for engaging competitively with a rapidly changing global economy.

The emerging economies, led by Brazil, Russia, India and China (Bric), are new sources of global economic growth, trade and investment flows. According to the International Monetary Fund, these countries will account for 61% of global growth in three years’ time. It is also projected that developing countries’ share of world trade will double during the next 40 years, from 37% in 2007 to 69% in 2050.

The union needs to move beyond an over-reliance on traditional trading partners and deepen engagement with these economies. There is an opportunity for it to develop new kinds of economic relationships with the Bric nations, prioritising collaborative and co-operative engagement (such as industrial complementarities) and avoid destructive competition.

This requires that the customs union member states forge common trade and industrial policies, a process to which South Africa is deeply committed.

Rob Davies is the minister of trade and industry

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