The Trade Beat (Johannesburg)

10 March 2014

Southern Africa: Sacu - the Inconvenient Institution?

analysis

The article aptly titled "SACU: Dead Man Walking" by Professor Roman Grynberg needs further reflection and critical insight, writes President of the Namibian Economic Society Mihe Gaomab II in the third of our SACU Perspectives series.

There is no denying the fact that the region's oldest trade agreement, the Southern African Customs Union (SACU) - made up of Botswana, Lesotho, Namibia, South Africa and Swaziland - has gone into paralysis mode in terms of advancing the regional integration and common policy development and implementation agenda.

This does not mean SACU is about to be finally killed off by South Africa or that member states are ready to dump SACU for a better alternative.

It is, however, plausible given the current contemporary developments on trade and regional integration that SACU has become an inconvenient institution. South Africa argues that the revenues apportioned to BLNS states (Botswana, Lesotho, Namibia and Swaziland), the smaller economies of SACU, is increasingly a burden on its state coffers representing 55 percent of the total SACU pool of revenues.

While it can be acknowledged that revenues to BLNS did increase as a redistributive transfer to BLNS, the reality is that the 55 percent only represents less than 5 percent of total South African revenues.

Given the historical fact that SACU has a polarised trade and commercial pattern where industrial activity was concentrated and biased towards South Africa, such revenues accorded to the BLNS is a small feat considering the trade expansionist role and industrial concentration of South African firms in the region.

It would be in the best interest of SACU member states, however, that the regional grouping should stay but needs to be transformed to suit current financial, trade, industrial and tariff setting realities.

In terms of financial considerations, one should regard that South Africa is not looking only at SACU as a gateway of making its financial imprints in Africa. It is looking at SADC and the COMESA EAC SADC Tripartite arrangement and ultimately the African continent as a whole.

But South Africa's priority now primarily lies in the global arena through BRICS where it wants to establish a Development Bank of R100 billion to fund infrastructure projects.

The Revenue Sharing Formulae (RSF) of SACU seem to be in the way of South Africa wanting to foster and establish, through fully fledged development co-operation mechanisms, a Development Fund to finance regional infrastructure projects which may be commensurate with its trade expansion plans through better road, rail, air transport linkages and sufficient energy and telecommunications supply networks.

SACU needs to heed that call and realise that it will not be in all member states to stick with the current RSF but to transform it to suit the targeted and well-focused financing, which would benefit the whole region as well. Given that South Africa is in a position to finance such a fund, it may be well advised that member states consider such a fund but with clear provisions that set out terms and conditions.

There is no way that South Africa can use the Development Fund to leverage itself due to its bargaining strength to enforce conditions that would remind BLNS of "Structural Adjustment Programmes" of the IMF and the World Bank.

The proposed or considered Development Fund should be transparent, predictable and fair to all and it should allow room for all member states to have a say on how it is managed. It should also not make any member state worse off than under the current revenue sharing arrangement.

In fact, SACU can acclimatise and accommodate the Development Fund under its consensual decision making structures while it serves its objective to afford targeted funding streams for infrastructure and project financing opportunities.

SACU is historically indebted to ensure that funds are availed largely from its member states, as it is not only politically expedient to do so but is also motivated on economic necessity for trade diversion, polarised industrial development effects and agglomeration accumulation of commercial, industrial and financial growth in the South African economic hub versus the "spokes" of the BLNS.

In terms of trade, SACU needs to be more realistic in order for trade integration to take root. It needs to sit down politically and agree on "growth points" of sectors, industries and products among its member states.

There is no way that regional integration can grow in SACU, as a region, if all countries aim to do the same thing, such as to grow same products, sectors or industries. SACU member states should agree who takes what products, sectors and industry based on comparative endowment or competitive basis, and then assist each other to deepen and stimulate such sectors, products and industry.

They should explore this through identifying regional value chains and ensure through market access and production technologies that such agreed growth centres are stimulated on a complementary and growth valued shared basis. Such shared growth, value-added regional focus strategy can assist greatly in terms of industrialisation for broad-based development in SACU and not just for South Africa as is the case.

SACU needs to be commended for doing well on its institutional strength to getting the Common Negotiating Mechanisms (CNM) going, especially in terms of the EU-SADC-EPA. It has to be pointed out that SACU needs to go as a firm collective to advance its EPA agenda and to solidify gains and opportunities from the EU.

It is encouraging that SACU is moving towards that direction although painstaking and slow. It needs to stay resilient and resolute to achieve the common agenda not only with the EU but also with all other negotiating forums on trade as it is with India, Mercosur and China.

SACU must be commended for trying to put in place the SACU Tariff Board but must at the same time realise that it is necessary to go first with establishing domestic national bodies on trade that would be capacitated to handle competently first the domestic trade distortions and then only regional trade distortions at SACU Tariff Board level. This noble objective can transform SACU from been not being only a reactive institution on trade but also a proactive institution to influence trade and industrial policy at regional level.

In order to do this, SACU needs to be viably transformed to developed common policies on agriculture, industry, and competition policies in line with the full implementation of the SACU 2002 Agreement.

The drawback to the unrealistic expectation of agreeing on common policy development is that it is increasingly difficult for member states, who are at varying levels of economic development, to agree on what is common.

It is better if SACU emphasizes "variable geometry" where flexibility can be allowed for those member states to explore commonality of these policies and to cement even on a bilateral basis those policies, which are intertwined with an objective of gravitating towards the common ground on those policies. For SACU member states to chase a pipe dream of having agreed common policies one day would be too high and unrealistic.

It is important that member states be allowed to explore common basis even bilaterally on these policies and such critical mass be explored to the common goal, whenever such goals are agreed upon only on principal basis but acknowledging variations and diversity of commonality between and among the member states.

In conclusion, SACU should not be allowed to die. It should not be killed off either. It is not a dead woman walking nor is it the last kick of a dying horse. It just needs to be clear on its limitations and ambitions.

It has to be transformed, as it is simply inconvenient for all member states. All member states can agree that the current revenue sharing formula needs a radical overhaul, as it is neither trade-enhancing nor conducive for regional integration. SACU member states must realise that regional institutional structures of SACU can be extremely beneficial for regional financing mechanisms. But such funding arrangements should be conducive to all and not felt imposed. It should aim for regional infrastructure projects on an agreed modality basis.

SACU needs to jealousy safeguard its common negotiating agenda. It is not easy to put in place such negotiation forums nor easy to maintain it on a uniformly engaged basis. SACU has to move towards that by concluding international obligations. It should be done similarly for the EU EPA.

SACU must protect its cohesive approach at the EU EPA level and make sure that it speaks with one agreed voice on safeguarding its trade and economic interests taking full advantage of opportunities.

SACU must allow diversity of common policy development at the initial stages and allow for such semblance and commonality to develop even on a bilateral basis between and among member states. That can pave a development of critical mass on cross border regional policy linkages, which can serve as a basis for a principled common policy development at a later stage.

Mihe Gaomab II is the President of the Namibian Economic Society. This article was originally published in the Southern Times, via the Trade Law Centre.

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