27 August 2014

Southern Africa: Giving the Private Sector a Voice in SACU


While the oldest functioning customs union in the world can boast impressive longevity, the relationship between its member states - South Africa and Botswana, Lesotho, Namibia and Swaziland (BLNS) - is characterised by greater animosity than harmony.

Much has been written about the need to transform the Southern African Customs Union (SACU) from a troublesome revenue-sharing arrangement to a meaningful development organisation. Divergent national interests result in a lack of political will to implement SACU's development agenda.

However, increasing private sector engagement can mobilise untapped resources and create more nuanced and practical policy to assist SACU in achieving its developmental aims.

SACU's creation in 1910 was more a pragmatic arrangement, given the colonial administration at the time, than a design to harness the gains from trade creation. Regardless, its establishment has supported trade facilitation and business development for a number of reasons. The dismantling of internal tariff barriers facilitated the free flow of goods between member states - considerations of unequal benefits aside.

The common external tariffs mean that importers to the region do not face differing customs regulations. And the Common Monetary Area, covering all member states but Botswana, allows for the ease of financial flows and protection from exchange rate instability.

These are the generic benefits to business associated with customs union formation. In order to reap the yields of private sector involvement in tackling SACU's developmental challenges, however, SACU needs to raise the profile of the private sector in policy and decision-making processes. These yields can come in three forms.

Firstly, given that the private sector is a key stakeholder in any policy related to trade, increasing engagement will result in more practical and nuanced policy-making. For example, undoubtedly the most challenging issue facing SACU is its revenue sharing formula which sees a large transfer of customs revenue from South Africa to BLNS.

The dependence of these states, in particular Lesotho and Swaziland, on these transfer payments to fund their fiscal operations makes finding new sources of tax revenue essential.

As one of the sectors representing the biggest contributions to tax revenue, the importance of the private sector providing input into this process cannot be underplayed. The same holds true for the difficult decisions SACU has to make in the arena of trade negotiations. Tapping into the private sector's rich experience and specialised trade data is essential to determining the effects of trade agreements on the local economy.

Secondly, deepening cooperation with the private sector will allow SACU to tap into private resources. These resources are not just financial, although they can be, but also include practical involvement such as training customs officials or donating equipment.

To illustrate, SACU has identified trade facilitation as one of its key objectives. With free internal trade having been established, trade facilitation now hinges on non-tariff barriers (NTBs) such as a lack of transport infrastructure, regulatory red tape, or health and safety standards.

The private sector is undoubtedly best positioned to identify and quantify these NTBs. In research undertaken by the South African Institute of International Affairs, with the support of GIZ, firms have shown that they are extremely willing to contribute resources towards NTB elimination considering how costly NTBs are to doing business.

Lastly, private sector involvement in SACU will contribute to strengthening regional integration. Many of SACU's stalled attempts to deepen regional integration are a result of clashing national interests.

However, where cross-border trade is mutually beneficial to firms in two or more member states, the private sector is driven by a common interest of profit creation irrespective of which national territory it operates in.

The 2002 SACU Agreement carries with it the mandate for a common industrial policy. To this end, the Secretariat has identified a number of cross-border value chains which, if developed, could stimulate industrial development, such as the agro-processing or automotive sectors.

However, the interventions have not got off the ground because member states have been unable to agree on which value chains to prioritize. Linkages between the private sectors of different countries can apply pressure on member states to engage in deeper regional integration. In such cases, the common private sector interest of wanting to unblock cross-border trade can contribute to overcoming the divergent national interests which manifest in a lack of political will to deepen regional integration.

Given the potential for these gains, what can SACU do to more meaningfully incorporate the private sector into its policies and processes?

The SACU Secretariat should meet with the business community in the region on a regular basis to get a better understanding of the constraints experienced by traders and investors.

While engagement is a first step, to maintain the interest of the private sector it is important that SACU respond and resolve some of the critical issues of concern for business.

Member state governments have also shown reluctance to involving business in regional processes, with few countries regularly including private sector representatives on their SACU delegations.

Regional business organisations (RBOs) also play an important role in distilling various business interests into one central platform. Much work can be done to strengthen RBOs in the region, or facilitate their establishment where they do not exist. In particular, there is a lack of apex bodies which can draw the various RBOs together, making representation in SACU structures easier.

As SACU member states form part of the larger SADC regional bloc, SACU represents a unique opportunity to evidence the gains from private sector engagement in the broader SADC context.

There have been a number of attempts made in the past to involve business in SADC processes, but none of these have been sustained. Organised business in the region is not particularly strong and has often been fractured by the pursuit of individual or sectoral interests. The result is that SADC has fallen behind other African regional economic communities in the area of public-private dialogue.

If SACU is able to meaningfully engage with the private sector, and reap the gains thereof, it would constitute a valuable example for SADC to follow.

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