DONALD MACKAY: Beggaring our neighbours is in nobody’s interests

Whether SA should be part of the Southern African Customs Union (Sacu) or not is a valid debate, but it is incorrect to count the transfers made by SA to other member states as a straightforward cost to the country.

With the recent embarrassing failure to table a budget, cutting this payment has been proposed by PWC partner Kyle Mandy as a way for SA to “save” a huge expense. Though the R89bn we paid over last year is a lot by any measure, it is not our money to keep.

The five Sacu member states — Botswana, Eswatini, Lesotho, Namibia and SA — pool all of their customs and excise duties and distribute these according to a revenue sharing formula. Fifteen percent of the excise duties from all five states is set aside for development and the balance is sent back roughly proportionately to the states that contributed, so the precise formula is not of much importance.

However, the development portion is distributed to the states in inverse proportion to the per capita GDP of each state. The poorer states thus get more of the 15% development portion, but the excise duty rates are set by SA. Given that SA is “poorer” by this measure than Botswana, we would get a bigger portion, but this is not where most of our transfer to Sacu comes from.

The important bit is the customs duties, which are split according to the amount imported from other Sacu states. The growing amount of money in the revenue pool is there because SA has been steadily raising import duties to protect SA businesses.

When this protection doesn’t actually deter imports (such as on steel), the duties collected go up, rather than the local industry increasing its volumes. Given that SA has almost all the manufacturing capacity in the region, it means the other Sacu states receive the largest portion of this revenue pool.

But that doesn’t mean SA is losing out. We get the production (employment and economic development), and because we have a customs union our producers get to sell at higher prices behind an ever-growing tariff wall. The consumers in the other states pay more, but the Sacu agreement locks the economic activity in SA and the consumption in five countries instead of one.

When the 2002 agreement was signed Sacu was meant to set up a tariff board and a tribunal, neither of which has come into existence, in no small part because SA has discouraged their establishment. The tariff board is meant to determine how much duty should be paid on different products for the union. Instead, this function has been delegated to the International Trade Administration Commission (Itac), which is 100% South African.

Itac reports to the trade, industry & competition minister, though it is nominally independent. The legislation that governs its behaviour is all South African and it takes its direction from SA’s industrial policy (set by the same SA minister). In the 22 years Itac has existed it has conducted 460 tariff investigations, only one of which was brought by another Sacu state, so you can see what I mean.

The tribunal that should be settling disputes between states has not been created, which is why Botswana and Namibia have been banning our imports rather than using the dispute resolution mechanism in the agreement.

The unwritten part of the agreement was that we don’t directly target industries in the other states to relocate them to SA, but this happened as part of our Retail, Clothing, Textile, Footwear & Leather Master Plan, and may still happen with our sugar sector.

Our customs laws have already been changed to make it difficult to import clothing from other Sacu countries competitively, and this passed with barely a whisper. When we destroy jobs in Lesotho, do we assume the seamstress will take her family and fly to Texas to work for SpaceX?

The whole of the customs union has been burdened by SA’s bad industrial policies for more than a decade, but the other states have no control. The 25% unemployment rate in Sacu is four times the unemployment rate in the rest of Africa (6%), so no-one is winning.

The revenue sharing formula needs to be reviewed, but beggaring our neighbours so we can spend that money poorly at home is not the way to do this. Look at the proposed budget. All the focus is on how to raise more tax and almost nothing on how to cut profligate spending.

For as long as we refuse to share any policymaking ability with the other states we have no claim on the share we transfer to them. The customs union fails to create economic benefits for anyone because it is structured to extract value and send it to SA (I don’t think this was the intention, but it is the outcome).

The value in a customs union is in building value chains that play to the strengths of all five states. The union needs to formulate an industrialisation strategy, not just SA. If we take more away from these states and offer even less in return we run the risk of an economic collapse in all five states. Don’t expect Zimbabwe to take the flood of people when that happens.

• MacKay is CEO of XA Global Trade Advisors.