Downgrading SACU could have economic costs

| Monday May 24, 2010 00:00

It is an open secret that tensions are running high within the customs union, which is not only the oldest such formation in the world, but which is also commemorating its hundredth anniversary this year.

These internal strains came into sharp relief last year when Botswana, Lesotho and Swaziland signed the controversial Interim Economic Partnership Agreement (EPA) with the European Union (EU), while South Africa and Namibia refused to do so. In fact, during his April 22 address on the occasion of the commemoration of the Sacu centenary, in Windhoek, Namibia, President Jacob Zuma cautioned that 'if we cannot pursue the unfinished business of the EPA negotiations as a united group, the future of Sacu is undoubtedly in question'. But apart from disagreements over Sacu's extraregional strategy and vision, there is also unhappiness over the revenue-sharing formula - hitherto, the glue that has held Sacu together, even during the difficult apartheid years.

South Africa, in particular, believes that the reliance of some members on the revenue arising from the formula, which favours the smaller economies in the union, has become an impediment to the adoption of common industrial and trade policies that could foster deeper integration. However, South African Institute of International Affairs (SAIIA) trade programme head Peter Draper warned on Thursday that too little analysis has been conducted into the costs and benefits of the current Sacu agreement and that any move to change the arrangement should be preceded by better information, backed by quality research.

The SAIIA had made the first tentative steps towards conducting such an analysis, but Draper said that the information on intra-Sacu trade and investment was insufficient to provide a basis for a decision on the future of the union.

Nevertheless, the information that was available pointed to the fact that the trade in goods alone was already fairly 'substantial', while investment flows were also not insignificant. Goods trade with Sacu members accounted for about 10% of South African exports between 2001 and 2007, while much of the exports from Botswana, Namibia and Swaziland to South Africa were more value-added in nature than exports to key EU trading partners over the same period. However, trade and investment with Lesotho, which is a least developed country, had been negligible.

'Therefore, any dissolution will have implications, including for South Africa,' Draper cautioned, adding that such a move could also create political tensions and the erection of trade barriers, or even import taxes, that could undermine business relations. He urged Sacu members to move towards establishing a 'true' understanding of the value, or otherwise, of the customs union before 'blowing the lid' on the longstanding formation.'It's easy to destroy, but it will not be so easy to recreate,' Draper warned.-(Engineeringnews)