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Sacu: COVID-19 costing member states R7bn in revenue every month

Southern African Customs Union (Sacu) executive secretary Paulina Elago said that closed borders had cut trade in some countries to only one percent of normal flows.

Sacu executive secretary Paulina Elago (left) at the 54th Meeting of the SACU Commission in Windhoek, Namibia on 3 December 2019. Picture: @SACUSEC/Twitter

JOHANNESBURG - The Southern African Customs Union (Sacu) said that trade flows were down to 1% in some countries and its member states were losing an estimated R7 billion a month of the customs revenues that they collected and shared due to the COVID-19 pandemic.

The reforms of the oldest customs union in the world, which was expected to also review its revenue sharing formula, were due for conclusion by December, but they too could be delayed.

Sacu said that with the exception of Botswana, which had recorded high growth rates, South Africa and Namibia were already experiencing a recession just before the outbreak of COVID-19, while eSwatini and Lesotho were already experiencing growth rates below 2% for the last four years.

Eyewitness News spoke to Sacu executive secretary Paulina Elago who said that the IMF April 2020 outlook estimated that Sacu economies would decline by an average of 5.6% this year due to the COVID-19 pandemic, because of disruption of normal economic activity, including restrictions on different sectors aimed at containing the spread of the pandemic.

She said that tourism, which contributed between 12% and 19% of GDP in these countries, had been hit hardest, along with retail, mining and the informal sector. Elago said that the continent must invest in health and ICT, and Sacu was now fast-tracking its automation of borders to minimise human contact and make the movement of goods quicker.

ABOUT SACU

Botswana (as Bechuanaland), eSwatini (as Swaziland) Lesotho (as Basutoland), Namibia (as South West Africa) and South Africa (as Union of South Africa) signed the first Sacu agreement in 1910. The Customs Union collects customs and excise duties from member countries into a revenue-sharing pool, and once a year they share those revenues.

The revenues are made up of customs duties that each country collects when they import from outside the bloc and from each other, as well excise duties.

• The Sacu Revenue Sharing Formula has three components - the customs component, excise component and the development component. The customs share is allocated based on each country's share of total intra-Sacu imports.

• The excise component constitutes 85% of the excise duties collected and it is allocated based on each country’s share of the total Sacu gross domestic product (GDP).

• The development component is fixed at 15% of the total excise duties collected and it is inversely proportional to each country's GDP per capita, so that it is weighted in favour of the less developed member states.

SACU REFORMS AND REVIEW OF REVENUE SHARING

This compensatory formula has been a source of discontent with successive governments of South Africa, that have expressed concern that it penalises the country for being industrialised and export heavy, in favour of less industrialised fellow member countries.

This is also due to its strategic location in terms of seaports, the level of development and size of the economy. Most of the imports coming into the customs area enter through South Africa, including those destined for Botswana, eSwatini, Lesotho and Namibia. In essence, South Africa is the hub and first point of entry for most imports and also serves as a distribution centre for the rest of the region.

"In terms of the Sacu Agreement, customs and excise duties from imports into the region are collected at the first point of entry. The total trade among the Sacu member states, in terms of imports, amounted to about R192 billion in 2017/18 and about 75% came from South Africa," Elago said.

Last year, Sacu member states shared R120 billion. South Africa received R57.7 billion, followed by Botswana with R23.7 billion, Namibia R22.3 billion and Lesotho and eSwatini R8.9 billion and R8.3 billion respectively.

South Africa still got the lions’ share - 48% - because of its share of the total Sacu GDP, while countries like Lesotho and eSwatini got 7% of the revenue pool. For Lesotho, that made up 40% of government revenues and was still a significant share of GDP as Sace executive secretary Paulina Elago explained.

"For Lesotho, that is 21% of GDP, for eSwatini and Namibia that is 12% of GDP, for Botswana it’s 9% of GDP and for South Africa it’s 1% of GDP."

On average, South Africa collects 97% of revenues, followed by Namibia with about 1%, and the rest with less than 1%, and this is the sticking point.

Member states have started a process of reforms that will also review the formula to ensure, among others, that no member state is made worse off than what it obtains under the current revenue sharing arrangement; shares are equitable taking into account political and socio-economic considerations; allocations are developmental, promote economic convergence and minimise volatility. But Elago said that the deadline may be derailed.

"We had until December this year to conclude that but clearly now with COVID-19 it may be delayed."

SACU COVID-19 IMPACT

Sacu said that during the global financial crisis of 2008/09, the common revenue pool saw a 21% decline and the COVID-19 pandemic would have more devasting effects on the global economy than the financial crisis. Some of the key sectors in the member states from 2004 to 2018 include tourism, mining and quarrying, wholesale and retail, manufacturing, finance and business services.

The bloc said that the member states must anticipate spending in relief and stimulus packages, losses in these sectors and the loss of Sacu revenues.

In 2018, goods worth R1.39 trillion were exported by Sacu member states, with an average of R115 billion a month. A total of R1.48 trillion worth of goods were imported into the region and a total revenue of R90.29 billion was collected in 2017/18 from both the excise and customs duties. The lockdowns were expected to result in a significant under collection in the common revenue pool as most businesses remained closed.

"Botswana Unified Revenue Service is currently processing less than 10% of the usual cross-border trade volumes while the eSwatini Revenue Authority estimates a decline of 70% for commercial goods," Elago said.

At that rate, of the estimated R10 billion that Sacu would have generated in a month, anything between R7 billion and R9.9 billion is already lost.

She said that tourism GDP contribution that was in double digits in all five countries, as well as hospitality and transport sectors, were hardest hit following the travel bans.

"The 2018 tourism sector contribution in Botswana was 19.3%, Lesotho 11.5%, eSwatini 12.1%, Namibia 12.4% and South Africa 13.4%.”

Mining, retail and the informal sector would also suffer, but Elago said that on the other hand, the pandemic should make the secretariat and member countries explore opportunities in health and ICT.

She said that the COVID-19 pandemic had exposed the challenges in the health sector in terms of number of hospitals, inadequate health personnel, lack of medical supplies and on-time delivery of medical supplies to remote populations.

"The automation through the development of software that can assist in doing self-assessments by patients, which will free doctors to prioritise emergency and severe cases in the hospitals. There will be a need to look at the use of technology such as drones to deliver goods, which is already happening in countries like Rwanda."

Paulina Elago said that work plans for the Sacu Customs Modernisation Programme would be affected but it must be scaled up to advance IT connectivity and automation to enhance trade, while minimising direct contact and paper-based transactions. She said that the Preferred Trader Programme would also ensure quicker clearance at borders.

She concluded that "we have had several of our meetings cancelled because of this and they include trade negotiations, but that also minimises costs of travel and accommodation. There’s good coming out of this in terms of the use of technology, but it also means we have to invest in ICT and use of technology at the national level."

Sacu said that finalisation of its offer to the Africa Continental Free Trade Area was also likely to be affected. AfCFTA secretary-general Wamkele Mene announced that the launch of the trade zone that was scheduled for 1 July had now been postponed to a date to be announced.

For official information about COVID-19 from the Department of Health, please click here.

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