When finance minister Enoch Godongwana eventually delivered his budget this year, much was made of the careful balancing act within the government of national unity (GNU) — a fiscal road map that tiptoes between competing ideological camps while avoiding the political hot button of a VAT hike. On the surface it looks like a budget everyone can live with. But as is so often the case with government budgets, the devil lurks in the details.
Buried in the dense annexures and appendices of the Big Budget Book, there is a number that demands scrutiny: payments to the Southern African Customs Union (Sacu). You’d be forgiven for asking, “The what? So what?”
SA’s continental trade arrangements do not receive the attention they urgently deserve from a budget point of view. SA needs to be positioned as a trading nation — both regionally as well as internationally. However, one of the trade arrangements that needs urgent attention is the Sacu.
Established in 1910, Sacu is the world’s oldest customs union, binding SA with Botswana, Eswatini, Lesotho and Namibia. Its purpose was, and still is, to enable the free movement of goods among member states, applying a common external tariff (CET) on imports from outside the bloc, with customs and excise duties collected at the point of entry and pooled into a common revenue pool (CRP).
Sounds reasonable. Maybe that is why it survived 115 years of turmoil and dubious history in the region. But this is where it becomes complicated. SA contributes a significant share to the CRP, but receives a smaller portion of the revenue compared to its contributions, whereas smaller member states receive an outsize share of these pooled revenues.
This share to SA is based on a revenue-sharing formula last revised in 2002 that considers intra-Sacu imports, share of total Sacu GDP, and GDP per capita, and is weighted in favour of less developed nations.
In 2023/24 SA paid R79.8bn into the Sacu account, and for 2024/25 about R89.8bn. However, SA often receives less than half the value back. For 2025/26 SA will pay about R73.5bn into the Sacu account. This R73.5bn exceeds the amounts the government anticipated raising through the proposed VAT increases prior to budget 3.0.
This imbalance wasn’t always the case. In 1910, SA claimed nearly 99% of Sacu’s customs revenue — a historical injustice rightly addressed over time. But reforms in 2002 went in the opposite direction, leaving today’s revenue-sharing formula increasingly detached from economic realities and weighted heavily against SA.
It’s also worth noting how precariously dependent Sacu’s smaller members have become on these transfers. The annual Sacu payments from SA provide about 40% of the overall revenue for Lesotho and Eswatini and about 30% for Botswana (despite it having a higher GDP per capita than SA) and Namibia, ensuring financing for development and the economic stability of those countries.
Compounding matters are growing risks in the global trade environment. As international markets grow more protectionist, with the US recently mulling across-the-board tariff increases and preferential access under schemes such as the African Growth and Opportunity Act (Agoa) facing potential review, Sacu’s customs pool faces growing volatility. And when the numbers fall short it will place further pressure on SA to cover the shortfall in a system already skewed against it.
None of this is to argue against Sacu’s value. Its role in promoting regional stability, integration and trade facilitation is undeniable. Last year alone SA’s net exports to Sacu countries totalled R188.3bn, compared to our total trade balance of R2-trillion with the rest of the world.
Strong regional markets benefit us all. But solidarity cannot mean open-ended fiscal transfers at the expense of SA. The reality is that SA shoulders the cost of Sacu while facing serious economic challenges at home: a constrained budget and rising social welfare obligations.
What is needed is a review of Sacu’s revenue-sharing formula. It needs to be determined whether there is a necessity to renegotiate the formula so it fairly reflects each country’s current economic strength, trade contributions and fiscal needs, not the geopolitical realities of two decades ago. The formula must recognise the legitimate developmental needs of our neighbours, but not at the ongoing, unquestioned expense of SA.
This call for review isn’t about isolationism or abandoning neighbours. Significant reform is required in terms of SA’s trade agreements and our country’s export potential. It’s about ensuring that SA’s regional partnerships are sustainable, equitable and growth orientated.
There are other overlapping trade arrangements that also require scrutiny. It is imperative that SA urgently build its industrial base if we are to grow the economy and create employment opportunities over the long term.
If Sacu is to remain a relevant force for regional integration, it must work for all its members.
• Britz, a DA MP, is a member of the select committee on finances in the National Council of Provinces.
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