In 1910 the white government of SA formed the Southern African Customs Union (Sacu) comprising SA’s neighbours Botswana, Lesotho and Swaziland (now Eswatini). Later, the four would be joined by Namibia.
In effect, the Sacu countries form a single market of duty-free trade in goods and services — the deepest form of regional integration — and enjoy a common external tariff system. This makes Sacu one of the oldest customs unions in the world.
On everyone’s behalf, SA, the largest economy in the club, collects tariffs on all imports and excise duties on “sin” products, such as tobacco, alcohol, spirits and luxury goods. Each year, through a complex and opaque revenue-sharing formula, Pretoria then pays out billions of rand to Botswana, Lesotho, Namibia and Eswatini. For the financial year to end-March the figure was supposed to be about R90bn.
As well as sharing income that is collected and due to each partner, SA compensates its smaller neighbours for trade diversion effects. As a large economy it attracts more imports than its neighbours.
SA, Namibia, Lesotho and Eswatini also participate in a monetary policy union known as the Common Monetary Area (CMA). The currencies of SA’s smaller neighbours are pegged one on one to SA’s rand and circulate freely in the subregion. Botswana elected not to peg its pula to the rand, but rather to a basket of currencies.
As in Sacu, the CMA includes a compensation arrangement. However, this CMA arrangement is less jaw-dropping than the Sacu one. Again, SA wields a lot of power. It is in charge of dispute resolutions and administering anti-dumping mechanisms. This is not to suggest that Pretoria’s neighbours have to roll with the punches, as demonstrated by Botswana’s example.
The above arrangements survived colonialism and apartheid, and SA’s post-apartheid administrations happily adopted them with little modernisation. Reviews have been minimal, tactical and piecemeal. Consequently, the arrangements have been overtaken by the times.
Sacu’s is also a story of missed opportunities. SA’s neighbours, which are less industrialised, have long pretended that they can build home-grown industries to compete with SA instead of working towards a Sacu-wide industrial strategy. This lack of vision, shared equally by all partners, has fuelled resentment and recent tensions.
For example, in the past Sacu members including Botswana have toyed with the incredible idea of starting their own motor industries. This is despite clear evidence that SA, through its plants in Gauteng and the Eastern Cape, has a better chance of building a regional vehicle powerhouse. Other member countries can participate in this capability by building and supplying components to manufacturing plants in SA.
The trade and industry ministers of the member countries have tended to have a curious interpretation of their portfolios. All have been inclined to pay more attention to the glamorous travel perks that come with the trade aspects of their jobs than the hard slog of the industry component.
In SA, former trade, industry & competition minister Ebrahim Patel spent the better part of his decade-long tenure on the competition and industry (read: localisation) components of his job. This choice, apparently not supported by President Cyril Ramaphosa, immediately put him on an unwinnable collision course with the private sector. In the end, he retired without seeing his ambition through.
Most recently, Botswana, which has been flexing its sovereign muscles in all sorts of curious ways, has been imposing arbitrary bans on SA’s agricultural products, including vegetables and citrus products. Gaborone has argued, implausibly, that the restrictions are designed to protect local farmers and ensure food security.
Evidence in this regard has been scant. On the ground, the bans have disrupted the plans of SA producers, which once accounted for the bulk of Botswana’s citrus consumption. Uncertainty among the players in the agribusiness ecosystem is high.
To be clear, there is nothing in the Sacu trade pact that prevents member countries from protecting industries, even within a single market. This is more the case with the letter of the text of the agreement, but less so in the spirit of intra-Sacu co-operation.
SA’s producers have been surprisingly sanguine in their response to Botswana’s measures. They have asked for clarity to be able to align their production and export plans accordingly. The publication of such information could take the edge off the tensions.
Out of the glare of measured media statements though, resentment is rapidly brewing. The producers would like their government to step in.
The appointment of Parks Tau as Patel’s successor is an opportunity for a fresh perspective and impetus to be brought into the job. Already he has his plate full with requests for intervention.
He is also under pressure from the protectionist brigade and industrialisation movement to weaponise tariffs. Some local producers want import tariffs to be used to help them compete with the flood of cheap imports, and others want taxes to discourage exports of raw materials.
In the short term, Tau should prioritise defusing the trade tensions with Botswana, which must not be allowed to escalate into a trade war. That would be a disaster.
In the long term, Sacu ministers should modernise the agreement for today’s world, which is no longer dominated by agriculture, mining and manufacturing; and trade arrangements need to be reached with coherent and complementary industrial strategies.
• Dludlu, a former editor of The Sowetan, is CEO of the Small Business Institute.
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