The dire state of the diamond market has prompted Botswana to declare a health emergency because it can’t pay for medicines. The country, which owns 20% of De Beers, depends on revenues from its diamond industry to fund about a third of its national budget. Less well known is that it depends on SA taxpayers to fund a big chunk of the rest, as do our other Southern African Customs Union (Sacu) neighbours.
While SA’s own public finances and ability to fund its health needs have been increasingly straitened, it is surprising that the Sacu revenue sharing agreement has not attracted more attention. Government transferred almost R90bn to Botswana, Eswatini and Lesotho and Namibia (BELN) in the 2024/25 fiscal year in terms of the revenue sharing formula, which goes back to 2002. That’s more than it collected in fuel taxes and almost a third higher than the defence budget.
The Sacu agreement divides the bloc’s total customs and excise revenue according to an agreed formula, which SA is responsible for implementing since it collects these revenues at the border posts and ports. But the system in effect provides a giant budgetary subsidy by SA to its neighbours, a form of development aid. SA consumes most of the imports that come into the region and pays almost all the customs and excise duties. It contributes 97% of the Sacu revenue pool. But it now gets back only half of it in terms of the formula; the rest goes to the four neighbours.
Their public finances depend heavily on the support: Botswana and Namibia rely on the Sacu revenue for 30% of their budgets, while in Eswatini and Lesotho it is 40%, the Treasury told parliament in response to a recent question from the DA. The most recent tax statistics show Botswana is the largest recipient, accounting for R33bn, or more than 40%, of payments to the so-called BELN countries in 2023/24.
The formula was designed to include a development element. But its outcomes have become ever more inequitable over the years, with the BELN’s share climbing from about a third in 2010 to peak at well more than half a few years ago. The Treasury projects annual Sacu payments averaging R80bn over the next three years. Stripping out even a portion would mean finance minister Enoch Godongwana could avoid new tax hikes next year to plug his R20bn revenue gap, for example.
It is past time to reopen talks over the formula, and SA has been trying to do so for years. But the Sacu neighbours have to agree to any talks.
There is a case to be made for SA to provide development assistance to its neighbours. It makes sense for SA to try to ensure that these countries are politically stable and economically viable. If their economies can’t provide jobs and their governments can’t provide social services, the burden tends to fall on SA to absorb the migration — as indeed it already does.
Some of the countries are still significant sources of labour. They are even more significant customers for our economic output, accounting for about 9% of SA’s net exports. And as Covid-19 showed, a health crisis in one country can easily spill over.
But as PwC put it in a submission to parliament earlier this year, the question is whether the benefits outweigh the very significant cost — and whether the agreement is even fiscally sustainable for SA. Some of the BELN countries have better fiscal metrics than SA and are growing faster and competing with SA for investment.
The payments, which provide unconditional budget support, also arguably take pressure off them to raise their own tax rates or improve their own revenue collections. Botswana only recently increased its top personal tax rate to 27.5%. Ours is 45%. And in the absence of conditions, the money might simply be funding consumption (even corruption), rather than development projects in infrastructure or healthcare that might benefit the region, SA included.
It is past time to reopen talks over the formula, and SA has been trying to do so for years. But the Sacu neighbours have to agree to any talks. And why would they? Cutting off the funds would plunge them into fiscal crisis. No-one is suggesting that. But their own fortunes are now so closely tied to the health of SA’s economy and its public finances that a fairer deal would be in their interests too. Perhaps they can be persuaded.
• Joffe is editor-at-large.
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