Is the Southern African Customs Union in danger of slowly disintegrating?
By Donald MacKay
Is the Southern African Customs Union (Botswana, eSwatini, Lesotho, Namibia and South Africa – Sacu) in danger of slowly disintegrating? This would not be good for any of the people living in the union.
The objective of any customs union is to improve the welfare of the member states more than if they were not members. The best example of this is the EU, which has, on average, improved the well-being of its members. But Sacu, despite being the oldest customs union in the world, has not delivered on this promise, and I’m not sure it can unless some rather drastic steps are taken.
All the customs and excise duties collected in the five countries is put into the Common Revenue Pool, which is then shared between the members according to a revenue-sharing formula.
The details are not that important, but the end result is that although South Africa generates most of the customs and excise duties, the majority goes to the other four members. Think of it as a massive amount of aid paid from South Africa to the others, although not without conditions (which aid is ever given without strings attached?).
In return for the money, the other Sacu states give South Africa the authority to set the trade and industrial policy for the union. The unwritten part of the agreement is that South Africa needs to act in the best interests of the union. When this condition is broken, the customs union moves from a common strategy to a dogfight, and given South Africa is the big dog, this doesn’t end well for the others.
But I don’t think it ends well for South Africa either.
South Africa always tilted the deck in its own favour, but the tilting was never overt until the arrival of the various master plans, with the Retail, Clothing, Textile, Footwear and Leatherwear (R-CTFL) being the most pernicious.
The R-CTFL master plan, signed in November 2019, deliberately targets clothing manufacturers in the other Sacu states by way of a very complicated rebate. Clothing manufacturers can import textiles used to make clothing and not pay the duty of 22.5% if they agree to the following:
1. be a member of the bargaining council
2. commit to buying a minimum volume from local textile producers
3. not to sell the clothing they make outside the country they manufacture in
4. to only sell to clothing retailers who have signed the master plan (there are only seven who have signed).
It’s hard to see how this is not the big dog biting chunks out of the smaller dogs, particularly Lesotho and eSwatini, who both are rather dependent on clothing manufacture and who sell in large volumes to South Africa.
In December 2021, Botswana and Namibia banned vegetable imports from South Africa, and in June 2024, Botswana added citrus to the list of banned products from South Africa.
In 2023, Namibia refused to impose anti-dumping duties on tyres. They eventually did impose these duties, but the cracks are showing. In the last 20 years only one application for a duty change was brought from outside of South Africa. This is telling.
The problem is that import duties are really harmful if a country had no domestic production.
When one of your few competitive industries is then targeted by a fellow Sacu member, this is a recipe for disaster. Although no other master plan is quite so direct, South Africa’s localisation drive is all about South Africa. It does not concern itself with the other Sacu states, placing the whole customs union at risk.
For every job we move from Lesotho to South Africa, we add an illegal migrant with the attendant social problems that brings.
The inflation caused by higher tariffs is not offset by employment in new industries in the other Sacu states. It’s just inflation.
The automotive industry is a South African industry. Don’t be fooled by the stitched leather products in Lesotho or the wiring harnesses in Botswana. These are rounding errors in the automotive sector.
Although theoretically eligible for the automotive subsidies, it’s difficult to comply with these rules, so companies in the four other Sacu states are not going to see a rush of auto investment.
They, however, pay the price premium on all cars, which is no small issue. South Africa needs to take the lead in formulating a new strategy for Sacu before it’s too late.
Sacu is an important market for our exports because we get to sell in those markets behind the high Sacu duties, but we are not building Sacu-wide value chains, instead extracting the value to South Africa.
The dependence on the revenue from the customs pool, particularly for the two small economies, is a big risk to those countries and to the whole union. You don’t want to tax the very activity which can get you out of poverty, especially when the economic activity is almost all happening in South Africa.
As hard as it is, politics needs to be left at the door so we can have a meaningful discussion on how to grow all of Sacu. If we don’t, Sacu will exist only on paper and South Africa will continue to add the unemployed of our neighbours to our own.
Donald MacKay is founder and chief executive of XA Global Trade Advisors. MacKay has been advising local and foreign companies on global trade issues for more than two decades. X handle: XA_advisors; email: donald@ xagta.com; website: xagta.com. The views in this column are independent of Business Report and Independent Media.
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