Monday, July 4, 2022

Botswana waits nervously as SACU meets to discuss pressing issues

Botswana is waiting with bated breath to hear what Heads of States of Southern Africa Customs Union will say at the end the SACU Summit in Gaborone this week concerning major issues that could shape or break the oldest customs union in the world, including the contentious issue of revenue sharing.

The SACU revenues, which previously fell behind the minerals exports, contributed 31 percent to government budget for financial year 2013/ 2014, but the sharing formula, which will be discussed this week, is likely to impact on the already dwindling state coffers.

“This summit is to receive report of the work programme of previous meeting,” Tswelelopele Moremi, the Executive Secretary of Windhoek based SACU Secretariat, said at a post briefing on Monday.

Presenting the budget speech in February, Finance Minister, Kenneth Matambo highlighted that Customs and Exercises contributed P13.68 billion to the budget followed by minerals revenues at P13.25 billion. The non mineral income tax income stood at P8.97 billion. The total revenue contributions for this year are namely SACU at 31 percent, 30 percent from diamonds, 20 percent income taxation and 6 percent Value Added Tax.

A paper by Prof Roman Grynberg and Masedi Motswapong of the Botswana Institute of Development Policy Analysis (BIDPA) on SACU Revenue Sharing Formula: The History of An Equation, points out that SACU revenue has become important for the country’s budgeting.

“However, the risk for even Botswana, the country with the highest GDP/capita in SACU, is that SACU revenue, which is used to cover both the recurrent as well development budget of the country, has now become such a significant portion of total government revenue that the macroeconomic adjustment to any change in the formula or movement to another trade regime would be extremely difficult and fiscally destabilising,” said the BIDPA scholars.

The summit will discuss Revenue Sharing, Industrialisation Policy, Trade Facilitation and Development of SACU institutions.

“Revenue sharing is one of the priority programme,” added Moremi.

Amongst these issues to be discussed, revenue sharing remains contentious, especially that South Africa currently gets the largest share followed by Botswana looking at the size of the two countries’ GDPs. Member states and critics have questioned the sharing formula looking at the size of the South Africa’s economy as it currently accounts for 92 percent of the SACU GDP.

The member states had previously commissioned an Australian company, Center for International Economics Consultants, to undertake the revenue sharing review, but it has since been agreed that the report was not convincing, which led to an agreement that each of the five members come up with own proposals. SACU comprises of Botswana, South Africa, Namibia, Lesotho and Swaziland.

“The intention is to check whether these formulas are stable,” said Dr. Taufila Nyamazabo, Secretary for Economic Affairs at the Ministry of Finance and Development Planning. “In December, we should have made progress.”

Contrary to ambiguous statements on revenue sharing by media and some analysts, it is more than the phrase revenue sharing.

Nyamazabo, who acts as the Chairperson of the SACU officials, revealed that there are three different types of revenue sharing formulas, namely customs, revenue, exercise tax and development formula.

The current formula being used gives South Africa the lion’s share by virtue of the size of the economy followed by Botswana, Namibia and then Lesotho and Swaziland. This put Swaziland and Lesotho at a disadvantage as the two economies are over 50 percent reliant on SACU receipts.
The 2002 reforms removed this anomaly but, at the same time, increased the share that accrued to the BLNS. This in turn has meant that the share accruing to South Africa has diminished over time. The 2002 formula based on a share of intra-SACU imports constitutes in effect a compensation for polarisation effects of the customs union.

“If it is the intention of South Africa to deliver more of the SACU revenue as development projects rather than transfers to general revenue, this is more likely to positively impact on the development of the BLNS than the current arrangements and should in principle be supported,” said the BIDPA study.

The report added that South Africa will have to consider appropriate fiscal/ political arrangements for at least Swaziland and Lesotho as it is difficult to imagine how either of these smaller poorer SACU members could possibly make the adjustment otherwise.

“Such an adjustment would result in unprecedented macroeconomic instability in both countries. Therefore like all previous adjustments to the SACU revenue sharing formula this change will also need to be preceded by a monumental shift in the political arrangements in Southern Africa.

Secondly, the move to development assistance as opposed to transfers to general revenue will have to be carefully phased over a sufficiently lengthy period to allow Botswana and Namibia to adjust.”

“While a greater share of SACU revenues going to development funding rather than general revenue would certainly benefit all the BLNS, the administrative arrangements and technical capacity have to be developed in the BLNS to assure that this does not become an instrument controlled by South Africa simply by virtue of its greater technical capacity.”

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