The Southern African Customs Union (SACU) revenue is expected to tumble in the next financial year owning to the contraction in the global economy, Standard Chartered Bank has warned.
The bank’s research analyst for Africa, Alex Sienaert, based in London, said the contraction in the revenue pool will directly affect Botswana, Lesotho, Namibia and Swaziland’s public spending that have played a critical role in financing the projects.
“The total SACU transfers to BLNS countries will decline significantly this year and next, and look to be around 10 percent lower in nominal terms by 2010 than they were in 2008.
“The decline may be considerably larger. Since the receipts have funded around half of BLNS country spending in recent years, this decline poses a major challenge,” Sienaert said.
SACU is the world’s oldest customs union founded in 1910, meaning that intra-trade between the member states is almost free. But imports from outside the union attract common customs and excise duties that are pooled together and later redistributed to members through an agreed revenue sharing formula.
During the 2007/8 fiscal year, SACU revenue accounted for 25 percent of the public income, while in the other less affluent members states the figures were much higher, such as in Lesotho where they contributed 57 percent, Namibia was 39 percent and Swaziland was 60 percent.
According to the estimates revenue transfers to the pool is expected to decline by 3.5 percent year-on-year during the fiscal year 2009/10 to R 27.9 billionÔÇörepresenting a R 1 billion drop from 2008.
“Given the severity of the global downturn, these are likely to be the best case scenario for SACU revenues, which could even fall further.
“In the case of Botswana, comparison also requires ZAR-BWP conversion, which we perform by crossing Standard Chartered Global Research’s USD-ZAR and USD-BWP forecast,” the research said.
“The BLNS countries have long anticipated a decline in SACU revenues because of the ongoing external trade liberalization. But talk is cheap ÔÇö it is easy to proclaim the need to diversify the public revenue base and limit the SACU revenue reliance, but much more difficult to do anything about it. Meanwhile, several years of bumper SACU inflows have inevitably swelled public expenditure,” the report said.
The report further stated that at the moment, it is difficult to gauge the impact of the SACU revenue flow on the anticipated public revenue since there is uncertainty on the size of the pie this year and next, but also how it would be divided because the formula largely depends on intra- SACU trade share estimates given that most of the countries have scaled-down on imports.
The move comes at a time when Botswana has already penciled down a possible budget deficit during the same fiscal year largely due to the low demand in the mineral sectorÔÇöthe mainstay of its economy.