The Botswana Institute for Development Policy Analysis Senior Research Fellow, Professor Roman Grynberg has criticized the current Southern African Customs Union Revenue Sharing Formula (SACU RSF) calling it the worst model ever to be used.
Instead, the research fellow recommended for a ‘development policy formula’ over the current revenue sharing formula. He said Botswana and Namibia need to seek a ‘development agreement’ where SACU revenues are used to fund development projects.
“Collapse of SACU RSF could be worse than the ‘end of diamonds’. The way we do it is a mess. We need to move to development not compensation. We can make adjustments to it though it will be painful like diamonds; through infrastructure development, strengthening regional trade and promoting investment trade and competitiveness. We need 15 years to do this. Otherwise we will not move sustainability until South Africa (SA) comes to break the formula. Botswana is committing financial suicide by signing the RSF,” he said.
He highlighted that South Africa has an auto industry which other SACU member states, Botswana, Lesotho, Namibia and Swaziland (BLNS) largely subsidize.
SA, he said, has little incentive to reign in subsidies because it sees payments to BLNS under the customs component as excessive.
“Because it is based on share of intra-SACU imports, we cannot expand SACU and we cannot deepen SADC from a Free Trade Area (FTA) into a customs union. Mozambique cannot join,” said Grynberg.
He added that the only way out is an eventual move to the destination principle with long adjustment. Swaziland and Lesotho, he said, are too dependent to adjust therefore need to negotiate fundamentally different political/economic arrangement.
Meanwhile, he revealed that in 1994 the tariff in SA was 115% for cars and it is now 25%. It is believed that the Department of Trade and Industry in SA wanted to restructure and make the auto industry internationally competitive and introduced Motor Industry Development Program (MIDP) which from 1995 to 2012 subsidized exports by providing duty remissions through SACU.
It is understood that the MIDP was very successful as the auto industry in SA exported R122 billion in 2013, but it lowered import duty on cars and parts and created even more imports.
In 2012/2013, R16.9 billion was paid in duty rebates to auto firms – 83% of this was paid by BLNS and 17% by SA. Botswana paid an excess of R5.2 billion which is a 32% to subsidize the auto exports.
“There is no guarantee that the SA economy will not fall. As a result we need to shift from revenue sharing formula to a development policy formula. Again, MIDP has been replaced by Automotive Production and Development Programme (APDP) which is based in value added not exports but still funded largely by SACU customs rebates. Subsidies continue but no data on value yet,” he added.
In effect, Grynberg alleges that SA is using the rebates to claw back some of the cost of the subsidies it pays to the BLNS.