The battle between SACU revenue and management of fiscal expenditure

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For a long time the Southern African Customs Union (SACU) has been the driving force behind the enhanced socio-economic development integration both within itself and within the Southern African region. It contributed immensely to Namibia’s revenue collection, of which the government uses to provide services, uplift the living standards of its population and attempt to alleviate poverty.

SACU was originally formed in 1910, and is the oldest customs union in the world. The primary goal at the time was to promote economic development through regional coordination of trade. On 11 December 1969, it underwent a transition and reformulation with the formal signing of the Customs Union Agreement between Namibia, South Africa, Botswana, Lesotho and Swaziland.

Currently, SACU agreements provide for the establishment of a Common Revenue Pool, which, as the name suggests, is a pool of revenue shared among the member states, through the current Revenue Sharing Formula. The SACU revenue pool constitutes sharing the state revenues of Botswana, Lesotho, Namibia and Swaziland (BLNS). South Africa is the custodian of this pool and member states’ shares are calculated according to the three components of the new Revenue Sharing Formula with South Africa receiving the largest portion.

In recent years it has been pretty clear from the annual budget presentations that the formula for calculating the respective revenues for SACU member countries has had a negative impact on Namibia’s economic growth. The declining revenue that the member states are experiencing (with the exception of South Africa) from SACU are causing them to be running significant budget deficits as they try to finance these shortfalls with continuous borrowing from various financial institutions.

It is evident that a chunk of Namibia’s fiscal revenue comes from the SACU Common Revenue Pool. The country’s policymakers should pay special attention to the bidirectional causality between government expenditure and revenues, which could complicate the government’s efforts to control the budget deficit.

The effect of SACU’s Common Revenue Pool on Namibia’s economy is not a one-dimensional issue as it affects various facets of the economy and its operations. South Africa, prior to 1994 exercised a discretionary power over SACU. However, after the end of apartheid, and after revamping SACU, South Africa still has some sort of monopoly.

Since Namibia is highly integrated into the South African economy, Namibia’s inflation is driven by South Africa to a large extent. A large percentage of goods consumed in Namibia are imported from South Africa. There also needs to be more of a focus on expenditure mismanagement and wastage. Much is currently spent in ways that do not reflect any sort of impending crisis; for instance, buildings are bought at far more higher prices than their true monetary value, seemingly without regard for the overall picture.

Without income, and without fiscal discipline, self-reliance for Namibia is a far-off dream and Namibia would not show any sign of recovery. The country needs to focus on all areas simultaneously in a vigorous programme of reasserting itself after many years of apparent mismanagement. The focus needs to be on tax collection, government cost-cutting and on attempts to stimulate some sort of manufacturing sector, so that the government can begin to put that much-mentioned buffer fund aside. The continual dependence on loans is a bugbear not only for Namibia but for all African countries and these efforts would go some way to mitigate against the debt burden.

* Tuikila Kaiyamo is a political science graduate (Hons) from the University of Namibia.

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