Stability risks mar Southern Africa customs reform

Subject

Outlook for the Southern Africa Customs Union.

Significance

Botswana, Lesotho, Namibia and Swaziland (BLNS) are highly dependent on income from the Southern African Customs Union revenue sharing formula (RSF). This distributes customs duties among members (BLNS and South Africa), resulting in substantial fiscal transfers from South Africa to its smaller neighbours. The latter's deteriorating economic situation is creating fresh pressures for reform.

Impacts

• South Africa could plausibly replace SACU transfers with aid linked to governance reforms in BLNS states.
• However, the disruption caused by adapting to a new system would probably destabilise Lesotho and Swaziland's finances.
• SACU could also pursue limited expansion by including only Mozambique and Angola, reducing the burden on South Africa.
• This is unlikely in the short term since both states face their own fiscal problems; moreover, Angola is disengaged from regional matters.