The Southern African Customs Union (SACU) is the world’s oldest customs union. Established as the Customs Union Convention in 1889, the union operated under different agreements, which were negotiated and renegotiated with changing circumstances. Presently, it is governed by the 2002 Agreement. Its members are Botswana, Lesotho, Namibia, Swaziland (BLNS countries) and the Republic of South Africa. SACU member states deposit their customs and excise collections in a common revenue pool (CRP), which they share using a formula that has evolved over the years. Under the 2002 revenue sharing formula (RSF), the BLNS countries together get nearly half of the collections although their joint gross domestic product (GDP) is less than 10 percent of SACU's GDP. Not surprisingly, income from the CRP constitutes a considerable proportion of total government revenue (about half in Lesotho, more than two thirds in Swaziland and nearly 40 percent in Namibia). ACU revenue is on the decline. It is predicted that Swaziland's SACU revenue as a share of its GDP will decline from 17.6% in 2005 to 9.4% in 2020; Lesotho's share will decline from 21.5% if GDP in 2005 to 12.6% in 2020; and Namibia's and Botswana's shares will drop from 8.1% and 5.1% of GDP in 2005 to 4.4% and 2.8%, respectively, in 2020. Against the declining SACU revenues and the heavy government reliance on income from the CRP, fiscal expenditures and hence public programs in the BLNS countries will be adversely affected. A likely effect is that critical areas such as health, education and agriculture, which are paramount for human development, may be scaled down. This is an issue of major concern given that SACU countries carry the world’s worst HIV/AIDS epidemic. Any scaling down of prevention, care and treatment programs will decelerate current initiatives and, in some cases, reverse advances made in combating the scourge. To counter the problem, it is suggested that, in the short term, the BLNS countries should lobby for more donor support, exercise fiscal restraint and allow for relatively higher budget deficits. In the long run, the solution lies in restructuring their fiscal frameworks to move away from reliance on SACU revenue, especially for recurrent expenditures. This will necessitate the adoption of an expenditure plan anchored on domestic revenue. The BLNS countries may also aim at efficient and effective use of public resources.
Issue brief published by Health Economics and HIV/AIDS Research Division, University of KwaZulu-Natal, Durban, South Africa, July 2010; 4 pp.