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Regional Integration Case Study (SACU) Southern African Customs Union Ebenezer Amoah Helena Indongo Hlobsile Bhembe Professor. Dr. Sebastian Dullien 1 ❖Brief Background & History ❖Main Driver of Integration ❖Current Integration Dynamics Outline ❖Main Areas of Integration: De jure vs De facto ❖Trade Integration ❖Monetary & Financial Integration ❖Factor Movements ❖Political & Defense Pact ❖Main challenges & problems for the future ❖Conclusion 2 The Evolution of SACU since 2004 1910 2004 2002 COUNTRY YEAR POPULATION South Africa 1910 60.6 Million Botswana 1910 2.4 Million Eswatini 1910 1.2 Million Lesotho 1910 2.2 Million Namibia 1910 2.7 Million Source: SACU Insights 2004-2019 3 Member Countries Main Sectors South Africa ❖ Automotive ❖ Textile ❖ Service ❖ Mining ❖ Energy Namibia ❖ Mining ❖ Beef ❖ Fishery ❖ Grapes Botswana ❖ Mining Diamonds ❖ Livestock - Beef Eswatini ❖ Sugar Cane ❖ Sugar based products Lesotho ❖ Agriculture ❖ Apparel industry 4 Source: SACU Annual Report, 2021 Features & Driving Objectives of SACU Features: Linked by a single tariff − the Common External Tariff (CET) − and a common customs territory - no customs duties & quotas on all intra-SACU trade. Objectives: ➔ To prioritise regional integration is the overarching objective for SACU ➔ To develop common policies and strategies with respect to industrial development ➔ Facilitate SACU members trade negotiations with third parties ➔ To have a common pool of customs and excise duties funds Source: SACU Insights, 2004-2019 5 SACU Institutions Source: SACU Annual Report, 2021 6 Main driver behind integration (political vs. market) Political History Source: SACU Insights 2004-2019; 2019 Market 7 Trade Integration: De jure vs De facto intra-SACU merchandise export shares, in %, comparable with other RECs 45 40 Period Annual Average Share (%) 2004-2008 3 2009- 2013 13 2014- 2019 15 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 SACU 2010 2011 ECOWAS 2012 2013 COMESA 2014 2015 2016 2017 2018 2019 EAC Source: Author‘s illustration based on ITC Trade Map data, 2022 8 Trade Integration : De jure vs De facto Intra-SACU import shares (%), comparable w/ other RECs Period Annual Average Share (%) 2004-2008 10 2009-2013 14 2014-2019 14 30 25 20 15 10 5 0 2004 2005 2006 2007 Intra-SACU import share 2008 2009 2010 2011 intra-ECOWAS import share 2012 2013 2014 2015 intra-COMESA import share Source: Author‘s illustration based on ITC Trade Map data, 2022 2016 2017 2018 2019 intra-EAC import share 9 Trade Integration: De jure vs De facto Trade Integration Indicator De jure De facto Elimination of goods Article 18 (1) : Duty-free quota-free tariffs (unless elsewhere specified) . Rather low & stagnating level of integration, however more integrated than other RECs. Trade Facilitation Article 28 (2) provides for harmonization of Technical Barriers to Trade (TBTs): product standards and technical regulations. No harmonization of TBT; No unified standard/ accreditation system in SACU (e.g., Namibia pharma). SACU Trade Facilitation Programme 2011 Real time customs system interconnectivity between South Africa & BLNS countries. Trade in Services liberalization (TIS) No provisions for TIS Several sectors are integrated among SACU. SADC Protocol on Trade in Services 2022, ratified by all SACU members. Rules of Origin No rules of origin No rules of origin Numerous NTBs among SACU members that pose a trade cost ; less standardization of procedures in crossborder trade. Source: Elago, n.d.; SACU, 2023; SACU Agreement, 2002 ; WTO, 2016 10 Walvis Bay Corridor Group (de facto trade facilitation) Source: Namibian High Commission to South Africa, 2022 11 Monetary Integration Monetary Integration DE JURE DE FACTO No provisions in SACU Agreement Common Monetary Area (CMA) Multilateral Monetary Agreement between NLS & S.A. (fixed exchange rate & free capital flows). Hence S.A. sets monetary policy. Botswana: trade-weighted basket of Rand & SDR, S.A. has large weight. Hence, Botswana Pula moves in tandem with Rand. Therefore, de facto monetary integration determined by S.A. CMA : free access to S.A. foreign exchange market IMF (2007) found monetary convergence in CMA countries : estimation results of an interest rate adjustment model. UNCTAD ,2008. Monetary integration BLNS countries interest rates compared to S.A. repo rate Source: Trading Economics, 2022 Monetary integration BLNS countries interest rates compared to S.A. repo rates Source: Trading Economics, 2022 Financial Integration Financial Integration DEJURE DEFACTO No provisions in the SACU Agreement 1. CMA: free movement of capital flows, hence NLS have access to developed S.A money and capital markets. 2. Financial relations in hub and spoke system with S.A at the center: a). S.A major banks First National Bank (FNB), Nedbank, Standard Bank, Absa Bank: 90% combined market share in S.A. also dominate financial system in the BLNS: - Eswatini & Namibia 5 banks in total: FNB, Standard Bank, Nedbank dominate. - Lesotho : FNB, Standard Bank, Nedbank, & 1 state bank - Botswana: 8 major banks, 5 from South Africa b). Financial institutions: Botswana’s Letsegho financial services available in Eswatini, Namibia & Lesotho S.A. investment banks also available in BLNS:Alexander Forbes, African Alliance, Stanlib, Old Mutual. Source: WTO, 2016 Financial Integration S.A vs BLNS commercial banks lending rates to customers Source: Trading Economics, 2022 Financial Integration S.A vs BLNS commercial banks lending rates to customers Source: Trading Economics, 2022 Political & Defense Integration Political & Defense Pact DEJURE DEFACTO No provisions for political & defence pact in SACU integration. Article 5 of SADC (1992) makes provisions for a Defence and Political pact. AU provides for a non/aggression ^ common defence pact. All SACU members have signed both pacts. Source: African Union , n. d Movement Of Capital S. A. (as the regional hub in SACU) is the largest source of FDI in the other SACU countries. FDI Stocks from selected countries, 2010, % of GDP European Of which France Portugal UK Other United States China South Africa Total SACU South Africa 35.5 1.0 0.1 12.9 21.5 23.2 1.1 Swaziland 3.5 0.0 0.0 0.1 3.4 0.1 - 11.1 14.7 Botswana 3.0 0.0 0.0 2.4 0.6 0.5 1.2 3.3 8.0 Namibia 2.6 0.0 0.0 0.0 2.6 0.0 0.4 4.3 7.4 Lesotho 0.7 0.0 0.0 0.5 0.3 0.1 0.4 2.7 4.0 Source: IMF, 2013, p.12 59.9 19 Movement Of Capital Cross boarder banking operations with South Africa Source: IMF, 2013, p. 14 20 Movement Of Capital Key Nonfinancial South African Firms Operating in the SACU Region Agro Mining South Africa x x x x x Botswana x x x x x x x x x Lesotho Namibia Eswatini x x x x x x x x x Nonfinancial Services Trade Manufacturing x x x x x x x x x x x x x x x x Source: IMF 2013, p.12 x x x x x x x x x x x x x x x x x x x x x Movement Of People Migration DEJURE DEFACTO No provisions for movement of people See data LABOUR FORCE OF ORIGIN COUNTRY 33 695 805850 4.18% 43 461 905835 4.79% 50 475 1033295 4.88% 41 770 327322 12.8% 65 384 347185 18.8% 42 038 363609 11.56% 45 435 373068 12.1% 149 432 863588 17.3% 234 089 865440 27.0% 181 832 894106 20.3% 192 008 937123 20.4% 58 250 657389 8.86% 91 250 753051 12.12% 40 708 4.61% 36 671 920919 3.98% SHARE LABOUR FORCE OF ORIGIN COUNTRY 2020 MIGRATION STOCK 3.2% SHARE LABOUR FORCE OF ORIGIN COUNTRY LABOUR FORCE OF ORIGIN COUNTRY 705,453 LABOUR FORCE OF ORIGIN COUNTRY 2010 MIGRATION STOCK 23 147 SHARE OF LABOUR FORCE OF ORIGIN COUNTRY 2015 MIGRATION STOCK LABOUR FORCE OF ORIGIN COUNTRY SHARE OF LABOUR FORCE OF ORIGIN COUNTRY 2005 MIGRATION STOCK South Africa ORIGIN DESTINATION Migration stock in South Africa from BLNS countries, as a share of BLNS total labor force Botswana Eswatini Lesotho Namibia 881284 Source: UNDESA , 2020; World Bank, World Development Indicators, 2022 Revenue Pool Mechanism De jure the revenue-sharing arrangement This has important fiscal policy implications for BLNS countries Source: SACU Annual Report, 2021; WTO, 2016 ; Bank of Namibia, 2005 23 Current Integration Dynamics ❖ De jure Regional industrialization development ❖ De jure Review of the revenue sharing arrangement ❖ Address factors limiting – seamless movement of goods, trade facilitation and logistics e.g dumping, infrastructure, policy ❖ De jure SACU Customs Modernisation Programme (CMP) ➔ reduce turnaround time at the board for the traders ➔ secure the supply chain (amid situations like COVID) ➔ minimize physical interaction at the border Source: SACU Annual Report, 2021 ; WTO, 2016 ; Lombaerde et. Al., 2017 ; South Africa Reserve Bank & IMF, 2013 24 Current Integration Dynamics ❖ Development of Democratic SACU institution ➔ Tariff board ➔ Regional competition commision for SACU countries ❖ De jure Unified engagement in trade & investment negotiations ❖ Harmonisation of customs procedure and policies ❖ How to position itself in order to fully benefit from AfCFTAs Source: SACU Annual Report, 2021 ; WTO 2016; Lombaerde et. al., 2017 ; Draper et al., 2007 25 Challenges & Future Problems ❖ ❖ ❖ ❖ ❖ ❖ ❖ ❖ The dominance of South Africa in decision making Reliance on the revenue pool funds Revenue pool dispute High economic differences - S.A economies of scale - Dependency Competition is tough to NO competition at all BLNS lack the resources and well as the management skills to successfully implement integration projects. Lack of harmonized standards. Unharmonized VAT within SACU (refund terms pose extra administration cost) Source: SACU annual report ,2020 ; WTO 2015-2016 ; Braude & Sekolokwane, 2008 ; Kalenga, 2012 ; Edwards & Lawrence, 2008 26 SACU Outlook Tighten implementation rules of integration projects ● Need for member states to continue working even more closely with similar customs process and Policies ● Elimination of total border control for goods, services ● For sustainability & For SACU to work the BLNS need to develop other industries to diversify their economies ● Source: SACU Agreement, 2002 ; WTO, 2016 ; SACU Annual Report, 2015-2021 ; Kalenga, 2005 27 Conclusion ❖ SACU is far from a single market ❖ Compared to COMESA, ECOWAS and EAC the SACU region is integrated but with room for improvement esp. in terms of ❖ Trade integration - level are still low, they could trade more with each other. ❖ De jure Financial Integration is still lacking; de facto well integrated. ❖ De jure Monetary integration lacking; de facto well integrated. ❖ Movement of Labour is limited 28 References African Union (n. d). The African Union Non-Aggression and Common Defence Pact. Retrieved on 20.12.2022 from https://au.int/en/treaties/african-union-non-aggression-and-common-defence-pact. Bank of Namibia. (2005). Annual Symposium: The benefits of Regional Integration for Smaller Economies. ISBN: 99916-61- 28-X. Braude, W., & Sekolokwane, K. (2008). Sustainable Development: The missing Piece in the Southern African Customs Union’s regional trading arrangements? International Institute for sustainable Development. Draper, P., Halleson, D., & Alves, P. (2007). SACU, Regional integration and the Overlap Issue in Southern Africa: From spaghetti to cannelloni?. South African Institution of International Affairs. Edwards, L., & Lawrence, R. (2008). SACU Tariff Policies: Where Should They Go From Here? Centre for International Development at Harvad University. Elago, P. (n.d.). SACU’s Trade Facilitation Programme: Talking Regional Customs Modernisation. Trade Law for Southern Africa Newsletter. Retrieved from https://www.tralac.org/documents/newsletters/2556-sacu-tradefacilitation-programme- talking-regional-customs-modernisation-paulina-elago-tralac-newsletter-november2018 /file.html#:~:text=In%20accordance%20with%20the%20SACU,of%20prohibited%20and%20restricted%20goods 29 References High Commission of the Republic of Namibia to the Republic of South Africa. (n.d). Trade and Investment: Walvis Bay Corridor. Retrieved on16.12.2022 from https://pretoria.mirco.gov.na/index.php/trade-and-investment/walvis-bay corridor. IMF (2013). Inward and Outward Spillovers in the SACU Area. IMF working paper. Retrieved on 12.12.2023 from https://www.imf.org/external/pubs/ft/wp/2013/wp1331.pdf. International Trade Centre’s Trade Map. (2022). List of Supplying Markets in Southern African Customs Union (SACU) for the Product Imported by Southern African Customs Union (SACU). [Data file]. Retrieved December 3, 2022 from https://www.trademap.org/Country_SelProductCountry_TS.aspx?nvpm=1%7c%7c11%7c%7c11%7c OTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c3%7c1%7c1%7c1 International Trade Centre’s Trade Map. (2022). List of importing markets in Southern African Customs Union (SACU) for the product exported by Southern African Customs Union (SACU). [Data file]Retrieved December 3, 2022 from https://www.trademap.org/Country_SelProductCountry_TS.aspx?nvpm=1%7c%7c11%7c%7c11%7cTOTAL%7c%7c %7c2%7c1%7c1%7c1%7c2%7c1%7c3%7c1%7c1%7c1 International Trade Centre, Trade Map. (2022).SACU exports to the world. https://www.trademap.org/CountrySelProduct _TS.aspx?nvpm=1%7c%7c11%7c%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c3%7c1%7c1%7c1 International Trade Centre, Trade Map. (2022). ECOWAS, EAC, COMESA intra- exports and intra-imports. [Datafiles]. Available from https://www.trademap.org/Index.aspx International Trade Centre, Trade Map. (2022). ECOWAS, EAC, COMESA imports and exports to the world. [Datafiles]. Available from https://www.trademap.org/Index.aspx 30 References Kalenga, P. (2005). Trade policy options for Eastern and Southern Africa. Trade Law Centre for Southern Africa. Kalenga, P. (2012). Regional integration in SADC: Retreating or forging ahead. Trade Law Centre for Southern Africa. Lombaerde, D. P., Saucedo Acosta, E. J. (2017). (1st ed.). Indicator-Based Monitoring of Regional Economic Integration: Fourth World Report on Regional Integration. United Nations University Series. Southern African Customs (2002). Southern African Customs Union Agreement between the governments of the Republic of Botswana, the Kingdom of Lesotho, the Republic of Namibia, the Republic of South Africa and the Kingdom of Swaziland. Southern African Customs Union. (2023). Trade Facilitation. Retrieved 02/01/2021 from https://www.sacu.int/category. php?cat=Trade%20facilitation The World Bank. (2023). World Development Indicators. Retrieved January 10,2023 from World Development Indicators data https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?end=2021&locations=BW-LS-NA-SZ&start=2004 Trading Economics (2022). Economics database. Retrieved on 12.12.2023 from https://trading economics.com/ UNCTAD (2008). Regional cooperation and integration in Sub-Saharan Africa. United Nations. Retrieved on 12.12.2023 from https://unctad.org/system/files/official-document/osgdp20084_en.pdf. UNDESA (2020). International Migrant Stock: Destination and Origin. Retrieved on 18.12.2023 from https://www.un.org/ development/desa/pd/content/international-migrant-stock W.T.O. (2016). Trade Policy Review: Report by the Secretariat Southern African Customs Union. Retrieved 10.12.2023 from https://www.wto.org/english/tratop_e/tpr_e/s324_e.pdf. 31 Appendix intra-SACU merchandise trade share, in %, comparable with other RECs. 35 30 25 20 15 10 5 0 2004 2005 2006 2007 intra-SACU trade share 2008 2009 2010 2011 intra-ECOWAS trade share 2012 2013 2014 intra-COMESA trade share 2015 2016 2017 2018 2019 intra-EAC trade share 32