Generating sustainable growth

The Southern African Customs Union (SACU) comprises Botswana, Lesotho, Namibia, Eswatini and South Africa. SACU was established in 1910, making it the world’s oldest customs union.

The member states form a single customs territory in which tariffs and other barriers are eliminated on all the trade between the member states for products originating in these countries. There is also a common external tariff that applies to non-members. SACU’s objectives are:

  • To facilitate the cross-border movement of goods between member-state territories
  • To create effective, transparent and democratic institutions that will ensure equitable trade benefits to member states
  • To promote conditions of fair competition in the Common Customs Area
  • To substantially increase investment opportunities in the Common Customs Area
  • To enhance the economic development, diversification, industrialisation and competitiveness of member states
  • To promote the integration of member states into the global economy through enhanced trade and investment
  • To facilitate the equitable sharing of revenue arising from customs, excise and additional duties levied by member states
  • To facilitate the development of common policies and strategies.

SACU member states have been pursuing a co-ordinated approach towards trade negotiations with third parties. Several trade agreements have been concluded that promote the integration of SACU into the global economy.

Free trade agreement between SACU and the European Free Trade Association (EFTA)

The SACU-EFTA free trade agreement (FTA) covers trade in non-agricultural products, as well as processed (PAPs) and basic agricultural products (BAPs).

The EFTA provides duty-free, quota-free (DFQF) market access for industrial products originating from SACU countries and extends the same market access offered to the EU under their association agreement on PAPs. SACU offers DFQF on 95% of industrial goods and PAPs. Exceptions include clothing, textiles and some motor-related products.

The FTA has strengthened commercial and trade relations between SACU and the EFTA. SACU has had a positive trade balance since 2009, with an average export value of ZAR29.1 billion for the 2009 to 2018 period. The average import bill from EFTA stood at ZAR12.1 billion in the same period.

SACU’s main exports to the EFTA region include precious and semi-precious stones, unwrought copper alloys, diamonds and nickel mattes.

Through the FTA, EFTA states have committed to provide technical assistance to SACU in the implementation of the FTA. The agreement is under review to consider international economic developments and the possibility of further developing co-operation.

Preferential trade agreement between SACU and the Common Market of the South (MERCOSUR)

The MERCOSUR-SACU preferential trade agreement (PTA) aims to promote trade between MERCOSUR and SACU states.

The PTA was the first trade agreement concluded by SACU as a single entity. It represents both regions, aspirations and objectives for south-south co-operation and integration.

The PTA offers preferential market access on 1 000 tariff lines. These products have fixed preference margins that range from 10% to 100%. Parties have also committed to eliminate non-tariff measures affecting the products, and to develop instruments on customs co-operation, including animal and plant health, standards, technical regulations and conformity assessments, food safety and mutual recognition of sanitary and phytosanitary measures.

Paulina Mbala Elago, SACU executive secretary

SACU experienced a trade deficit with MERCOSUR between 2012 and 2018 but export values have risen. SACU exports grew from ZAR7.7 billion in 2012 to ZAR10.4 billion in 2015, before falling to ZAR8.5 billion and ZAR8.4 billion in 2016 and 2017, respectively. In 2018, there was slight upward movement of exports amounting to ZAR9.1 billion. Imports fluctuated from ZAR21.2 billion in 2012 to ZAR35.8 billion in 2013. This performance was sustained after the implementation of the PTA in 2016, with ZAR22.4 billion and ZAR27.3 billion in imports in 2017 and 2018, respectively. SACU’s main exports to MERCOSUR include aluminium, chemicals, bituminous coal, steel products and vehicles. Imports comprise agricultural products, petroleum coke and wood pulp.

Economic partnership agreement between the EU and SADC-EPA group
The economic partnership agreement (EPA) between the EU and six SADC member states (SADC-EPA group) was signed in 2016 in Botswana. The SADC EPA group comprises SACU member states as well as Mozambique. The agreement (EU-SADC EPA) will enter full implementation once it is ratified by all EU member states.

The objective of the EU-SADC EPA is to contribute to the reduction and eradication of poverty through the establishment of trade partnership consistent with the objective of sustainable development; the Millennium Development Goals; and the Cotonou Agreement. This includes the promotion of regional integration, economic co-operation; good governance and the integration of SADC-EPA states into the global economy, as well as improving their capacity in trade policy and related areas.

Currently, the EU-SADC EPA covers trade in goods only. The agreement, however, has a rendezvous clause for future co-operation on other trade-related areas such as services, investment, competition policy and intellectual property rights. Botswana, Lesotho, Mozambique and Eswatini are pursuing negotiations on trade in services with the EU.

While both the EU and SADC-EPA states offer reciprocal preferential market access, the EU provides greater liberalisation than the latter. The EU provides differential tariff treatment to SADC-EPA states, with DFQF market access to Botswana, Eswatini, Lesotho, Namibia and Mozambique.

With regard to South Africa, the EU grants tariff elimination on approximately 95% of tariff lines, while about 4% of tariff lines are subjected to limited tariff liberalisation or will remain dutiable. The EU also maintains tariff rate quotas (TRQs) for imports from South Africa of skimmed-milk powder, butter, frozen strawberries, sugar, white crystalline powder, citrus jams, canned fruit, canned tropical fruit, frozen orange juice, apple juice, active yeast, wine and ethanol.

SACU has granted single tariff concession for the EU products at zero or reduced tariffs apart from other sensitive products. In addition, SACU gives the EU limited liberalisation through TRQs for pork, pig fat, butter, cheese, wheat, barley, cereal-based food preparations, ice cream and mortadella bologna.

SACU has recorded a trade deficit with the EU as imports continue to exceed exports. SACU exports to the EU in 2018 were valued at ZAR326 billion, compared to ZAR176 billion in 2012, while imports stood at ZAR375 billion in 2018, compared to ZAR229 billion in 2012. Motor vehicles and related products constituted the main exports to the EU in 2018, followed by platinum, at ZAR32 billion.

Among the top exports to the EU were non-industrial diamonds, machinery, unrefined copper and alloys. The main imports from the EU in 2018 were motor vehicles and related products, unused postage stamps, petroleum oils and medicaments.

The preferential market access opportunities presented by these agreements have the potential to expand trade and investment. Trade volumes have been growing steadily, but opportunities and benefits are yet to be fully realised.

An expansion of production capacity through enhanced industrialisation and diversification of manufacturing, along with increased investment, are critical for the optimal exploitation of export opportunities offered through these agreements.

International trade remains critical to SACU. However, it must be complemented by a robust industrialisation agenda to foster economic growth.

SADC Protocol on Trade
Thirteen SADC member states have signed the SADC Protocol on Trade. Its objectives are to further liberalise intra-regional trade in goods and ultimately create an FTA and enhance economic development, diversification and industrialisation in the SADC region. The protocol advocates that member states eliminate barriers to trade, ease customs procedures, harmonise trade policies based on international standards, and prohibit unfair business practices. The protocol was signed in 1996 and amended in 2000, 2007, 2008 and 2017. The aim is to eliminate all tariffs in the FTA over different phases of implementation, starting in 2000. The minimum requirement for the formation of an FTA was achieved in 2008 when 85% of intra-regional trade attained zero duty.

SACU member states have implemented their tariff liberalisation commitments under the FTA since 2012. To date, around 99.7% of tariff lines are being traded on duty-free under the SADC FTA.

Intra-SADC trade rose from ZAR69.6 billion in 2001 to ZAR459.7 billion in 2018. Since the implementation of the FTA, SACU has also been able to grow its share of trade within SADC, where SACU trade moved from a trade deficit between 2001 to 2009, to a trade surplus from 2010 onwards.

Between 2018 and 2012, all SACU member states (except Lesotho) have recorded a trade surplus in the SADC market. SACU had the largest share of exports to SADC countries in 2018, at more than ZAR352.9 billion – and imports at ZAR247.6 billion. This demonstrates the importance of the SADC FTA to the SACU economies.

The main products that SACU trades with the SADC region are petroleum oils, vehicles, diamonds, metal ores, electrical energy, as well as some agricultural products such as animal products, fish, sugar and cereals.

African Continental Free Trade Area
The African Continental Free Trade Area (AfCFTA) agreement entered into force in May 2019. It covers a broader spectrum, including trade in goods, services, investment, intellectual property rights, competition policy and e-commerce.

The main objectives of the ACFTA are to facilitate the free flow of goods and services and the free movement of businesspersons, as well as investment. It aims to expand intra-African trade through better harmonisation and co-ordination of trade liberalisation and the facilitation of regimes and instruments across regional economic communities, and to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.

The AfCFTA will provide an opportunity for the continent to expand its markets, modernise its productive capacity to effectively supply the African market, which has an estimated 1.3 billion consumers.

It will enable Africa to improve the current narrow exports base, shallow industrial base and reliance on imports from other continents. The AfCFTA has the potential to promote employment, industrial linkages, economic diversification and structural transformation in Africa. It will also drive industrial development, improve the investment climate and facilitate economic growth.

According to a UNECA study (2017), the AfCFTA has the ability to boost intra-Africa trade by 52.3%. Afreximbank notes that welfare gains stand at US$16 billion.

Industrialisation is a central pillar of the AfCFTA. SACU ministers reaffirmed industrialisation as an overarching objective for SACU in the context of the AfCFTA in September 2020. SACU is undertaking a systematic approach to deepen the region’s industrial base to position itself to take full advantage of the opportunities created by the AfCFTA.

SACU member states have identified regional industrial development as an overarching objective that underpins the region’s development and integration agenda. This is in line with the SACU Agreement 2002, the main goal of which is to enhance the economic development, diversification, industrialisation and competitiveness of member states.

Regional industrialisation is recognised as the main vehicle through which the SACU region can transform its economies and generate sustainable growth and employment, and reduce poverty.

The process of identifying tools to promote industrial development and cross-border value chains has seen a focus on the development of regional value chains.

In 2018, SACU adopted broad public-policy interventions and tools, principles as well as priority sectors that could underpin industrialisation. The agreed principles include upgrading and increasing productivity in the regional value chains; development of appropriate infrastructure; product and market diversification; and increasing the manufacturing base and engagement of the private sector.

Public-policy interventions and tools to promote regional industrialisation include trade facilitation and the development of key infrastructure; development and harmonisation of standards; research, development and innovation; development of relevant skills aligned to sectoral value chains; and a developmental approach to tariff setting to support industrial development in the SACU region.

The SADC Industrialisation Strategy and Roadmap informs SACU’s work on the development of public-policy interventions and tools to promote industrialisation and regional value chains. This ensures SACU leverages on the work that has already been done within SADC.

The strategy outlines a focus on the agro-processing; mineral beneficiation and related mining operations; pharmaceuticals; other consumer goods; capital goods; and services value-chain clusters.

The action plan identifies the products and sectors with potential enhancement. At SADC level, member states will prioritise agro-processing, mineral beneficiation and pharmaceuticals.

SACU’s priority is to advance work on industrialisation and ensure integration at a continental level through the development of regional value chains; export and investment promotion; regional financing mechanisms; trade facilitation; and pursuing the negotiation and implementation of the AfCFTA.

In line with these intentions, SACU has committed to outline its strategy to streamline the SACU Work Programme by April 2021.

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