Author: Mbongeni Ndlovu (TWIMS, Head of African Trade & Industrialisation)
During August 2024, Botswana extended its nearly three-month ban on citrus imports from South Africa, a move that mirrors Namibia’s earlier restrictions on South African produce. These actions have sparked concerns within South Africa’s agroprocessing industry, which claims these bans violate the South African Customs Union (SACU) trade agreement and the principles of free trade. However, it can also be argued that these measures are a reaction to South Africa’s failure to foster regional value chains, thereby triggering frustration amongst its SACU partners.
1. SACU Trade Imbalances
SACU was established in the 1880s and is currently governed by the 2022-2027 Strategic Plan, which aims to create a diversified, competitive, and equitable industrial base in the region. Thus, a core principle of the current version of the customs union is based on reciprocal benefits; yet South Africa — the dominant economy within SACU — has struggled to support the development of regional linkages. This has resulted in significant trade imbalances, all in the favour of South Africa. For example, South African exports represent up to 89% of its bilateral trade with Botswana in 2023.
South African trade with SACU partners in 2023
Source: Calculated from UN Comtrade (2024)
Note: Free on Board (FIB) values in current US$ millions
The dominance of South African multinationals in sectors such as finance, insurance, and real estate further exacerbates these imbalances. While South Africa’s larger economy partly explains these discrepancies, the lack of developed regional value chains plays a more significant role.
A more balanced trade relationship exists between South Africa and Eswatini. Over the past 15 years, Eswatini has attracted significant South African investment in its apparel industry due to lower labour costs. When the country was temporarily excluded from the USA’s African Growth and Opportunities Act (AGOA) in 2014–15, apparel investments shifted towards supplying the South African market. By 2015, Eswatini exports had shifted to supply large South African retailers, including major brands such as Mr Price, the Foschini Group (TFG), Pepkor, Edcon, Woolworths and Truworths. Despite Eswatini regaining its AGOA status in 2018, South Africa remains the main market for roughly 95% of the country’s clothing output, with the remaining 5% mainly destined for other countries in the SADC region. This, in addition to Eswatini’s competitive advantages in beauty products and sugar production, explains why its trade with South Africa is more balanced than other SACU partners.
2. Lack of Regional Policy Alignment and Institution Building
South Africa’s previous industrial policies, including the Industrial Policy Action Plans (IPAP) from 2009-2019, emphasised regional and African trade and value chains as central to industrial policy. However, the Re-imagined Industrial Policy (2019-2024) shifted the country’s focus towards simply exporting to African markets rather than building regional value chains.
Like other customs unions, a key feature of SACU is the application of a single tariff regime among member states− the Common External Tariff (CET). A key issue within SACU is the non-operational status of the SACU Tariff Board, which was meant to oversee the CET. Article 11 of the 2002 version of the SACU Agreement, makes provision for the establishment of the Tariff Board as an independent institution consisting of experts drawn from the Member States. A full 22 years later, the SACU Tariff Board is still not yet operational, and the Council has effectively mandated South Africa’s International Trade Administration Commission (ITAC) to handle tariff applications on behalf of SACU, effectively sidelining the other SACU members from their own trade affairs.
3. Revenue Sharing and Overreliance
SACU’s revenue-sharing agreement provides substantial benefits to its smaller members. South Africa is the largest contributor to the pool, contributing up to 97% of the total. However, the overreliance on this revenue is problematic. In Namibia’s case, SACU revenues accounted for 33% of total government income in the FY 2023/24. This overreliance has prompted other SACU members to recognise the risks of depending heavily on volatile customs revenues, which is why they are seeking to diversify their domestic production bases to attain greater fiscal sustainability.
Botswana and Namibia’s pushback against South Africa’s exports and to many of the rules within the African Continental Free Trade Area (AfCFTA), stems from the desire to correct trade and industrialisation imbalances within SACU. These two SACU economies are keenly aware of the consequences of unfettered competition from a much larger neighbour upon which they have long had a dependency relationship. Broadly, the SACU experience shows the likely outcomes of the AfCFTA, unless there is genuine reciprocity in trade relations. More narrowly, for South Africa to fully capitalise on AfCFTA opportunities, its industrial and trade policy must pivot from a nationalistic localisation approach toward fostering regional value chains. This shift would position SACU members as true partners rather than adversaries in regional trade and signal what the continent could achieve through the AfCFTA.
Join us for our upcoming Trading under the African Continental Free Trade Area (AfCFTA) Masterclass
Facilitator: Mbongeni Ndlovu
Date: 17 October 2024
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