It should not be a question of whether the Southern African Customs Union (Sacu) has reached its sell-by date, but rather of the extent to which it has passed this date.

Sacu is the oldest operational customs union in the world. Though it celebrated its centenary in 2010 (can you recall any celebrations?), its history dates back to 1889. Though seemingly forgotten, perhaps for convenience, its foundation was essentially attributable to colonial consolidation. Great Britain had , at the time, just acquired the two Boer republics, which were consolidated with Natal and the Cape to form the Union of South Africa. Great Britain also had a further three protectorates – the other present-day Sacu members of Botswana, Lesotho and Swaziland. As for Namibia, it joined after its independence in 1990, having been under the administration of South Africa since 1915, in line with a resolution of the predecessor to the United Nations (UN), following its liberation from Germany during World War I. The collective was managed as Sacu, with the distinct purpose to distribute customs revenues (taxes) across the union.

If you try to find the economic logic for the existence, and continued existence, of Sacu, you will find precious little, if any. Its foundation was squarely political. Not convinced? Well, consider the dates of the Sacu agreements: 1910, 1969 and 2002. Does anything ring a bell? On May 31, 1910, the Union of South Africa was established; on May 31, 1961, the Republic of South Africa was established; and on April 27, 1994, South Africa held its first democratic elections. Each time there was constitutional change in South Africa, the Sacu agreement was renegotiated.

You might know that the Sacu secretariat was institutionalised and that it is based in Windhoek, Namibia. Do you perhaps know the composition and activities of the secretariat? According to its website, Sacu has an executive secretary and there are the executive secretary’s office and five directorates: the trade facilitation and revenue management directorate, the policy development and research directorate, the legal services directorate, the corporate services directorate and the internal audit directorate. The executive secretary’s office comprises these subdirectorates: the legal unit, the tariff board unit, the internal audit unit and the communications unit.

Despite having a communications unit, Sacu events listed on its website (www.sacu.int) were last updated in March, while press statements were last updated in November 2014 and events in October 2012.

The tender for arguably Sacu’s core, its tariff board, which would formulate and implement tariff policy, was awarded some time ago but nothing further has happened. The Sacu website states: “The tariff board is yet to be established.” As a consequence, Sacu’s tariff and trade policy remain the domain of South Africa.

But let us focus on what makes Sacu different from any other customs union – its revenue distribution. In essence, this revenue is derived from the collection of customs duty and excise duty within the Sacu region. Do you know of any other customs union with such a mechanism?

According to the South African Reserve Bank’s (SARB’s) June 2015 Quarterly Bulletin, for the financial year ending March 31, the following Sacu payments were made (the year is in brackets): R27.92-billion (2010), R17.91-billion (2011), R21.76-billion (2012), R42.15-billion (2013), R43.37-billion (2014) and R51.74-billion (2015). Have you noted something interesting between 2012 and 2013? There was a 93.70% increase. For this period, the customs duty (or import duty, as the SARB calls it) was R19.58-billion (2010), R26.64-billion (2011), R34.20-billion (2012), R38.85-billion (2013), R44.18-billion (2014) and R40.47-billion (2015). The customs duty increase between 2012 and 2013 was 11.97%. In 2015, customs duty revenue of R50.30-billion was budgeted for. In 2015, South Africa recorded a deficit of R11.27-billion, as opposed to a budgeted R1.44-billion.

South Africa distributes more to Sacu member States than what it collects in customs duty. In the absence of Sacu, and to be in the same position, South Africa could impose a rate of customs duty of 0% on all imports. This would surely reduce the need for customs officials, since they would only need to facilitate trade, and no longer need to collect duty or protect (other than illicit goods), since there would be no incentive from a customs perspective to understate the value of imported goods.

So, where does the difference between the customs duty and Sacu payments come from? It comes from excise duty and specifically specific and ad valorem, or in layman’s terms ‘sin taxes’ and ‘luxury taxes’ (levy is not part of distributions). The worrying part, particularly regarding ‘sin taxes’, is that while the external cost, though internalised through the duty, its reve- nue is not allo- cated – ringfenced. Add to this the interesting question of whether South Africa is the world’s most generous donor, which Alexander O’Riordan explores in his article, which includes the unconditionality of the Sacu transfers (payments). He argues that South Africa could ill afford the Sacu disbursements, which amount to more than 5% of government revenue, which is proportionally more than double the UN target.

Let us put the R51.74-billion into context. The Davies Tax Committee has, besides others, been tasked with finding an extra R45-billion in tax revenue, which, one would assume, would be sustained annual revenue. In its July report, it recommended an increase in value-added tax rather than increasing personal and corporate taxes, while the Organisation for Economic Cooperation and Development on July 17 recommended an increase in taxes on wealthier individuals. Is it then not opportune to call time on Sacu?

Those in support of Sacu might argue that, as a result of the October 2013 restatement of South Africa’s merchandise trade statistics with the BLNS countries of Botswana, Lesotho, Namibia and Swaziland, South Africa now effectively commands a monthly trade surplus, with the BLNS countries that is in the order of R8-billion a month, even though South Africa tends to maintain sizeable merchandise trade balance deficits with the other major trading partner countries. Leaving Sacu might well put this in jeopardy, as the BLNS countries might well want to source their imports elsewhere. The extent of the possibility to do this is not known.

To balance its budget, the South African government has two options: reducing its expenditure or increasing its revenue through increasing tax rates or imposing additional taxes. Since there tends to be less of a preference for the first, then, by saving on the Sacu disbursements, tax revenue is in effect increased.

In conclusion, South Africa’s distribution obligation to Sacu tends to increase, while its own customs duty collections are not increasing. Is it not time to call time on Sacu?