SACU Windfall Pulls Kingdom Back From The Brink

Swaziland, the only surviving absolute monarchy in Africa, is also one of its most impoverished economies. A recent injection of capital from its membership of the regional customs union has allowed it to pull back from the brink of financial disaster. But how long will the windfall last? Tom Nevin reports.

Swaziland has stepped back from the brink of fiscal calamity thanks to unusually strong customs receipts from the Southern African Customs Union (SACU) collection and disbursement mechanism.
The Swazi government, Africa’s last absolute monarchy, collected a cheque of R7.1bn ($900m) from the SACU paymaster, a rescue not only from a stranglehold of debt, but also from far-reaching socio-political reform South Africa was demanding in return for a R2.4bn ($280m) bailout.
South Africa itself attracted a barrage of flak from the anti-Swaziland lobby for even considering a loan in return for reform conditions that were generally described by critics as “not going far enough to bring Swaziland to heel”.

Swaziland’s cash-flow problems came to a head last year with a paltry SACU payout, its main income source, a knock-on from the 2008–09 global recession that put the squeeze on  developing economy exports. The 2012 payouts were particularly handsome for Swaziland because, as the SACU bloc’s most impoverished member, it pockets not only its pool dividend of customs and excise receipts but also the lion’s share of the development assistance component of the SACU’s annual purse. The SACU came into effect nearly 113 years ago as a means of regional commerce circulation and of South Africa, as the region’s most powerful economic force, helping to finance and mentor its underdeveloped neighbours of Botswana, Swaziland, Lesotho and Namibia (see sidebar). A major aim of the union was to develop those countries to become producers and trading partners in their own right.

Freed from political encumbrances
But could the drafters of the SACU protocol have foreseen South Africa’s largesse being trumped by Swaziland to uphold governance generally regarded as anachronistic and politically infra dig?
With Swaziland’s windfall customs-receipt payout came not only the means to settle mounting bills and to catch up on the salaries of civil servants, but also the satisfaction of telling South Africa and the Development Bank of Southern Africa (DBSA) that it no longer needed their handouts.

The DBSA was considering a loan to Swaziland of R100m ($12.5m). Much to the king’s displeasure, however, it was conditional on a letter of endorsement from the IMF as proof that the government is financially responsible and would not squander the money. King Mswati III has angered donors, lenders and human rights groups by spending large amounts of public money on luxury cars and an expensive jet aircraft for royal family excursions.
“I can safely say the economy is now under control. We have survived the worst economic challenges ever,” says Swaziland Finance Minister Majozi Sithole.

The SACU windfall has freed the Swaziland government of pressure for political reform for some time with the flow of a substantial amount of free money, unencumbered with loan interest or other strings.
Swaziland’s R7bn SACU payout, steeply improved from the R2.8bn last year, combined with R4.8bn ($600m) netted in local taxes, boosted by the introduction of VAT, totals R12.2bn ($1.4bn) revenue in the current financial year. The administration is cock-a-hoop at the financial turn of events and that it can breathe easier in its new-found, liberating wealth. However, some economists warn that it’s too soon to assume that Swaziland is experiencing an economic resurgence.

“Seven out of 12 rands of government revenue comes from the SACU,” says a Swaziland asset manager, adding that the country “is tied with Somalia in having the worst performing economy in Africa and there is nothing on the horizon to improve the situation”.
The tiny landlocked kingdom of Swaziland (population 1.2m) is one of Africa’s most impoverished countries. It is surrounded by South Africa and Mozambique and is conveniently linked by road and rail to the busy ports of Maputo and Durban for the  export of sugar, its primary crop.

Neighbourhood self-help club

The Southern African Customs Union (SACU) is Africa’s oldest such organisation and a long-standing club of inter-trade and development neighbours. It came into existence in 1910 as the Customs Union Agreement between South Africa, Botswana, Lesotho, Namibia and Swaziland (BLNS), changing its name to the Southern African Customs Union in 1970.
The SACU’s aim is to maintain the free interchange of goods between member countries. Customs and excise collected in the common customs area are paid into South Africa’s national Revenue Fund. Each year the revenue is shared among members according to an agreed formula, broadly translating into a share of the customs and excise pools and of the development component.
The development aspect encourages and assists the poorer members to grow economically with South Africa’s help.

“The revenue sharing formula is at the heart of SACU and determines how the inflow of money from all customs, excise and additional duties is distributed between the member states,” explain Catherine Grant and Geoffrey Chapman of the Southern African Institute of International Relations. “South Africa does not decide how much to give the BLNS and does not exercise unilateral control over SACU revenue (even though it does collect and distribute most of the money flowing into the region). This is a carefully managed process and one that is overseen closely by SACU finance ministers who have regular engagements.”
The customs component is allocated according to each country’s share of total intra-SACU trade, including re-exports. The excise component is allocated on the basis of GDP while the development component is fixed at 15% of the total excise pool and is distributed amongst members according to their per capita GDP, the poorest receiving the lion’s share. South Africa is the custodian of the pool.