Anatomy of the Southern African Customs Union: Structure and Revenue Volatility

This paper studies the evolution of the Southern African Customs Union (SACU), tracing it from its inception in 1889 as the Customs Union Convention, the world’s first customs union, to its current status. While the union has operated under different agreements, which have been negotiated and renegotiated with changing circumstances, the study identifies the agreements of 1889, 1910, 1969 and 2002 as key to the union’s transformation. It is observed that SACU has evolved from a geopolitical organisation with a repressive colonial foundation to a well-integrated regional trading bloc that is perceived as a possible springboard for larger regional trading blocs in Africa. The study further explores evidence of declining SACU revenue, and investigates its implications on government expenditures in the small members of the union, namely, Botswana, Lesotho, Namibia and Swaziland (BLNS Countries). It is found that among the members of the union, Lesotho and Swaziland are the most dependent on SACU transfers and consequently the most vulnerable to the current downward trend in SACU revenue. While Namibia has traditionally relied on diamond exports, it has also been receiving large SACU transfers relative to its GDP. In addition, the study observes that the present SACU revenue sharing formula adopted in 2002 exposes the BLNS countries to instabilities arising from global business cycles more than it does South Africa.