The inconclusive economic partnership agreement (EPA) of 2007 has had to give way for other trade-related topics as developing countries having other challenges to face. EPAs have always been associated with additional confusion beyond multiple memberships. Implementation of the regional integration in Southern Africa in conjunction with the EPAs was always going be complicated from a developing country view and there are still concerns that EPAs will undermine regional integration initiatives.

Unity within the Southern African Customs Union (Sacu) was tested during the EPA negotiations with the European Union (EU), with Botswana, Lesotho and Swaziland breaking ranks to initial an agreement. Facing a possibility of market access losses, Namibia signed an interim accord a few days later, leaving South Africa as the only member not signing.  To be fair to the EU, Southern and Eastern African countries were already in conflicting memberships of regional bodies even without the EPAs, and therefore one should perhaps spare a thought and be sympathetic towards the developed world.

There are at least six regional integration initiatives in Eastern and Southern Africa. Although they have the same overall objective, implementing all of them at the same time is a challenge. The big picture that all the initiatives aim to achieve is the highest integration that would lead to economic development through sharing resources, utilising economies of scale, cooperating on joint projects and ensure that economies of the region converge.

However, Figure 1 shows that there are many initiatives which require the use of resources just to belong to them. The irony of these conflicting agendas is that African Union has a mandate of creating a single continental economic integration by 2028. That process will be achieved by joining five continental groups, of which only two are represented in Figure 1.

Figure 1: Regional Integration Initiatives in Eastern and Southern Africa
(Source: Kalaba, 2007 adapted from Olympio et al)
SADC: Southern African Development Community; Comesa: Common Markets of Southern and Eastern Africa; Sacu: Southern African Customs Union; IOC: Indian Ocean Commission; EAC: Eastern African Community; IGAD: Inter-Government Authority on Development

SADC vs Sacu
Sacu is the oldest Customs Union in the world, established in 1910 with the aim of facilitating trade between member states and promoting economic development. On the other hand the South African Development Community (SADC) was formed in 1980 by the frontline states¹  with a political aim of reducing dependence from apartheid South Africa by coordinating development projects. Although SADC has transformed to include socio-economic issues on its agenda, its prominence is still on the political front.

The regional integration initiatives of both SADC and Sacu tend to be on a conflicting path, especially as SADC moves closer to deeper levels of integration. SADC is working towards achieving a free trade area (FTA) while Sacu has gone past that stage. The difference between the two is that Sacu has a higher degree of integration characterised by free trade between members, common external tariffs (CET) applied by all members, and all members negotiate as a unit at multilateral negotiation. In the case of an FTA, most of the trade (at least 85%) between members is free and they have individual tariffs with countries outside an FTA. SADC aims to achieve the FTA status sometime this year and a customs union status two years later.

A casual analysis of this situation would suggest that everything seems to be according to plan since all five Sacu members are also in SADC together with nine other southern and eastern African countries. However, all those other members (with exception of Mozambique) belong to other regional integration initiatives that share the same objective of becoming a customs union as SADC does. The most significant is Comesa, which plans to be a customs union this year. Once countries become members of one customs union it is impractical and legally impossible to join another.

As mentioned earlier, one of the basic principles of CU is CET, and therefore all members can only implement one tariff schedule. This implies that those other eight SADC members will not join a SADC customs union in 2010 once they join that of Comesa, unless they withdraw their customs union membership from the latter.

Serious problem
Given that Sacu is already a customs union, it is difficult to comprehend why SADC integration was approached the same way. The other side of the coin is the question of why was the Sacu agreement consolidated in 2002 after SADC has made its long-term goals known? Nevertheless, as a driver for integration, Sacu is effectively the most functioning customs union on the continent, compared to others such as EAC. Sacu members receive custom revenue from the pool which contributes more than one fifth of the total government revenue of all members except South Africa. This revenue serves as compensation for the cost-raising effects of Sacu, as well as a collection of taxes and common excise.

Furthermore, there is a development component which has distributional effect from wealthier members to poorest. For example, Lesotho receives the highest share of that component, followed by Swaziland, while South Africa receives the least.  Table 1 shows Sacu receipts for the 2006 year as a share of GDP and government revenue.

Country	Revenue Received (R m)	Share of GDP (%)	Share of Government revenue (%)
Botswana	5,634	9.0	20.1
Lesotho	2,837	28.2	53.0
Namibia	5,463	12.2	41.0
Swaziland	3,708	24.1	56.9
South Africa	17,625	1.0	3.9

Table 1: 2006 Receipts from Sacu Revenue Pool
(Source: Flatters and Stern, 2006)

The SADC plan towards a customs union does not stipulate any compensatory mechanisms. It is a known fact that trade liberalisation generates losers and winners, however it is the compensation mechanisms that make everyone benefit, and SADC has failed to notice that. Therefore, a SADC customs union at this stage appears less appealing compared to Sacu and maybe even Comesa, considering that it will be happen earlier. However, SADC has a larger population than Sacu, and it can be used as a springboard to the rest of the continent.

Possible outcomes
Given that Sacu is at a further advanced stage than is SADC, one possibility to resolve the situation is let Sacu remain a customs union, and let it expand through additional members. Studies have been done in Mozambique to assess the feasibility of acceding to Sacu, and Angola was reported to have enquired about the same. The advantage of this option is that negotiations will not be complex and lengthy as new members are required to adjust rather than negotiate the deal. Furthermore, SADC can maintain its FTA status and members will not be required withdraw even if they belong to other FTAs or custom unions. And most importantly, SADC can continue to play the important political role since political principles are independent of economic and trade guidelines as specified by the World Trade Organisation.

On the downside, current Sacu members are likely to loose out if new members join, as their share from the revenue pool will go down. This may not be in the best interest of Lesotho and Swaziland. Another disadvantage is the loss of trade and monetary policy space. However, that is part of the inevitable tradeoffs. The reality is that this debate has been avoided for some time yet cannot be dodged forever. In two years time, a decision will be required, and it does not have to be done hastily like the way in the EPAs were concluded.

¹ The founding member states are Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia and Zimbabwe.

References:
Kalaba, M. 2006.  Presentation of the SADC Trade database and regional Integration initiatives in Eastern and Southern Africa.

Flatters, F. & M. Stern. 2006. The New SACU Agreement. Africa Region Working Paper Series No. 57, World Bank, Washington D.C.