Economics of Namibia and SACU Countries

Joseph Halwoodi

Qualifications: National Diploma in Commerce and B-Tech Economics (Polytechnic of Namibia) Master of Commerce in Trade Law and Policy (University of Cape Town)

July – November 2017

E-mail: [email protected] 1. Introduction

Economics of Namibia and SACU Countries will be presented to you with a special focus on the theory of regional economic integration in Africa focusing on regional economic arrangements such as SACU, SADC, COMESA and EAC. Emphasis will be placed on SADC, SACU and COMESA. Such presentation will take into account the theoretical framework as well as the practical aspects.During the course, students will be introduced to AGOA, CMA, Bretton Wood Institutions (World Bank and IMF), Debts crisis in LDCs within SACU configuration including the World Trade Organization (WTO) and United Nations Conference on Trade and Development (UNCTAD). Students taking this course are strongly encouraged to read extensively.

What is Regional Economic Integration?

Regional Economic Integration is an agreement among countries in a geographical region to reduce and ultimately remove tariffs and non-tariff barriers to (trade) free flow of goods or services and factors of production among each other.

The SADC Regional Indicative Strategic Development Plan (RISDP) is the roadmap for deepening regional integration in SADC. With respect to regional economic integration, the timelines are for the establishment of an FTA by 2008, a Customs Union by 2010, a Common Market by 2015, a Monetary Union by 2016 and launching a Single Currency by 2018. Currently, SADC launched a free trade area (FTA) on 17 August 2008. The legal instrument for trade integration in SADC is the SADC Protocol on Trade that was signed in 1996 and implemented in 2000. The Protocol was signed and ratified by two-third majority and it binds those SADC members that have ratified it.

The main objectives of the SADC Protocol on Trade are:

 Liberalizing intra-SADC trade in goods and services;  Ensuring efficient production within SADC;  To enhance the economic development, diversification and industrialization of the region;  To contribute towards the improvement of the climate for domestic, cross-border and foreign investment.

Stages of Regional Economic Integration

In theory, formal economic integration takes place in stages, following a pattern that begins with a Preferential Trade Arrangement (PTA) through to an FTA, Customs Union, Common Market and ultimately Economic/Monetary Union.

A PTA is the initial stage in the process of regional economic integration, and is characterized by reduced import tariff rates for a limited number of products or sector, and more often trade on reduced tariffs is based on quotas (in-quota tariffs). Under a PTA, products are accorded preferential treatment once they comply with the rule of origin, to prove that goods are indeed produced in the partner country as specified in the agreed upon origin conferring criteria and thereby ensuring that tariff preferences are not extended to products of countries not parties to the arrangement

What is an FTA? According to the WTO, an FTA is the substitution of a group of two or more customs territories in which the duties and other restrictive regulations to commerce are eliminated on substantially all tradebetween constituent territories in products originating within such territories.

What is a Customs Union?

According to the WTO, a Customs Union is understood to mean submerging of two or more customs territories into a single customs territory with basic criteria that could be summarized as:

a) The abolition of all customs duties and other restrictive regulations to substantially all trade within a Common Customs Area; b) The application of substantially same customs duties (Common External Tariff) to goods imported from third parties; and c) Application of substantially same regulations of commerce to trade with third parties.

A Customs Union is formally the next stage immediately after the FTA. In addition to free movement of goods, within Member States parties to a Customs Union have to apply a common trade regime toward countries not part to the arrangement (third parties), which includes a common external tariff (CET) and common trade remedies (anti-dumping, countervailing measures and safeguard measures). Another distinct feature of a Customs Union is the absence of the preferential rules of origin, which is not necessary due to the adoption of the common trade regime versus third countries.

As an opportunity cost to the benefits of belonging to a Customs Union, Member States would have to surrender some degree of economic policy sovereignty, especially the ability to set independent trade policy, and by extension, a Customs Union places some limitations on independent foreign trade policy, taking into account that trade and economic measures are increasingly becoming important foreign policy tools.

Overview of SACU

The Southern African Customs Union (SACU), which was established in 1910, is arguably the oldest Customs Union in the world. Though, SACU has been a vehicle for revenue collection and sharing, the 2002 Agreement changed the orientation towards a Customs Union that serves as a tool for economic development. Hence SACU, as envisaged under the 2002 Agreement, is economic by nature and provides for aspects related to economic integration among Member States through trade and industrial development. The main objectives of the SACU Agreement are:

 Facilitating cross-border movement of goods between member countries  Ensuring equitable trade benefits to Member States  Promoting conditions of fair competition in the common customs area  Create investment opportunities  Enhancing economic development, diversification, industrialization and competitiveness  Promoting Member States integration in the global economy  Facilitating development of common economic policies and strategies  Ensuring effective revenue collection and equitable revenue sharing

The important features of SACU are:

 Free movement of goods between Member States, complemented by an adoption of a trade regime that includes a common external tariff (CET) and common customs rules and procedures.  Common Revenue Pool (CRP) made up of customs and excise duties, and Revenue Sharing Formula with an in-built Development Component that takes into account different levels of economic development amongst Member States.  Provision for development of common economic policies with regard to industrial development, agriculture, competition and unfair trade practices. These policies meant to ensure balanced industrial development of the Common Customs Area, a coordinated development of the agricultural sector within the Common Customs Area, cooperation with respect to the enforcement of competition laws among member states and to address unfair trade practices.

 Provision for a Common Negotiating Mechanism with respect to third party countries. In the spirit of this provision, SACU member states have already concluded FTAs with EFTA and MERCOSUR, and have engaged trade negotiation for an FTA with the United States of America. SACU, as a single entity, has also made a common tariff reduction offer to other SADC Member States in the context of the SADC Protocol on Trade.

 Economic integration in SACU is further complemented by the Agreement establishing the CMA between four SACU member states namely, Namibia, Lesotho, South Africa, and Swaziland, which is also the oldest Monetary Union in the world. The currencies of Namibia, Lesotho and Swaziland are pegged to the South African Rand on a one-to-one basis, with the Rand being a legal tender in all CMA countries. Botswana is not a member of the CMA, having left the arrangement in 1986.

 The Common Monetary Area provides for free mobility of capital and full integration of financial markets amongst its members, with a common exchange control regime.