MDC Alliance targets closer links with regional bodies

MDC Alliance targets closer links with regional bodies

The MDC’s bold plan to join Southern African customs and currency blocs has implications beyond Zimbabwe’s borders, write Catherine Grant Makokera and Brian Mureverwi.

If it came off, a proposal by Zimbabwe’s official opposition to join the oldest customs union in the world, one that is anchored in SA’s membership, would be far-reaching.

Even more profound would be the move to join the region’s monetary union.

The recently released “Smart” manifesto of the Movement for Democratic Change (MDC) Alliance proposes that Zimbabwe will join both the Southern African Customs Union (Sacu) and the Southern African Common Monetary Area (CMA) should the party be successful in July’s elections. These bold moves would have implications beyond the borders of Zimbabwe. They are particularly relevant this week as the Sacu heads of state meet in Gaborone.

Sacu is a little understood but critical regional structure in Southern Africa. Its members are Botswana, Lesotho, Namibia, SA and Swaziland. These five countries have been joined together in this partnership for 108 years, making the group the oldest customs union in the world.

The CMA of Southern Africa (affectionately known as the rand zone) has a similar membership base, with the exception of Botswana. Botswana retained its monetary policy sovereignty.

To appreciate the implications of the MDC Alliance proposal it is important to understand a few key points.

Sacu is a customs union that shares a common external tariff and therefore negotiates trade agreements as a bloc. For countries outside Sacu, it does not matter if they are exporting goods to Lesotho or to Botswana. The same tariff rates and other relevant duties will apply. Trade in goods among the five members of Sacu moves relatively freely with few internal barriers.

Customs duties collected at the borders from trade with non-Sacu countries are deposited into a revenue pool, administered by the South African Revenue Service.

At the heart of the Sacu arrangement is a formula that determines how the revenues jointly collected from trade will be shared among the five member countries. This includes a customs component based on tariffs charged on imports, an excise component related to the size of the economies of the members and a development component that seeks to compensate the lesser-developed members. Much can be said about this formula, but the main point is that it is complex and controversial. Sacu member states often question the fairness of the distribution of revenue. The formula is under review.

The CMA is allied to Sacu but not formally linked. It is a partial monetary union based on the rand. While Lesotho, Namibia and Swaziland all have their own local currencies, these are irrevocably pegged to the rand and are controlled through bilateral agreements with SA.

The arrangement gives access to South African financial markets for the smaller members and provides significant benefits given that SA is the major trading partner.

The MDC Alliance notes a number of these benefits of Zimbabwe joining Sacu and the CMA in its Smart manifesto.

For example, it mentions “efficient, low-cost trade with SA” for Zimbabwe plus access to “significant revenue from Sacu contributions” and “favourable trade agreements enjoyed by Sacu”.

Each of these points is worth unpacking in detail but at the outset the first thing that comes to mind is that the membership of Sacu has remained unchanged for over a century. There has also been little shift in the CMA for decades, ever since Botswana left and Namibia joined. That means no clear precedent is available for managing Zimbabwe’s accession to these institutions. The Sacu agreement does leave space for new members to join on the basis of a unanimous decision (or discretion) by the existing members. How negotiations with new members would take place would be determined by the Sacu council of ministers.

The arguments for joining the CMA are clear-cut and, based on current trade flows, it would make sense for Zimbabwe to seriously consider pegging its currency to the rand.

SA is an important trading partner and such a move is likely to lessen some of the liquidity challenges associated with paying for imports. CMA membership would require a bilateral negotiation with SA, but this is likely to be a much less complicated process than seeking membership of Sacu.

Joining Sacu would require a complete overhaul of the tariff schedule of Zimbabwe to align it to the common external tariff of Sacu, including the preferences given to others such as the EU and South American trade bloc Mercosur, under trade agreements. This could undermine existing objectives of Zimbabwe’s trade policy aimed at protecting local producers and reindustrialising some sectors. In simple terms, Zimbabwe has to align its trade policy instruments with those of Sacu, including external tariffs, rules of origin, trade remedies and others.

Trade revenue would also be affected by the revenue-sharing formula, which is largely administered by SA, and therefore Zimbabwe would need to give up some of its trade revenue collection sovereignty. Without economic modelling it is hard to determine the impact of Zimbabwe’s membership on the revenue flows in Sacu under the current formula. It is unlikely that a new member would be admitted to the customs union without some reform to the formula.

The process of revising the Sacu revenue-sharing formula is fraught. The challenge of negotiating admittance of a new member might spur Sacu states to resolve their differences.

A change in membership might be just what is needed to breathe new life into the world’s oldest customs union.

It is equally hard to understand the motive of joining Sacu at a time when talks of escalating the African Continental Free Trade Area to a Continental Customs Union are under way. That said, all this hinges on the MDC Alliance winning the July 30 elections.


What Next: The AfCFTA in Context

What Next: The AfCFTA in Context

A triumph! Despite one of the biggest economies in Africa cancelling their trip to Kigali, the signing of the AfCFTA went ahead as planned. The absence of Nigeria did not deter other leaders from attending, particularly from other economic giants on the continent such as South Africa and Kenya, who were represented by their respective Heads of States.

The AfCFTA is the first agreement of this size to be concluded by the continental leaders. Now that the leaders have signed this agreement, what next?

At Kigali Rwanda, three documents were set to be signed:

  1. The AfCFTA (framework agreement),
  2. The Kigali Declaration and
  3. The Agreement on the Free Movement of Persons

Overall, 50 signatures out of 55 were obtained; 44 for the AfCFTA Framework Agreement, 47 for the Kigali Declaration and 30 signatures for the Agreement on the Free Movement of Persons. Forty-four Member States (indicated in the map above in blue) signed the AfCFTA while six Member States signed the Kigali Declaration only (indicated in red on the map). The remaining five Member States (indicated in the map above in green) did not attend or sign any of the agreements. But what sets the Kigali Declaration apart from the Framework Agreement?
For Heads of State and other delegates that do not have the executive authority to sign a trade agreement like the AfCFTA into law, the Kigali Declaration serves as an instrument that shows their support and solidarity for the agreement. Once processes at home are cleared, the Framework Agreement can then be signed. The agreement will only come into force after 22 signatures is coupled with 22 ratifications. Member States that signed the agreement have 160 days in which to ratify the agreement, while those that have not signed have 160 days to sign the agreement.

Of the five SACU members, only Swaziland signed the AfCFTA and the Kigali Declaration while the remaining members (South Africa, Botswana, Namibia and Lesotho) signed the Kigali Declaration. South Africa cited its parliamentary process as the main reason for not signing the Framework Agreement, but only the Kigali Declaration. In terms of section 231 of the Constitution of the Republic of South Africa, the negotiating and signing of all international agreements is the responsibility of the national executive. As such, “an international agreement binds the Republic only after it has been approved by resolution in both the National Assembly and the National Council of Provinces.” The AfCFTA requires ratification and just signing the agreement is not sufficient. Thus, for South Africa, the AfCFTA needs to go through a parliamentary process before it can be ratified. The 160-day hourglass is already running out for South Africa.

SACU members that did not sign the agreement may be politically motivated, in that they follow in the footsteps of South Africa as SACU members. However, the government of Botswana cited the unfinished status of the AfCFTA annexes – the Protocol on Trade in Goods and Services – as a motivating factor. They further cited that the AfCFTA has to go through a consultative and constitutional process designated for treaty making according to Botswana laws. At the time of publication there were no official statements from Namibia or Lesotho on why they did not sign the agreement.

However, Nigeria’s absence is still baffling. As the news media cover the President’s official line on his cancelation, being one of labour union appeasement, another reason that may have been overlooked by many is President Buhari’s protectionist campaign promoting local products. President Buhari’s not signing the agreement may be in line with an opposition to the CFTA that will open Nigeria’s markets to foreign goods, hindering local entrepreneurship and encouraging dumping of finished goods. But will Nigeria remain on the fringes while the rest of the continent moves ahead in negotiating the outstanding provisions?

The signing of the AfCFTA sets the wheels in motion for Africa’s integration process and boosting intra-African trade. But with Africa’s two biggest economies yet to insert their signatures, the first dissenters might just be harbingers for what’s yet to come as we await the critical mass of ratifications and the outstanding negotiations. Overall the rest of Africa is sending a positive message to the other members that the agreement will enter into force and carry on forward.

Photo credit: GovernmentZA on VisualHunt / CC BY-ND

Ramaphosa’s softly-softly approach could be hard for democracy

Ramaphosa’s softly-softly approach could be hard for democracy

It has been more than a week since the ANC Top Six met President Jacob Zuma to ask him to step down. He defied their request, which was aimed at avoiding a messy transition, and preferred to stick to his guns. The next stage should have been a decision and an ultimatum by the ANC’s National Executive Committee (NEC), which was to receive the top-six report a few days later, if not for an inexplicable intervention by ANC president Cyril Ramaphosa. The ANC president preferred to treat Zuma with kid gloves.

It would seem Ramaphosa’s intervention has emboldened Zuma and made him determined to cling to power: he has made unreasonable demands, bought himself more time in office and arrested the country’s progress. Ramaphosa’s gesture effectively made Zuma an equal partner in determining his exit. Deal-making is transactional and is based on reciprocity. By its nature, it’s a give-and-take affair. It mattered little to Ramaphosa that he was dealing with a president who, since taking office in 2009, has broken his oath of office, dishonoured the government and facilitated the looting of the state by dubious individuals. Some have been at pains to defend Ramaphosa’s gamble as the work of a tactician and skilled negotiator, imploring us to trust him to finish the job successfully.

Let us take a look at the rationalisation of Ramaphosa’s actions. Some who are in favour of this fanciful negotiated settlement contend that managing Zuma’s exit peacefully is the only option Ramaphosa has, given the balance of power in the governing party and the imperative of healing the ANC. Therefore, according to this view, deal-making gives Ramaphosa leverage to bolster his credibility and authority in the party when Zuma has finally been cast out.

This is too simplistic a view. Ramaphosa should not have wasted time mollycoddling Zuma, but should have pushed hard to expedite political reforms in his party and in the government, working closely with ANC members who are serious about change. He should use every opportunity to decisively stamp his imprimatur as a leader and be seen to be acting boldly against corruption, which is epitomised by Zuma’s presidency. Ramaphosa did not need to enter into elaborate exit negotiations with the very same president who has dishonoured the office he occupies. What should have been communicated to Zuma is an instruction for him to resign, failing which formal institutional mechanisms through a parliamentary vote of no confidence would be unleashed.

Ramaphosa’s gamble was predicated on an ill-advised idea that charming Zuma out of office could set a tidy and smooth transition in motion. What is deeply worrying is that Ramaphosa carried out his scheme with an ambiguous mandate. It is not clear on whose behalf he acted, and what the terms of his mandate were. This has given rise to various interpretations of what could be contained in his discussions with Zuma, with strong suggestions that an exit package could include immunity from prosecution and that Zuma would be allowed to keep all the perks of a retired president.

In so doing, Ramaphosa has eroded his own political capital and created a sense of uncertainty about his commitment to independent institutions and virtues of transparency. His initiative with Zuma is akin to petting a dangerous snake or, worse, sealing a pact with the devil.

At the time of writing, the ANC NEC was to meet to consider Zuma’s future, something that should have been done a week ago. The NEC should ask Ramaphosa hard questions about where he obtained his mandate to enter into secret bargains and what were the precise terms of his back-room dealings.

Even if Zuma eventually leaves, as signs would suggest, the means employed do not justify the end at whatever cost. Unprincipled pragmatism cannot be the basis for renewing our politics. Every leader that tackles a major challenge with serious implications for the country’s future should take the nation into their confidence and strive for radical transparency.

We expect leaders to be far-sighted, but not to be unhinged. The last thing South Africa needs after a decade of Zuma’s smothering incompetence and big-man tendencies is a cult leader who presents himself in sheepskin. Ramaphosa should take himself and South Africans seriously. We should be vigilant of the cult of leadership, whatever form it takes. We have been here before.

The Jackie Selebi saga is still fresh in our memories. When calls were mounting for Selebi to be fired as national police commissioner because of his association with the criminal underworld, then-president Thabo Mbeki protected him and assured the country he knew what he was doing. He even charmed the then leader of the DA, Helen Zille. Despite dishonouring his office as police commissioner, Selebi was untouchable during Mbeki’s presidency. Mbeki gave Selebi a long leash, while Vusi Pikoli, an honourable man, was hung out to dry.

We should always question leaders who project themselves as omniscient and omnipotent, even if they claim to be heaven-sent. Otherwise we will be a nation of the gullible. We’ve got to push leaders to be more transparent and accountable, even if they turn out to have been right. The point is that we should take our responsibilities as citizens seriously and redefine power relations between those we elect and ourselves. Their power is borrowed for a moment and they should learn to be accountable for their actions.

The outcome of an exit deal with Zuma may be gratifying in the short term, but this portends a danger of cult leadership in the long run. We need to place faith in our institutions – and if these are not functioning well, we should work hard to fix them.

The lesson from these developments is that politicians have little regard for institutions. They are prepared to do trade-offs that may seem good in the short term, but are terrible in the long run. We need to stay vigilant. There is no doubt that Zuma will eventually go, but on what terms? Ramaphosa will take his position as the country’s president after the parliamentary formalities, but what is his game plan for the future and what is his conception of his role as a leader in relation to institutions and society?

The events of the past week do not show him to be someone who has a full grasp of the country’s institutions. His term of office may turn out to be a tale of pursuing short-term gains, and one fixated on unprincipled, pragmatic deals that serve to sustain unity in the ANC at the expense of the country’s long-term interests. Time will tell.

This article was first published on the Daily Maverick, 13 February 2018.

Photo credit: GovernmentZA on Visualhunt / CC BY-ND

Plenty of pain, no obvious gain except for a few lucky shareholders: foreign ownership limitation in PSIRA Act

Plenty of pain, no obvious gain except for a few lucky shareholders: foreign ownership limitation in PSIRA Act

Giraffe and cloudsThere is no doubt that the inclusion of the foreign ownership limitation clause in the Private Security Industry Regulation Amendment Act will mean plenty of pain for both the industry and South Africa, and no obvious gain except for a few lucky, connected shareholders.

The PSIRA Act is currently before President Zuma, awaiting his signature. If signed into law the now notorious clause 20 in the Act will force foreign owned private security firms to overnight yield at least 51{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of their businesses to South Africans.

The provision would come into force immediately and would lead to a ‘fire sale’ of the affected companies’ shares, providing access to cheap shares for a few lucky shareholders. The entire industry could be thrown into turmoil as a scramble ensued for the ‘juiciest’ assets.

It is important to note that it is not clear precisely which companies would be affected. The provision suggests that all foreign companies in the private security value chain, including, for example, electronics firms, would be affected by the measure. This could hit a significant component of SA’s manufacturing sector, thereby compromising the government’s drive to develop domestic industry. Aside from the core private security firms, other affected companies in the security value chain have been worryingly quiet. Are they in denial about what this expropriation clause means for their businesses, or are they too scared to speak out?

What is clear is that foreign owned companies are likely to respond by disinvesting in order to protect their brands. Besides the obvious impact on jobs, this would have negative implications for competition in the private security industry, and its suppliers, threatening the servicing of existing operations, and particularly at the higher ends of the value chain since it is these segments that foreign companies generally occupy.

Overall this will lead to higher prices for consumers and less access to cutting edge specialist industry knowledge and skills across the value chain.

Ironically, the Act will also not address the alleged national security threat that the Minister of Police argues is the reason for limiting foreign ownership. Foreign owned firms are less than 10{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of the private security industry and all local employees from guards to management are already required to be South African.

So if empowerment is the real issue, there are far less destabilising ways to achieve this goal.  Furthermore, the same standards should apply to domestic companies – why single out the foreigners?

It needs to be recalled that private security – in every country – fills a ‘government failure’ gap. This is particularly sharp in SA with its high crime levels. How would crime levels in SA be affected by this provision? It certainly won’t help.

This legislation is likely to be rolled out in other policy terrains, adding to the accumulation of legislation undermining foreign, and domestic, investor confidence. Overall these negative implications would compound SA’s already dire unemployment, poverty, and inequality challenges.

Furthermore, our neighbours watch us closely, and copy our policy stances. Should they take up the 51 percent ownership provision – itself perhaps modeled on Zimbabwe’s approach to empowerment – then, taken together with the their condemnation of recent violence against foreigners in SA, access for SA businesses into those markets could also be affected.

Moreover, key foreign trading partners could retaliate, notably the US, UK, Sweden and Switzerland, all of which have companies in the industry. The US could do so through selective graduation of South Africa from AGOA, notwithstanding the apparent resolution of the poultry dispute; whereas the UK, Sweden, and Switzerland could sue South Africa under bilateral investment treaties. These countries, and more, could demand compensation in the World Trade Organisation since SA would be obliged to revoke its commitment there to keep its private security industry market open to foreigners.

As a result SA could find that other domestic economic sectors are hit, not just those connected directly with private security provision.

Implementation of this law will cause instant widespread pain and will exacerbate the chronic suffering already plaguing our economy. It is time for more voices to call for the only solution to the problem; that our President heed the warnings and to send the Act back to Parliament for the removal of Section 20.