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