Addendum to "Fix SACU"

Full article here - available ungated.

In today’s Business Day I argued there are two major issues with SACU’s current revenue sharing agreement that stifle growth in non-South Africa SACU states. The first and most important is that the revenue sharing agreement disincentives trade enhancing reform and the second is that receipts to BLNS (Botswana, Lesotho, Namibia, eSwatini) states are too volatile. These related issues slow growth and ultimately harm even South Africa’s interests.

This matters because SACU receipts constitute as much as 50% of the annual state revenue of some of the BLNS states.

I shared an early write up with a friend who works at the Ministry of Finance of one of the SACU member states and here are auxiliary thoughts from that conversation that would not fit the article’s space constraints.

  • Volatility: I include a comparison to the volatility of excess returns to global equities in making a point about the volatility of SACU revenues. I meant this principally as a rhetorical device more than a concrete policy-guiding measure of the relevant volatility. For starters the comparison was to aggregate BLNS revenue which masks great across country volatility. Next, you would certainly want to detrend the individual country series to exclude the forecastable component (trend growth) in order to make the most apt volatility comparison. Finally, the measure I offered might undersell the variability given the T+2 year clawbacks I explain in the article.

  • Capital Market Integration: I conclude the article with a call for SACU to be dramatically more ambitious through greater integration of goods and service markets, and easing obstacles to labour market integration. (Though the labour market point is qualified.) I did not discuss further capital market integration because I think that requires a little bit more careful thinking (on my part at the very least). The absence of Botswana from the Common Monetary Area merely underscores a broader point: the capital market interests of the SACU member states might be at odds with each other in important ways. South Africa’s economy has material exposure to global commodities markets in a way that a lot of the small neighboring countries around it do not. That has implications for optimal capital account regulation which might mean you net out differently on how open cross border capital flows should be. I mean this not as a generic case against rapid capital account liberalization so much as a call to do a little bit more thinking around it in this setting.

You might not agree with every argument I made in the opinion piece, but I hope you’re persuaded the current SACU revenue sharing agreement requires serious reconsideration.

Thanks for checking this post out!