SACU revenue plummets by N$16b
Renowned economic analyst and Institute for Public Policy Research (IPPR), Consultant Klaus Schade has projected a sharp decline in the Southern African Customs Union (Sacu) revenue by about N$16billion in the next two years.
According to Schade’s calculations projects will see the Sacu revenue inflows plummeting from the current N$51.02b to N$36.51b, a move that will put strain on the revenue streams of member states.
Sacu, the world’s oldest customs union is a five member grouping consisting of South Africa, Namibia, Botswana, Swaziland and Lesotho.
Schade opined that Sacu revenue inflows are too intertwined with the performance of the South African economy.
“The South African government would like to revise the revenue-sharing formula in order to increase her own share of the revenue pool, meaning lower transfers to the other Member States,” Schade said.
He said Namibia should strengthen their tax regime and compliance in order to cushion themselves from the pending revenue dip.
Reacting to the pending revenue challenge, Finance Minister Calle Schlettwein said the country will cut down on unnecessary expenditure to bridge the gap in the next two years.
“With regards to Sacu, it is important to highlight that Sacu’s receipts remain a significant contributor to both government’s revenue as well as to the country’s foreign reserves.
“Going forward, Sacu’s receipts are estimated to decline largely due to the slow growth of the South African economy. This reduction will have some implications to the budget and reserves going forward, and thus appropriate measures are required,” Schlettwein said.
Namibia’s budget is dependent on Sacu revenue, with one-third of the country’s revenue coming from there.
In the 2014/15 financial year, Sacu income amounted to a projected N$18.1 billion of Government’s total revenue, whilst estimates set revenue for 2015/16 at N$17.1 billion or 29.3% of total Government revenue, a drop of 5.5% from the projected revenue for 2014/15.
Namibia Chamber of Commerce and Industry (NCCI) Chief Executive Officer, Tarah Shaanika said the country should improve its procurement system to cater for locals than rely on imports.
“When the country procures locally, it is enriching the locals and increasing their profits, hence government being able to get corporate taxes out of these local businesses. It is vital that government procures from local suppliers,” Shaanika said.
In a recent visit to Namibia International Monetary Fund’s (IMF) Deputy Chief: African Division, Jiro Honda also raised the red flag over the country’s overreliance Sacu for revenue inflows. “Namibia’s growth prospects are increasingly clouded with downside risks. The near term risk is associated with the highly volatile Sacu revenue. Further increase in the current account deficits would continue to erode already low international reserves,” Honda said.
Honda reiterated that whatever happens in Sacu would also affect the local economy whether positively or negatively but with the decline, it will be a negative impact.
“Namibia imports more than it exports, and this in turn puts pressure on the fiscal balance and now that we do not know exactly how much the Sacu Revenue will be, we are not sure how the economy will be by next year. The decline in Sacu revenue would, however slow down the Southern African economy as the Sacu revenue decline comes at a time when international reserves are low,” Honda said.
Another risk to the local economy is the development in the housing market as the housing prices are growing at a fast pace and mortgage loans are increasing. Currently housing and rental prices are extremely high whereby it is seen that the housing market is becoming a monopoly.
Honda went on to say that the repo rate is also a risk to the economy saying since South Africa increased its repo rate, the Bank of Namibia (BoN) was forced to increase its repo rate.
“Basically, South Africa is preparing itself with these increases if anything occurs in the United States economy. If South Africa acts a certain way then Namibia follows suite,” Honda added.
Honda further said that for 2015, economic activities are expected to grow at about 5% supported by mining production and strong activity in the construction sector.
“Namibia has broadly maintained robust growth since the global finance crisis, although growth in 2014 was somewhat weaker largely due to weak demand for Namibia’s export items. Inflation remained modest at 3% in May 2015,” Honda said.
The IMF mission thus encouraged the government to move toward a tight fiscal stance while safeguarding critical social and development needs.
“A tight fiscal policy is recommended to build an adequate international reserve buffer (16-20% of Gross Domestic Product or three to five months of imports) over the medium-term, which would enhance Namibia’s resilience to future shocks,” Honda said.
The IMF mission also encouraged the implementation of a prudent fiscal policy for the enhancement of efforts for public financial management reforms and further strengthen tax administration.
by Charmaine Ngatjiheue