The meetings of high raking government officials, taskforce and ministerial team of the Southern African Customs Union (SACU) which started this Monday has shaped a new path that is aimed at transforming the regional inter boarder trade block into a key player in the industrialization and economic transformation of the member states, Chairperson the SACU Commission, Dr Taufila Nyamadzabo ha said.
Dr Nyamadzabo who is Secretary for Economic and Financial Policy in the Ministry of Finance and Economic Development said that this would help find new ways to reshape SACU and better serve the interests of its member states. According to Nyamadzabo the intention was to review and develop suitable framework on setting and application of tariffs, rebates, refunds or duty drawbacks and trade remedies amongst others. “We have been meeting previously and we are now reporting progress on extensive trade agenda that SACU was embarking on specifically with regard to issues of customs union and common external tariff,” he said.
REVENUE SHARING FORMULA
The SACU meetings also thoroughly deliberated on issues surrounding sharing of revenue collected from intra-SACU trade, including re-exports for its member states which are Botswana, Lesotho, Namibia, South Africa and Swaziland. The need for intense review of the revenue sharing formula came to play when South Africa levelled complaints in several forums that it was not getting the rightful share from the SACU common revenue pool despite being the largest contributor.
SACU Executive Secretary, Paulina Elago noted that the intention of the review was to ensure SACU adequately facilitates cross border movement of goods between member states as well as creating effective, transparent and democratic institutions to ensure equitable trade benefits to member states by promoting conditions of fair competition in the common customs area as well as increase investment opportunities in the common customs area. The current Revenue Sharing Formula which has been used since 2004 has three components; namely the Customs Component, Excise Component and the Development Component.
The Customs share is allocated on the basis of each country's share of intra-SACU imports. The Excise Component is allocated on the basis of each country's share of Gross Domestic Product (GDP). The Development Component, which is fixed at 15 percent of total excise revenue, is distributed according to the inverse of each country's GDP per capita. The structure of the Revenue Sharing Formula is such that Member States get a significant share of their revenue from the Customs Component whilst South Africa gets more than 90 percent of its share from the Excise Component. The Development Component, whilst meant to compensate the least developed economies, is distributed more or less in equal shares among all the Member States.
Elago underscored that the implementation of the current Revenue Sharing Formula has been facing a number of challenges, associated with the data that informs the variables in the formula. “The recent global financial crisis has exposed some weaknesses in the structure of the Revenue Sharing Arrangement. The process of the review of the revenue sharing arrangement has followed a three stage approach which entailed firstly, identification of areas requiring further study in the current revenue sharing arrangement; secondly, an independent examination of the identified areas; and thirdly, a process of negotiation to reach consensus on a new revenue sharing arrangement,” explained the SACU Head of Secretariat.
The Southern African Customs Union is currently also reviewing and renegotiating its trade agreements with other countries and regional blocks. “We are currently also negotiating trade agreements with third parties as a block and therefore we have been engaging and deliberating on how we can harness the continental Free Trade Area signed at the African Union Summit in March last year.”
SACU also engaged and deliberated on how the organization can maximize export and trade opportunities with key trading partners and economic integrations such as the Economic Partnership Agreement with the European Union, the tripartite free trade agreement involving COMESA, the East African Community and SADC.
Amongst other key agreements under thorough review was the relationship between SACU and United Kingdom post Britain‘s Exit from the European Union. This week it was revealed that SACU, Mozambique and European Union have commenced discussions to conclude a new Economic Partnership Agreement (EPA) under the new arrangement which will take full swing in 2020.
Ministers of Trade and Finance from SACU and the United Kingdom last year held discussions and reached a resolution to review and set new guidelines for EU-SADC EPA as an immediate step to avoid trade disruption. Both parties have shared textual proposals on the proposed changes on the main EPA text, annexes and protocols; this includes extensive review of Protocol three on geographical indications which is directly affected by Brexit.
SACU is also said to be progressing well regarding the establishment of a special stabilization fund to address volatility challenges of revenue shares for member states. From several member states ministerial discussions the Union has been informed that inability to save for tough economic times opened it up to various problems such as reduced availability of fiscal buffers needed to stimulate the economy in rough times and also reduced the average portion of public finances available for long term investments in infrastructure, health or education in turn disrupting countries’ long-term development outlook.
Observers note that lack of preparedness for sluggish economic times causes fiscal challenges, all requiring restraining public spending in a period of modest growth, while being increasingly becoming vulnerable to negative external shocks, such as oil price increases. In recent years SACU region has been experiencing challenges of downgrades on sovereign ratings in South Africa and Namibia, sharp reduction of foreign currency reserves in Swaziland and Lesotho, threatening their pegs to the Rand.
The SACU Executive Secretary highlighted that the SACU Stabilization Fund would be crucial to offset the fluctuation of SACU receipts, particularly during those periods when SACU revenue to members states declines. She said fluctuations in the revenue shares brought fiscal challenges which affected government planning. “The benefits to the member states are that they will be able to utilize the Stabilization Fund when the revenue forecast is lower than the actual revenue collected, and revenue shares will not be negatively adjusted,” she said.
SACU which has been in existence since 1910 is a very instrumental institution in the SADC region and predominantly to the economic agendas of its member states. The Union Executives emphasized this week that the whole intention of these proposed reforms was to create a regional financing mechanism to support SACU wide infrastructural projects and industrialization undertakings.
Going forward several task teams from the SACU member state would be deployed to thoroughly engage and assess ways in which the Union can come up with mechanisms to support regional industrialization better. This according to the SACU secretariat would be to come up with a financing mechanism in which the union can collectively resource and fund industrial and mega infrastructural developments such as trade corridors and logistics windows that can better cultivate regional value chains.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.