The ongoing global trade war poses a serious challenge to the Southern African Customs Union (SACU), with a sharp decline in shared customs revenues expected. As the conflict between the US and other countries intensifies, it could mean a significant loss for SACU, placing increased pressure on the economies of its member states.
What is the Southern African Customs Union (SACU)?
SACU is a customs union made up of South Africa, Botswana, Lesotho, Namibia, and Eswatini. The union allows for the sharing of customs revenue, which plays a crucial role in the economies of its smaller member countries, particularly Lesotho and Eswatini, where SACU transfers make up a significant portion of national revenue. However, the rise in US tariffs and the potential end of the African Growth and Opportunity Act (Agoa) threaten to disrupt this essential revenue stream.
How the Global Trade War Affects SACU Revenue
Economists predict that the US’s global tariffs, especially those on goods from China and other countries, will reduce world trade by 4%, which directly impacts SACU’s revenue-sharing model. Lyle Begbie, an economist at Oxford Economics Africa, emphasizes that the implementation of these tariffs and the effective end of Agoa would shrink the pool of shared customs revenues. This would mean a downward revision of SACU’s expected revenue for the 2027 fiscal year.
Lower global trade volumes translate to reduced imports and exports, directly impacting South Africa’s contribution to the SACU revenue pool. Given that South Africa is the main importer in the union, a weaker economy and lower import activity could severely limit the funds available for distribution.
The Impact on Small Economies: Lesotho and Eswatini
Lesotho and Eswatini are particularly vulnerable to these changes. For both countries, SACU revenues represent a significant portion of their fiscal income. Lesotho, for instance, relies heavily on textile exports to the US, which could face higher tariffs under the new trade dynamics. With the US being a key market for its exports, particularly knitted clothing, the trade war poses a risk to the country’s economic stability.
In fact, Lesotho’s economy could see a direct hit, as textile exports account for around 25% of the country’s total exports, 35% of its manufacturing output, and nearly 10% of its GDP. Any changes in the US trade relationship, especially higher tariffs, will directly affect these vital industries.
Revised Economic Forecasts: Lower Imports and Prices
The global trade war’s impact goes beyond just SACU revenue. A sharp reduction in global oil, non-fuel commodity, and food prices will lead to lower import bills for South Africa, further diminishing the amount of customs revenue available for redistribution. Additionally, the economic uncertainty caused by the US tariffs is expected to delay consumer spending, which would reduce imports even more.
With these changes, South Africa’s real imports for the year have been revised downward by approximately 2%, further stressing SACU revenues. The revised outlook now predicts that SACU revenue for the 2027/28 fiscal year may fall below the previously expected R91.2 billion, surpassing the record set in 2024/25, but still underperforming in the long run.
The Long-Term Outlook: A Mixed Picture
While SACU’s revenue might see some recovery in the future, the short-term outlook remains bleak. The expected revenue loss, combined with decreased exports to the US and a weakened global trade environment, means that regional economies will have to adjust their fiscal plans.
The long-term effects of the trade war could extend beyond SACU’s revenue, impacting industries in Botswana, Lesotho, and Namibia, particularly those reliant on exports to the US, such as diamond jewellery and textiles. As the global economy adjusts to new tariffs and trade restrictions, SACU countries may find themselves navigating a more volatile economic landscape.
Navigating the Storm
As the global trade war continues to unfold, the impact on SACU countries—particularly the smaller economies—will be significant. With projected revenue declines and increasing strain on fiscal policies, Lesotho, Eswatini, and other members will need to explore new ways to bolster their economies. SACU will need to adapt to this changing global environment if it hopes to maintain stability and growth in the years to come.
For businesses, policymakers, and economists in the region, staying ahead of these developments and understanding the broader implications of the global trade conflict will be essential for planning the next steps.