Namibia's Struggle to Get Sugar Rebate

10 Nov 2017, 10 November 2017
By Maria Immanuel

NAMIBIA is scheduled to defend its sugar rebate application at the headquarters of the Sacu secretariat in Windhoek next week.

As a non-sugar-producing country in a customs union with two major sugar-producing countries, namely South Africa and Swaziland, Namibia has faced challenges in the past three years to get approval for its sugar rebate proposal through the Southern Africa Customs Union (Sacu) structures.

For those who are not yet aware, Sacu as a customs union operates on a common external tariff system, whereby the five members (Botswana, Lesotho, Namibia, South Africa and Swaziland) share a common tariff regime on all imported goods.

This simply means imported goods are levied customs duty once at the point of entry, and such goods can move freely between these five countries. In other words, there is free movement of goods within the Sacu member countries. The 2002 Sacu agreement is supposed to be the legal framework to govern and implement trade instruments between Sacu countries, and ultimately promote trade, industrialisation and every benefit that comes with it. Also, it is supposed to solve trade issues as they arise in the Sacu countries.

How Sacu is supposed to work

As a legal framework, the Sacu agreement provides for the five member countries to establish the supranational body to be called the Sacu tariff board. This Sacu tariff board will coordinate technical issues of trade in the Sacu market, and for this to happen, each member country needs to have a national body which talks to the Sacu tariff board. Therefore, the agreement also requires the establishment of these national bodies. At the time of entering into force of the Sacu agreement, it was only South Africa which had a national body with the mandate and the functions of what the national bodies of Sacu should be. In order to implement the agreement, the member countries then thought the South African national body, the international trade and administration commission (Itac) should be the 'de facto' body representing the “Sacu tariff board”, while the rest of the countries establish their national bodies along the way. This is how Itac is currently in charge of the tariff administration in Sacu on behalf of the BLNS countries (Botswana, Lesotho, Namibia and Swaziland).

The implication of this as experienced by BLNS is that their industries cannot access trade instruments provided for in the Sacu agreement, such as rebates and drawbacks, as easily as their South African counterparts. A South African manufacturing company can easily apply to Itac for a rebate to import intermediate goods for manufacturing purposes, but not a Namibian company because Itac operates within the laws of South Africa, and hence it's impossible for a Namibian company to benefit. The flaws in the implementation of the Sacu agreement is that it states that the five countries can apply identical rebates, provided the rebate application is recommended by the tariff board to the council of ministers. Now, in the absence of the tariff board and the non-existence of the national bodies of BLNS, this become impractical to achieve.

Because these structures and institutions don't exist in Sacu, countries like Namibia have been struggling to access trade instruments to promote industrialisation. It is practically impossible to develop your trade policy environment if you are not in charge of making decisions which ought to impact development and the whole trade profile of your country. Sacu has no clear structure or process as to how a Namibian industry can access rebates for manufacturing purposes. That's why Namibia is very slow in establishing new industries for manufacturing. For example, to make juice, South African companies are granted rebates to import concentrates from the world market as input into their production. Such final products are exported to Namibia and other African markets. For a Namibian company to enter into this industry, it will be difficult without the rebate as an incentive.

The Namibia sugar rebate application

As a non-sugar-producing country, Namibia has always sourced its sugar from South Africa. Sugar is generally a sensitive product in the world market, and many countries, especially African countries, are hence protectionist towards their domestic sugar industries. Sacu being a net producer of sugar, also implements a variable tariff which protects the Sacu producers in South Africa and Swaziland. As a way to promote the intra-Sacu trade of sugar, the South African Sugar Association (Sasa) had developed a discount offered to Namibian companies as an incentive to import sugar from South Africa. Ideally, the discount is supposed to off-set the import tariff. This worked well, until in recent years when the Namibia sugar industry approached the Ministry of Industrialisation, Trade and SME Development to request for a rebate on sugar. The reasons stated by the industries are those of competitiveness, uncertainty and transparency issues relating to how South Africa manages the sugar tariff regime and the tariff administration in general. Because the implementation of the Sacu agreement is flawed, it has culminated in a situation where the private sector in Namibia is affected enormously. As Namibia, you have no say on when the sugar tariff actually kicks in. And also, there is no prior consultation, and the notice only comes in once the gazette in South Africa had been published. This is not only on sugar, but on many other goods as they relate to tariff increases, etc.

By having a threshold on the quantity to be imported on a rebate (backed by data and implemented with clear modalities), Namibian companies are able to trade in a transparent and certain environment, and also source sugar competitively at world prices. The most important element about the sugar rebate for Namibia is not to import sugar for consumption, but mainly to import sugar for industrial purposes. Under the current sugar arrangement in Sacu, Namibia cannot develop downstream industries such as confectionery manufacturing because sugar becomes an industrial input, and a company in that position requires a reliable, sustainable, transparent and certain supply chain. Also, it appears that if Namibia sources sugar from South Africa, it cannot export value-added products manufactured from that sugar. Again, it will be blocking confectionery downstream manufacturing, plus it defeats the purpose of intra-Sacu trade as it creates only one-way trade traffic in favour of South Africa.

What appears to be a challenge in this process is that South Africa and Swaziland as Sacu members do not support the Namibian sugar rebate application. Delaying tactics have been applied by sending the application from one meeting to another. And because Sacu has no legal institutions to deal with such a process, Itac has no obligation to Namibia to take its needs into consideration. In the end, it is the private sector which is losing; it is the development of the sector which is delayed; and generally, industrialisation sabotaged.

In conclusion, Sacu needs to sort itself out if it wants to seriously promote industrialisation and create employment through manufacturing. Namibia needs to prioritise the Trade Bill, and institutionalise the Namibia board of trade as the Sacu national body. Namibia's trade is in a mess, and until it is sorted out, there will be less employment created through manufacturing, which consequently also affects investment attraction. Namibia needs to be ahead in these negotiations, and use creative strategies to advance its position. But a political decision is probably more what is required in this matter as the technocrats appear to struggle with implementation and most probably the interpretation of the law in place.

Unfortunately, trade in Sacu is no longer as it used to be. It, therefore, cannot be business as usual. Sacu can be a very successful commercial hub for industries in the five countries, but there needs to be a common policy and a common strategy, and most probably the will to work together as a common market. With Sacu revenue on the decline in recent years, Namibia desperately needs to find a more practical model to accelerate manufacturing, not only to make up for the economic downturn, but most importantly to facilitate the creation of manufacturing by the private sector so that the country can create the needed jobs. The meeting next week is a stakeholder engagement with all Sacu countries to debate Namibia's sugar rebate application. With no proper procedure in place, it is going to be an interesting one.