Global trade war's potential blow to Southern African Customs Union revenue
The global trade war is also expected to affect the Southern African Customs Union, especially if the member countries lose their export benefits under the African Growth and Opportunity Act (Agoa).
Lesotho and eSwatini are especially vulnerable to these adverse effects, with economists shaving 4% of projected world trade in goods.
Lyle Begbie, economist at Oxford Economics Africa, warns that the implementation of US import tariffs and the effective end of Agoa will significantly affect several regional economies.
'These tariffs will likely reduce global trade volumes, which in turn could shrink the pool of shared customs revenues. As a result, we anticipate that the projected Southern African Customs Union (Sacu) revenues for the 2027 fiscal year will be revised downward. '
The US administration announced substantial global tariffs, including 145% on China and 10% on most of the rest of the world, with several Southern African economies particularly hard hit.
'Consequently, our new forecast assumes that long-run US non-fuel goods imports will fall by over 20% compared to our March baseline, affecting almost every country in the world.'
ALSO READ: IMF warns all countries will be caught in crossfire of trade war
Effect of global trade war on world trade
Begbie says the direct hit to trade in the rest of the world will be magnified in three ways:
Lower exports to the US will filter down the supply chain, prompting weaker intermediate imports elsewhere.
Reduced export revenues will weaken domestic demand, further dampening imports.
Heightened uncertainty will also prompt spending on investment and big-ticket consumer goods to be delayed or postponed, further lowering imports.
'Overall, we have lowered our forecast of world goods trade as a share of gross domestic product (GDP) substantially. In 2026, it is now expected to be about 4% lower than we assumed in March and 10% lower than we anticipated in October. Therefore, we have structurally lowered global trade volumes throughout the forecast period.'
Begbie says Sacu enables the sharing of customs and excise revenue between members, with the Sacu revenue-sharing formula adjusted for projected revenue with a two-year lag. 'Given the disproportionate size of South Africa's economy within Sacu and as the main importer, the pool of revenue available for distribution is driven by South Africa's imports.
'However, given recent global events and South Africa's weaker economy, we have lowered our forecasted real imports this year by about 2% compared to the previous baseline. This downward revision of real imports will place pressure on Sacu revenues, starting in the 2027/28 fiscal year.'
ALSO READ: Reserve Bank warns global trade tensions can cut GDP by 0.7%
Trade war will cause decline in global import prices
In addition, he says that lower import prices will reduce South Africa's import bill. 'Our outlook for global oil, non-fuel commodity and food prices has been significantly revised downward due to rising global economic uncertainty. We now expect oil prices to average $67.6pb this year compared to our previous forecast of $76.4pb.
'Negative consumer and producer inflation in China and the country's potential need to redirect exports away from the US may also drive down prices of manufactured goods. This broad decline in global import prices will place pressure on Sacu revenues.'
South Africa's 2025 budget review noted a strong upward revision of Sacu revenues in the 2027/28 FY to R91.2 billion, from the previous forecast R84.0 billion. As a result, the pool of shared customs revenues would surpass the record figure of R89.9 billion set in 2024/25 FY.
However, Begbie says, the expected weaker real imports from South Africa, along with lower import prices, will likely result in a downward revision of Sacu revenues in 2027/28. 'Consequently, we suspect that it will take some time for Sacu revenues to surpass the record figure reached in the 2024/25 financial year.'
ALSO READ: Trump gunning for Lesotho: SA sees opportunity for 'closer collaboration'
Smaller countries' growth most affected
He points out that, except for South Africa, Sacu revenues play an essential role in the public finances of its members and particularly for Lesotho and Eswatini, the smallest economies in the union. In both countries, Sacu transfers often make up nearly half of the country's total fiscal revenue, creating a structural dependence on this funding source.
Therefore, Begbie warns, a downward adjustment to anticipated Sacu revenues will worsen the outlook for these countries' fiscal and external balances and also weigh on short-term economic growth.
However, he points out, the impact of US tariffs extends beyond Sacu revenue losses. For Botswana, Lesotho and Namibia, higher import tariffs on diamond jewellery exports to the US, representing about 54% of the $84 billion global diamond jewellery industry, will place added pressure on an industry that is already struggling with the rise of lab-grown diamonds.
'Lesotho is particularly vulnerable. US tariffs on its exports would severely affect the economy due to its heavy reliance on textile exports to the US market. These exports make up around 25% of Lesotho's total exports, 35% of its manufacturing output and nearly 10% of GDP, given the country's high trade openness. The US is also the primary destination for Lesotho's knitted clothing.'
Begbie says there was hope previously that the improved outlook for Sacu revenues beyond the current fiscal year would help to cushion the blow of the effective end of Agoa. However, it now appears that US tariffs will harm regional economies through multiple channels instead.
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