SADC Finance and Investment Protocol: briefing by Treasury & Reserve Bank

FINANCE SELECT COMMITTEE
8 May 2007
SADC FINANCE AND INVESTMENT PROTOCOL: BRIEFING BY TREASURY & RESERVE BANK

Chairperson: Mr T Ralane (ANC)

Documents handed out:
National Treasury presentation
SARB presentation
Southern African Development Community (SADC) Protocol & Explanatory Memorandum on Finance and Investment

Audio Recording of the Meeting

SUMMARY
The Department explained the background, objectives and challenges of the SADC Finance and Investment Protocol. Regional integration was being adopted as a tool through which economic development and sustainability could be achieved.

Committee members raised concerns around the issue of a proposed single currency, immigration problems that integration brought with it, uneven economic playing ground, unequal devotion by other members, community involvement in the protocol and, most importantly, the feasibility of set time frames and the cost structures that the Protocol set for South Africa.

National Treasury presented on the tax issues that come with the Protocol covering matters such as tax co-operation and gave a detailed briefing on the tax database and ways of implementing an efficient tax system.

Members expressed their concern and asked questions on, amongst others, tax breaks and whether other member states had recognisable revenue collecting authorities as well as revenue bases, whether the issue of oversight was being overlooked, and once again the issue of time frames beings realisable was at the centre stage of members’ concerns.

The South African Reserve Bank made a brief presentation providing background information on the Committee of Central Bank Governors as well as the Structures and sub committees that constituted that Committee.

MINUTES
Briefing by National Treasury
Mr T Zulu (Department Director: SADC, National Treasury) focused on the Finance and Investment Protocol highlighting regional integration as the gateway to sustainable economic development that is much needed for the region to be able to compete globally. He explained the strategic direction that SADC hoped to take with the Protocol and the challenges that stood in the way to achieving this. Mr Zulu made mention of the key targets, such as a Free Trade Area (2008), Customs Union (2010), Common Market (2015) and others, not forgetting the key obstacles which included lack of infrastructure, unemployment and poverty, and resource mobilisation.

He gave an overview of the Protocol process, highlighting officials responsible for the Protocol and citing that SADC finance ministers were at the helm of operations on the Protocol. He lamented on the development of a SADC investment zone which was meant to attract investment for members and emphasised the need for transparency and fairness amongst members and other factors fundamental to this process. Mr Zulu concluded by pointing out the need for macroeconomic convergence amongst members in order to level the economic playing field as proposed by the Protocol.

Discussion
Mr E M Sogoni (ANC) requested clarification on what the presentation aimed to achieve and what the SADC troika’s composition and function was. He also asked for clarity on the objectives of the Directorates, how they would be monitored and who was responsible for the monitoring.

He further asked for a progress update on the issue of a single currency, stressing the point that countries like Zimbabwe had inflation rates of up to 2000 percent.

Mr Zulu responded that the troika was a body consisting of three member states, these including the outgoing, current and the future chairpersons. Decisions taken by the troika were subject to the approval of member states.

Mr B Mkhaliphi (ANC) stressed that the time line set out for objectives raised concern as there was a lot of groundwork to be done in order to level the economic playing field amongst members; this included infrastructure, which many members still lacked, and thus was an impediment to realising objectives.

Mr Zulu stated that ensuring compliance to the convergence criteria was a key challenge and  it was very currently difficult to deal with members such as Zimbabwe that were out of sync with the rest of the region.

Mr Z Kolweni (ANC) pointed out that there had been delegates from other member states who had been impressed by the economic strategies and development plans employed by South Africa. He asked whether these countries were affected by the same Protocol measures.

Mr Zulu responded that it was the basis of the protocols to encourage information exchange between member states as well as provide an inducement for countries to help one another on issues of development.

Mr M Robertson (ANC) asked what was being done to countries that still had not signed the SADC treaty. He also pointed out that, with the issue of a common currency, countries like Botswana had a stronger currency than South Africa; he wanted to know how a common balance will be established with the introduction of a single currency.

Mr Zulu apologised that he could not ascertain as to why other countries had not signed the Treaty and thus could not give a response to what was being done to remedy the issue.

Ms S Xulu (ANC) noted that there was a lot of immigration into South Africa as many people saw the country progressing and pointed out that there had to coordination with the private sector to invest in the SADC region to address this issue.

Mr Zulu said the coordination with private business was crucial in all aspects of integration as investment depended on the expansion of companies into other member countries.

Ms Xulu highlighted that, of the top 50 poorest countries in the world, Africa harboured 30; and wanted to know how many of these 30 were part of SADC.

The Chairman interrupted to alert Ms Xulu that her questions should be related to the presentation made by Treasury.

Mr Ralane pointed out that the SADC institutional framework consisted of the executive officials and that there was no mention of a regional parliament, which was crucial for issues of oversight.

Lastly he stressed that the cost factor of these plans was crucial to the passing of these Bills that have not been appraised for cost.

Mr Zulu said it was very difficult to deal with the issue of cost as a single member since cost issues were dealt with at the SADC Secretariat in Botswana making it difficult to come up with cost estimates.

Mr D Botha (ANC) questioned, on the issue of immigrants, what was being done to remedy the issue of illegal immigrants in South Africa, some of whom were receiving social grants.

Mr Zulu responded that the SADC regional integration agenda had various aspects, including dealing with the issue of immigration in the free movement of people protocol.

Mr Ralane voiced his concern that integration would cause immigration problems as people perceived South Africa to be rich, and advised that the solution to this would come from increased investment in member states and the trade off from the different protocols.

Mr Zulu acknowledged Mr Ralane’s input and added that it was true that there would be trade offs between different protocols - including that of immigration - as different fields affected one another. He added that it was crucial to have a flexible and defined finance and investment protocol.

Briefing by National Treasury
Mr Martin Grote (Tax Specialist, National Treasury) presented on the issues of tax within the Financial and Investment Porotocol, starting with the need for member countries to practice good tax policies to encourage economic development and foreign direct investment. He said that the major issue on the African continent was the reliance by countries on a few taxes which was unbalanced. He said that a by spreading the tax base, members could enjoy improved tax revenues as had been experienced abroad.

Mr Grote also emphasised the need to review tax legislation and improve transparency to curb corruption. He suggested the use of tax incentives which could attract attention and participation by different groups of people through transparency. He finally stressed the need to introduce mechanisms and procedures for settlement of tax disputes within the region.

Discussion
Mr Ralane noted that Mr Grote raised the serious matter of bureaucratic red tape which delayed administration.

Mr Sogoni wanted to know how all these objectives were going to be achieved, making reference to the issue of oversight raised earlier by Mr Ralane. He further wanted to know whether tax system or tax breaks that came with integration would not collide with domestic taxes such as the “sin tax” on tobacco, and whether they would have to change these since other members, for example Zimbabwe, were major tobacco producers.

Mr Grote stated that there would have to be defined tariff bands and that other countries would have to reduce tariffs on specific imports from fellow SADC countries thereby creating an environment for trade creation.

Mr Robertson asked whether they were running within the set time frames.

Mr Sogoni wanted to know what time frames were there for the National Treasury to report back to the committee.

Mr Grote responded that there were no time frames where tax was involved but there was a Free Trade Area set for 2008 and a Customs Union in 2010. He further said that time frames were difficult to adhere to although the 2008 free trade area was almost 85% completed.

Mr Mkhaliphi wanted to know whether there had been an initiative to help donor dependent countries out of their situation.

He also asked whether other members had recognisable revenue collecting authorities or potential revenue bases.

Mr Grote responded that the donor community was alert to the risk of not developing their own revenue system. He said that in Europe and Africa, donor countries had developed their own systems which facilitated the donor process. Since countries in SADC produced/exported similar products, the donor process assists a lot of countries and the relationship was always symbiotic.

Mr Grote said that there were a number of member states that had credible revenue collecting authorities and larger resource bases than South Africa but because their tax systems were not well defined the resource bases were not well taxed.

Ms Xulu suggested that the term “tax co-operation” be changed to “mutual co-education” and cooperative implementation in order not to send the wrong message or avoid people thinking they were going to have their money taken.

Mr Ralane suggested that the contribution made would not assist with the issue at hand and hence should be ignored.

Briefing by SARB
Mr M Belle (Head International Relations & Committee of Central Bank Governors (CCBG) Secretariat, SARB) made a brief presentation on the background information of the CCBG as well as the Structures and sub-committees that constituted this Committee. He said that the CCBG was formulated in 1995 to promote and achieve closer cooperation among central banks.

Mr Ralane cut the presentation short due to time constraints and suggested that the presentation be rescheduled to.

Discussion (questions unanswered)
Mr M C Goeieman (ANC),on the issue of challenges, said that SADC’s objectives/goals which tended to create confusion.

Mr Mkhaliphi raised concern about the delay by many members signing the SADC treaty and said that this could lead to SACU-like situation where such countries were the first to demand benefits. He further stressed that there is no mention of community involvement although implementation of the protocols depended on the community’s view.

The meeting was adjourned.