SADC Finance and Investment Protocol: briefing by Treasury & Reserve Bank
NCOP Finance
08 May 2007
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
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.
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