SACU’s Trade Tax Paradox

As Botswana looks beyond diamonds, SACU’s import-duty model raises a difficult question: can a region build export competitiveness while taxing the productive imports that make exports possible? The recent Southern African Customs Union (SACU) Summit in Cape Town was built around a compelling vision for the region’s future. Leaders spoke of industrialisation, regional value chains, export competitiveness, economic diversification and deeper regional integration.

Few would disagree with these aspirations. For Botswana, where the urgency of diversifying beyond diamonds has never been greater, they are national priorities. Yet the Summit also prompts a question that has received remarkably little attention.

Could SACU’s own fiscal architecture be working against its long-term economic ambitions? This is a provocative question, but not an ideological one. It emerges from a well-established principle of international economics known as Lerner’s Symmetry Theorem, first developed by economist Abba Lerner in 1936.

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Despite its age, the theorem offers an unexpectedly modern perspective on trade policy and perhaps on SACU itself. The theorem states something that initially appears counterintuitive: a tariff on imports is economically equivalent to a tax on exports. At first glance this seems impossible.

The answer lies in the simple fact that imports are ultimately paid for by exports. When a country imposes tariffs, imported goods become more expensive and imports decline. Foreign producers earn less income from selling into that market.

Having earned less, they also have fewer resources with which to purchase that country’s exports. In other words, reducing imports indirectly reduces exports. The tariff never appears on an export invoice, yet its economic effect is remarkably similar to imposing an export tax.

While economists have debated its precise application for decades, Lerner symmetry’s central insight remains influential: policies that discourage imports also tend, through market adjustment, to discourage exports. For Botswana, this raises an important question. Our national strategy increasingly centres on expanding non-diamond exports.

Whether those exports are manufactured products, processed foods, business services, digital technologies or tourism, the objective is the same: to create a more diversified and resilient economy. Yet Botswana also participates in a customs union where a significant proportion of government revenue is derived from taxing imports. Historically, this arrangement has been extraordinarily successful.

For more than a century SACU has provided fiscal stability to its smaller members. Botswana, Namibia, Lesotho and Eswatini have all benefited from the Common Revenue Pool, with customs receipts often representing between one-fifth and one-half of total government revenue depending on the country and the year. Botswana itself has frequently received around one quarter of its government revenue through SACU transfers.

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