* SACU to tackle "challenge" of customs revenue sharing
* South Africa under pressure to cut regional subsidy
* Botswana, Namibia, Lesotho, Swaziland set to lose out
By Ed Cropley, African Investment Correspondent
PRETORIA, July 16 (Reuters) - Leaders of the Southern African Customs Union (SACU) agreed on Friday to reconsider how they share their trade duty revenues, a move that could hit Botswana, Namibia, Swaziland and Lesotho very hard. Tensions have been mounting within the 100-year-old SACU, the world's oldest customs agreement, because of a perception in South Africa, easily its biggest economy, that its customs receipts are bankrolling its four smaller neighbours.
According to the International Monetary Fund, SACU revenues account for nearly two thirds of official revenue in landlocked Swaziland and Lesotho, just over a third in Namibia and 25 percent in diamond-rich Botswana.
A communique issued at the end of a two-day summit of SACU leaders in South Africa was thin on detail, but said governments would address the "challenge" of the "sharing of SACU revenue".
The issue has become sharper in South Africa since last year's global slump tipped Africa's biggest economy into recession, putting pressure on the budget and forcing the Finance Ministry to look for cash in hidden places.
For SACU's smaller members, however, any adjustments to the union's complex revenue-sharing formula are going to be hard to swallow.
"There are big political pressures on the South African Treasury to revise the revenue formula," said Keith Jefferis, an economist and former deputy central bank governor in Botswana.
Revenue sharing was officially devised as a way of compensating southern Africa's smaller economies for South African tariff policy and its virtual monopoly on attracting external investment because of its sheer size.
However, the white-minority government that led South Africa until 1994 also painted it as an altruistic subsidy of its poorer black neighbours to deflect international criticism of its attitude towards blacks.
Now that South Africa has a democratically elected government, that argument no longer applies.
Furthermore, human rights groups and unions, including South Africa's powerful COSATU labour federation, say the transfer is providing life-support to unpleasant administrations such as that of Swaziland's absolute monarch, King Mswati III.
"The likes of COSATU are saying 'Why are we putting money in King Mswati's pockets when he's a dictator?' and 'Why should we be giving that cash to Botswana when they're richer than we are?'," Jefferis said.
However, South Africa will also have to consider the real possibility of worsening the plight of Swaziland and Lesotho -- borderline "failed states" with HIV/AIDS rates among the worst in the world and economies stuck in neutral.
In April, credit rating agency Fitch cut its long-term outlook on Lesotho to negative from stable, citing the lower SACU receipts that were likely to result from South Africa's reduced trade during its recession.
"After several years of positive revenue surprises from SACU receipts, the prospect for public finances is now much more challenging," regional Fitch analyst Purvi Harlalka said.