GLOBAL OVERVIEW
Towards the end of 2011, despite earlier predictions, it was clear that the global economy was likely to recover slowly from the depression that began in 2008. In its April 2011, during a period of volatile and uncertain markets, the IMF projected in its World Economic Outlook that the global economy would grow at a rate of 4.5% compared with 5% in 2010. The rise in oil prices at the beginning of 2011 created inflationary pressure in an already volatile situation, resulting in higher food prices and reduced disposable incomes. Developed countries are predicted to grow by only 2.5% coupled with a rate of 6.5% in developing countries. Countries in the Asian sub-continent recorded the highest performance with GDP growing by 8.3% in 2010 and projected at 7% in 2011, a reduction attributed to the devastating earthquake in Japan, where growth is expected to drop to 0.8%. Growth in the USA is predicted at 3% from -2.6%.
The worst affected region is Europe with the Euro bloc predicted to grow by 1.7% in 2011 and 1.9% in 2012 from 2.6% in 2010 and unemployment continuing at double-digit figures. Growth in sub-Saharan Africa is predicted at 5.5% from 5% in 2010.
Global trade volumes stood at 14% in 2010 from 12% the previous year but are projected at only 6% for 2011.
SWAZILAND’S PERFORMANCE/GDP
Swaziland’s economic situation remains precarious, mainly due to significantly reduced Customs Union revenue resulting in a liquidity crisis that is expected to continue for considerably longer than the previously anticipated 12 months. Forecasts indicate GDP growth of 2% for 2010, showing a marginal improvement over growth of 1.2% in 2009. However, the GDP is expected to decline in 2011/12 with, among other factors, forced reduced government expenditure impacting across the board.
Contributing to the slight improvement of 2010 are growth in the agricultural, retail and transport and communications sectors coupled with improved performance by South Africa, the market for more than half of Swaziland’s exports. Growth in foreign direct investment continues to be low with stiff regional competition.
The continued strength of the local currency against the US dollar and other currencies continued to impact on the value of exports to overseas markets, although in September 2011 the South African Rand, to which Swaziland’s Lilangeni is pegged, dipped sharply in value.
The Central Bank of Swaziland has adopted a supportive monetary policy to reduce the cost of borrowing and thus cushion the economy. During the year, CBS raised the required reserving and liquidity requirements from 2.5% to 6% and 13% to 20% respectively. External debt at the end of the first quarter of 2011 stood at E2.55 billion while domestic debt was E1.6 billion in June that year. At time of writing, Swaziland was seeking loan finance to address the worsening fiscal situation while increased pressure from the IMF and other parties highlight the need to take serious steps to remedy the excessive recurrent expenditure, such as the wage bill.
With her limited domestic markets, export-oriented industries are the backbone of Swaziland’s economy which is influenced by global trends, commodity prices, capital and aid flow. About 35% of her export products, including sugar and citrus, are sold internationally with the balance going to South Africa, which offers a diverse consumer profile, high
Global GDP Growth Rates.
FOREIGN DIRECT INVESTMENT
Due to reinvested earning and short-term capital, total FDI increased to E6,484.2 million in 2010, reflecting reduced growth against the previous year’s 18.4% growth. However, equity and long-term capital showed negative growth of - 28%, excluding reinvested earnings, which accounted for 64% of FDI stock in 2010/11. Reinvested earnings rose by 51.5% to E4,163.1 million, offsetting the negative growth in new FDI.
REVENUE
The 2011/12 budget projects an 18.9% increase in revenue from E6,732.2 million to E7,990.2 million. However, grants are expected to reduce to E472.6 million against the previous E528.2 million. Despite reducing dramatically from 62.3% of revenue in 2009/10, SACU receipts remain the largest share of income at 36.1% (32.4% the previous year). Efforts to reduce reliance on SACU receipts continue, particularly with the decline in import duties as the SACU countries concluded free trade agreements and a general decline in tariffs under the WTO Doha trade negotiations. Reducing dependence on SACU receipts includes broadening the tax base and curbing Government expenditure are two key components of addressing the situation. Other components of Government revenue are sales tax – 20.6%; personal tax – 17.7%; corporate tax – 14.1%; other – 8.1%. Additional revenue is derived from items such as fines.
EXPENDITURE
Recurrent Expenditure
Despite the pressing need to reduce this component, recurrent expenditure, which accounts for 73.6% of the total, is projected to rise by 6.8% to E8.420.8 million in 2011/12 from E7,892.6 million. This is despite consistent calls on Government to reduce expenditure and the statement by the IMF that Swaziland is heading towards disaster if it is not
curbed.
General services and public order, safety and defence make up the largest component at 342% of the total, followed by health, education and training at 34.7%.
Government’s wage bill is 18% of GDP (the highest in the sub-Saharan Africa). This is being addressed by not filling vacant post and freezing civil servants’ salaries in line with the Fiscal Adjustment Roadmap outlined in this chapter.
Other expenditure that has increased includes statutory items and grants and subsidies to the new Swaziland Revenue Authority.
As a result of increased Government borrowing through treasury bills and bonds, public debt is expected to increase to E318.3 million from E243.4 million. However, expenditure on goods and services should decrease by 8.3% to E998.1 million as a result of a better procurement system.
Capital Expenditure
A decrease of 6.9% to E2,484.6 million is indicated for 2011/12. Items in this category include the completion of existing projects, including the
completion of Sikhuphe Airport and the upgrading of the Nhlangano-Sicunisa Road, as well as vital projects. These include improving the health system (E242.4 million), funding the free education that was introduced for primary schools in 2010 (E20 million), roads and dams in rural areas and equipment for road works. Expenditure on the Millennium Projects, including the new airport and Mavuso Trade Centre, also continues with an allocation of E350.4 million.
FISCAL ADJUSTMENT ROADMAP
Following the IMF’s announcement in 2010 that it is vital for the Swaziland Government to restructure its operations in the face of continued poor economic performance, the Fiscal Adjustment Roadmap was developed. It is a strategy to implement a number of reforms in the medium term in order to meet the challenge presented by the deterioration of the country’s fiscal outlook and was tabled before the IMF in Washington DC during October 2010. It is being implemented from the 2010/11 financial year up to 2014/15.
The FAR aims to broaden the tax base while reducing the burden on the poor; restructure, right-size and improve the efficiency of public expenditure and services; improve governance to build greater investor confidence; create transparency and accountability; expand the export base and increase participation by SMEs in international trade; and attract more foreign direct investment.
One of the major items to address is the downsizing of the Civil Service in order to bring the wages bill under control. Thus a major component of the Roadmap is to cut the Civil Service by 7,000 jobs from 35,000. This will be achieved through the implementation of a Voluntary Exit Scheme, as well as not filling vacant posts. It is estimated that this project will create up to 30,000 new jobs in the private sector up to 2014/15 as a result of reforms that are being put in place to improve the country’s investment climate.
BALANCE OF PAYMENTS
In 2010/11, Swaziland’s overall balance of payments indicated a deficit of E1,257.6 million, mainly due to the high deficit of E4,027 million in the goods and services accounts.
The current account remained in deficit but with improved performance to minus E2,718.1 million from E3,454.5 million. The trade account recorded a deficit of E1,097.2 million from E1,027.5 million.
There was a marginal decline in overall export earnings of 0.3% to E13,216.9 million, of which edible items contributed 56.5%.
Imports also recorded a small decline of 0.3% at E14,303.6 million, with goods from South Africa accounting for 86% of this amount.
INFLATION
For the third year, inflationary trends fluctuated around single figure digits and at August 2011, the rate was 6.1%. This may be attributed to the stronger local currency although following an 18-month all-time low in the value of the Lilangeni/Rand during the second half of the year, it is likely that inflation will show a marked increase, exacerbated by high oil prices.
BUDGET SUMMARY
The 2011/12 budget is designed to deal with the challenges of global trends coupled with Swaziland’s slow growth and the severe strain on resources, which mean that the country may not meet the UN Millennium Development Goals by 2015.
The budget speech highlighted the eradication of poverty, combating HIV/AIDS by strengthening the health sector, which is allocated a total of E242.4 million.
An allocation of E406.3 million includes E161.5 million to educate the country’s orphans (estimated at 170,000); E163.3 million for elderly grants and E80 million for the regional development fund over the next three years. E168 million has been allocated to reducing the size of the civil service.
Government’s total revenue for 2011/12, including grants, is projected to rise by 16.6% to E8,462.9 million as a result of anticipated improvement in tax collection by the Revenue Authority and higher SACU receipts.
The capital budget is E2,284.6 million, a reduction of 6.9% from the previous year while total expenditure (recurrent and capital) is estimated to increase by 3.5% to E10,705.5 million, leaving a deficit of E2,242.6, or 7.5% of GDP – an improvement on the previous year’s 13% deficit and considerably closer to the ideal maximum of 3% for a small country such as Swaziland.
TRADE AGREEMENTS
Swaziland is party to a number of agreements that allow for market access (mainly preferential) for her products. These include:
The African Growth & Opportunity Act (AGOA)
Swaziland is among the countries that benefit from the Africa Growth and Opportunity Act (AGOA), a trade initiative by the United State’s Government for sub-Saharan Africa. This initiative enables products from qualifying countries to be imported into the US duty free. AGOA III came into force in 2004, and benefits to eligible countries have been enhanced by the extension to 2012 of the Third Country Fabric Provision, which allows for raw materials to be sourced from third parties. Swaziland currently exports large volumes of textile and clothing products to the US under AGOA.
The Southern African Customs Union (SACU)
SACU entails revenue generated from the duty charged on commodities imported from non-SACU member countries. This is kept in a common pool and distributed to members according to an agreed formula. The four SACU members are Lesotho, Namibia, South Africa and Swaziland. They are also members of the Common Monetary Area (CMA), which has eased the flow of capital in the Union. SACU currently represents the largest market for Swaziland’s export products.
Modern Offices - Mbabane
The Southern African Development Community (SADC)/Free Trade Area (FTA)
The SADC/FTA came into effect on 1st January, 2008 and it was launched in August of the same year. Since 1st January 2008 trade among SADC member states has been 85% duty free, with the remaining 15% including sensitive products and exclusion lists for member states’ schedules of commitments to the FTA. Some of the benefits of SADC/FTA include the reduction and elimination of tariffs and non-tariff barriers (NTBs), easy cross-border trade, growing market opportunities, the creation of a value chain across the region, the lowering of input costs, creating regional competition to reduce consumer prices, and the possible increase of employment opportunities.
The Common Market for Eastern and Africa (COMESA)
Swaziland is a founder member of the Preferential Trade Area of Eastern and Southern Africa, the predecessor to COMESA, whose main objective is to strengthen the process of regional integration that was initiated under the PTA to help member states achieve sustainable economic growth. COMESA launched its Customs Union in 2009 and Swaziland continues to trade in COMESA under derogation which allows her goods to preferentially enter the COMESA market without obligation to reciprocate. The other COMESA members are Burundi, Comoros, D.R.C., Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia and Zimbabwe.
Generalised System of Preference (GSP)
Swaziland is a beneficiary of the GSP scheme, which provides for goods that originate from developing countries to be imported into industrialised countries at reduced customs levies. The countries that grant GSP include some of the EU member states, USA, Canada, Japan, Australia, Russia and New Zealand. A wide range of export products from Swaziland enjoys market access through the GSP scheme.
Other Trade Agreements
Swaziland is party to other trade arrangements, under SACU with third party configurations. These include the SACU-EFTA (European Free Trade Association), which comprises Norway, Switzerland, Iceland and Lichtenstein. The EFTA agreement has been ratified by all member states and became operational in May 2008. The other agreement at SACU level is the SACU- MEERCOSUR Preferential Trade Agreement with Brazil, Argentina, Uruguay and Paraguay. This has been signed and will come into effect once the internal national ratification process has been finalised by all parties. Swaziland also belongs to a configuration of some SADC member states that are negotiating an Economic Partnership Agreement for duty-free and quota-free market access for her goods to the EU, excluding arms and ammunition. Other members of the SADC/EPA configuration include Angola, Botswana, Lesotho, Mozambique, Namibia and South Africa. At the multilateral level, Swaziland is a founder member of the World Trade Organisation (WTO) and the county, which has an Embassy in Geneva, is activity involved in the ongoing Doha Development Round of Negotiations.
Other Links
Swaziland is also linked to other regional and international organisations, including:-
The Commonwealth of Nations
International Trade Centre/ UNCTAD
United Nations and its Agencies
The World Bank
International Monetary Fund
The Africa Union (AU)
The African Development Bank
LOOKING AHEAD
While Swaziland’s economy is depressed and recovery, along with global predictions, is expected to be slow - some economists estimate about three years - there is also reason to be optimistic as some positive developments are in hand.
Following the 2010 closure of the Usutu Pulp Mill, Sappi Southern Africa has fulfilled its commitment to the kingdom by reinvesting to form Usutu Forest Products, which as created over 2,500 job openings.
Construction activity, generally considered to be an economic barometer, has been booming in the Ezulwini Valley. Apart from residential developments, major commercial buildings are also in hand, including a recently opened hotel, a new conference centre, a head office for the cellular network provider and a large office park. The latter two were under construction at time of writing. In addition, the Gables shopping centre was undergoing further expansion. In Manzini, infrastructure for a new office park was completed with most of the plots sold towards the end of 2011 while a new shopping mall opened in the city.