THE ECONOMY
Overview
Global economic conditions continued
on a downward trend and according
to the latest IMF report, output
decreased from 3.4% to 0.5%. Although the
United States and various developed countries
injected huge sums into their economies in
an effort to reduce the slowdown, financial
institutions failed and stock markets and
commodity prices remained volatile. Interbank
lending all but ceased and banks were
reluctant to lend money so credit was difficult
to obtain. Oil and food prices remained high.
The emerging economies, although more
resilient, also slowed down.
The economic crisis has, according to the
World Trade Organisation, led to a 10% drop
in global trade. However, overall, there are
signs of improved prospects for the immediate
future.
Swaziland’s Performance
Swaziland recorded only 0.4% estimated growth
compared with 2.4% the previous year.
Projections are that there will be an improvement
in 2009/10. This slowdown is attributed in the
declined economies of major trading partners,
resulting for reduced demand for export
commodities. There was a particularly notable
decline in the textile sector and slow growth in
FDI inflows. Thus there was an overall reduction
in GDP growth. This was not helped by the
downturn of South Africa’s economy, which
traditionally takes up about 50% of Swaziland’s
export commodities.
The high cost of borrowing that was maintained
to contain inflation rates, also had a negative
effect on the domestic economy, particularly on
the construction sector as high interest rates
resulted in reduced demand for housing.
The gradual reduction of sugar prices in the
EU, the expected decline in Customs Union
transfers with the new revenue sharing
formula, and the impact of HIV/AIDS all
point to declined performance.
The agricultural sector is expected to be a
positive area with the Lower Usuthu
Smallholder Irrigation Project coming on line.
With her limited domestic markets, exportoriented
industries are the backbone of
Swaziland’s economy which, as already
noted, is influenced by global trends,
commodity prices, capital and aid flow. About
50% 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 potential and
close proximity and is therefore a natural
target market.
Swaziland’s economy is closely integrated
with that of South Africa, which accounts
for about 87% of local imports, including
consumer and petroleum products. Therefore
that country’s economic performance has a
major influence on the local climate.
Foreign Direct Investment
Revised data indicates a 1.7% increase
in overall FDI, from E6056 million
to E6158.2 million. The equity component
remained static at E802.9 million, indicating
stagnation of inflows. Reinvested earnings
were E 3,910.7 million against the previous
E 3,597 million, representing an increase of
8.7%. The stock of long-term capital was
up by 2.2% to E986.4 million but short-term
credit declined to E458.2 million from E690.0
million.
The stock of FDI in the services sector reduced
from E935 million to only E756 million.
However, the investment sector recorded
E433.2 million – an increase of 74.4% from
the previous year.
The stock of FDI in the agricultural sector
was down by 2.7% to E954 million. FDI
stocks to the financial sector showed a marginal decline of 1.6% to E4.20.6 million.
The various components of FDI inflows are
also detailed in the following chart.
Gross Domestic Product
Official estimates place real GDP growth at
2.5% from a project 3.5% for 2008/9. The
reasons for this are detailed under Swaziland’s
Performance earlier in this chapter.
Revenue
Budgetary projections for 2009/10 indicate
total revenue (excluding grants) to decrease
to E9.04 billion compared with E9.06 billion
the previous year: a decline of 0.2%. Grants
are expected to increase to E335.5 million
form E145 million. SACU receipts, the large
component of total revenue, continued to
register increases – at 63% against 66% the
year before. However, it is accepted that this
situation will not continue with the expected
decline in import duties as the SACU
countries conclude free trade agreements and
a general decline in tariffs under the WSTO
Doha trade negotiations. This will result a
significant decline in trade related revenue and reducing dependence on SACU receipts
includes broadening the tax base and curbing
expenditure. Personal taxation and sales tax
respectively contribute 12% and 11% of
revenue while company tax and other sources
of revenue constitute 6% and 8%.
Recurrent expenditure
-
now accounts for
72.8% of total outgoings and is expected to
increase by 17.1% to reach E8.28 billion in
2009/10. General services and public order,
safety and defence make up the largest
component at 50% of the total, followed by
education and training at 23.8% and health
at just 8.8%. Government’s initiative to
increase health to 15% and agriculture to 10%
is the main component of increased
expenditure. Within these components,
government’s wage bill comprises 47.9% of
total recurrent expenditure.
The allocation to the health sector is boosted
through grants and subsidies to NERCHA,
the major NGO dealing with the HIV/AIDS
pandemic, which is expected to increase from
E100 million to E130 million.
Expenditure on goods and services is
estimated to reduce by 26.7% to E1.11 billion against the previous E1.45 billion as a result
of an improved procurement system.
Capital expenditure for 2009/10 is
expected to increase to E3.09 billion from
E2.47 billion: an increase of 25.1%. This is
to finance ongoing projects that include the
new Mbabane bypass road, the Lower Usuthu
Smallholder Irrigation and Komati
Downstream Proejcts, and the rehabilitation
of the Broadcasting Services building and the
Haltikulu Hospital, among others. New
projects coming on line include the new
Sicunusa-Nhlangano Road, tolls on the MR3
Highway and buildings at the new Sikhuphe
Airport. The Millennium Projects continue
to form a major component of capital
expenditure.
The Balance of Payments
Preliminary figures indicate that Swaziland’s
balance of payments surplus declined from
E2,413.8 million to E1,791.5 million. Despite
this, official reserves increased by 34.4% to
E6.940.9 million, mainly as a result of SACU
revenue.
The current account deficit went up to
E1,261.6 million from E983.9 million the
previous year. This is due to the widening
deficit on the services accounts with South
Africa, the major service provider. The deficit
in the visible trade account is estimated to be
up by 5.2% to E1,077.3 million due to an
8% increase in the cost of imports to
E14,035.8 million, which outstripped exports
growth of 5.4%.
Export earnings were up from E12,191.6 million to E12,958.5 million. Leading the way
here were soft drink concentrates.
THE EXCHANGE RATE
Having seriously weakened during
2008, the South African Rand, with
which the Swazi Lilangeni has parity
under the Common Monetary Area
Agreement, held its own and strengthened
significantly during the second half of 2009.
Towards the end of the year the currency
stood at around E7.4/$US1, E12.10/UK
Sterling and E11.30/Euro. This compares with
around E9.40/US $1, E15.50/UK Sterling and
E12.50/Euro a year earlier.
INFLATION
The all index inflation rate for 2008 was
12.6% with transport showing the
highest increase at a huge 28.4% and
food coming second at 18/9%. This was in
line with the global recession. However, by
September 2009, the all index rate had
stabilised at 6.5%, a development which,
supported by the stronger Rand, offset higher
prices of some commodities.
BUDGET SUMMARY
The 2009/10 budget focused on the challenges
arising from the global crisis and the socioeconomic
challenges facing the economy. It
is essential to implement reforms. These
include fiscal reforms aimed at broadening
revenue collection, as well as putting in place
expenditure control measures. Issues such as
poverty, mortality due to HIV/AIDS,
unemployment and food shortages remain
major challenges.
The budget projects a deficit of E1.986 billion,
or 8% of GDP. This compares with a revised
deficit of E329.6 million, or 1% of GDP in
2008/9. This does not include the
supplementary budget of E500 million for that
year and it is vital that such allocations are
made for genuine needs only and that they
do not destabilise the macro-economic
framework.
A concern regarding the capital programme
is that implementation remains below 80%,
which translates into savings at the expense
of the project and economic activities. In an
effort to improve this aspect, Government has
established a monitoring unit under the
Ministry of Economic Planning.
An ongoing need is reform within the Civil
Service aimed at reducing personnel costs and
dealing with affected people through private
sector growth. E153 million has been
allocated to voluntary exit schemes. Other
items that take a substantial portion of the
budget are transfers, utilities and durables:
these items need to be closely monitored with
cuts made where possible.
E8 million has been allocated for improving
the budget and for reporting and audit
controls. This will upgrade the procurement
system and follows the recommendations of
consultants to eliminate loopholes that lead
to losses through corruption.
Allocations include E100 million to educate
the estimated 99,000 HIV/AIDS orphans,
E34.9million for primary level educational
materials, E207 million for the University and
E100 million for anti-retroviral drugs. Further
funds were set aside for the elderly and the
youth.
Foreign exchange reserves were expected to
improve due to increased customs union
revenue and an injection of E705 million from Government, plus recapitalisation of the
Central Bank totalling E142 million.
The
implementation of measures to control
expenditure and widen the revenue base
should ensure that the increased reserves are
sustained.
Various fiscal reforms initiatives remain in
hand, including more effective collection of
income and sales tax through the planned
merger of the Income Tax and Customs and
Excise Departments to form the Revenue
Authority and through more efficient
collection at the borders. E200 million has
been allocated to this It is expected that it
will become fully functional during 2009. VAT
is to replace the system of general sales tax
(GST).
The salaries bill, which currently accounts for
53.6% of recurrent expenditure, far exceeds
the international norm of 35%. In order to
reduce this, E153 million has been set aside
to create a voluntary early retirement scheme.
The capital budget is E2.23 billion, a slight
increase over last year. This will be used to
complete projects in hand.
Total expenditure is E9.5 billion, an increase
of 16.1%, mainly attributable to an increase
of 21.3% in recurrent expenditure. The
resultant deficit is E330.3 million, or 1.4% of
GDP. However, much of this expenditure is
for one-off items, such as the voluntary
retirement scheme that will make the salaries
component more sustainable. The deficit is
considered to be a realistic one for the medium
term.
TRADE AGREEMENTS
Swaziland is party to a number of trade
agreements, including:
Growth & Opportunity Act (AGOA)
Swaziland is among the countries that benefit
from AGOA, a trade drive initiative by the
USA for sub-Saharan African countries. This
enables products from qualifying countries to
be imported into the US duty free. AGOA III
came into force in 2004. 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 other third parties. Swaziland
currently exports large volumes of textile and
clothing products to the US under AGOA.
The Southern African Customs Union
(SACU)
SACU is the oldest customs Union in the
world. It was established in 1910 between
South Africa, Swaziland, Lesotho, Botswana
and Namibia. The agreement allows for the
free movement of goods between member
states and provides for a common external
tariff and a common external excise to be
charged in the Customs Union Area. The
revenue generated from the duties charged
on commodities imported from non-SACU
member countries is the union member states.
SACU currently represents the largest market
for Swaziland’s export products.
Southern African Development
Community (SADC)
The much-anticipated SDC Free Trade Area
came into effect in January 2008 when the
SADC community achieved the status of an
FTA. This means that the SADC countries
now work towards eliminating tariffs and nontariff
barriers on all trade between them. The
benefits of the SADC FTA include no tariffs,
elimination of non-tariff barriers, easy crossborder
trade, growing market opportunities
within SADC to US $430 billion, creating
value chains across the region, lowering input
costs, creating regional competition to reduce
consumer prices, and increased employment
opportunities. The SADC FTA marks a
milestone towards a SADC Customs Union
by 2010. The member countries are Angola,
Botswana, DR Congo, Lesotho, Malawi,
Madagascar, Mauritius, Mozambique,
Namibia, Seychelles, South Africa, Tanzania,
Zambia and Zimbabwe.
Common Market for Eastern &
Southern Africa (COMESA)
Swaziland is a founder member of the
Preferential Trade Area of Eastern and
Southern Africa, the predecessor to
COMESA. The objective is to strengthen the
process of regional integration that had been
initiated under the PTA in order to help
member states achieve sustainable economic
growth. COMESA is currently working
towards the establishment of a Customs
Union, which will allow for the free movement
of goods and services between member states.
A large volume of exports from Swaziland
enjoy preferential market access to the
COMESA member states, which are Burundi,
Comores, DR Congo, 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 to 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 enjoy market
access through the GSP scheme.
Other Trade Agreements
Swaziland is also party to other trade
arrangements under either the SACU with
third party configurations. These include the
SACU-EFTA (European Free Trade
Association), which comprises Norway,
Switzerland, Iceland and Liechtenstein. 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-Mercosur Preferential Trade
Agreement (Brazil, Argentina, Uruguay and
Paraguay). Negotiations under this have been
completed and awaited the Trade Minister’s
signature at the end of 2008. SACU has
opened negotiations with other countries such
as China, India, USA and the EAC and is
also negotiating the Economic Partnership
Agreement under the SADC-EU EPA
configuration. This will replace the trade
component of the Cotonou Agreement,
which expired on 31 December 2007 as it
was not WTO compatible. The EPA
agreement, which offers quota and duty free
market access for goods from SADC,
commenced in January 2008. The SADC
EPA configuration comprises Angola,
Mozambique, Namibia, Botswana, Lesotho,
South Africa and Swaziland. At the
multilateral level, the country is a member of
the WTO and is actively involved in the
ongoing Doha Development Round of
Negotiations.
Other Links
Swaziland is also linked to other regional and international organizations, including:
Commonwealth
International Trade Center/UNCTAD
United Nations
The World Bank
African Union
International Monitory Fund
For more detailed data on Swaziland’s Economy and Monetary issues, please refer to the
Central Bank of Swaziland’s Annual Report.
Contact the Research
Department on +268 404 200
or go to
www.centralbank.org.sz