INVESTING IN SWAZILAND
A low crime rate, one of the best infrastructures in Africa, scenic beauty and an intelligent, willing workforce are among Swaziland’s major attractions. The country’s investor-friendly ambience was confirmed in 2007 when the country was ranked first in Cost Effectiveness in the whole of Africa by the FDI Magazine (part of the London Financial Times). It was ranked third in FDI Strategy and Development and came fourth in the Country of the Future category after South Africa, Mauritius and the Seychelles. In a region where attracting foreign direct investment is the highest priority, Swaziland is strategically placed within the triangle that includes South Africa and Mozambique, making it easier to attract manufacturers of made-for-export products, for whom proximity sea ports is crucial. This is enhanced by the inland dry port at Matsapha and access to rail sidings. Exporting products from Swaziland is facilitated with the proximity of seaports: Durban and Richards Bay are 600km and 400km away and Maputo just 200km away. This also makes it easier to import machinery, raw materials and production inputs. Swaziland’s sophisticated infrastructure includes an efficient railway and communication systems. She is able to compete in the investment market through a number of factors, including
A safe, secure, stable and profitable business environment
Good market access
Strategic location
Investor safety
Superb physical infrastructure
Comparatively low cost base
Investment protection
Developed financial services sector
Attractive investment incentives
Educated, skilled, and readily
available workforce
Institutional support
These have proved to work well and Swaziland is host to several multi-national companies that represent a wide scope of industry. They include the Coca Cola concentrate plant which services the whole of Africa and the Middle East, Cadbury, YKK Zippers and many others. On average, they have over two decades of incorporation in Swaziland.
Investment Trends
The textile factories that operate in the country are assisted by international agreements that work to their advantage and the recent extension of the Africa Growth Opportunity Act (AGOA) provisions to 2015, has enhanced the established investment terms for continued production. Against this background, Swaziland has shifted her focus to high value investments, mainly to attract efficiency seeking medium sized technical companies into the country. Such investors are in a better position to sustain the economy and to absorb the available human resources. The areas of investment that are promoted include food processing and agri-business, BPO & Contact Centres, electronic components assembly (white goods), energy, mining, timber and sugar value addition, pharmaceuticals and light engineering. A number of new investments are in the pipeline with some about to start operating and others under facilitation. One investment with great economic potential is a manufacturer of drills and portable power units for export. This factory will absorb the many local scientists and technicians who were in sub- employment. It will work in close contact with the university and colleges to maintain a constant flow of such graduates. Initial investment of this operation is US$30 million. State of the art equipment from Germany has been installed and production commenced during 2008. Another diverse company is one that manufactures furry blankets for regional markets and beyond, which operates at Ebuhleni, in the Hhohho region. A major tourism investment in the region amounting to about $US 0.4 billion is packaged by The Royal Jozini Big Six. In a short time $US 120 million was raised for the project, which includes an 18-hole golf course, hotels and logdes, restaurants, water parks and the Big-5 animals, as well as tiger fishing. This makes it a unique attraction in the world. The development is being sold to interested investers in the UK, Spain,
Swaziland, Dubai and other countries
The Swaziland Investment Promotion Authority (SIPA)
SIPA is a vehicle and catalyst for investment promotion and facilitation in Swaziland. It serves as the operational arm of Government in the quest to alleviate poverty and create sustainable investments. SIPA is mandated through an Act of Parliament to initiate, coordinate and facilitate the implementation of Government policies and strategies on investment. It’s activities focus on three key areas.
Investment Promotion (FDI): In order to promote employment creation, SIPA promotes Swaziland as an “Investment Location of Choice” to investment markets such as Taiwan, Malaysia, Mauritius, South Africa, Europe, the United States of America and the United Kingdom. Investment opportunities are presented at seminars to groups or to individual companies on a “one-on-one” basis
Investor Facilitation and Aftercare Service provides a one-stop facility for investment information and support to investors. Information provided covers availability and cost of utilities, labour and transport costs. Further information is provided on business registration and licensing, work and residence permits, factory shells and available factory sites. The department also reviews government policies, regulations and legislation and makes recommendations for reforms to the relevant Ministry. Established businesses are visited and assisted with any difficulties they may experience in order to retain such investors. Small and
Medium Enterprises Development (SME’s): This department is responsible for developing local entrepreneurs and encouraging them to participate in investment projects, particularly the primary business sector as opposed to retail. It also assists them with plans for expansion and forming linkages with foreign direct investors, either in jointventures or in sub-supply functions. The department conducts business seminars across the country in an effort to raise awareness and help budding business groups to organise themselves. Through SIPA’s efforts, the country’s economy has created high levels of employment amounting to more than 36, 000 jobs. With current developments, these efforts will be channeled towards semiskilled and skilled employment opportunities. This calls for innovations from all development partners and the successful adoption of systems that are investor friendly and encouraging - a task SIPA is well able to live up to.
The Trade Promotion Unit
The TPU is a department within the Ministry of Foreign Affairs and Trade and is a focal point entrusted with the responsibility of promoting the growth of exports by functioning as a catalyst to motivate existing and potential exporters. The TPU identifies new export products and services and related international market opportunities, and develops existing, emerging and potential global markets. It provides export-oriented services to exporters, as well as to those entities that service them. To this end, it distributes information on business opportunities in global markets and promotes international business orientation among local producers by undertaking trade promotions and publicity campaigns in foreign markets. The development of and lobbying for policies and legislation to support the sustainable development of export opportunities is a further function of the TPU, which continuously evaluates the global market and crafts appropriate strategies for the exploitation of these opportunities. The Trade Promotion Unit is guided by a set of values that hinge on professionalism, knowledge and the delivery of service in a friendly, accessible and helpful manner. The annual Swaziland International Trade Fair, which takes place in September, is organized by the TPU.
Investment Incentives
These include:
Membership of several economic and trade agreements giving Swaziland’s export commodities preferential access to many markets.
The Swaziland Investment Promotion Authority, which is outlined at the beginning of this chapter. The ongoing review of investment incentives and any legislation which creates bureaucratic obstacles. Updating the Companies Act by producing the Companies Bill and the
passing of the 2000 Industrial Relations Act.
Reviewing general business regulations to ensure minimum bureaucracy, with no attempt to control trade.
Greater efficiency in granting work and residecet permits and citizenship.
An infrastructure that is one of the best in sub-Saharan Africa.
Ensuring that physical infrastructure is robust, reliable and competitive.
The ongoing expansion of Matsapha and other industrial sites, including new developments at Ngwenya, and the constant upgrading of the
country’s infrastructure.
Commitment to free enterprise, a free market economy and private ownership with investment security
assured: nationalisation and the forced taking of property are illegal.
Various financial incentives and allowances, and the easy repatriation of profits and dividends subject only to a withholding tax.
Ready access to export markets through excellent road and rail links as
well as the Matsapha dry port.
Professional services through banks and agents to ensure that procedures
are properly implemented.
Readily available commodities, support services and professional people such as accountants,
attorneys, engineers and architects.
A plentiful and readily trainable labour force.
INVESTMENT PARTNERS
A number of organisations with international connections and sound financial and professional status are available to advise and enter into partnerships with potential investors. These are significant co-investors in many of Swaziland’s industrial and agricultural activities. The major agencies in this category are the Swaziland Industrial Development Company, and Tibiyo Taka Ngwane.
The Swaziland Industrial Development Company
SIDC is a development finance company that began operating in 1987 with the Swaziland Government as major shareholder. It is a major shareholder in the development of Swaziland’s economy, spearheading investment in the country by mobilising resources to finance private sector projects. This is achieved through project tailored finance with products that include loan and equity, asset leasing, SME finance and industrial buildings. SIDC investments cover all sectors of the economy throughout the country in industry, agri-business, commercial activities, industrial property, mining and outsourced business activities. SIDC will invest in projects that are technically feasible, well managed, and financially and economically viable. During the financial year 2006/07 the company approved finance for 26 projects amounting to E60.5 million. Sectorially these include agriculture (60%), logging (17%), commercial and processing (16%) and haulage (7%). SIDC will continue to give priority to development projects that generate foreign exchange, utilize local resources, upgrade manpower skills, transfer appropriate technology and link with existing industries.
Tibiyo Taka Ngwane
Tibiyo was formed by royal charter at independence in 1968 by His Majesty King Sobhuza II. The objective was to complement Government’s development efforts by fostering national economic development and self-sufficiency. Tibiyo was formed with revenue derived from the soil when colonial miners were developing the country’s mineral sector. These mineral royalties were kept in the National Treasury, established and controlled directly by the King, and not in the Governmentadministered Central Treasury. Since then, through skilful investment, Tibiyo has become one of the most successful and unique commercial operations in the region with a portfolio of some 17 interests in agriculture, agri-industrial processing, mining, manufacturing and tourism. Tibiyo was created with the mandates to buy back land from non-resident foreign owners on a willing buyer/seller basis, to promote tradition and culture and to undertake investments. In 1976 the King switched the mineral royal funds to its new sister organization Tisuka Taka Ngwane, whose main mandate is the construction of residential and commercial properties. By this time, Tibiyo had grown sufficiently to operate on profits and dividends from its investments. Assets grew from E604 million in 1999 to E 1 billion in 2007. Tibiyo invests mainly in large joint ventures with foreign and local technical partners, taking equity stakes and occasionally providing shareholder loans not exceeding 50% of the total cost of the project. The technical partners are expected to provide management and staff. Through its social responsibility program Tibiyo promotes tradition and culture by supporting national ceremonies, such as the Incwala and the Umhlanga (Reed Dance) and furthers the education and training of the Swazi youth by sponsoring 1,000 secondary/high school children a year, and students at tertiary level, both locally and abroad. It also promotes the social welfare of the Swazi nation through donations to NGOs and community projects, such as school buildings, potable water and footbridges.
SMALL & MEDIUM BUSINESS DEVELOPMENT
Investment in small to medium sized Swaziowned businesses and their development are considered vital to job creation and economic growth, and several channels of support are available to assist Swazi entrepreneurs. The commercial banks, large organisations and special projects actively encourage this growing sector through finance, assistance with business plans, training and the provision of business premises, as well as donations and other assistance. Swazi entrepreneurs cover a wide spectrum of activities, including agriculture, manufacturing and food processing, retail, transport and civil works. The SME sector is supported by the public and private sectors, as well as by parastatals such as SIPA. SMEs tend towards retail and services, which respectively account for 64.4% and 21.5%. Transport accounts for 3.9% and manufacturing for 5.7%.
Swaziland Development Finance Corporation - FINCORP
As the nation celebrated 40 years of independence, FINCORP valued its groundbreaking 12 year contribution to economic growth and prosperity for the Swazi Nation. The organisation first opened its doors to the public in April 1996 and over the years has grown to unprecedented levels in both institutional and financial sustainability. FINCORP has predominately featured in the market place as “the lender of first choice for small and medium entrepreneurs in Swaziland” and the brand name has been elevated to prominent levels. The operation has been characterized by exponential growth and demand for its services far exceeding expectations and average anuual growth of 25% has been achieved. Swazi empowerment, enterprise development, and the creation of wealth and jobs are at the core of the operational guidelines. All developing countries need significant job creation from the private sector and enterprise development is the only way to lasting eradication of poverty. In an effort to deal with innate social inequalities and poverty, His Majesty King Mswati III officially launched FINCORP in 1994 as The Enterprise Trust Fund. The organisation has undergone various policy and operational changes with the aim of adequately meeting the changing demands of its target clientele. It was initially a wholesale lending institution but, subsequent to in-depth market research, the product base was broadened in April 2003 to include retail lending in order to cater for borrowers who were not affiliated to existing and accredited financial intermediaries. It has always been entrenched in FINCORP’s policies that customer loyalty is best maintained through sbyb 2009 text 43-84.p65
continued and concerted efforts to meet their needs. FINCORP offers a wide range of loan products, including general business loans, asset lease finance, credit for agri-business, trade, services, invoice-financing and micro loans. As a relatively young organisation, it has successfully reached many SMEs and has provided cumulative financial and nonfinancial services valued at more than E800 million to over 50,000 clients. Providing after care support to loan beneficiaries is at the core of FINCORP’s success and over 50% of the staff comprises customer relationship officers who ensure that all clients are visited regularly. FINCORP places emphasis on cash flow and character lending, and requires demonstration of a complete business plan before considering any proposal for financial assistance. A project proposal must be technically feasible and financially viable. FINCORP is committed to international best practice principles and effective risk management. Investment in institutional capacity building and the development of human capital is a high priority for the organisation, which subscribes to the principles of open door policy, high integrity and accountability. By 2012 FINCORP aims to have grown its assets to more than E500 million, mainly underpinned by loan portfolio growth. Consolidation and optimal diversification of the organisation’s assets take centre stage and the possibility of bringing on board new equity investors is seriously being considered.
The Small Enterprises Development Company
SEDCO has operated in the SME sector for over 30 years, providing mini factories on estates throughout the country, business development services and marketing assistance to small and medium scale entrepreneurs in Swaziland. This government-supported entity is committed to the development and promotion of Swazi-owned SMEs and also trains entrepreneurs in business management and provides legal and general counselling at subsidised rates. This enables new businesses to take off by reducing the setting up costs that are a barrier to selfemployment. SEDCO also provides assistance for entrepreneurs wishing to invest in franchise opportunities. The role that SEDCO plays is that of an apex institution in SME development. This means that the company does not directly deal with entrepreneurs but ventures into the development of intermediary institutions that are able to nurture SMEs into profitable businesses. SEDCO is also the voice of the SME sector in terms of lobbying for an enabling environment for their operations. SEDCO is able to readily address the needs of the markets it serves. SEDCO is expected to play an active role in the Small Scale Loan Guarantee Scheme, which is under the management of the Central Bank of Swaziland and the part it plays is that of supporting those SMEs seeking loans from the commercial banks under the scheme. A general policy is that businesses in the infancy stage occupy SEDCO-owned premises at affordable rentals for up to five years. During this period, they are groomed and guided by SEDCO until they are able to be independent. At this point, the business is expected to move to other premises, making room for further new entities. In a new development, SEDCO now sponsors the Enterprise Youth Scholar competition within schools in an effort to identify and encourage aspiring entrepreneurs among the youth. Entrants established small businesses and sold their goods at the International Trade Fair held in September. Four prizes ranged from E4000 to E1000.
Swaziland Enterprise and Entrepreneurship Program
SWEEP was launched in 2006 as an economic development initiative in Swaziland funded by the United States Agency for International Development (USAID). The goal is to identify, grow and develop Swazi-owned SMEs in order to create more employment and income opportunities, thus driving Swaziland’s economic growth. The program is designed and implemented by TechnoServe, a nonprofit business development organisation focused on promoting economic growth in developing countries. Based in Washington DC, TechnoServe has offices in 16 countries in Latin America, Africa and Asia and since its founding in 1968, it has successfully used a private-enterprise approach to help lowincome people in the developing world to build viable businesses. The main objectives of SWEEP are to support and strengthen entrepreneurs and SMEs; to plant the seeds for the entrepreneurs of tomorrow and to build sustainable local capacity. SWEEP offers three programs to assist entrepreneurs at each stage of their development. The Technical Assistance Program provides assistance to Swaziland’s “growth” businesses; the Business Plan Competition (Believe Begin Become) helps start-up businesses and the Emerging Entrepreneurship program aims to build skills among aspiring entrepreneurs. SWEEP has a team of business advisors who support individual entrepreneurs and their businesses throughout each stage of their development. It also works with financial institutions to help close the gaps sbyb 2009 text 43-84.p65 54 12/10/2008, 9:00 PM 55 between their products and SME clients, and is working to build sustainable local capacity to support future entrepreneurs and SMEs. SWEEP business advisors currently offer assistance to entrepreneurs in the cotton, feed and livestock, horticulture, handcrafts, tourism, and agro-processing (including honey) sectors. It also facilitates SME finance through a US$25 million loan guarantee facility from USAID. Clients are selected based on various criteria, including viability of the business/ concept, commitment - including capital contribution, experience/skills and ability to serve as an example to other entrepreneurs. Swaziland’s National Business Plan Competition (Believe Begin Become) is an annual entrepreneurship development program which aims to identify, mentor, and improve the environment for entrepreneurs who will grow new businesses and create jobs and wealth. Winners are awarded seed capital for business start-up or expansion, as well as a range of ongoing services to ensure that they have the support that they need for success. In 2009, the fourth BBB competition will focus on Swazi youth. The Emerging Entrepreneurship program comprises an after-school component for youth aged 16 to 26 years. Implemented by local NGO partner Lulote, the School Age Youth Entrepreneurship program was launched in March 2007 at 16 schools, expanded to 48 schools in 2008 and is expected to reach 75 schools in 2009. Another Emerging Entrerpreneurship program, The Business Place, is a one-stopshop business center, launched early 2009, offering support to aspiring entrepreneurs and farmers in the Big Bend area.
Government Involvement
The Small and Medium Enterprise Department under the Ministry of Enterprise and Employment focuses exclusively on SMEs. The department’s objective is to unify and coordinate the functions of organisations such as SEDCO and to facilitate the free flow of SME’s day to day business, enhance working relations among them and strategise their business environment. The Small and Medium Enterprise Policy aims to level the business environment in terms of policies and regulations. In an effort to protect local SMEs, foreign small entrepreneurs are not granted permits to operate in Swaziland unless they work in partnership with Swazis. The SME Unit is presently revising its policy, including the framing of a micro enterprise definition and defining the informal sector to create a broad understanding of the various categories of the lower business structure. Surveys will be conducted in this respect. It is also intended to develop SME clusters for capacity enhancement. A further development will be a micro finance facility to address the predicament of very small businesses with little or no access to finance. The SME Unit organises the Entrepreneur of the Year Award which has encouraged many potential business people to enter the market. On behalf of Government, the Central Bank of Swaziland administers the Small Scale Enterprise Loan Guarantee Scheme. Means of moving the scheme from the Central Bank have been examined, as well as how to address their structure and operations under another suitable institution. The SSELG encourages financial institutions to extend loans to small-scale enterprises that must be viable, fully licensed operations with Swazi majority shareholders in order to qualify, and be able to provide 25% security of the required loan. The fund stood at E1.8 million at March 2008, having depleted from the initial capital contribution of E5 million due to operational costs and payments of guarantee claims. Feedback is awaited on the recapitalisation proposal. Since its inception in 1990 up to March 2008, 857 loans had been granted with a total value of E37.3 million. Outstanding loans total E13 million. The Export Credit Guarantee Scheme enables small and medium sized Swazi exporters to obtain trade finance from the commercial banks at favourable interest rates without undue limitation in terms of collateral. However, it has not been operative since 2004 pending a review by Government.
Other Opportunities for Small Businesses