Business and trade

Foreign trade and investment

Swaziland is realising noteworthy progress towards achievements of the goals specified in government’s medium-term Policy plan.Predominant among the milestones attained on this road to national prosperity are the implementation of trade policies and assistance mechanisms specifically acally structured to attract crucial foreign investment. These bold initiatives are, in turn, holstered by a dedicatede d and revitalised focus on fiscal discipline – plus the resulting assurances of a more robust management of the nation’s economy.

Swaziland, as every other developing country in the world, will be profoundly affected by the outcome _of five-year talks on global trade regimes scheduled to reach their climax towards the end of 2006.

Increased and more unified calls for a permanent African presence on the United Nations Security Council were in the latter half of 2005 deemed by many international media networks our continent’s most headline-worthy new stance. Less heralded, yet with a greater likelihood of directly impacting on Swaziland’s advancement via foreign trade and investment, were the untiring efforts of major socio-economic and political organisations which continued unabated. Last quarter 2005 meetings of the New Partnership for Africa’s Development (NEPAD), the Southern African Development Community (SADC), the Food and Agricultural Organisation (FAO), the World Trade Organisation (WTO) and the Commonwealth Heads of Government were of particular importance in maintaining determined, visionary strategies in the face of monumental adversity common to Swaziland and its fellow developing `neighbours’ near and far.

Remaining Optimistic

The HIV/AIDS pandemic, global warming/climate change and long-entrenched trade tariff/barrier regimes are being held jointly responsible for rising poverty and hunger – plus the social ills they wreak – and antidotes are being strived for with even greater urgency than previously witnessed. And although the end-of-year talks involving those organisations which stridently promote developing countries revealed certain differences of opinion regarding `technical’ issues, consensus maintained a steadfast optimism in the positive outcomes of pursuing their clearly­defined goals. The view held by more cynical observers of the African scenario that groupings such as the SADC and NEPAD in particular are “badly designed …allowing crucial issues of development to linger in the background” was sharply contrasted by Swaziland’s Minister of Finance. In his 2005 Parliamentary Budget Speech, the Hon Majozi V Sithole MP declared “great pleasure to realise that Swaziland is beginning to reap fruit under the NEPAD Initiative.. financiers have pledged support for bankable and viable projects”.

This statement of success was qualified with the requirement of “close collaboration between government and private sector priorities and vigorously marketing the country” – evidence of which was coincidentally seen at the close of third-quarter 2005 and viewed with great enthusiasm. In a media release at that time the Swaziland Investment Promotion Authority (SIPA) wrote in glowing terms of government having delivered its much anticipated E1-billion Fund and how – in keeping with the spirit of the country’s recent Job Summit – local financial institutions had “committed themselves to reviewing financial requirements”. This refers to entrepreneurs being given the opportunity to access loans at below current rates and enjoying longer repayment periods, resulting in lower monthly/periodic repayments and proportionately improved cash flows for their burgeoning enterprises.

In order to assist facilitate the most effective use of these newly available funds – and thereby create the tone of domestic economic climate most likely to be found appealing and attractive by potential overseas investors – SIPA has embarked on a groundbreaking programme of Entrepreneur Education. Based on the question “Analyse yourself – will you make the grade to reap these rewards?” is a step-by-step provision of Concept Screening and assistance in the preparation of Feasibility Studies. Where applicable, the representatives of related and already established activities – such as Service Providers in the case of IT proposals – will collaborate in the process.

World Class Development

Hot on the heels of renewed calls for yet closer government-private sector collaboration plus more vigorous marketing of Swaziland was the announcement of a second path-finding project which fulfils part one of that demand and is guaranteed to achieve the second. The ‘Jozini Big Six’ is a E1.8-billion trans-frontier (Swaziland-South Africa) international-class holiday resort development destined to rival even the most glittering of the region’s existing tourist magnets of this kind. Situated at Lavumisa in the country’s far-southeast corner, the multi-faceted attraction will occupy 11 000 hectares granted on 99-year lease by HM King Mswati III and incorporate Swaziland’s portion of the body of water from which the resort’s interim name is derived – Jozini Dam.

Finishing touches are scheduled to be complete in time for South Africa’s hosting of the 2010 Soccer World Cup – bound to deliver significant tourism­related spin-offs to Swaziland – and by when ‘Jozini Big Six’ will have generated employment for 8 000 local construction workers. Forecasts hold that the resort will thereafter directly provide at least 2 000 permanent positions and a wide range of SMME opportunities. More than 50 of the latter have already been identified – from boating and hospitality sectors to courier and television-installation services. A joint venture between the Lavumisa Community Trust, Lubombo Development & Management Ltd and Flexi Club, total profit in perpetuity will pass to the first­mentioned plus charities nominated by the king and nominated Swaziland NGOs.

EFFORTS INTENSIFIED

In his Speech from the Throne 2005, HM King Mswati III re-declared the “War on Poverty” and called on all government ministers, civil servants and citizens to apply themselves diligently to uplifting society and standards of living within the sphere of influence available to them. At the Commonwealth Heads of Government Meeting held on the Mediterranean island of Malta in late November 2005, a re-dedication was made to the same struggle and the unanimously adopted ‘rallying-cry’ echoed exactly the words of Swaziland’s monarch. More importantly, perhaps, is the fact that all 53 member states agreed to “speak with one voice” in remaining negotiations before the Doha Round of WTO talks expires towards the end of 2006. And even before the final scheduled talks for 2005 were held in Hong Kong during mid­December, an extraordinary session had already been mooted for March 2006, based on assumptions that a breakthrough will not materialise without at least one such additional interim conference.

As a member of the Commonwealth, Swaziland heard Secretary-General Don McKinnon quote International Monetary Fund research revealing that, should the developed countries of North America, Europe and Japan drop their subsidies and trade tariff barriers, “150 million people in the world would be released from the poverty trap”. The Commonwealth vowed to adopt a common strategy and act as a bloc when pressurising bodies such as the WTO and the European Union (EU). And while the Commonwealth representatives of some 1.8-billion people were in Malta being told that one-third of each EU farmer’s income is derived from subsidies, EU trade ministers were simultaneously gathered in Brussels seeking internal consensus and formulating compromises to the developing world’s demands.

Commitment Questioned

Certain major developments in the negotiations aimed at freeing trade in agricultural goods did take place in the second half of 2005, but these were not universally accepted without reservation. The United States, for example, offered to reduce support of its farmers and remove export subsidies by 2010, but critics argued that the Bush administration had in 2002 already increased agricultural subsidies by 80%, thereby rendering the offer made in 2005 little more than a “smokescreen”. The EU’s trade commissioner ruled out further cuts to its agricultural tariffs, prompting analysts to claim that the failure by developed countries to make significant concessions in areas such as market access and export subsidies undermined their commitment to the `development’ agenda of the Doha Round. Swaziland is among those which await its conclusion at year’s end with bated breath.

Yet a third gathering crucial to Swaziland’s foreign investment and trade status was taking place during the last fortnight of November 2005 – the 33 rd Session of the ongoing Food and Agricultural Organisation (FAO) Conference, which was on this occasion held in Rome, Italy. Delegates were told by Swaziland’s Minister of Agriculture and Cooperatives, the Hon Mtiti Fakudze MP, that his country placed great importance on the development of agriculture as a means of transforming the economies of developing nations. This policy, he said, would result in more meaningful opportunities to reduce runaway poverty, achieve Food Security and engender an improved quality of life for the majority of people. Adding to the thorny issues of agricultural subsidies and trade tariff barriers the sharp decline in prices fetched during 2005 by Swaziland’s exported sugar and cotton – brought on by EU reforms and over­production in competing countries respectively – the minister reaffirmed his government’s solidarity with the call for “speedy removal of all practices which continue to impede trade in commodities from developing countries”.

Quotas and Currencies

In addition to the impact on Swaziland of EU Sugar Reforms is another WTO-related issue of grave importance to the country – the final phasing out, on 1 January 2005, of Textiles and Clothing import quotas. These restrictions had served to lessen competition from larger, low-cost producers, and Swaziland has since been engaged in protracted discussions aimed at devising means to reduce the impact of this new regime. Discouraged, perhaps, by the fall-out from a lack of protection, Swaziland’s textile sector has become a cause for concern, and instances within the apparel industry have been cited where firms operating below capacity had failed to supply in good time, resulting in the withdrawal of orders by their US-based customers. An additional factor behind the closure of textile-based and other export-oriented companies is an exchange rate deemed unfavourable for all sectors other than importing. Under the Common Monetary Area (CMA) Agreement, Swaziland’s currency has parity with that of South Africa, where positive economic factors as viewed from abroad have seen rates hold firm overall – resulting in Swaziland experiencing 2005 year-end exchange rates of around E6.30/$US and E11.15/BP. These are relatively stronger than at the close of 2004. The Trade Union Movement in South Africa was during 2005 increasingly vocal in its call for a weaker currency to augment export prices, encourage foreign investment and discourage imports from the more powerful WTO member states in particular. It went so far as to demand a devaluation of the Rand for these purposes, but Pretoria’s response was to debunk the so-called efficacy of market manipulation through artificial means. One undeniable advantage of strong local currencies was their ability to help absorb the impact of 2005’s oil price hikes resulting from the combination of natural disasters in the southern United States and ongoing uncertainty in the Middle East/Gulf region. With approximately 87% of imports into Swaziland – including petroleum products – originating from South Africa, the benefits of staving off inflationary forces were passed on to this country and rates of inflation as reflected in the Consumer Price Index (CPIX) have thus been held largely in rein.

SCENARIO

Despite the adverse impact on export-derived income of the South African monetary unit, that country nonetheless recorded relatively strong exports of metals, minerals and manufactured goods. And with South Africa accounting for approximately half of the SADC’s regional Gross Domestic Product (GDP) it is unsurprising that the region’s economy grew in real terms by 3.5% to the 2005 financial year end. According to forecasts delivered at the beginning of 2006, this figure should rise to 4% or higher for the 2005/2006 period, based on the prediction that South Africa is poised to realise a growth level of as much as 6%. Swaziland’s close integration with the economies of fellow SADC member states means that their prosperity or otherwise is profoundly influential upon the kingdom: the South African Reserve Bank’s tight monetary policy has during the past three years driven down that country’s average CPIX from 9.3% to 4.3% while that of neighbouring Zimbabwe – a member of the SADC but not of the CMA – remained bound within the three-digit zone and was accompanied by yet further currency deterioration and political turmoil which resulted in calls for sanctions from certain international quarters. Would-be investors from abroad are being compelled to weigh up the pros and cons of the SADC scenario, and for that reason Swaziland reiterated the call for yet closer cooperation among member countries and eradicating the causes of negative perceptions which undermine ongoing efforts to enhance both intra­continental and international trade.

Disparities Northwards

The overall sub-Saharan GDP grew by 3.2% – fuelled principally by remarkable 6% real growth rates recorded in the oil exporting countries – but this average figure had been dragged lower by the alarming slow-down of as much as -11 % witnessed elsewhere in the zone. The ravages of HIV/AIDS were exacerbated in particular by the western Sudan’s humanitarian crisis of catastrophic proportions and periodic flaring up of regional conflicts which had seemingly been resolved. Drought once again took equal central stage and the debate rages on unresolved as to the apportionment of principal blame for global warming/shifting weather patterns and the means – if any – to at least halt if not reverse the devastating process. Little optimism was expressed during the past year of realising the Millennium Development Goals of halving poverty rates by 2015 through attaining an overall growth rate of 6%.

Attractive Environs

While benefits including a more investment-conducive economic climate are sure to accrue from the African Growth and Opportunities Act (AGOA) – a trade drive initiated by the United States for duty-free importation of products from Swaziland and certain other qualifying African countries – much depends on this year’s final outcome of the Doha Round of WTO talks. Swaziland remains optimistic that its membership of the `pressure group’ Commonwealth Heads of Government will ultimately reap rich rewards with regard to increased exporting of its agricultural ‘, products, itself a positive cause for attracting foreign’ investment. For this reason, government has embarked on a drive to reverse the drop in agricultural yield recorded during this review period.

CONTRACTION & EXPANSION

= Current provisional GDP growth estimates suggest a slowdown in the Swaziland economy of half a percentage point during the intervening 12-month period -from 2.6 percent to 2.1 percent. The negative impacts of drought and profit-reducing exchange rate appreciation were countered to a relatively significant degree by favourable developments in the sugar cane industry and services sector – assessment of requirements and expectations”, government pledged itself to rectifying shortfalls in the area of bilateral trade, where “there is still a lot of work to be done”.

INCENTIVES ABOUND

Investment agencies strive apace to promote Swaziland and attract new FDI. Despite the termination of its Least Developed Country status – with according preferential treatment – and a review of the General System of Preference (GSP) scheduled for 2008, Swaziland nonetheless seeks every possible avenue to guarantee as investor-friendly an environment as possible. Among the benefits enjoyed by new investors are a corporate tax rate of just 10% for approved projects, a 10-year period of exemption from withholding tax on dividends and duty-free import of machinery and equipment. Further government support is made clear in the construction of `factory shells’ at key points around the country and its policy of decentralisation aimed at generating more readily accessible employment opportunities. In its Annual Report for the period ended March 2005, the Central Bank of Swaziland added to the list of factors currently making the country an attractive destination for investment the following regionally significant developments – the various Millennium Projects, the Lower Usuthu Smallholder Irrigation Project and the Komati Downstream Development Project. These “augur well for promotion of investment opportunities”, the report declared, before concluding that “the need for good and well-coordinated policies, coupled with the fostering of institutional capacity­building and improvement in the provision of statistics and data to help facilitate informed decision-making by policymakers and to boost investor confidence, cannot be over-emphasised” wholesale and retail outlets, transport, banks, financial and insurance. Together these prevented a more pronounced deceleration in economic activity. Although government has forecast “sluggish” economic activity for 2005/2006 – an expected average 1.75 percent – growth is anticipated in the construction industry and once again throughout the services sector. The outlook has been described as “clouded” by not only the WTO-related uncertainties but also the “prospective reduction” in revenues derived from the Southern African Customs Union (SACU). The latter is an almost century-old agreement between Swaziland, South Africa, Namibia, Lesotho and Botswana which facilitates free movement of goods between member countries and from which each derives its accorded share of the customs pool generated by commodities imported from non­member countries. And although the 2003 free trade pact negotiated between the United States and SACU promised to deliver some E17-billion for member countries, the deal would only ever benefit Swaziland in the short term – which appears to have run its course. While receipts from the SACU previously accounted for more than half of total revenue, a significant fall is anticipated during the 2005/6 review period. In anticipation of this, government began broadening the tax base in mid-2003 as a partial means of diversifying the country’s sources of revenue.

Political Assurances

Foreign Direct Investment (FDI) is unsurprisingly viewed as a major potential means of diversifying economic activity and delivering sources of revenue, notwithstanding the highly attractive tax-incentives on offer to investors. A decline in FDI reported during the previous review period was attributed to not only the closure of certain enterprises but also a decline in investor confidence resulting from an impasse regarding the rule of law within Swaziland. Rectification of this crucial issue was already well under way by the start of the current review period and the new government had already undertaken with enthusiasm the sensitive process of restoring confidence in the country from abroad. Praise of these efforts was effusive in the 2005 Budget Speech of Finance Minister Sithole, who applauded the country’s Prime Minister and his Cabinet colleagues for “effectively addressing the issue of rule of law that will in turn contribute immensely to the social and economic development of the country”. The minister concluded that, as economic development requires “improvements in judiciary systems, rules and practices that govern property rights and security for the broad cross-section of society”, government had “taken the necessary action to restore investor confidence in the country”. Adoption of the new Draft Constitution will doubtless also add considerable weight to the case for declaring Swaziland a preferred destination for international venture capital.

Market Explorations

Swaziland’s determined efforts to substantially increase FDI and assist in securing the most beneficial possible outcomes from this review period’s extraordinary number of intra-African and global trade gatherings stretched the small kingdom’s negotiating capacity to its limits. Government welcomed the assistance received for capacity­building in this regard, and declared its intention to make permanent these improvements as well as strengthening trade offices in its embassies abroad. This `mission statement’ was expanded to include a directive to “diversify trade markets via exploration of hitherto unexplored regions”. Chief among these new targets is the oil-rich Middle East. Emphasising that all such forays and negotiations should “directly benefit Swaziland” through the practice of “astute