Economy

The only sustainable antidote to the kingdom s recent tradition of declining GDP comes from favourable trade treaties with the US and the ED, writes JAMES HALL in Swaziland.

Swaziland's participation in .the Generalised System of Preferences, allowing Swazi- made goods to enter the American market duty free with a competitive edge over other imports, has drawn foreign direct investment to the kingdom. New factories have driven down the unemployment rate from an historic high of 45 percent to 40 percent and exports are also being boosted by the US African Growth and Opportunities Act (AGOA).

"We can lose these benefits unless the issue of good governance is addressed," said Musa Hlope, executive director of the Federation of Swaziland Employers. "If that happens, there will be terrible economic consequences."

U.S. ambassador to Swaziland, James McGee, and British ambassador, David Reader, who represents the EU, have told the government that the benefits the country receives through trade treaties with their countries are contingent on good governance.

Political activists have referred to Swaziland as "the next Zimbabwe" due to escalating political controversies. And strides made to improve the econcomy by boosting the export sector are vulnerable.

At the beginning of the year, US Secretary of Stale Colin Powell said that Swaziland was under probation in terms of AGOA. In addition, US assistant trade representative Rosa Whitaker told Swazi garment makers, "Swaziland has until 2004 to produce all the raw materials that go into export products under (AGOA)."

Garment makers, mostly from Tai- wan, have been the main industrial investors in Swaziland for several years, setting up shop to take advantage of AGOA. But the factories import their fabrics from Asia and Whitaker said they had until next year to find a local source for raw materials. Industry representatives protested, saying small economies like Swaziland and Lesotho must be given a time extension to produce the needed materials.

Labour issues also cloud Swaziland's continued participation in AGOA. Labour commissioner Joshua Mndzebele said over half of 22 companies surveyed on their compliance with the Industrial Relations Act are violating provisos that regulate child labour workers compensation and wages.

Swaziland's Enter- prise and Employment minister Lutfo Dlamini has complained that no American companies are investing in Swazi- land. Whitaker said that the kingdom must step up marketing itself to potential investors. Such a marketing job would highlight the country's trade links with the industrialised world, while judiciously glossing over the economy's overall anaemia, Whitaker said.

The Swaziland Chamber of Commerce and Industry estimated that a third of the workforce is employed at companies that profit from exports to the US. The trade benefits are also necessary to convince potential investors they should not over- look Swaziland, sandwiched as the country' is between the continent's most highly developed economy, South Africa, and one of Africa's fastest-growing economies, Mozambique.

"Swaziland will not attract foreign direct investment until we convince businesses to come here instead of better known and larger economies," said a source at the Swaziland Chamber of Commerce and Industry.

Export earnings through AGOA are also essential to allow the government to expand its revenue base. Over half of the money financing government operations comes from Swaziland's portion of the pooled receipts of the Southern African Customs Union, a revenue sharing agreement that channels customs duties earned largely by South Africa to smaller states to keep them solvent.

Taxes on citizens comprise only 16 percent of government revenue; company taxes only 9 percent and sales taxes only 14 percent. Martin Dlamini, Governor of the Central Bank, noted in his introduction to the bank's annual economic report, "The current economic slowdown in Swaziland is exceptionally deep and broad, with no evidence that the down- ward spiral that began two years ago will see a recovery." Figures for real GDP growth in 2002 are not expected to improve much over the historical low of 1.5 percent in 2001, which was down from 2.2 percent in 2000 and less than half the 3.7 percent reached in 1999.

For an agriculture-based economy, where at minimum seven out of 10 people earn their livelihoods from the land, the agriculture sector is moribund, contributing only about 10 percent of GDP. While production of the national staple food, maize, dropped last year when rains ceased, drought-resistant cotton production continued to deteriorate to less than 40 percent of what it was two years ago, and citrus production slipped 4 percent as growers switched to sugar cane cultivation.

Sugar production is expected to stabilise this year after last year's decline. The big economic news of 2002 was the merger of the Mhlume and Simunye sugar estates, which will provide the economy of scale needed for a 50 per- cent rise in sugar production to the 750,000 tonnes annually the Swaziland Sugar Association hopes to achieve by the end of this decade.

Mining, which used to be a key pillar of the Swazi economy has taken a tumble with asbestos production ended as the aging Bulembu asbestos mine finally played out, and coal production dropped. In 2002, mining contributed a minute 1.1 percent to GDP. While demand for quarry stone remained temporarily high in order to supply local highway building and public works projects, growth in the construction industry contracted from 11.5 percent to 9.8 percent.

However, the southern African country's coal industry heralds this encouraging prospects with coal production having increased significantly in 2002, to 313,272 tonnes, up from 78,042 tonnes the year before. All Swaziland's coal is exported to South Africa, where it is used by the Johannesburg-Pretoria industries of the Gauteng province. Production capacity in this sector is set to rise again this year as a second mine reopens after years of closure.

Swaziland has made strides in the rehabilitation of its road, rail and communications infrastructures to lure foreign direct investment. The southern town of Nhlangano is the site of the kingdom's second major industrial park and economic planners want to decentralise manufacturing from the central Matsapha Industrial Estate outside Manzini.

The Swaziland Investment Promotion Authority took a few years after its launch in 1998 to achieve results, but working with the enterprise ministry it is bringing in mining and transportation sector investors, and industry apart from garment makers.

Swaziland Railway is upgrading its line to Maputo in the largest infrastructure programme since the company's founding in 1964, to give exporters the option of shipping through Maputo's port instead of relying on Durban, South Africa. Portnet, which manages the Durban facility, has responded by promising to fast track Swazi-bound goods, which have dawdled in port for up to a week awaiting available trains.

Positive forecasts led to a second cargo shipment coordinating firm specialising in train freight haulage opened in June last year in anticipation of increased volumes of exports. While road freight companies reported record business in 2002. All signs point to greater activity in supporting industries as manufacturers increase AGOA exports. But the business community is worried that government intransigence over political reform might scuttle their plans.

"Businesses are risk adverse and nervous about uncertainty, and right now we have no idea what the political scene holds. This is the greatest hindrance to attracting foreign direct investment," added the source at the Central Bank.