Dismal economic scorecard

The Central Bank of Swaziland releases its annual state of the economy report this week, and economists are searching its dismal data to see why the government's efforts to boost living standards and attract foreign direct investment have failed. "The current economic slowdown in Swaziland is exceptionally deep and broad, with no evidence that the downward spiral that began two years ago will see a recovery," Martin Dlamini, the Central Bank governor noted in his introduction to the report. Real gross domestic product (GDP) growth declined to an historical low of 1.5 percent in 2001, down from 2.2 percent in 2000 - less than half the 3.7 percent reached in 1999. The statistics belie expectations raised by Finance Minister Majozi Sithole when he delivered to parliament this year's budget with a promise of growth similar to last year's, and probably better. The assessment was based on a proliferation of new Asian-owned garment factories, whose presence in the kingdom seemed to validate the government's efforts to attract new foreign direct investment (FDI) as a way to curb unemployment and alleviate poverty. The Ministry of Economic Planning and Development's most recent figures show a decline in unemployment to 40 percent from last year's historic high of 45 percent, which also seemed consistent with the opening of a score of new garment-making companies eager to take advantage of Swaziland's participation in the US trade scheme, the African Growth and Opportunities Act. The agreement allows Swazi goods to enter the American market duty free, giving them a competitive price advantage. But while the Central Bank acknowledges that the new factories are providing some employment, the government's promise last year of tens of thousands of new jobs have failed to materialise. "Total formal sector employment was down by 0.8 percent from the people employed the year before," noted the bank. The reason: while some new companies were being established, others that had been major employers were closing down. For an agriculture-based economy, in which a minimum seven out of 10 people earn their livelihoods from the land, the agriculture sector contributed only 10.1 percent of GDP, matching 1999's all time low. While production of the national staple food, maize, was down due to drought, 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. However, sugar production declined 5.2 percent from a national harvest of 500,680 mt compared to 528,241 mt the year before. Worse still, export volumes declined by nearly 25 percent. The reason was not too little rain but too much, which made fields muddy quagmires inaccessible to trucks needed to haul away cut cane. "The sugar figures are scary. They come at a time when government is gambling with food security, during a food shortage crisis, by encouraging small landholder farmers to create cooperatives to grow sugar cane and not maize," an economist with a local bank told IRIN. Dlamini summed up the reasons for Swaziland's poorly performing economy: "Reduced agricultural production and processing, low global demand for exports as a result of global slowdown and the September 11 attacks on the US, closure of companies, and low rate of growth of FDI inflows." But the bank did not address the larger strategic issue faced by Swaziland, sandwiched 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 make an impression, and convince businesses to come here instead of better known and larger economies," a source with the Swaziland Chamber of Commerce and Industry told IRIN. The government also needs 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 neighbouring states to keep them solvent. Taxes on individual Swazis comprise only 16 percent of government revenue; company taxes only 9 percent and sales taxes only 14 percent. The government has little choice but to press ahead with efforts to lure foreign investors to the kingdom to expand tax revenue sources. One bright spot in the Central Bank's report were modest gains recorded in the service sectors – banking, communications and transportation – that comprise the infrastructure needed for incoming businesses.