Economic recovery tied to political reform

In light of a continuing decline in the national economy, documented in its annual report of economic trends released this week, the Central Bank of Swaziland took the unusual step of recommending that government enact political reforms to improve the business environment and attract much needed foreign investment. "The negative perception by the international community that there is a breakdown of the rule of law in Swaziland, deepening bad governance and lack of political direction in the country, should be dealt with promptly," said the central bank report. Such sentiments have never before appeared in the bank's usually data-filled report on the state of the economy. The nation's business community supports the call for political reform. "We must safeguard our preferential trade privileges with the United States and other markets, and fundamental issues that may lead to the loss of those agreements have to be addressed," the Federation of Swaziland Employers (FSE) said in a statement. Both the FSE and the central bank are concerned about the loss of Swaziland's participation in two US trade initiatives: the Generalised System of Preferences (GSP), and the African Growth and Opportunities Act (AGOA). "AGOA came as a relief to the gradual decline in growth of the manufacturing sector," the bank said in its report. An expansion in the manufacturing industry in response to the benefits offered by AGOA, which include duty-free entrance of Swazi-made products into the American market, mitigated the effects of other company closures in Swaziland, and increased employment. However, the US Treasury Department has accepted a petition from the American Federation of Labour-Congress of Industrial Organisations (AFL-CIO) asking for an investigation into Swaziland's labour practices and human rights record. The probe will determine if Swaziland deserves to participate in the American trade initiatives, which are linked to participating nations' commitment to good governance and political reform. Despite AGOA, Swaziland's economy is performing worse than at any time since national independence from Britain in 1968. Economic growth last year was at an historic low of 1.6 percent, less than half the 3.5 percent achieved in 1999, and even below 2001's lacklustre 1.8 percent. "Swaziland experienced exceptional double-digit growth rates in the 1980s and early 1990s, but in hindsight this could be seen as unsustainable because investment came from South African companies relocating to neighbouring Swaziland to escape sanctions on the apartheid government," central bank governor Martin G. Dlamini told IRIN. "Investment stopped and reversed when democracy came to South Africa. If we factor out that boom, a realistic growth rate would have been three percent," he added. But doubling the current growth rate to achieve even this historically reachable average requires the restoration of investor confidence, Dlamini said. "The weak state of the economy has resulted in an increasing number of people living below the poverty line (currently estimated at 66 percent), and a high number of economically active people joining the unemployment ranks in the country," the bank reported. With government reluctant to initiate a population policy to mitigate one of the world's highest population growth rates, the outlook is grim. "Given the estimated population growth rate of 2.9 percent, the unimpressive economic growth fails to achieve the upliftment of the well-being of the average Swazi, and implies a deterioration of the standard of living as measured by per capita income," the bank noted. Labour leader Jan Sithole, secretary-general of the Swaziland Federation of Trade Unions, told IRIN that "we have said all along that you cannot separate political issues from bread-and-butter issues that affect the working person. The central bank report clearly illustrates this". Government's expenditure also worries the bank. External reserves of cash that government has traditionally drawn upon to pay its debts fell a significant 34 percent over the past year. As a result, the government was forced to borrow from foreign sources to pay its bills, resulting in an escalating national debt. However, government was spending in the wrong places, said the bank. It urged that in addition to introducing fiscal reform, government should downsize the civil service - whose salary increases last year fueled inflation - and speed up the privatisation of non-performing public enterprises. Investment in infrastructure was also lacking. "Given that public investment facilitates the growth of private investment, then the slow growth in public investment is likely to negatively affect the performance of private investment," the bank remarked. Bongani Dlamini, an activist with one of the banned political opposition parties, doubted that government would shift its spending priorities. "Government is the biggest employer, and it will give civil servants and teachers what they want to keep them happy. All civil servants have to sign an agreement that they will not become involved in politics. Government's spending priorities are those things that help them stay in power, like the police and army," he said. Continued drought conditions and lower demand for Swazi products due to a global economic downturn have had their effect on the performance of Swaziland's agricultural sector. But calls for land reform would intensify with central bank data showing that agricultural production last year fell to R131.5 million (about US $17.8 million), from R154 million (about US $20.9 million) two years earlier. During the same period, agriculture as a percentage of the Gross Domestic Product declined from 10.6 percent to 8.7 percent. "This is a worrisome decline for a nation that has an agriculture-based economy, and where four out of five Swazis live off the land," said Manzini agri-businessman Luke Magagula. The manufacturing, mining, banking and real estate sectors failed to take up the slack. Only tourism was up slightly, from 5.9 percent to 6 percent of GDP, construction (7 percent, from 6.2 percent) and government services (16.6 percent from 16.5 percent). The central bank report linked data showing a deteriorating economy with the need for foreign investment, and called for government to create a supportive climate for investment by putting its political house in order. Faith in the judicial system - which was eroded during the past year after the government refused to recognise key court decisions it disagreed with - and good governance tied to development-oriented spending, as well as a sound constitution were all prerequisites for economic revival, the bank said.