Economics of Swaziland

Introduction

Swaziland is a developing country in Africa. The country is landlocked and depends on South Africa to import and export products. The diagram below shows the geographical location of Swaziland. In 1968, Swaziland achieved independence, and since then, the country has made progress towards improving the sovereignty of the citizens. Political reforms have been established to increase democracy, and this has resulted in unrest. A constitution was created in 2006, and this has improved the democracy in the country. Swaziland has been affected by the Aids disease menace, and this has affected the productivity of the economy (CIA: The World Factbook, 1). A large section of Swaziland is bordered by South Africa. This makes the country entirely dependent on South Africa for almost all imports and exports. The economy of Swaziland is affected by the economy of South Africa. Agriculture forms the biggest source of income for the country.

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Economics of Swaziland.
Source: (CIA: The World Factbook, 1).

Swaziland’s international financial flows over the past twenty years

Although Swaziland has been classified among the middle-income countries, this country has similar characteristics as those of low-income countries in Africa. The main economic activity is agriculture, with about 70% of the population depending on farming. By 2000, 69% of the residents were living below the poverty line, with an unemployment rate of 45.6% (Regional Department, South A 8). The country has concentrated on the private sector as a strategy to improve its economy. In the period between 1990 and 2000, the country received 67 million U.S. dollars from foreign direct investment. However, the figures dropped by 7.4 million dollars between 2003 and 2008. This is a sign that production dropped, and the capacity to undertake new investment has also decreased. On the issue of goods and services exported, there has been a slow growth of about 5.7%. This is attributed to increased government expenditures due to construction projects. The prices in oil and manufacturing inputs have also increased. Therefore, the country imports more products than it exports, and this explains why the economy is growing at an extremely low pace. The country lags behind the rest of the nations in the South African region, as indicated by the ranking of business indicators (Mbabane 9).

There is a need for the country to build on its latent resources to build a competitive advantage that will attract investors to the country. This can be achieved by focusing on education such that the labor force is well educated. Currently, the number of educated workers with expertise is low, ranging from that of low-income countries like Namibia and Mauritius. Through this, the country will increase the labor cost to pay workers better wages. This will consequently change the spending patterns and improve the economy. Good labor relations are also another area of focus to minimize the chances of employee strikes. Currently, the country’s infrastructure is slightly below average, and there is a need for improvement to attract foreign investment. This will result in a supportive business environment. Other activities like access to finance and backbone business activities will also be eased, and business will grow steadily. Given that South Africa has a better economy, it is easy for Swaziland to adopt such economic sophistication and diversification (Mbabane 9).

Trade-in goods & services

Swaziland depends on South Africa heavily for its goods and services. More than 90% of its imports come from South Africa. The country, in turn, sends South Africa 60% of its exports. These exports include constraints of soft drinks, sugar, Pult, cotton yarn, and canned foods. Other exports are sent to the E.U. and Mozambique. These two regions account for 20% of the exports. In terms of imports, the country sends about 2.01 billion U.S. dollars. Some of the commodities imported are chemicals, motor vehicles, petroleum products, clothing, and foodstuffs. The country prefers to maintain its diplomatic ties with Taiwan as compared to China (Coppock 3).

Swaziland’s economy is diversified well, and the manufacturing and services sector contributes the biggest percentage of output. There has been an increase in the manufacturing and production sector in the last decade. This sector experienced growth from 38.5% to 42.3%. However, the services sector has not experienced any growth. This sector has remained at 50%. Although this is a bad sign, the two sectors remain the best contributors to the country’s GDP. There is a need for the production industry to seek value-adding activities and integrate them into their systems. This can be done by raising the knowledge of production with an aim to achieve high, equitable, sustainable growth, and development (Coppock 3-4).

Income movements

Swaziland has experienced low growth of the economy compared to other neighboring countries. In 2001, the country had a 2.8% rate of growth. This has been caused by reducing the productivity of the agricultural sector and the impact of HIV/Aids. The country has been experiencing budget deficits because the expenditure has always surpassed the revenues. For example, wages account for 15 percent of GDP. However, in the last 20 years, Swaziland has reduced external debt. This is an indication that the country is in a position to recover from the financial crisis experienced in the period before 2011. In 2000 and 2001, Swaziland’s currency, the Lilangeni, began losing its value against the U.S. dollar, and this favored its exports in world markets.

The country’s principal imports amounted to about 810.8 million U.S. dollars. This included 65% exports to South Africa, 12.2% in the E.U., 11% in Mozambique, and 5.2% to the USA. Japan and Singapore are also some of the suppliers in Swaziland. Apart from the aid received from abroad, this amount consists of transfers from SACU and the country’s own trade and production ( Murison 1053). The country has a low foreign direct investment. The SMEs depend on contracts from the government while others work on activities of low value. The majority of these specials on subsistence agriculture, wholesale and retail business, which may have low-profit margins. This explains why foreign investment has been lagging behind other international development activities in the country (World Bank Group 2-3).

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Foreign Direct investment

The central bank of Swaziland reported that Swaziland’s growth in foreign direct investment had declined in the period between 1992-1998. Political uncertainty and industrial unrest were the main contributing factors. However, in 1999, this trend changed, and investors like a Chinese company Zheng Yong and other 15 projects came on board (Morrison 1053). In 2001 and 2002, Swaziland increased investment inflows, and this was very significant in the country’s economy. The clothing and textile sector contributed positively to this change and has uplifted the manufacturing sector in general. Swaziland’s membership in AGOA was significant as it retained the foreign investor and attracted even more investors.

However, this did not last for a long time, and the investment levels began declining in 2004. The economic performance has been declining as of 1999. The GDP fell by 4% in the period between the 1980s and 1990s to stand at 4%. It has been experiencing farther, and this is a reflection of the low performance in foreign direct investment. The country’s location is not attractive to foreign investors due to the risky environment in Africa. It has also been discovered that openness in trade in Africa is not as significant as in the developing countries of other regions. African countries are less open to trade. This discourages foreign investors who do not believe that trade reform is incredible in Swaziland. The majority of foreign investments is dependent on the existing infrastructure, and this is a challenge in most of the developing African nation. There is a need for natural resource investment in Swaziland and the surrounding nations in Africa (Masaku and Thula 180).

The open nature of Swaziland to foreign trade is not the only determining factor, but also other resources such as a good communication system, affordable sources of energy such as electricity and gas, good roads to connect the industrial areas to the ports, and the general infrastructure. They include the rail systems and airports that are of the accepted international standards. This will attract foreign investors to identify and expand their investment activities in Swaziland (Masaku and Thula 182-183). Labor productivity is also a challenge because the country’s productivity is less than that of other middle-income countries in other regions. They are also less competitive and do not export a large amount to other countries. In Southern Africa, South Africa is the main export market with about 70%, an indication that Swaziland is not competing well with other markets. This discourages foreign investors (World Bank Group 2).

Loans

Swaziland’s banking system is dominated by private-sector lending. Money supply and deposits have gone down as a result of poverty and inequalities in wealth distribution. Growth in the banking sector has been very slow in the period between 19814 to 2006. Commercial banks usually target to finance exporters and the older generation. This implies that the young generation has been left out, and the investment levels are likely to go down in the future if this trend continues. Lending is low. Even the nonbank financial institutions in Swaziland have also failed to meet the demand for financing because they are not regulated and supervised adequately. The investment climate is also weak, and this has resulted in inflation of cost capital and return rates (Coppock 4-5).

Other than domestic savings in the local commercial banks, the majority of the nationals have put their savings in South Africa. This has been attributed to the borrowers’ inadequate access to collateral. For instance, farmers experience a lot of difficulties in acquiring loans to invest in agricultural activities. This is because almost 60% of their land is held in public trust and therefore cannot be used as security for borrowing. Since the main commercial activity in Swaziland is agriculture, local commercial banks cannot expand their borrowing. This has caused banks to be ranked as the lowest performers among the SACU countries. Formal banking experiences high operational costs. The Swazis financial needs neglected by the formal banking sector have been met by savings and credit cooperatives, which have grown at a high rate. In 2002, the banks grew by 26%, while the savings and credit cooperatives grew by 116% (Coppock 6).

Microenterprises and SMEs experience a challenge in accessing finance. Only 19% of micro-enterprises have obtained loans from commercial banks. The rest opt to use their retained earnings as their working capital, and the banking sector does not provide them with funds for new investment as compared to other countries. This discourages investment, for most of these enterprises are not in a position to expand their activities using their earnings only (World group 3).

Aid

Swaziland is among the countries that have been severely affected by HIV/AIDS. This is a result of unemployment, poverty, and conservative religious practices. The government has focused on fighting this epidemic by funding projects in HIV/AIDS education. This has attracted international organization to support this cause through sponsorship programs for those affected and funds to support other programs of HIV management health care. Some of the organizations include WHO, UNICEF, UNDP, and THE Elizabeth GlaserPediatric AIDS foundation. These organizations support communities by mobilizing communities to fight against the spread of this disease and capacity building. Others like Cheshire Homes of Swaziland provide physical care for those living with HIV/AIDS (World Health Organization2).

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AIDS is a contributing factor towards the threat of famine because the affected families tend to spend a lot of funds towards the treatment and management of this disease. It has also affected the productive population, and thus agricultural production also goes down. Given that 80% of the country’s population relies on small holder agriculture, famine is a major threat in the country. Food Agriculture Organization (FAO) and the World Food Program (WFP) serve over 400,000 people who are in need of food aid. This also includes coping strategies for the residents to learn how to prepare for famine threats in the future. Food aid is also extended to Swaziland by businesses based in Germany in response to the famines that are frequently experienced in the country. This is done through individual and corporate donations. Food insecurity is expected to persist even in the future due to the increasing commodity prices like fertilizers and agricultural inputs. Changes in rainfall distribution are also affecting the country’s agricultural productivity (Naysmith 4-5).

Other sources of international funds

Swaziland signed at Soth African-EU free trade agreement, and the country was in a position to receive 1,900 million Euros. This agreement also protects the country from exchange rate fluctuations and also promoted merchandise exports (Murison 1053). Western education also plays a significant role in Swaziland. Christian missions operating in the country have supported formal education without any government aid (Booth 26).

Exchange rates in Swaziland are based on South African’s Rand, which is legal since 1986. The two countries entered into this arrangement when they were using the British sterling. The agreement exists between South Africa, Swaziland, Lesotho, and Namibia. Money flows between the four countries, and there are no exchange controls. Other currencies like the USD Dollar, the Japanese Yen, the UK Sterling Pound, and Euros are frequently exchanged in the country. The Rand is weak against these currencies. Recently, the U.S. dollar has been introduced as the intervention currency to save the country from unreasonable rates (Coppock 14).

Impact of Swaziland’s international financial flows overall economic development

Financial flows have promoted Swaziland’s economy, and the country has launched several development initiatives as a result of that initiative. For instance, in 1998, Swaziland, Mozambique, and South Africa launched the Lebombo Spatial Development Initiative (SDI) that focussed on attracting investors to the countries. The main target industries are tourism, agriculture, and infrastructure. This included a railway service running from Durban in South Africa to Maputo in Mozambique through Swaziland. There were also developing plans for the completion of an airport in the country’s Eastern part and proper supervision of the banking system. These projects also included expansion and diversification of the government’s revenue base to ensure that expenditure is kept under firmer control. Political reforms have also been boosted in an effort to build a foreign investment for the desired economic growth and development ( Murison 1054).

Over the last twenty years, Swaziland’s economy has grown substantially. Financial institutions have increased; today, commercial banks are not the only lending institutions but also cooperative unions. The insurance industry has also grown, and a considerable amount of the population has realized the importance of these services. Industrial development has also experienced significant growth, especially in trade associations, to protect the country against fluctuations in exchange rates and stock markets. Employee organizations have been established to help in negotiations for better wages and protect employees from discrimination. This is bound to grow the economy further since workers have improved living standards and changed spending patterns. Trade and industry have also grown through international trade agreements to offer better access to funding. The importance of education has been recognized, and more people had been educated, unlike before, when education was given the least priority. This is a promise for an improved workforce in terms of skills and expertise (Murison 1055).

Offer suggestions on the way forward

For Swaziland to compete like other middle-income countries in the international markets, there is a need to keep improving the educational system. The current secondary school systems are poor and inadequate. This is a major threat to national well being and should be upgraded through increased educational funding (Booth 78). The HIV pandemic can be addressed from an economic view whereby other than individual behavior change. This is because the pandemic was triggered by the country’s economic situation. Despite the billions of dollars that have been allocated for the management and prevention of this disease, the current economic situation puts the population’s health at risk. Economic projects that promote agriculture, education, and employment opportunities will lower this risk by providing the basic socioeconomic requirements. Lack of basic needs makes citizens prone to HIV and other social ills (Hickel 513-514). Political reforms will help in attracting foreign investors. Insecurity is a major reason why the growth in foreign direct investment has been slow when compared to that of the adjacent country like South Africa (McCourt 1015-1016).

Conclusion

Swaziland’s economy matches that of developing countries, although the country has been ranked among the middle-income countries. The country has experienced very slow growth over the last twenty years. Its economy is experiencing a lot of struggle due to issues like the HIV/AIDS pandemic, poor education systems, poor employment, and political unrest. The country heavily relies on agriculture, and there is a need for the government to strategies for mechanisms to promote this industry and grow other industries as well. Knowledge and expertise will help in improving the employment situation through better education. Political reforms will also promote investment and grow the economy. The financial industry is very significant for the country’s economy, and there is a need to improve the supervision and management of these institutions. The country has the potential to grow at the local and the international level if these changes are implemented and evaluated continuously.

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Works Cited

Booth, Margaret Z. Culture and Education: The Social Consequences of Western Schooling in Contemporary Swaziland. Lanham, Md: University Press of America, 2004. Print

CIA: The World Factbook 2012, Swaziland. Web.

Coppock, Michael 2012, Swaziland. PDF file. Web.

Hickel, Jason. “Neoliberal plague: the political economy of HIV transmission in Swaziland.” Journal of Southern African studies, 38.3 (2012): 513-529.

Masaku, Micah B. and Thula, Dlamini S. “Determinants of foreign direct investment inflows in Swaziland.” Journal of Development and Agricultural Economics 5.1 (2009): 177-184.

Mbabane, Micar 2011, Swaziland Focuses on Private Sector for Economic Growth. Web.

McCourt, Willy. “Political Commitment to Reform: Civil Service Reform in Swaziland.” World Development, 31.6 (2003): 1015-1031.

Murison, Catherine. Africa South of the Sahara. Routledge. London, Unwin Brothers Limited, 2003, Print.

Naysmith, Scott 2009, Revisiting New Variant Famine: The Case of Swaziland. PDF file. Web.

Regional Department, South A. 2011, KINGDOM OF SWAZILAND COUNTRY STRATEGY PAPER, 2009-2013 MID-TERM REVIEW. PDF file. Web.

World Bank Group 2011, Summary of Swaziland Investment Climate Assessment. PDF file. Web.

World Health Organization 2005, Swaziland. PDF file. Web.

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