Blessings of a compact economy
Tom Nevin interviews the Prime Minister of Swaziland, Dr. B. Sibusiso Dlamini.
Swaziland Prime Minister, Dr B. Sibusiso Dlamini, stands at the helm of one of Africa's smallest nations. But what the mountainous kingdom lacks in size it more than makes up for in dynamism, economic and financial astuteness, political stability and a tenacious belief in its cultural and traditional heritage.
Dr Dlamini must steer his ship through the choppy, ever-changing, and often perilous, African political and economic waters. Swaziland, because of its tranquillity and stability is often referred to as Africa's Switzerland. It's a perception that Prime Minister Dlamini has a fondness for and does what he can to perpetuate. But it's not all plain sailing for the southern African kingdom. It did not escape the recent global economic turmoil, but is coping better than most in its recovery. It must fight alongside the giants for its share of international commodity markets, it must suffer the international community's disapproval of, and impatience at, its dual system of government, and it must continue to develop and grow and enhance the lives of its 1m people.
African Business: Swaziland's economic growth has slipped somewhat. Is this a regional trend and how can you stimulate GDP growth?
B Dlamini: The economic upturn of the 1980s and early 1990s was largely attributable to the high percentage of foreign direct investment flows into Swaziland in preference to other countries in the region, where political conditions were relatively unstable. That situation changed dramatically as the present decade progressed, with political stability and economic transformation taking place in surrounding countries. This change caused a slowdown in the growth dynamic in Swaziland and the rate of economic growth fell from a high of around 9% in the early 1990s to an average of 3.3% in the past four years.
AB: What specifically are you doing to stimulate growth?
BD: The Economic and Social Reform Agenda (ESRA), the National Development Strategy (NDS) and the Public Sector Management Programme (PSMP) represented our response to the deepening stagnation. ESRA is a short-term action programme to kick-start the economy, the NDS is our 25-year development strategy and the PSMP is an initiative to make the public sector more cost-effective and efficient.
In ESRA, the primary objective of government has been to establish an investor-friendly environment - an attractive tax regime, improved employment and industrial relations legislation and better infrastructure.
We have made significant progress in establishing these fundamentals and expect the private sector, both within and outside the kingdom, to respond with increased investment over the coming three years. By 2002, our economic growth figures should start to reflect that new activity from the private sector.
AB: Do you expect the private sector to take the lead?
BD: That is central to our strategy for faster economic growth. The private sector will be the engine driving that growth. In the context of roads infrastructure, therefore, we can see the clear merits of public/private partnership.
Up to now, our major roads projects have been government financed, either through grant-funding from a donor, such as the European Union, or loan funding through institutions such as the African Development Bank, or directly from the government budget. The usual funding arrangement is a combination of two or all three of these. The SADC Protocol on Transport, Communications and Meteorology, to which Swaziland is a signatory, does encourage public/private partnerships and we are mindful of that. Indeed, we are currently examining the modalities of establishing a Roads Authority which represents a good example of public/private partnership.
The private sector would be involved in management, with revenue being provided by road user charges. We are giving consideration to the upgrading of the Mbabane By-Pass on a build-operate-transfer (BOT) basis. So it's fair to say government is looking increasingly to the private sector for infrastructure partnerships. Ventures of this kind are already taking place in our electricity, telecommunications and air transport sectors.
AB: Swaziland's biggest assets are its stability and resulting peaceful country and people. How do you go about marketing these fundamental assets in a continent with an unfortunate reputation of economic and political instability, crime and war?
BD: You have highlighted a number of features that single out Swaziland for the would-be investor and I think these overshadow the general perception of instability and crime you have described as prevailing for Africa as a continent.
By contrast with that perception, Swaziland has enjoyed political stability, a low crime rate - consensus and harmony are cornerstones in the Swazi culture - good industrial relations, an excellent transport, power, water and communications infrastructure and we are proud of our hard-working and skilled labour force.
Although agriculture and forestry output makes up 30% of our GDP, we also have a sophisticated manufacturing industry which contributes a further 40%.
Our forest products sector is now one of the world's main sources of unbleached pulp and our sugar industry, both at producer and processing levels, is one of the most efficient in the world. Our climate has been reliable, the soil fertile and we have been blessed with an abundance of breathtaking scenery.
Furthermore, our government is seriously committed to encouraging private sector growth and creating an investor-friendly environment. There are outstanding opportunities across the spectrum, from general manufacturing, to horticulture and tourism.
Tourism and tourism-related investment have immense regional development potential and there are several initiatives, launched jointly with our neighbours, that are well advanced. The development of tourism is now accepted as one of our principal national economic strategies. There are also extensive opportunities in 'downstream' manufacturing and processing in our natural resources sector. To improve our investor friendliness, we have established a one-stop investor service in the form of the Swaziland Investment Promotion Authority.
AB: What export sales and marketing edges does Swaziland enjoy?
BD: Goods produced in Swaziland are afforded preferential treatment in the large European market and similarly under the Generalised System of Preferences in North America, Australia and New Zealand. Swaziland is a member of the Southern African Development Community (SADC), the South African Customs Union (SACU) and the Common Market for Eastern and Southern Africa (COMESA), all of which either provide or are moving towards the provision of preferential trade arrangements.
One of our most successful investors, Fridge Master, started making refrigerators in 1990 and has grown from manufacturing 100 fridges a day to nearly 1,500, capturing 55% of the southern African market and exporting to countries as far away as the Middle East.
AB: Please explain Swaziland's political situation. Are changes to the monarchical system being considered and can Swaziland retain its deep cultural and traditional values and appease international opinion at the same time?
BD: Swaziland's political situation is entirely stable. Within the existing framework, general elections were held late last year. As with economic and social issues, we have been ready to recognise that improvement is still possible and also have a reform initiative underway for our political system.
His Majesty appointed a Constitutional Review Commission (CRC) in 1996 to look specifically into this area and draw up a new constitution based on the wishes of the people. The CRC has progressed as far as the civic education stage and thereafter will invite and document the views of the entire Swazi nation to be used as reference material in drafting the new constitution.
If any Swazi is dissatisfied with anything in the present political system, he or she will have ample opportunity to express that opinion during the ongoing CRC exercise. That is the purpose of the commission and its work and I believe it will eventually produce a fair and representative conclusion.
AB: Is government spending under control?
BD: Government spending is very definitely under control. In common with many small countries, our public expenditure is inevitably a high proportion of total recurrent expenditure. That is not to say we accept the situation uncritically.
Our annual budget review processes, and our new computerised management information system have facilitated a new, rigorous approach to public spending. Personnel costs are around 53% of recurrent expenditure, which we recognise as higher than we would like, but it is not easy to reduce them overnight.
We have tight controls on the creation of new posts and total payroll costs are not allowed to exceed the rate of inflation while other, non-personnel, costs are targeted to increase at a maximum of 2% below the prevailing rate of inflation. Through our PSMP were are reviewing staffing levels and exploring ways of dealing in a humane and financially acceptable way with any downsizing needs that may arise.
AB: Is being economically tied to South Africa a help or a hindrance? What reforms will you be pressing for in the renegotiation of the South African Customs Union (SACU)? Would you like to see the abolition, restructuring or reform of the SACU and Common Monetary Area (CMA)?
BD: Swaziland is closely tied to South Africa through geographical proximity and through membership of the CMA. Currently, trade with the SACU accounts for more than 90% of our imports and half our exports. In addition, we receive more than half of government revenue from the customs union. Rather than seek abolition of the SACU, it is preferable to continue with the renegotiations of the agreements that are currently underway. The purpose of these is to restructure and democratise the SACU. The new agreement will create new institutions, including a central secretariat, and formal mechanisms for decision-making and resolving disputes. Further, the parties will be agreeing on common approaches to trade and customs policy and a transparent mechanism for sharing the tariff revenue.
AB: What progress is being made in the negotiations?
BD: We're making substantial progress. All of the members are committed to a more liberal trade policy, as evidenced by their membership of the WTO and confirmed by a recent WTO report which praised their progress in liberalising trade.
All the SACU members are also members of the SADC and have agreed to submit a common SACU offer to the rest of the SADC for implementing a free trade area within the SADC. I expect negotiations to be concluded within the next few months and I'm confident that the outcome will show a renewed commitment to increased regional cooperation within southern Africa.
AB: Would you like more independence in how you run your finances?
BD: I think that independence needs to be placed in a modern context for its merits and demerits to be clearly understood. We have an independent financial system but there are substantial external influences. Nowadays more and more countries that are within the same geographic group, or with comparative economic strength are moving towards integration.
Major financial developments in South Africa do influence the behaviour of our financial sector, but there are differences between the two financial sectors and we do maintain a degree of independence. Recently, interest rates were kept high in South Africa as part of a tight monetary policy in protection of the rand; while in Swaziland we did not follow suit to the same extent and kept interest rates considerably lower. But, given the close economic relations between the two countries, this cannot go on indefinitely.
AB: What can be done to speed up the development of an interbank market?
BD: The Central Bank of Swaziland's decision to not pay interest on surplus deposits by commercial banks, and dispensing with term deposits, has caused those banks with excess liquidity to feel free to place funds with banks that have temporary cash shortfalls. The Central Bank's decision, however, has had only minimal effect on developing an interbank market because, apart from the Swaziland Development and Savings Bank, most banks are highly liquid.
AB: How much foreign exchange policy is dictated by Pretoria, and how much is Swazi input, seeing that CMA countries live by the same exchange control rules?
BD: Before the political changes in South Africa, financial markets were highly regulated and protected. This meant that from time to time the authorities would intervene in the market so as to influence certain financial aggregates in order to support the status quo.
Since the political changes of 1994, South Africa has been thrown into international markets whose influence is dictated by international capital movements and not internal measures. It would be wrong to say that Swaziland's foreign exchange policy is dictated by Pretoria while the rand is more influenced by external than internal factors.
As can be evidenced recently, the Southeast Asian contagion has had a great impact on the exchange rate of the rand. It is therefore important to point out that even though there still exist exchange controls in South Africa and Swaziland, these have a minimal bearing in the movement of international capital stock.
AB: The Lome Convention is about to be reviewed. How will a restructured or even disappeared Lome affect Swaziland, especially the sugar industry?
BD: The Lome Convention has been very important to Swaziland. The preferences have included the sugar and beef protocols and the margins of preference for textiles, horticulture and floriculture products. So the markets of the European Union offer great potential for increasing employment in labour-intensive industries and the kingdom's foreign exchange earnings.
The continued development of these export activities could, therefore, generate a significant level of private sector investment. The sugar protocol is not, itself, an integral part of the convention and has a separate legal existence. The end of Lome does not necessarily spell the end of the sugar protocol and it would seem reasonable to suggest that as long as the Community Preference remains the basis of the EU's Common Agricultural policy, there is a strong case for maintaining the sugar protocol.
AB: What about other commodities?
BD: Their future will depend on the EU'S approach after Lome.
AB: What is your vision of Swaziland 10 years from now?
BD: That the kingdom is well on its way in achieving its 25-year vision of being in the top 10% of the medium human development group, founded on sustainable economic development, social justice and political stability.
In 10 years time I hope Swaziland will have improved its world standing in terms of the measurable indices of human development, in particular the enhancement of human capabilities. That will require faster economic growth and a larger national 'cake' available for creating the necessary resources.
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