Posted: June 27th, 2015

Swaziland is a developing countries in Africa. The country is landlocked, and depends on South Africa to import and export products

Introduction

Swaziland is a developing countries 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 into 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 to entirely depend 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.

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 it. BBy 2000, 69% of the residents were living below the poverty line with an un employement rate of 45.6% (Regional Department, South A 8). The country has concentrated on the private sector as a staregy to improve on its economy. In the period between 1990 and 2000, the country received 67 million US dollars from foreign direct investment. However the figures dropped by 7.4 million dollars between 2003 and 2008. A sign that production dropped and the capacity to undertake new investment has also decreased. On the issue of goods and services export, there has been a slow growth of about 5.7%. This is attributed to the increased government expenditures due to the construction projects. The prices in oil and manufacturing inputs have also increased, imports have therefore outpacedexports 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 tha will attract investors to the country. This can be achieved by focusing on education such that the labor force iswell educated. Currently the number of educated workers with expertise is low ranging as that of low income countries like Namibia and Mauritius. Through this the country will be in a position to increase the labor cost to pay workers better. This will consequently change the spending patterns and improve on the economy. Good labor relations is also another area of focus tto minimize the chances of employee strikes. Currently, the country’s infrastructure is slightly above average and there isa need for improvement to attract foreign investment. This will result in a supportive business environment, other activities like the acess to finance and backbone business activities will also be eased and business will grow seadly. Given tha the her neighbour South Africa has a better economy, it is easy for Swaziland to adopt to such an economy of economic sophistication and diversification (Mbabane 9).

Trade in goods & services

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

Swaziland’s economy is diversified well and the manufacturing and services sector contributed to the biggets percentage of output. Over the last ten years, the manufacturing production grew from 38.5% to 42.3% while that of services did not experience any growth. It reamained at 50%. Although this is a bad sign, the two sectors remain the best contributants to the country’s GDP. There is a need for the production industry to seek for value adding activities and intergrate them in 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 the GDP. However, in the last 20 years, Swaziland has reduced external debt. An indication tha the country is in a position to recover form the financial crisis experienced in the period before 2011. In 200 and 2001, Swaziland’s currency the Lilangeni began losing its value against the US dollar and this favoured its exports in world markets. The country’s principle imports amounted to about 810.8 milluion US dollars. This included 65% exports to South Africa, 12.2% to EU, 11% to Mozambique and 5.2% to USA. Japan and Singapore are also some of the suppliers to Swaziland. Apart form the iad received from abroad, this amount consists of transfers from SACU and the country’s own trade and production( Murison 1053).Foreign direct investment is low with SMES depending highly on government contracts or choose to operate on low value activities. Majority of these specialise 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 for the country (World Bank Group 2-3).

Foreign Direct investment

The central bank of Swaziland reported tha Swaziland’s growth in foreign direct investement had declined in the period between 1992-1998. Political uncaertainity and industrial unrest were the man contributing factors. However in 199, this trend changed and investors like a Chinese company Zheng Yong and other 15 projects came on board (Mourison 1053). In 2001 and 2002, Swaziland increased investment inflows and this was very significant in the country’s economy. The clothing and textile sextor contributed positively towards this change and has uplifted the manufacturing sector ingeneral. Swaziland’s membership in AGOA was significant as it retained the foreign investror and attrcted even more. However this did not last long and the investment levels began declining in 2004. The economic performance has been declining as from 1999. The Gdp fell by 4% in the perod between 1980’s and 1990’s to stand at 4%. It has been experiencing futher and this is a reflection of 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 that trade reform in incredible in Swaziland. Majority of the foreign investments are dependent on the existing infrastructure and this is a challenge in most of the developing African nations. There is an need for natural resource investment in Swaziland and the surrounding nations in Africa (Masaku and Thula 180).

Openness of Swaziland to foreign trade is not only the determining factor but also other resources such as a good communication system, affordable sorces of energy such as electricity and gas, good roads to connect the industrial areas with 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 since 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 the private sector lending. Money supply and deposist 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 target export financing and a large portion of the adult population. Ths implies that the young generation has been left out and the investment levels are likely to go down in future if this trend continuous. Lending is low, even the non bank financial institutions in Swaziland have also failed to meet the demand for finacing since 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, majority of the nationals have put their savings in South Africa. This has been attributed to the borrowers’ in adequate acess to collateral. For instance, farmers experience a lot of difficulites in acquiring loans to invest in agricultural activities. This is because almost 60% of their land is held inpublic trust and therefore cannot be used as security for borrowing. Since the main commercial activity in Swaziland is Agriculture, local commercial banks caanot expand their borrowing, this has seen these banks being ranked as the lowest performers among the SACU countries. The financial sector has generaly been affected by the high costs involved in formal banking services. 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).

Micro enterprises and SMLEs experience a challenge in accessing finance. Only 19% of micro enterprises have obtained loans from the commercial banks. The rest opt to use their retained earnings as their working capital, the banking sector does not provide them with funds for new investment as compared to other countries. This discourages investment since 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 as a result of unemployment, poverty and conservative religious practices. The government has focussed on fighting this epidemic by funding projects on HIV/AIDS education. This has attracted international organization to support this cause through sponsorship programmes for those affected and funds to support other programmes of HIV management health care. Some of the organizations include WHO, UNICEF, UNDP and THE Elizabeth GlaserPediatric AIDS foundation. These organizations support communities by mobilizinf communites 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).

AIDS is a contributing factor towards the threat of famine since the affected families tend to spent a lot of funds towards treatment and management of this disease. It has also affected the productive population and thus agricultural production also goes down. Given tha 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 Programme (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 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. Chabges in the rainfall distribution is also affectiving the country’s agricultural productivity (Naysmith 4-5).

Other sources of international funds.

Swaziland signed athe Soth African-EU free trade agreement and the country was in a positon 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 in 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 US dollar has been imtroduced 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. For instance, 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 were tourism, agriculture and infrastructure. This included a railway service running from Durban in South Africa to Maputo in Mozambique through Swaziland. There was also development plans for the completion of an airport in the country’s Eastern part and a proper supervison in the banking system. These projects also included expansion and diversification of the government’s revenue base to ensure that expenditure is kept under a firmer control. Political reforms have also been boosted in an effort to build foreign investment for the desired economic growth and development ( Murison 1054).

Over the last twenty years, Swaziland’s economy has grown substancialy. 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 considerableamount in the population have realized the importance of these services. Industrial development has also experienced significant growth especially in trade associations tha protect the country against fluctuations in exchange rates and stock markets. Employees organization have been established to help in negotitions 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 has also grown thourh international trade agreements tha offer better acess to funding. The importance for education has been recognised and more people have been educated unlike before when education was given the least priority. This is a promise for an improved work force 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 internationalmarkets there is a need to keep improving the educational system. The current secondary shool systemsare poor and inadequate. This is a major threat to national well being and should be upgradedthrough increased educational fundng (Booth 78). The HIV pandemic can be adreessed form an economic view whereby other than individual behaviour change. This is because the pandemic was triggered by the country’s economic situation. Despite the billions of dollars tha 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 opportunites will lower this risk by providing the basic socio-economic 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 as to why the growth in foreign direct investment has been slow when copared to tha of the adjacent countries like South Africa (McCourt 1015-1016).

Conclusion

Swaziland’s economy matches that of developing countries although the country has been ranked among the middle icome countries. The country has experienced a very slow growth over the last twenty years. Its economy is experiencing a lot of struggle due issues like the HIV/AIDS pandemic, pooreducation systems,poor employment and political unrest. The country heavily relies on agriculture and there is a need for the government to strategise for machnisisms to promote thisindustry and grow other industries as well. Knowledge and expertise will help in improving the employement sistustion 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 theseinstitutions. The country has the potential to gwro both at the local and the international level if these changes are implemented and evaluated continuously.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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. Swaziland, 2012. Web 29 November 2012 https://www.cia.gov/library/publications/the-world-factbook/geos/wz.html

Coppock, Michael. Swaziland, 2012. Web 29 November 2012 http://fic.wharton.upenn.edu/fic/africa/Swaziland%20Final.pdf

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, 2011. Swaziland Focuses on Private Sector for Economic Growth. Web 29 November 2012 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/SWAZILANDEXTN/0,,contentMDK:22934089~menuPK:375130~pagePK:141137~piPK:141127~theSitePK:375023,00.html

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. Revisiting New Variant Famine: The Case of Swaziland. 2009 Web 29 November 2012 http://asci.researchhub.ssrc.org/working-papers/Naysmith%20No.%2028.pdf

Regional Department, South A (2011). Web 29 November 2012 http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/SWAZILAND-%20REV%201%20-%20CSP%202009-2013%20Mid-Term%20Review.pdf

World Bank Group. Summary of Swaziland Investment Climate Assessment, 2011. Web 29 November 2012 http://siteresources.worldbank.org/EXTAFRSUMAFTPS/Resources/sw_ica.pdf

World Health Organization, Swaziland. 2005. Web 29 November 2012 http://www.who.int/hiv/HIVCP_SWZ.pdf

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