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Swaziland - Economy

By 2010 a dramatic drop in SACU receipts, Swaziland's principal source of income, had forced the government to cut ministries' budgets and consider alternative ways to raise money to finance the 2010 budget. Formerly, SACU receipts accounted for approximately 60 percent of the GKOS's budget, but for FY2010, Swaziland's share was slashed from 6 billon emalangeni (800 million USD) to 1.9 billion emalangeni (253 million USD) due to losses in customs revenue and the cost for Swaziland to repay overpayments from SACU in previous years.

GDP makes it a "lower middle income country," but income distribution is extremely skewed, with one of the highest Gini coefficients (60.9) in the world. The World Bank estimates twenty percent of the population controls eighty percent of the nation's wealth. The GKOS states that 69 percent of Swazis live on less than seven emalangeni (under one dollar) per day. GKOS estimates the official unemployment rate at 28 percent, while non-governmental organizations say it is closer to 70 percent. The IMF estimates Swaziland's 2008 real growth rate as 2.6 percent. Swaziland has an educated workforce and fairly good infrastructure, but suffers water shortages and depends on external generation for most of its electricity. South Africa, which surrounds Swaziland on three sides, accounts for over 80 percent of Swaziland's imports and 74 percent of Swaziland's exports. Swaziland generally defers to South Africa in trade negotiations between the Southern African Development Community and other nations.

The GKOS collects tariffs, fees, and various business and individual income taxes, but normally depended on receipts from the Southern African Customs Union (SACU) for 60 percent of its budget. Declining SACU revenues are contributing to a substantial 2010 budget deficit. South Africa's plans to adjust the revenue sharing agreement also negatively affectrf GKOS SACU revenue receipts over the next few years. The Ministry of Finance haf worked for several years to substitute a value-added tax for existing levies, without much progress, aside from the consolidation of several agencies into a unified Revenue Authority.

The Ministry currently collected only twenty percent of taxes owed. IMF and World Bank officials have repeatedly counseled the GKOS to reduce the size of the civil service, which absorbs some 60 percent of the recurrent budget, and improve expenditure allocation. The GKOS has not followed this advice, as the civil service is a controllable resource for providing jobs for the extended royal family and those close to them. Swaziland's close association with South Africa in the Common Monetary Area (CMA) limits its autonomy in monetary policy. The national currency, the lilangeni, is fixed at par with the South African rand, which is also legal tender in Swaziland.

Swaziland's economy is based on agriculture and agro-industry. Almost 60 percent of farming is subsistence and accounts for most maize production and cattle raising. However, drought has devastated maize and other crops in the lowveld for years, and 25 percent of the population requires food assistance. World Food Program has been providing food to about 20 percent of the population. In 2007, the Embassy issued a disaster declaration because of drought conditions and extensive wildfires. In 2009, harvests were somewhat improved, but the rains were sporadic and too heavy at the wrong times in many locations. The same is occurring this season. Additionally, some analysts believed that a dependency on food handouts has developed. Part of the problem is that there was normal migration to the cities of ambitious young people. Also, the high rate of HIV/AIDS infections and deaths in what should be the most productive age groups leaves only old people and children to farm.

Water for irrigation, and even for household use, is limited. Large tracts of land along rivers are usually agricultural concessions (e.g. citrus and sugar cane plantations) from royalty to large companies they hold a major share in. Swaziland exports sugar, canned fruit, wood pulp, and soft drink concentrate (including to Coca Cola). Cotton was once a major cash crop, but for the past four years the country has produced too little cotton to make it worthwhile to operate the ginnery. The European Union will have reduced the price it paid for African sugar under preferential price agreement by 37 percent in 2010. The United States allocates Swaziland a sugar quota that the latter rarely uses.

Swaziland is eligible for benefits under the Africa Growth and Opportunity Act (AGOA). Exports from Swaziland to the U.S. under AGOA and GSP provisions in 2007 were valued at $145.3 million. Swaziland provided factory shells and tax breaks to attract investors, mostly Taiwanese, who created garment assembly plants. At their peak, the plants provided up to 30,000 jobs. However, following the lapse of the Multifiber Agreement in January 2005, some plants closed and the number of jobs they provide fell to about 18,000. High transportation costs and the strength of the rand against the dollar (the Swazi lilangeni is linked to the rand at par) reduced the competitiveness of products produced in Swaziland. There has been no substantial foreign direct investment in Swaziland during the past four years. GKOS efforts to promote small and medium enterprises (SMEs) have had limited success, primarily due to government bureaucracy and the conservative lending policies of banks, most of which are branches of South African banks. Swaziland places great hopes in tourism as an engine of development.

Several labor federations are active in Swaziland. Suspected of being incipient political parties, they are not popular with the GKOS. They were especially active in the 2008 election year, calling for multiparty democracy and joining with the Congress of South African Trade Unions (COSATU) to protest King Mswati's policies. They participated in a protest march at the SADC Heads of State meeting on August 16, 2008 and a September 2008 border boycott, and collaborated with COSATU to protest the King's appearance at the May 10 swearing-in ceremony for then South African President-elect Jacob Zuma.

The field of education offered the clearest example of Swazi Government inefficiency and policy-making paralysis. Ten years after independence, Swaziland still had the same British-style educational system which is basically a liberal arts education and provided few practical skills. To make matters even worse, the overall performance of the educational system had been dismal. Far more partially educated youths left school every year than can possibly be absorbed into the wage economy. These youths were unwilling to remain in the kraal and drift to the urban squatter settlements. The Swazi Government had no plans whatever for coping with this problem.

Swaziland ranks as a lower middle income country, but it is estimated that 69% of the population lives in poverty. Most of the high-level economic activity is in the hands of non-Africans, but ethnic Swazis are becoming more active. Small entrepreneurs are moving into middle management positions. Although more than 70% of Swazis live in rural areas, nearly every homestead has a wage earner. The past several years have seen wavering economic growth as the small economy is strongly affected by climactic conditions and external factors. In 2010, the kingdom plunged into a fiscal crisis after alterations in the Southern African Customs Union revenue-sharing formula, the receipts from which accounted for more than half of the countrys fiscal revenue. Coupled with mismanagement of public funds and overspending, the decline in SACU receipts led to a near collapse of public finances and caused the government to draw down its foreign-exchange reserves and to seek external financing.

Nearly 60% of Swazi territory is held by the Crown in trust of the Swazi nation. The balance is privately owned, much of it by foreigners. The question of land use and ownership remains a very sensitive one. For Swazis living on rural homesteads, the principal occupation is either subsistence farming or livestock herding. Culturally, cattle are important symbols of wealth and status, but they are being used increasingly for milk, meat, and profit. Overgrazing, soil depletion, drought, and floods are persistent problems.

Swaziland enjoys well-developed road links with South Africa. It also has railroads running east to west and north to south. The older east-west link, called the Goba line, makes it possible to export bulk goods from Swaziland through the Port of Maputo in Mozambique. Most of Swaziland's imports were shipped through this port. Conflict in Mozambique in the 1980s diverted many Swazi exports to ports in South Africa. Swaziland mainly uses the port today for exports of sugar, citrus, and forest products, with future usage of the port expected to increase. A north-south rail link, completed in 1986, provides a connection between the Eastern Transvaal rail network and the South African ports of Richard's Bay and Durban.

The sugar industry, based solely on irrigated cane, is Swaziland's leading export earner and private-sector employer. Soft drink concentrate (a U.S. investment) is another large export earner, followed by wood pulp and lumber from cultivated pine forests. Pineapple and citrus fruit are other important agricultural exports.

Swaziland mines coal and diamonds for export. There also is a quarry industry for domestic consumption. In 2010, mining contributed about 1.8% of Swaziland's GDP, and predictions for the industry are mixed as coal mining is expected to increase but quarried stone production is expected to decrease.

A number of industrial firms have located at the industrial estate at Matsapha near Manzini. In addition to processed agricultural and forestry products, the industrial sector at Matsapha also produces garments, textiles, and a variety of light manufactured products. The Swaziland Industrial Development Company (SIDC) and the Swaziland Investment Promotion Authority (SIPA) have assisted in bringing many of these industries to the country. Government programs encourage Swazi entrepreneurs to run small and medium-sized firms. Tourism also is important, attracting more than 450,000 visitors annually, mostly from Europe and South Africa.

From the mid-1980s, foreign investment in the manufacturing sector boosted economic growth rates significantly. Beginning in mid-1985, the depreciated value of the currency increased the competitiveness of Swazi exports and moderated the growth of imports, generating trade surpluses. During the 1990s, the country often ran small trade deficits. South Africa and the European Union are major customers for Swazi exports.

Swaziland became eligible for the African Growth and Opportunity Act (AGOA) in 2000 and qualified for the apparel provision in 2001. AGOA created over 30,000 jobs, mostly for women, in Swaziland's apparel industry. However, the industry suffered in 2005-2006, due to both increased global competition as a result of the end of the Agreement on Textiles and Clothing (ATC) on January 1, 2005, and the strong Rand (Swaziland's currency is linked to the South African Rand at par), which reduced exports. There were an estimated 16,000 people employed in the apparel industry.

Swaziland, Lesotho, Botswana, Namibia, and the Republic of South Africa form the Southern African Customs Union, where import duties apply uniformly to member countries. Swaziland, Lesotho, Namibia, and South Africa also are members of the Common Monetary Area (CMA) in which repatriation and unrestricted funds are permitted. Swaziland issues its own currency, the lilangeni (plural: emalangeni).





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