OSISA Civil Society Roadmap to Economic Recovery

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FOREWORD

In response to the dire socio-economic-and governance environment in Swaziland, Coordinating Assembly of Non-Governmental Organisations (CANGO) and Open Society Initiative of Southern Africa (OSISA) joined efforts to develop  the Swaziland Civil Society roadmap to economic recovery. The specific terms of reference for document include:

  • Recording the proceedings during the Swaziland civil society economic recovery summit;
  • On the basis of the presentations, group work and participants’ feedback, synchronise the information and develop a civil society economic recovery strategy document that would be used as an advocacy tool;
  • The said strategy document should include clear short, medium and long term recommendations for economic recovery for each of the sectors discussed at the conference;
  • Undertake a validation process for the strategy document (form a small workshop/meeting with key stakeholders or the conference organising committee);
  • Finalize and submit a fully edited and usable Civil Society Economic Recovery Document for Swazi Civil Society Organisations (CSOs).

As indicated in the terms of reference, this roadmap was mainly drafted through a consolidation of all the deliberations that happened at different levels during the civil society economic recovery summit. The rapporteur report from the workshop is available on request.

The consultant appreciates the assistance given by CANGO and OSISA representatives as well as some of the researchers who presented their research outcomes.

This report comprises an executive summary, introduction, and six other sections on: government revenue, mining, agriculture, manufacturing, informal sector and the Information, Communications, Technology (ICTs).

Click here to see the abbreviations for this report

1. EXECUTIVE SUMMARY 

Swaziland continues to be mired in socio-economic crisis. It registered low growth rates averaging 2% and 1.3% in 2010 and 2011 respectively. Unemployment rate remains the highest in the region at 40%. Government revenue is unsustainable and dependent on Southern African Customs Union (SACU) revenue which declined by 56%, which triggered   the financial crisis but has picked up this financial year due to disbursement of receipts from the previous year. The fall in SACU revenue led to fiscal challenges in the fiscal years 2008/09 and 2010/11. In addition to economic challenges, Swaziland is faced with a high national HIV prevalence of 26%  for the 15-49 age groups. 63% of the citizens live below the poverty line and with less than US$1 per day.

The decline in government revenue compelled the government to cut salaries and ministerial budgets, as well as source external financing. These culminated to the intensity of the ensuing economic crisis in Swaziland, which in turn provoked CANGO and OSISA to organise a three day conference from the 12th-14th June 2012. The objectives of the conference were to create a platform for civil society to engage and deliberate on the prevailing economic crisis in Swaziland by providing research based information of the country’s economic outlook while focusing specifically on issues pertaining to national revenue, mining and its potential for economic revival, agro-based industries, manufacturing, informal sector, and ICT. Moreover, the conference sought to assist civil society to craft this civil society economic roadmap which will be used as an advocacy tool in order to address government as well as other stakeholders such as the International Monetary Fund (IMF) and World Bank.

It was concluded that in order for the Swaziland economy to head towards recovery, it has to concentrate on steering the country towards democracy as its short-term strategy, that is, in the next one to two years. Good political governance will create an environment for improved economic governance. Fiscal policy can be directed to activate economic activity and job creation. This will in turn increase government revenue from direct taxes which is important as it reduces dependence on the unsustainable SACU revenue. While Value Added Tax (VAT) can add value to government revenue base, it is quintessential to review introduction of VAT from the

third quarter this year to speedily determine if the implementation approach is timely. To further increase revenue, industrialization has to be given priority in the medium to long-run.

The mining sector promises to be a catalyst to economic recovery. Swaziland has significant deposits of coal, gold, barite, ball clays, kaolin, diamond, and silica. Currently, Swaziland mines coal, quarried stone and iron ore. Two licenses have been issued; one for iron ore mining and another for diamond mining. However, to best benefit from mining, Swaziland has to pay attention to ownership; sign up the Extractive Industries Transparency Initiative (EITI), become part of automatic information network and prioritize monitoring performance of mines in the short to long run. In the long run, once monitoring, transparency and accountability measures are in place, Swaziland should aggressively engage more investors into the sector. The terms of entry into mining should also include clear guidelines on the expected nature of Corporate Social Investment (CSI) to ensure both economic and social returns.

Although faced with the challenge of declining productivity and diminishing arable or agricultural land, agriculture sector still has the potential to be a mainstay of the Swazi economy. The main challenges in productivity have been attributed to drought, HIV prevalence, inadequate infrastructure and climate change. In order for the sector to make a sustainable positive economic contribution, the land tenure system and financial support to agriculture have to be given first priority and addressed in the short-term by organizing a task team to address these issues. One of the options for land accessibility to budding Swazi farmers is to negotiate longer leases for farmers on Swazi National Land (SNL) or appeal for redistribution of land under Tibiyo to some local farmers. These efforts should be coupled with transition from subsistence to commercial farming in the short to medium-term. Going forward, coordination mechanism between government, University of Swaziland (UNISWA) and other research organizations have to be in place. Although these may not be a first priority like addressing land tenure issues in the short-term, they should be prioritized in the medium to long-term.

Manufacturing sector’s contribution to GDP stands at 4% which is high relative to the countries in the region. The sector is diversified with activity in textile and apparel, sugar, agriculture, forestry and mining. The stifling factor to more Foreign Direct Investment (FDI) inflows particularly in apparel is low productivity. Macroeconomic issues such as political instability and land regulation are stipulated as challenges that discourage entry into the local manufacturing sector. Business registration is yet another deterrent factor as it involves too many processes.

In addressing the sector challenges, first priority has to be given to liberalizing the sector and simplifying ‘doing business’ procedures in the short to medium term. Civil society has to begin advocating for mandatory percentage from pension funds to be invested locally as opposed to the current situation where the bulk of the money is invested in foreign countries, mainly South Africa. Another advocacy initiative that civil

society task team has to concentrate on is effecting change to the constitution towards an independent judiciary. This advocacy work should be given first priority and be undertaken in the short-run to lay ground for business enabling environment.

Regular investment in research and development in the manufacturing industry is indispensable. It is important to conduct research on the various manufacturing sectors in order to explore potential sources of expansion in the medium term or to identify bottlenecks that have to be removed for the sector to grow. Training of those involved in the sector is also important though not a first priority in the short-term. An important skill enhancing strategy to begin with presently, is attracting more FDI with contracts that foster skills and technology transfer.

In the same way as the manufacturing sector, the informal sector needs assistance with credit extension, training and a supportive regulatory framework. These issues all have to be part of short-term strategy to enhancing the sector. Also of primary significance in the short-term is drafting a policy on informal sector to facilitate regulation of the sector and mobilizing informal sector to register under Informal Traders Association. As part of the medium term strategy towards sustainability of the sector, it is essential to undertake research on economic linkages between formal and informal sectors. National budget allocation, through the ministry of trade and industry, should also cater for the sector.

The information, communications and technology sector of the economy has made significant strides. The state of development is indicated by fixed network tele-density which has doubled over the past two years from 4.5% in 2009 to 9. Nonetheless, the tariffs remain high and internet growth is slow. This requires speeding up the process of the regulatory authority as part of short-term strategy. Another strategic intend  is to increase ICT adoption rates in key sectors of the economy and address the digital divide between rural and urban areas through widespread training.

The roadmap envisages that contentious issues that need further discussion are how to achieve a democratic governance, as well as how to change the current land tenure system and to what form of land tenure system. Industrialization and attracting FDI were identified as necessary in manufacturing, mining, ICT and agriculture. The critical success factors for the roadmap to achieve economic recovery may be categorized into stable democracy, macroeconomic management, environmental and land management, technological advancement and diffusion, and Research and Development. Stable democracy entails constitutionalism, political commitment to economic recovery, political stability, independent judiciary and institutionalization while macroeconomic management should include public expenditure management, healthy business environment, exports and market access, economic infrastructure, secure property rights, access to financial services, industrialization, and distribution of income and wealth. Environmental and land management should cover land distribution and management, climate change adaptation research, and environmental protection from mining degradation. Technological advancement and diffusion relates to education and awareness of the ICTs to the general populace, more competition in the sector and better regulatory framework.

Swaziland,  the Kingdom of Swaziland,  is a landlocked country in Southern Africa sharing borders with South Africa and Mozambique. It boasts a population size of approximately 1.2 million (UN 2008) and is the last remaining monarch in Sub-Saharan Africa. Since the repeal of Independence Constitution in 1973, Swaziland has been following a Tinkhundla system of political administration. It politically operates a dual government structure with traditional leadership headed by the king who serves as head of state and a western parliamentary political system headed by a Prime Minister who serves as head of government.  The King appoints the head of government who in turn  advise the King to appoint a Cabinet at least half should be from elected members of Parliament.

Several studies (Joubert, P, Masilela, Z and Langwenga, M. 2008. Consolidating democratic governance in SADC region. EISA Research Report. No. 38) noted that the dual governance  has  grossly affected  governance.  Various incidences of  injustices and counter-development decisions that have spurred

corruption and weakening of  institutions such as the Human Rights Comission  in the country over the past years, are attributed to the dual governance. Corruption has been among other factors that have resulted in the economic maladies in the country and dwindling   donor support in recent years. In 2002, the Economist Intelligence Unit identified ghost employees in the civil service who were in the payroll as well as fraudulent payments for overtime and other allowances. In the same vein, the Institute of Security Studies observed later in 2005 that corruption in government was high and manifested itself in the forms of price inflation and collusion between domestic and foreign companies and local officials. Such incidences of inappropriate and corrupt activities still continue in the public sector.

Coupled with these political governance vulnerabilities, the country was hit by economic crisis of 2008 which culminated to the dire economic situation. In like manner as other economies, the secondary effects of the global economic meltdown affected the Swaziland economy. Relative to Sub-Saharan Africa and South Africa which registered annual growth rates of 5.3% and 2.9% in 2010 and 4.9% and 3.1% in 2011 respectively, Swaziland had low growth rates averaging 2% and 1.3% in 2010 and 2011 respectively.

Government revenue declined significantly as SACU revenue dipped. In response to a decline in government revenue, the government embarked on salary cuts, ministerial budget cuts in ministries whilst efforts were made to cushion the Ministry of Health, Education and Social Services and was compelled to source external funding to meet national demands.  It also increased domestic debt ceiling from E1 billion to 25% of GDP in December 2010. Attempts to raise funds locally by issuing bonds experienced challenges with long-term paper. Consequently, domestic debt registered 5.7% of GDP in 2011 while external debt was 11.3% of GDP. As at March 2012, total debt was 14.8% of GDP. These actions culminated to the intensity of the ensuing socio-economic crisis in Swaziland. As it is, Swaziland is faced with a high national HIV prevalence of 26% and of 42% for the 15-49 age groups African Economic Outlook (2012). Sixty three percent  of the citizens live below the poverty line of  less than $1 per day Central Intelligence Agency (2012).

The prevailing crisis calls for a strategy towards economic recovery in Swaziland. This paper attempts to draw a roadmap to economic recovery. It focuses on six priority clusters: national revenue, mining, agriculture, manufacturing, informal sector and ICT. Each chapter addresses a specific sector and gives short, medium and long term strategies that will catapult the economy into recover.

3. SWAZILAND REVENUE STREAMS

At present, the Government of Swaziland (GoS) traditionally has three revenue streams namely: Southern African Customs Union (SACU) receipts, direct and indirect tax collection and accumulation of external and domestic debt. SACU is the main contributor of revenue to the GoS. SACU revenue fell by 56% in the event of the financial crisis leading to fiscal challenges in fiscal years 2008/09 and 2010/11(Ministry of finance, 2012).  Although SACU revenue contributed less than 50% in 2010/11 and 2011/12, this does not automatically imply that other internal sources of revenue contributed the majority, as part of the revenue was at the backdrop of a wide deficit (13.7% of GDP), run down reserves, increased domestic debt ceiling from 3% to 25% and accumulation of domestic arrears of up to E1.5 billion (Reference). In terms of direct and indirect taxes, it is apparent from Figure 1 below that more revenue is derived from individuals than companies.

Comparison of the different revenue streams_1

The main weakness of the GoS revenue structure is that internal sources of revenue combined, generally fail to create even 50% of the national budget. SACU revenue often compensates for lower revenue collected from these internal sources. The main internal sources of revenue are direct and indirect taxes. In both these forms of taxes, economic activity plays a significant role because taxable volumes depend on economic activity and levels of income or poverty. In a country such as Swaziland that already

registers job losses and low economic activity, these sources of revenue threaten the little economic activity there is and lack economic neutrality as they encourage distortions to relative prices and create undesirable incentives. The fact that unemployment is high and ranges at 40% (Central Intelligence Agency, 2012) implies that contribution by these sources of revenue is not optimal as the unemployed cannot significantly contribute to neither VAT nor income tax. On the other hand, indirect taxes like VAT reduce disposable income of the vulnerable particularly the poor.

A yet disconcerting issue about the revenue structure is the unsustainability of SACU revenue as the main revenue contributor. South Africa has always been the main contributor to the SACU Common Revenue Pool (CRP). In 2008/9, it contributed 98% but received 46% of the pooled amount as may be observed in Figure 2.

Contribution to CRP per Country

South Africa asked for the review of the 2002 revenue sharing formula in 2006. This follows South Africa’s realization that Botswana, Lesotho, Namibia and Swaziland (BLNS) were overly dependent on economic activity in South Africa for their share in the CRP and that they were becoming an unsustainable fiscal burden on it (Masilela, 2012). Moreover, some South Africans perceived SACU payments to other members as development assistance. Revenue disputes also posed a challenge of potential polarisation between the members. Issues such as ongoing trade negotiations at both multilateral and regional levels also stand to affect the significance or status of SACU revenue as the main source of revenue in the long-run.

Legally and technically, a country cannot apply two external tarriffs at the same time and cannot be a member of more than one customs union that apply different tarriffs. The implication is that should a merger be effected between Common Market of Eastern and Southern Africa (COMESA) and Southern African Development Community (SADC), Swaziland might not benefit from SACU since the merger will liberalise the economy further thus opening it up to greater competition.

With regards to the Tripartite Free Trade Area (T-FTA) which has to be modelled in such a way that SACU is a nucleus or a foundation on which a new union would be build, the challenge with this is that SACU itself doesn’t encourage expansion as it diminishes revenue shares. In a study conducted on the impact of T-FTA on SACU Member States, SACU concluded that South Africa would benefit the most from trade while the BLNS would not benefit (Masilela, 2012). However, the latter have potential to benefit from trade in services mainly tourism, with transport and other sectors still dominated by South Africa. In this front, revenue losses from SACU are anticipated.

The proposed adjustment to SACU revenue sharing formula is that instead of money going into budget support as has been the case, it will be allocated towards regional development. Regional industrialization has been identified as such a priority. The intend is for the sectors within the region to complement one another and add value to their products in the manufacturing sectors and not compete. That is, industries would be identified wherein SACU member states would be able to trade and add value across the customs area.  Five projects  have already been identified in agro-processing, leather, and leather products and automotives. Namibia has the best tanning facilities after Italy. Hides and Skins from Botswana are sold to countries like Australia while this could be taken to Pretoria/ Namibia for processing and get more value. Assembly of cars in South Africa has to be supported. This project is all about benefiting from such opportunities.

The second priority is to revise revenue sharing to centre on financing industrial development in SACU and address fiscal uncertainty as realised in Swaziland and Lesotho in the aftermath of the global economic crisis. Thirdly, SACU seeks to enhance trade facilitation and cross border infrastructure. Although intensive border infrastructure development has not started, custom officials across SACU have developed a work programme in collaboration with the World Customs Organization to develop instruments to make trade flow easier and quicker between the countries. The focus is in areas such as establishing one-stop-borders between the five member states. Fourthly, SACU is prioritizing developing principles that will inform Common Trade Negotiations and lastly, building capacity and establishing common institutions.

The impact of these adjustments is that they will avail resources for economic development. This will in turn foster economic expansion and job creation. In a country such as Swaziland where government spending has sometimes not been to the benefit of the population, this will ensure benefits to Swazi nationals.

Going forward, the options that the GoS has in the presence of the ensuing fiscal crisis, poor governance, poverty, and dwindling SACU receipts is to demonstrate greater commitment to economic recovery. This will improve economic performance, create jobs and improve the tax base hence reduce dependence on SACU revenue. Emphasis has to be placed on strengthening systems for economic governance in order to improve pro-poor resource allocation and curb corruption. However, economic governance alone cannot catapult the economy into a sustainable path of economic development. It has to be coupled with political governance. As civil society has suggested at the economic dialogue conference, it is essential to embark on steps towards  democracy governance. A democratic system of governance will in turn encourage transparency, participation, and accountability which are essential in attracting finances from donors or development partners.

3.1 Summary of recommendations

Improve political governance to strengthen system of economic governance

Progress towards creating a democratic Swazi society has been slow and following suspension of the constitution in 1973 political pluralism  have been illegal (Stringer, Twyman and Thomas, 2007:388). All powers are vested in king Mswati III and since 1978 parliament has been based on traditional Tinkhundla system. This centralization of power is also reflected in the fiscal structure and affects revenue distribution, especially to the periphery.

The consensus from civil society is that a multiparty system would be an essential step towards democratization in Swaziland.  This concurs with the postulates of Randall and Svasand (2002) that “although political parties as such are not usually included in the definition of democracy, the emergence of some form of a multiparty system is generally seen both as an unavoidable consequence of basic democratic rights such as freedom to associate and freedom of expression, and as a necessary component of democracy…”.  Randall and Svasand (2002) outline that the political parties serve as a conduit through which citizens can voice out their views; they link the citizenry and the government; form a link between conflicting and dynamic views of society into coherent policies; they offer choice in policy; train leaders and ensure that the government responds to the needs of the populace.

The important questions that civil society seeks to address in the short run is how to work towards the process of democratization; what is the appropriate definition of democracy as well as what form of democracy to embrace given the social built of the country. Should Swaziland opt to simply define democracy as having a multiparty system in place, it is important to note from experiences of other African countries such as South Africa that such multiparty system has not incorporated all society into the

democratic system. It’s also worth noting as Adetula (2011:10) cautioned that liberal democracy has in most African countries been about democratic elections which leads to kleptocratic regimes or survival states that lack autonomy but dominate political process. In such a case multiparty system fails to promote democracy.

Subsequent to addressing the issue of the nature of democracy that would be ideal for Swaziland to adopt, the next decision is how to transition towards democracy. In South Africa for instance, they opted for evolution/transformation in which the process to democratization was divided into four distinct phases between 1990 when negotiations began to 1994. Mervyn Frost in Hoeane (2009:97) identifies these phases as: “talks about talks”, “the CODESA round”, “breakdown” and “guided multiparty talks”.  The talk of the talks phase (1990-1991) was when the African National Congress (ANC) and the National Party (NP) started preliminary discussions on what shape their talks would take in addressing issues such as security situation, return of exiles, representatives who would engage in the talks, procedures and technical details about structure of the talks. This resulted in the formation of Convention for a Democratic South Africa (CODESA) which unfortunately collapsed five months into deliberations as parties failed to agree on the governance model (Hoeane, 2009:98). NP and Ingatha Freedom Party (IFP) wanted proportional representation (PR) system as opposed to a First Past the Post (FPTP)/winner takes all system. The breakdown stage happened when the ANC left the talks and “reverted to its alliances and their mass defiance campaigns of the 1980s” following the Boipatong massacre in mid-1992 (Hoeane, 2009:98). The talks began in September 1992 referred to as “guided multi-party talks” or “CODESA II” after NP and ANC signed the memorandum of understanding and were finally able to progress to a democratic government.

The experiences of other countries’ transition towards democratic rule such as South Africa as alluded to earlier give us examples of how to approach the political governance problem at hand in Swaziland as well as challenges to anticipate  efforts to transition to a democracy. Civil society in Swaziland seeks to follow a path that would have less deleterious effect on the society. On this note, the preferred approach is evolutionary as opposed to revolutionary one which can be very destructive. In the same manner as South Africa, political parties, civil society and representatives from the royal house could form a committee through which they agree on the process and nature of democracy.

Transition to democracy is not an end in itself. It has to be supported and sustained by strong institutions to foster a healthy political and economic environment. Without proper institutions, democracy may not yield desired political transformation in Swaziland. As Hungtington purports, rapid social change and rapid mobilization of new groups of society into politics coupled with the slow development of political institutions (political institutions refer to an arrangement of maintaining order, resolving disputes, selecting authoritative leaders and thus promoting community among two or more social forces) may lead to political decay. In essence, he argues that lack of political institutionalization (political institutionalization refers to the process by which organizations and procedures acquire value and stability) makes it impossible for political institutions to accommodate new inputs and demands caused by political participation. In the same vein, Adetula (2011:13) adds that the failure of democracy in many societies is due essentially to weak democratic structures and underdeveloped political institutions. At this point it is also important to identify the nature of institutions necessary to sustain democracy in Swaziland.

Draft development framework

An appointed team of experts has to develop a clearly articulated development framework that will harness sectorial development, define the country’s development path and identify the country’s comparative advantage, with the objective of increasing the revenue net. This has to be done taking the National Development Strategy (NDS) into account. While this is important, it holds second priority to improving political governance and can therefore be addressed in the medium term.

Forming a task team to address questions on the transition to democracy and facilitation of its implementation hold a first priority in the short to medium term as change in the political governance system will lay the foundation for good economic governance.

Review taxation

The GoS tax policy favours companies, particularly foreign ones which are afforded tax holidays, as opposed to individuals. Individuals pay income tax progressive to 33% while corporations pay 30% flat rate but its variable for mining companies. In essence, tax policy is not people centred, thus lacks proper framework for equal distribution of wealth.

The issue of introduction of VAT given the prevailing economic situation in Swaziland is considered untimely. The intended introduction of VAT by 1 April 2012 in order to replace sales tax was clearly articulated in the national Budget Speech of 2012. Swaziland was the only country in SACU that had not moved from sales tax to VAT. In order to transition from sales tax to VAT, Swaziland conducted a roadmap and studied adoption of VAT in South Africa and Lesotho. The roadmap cautioned that “without significant reform of tax administration, making the switch from sales tax to VAT could potentially have serious adverse implication. At a minimum, the project would have to be delayed. On a worst case scenario, the switch could prove counter-productive, at

least in terms of revenue yield” (Cawley, 2008:6). The question is, what could be the prevailing case in this regard in Swaziland?

The current discontent with introduction of VAT is not a new matter in Africa. In Ghana four people died as citizens revolted against government for introducing VAT in 1995. Government had to withdraw the tax and only reintroduced it in 1998 (Osei, 2000:255). What is important to note or learn from the Ghana case is that although VAT has benefits such as: encouraging book keeping and transparency in business practices, increasing tax base and removing pressure on manufactures and importers, VAT is often welcomed where the economy is expanding enough to shield the average citizens from tax burden (Osei, 2000:264). Swaziland is without a doubt in no economic situation to protect average citizens from the impact of introducing another form of tax. Moreover, VAT is often introduced mainly to replace other types of sales tax as may be observed in countries such as Brazil which was the first to introduce it in 1967 in order to replace turnover tax and then later Denmark (Shoup, 1988). It is undesirable at the moment given the prevailing socio-economic climate.

It is important to prioritize review of GoS policy analysis research on VAT policy making and implementation in Swaziland as part of the short term strategy to avoid situations such as those that took place in Ghana. Most importantly, the process must allow participation from interest groups to get their views and clear areas of misunderstanding regarding VAT should there be any. As was observed in the case of Ghana, inclusive politics are important since they allow contribution of experts outside government and increases chances that society will accept implementation of new policies as there will have been public participation in policy drafting.  Personnel should be trained and dispatched throughout the country to assist with explanations and effective implementation of the VAT policy.

Industrial development and commitment to job creation to widen tax base

The GoS can introduce youth fund to develop skills and introduce industrial policies that will attract foreign investors as this will create jobs and add to tax revenue. Although this is an element of importance, it can be addressed in the medium to long run.

Strengthen fiscal governance to improve resource allocation

The nature of the constitution in a state correlates with fiscal policy outcomes. According to David Austen-Smith (2000), “interaction between elections, redistributive taxation and the formation of economic groups is likely to produce politico-economic equilibria with higher taxation and overall spending under PR than under majority (plurality/winner takes all) rule”. Given the current constitution, the King significantly influences budget allocation. Unlike the Constitution of the Kingdom of Lesotho which

clearly articulates in Section 44(1) that Lesotho will have a king  and that it will be a constitutional monarch in which the king is the head of state, kingdom of Swaziland’s constitution states that the king will control and dominate all three arms of the state-executive, legislative and judiciary. He is not obliged by the constitution to act upon anyone’s advice (Section 65(4)).

Roadmap to achieve higher government revenue

The challenge is that extravagant spending in non-productive areas such as culture and traditional celebrations as well as maintaining a lavish lifestyle by the political elites will be hard to control if the current political governance model (constitution) doesn’t change. A typical example is the purchase of the luxury jet despite the economic situation. In 2002 the government was severely criticised for intending to  buy  a luxury jet to the tune of US$50 million which was estimated to be a quarter of the national budget, in the wake of immense starvation in the country that followed two years of droughts as well as poor agricultural methods (www.infoplease.com). As the famine ensued in 2004, the  government allocated budget  to build multimillion dollar palaces. Efforts to effect change in the constitution should be aligned with short to medium term strategy of transitioning to democracy as this will create a healthy environment for fiscal policy hence government expenditure.

4. MINING SECTOR IN SWAZILAND

Swaziland is endowed with minerals that have economic significance but some are in such little quantities that they cannot contribute immensely to economic growth. Significant minerals that the country can economically benefit from include coal, gold, barite, ball clays, kaolin, diamond and silica. Minerals such as tin, manganese, iron ore, arsenic, scheelite, copper, nickel, and manganese either occur in small deposits or the quality is so low that it renders them uneconomic.  It is worth noting that although some of these resources may not be in large quantities; they can be used as leverage to kick-start economic recovery and set the nation state on the road to sustainable development.

Currently, Swaziland mines coal, quarried stone and iron ore. Coal production increased by 12.5% from 129,647  metric tonnes in 2009 to 145,903 metric tonnes in 2010 while quarried stone production increased significantly by 50.7% from 202,319 cubic meters in 2009 to 304,844 cubic meters in 2010 (Dlamini, 2012a). The export revenue rose by 24.5% to E125.9 million in 2010, whilst revenue from quarried stones increased to E19.4 million in 2010 from E12.1 million in 2009 (Dlamini, 2012a).

The mining sector has potential to boost the economy. Firstly, there have to be drastic measures to create jobs from the sector. Opting for labour intensive methods of production at decent wages is another alternative. However, sustainability will be enhanced by providing effective and relevant education or training to the employees. Adequate labour market information and labour relations are yet other vital issues. Swaziland also needs to embrace investment absorbing strategies. There has to be a balance between tax-based incentives and direct subsidies with infrastructure development and investment in backbone services such as telecommunications, energy and transport, skills development, vertical and horizontal linkages.

Thirdly, the country has to improve ease of doing business, transparency of investment procedures, effective coordination when promoting investments and investment strategy that is pro-jobs. All these should be driven by technological know-how and excellent management abilities. Moreover, there is a dire need for sound macroeconomic framework that facilitates a labour absorbing growth path as opposed to economic financialisation, expanded public works programme, expertise based and vocational training that enables the youth to be absorbed into the labour market.

4.1 Proposal for Reforms

Negotiation of mining contracts should be backed by capacitated and skilled individuals or stakeholders. There should be an open process of multi-stakeholder participation. Old mining contracts have to be reviewed and new clauses should be inserted where necessary. An example is the Maloma colliery contract which was done years back.

Moreover, there should be investment beyond corporate social investment (CSI) which takes the form of charity activities in the country. CSI activities are often once off and do not have a sustainable social impact. CSI is not an end in itself but a means towards a particular end. It should not be a tool that feeds political agenda but should work towards sustainable development. Mechanisms that allow communities to inform CSI of the companies should be in place.

It has been observed that the use of taxes as incentives drives inequality in the country. Poor or ordinary citizens cannot pay taxes at the same scale as mining companies that get millions in profits as this does not allow redistribution of benefits to growth or poverty eradication. Tax competition in the form of incentives is in itself a race to the bottom and countries make costly mistakes in the process as they try to be more attractive through higher incentives.

The current policy framework in the mining sector does not make comprehensive policy provisions to address environmental and health protection. In order to address these challenges the government should firstly change policies in the mining sector. For instance, licenses should be issued to Swazi nationals and foreigners should come in as partners. Attempts should also be made to ensure that communities benefit from mining activity through sustainable measures and not the typical CSI programmes.  Citizens or communities should be afforded an opportunity to shape policy and CSI through participation and sensitization to mining policies. There should also be efforts or programmes that offer training in mining.

4.2 Summary of Recommendations

Sign up Extractive Industry Transparency Initiative (EITI)

Civil society and other NGOs have been advocating for transparency and accountability of the mining industry through the EITI. EITI is a joint effort of governments, companies, civil society groups, investors and international bodies and seeks to improve transparency in the management of resources as well as to foster accountability with the ultimate aim of creating more revenue for respective governments.

Swaziland should prioritise joining Zambia, the DRC and Zimbabwe by signing and complying with the EITI. GoS must also empower industry stakeholders such as government, civil society, private sector, parliament and media to identify, prioritise and implement actions that promote accountability and transparency in the industry. This should also help to improve governance of the industry.

Ensure social returns

Pro-poor policies should be enforced in the medium to long-term. The growth of mining companies should be transformational. This among other aspects entails offering decent wages, strategic procurement (e.g. Maloma Colliery outsources from outside Swaziland. This should change and internal skills should be employed), promoting and supporting small scale mining, developing skills and ensuring broad participation of stakeholders. Traditionally, foreign investors have had strong bargaining power over governments seeking to attract foreign companies. GoS could ensure that their agreements have built-in conditions such as provision of infrastructure like roads and utilities, environmentally friendly operations and tax compliance. Through these partnerships with foreign investors, the GoS could leverage the promotion of a stable business environment hence economic development.

Form effective partnership to monitor mining operations

The stakeholders, that is, civil society, parliament and the media should form an effective partnership. Together, they should advocate for greater revenue and expenditure transparency, monitor and undertake research on the country’s extractive industry and budget processes. There should also be capacity enhancement and skills development in: contracting and taxation regimes, auditing and accounting processes, EITI processes, rules and policies and expenditure-side track revenues from government coffers to point of final beneficiaries. Private sector should also embrace Publish What You Pay (PWYP) principles to ensure that the citizens of Swaziland and the government benefit from mining proceeds. Moreover, there should be campaigns for proceeds of trust funds to be brought back to the consolidated fund.

Be part of Automatic Information Exchange (AIE)

Implement automatic information exchange on tax information in the short to medium-term. Multinational corporations usually hide profit and declare taxes in countries where taxes are lowest. Tax Justice Network has identified several problems that this secrecy may lead to as demonstrated in the diagram below.

The impact of Automatic Tax Information Exchange

However, if countries automatically exchange information (country to country reporting) on revenue and taxes paid in the respective countries that they operate in; other revenue will have to be attributed to other countries and tax would have to be paid. Regional harmonisation of tax policies would also curb harmful tax competition as several SADC countries still give incentives despite commitments made by heads of state and governments in the Finance and Investment Protocol and its subsequent Memorandum of Understanding on cooperation in taxation and related matters. Other benefits are indicated in the diagram above.

In addition, Swaziland should support global initiatives such as the 2009 initiative in which leaders agreed to take action against tax havens secrecy by negotiating new transparent tax cooperation agreements. This will assist to shut down or crack down tax havens and release more resources (revenue) to Africa.

Roadmap of the mining sector

Swaziland has to seek a model that best works for it with regard to mining shareholding. In the cases of Botswana and Namibia, significant shareholding in the mines by the government has been the driver of these economies. In the Swaziland context, 25% of shares are held by the King in trust for the nation and another 25% is held by government. Civil society is of the notion that government should hold 50%  shareholding. This will provide room for auditing and  ensures accountability.

5. AGRICULTURAL SECTOR IN SWAZILAND

Agriculture sector has been declining in terms of both total and per capita production from 1990-2003.  Arable estates account for less than 81% of the value of agricultural produce while traditional farming only generates approximately 11% (Dlamini, 2012b). The country has also been experiencing a deficit in the production of maize since 1980. The decline is mainly attributed to drought, HIV prevalence, inadequate infrastructure and climate change. This shortfall in cereal production infused an increase in food prices locally. Consequently, 12% of the population is malnourished and a third of the population depend on food aid (Dlamini, 2012b). In addition, the shortfall poses a challenge to food security in the country. According to food security assessments, approximately 40% of all children are chronically malnourished, 2% have acute malnutrition and 11% are undernourished.

The sector is faced with several challenges that hamper significant economic contribution. Institutional, management and organisational challenges of the sector include lack of linkage between the University of Swaziland faculty of agriculture and the Government research station, debilitating budget constraint which is reflected by persistent failure to meet the 10% SADC target (the Ministry of Agriculture was only allocated 5.5% in the previous budget), absence of strategic food reserves, very few civil society actors in the sector and partial dependence on food aid. One obvious trend in agriculture is that it has also been significantly affected by withdrawal of development partners. Liberalisation also led to privatisation of parastatals and removal of subsidies and tariffs that were initially in place to protect the sector from competition.

Agriculture sector has been adversely affected by external policy shift in the past 20 to 30 years. These include liberalisation of the sector and reduction of public spending on agriculture, which led to the removal of regulatory controls in agriculture markets, elimination of subsidies and tariffs, and privatisation of parastatals. New policies focus on the resources and capabilities of the private sector to boost agriculture. There are over 30 policies and legislation which all endeavour to address five broad areas in agriculture: secure food supply, economic growth, developing rural areas, trade and protecting the environment.

Land tenure also adversely affects the sector. However, research in no way proves that land tenure is the root cause of low productivity. Today, the tenure system is characterized by Tittle Deed Land (TDL), Swazi National Land (SNL), crown land and government farms. This is different from the 1982 system during which there were six categories: individual tenure holdings, Lifa Fund land, Swaziland settlements, Swazi Area, Crownland, Land Purchase Programme land.  At present, of the 1 737 218 km2 only 10% is arable land (Dlamini, 2012b). In 2008, 12 240 km2 was reported as agricultural land but it had shrunk to 12 220 km2 in 2009 (Dlamini, 2012b).

The majority of Swazis who occupy SNL do not enjoy the rights of occupying the land as is the case in other countries’ customary land. For example, in Botswana, tribal land is held in trust by land boards which are established by Tribal Land Act which stipulates their powers and duties. All SNL is held in trust by the Ngwenyama (king). The King also holds subsurface rights particularly mineral rights. Acquisition of land rights is by declaration of allegiance.

Uncertainty plays a vital part on investment decisions in agriculture. Also of crucial significance is the limited availability of credit facilities. Credit for agricultural ventures is only available to groups or organisations. Other factors that deter investment in agriculture are the ‘tragedy of the commons’ which has resulted in depletion of areas in SNL, reliance on government for all services from technical expertise and equipment such as tractors, as well as issues of economies of scale. Moreover, agriculture is less attractive in terms of returns to investment. It is at this backdrop that arable land is turned into commercial or residential land.

Education system in Swaziland does not really adapt to changes in the agricultural sector. A well-functioning agricultural knowledge system is indispensable for evolving a dynamic agriculture sector that ensures that substantial numbers of households have incomes exceeding poverty level, operate farms efficiently and profitably, and should not be perceived as a retirement hobby. Presently, the sector is based on the wrong foundation of subsistence farming over commercial.  Agribusiness therefore still stands to be explored in line with its four broad categories:  agricultural input industry, agro-industry, equipment and machinery including tools, cooling technology and spare parts which present Swaziland with an opportunity to diversify its agricultural sector.

Swaziland has agricultural policies, although the sector has outgrown them. Moreover, their implementation has been poor. Consequently, agricultural policies have to be reviewed and amended in light of current issues and this process has to be undertaken in consultation with all relevant stakeholders including farmers. They should also create an environment that enables farmers to set their own prices instead of being price takers. Moreover, the policies have to be aligned with the prevailing land tenure system in Swaziland and attempt to protect the industry. This should also be coupled with training in agricultural sector and encouraging formation of farmers’ cooperatives as well as a shift to commercial farming. For instance, imports could be regulated to ensure that they are not to the detriment of the local industry while national farmers transition from subsistence to commercial farming. Investing in agriculture and encouraging processing or manufacturing of agricultural products locally will also enhance sector performance and economic contribution. Also of importance are issues of land ownership. The land tenure system has to be revised to ensure property rights and restoration of land to rightful owners as well as to address displacement of people and land disputes.

5.1 Summary of recommendations

Review agricultural policies and address challenges to expansion in agriculture  

As articulated earlier, it would seem that the challenge in agriculture also lies in its policies. Policies have to be reviewed to ascertain that they facilitate large-scale agricultural production. For example, are emerging farmers supported through secure landownership and do landownership laws facilitate easy access to credit from commercial banks? Other issues to consider are if there is synchronization with other government departments such as works and transport, to ensure that road and rail networks are in place to and from the farms to foster lower transportation costs as these make a significant contribution in bringing input costs lower.

Resolve land distribution issues

Land distribution issues have proven to be very sensitive and carry the potential to destabilize agriculture. Each historically unjust practice needs to be taken into account in addressing this issue. Swaziland is not different from many other African countries such as Kenya and South Africa which are still ailing due to land dispossession.

Historically, land alienation in Swaziland was precipitated by Crown Lands Order and the Concession Partition Proclamation of 1907 which enabled the British to accumulate land at the expense of Swazi nationals who were dispossessed of their land (Simelane, 2002:331). Britain appointed George Grey to demarcate land. He divided land among Swazi, British Crown and private European land owners. The indigenous Swazi were given five years grace period after which they were required to evacuate areas that were designated as private and to relocate into areas allotted to Swazi nationals (Simelane, 2002:331).

When Swaziland regained independence more than 40% of total land area was still owned by non-Swazis, most of who resided in South Africa (Simelane, 2002:336). As a first step towards addressing the land question, some members of the middle class called for outright confiscation of white-owned farms. This was however, rejected by King Sobhuza who called for ‘peaceful as well as just solution’ (Simelane, 2002:337).

According to Simelane (2002:338), land reform legislation was introduced which has shaped land distribution in Swaziland. Land Speculation Control Act of 1972 was introduced to limit purchase of land by non-Swazis and make transfer of land between non-Swazi citizens almost impossible. This led to accumulation of land by middle class and indigenous leaders. Land Concession Order Act No. 15 of 1973 was later introduced.  Vesting of Land in the King Act No. 45 of 1973 provided that “all land and real rights to land presently registered shall with effect as from 12th day April 1973 be deemed to vest in the King but be described in the registry as vesting in the Crown”. This Act led to concentration of land in the hands of the king.

The government established the Swaziland Development and Saving Bank. However, the bank simply became a conduit through which the middle class acquired more land. British government contributed part of the initial capital for purchasing 960 000 acres of land under the Land Purchase Programme but stopped when they realised that instead of distributing land to Swazi citizens, the bought land in King’s trust undertook state agricultural enterprises and monopolised land ownership through Tibiyo (Swazi observer 27 August 1983:3 in Simelane). Tibiyo Taka Ngwane, an investment corporation, was set up by the monarchy with the goal of transferring economic power from foreigners to the monarchy (Levin, 1990). Most of the land bought by Tibiyo was used for establishment of sugar estates. More people were actually evicted from Swazi Nation Land by Tibiyo. For example, when Simunye sugar estate was established, over 3000 peasants were resettled to Mafacula following eviction and were faced with challenges such as inferior agricultural land (Simelane, 2002:339).

These land issues as identified in history have to be addressed along with other macroeconomic and political governance challenges. However, how they are addressed is important. South Africa’s methods have not assisted in reducing squatters and have led to an exodus of white skilled farmers to neighbouring countries like Mozambique.

It is vital that a task team work on the land redistribution strategies most suitable for the country.  For example, device compensatory or restorative means of distributing the 960 000 acres that were meant for Swazi nationals through British funding that are currently owned by Tibiyo. One other option would be to distribute the land from SNL to competent local farmers or sign longer leases for bigger portions of land in order to enable farmers to significantly engage in commercial farming hence boost the sector.  Thailand is one success story to emulate.  It was initially a net importer of rice but transitioned to being the world’s second largest exporter of rice after land was redistributed to the citizens to farm. A land regulation board can be established in order to allow nationals living on SNL land to have security of land ownership. Security of ownership motivates farmers to produce more than adequate for national consumption.

Avail credit and input assistance to the sector

Credit accessibility and subsidisation of agricultural inputs have historically indicated to be beneficial for the growth of agriculture. Besides tax cuts, the US government gives tractor subsidies. Thailand on the other hand offers interest free loans which reduces government dependence.

Swaziland has to invest in facilities or resources such as irrigation schemes, harvesting devices and silos or other forms of storage facilities that farmers need. This will support commercialization of agriculture in the country.

Invest in Research and Development

Effort needs to be made to liaise with local research institutes and the University Of Swaziland’s Department Of Agriculture to consistently produce innovative research on agriculture.   It is essential that GoS prioritises research and development initiatives of the agriculture department to ensure that the country is always abreast of developments in agriculture. Issues such as strategies to productive farming or climate change adaptation would be addressed by the institutes. In addition, the institutions would identify infrastructure that needs to be in place to enhance agriculture. An example is Kenya Agricultural Research Institute (KARI). Although it had several challenges, it has hit a breakthrough with its concept of ‘farmer’s field schools’ which is a programme that trains farmers using one farmer’s land as a demonstration plot. This programme offers training to a small group of farmers who in turn mentor others.

While Swaziland has institutions such as Swaziland Water and Agricultural Development Enterprise (SWADE) which trains and mentors farmers’ associations in business management and assists them to acquire credit, water for irrigation and access to markets, other complementary institutions that focus on research and development are necessary. It is also essential to undertake a local research study to identify other agricultural commodities to produce at a large scale locally besides sugar cane and citrus fruits.

The on-going Economic Partnership Agreements (EPAS) (these are trade agreements meant to safeguard ACP countries’ preferential access to the EU markets which had been granted through the Lome Convention. EPAs require that  ACP countries open their markets to the EU imports and require liberalization  in other sectors of their economies) carry the potential to significantly change the market dynamics of for instance sugar exports from Swaziland to its main export market-the European Union (EU). Swaziland’s farmers experienced significant losses when their privileges under sugar protocol which enabled Swaziland to sell sugar at above market prices to the EU was ruled out by World Trade Organisation (WTO) in 2005. Consequently, reforms resulted in lower prices on the EU market by a cumulative 36% between 2006 and 2009. This could have been avoided if the markets were more diverse.

Diversify agricultural produce and commercialise agriculture

Commercialization of agriculture promotes large scale production. Survival and profitability in agriculture are sustained by economies of scale. In essence, redistributing land to give local emerging farmer access to more land would help them benefit from mass production, facilitate commercialization and leave them with ample land to venture into different agricultural products.

Roadmap of agriculture sector

At the core of SWADE is the aim to commercialize agriculture in Swaziland. Although significantly hampered by lack of finances, SWADE has made important strides in addressing food security, irrigation and exploring other agricultural opportunities besides sugar cane. Through the Komati Downstream Development Project (KDDP) and the Lower Usutu Smallholder Irrigation Project (LUSIP) which are meant to cover irrigable area of 6,000 and 6,500 hectares respectively, it has been able to support commercial agriculture (SWADE, 2012). However, it has not been able to meet these irrigation targets. The KDDP was initially planned to cover 6000 hectares by 2006 but will only cover this area by 2013 due to drought and lack of finances (SWADE, 2012). Given the recent challenges with drought in the country, civil society proposes a feasibility study to explore the option of desalting sea water for irrigation using either Mozambique or South Africa as a conduit to channel water.

Form cooperatives

Cooperatives are highly recommended in agriculture. The pooled resources and skills enable cooperative members to benefit from economies of scale due to mass production. Some of the projects to implement through cooperatives are rearing chickens for meat and eggs or piggery.

6. MANUFACTURING INDUSTRY IN SWAZILAND

In comparison to other countries in the region, manufacturing in Swaziland plays a significant role in its contribution to GDP. It contributes 41% of GDP while it only contributes 23%, 21%, 15% and 6% in South Africa, Lesotho, Namibia and Botswana respectively (Dube, 2012). It is also a major employer after agriculture absorbing 36% of the workforce (Dube, 2012). Manufactured products include food and beverage, clothing and textiles, timber, pulp and paper, engineering and metal industries, plastics and chemicals.

While the economy has a relatively diverse economic base, inefficient regulatory and legal frameworks have discouraged development of private investment and production. The judicial system is weak and vulnerable with a perception that it is being manipulated. The commercial court system is also inefficient and investors often pursue out-of-court settlements. Delays are common, and the executive branch significantly influences decisions. Protection of patents, trademarks and copyrights is inadequate. This is crucial for the manufacturing sector as it has implications on the confidence of the foreign investors. In addition, costs of entrepreneurial activity are high and it takes more than the world average of seven procedures and 30 days to establish a business.

Other factors that affect the degree of foreign investment in the sector include worker productivity or value added per worker, labour cost per worker and worker productivity in comparison to labour cost dynamics. Productivity or value added per employee is low in Swaziland and highest in South Africa followed by Namibia. Labour costs per worker are highest in South Africa but relatively low in Swaziland and Lesotho. Labour costs are $8100 per annum in Swaziland. Minimum wages in textiles industry are E680 per week but R1280 in RSA. Relative to other countries, Swaziland is highly labour intensive. Machinery is not frequently upgraded to be more competitive.

The perception on the macroeconomic stability of the country as per the doing business survey is that access to land is more a problem for foreigners than locals. 18% of the foreigners sited that land ownership hindered them from entering the country. The main macroeconomic instability factor as stipulated by foreigners is political instability (26%), followed by labour regulations at 25%. About 19.5% of the foreigners indicated their concern with telecommunications in the sector.

Other challenges within the sector are limited capital and credit as financial institutions tend to fund expansion of manufacturing and not start ups; highest rate of worker absenteeism which is attributed to HIV infection related illnesses. Swaziland is second to Lesotho in fighting Human Immuno-Deficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS) in clothing and textile manufacturing.

Additional problems in the sector as identified by civil society participants at the conference include poor policies that stifle manufacturing. They made reference to the

recent introduction of VAT. They also cited  poor governance in terms of rule of law coupled with lack of political will to achieve the NDS goals relating to manufacturing are yet another deterrent to the growth of the manufacturing sector. Corruption, poor infrastructure and lack of IT support are other challenges highlighted by participants.

Going forward the growth strategy of the sector should entail availing capital to local businesses including Small and Medium Enterprises (SMEs) through vehicles such as public pension funds or insurance funds or creating a Public Finance Trust/Company. Moreover, public enterprises should be fully privatized and effort should be made to attract FDI that maximises available resources. Instances such as exporting wood to South Africa and importing toothpicks don’t maximise local resources.  It is important to prioritise manufacturing through import substitution strategies while enhancing the quality of vocational training to ensure optimal benefits.

It is advisable that Swaziland introduces a model similar to Black Economic Empowerment (BEE)/SEEP but readjusted to local context. Other reforms include clearing the domestic arrears to the tune of E1.5 billion, removing unnecessary trade barriers, taking infant industry protection measures, opening borders with major trading partners 24 hours, increasing public sector accountability and eliminating corruption, giving the judiciary independence and staying committed to implementing national development strategy.

6.1 Summary of recommendations

Improve efficiency of business registration and ease of doing business

Efficient processes need to be introduced to acquire licenses and in doing business. The current process of acquiring trade licenses should be reviewed to enhance efficiency. Countries like Rwanda have turned their doing business status significantly through assessment and rapid response to bottlenecks and this has led to increased foreign investment. Establishing facilities such as the ‘one-stop’ shop in Lesotho have significantly reduced costs and time it takes to register. Swaziland will benefit from studying from other African countries. All in all, the government and private sector will have to form a ‘doing business’ team possibly with representatives from successful countries in the region to derive a model that would counter negative business environment.

Avail capital

There are different vehicles through which manufacturing may be financed. Currently, government pension funds are also used as financing vehicles in other countries. Formal agreements may also be entered into with local banks to offer loans guaranteed by government to manufacturers. However, financing can only be extended to viable businesses. Hence, efforts to increase funding cannot be in isolation to entrepreneurial culture or competence.

Liberalise the sector

Globalisation has increased competition between countries. This has necessitated research and development in strategic approaches to industrialization. Swaziland has to develop approaches that maximise its comparative and competitive advantages as well as how to benefit from backward and forward linkages between the sectors.  This implies that it will also have to privatise some of the national manufactures to attract FDI that will foster technology and skills transfer.

China achieved spectacular growth rates through liberalisation to facilitate price setting, operating trade and exchange rate policies that favour exports over imports in the initial stages (export-led development strategy), sound incentives for FDI inflows, large scale infrastructure development and investing in skills and rural development. Although China is used as a model to emulate, it is worth examining if the model would work in the Swaziland context. Some studies (Wood and Mayer, 2001), argue that Africa should rather follow a land abundant development path similar to that followed by the US as opposed to the land scarce model of China and other Asian countries. Their argument is that even if Africa, Swaziland included, were to address policy constraints in the sector so much that manufacturing export performance reaches its estimated potential, manufactures would still make up less than 30% of total exports, marginally above Latin America’s 28% but way below 60-70% of South and East Asia. We have seen even the case of South Africa which has failed dismally when it comes to competing with China’s apparel industry. Trying to protect textile sector made manufacturing in South Africa unattractive.

We learn from both experiences of China and South Africa that it is essential to have infrastructure that supports manufacturing in place, produce from raw materials and invest in skills development. Trade preferences such as Africa Growth and Opportunity Act (AGOA), which provides Sub-Saharan African countries with a price advantage of 10 to 20% relative to exports in countries that levy tariffs, presents Swaziland with opportunities to develop skills in the manufacturing sector and serves as a conduit to learn of innovative and competitive measures in manufacturing.

Build industrial base/diversify

Due to a plethora of manufactures producing textile and clothing, buyers can easily switch suppliers leaving Swaziland to compete on price. This was observed in the textile industry at the height of the financial crisis where volumes of textile exports dropped in value, hence were worth less than before. With inadequate infrastructure and poor technological penetration in the sector, Swaziland will best benefit competitively by working towards full-package production to sidestep international price competition. The same applies for sugar and pulp industries.

In cases where foreign companies come as manufactures principles such as BEE should be adopted but adjusted to the Swaziland context. If properly implemented, it will increase local expertise in manufacturing.

Improve worker productivity

Training is essential for productive workforce. More rigorous vocational training programmes have to be designed. Improvement in skills will boost volumes produced, which will in turn support higher wages. These training programmes should be decentralized in order to accommodate rural areas.

Open borders

GoS has to invest in infrastructure development of borders to facilitate entry and exit of goods at more borders and increase manpower to support 24 hour opening of borders. This will save travel costs for those companies that had to drive longer distances to the few operational borders.

Judiciary independence

Roadmap of manufacturing sector

Currently, the judiciary system is weak and prone to corruption. While there is no consensus on the definition of an independent judiciary, common principles are that it should be free to render justice on all cases fairly, impartially, in accordance with the law, without threat, fear of reprisal, intimidation or any other form of influence (Fombad, 2007:16). In Swaziland, this is not exactly the case given that the Constitution of Swaziland whilst guaranteeing its independence the appointment of Judges  and  security of tenure  may compromise its independance. According to Fombad (2007:17), “serious crisis that has hampered the work of the courts especially during past five years in Swaziland is a result of ignoring court decisions and intimidating judges, culminating in all the appeal court judges resigning 2002-2004, is likely to continue under new illiberal constitutional dispensation”.

This does not augur well for international manufacturing companies seeking to invest locally as they do not have the security that justice will always be served in the courts.

7. INFORMAL SECTOR IN SWAZILAND

This sector is composed of various stakeholders. Generally, it consists of people who do not have resources to start a business and trade in the formal sector. These are the unemployed, those who can’t find jobs, retrenched people and those who can’t afford to be employed full time. There are also those categorised as unemployable: those who lack job skills, sick people who cannot do jobs that require hard labour and illegal immigrants.

The business legal framework in Swaziland requires that one is a legal citizen with a registered business that has a trading license with premises from which it operates. The place has to be issued public health certificate. Tax laws and labour laws also have to be adhered to.

This sector has a significant contribution to the economy. Currently, the informal sector employs 32.5% of the Swaziland labour force which ranks second after the private sector (41.5%) (Dube, 2012). According to the World Bank (2009), about 2/3 of all employees worldwide work in the informal sector. In addition, the informal sector market players are a gateway to the local markets of many agricultural commodities. They provide cheaper goods and services compared to formal sector, thus allowing the consumer to save money. They also act as middlemen as they create the market for many goods produced in the rural areas and export them to regional and global markets, for example, handicrafts.  They also contribute to the budget of the economy as they pay their taxes and are able to provide for their families.

Roadmap of informal sector

However, the contribution of this sector to the economy is short-circuited by a myriad of difficulties. These challenges include lack of business management skills (bookkeeping and financial reporting, budgeting, business development, management practices, etc.), market research, as well as business finance.  It is difficult for businesses operating in the informal sector to get loans given their risk profile. Street vendors get constant harassment from law enforcement agents. For those who operate from formally designated trading areas their challenge is that the trading facilities are often in areas with relatively fewer customers for other categories of entrepreneurs. This follows the fact that informal workers are legally allocated in areas that are not easily accessible or close to all their customers. In addition, they often operate from poor infrastructure with unhygienic and unhealthy facilities provided by Small Enterprise Development Corporation (SEDCO) (SEDCO aims to “contribute to the country’s economic development through facilitative entrepreneurial activities to create a vibrant SMME sector and meaningful support to Swaziland’s poverty reduction programs”) at a cost of E1, 200. Another challenge that is pressing to the informal sector is claiming of VAT by cross border traders. These issues intensify the fierce competition from the formal sector.

Government has not demonstrated support to this sector over the years. It does not use the services of businesses under SEDCO incubation programme. Moreover, the

government ignores challenges of the informal sector and has provided no legal framework for the sector.

Several things can be done to improve this sector’s contribution to the economy. First and foremost government has to unequivocally recognise and admit the importance of the informal sector and find ways to encourage its growth. Expansion of the sector will lead to both economic growth and job creation.

7.1 Summary of recommendations

Establish an enabling business environment and supportive regulatory framework

Informal sector Act or policy that would address the sector’s specific problems has to be drafted. This has to be complemented by an organised informal sector.  As per suggestion of the conference delegates, all informal traders should be registered under Informal Traders Association or any other umbrella federation which allows their voice to be heard and affords them an opportunity to take part in the sector’s policy decision making processes. SWASA could play the role of grading the businesses.

The statutory requirements for starting or registering a business should be reviewed. Issues such as premises are not really necessary across all industries. For example, consultants can work from home and this could save them monthly rental costs, hence increasing chances of survival of the business. Some industries, for example catering, have to be provided with the facilities, amenities or infrastructure that is appropriate for the nature of the business. In addition, businesses could be grouped into clusters and improve their service delivery through provision of start-up finance, mentorship on how they could improve their businesses as well as providing business incubation shells-SEDCO.  This should also help some businesses to transition from informal sector to the formal sector.

Undertake sector research

The informal sector represents several sectors such as commerce, finance, manufacturing and trade related activities which are mainly dominated by street vending. Undertaking comprehensive market research on the sector should assist in terms of contribution of this sector to the economy. Market research could identify the sector’s contribution as well as bring to light some of the linkages either backward, forward, technology, consumer or credit linkages that potentially exist between the formal (big companies) and informal sector.

Introduce guarantee funds for the sector

Introduce public guarantee funds. The funds will give commercial banks an incentive to invest in SME sector by reducing default risk.

Budget allocation should directly cater for the informal sector

Budget allocation by relevant ministries should be steered to develop the informal sector. In essence, a specific amount should be set aside in the respective ministries specifically for informal sector development.

Build capacity of the informal sector to respond to market opportunities

Training and coaching programmes can be used to improve capacity in the informal sector.

8. INFORMATION, COMMUNICATIONS, AND TECHNOLOGY (ICT)

ICT in Swaziland is mainly regulated through the 1983 Act. Although this Act is old, it does not necessarily mean that it has to be entirely changed. Rather, issues like definitions may be reviewed. There is also the need to align the policy with international best standards but adopt them to the country’s needs. For example, India still uses regulation from 1875 but made it current by adjusting it to recent issues. Companies have to work with SWAZA to ensure that they operate in line with the regulations.

The state owned Swaziland Posts, Telephones and Communications (SPTC) acted as a national telecoms regulator in collaboration with the Ministry of ICTs (Telegeography, 2012). It also provided fixed telephone services, mobile telephones and internet services, which disgruntled private operators. Consequently, SPTC has since relinquished its regulatory authority to the Ministry of ICTs while its shareholding in MTN was given to the government (BuddeComm, 2012). Other incumbents in the sector are: MTN, which is the second operator in the mobile telephone sub-sector, Real Image and AfricaOnline which are internet service providers.

Sector stakeholders currently do not lead in a meaningful manner. There are 3 groups involved in the ICT sector of the economy. These are investment groups such as Times of Swaziland, MTN, and Internet Service Providers (ISPs). The second group is legislative authorities such as parliament, government and Swaziland Television Authority (STVA) and thirdly, community members who define the demand for services. For example, utilities, financial services such as internet/mobile banking and health services. It’s been a while since they have met and been given guidance or a brief on national telecommunications plans.

The international telecommunications unit is divided into three: International Telecommunications Union – Telecommunication (ITU-T), International Telecommunications Union – Radiocommunication (ITU-R) and Block Data Transfer (BDT). Standardization of telecommunications worldwide is work in progress. However, harmonization in telecommunications activities within the region has to be facilitated to ensure that there is no interference in terms of what other countries are doing through Communications Regulators’ Association of Southern Africa (CRASA) harmonisation of regional policy. Moreover, Swaziland has to introduce appropriate policies and regulation to attract companies that will contribute to the development of the sector. At present, liberalisation in the national information technology structure is limited. Internet is fully liberal, as for terrestrial cellular or mobile networks they are not liberalised. This follows the trends in the SADC region.

The state of development in Swaziland is indicated by fixed network tele-density which doubled from 4.5 in 2009 to 9 in 2011 (Mabuza, 2012). Infrastructure is robust, broadband-based and is still in the process of development. International internet bandwidth is 10 times 2009 levels of 45 MB/second (Seacom constitutes 70% of the

bandwidth) (Mabuza, 2012). By the end of 2011, market penetration rates were 65%, 4%, and 9% for mobile, fixed and internet respectively (BuddeComm, 2012).

Swaziland has both fixed and mobile network to take it forward. Worldwide Interoperability for Microwave access (Wimax) and Fibre-to-the-Home (FTTH) are still under construction and after this; the country will be more efficient in telecommunications. Broadband access through Digital Subscriber Line (DSL), CDMA 2000, and 3G has increased over the past 3 years. Customer Premises Equipment (CPE) and ISP services are fully liberalised and pricing is moving from time rate to flat rate which tends to reduce the charges. The industry is relatively liberalised and there is unrestricted entry into the market. The network is ready for broadband including content and application.

Swaziland has also made positive leaps in service delivery through ICTs. These include: introduction of computer readable passports, national ID, order management online, elderly grants, fingerprints management which combats crime and hinders improper replication of national ID cards. There is also remote remand hearing in place in the Ministry of Justice and Constitutional Affairs which cuts costs to citizens who would have to drive from their areas to distant courts. This also has positive implications for the environment, as there are fewer emissions as people travel less.

Roadmap of the ICT sector

Nonetheless, there is still room for improvement and problems to rectify. Prices of telecommunications services are still high and a cause for concern. This is partially attributed to the fact that Swaziland is a landlocked country and has to depend on neighbouring countries for international fibre bandwidth which leads to high prices (BuddeComm, 2012). It is expected that the high costs of international bandwidth will decline with several new submarine fibre cables that have recently reached the region (BuddeComm, 2012).

The presence of an independent regulator would also play a significant role in reducing the tariffs. The national network and services providers are duopolistic. Backbone network including international gateway services are monopolised. The policy, legal and regulatory framework for liberalisation is lacking and liberalisation in the backbone network is also limited. There are neither national targets to judge progress towards ICT adoption nor adequate industry leadership from government (Mabuza, 2012). There is also need for parallel networks to ensure infrastructure sharing or collaboration of efforts by service providers which would save money. For example, currently utilities have individual fibres. The lack of harmony of broadband or ICT balanced development and limited or poor leadership role and commitment to ICT development from government, stifle development of the sector.

8.1 Summary of recommendations

Speed up the process of setting up regulatory authority

A regulatory body in the sector will play a crucial role in, for instance, advocating for reduced tariffs and better service delivery to the citizenry. In countries such as Lesotho which has a regulatory body in this sector, Lesotho Communications Authority (LCA), there is progress in advocating for lower tariffs.

Increase ICT adoption rates in key sectors of the economy

As the economy deepens industrialization and expands into value-added industries, demand for ICT products and services will increase. It will improve communication with customers and place the firms in a competitive position, help improve logistics and nullify the importance of geographic distance. For government, ICT can significantly improve efficiency and make the departments more responsive to the nation’s needs.

Traditionally, three inputs are necessary for successful adoption of ICT. These are ability, benefit and connectivity. Connectivity relates to physical access to ICT such as fixed-line or mobile. Benefit is the value derived from using ICT. These include productivity, innovation, and quality of life while ability refers to ability to use ICT in terms affordability and skill/education at all levels: primary, tertiary and vocational. If funds are invested in ICT to drive access without demonstrable returns in productivity and efficiency Swaziland will not progress as anticipated.

The strategic approach to this would be to foster a public-private partnership. While it is the responsibility of companies to adopt ICTs to enhance productivity and competitiveness, the government in collaboration with the independent regulator can ensure that they counter barriers. It may also be central to coordination of ICT initiatives.

Address digital divide between the rural and urban areas through wide spread training

Increasing connectivity is important but will have significant impact if Swazis are ICT literate. Greater efforts need to be made to incorporate ICT in the education system as well as public and private sectors. Public sector employees could go through a continuous training programme to stay updated with IT developments. Private sector could also be given incentives to train their staff in ICTs.

In terms of adapting ICTs in the education sector or working towards meeting government mission to “ensure that the use of ICT in the education system is strengthened to expose all children who leave the system to new technologies”, greater efforts also need to be made to incorporate IT modules in the education sector nationwide, as early as higher primary school level. These modules should not only cover basic use of computers or surfing the internet but should also entail lessons on appropriate use of gadgets. Introducing ICT programmes into all schools in the country will decentralize ICT training throughout the country; hence contribute to breaking the technological literacy divide between the rural and urban areas. Currently, the sector

has major connectivity challenges, with some regional education offices without access to the web. Only limited educational institutions and ministerial departments have access to internet (Mtshali, 2012:4).

To practically achieve the above, sound policies on implementation strategies in the education sector need to be drafted. More funds have to be reserved for creating a strong wing in ICT within the local tertiary institutions or constructing an entirely new institution that focuses on technology development. Currently, government has pioneered some initiatives to this end. These include, the Republic of China-Taiwan computer project, Computer Education Trust, the UNESCO Japan funded project, Coca-Cola foundation and the partnership between MTN Swaziland private sector in order to provide schools with computers mainly in secondary and high schools (Mtshali, 2012:4).

In order to reach the rural areas, civil society has to organise a campaign through which it engages the citizens on their views on ICTs, with the ultimate aim of engendering a culture of employing ICTs. Failure to address their presuppositions about ICTs mainly negative ones regarding technology will stifle progress in national ICT usage.

Allow competition

Introduction of new mobile service providers should create competition that will also contribute to fair prices/tariffs. For instance, in the case of internet a lack of competition in access and backbone network has been a contributing factor to high tariffs excluding problems such as limited fixed line infrastructure (BuddeComm, 2012). Although the sector has four licensed ISPs the tariffs remain high, hence low market penetration.

9. CONCLUSION

The poor economic indicators like low growth rates, high poverty incidence, high unemployment, dependence on unsustainable SACU revenue as a main source of revenue and weak  governance structure indicate the precarious state of the Swaziland economy. It is imperative that Swaziland prioritises a strong  democratic governance system in the short term. Good political governance will create an environment for improved economic governance. Fiscal policy can be directed to activate economic activity and job creation. This will in turn increase government revenue from direct taxes which is important as it reduces dependence on the unsustainable SACU revenue. While Value Added Tax (VAT) can add value to government revenue base, it is quintessential to introduce it when all necessary logistical and operational systems are in place and the economic environment is conducive. The paper recommends a review

of the timeliness of its introduction in the short run to ensure its temporary retraction if it is likely to adversely affect the local businesses and citizens at present or to garner support for its implementation through engaging the masses about its benefits and how it operates if the timing has no negative implications.

A vibrant private sector is equally important in creating an environment that counters the socio-economic ills in Swaziland. The health of the various sectors: mining, manufacturing, the ICTs and the informal sector are equally essential. The mining sector carries potential to catalyse economic growth. Swaziland has significant deposits of coal, gold, barite, ball clays, kaolin, diamond, and silica. Currently, Swaziland mines coal, quarried stone and iron ore. Two licenses have been issued; one for iron ore mining and another for diamond mining. However, to best benefit from mining, Swaziland has to pay attention to ownership; sign up the EITI, become part of automatic information network and prioritize monitoring performance of mines in the short to long run. In the long run, once monitoring, transparency and accountability measures are in place, Swaziland should aggressively engage more investors into the sector. The terms of entry into mining should also include clear guidelines on the expected nature of CSI to ensure both economic and social returns.

Although faced with the challenge of declining productivity and diminishing arable or agricultural land, agriculture sector still has the potential to be a mainstay of the Swazi economy. The main challenges in productivity have been attributed to drought, HIV prevalence, inadequate infrastructure and climate change. In order for the sector to make a sustainable positive economic contribution, the land tenure system and financial support to agriculture have to be given first priority and addressed in the short to medium term by organizing a task team to address these issues. One of the options for land accessibility to budding Swazi farmers is to negotiate longer leases for farmers on Swazi National Land (SNL) or appeal for redistribution of land under Tibiyo to some local farmers. These efforts should be coupled with transition from subsistence to commercial farming in the short to medium-term. Going forward, coordination mechanism between government, University of Swaziland (UNISWA) and other research organizations have to be in place. Although these may not be a first priority in the short-term, they should be prioritized in the medium to long-term.

Although manufacturing sector contributes 4% to GDP, which is relatively high in comparison to the countries in the region and is diversified with activity in textile and apparel, sugar, agriculture, forestry and mining it is marred with challenges. The stifling factor to more Foreign Direct Investment (FDI) inflows particularly in apparel is low productivity. Macroeconomic issues such as political instability and land regulation are also challenges that discourage entry into the local manufacturing sector. Business registration is yet another deterrent factor as it involves too many processes, hence takes long to complete. In addressing the sector challenges, first priority has to be given to liberalizing the sector and simplifying ‘doing business’ procedures in the short to medium term. Civil society has to begin advocating for mandatory percentage from

pension funds to be invested locally as opposed to the current situation where the bulk of the money is invested in foreign countries, mainly South Africa. Another advocacy initiative that civil society task team has to concentrate on is pertaining effecting change to the constitution towards an independent judiciary. This advocacy work should be given first priority and be undertaken in the short-run to lay ground for business enabling environment.

Regular investment in research and development in the manufacturing industry is indispensable. It is important to conduct research on the various manufacturing sectors in order to explore potential sources of expansion in the medium term and to identify bottlenecks that have to be removed for the sector to grow. Training of those involved in the sector is also important though not a first priority in the short-term. An important skill enhancing strategy to begin with presently, is attracting more FDI with contracts that foster skills and technology transfer.

In the same way as the manufacturing sector, the informal sector needs assistance with credit extension, training and a supportive regulatory framework. These issues all have to be part of short-term strategy to enhancing the sector. Also of primary significance in the short-term is drafting a policy on informal sector to facilitate regulation of the sector and mobilizing informal sector to register under Informal Traders Association. As part of the medium term strategy towards sustainability of the sector, it is essential to undertake research on economic linkages between formal and informal sectors. National budget allocation, through the ministry of trade and industry, should also cater for the development of the sector.

The ICT sector of the economy has made significant positive strides. Nonetheless, the tariffs remain high and internet growth is slow. This requires speeding up the process of the regulatory authority as part of short-term strategy in order to among other responsibilities ensure lower tariffs. Another strategic intend  is to increase ICT adoption rates in key sectors of the economy and to address the digital divide between rural and urban areas through widespread training.

In summary, the roadmap envisages that contentious issues that need further discussion are how to achieve a strong  democratic system, as well as how to change the current land tenure system and to what form of land tenure system. The critical success factors for the roadmap to achieve economic recovery may be categorized into stable democracy, macroeconomic management, environmental and land management, technological advancement and diffusion, and Research and Development. Stable democracy entails constitutionalism, political commitment to economic recovery, political stability, independent judiciary and institutionalization while macroeconomic management should include public expenditure management, healthy business environment, exports and market access, economic infrastructure, secure property rights, access to financial services, industrialization, and distribution of income and wealth. Environmental and land management should cover land distribution and management, climate change adaptation research, and environmental protection from mining degradation. Technological advancement and diffusion relates to education and awareness of the ICTs to the general populace, more competition in the sector and better regulatory framework.

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