Develop a Global Partnership for Development - Goal 8

Overview 

Economic growth is only one factor that underpins sustainable development,[1] which entails the achievement of interdependent and complementary social, institutional, economic and environmental objectives. However, without economic growth, there would be little prospect of sustainable progress in other dimensions of development. Yet it is possible to achieve high rates of economic growth without this being translated into commensurate progress in overall sustainable development. When this occurs, economic growth itself can stall. Swaziland is currently faced with this conundrum whereby previous gains in economic growth were not broadly based and shared, thus, undermining the prospects of further growth.

Substantial remittances from Swazi migrant labour that worked mainly in South African mines also sustained higher household incomes, which further assisted the growth of domestic production. These conditions facilitated high GDP growth and per capita income, thus, propelling the country into the lower middle income status[2] 
Starting in the mid-1990s, however, the Kingdom has witnessed reduced economic growth rates that, in turn, resulted in weak social indicators. The prevalence of absolute poverty worsened from 66 percent in 1995 to 69 percent in 2001. Unemployment has also risen from 22 percent in the 1980s to 29 percent according to Swaziland Household Income and Expenditure Survey (SHIES) of 2001 (the latest conducted prior to 2008. Results from an ongoing Income and Expenditure Survey are expected in 2010 that will show the extent of progress made in reducing poverty in the country.  Human development as measured by the Human Development Index (HDI) reached a peak of 0.623 in 1990 before declining to 0.547 in 2005. These indicators suggest a condition that seriously threatens sustainable economic growth. The major development challenge that Swaziland currently faces is, therefore to make its growth process sustainable, which requires addressing the combination of sluggish economic growth and the prevalence of high income inequalities. 

Current Policies

Swaziland’s development challenges are thoroughly diagnosed in the PRSAP which is the Government medium- to long-term development framework and action programme whose preparation involved wide consultation with national stakeholders and external development partners through. PRSAP policies aim at facilitating sustainable economic growth and effectively address poverty by creating a favourable climate for stimulating investment and productivity. To ensure that growth is accelerated, participatory and inclusive,  PRSAP policies lay stress on (a) macro-economic stability; (b) good governance; (c)  equitable access to productive assets by individuals, groups, families and other institutions, especially in rural areas; (d) human capital development; (e) a policy climate which stimulates the private sector in order to accelerate job creation, business development as well as income-generating opportunities; and (f) rural development to stimulate agricultural and other non-agricultural activities, which will provide opportunities for generating incomes and broad-based growth through the provision of infrastructure, extension services, technology, markets, social services, financial services, and a focus on food security. All this is expected to take into consideration differences in endowments and poverty status across Tinkhundla and regions, with special attention given to regions with the greatest concentration of poor people.

Through the PRSAP, Government also gives priority to policies aimed at increasing the competitiveness of the economy, promoting international trade, broadening the revenue base, and expanding financial services to benefit SMEs, particularly in rural areas. Government also recognizes the importance of focusing on improving the efficient and effective provision of public services as an essential condition for the creation of an enabling environment for private sector expansion and overall economic growth. In this respect, through the PRSAP, Government has committed itself to prudent fiscal management and strengthened judicial system and law enforcement institutions in order to boost investor confidence, improve personal security and protect the rights and freedoms of the public.

The PRSAP also aims to strengthen traditional institutions so that the resolution of disputes is ensured and the public can more effectively participate in the decision-making process. The PRSAP also aims to institute measures to fight corruption at all levels as well as to implement the decentralisation programme that will bring government closer to the people so that institutions can better respond to the needs of the poor. The PRSAP also includes policies and priorities in the areas of HIV and AIDS, education, health, and water and sanitation. This is part of Government commitment which aims to improve social welfare provisioning and enhance human capacities.

Current Strategies

The policies outlined above derive from a long-term strategy grounded on the country’s vision for the country and that has a goal of reducing poverty by more than 50 percent by 2015 and to eradicate it by 2022. In terms of macroeconomic stability and growth, the strategy has the following components: (a) fiscal discipline to be reflected in budget deficits of less than 5 percent of GDP; (b) sound monetary policy for low inflation and strong balance of payments, including the maintenance of the e parity between the Lilangeni and the south African Rand; (c) stimulation of private sector growth and investment to boost exports and strengthen the current account and boost international reserves; (d) trade reforms to protect the poor against negative external shocks and create conditions for them to benefit from a more open world trading system; (e) broader tax base and a redistributive tax system.

Development challenges

Weak Global Standing

Overall, Swaziland has lagged behind a large number of comparable countries in translating its growth into broadly shared benefits. This is reflected in two dimensions. On the one hand, the country has registered a significant decline in its Human Development ranking. On the other hand, comparable countries have achieved higher levels of human development at lower levels of per capita income than Swaziland (UNDP WDR 2007/08). For instance, with a HDI of 0.547 in 2005, Swaziland ranked 70 within the sub-sample of 85 ‘Medium Human Development’ countries’ (i.e. the country was below 81 percent of the countries in the cohort in terms of human development measured by the HDI). In terms of the GDP Index, the country was only below 31 of the countries of the same cohort. As a result, the overall ‘GDP per capita (PPP US$) rank minus HDI rank’ was -37 (where the negative means that the GDP PPP US$ rank was higher than the HDI rank. This was one of the largest discrepancy not only within the cohort of ‘Medium Human Development’ countries, but in the whole sample of 177 countries for which UNDP ranked countries for the Human Development report 2007/2008. Still within this cohort, the nearest five worse performers in terms of translating economic growth into human development outcomes as measured by the HDI are Botswana (with a ‘GDP per capita PPP US$ rank’ of -70), South Africa (-65), Namibia (-47), Gabon (-35),Tunisia and the Islamic republic of Iran (-23).Outside the ‘Medium Human Development’ countries, the most lagging countries in the transition from overall economic growth into human development gains are Angola (with a ‘GDP per capita PPP US$ rank’ of -70), and Guinea (-30), both in the ‘Low Human Development’ cohort. These outcomes suggest that, so far, economic growth in Swaziland has not been sustainable at least in the sense that it has failed to rest on equitable sharing of benefits and that, by failing to sustain higher levels of human development, future progress is undermined.

Sluggish economic growth

Swaziland’s economic growth has weakened since the early 1990s, reversing some of the gains realized in the 1980s when the country became a preferred location for foreign investment in the region due to the political and military turmoil in South Africa and Mozambique. GDP growth rate has decline from around 7 to 10 percent in the decade 1981-1990 to around 3 percent over the last 15 to 17 years. The slowdown in growth has been due to the decline in the contribution of all components of growth (capital, labour and total factor productivity). This reversed the gains made in the previous decade when total factor productivity was boosted by investment in the manufacturing industry mostly through foreign direct investment (FDI) with the concomitant technological innovations and intensified trading.

An analysis of the sources of growth in Swaziland (IMF, 2000, 2003) indicated that by the beginning of the current decade, high investment rates leading to accelerated physical capital accumulation had not translated into sustained high rates of economic growth, suggesting the need for the country to find measures to increase the productivity of capital.

Weak Enabling Environment for Doing Business

Beyond strictly technological factors, all contributors to economic growth are affected by domestic policy and structural factors such as the efficiency of government regulation; the degree of monopoly in the economy; literacy and skills of the workforce; the prevalence and incidence of HIV and AIDS and the national response to the epidemic; and by many other socio-economic and cultural factors. The case of HIV and AIDS (and related lowering of labour productivity) is particularly compelling as the epidemic heavily affects those in the most economically active age cohorts.

The perceptions and evidence about governance do not seem to have moved in a direction favourable to growth of total factor productivity and FDI.  By international standards, Swaziland has consistently been falling down the rankings in key governance indicators. The percentage of countries that ranked below Swaziland in terms of government effectiveness declined from 45 percent in 1996 to 25 percent in 2006-2007. This is also true with respect to the percentage of countries that ranked below Swaziland in terms of regulatory quality and the rule of law. Swaziland has, nevertheless, done well in one indicator of governance, namely, ‘political stability and absence of violence.’

High income inequality

Both the design of the PRSAP (2007-2015) and the UNDAF (2006-2010) benefitted from the knowledge that poverty was becoming more widespread in Swaziland, and inequality was not decreasing. The results of the 2001 SHIES showed that poverty is unequally distributed across gender, age, marital status, region, source of income, and other dimensions of vulnerability. In Swaziland, inequality stands out as one of the main challenges to sustainable economic growth and development. 

The Social Accounting Matrix provides a snapshot picture of the patterns of primary income distribution. It shows that households in 2004 derived 86.6 percent of their income as returns from the supply of their labour, followed by gross remunerations from the non-human capital assets.  To develop a sense of the poverty and inequality implications of sectoral growth patterns, it is necessary to disaggregate the sectoral origins of the major sources of income, as well as their accrual to households of different income levels. The 2004 data showed in this regard that the high income households received 53.3 percent of the income from labour and 83 percent of income from capital. In contrast, the low income household, constituting the majority, received only 26.8 percent of the total income accruing out of labour services, and 6 percent of gross enterprise surplus. The middle income receives the lowest proportion of labour income, and 10.5 percent of gross enterprise surplus. The sectoral source of income from labour indicates that government services sector is the source of nearly a quarter of household income.

Challenges Originating from the Changing Global Trading Regime

Swaziland’s export sector has performed well over the past 5-6 years relying increasingly on the textile and sugar industries, boosted by foreign direct investment and large investments in irrigation systems and other infrastructure, resulting in substantial gains in employment. Textiles exports have been facilitated by the United States trade preferences primarily for apparel exports under the African Growth and Opportunity Act (AGOA) while sugar exports have been assisted by the EU preferential regime for sugar exports. Exports of these commodities have in the last two years been not only seriously threatened but also negatively affected by changes in the global trade regime and trade liberalization. There has been the removal of trade preferences for textiles (Multi-Fiber Agreement in December 2004), and the phasing out of the preferential prices for sugar to the EU market starting with the July 2004 EU announcement of a 4-year phased reduction of prices for sugar imports by 36 percent.

Swaziland’s membership in the Southern African Customs Union (SACU) and the Southern African Development Community (SADC) creates further challenges as they effectively, and to a large extent, determine the country’s external trade policy. Added to this is the challenge of reconciling the country’s participation in the Common Market for Eastern and Southern Africa (COMESA) free trade area/customs union with its SACU membership. This means that three main exports of the country are under threat (and are already being negatively affected). This challenge needs to be addressed in a rapidly changing competitive global environment. These threats compound the challenges of doing business, falling factor growth and productivity, and the impact of the HIV and AIDS epidemic. Addressing these challenges in the context of the Common Monetary Area and a trading regime which is mainly managed by South Africa is going to be problematic as the country lacks the levers to influence, in the short term at least, the competitiveness of its exporting manufacturing industries.

Challenges Originating from the Global Economic Crisis

Swaziland has been adversely affected by the sharply rising international food and energy crises.   In his 2009/10 Budget Statement, the Minister for Finance summarized what the global economic meltdown meant for Swaziland, namely that the crisis will negatively  impact on the demand for the country’s  exports as the markets for the country’s internationally traded goods and services in South Africa, the US, and the EU experience substantial reductions in demand. Given the close trading links with South Africa (around 80 percent of total trade flows), and the fact that most businesses in Swaziland are subsidiaries of South African companies, the Southern African economic giant remains the main window through which the impact of the global economic  crisis is being transmitted.  

The reality that the global economic crisis worsens the other challenges addressed above makes it difficult to apportion the effects. For instance, that the global economic crisis is likely to affects access to credit as financiers have become more risk averse and, as a result, the general re-pricing of risk increases the cost of borrowing. This is superimposed on the draught-related negative shocks to sugar farming by smallholders in the country, which has led to credit rationing by some credit institutions as farmers defaulted.  Also, the reduced global demand of the country’s commodity exports will superimpose itself on the effects of higher competition faced by manufacturing businesses (mainly Asian) that have recently relocated back to their countries of origin following the opportunities to compete from there created by the change in global trading rules. All this is likely to have negative implications for employment in Swaziland, as is the case in many other developing countries.