Swazi economy virtually collapsed: A chronology of a deepening crisis

Swazi economy virtually collapsed: A chronology of a deepening crisis

As part of the planning towards a public seminar on the political economy of Swaziland, the Swaziland Democracy Campaign (SDC) has produced this ‘work in progress’ paper on the Swazi economy. With this paper as a base, we are pleased to announce that we have commissioned a ‘Panel of Experts’ to develop a more comprehensive and expansive framework towards the public seminar.

This paper is therefore an overview, and not a full obituary, of how the Swazi economy has collapsed. It seeks to trace the evolution and elements of the collapse and further exposes the Swazi regime’s attempts at maintaining a secret shroud around the current economic situation in Swaziland. . It also begins to explore possible alternatives.

Introduction

The Swazi economy is currently in the depths of a deep-seated structural crisis, negatively impacting workers, communities, and the poor more broadly. The current crisis explains the Tinkhundla regime’s desperate attempts to effect massive structural changes that seek to reconfigure the Swazi economy, paradoxically still in line with the narrow interests of the royal minority that is at the heart of the collapse in the first place.

At the time of Swaziland’s independence in 1968, the royal minority inherited a highly skewed colonial economy. The edges of the skewed nature of the economy were further sharpened through a royal ‘bourgeoisification’ process, with the establishment of a ‘royal fund’ through the vehicles of Tibiyo[1] and Tisuka TakaNgwane. To date, royalties from mining as well as land held by the monarchy for the Swazi nation (utilised by the major sugar and forestry estates), accrue to the royal family through these institutions, and not to the state, lesser still to the people. This system is designed to ensure that the parasitic royal family maintains their huge, highly unproductive and unfettered share from government in the form of the Swazi National Treasury (SNT), an entity separate from central treasury. According to the Swazi Royal Emoluments and Civil List Act (enshrined in the Constitution of 2005), Parliament should legislate a limit to the money going to royal institutions. Inexplicably, this stipulation has been ignored over the decades, handing the royal family 5% of the annual budget to dispense with as they please.

The parasitic structure and character of the Swazi economy:

Causes

Swaziland is Southern Africa’s second-smallest economy after Lesotho and is suffering from a combination of low investment, dwindling international opportunities, such as the end of preferential market access for the country’s main sugar and textile exports, low productivity levels, deteriorating trade receipts, low domestic resource capacity, which according to economists indicate a persistent trend towards a sustained decline. This is further compounded by the years of poor growth levels, which have resulted in the deepening of poverty and unemployment. Even worse is the alarming impact of the 32.4% prevalence rate of HIV/AIDS which is wrecking havoc and thus exerting massive pressure on national resources with the result that it has restricted Swaziland’s annual population growth to about 0.4% since 1997, according to health statistics.

Swaziland ranks as one of the highest, unequal societies in the world. Two key factors contribute to this:

   

Firstly, the deliberate designs of the Tinkhundla royal regime to monopolise national resources and allocate these for their own narrow interests, to the exclusion of the suffering majority of the people and;

Secondly, the inability to translate the economic growth experienced in the 1980s and 1990s into effective development for the benefit of the majority of the people and instead the pursuit of a neoliberal policy framework.

The parasitic character of the Swazi economy is such that the majority, those who work and produce do not benefit. The real beneficiaries are the members of the huge royal family who do nothing to contribute towards the economy. They are instead found all over the world; in extremely luxurious hotels, the best educational institutions, enjoying the most expensive health facilities; queuing to lay claims for everything they do.

Tibiyo, their milking cow, facilitates this process very well, further draining the economy, without any  proportionate input towards creating and generating wealth by those who loot.

The royal family consumes about 5% of the annual budget while 70% of Swazis live below the poverty line of US$1 per day.  25% of Swazi’s rely on donor assistance. This reality exists despite the fact that Swaziland qualifies as a middle-income state due to a flattering per capita GDP. Swaziland is therefore not poor in strict economic terms, however the country’s glaringly skewed politics of distribution certainly are.

The exclusion of the vast majority of Swazi people from effective participation in the economy is an obstacle to economic growth and the realisation of full economic potential.

Neoliberal economic policies remain a large part of the problem. Any structural adjustments would have and will still hurt the ordinary citizen while temporarily cushioning the interests of big businesses. Are these not the same policies responsible for the total collapse of the global economy? Policies from which there doesn’t seem to be a sustainable way out due to the contractions inherent in capitalist accumulation?

The following factors are critical in understanding the causes behind the current Swazi economic collapse;

§ Economic governance – developing the capacity to manage the economy within Swaziland has never taken priority. Policy documents and budgets lack credibility and there are always huge variations between planned spending and actual outcomes, as exemplified by the chronic backward system of supplementary budgets. Line ministries show less commitment to staying within expenditure limits and steps are not taken to correct these discrepancies.

§ Corporate capture of government - policy decisions taken by the government reflect the interests of big business and are of detriment to ordinary citizens and the economy overall. A glaring example is the increasing role of royal family businesses in the economy.  This is aptly exemplified by Litfole Lenyatsi conflict of interest in Sikhuphe, where partners of the king in business are buying out the most successful business interests in Swaziland (e.g., Tiger City Building, MPD Building, Tum’s George Hotel, etc.). These decisions seek to benefit a small elite in Swaziland and the royal institutions, including Tibiyo TakaNgwane. The case is made more clearly through measures taken by the regime to prop up the sugar industry when in effect it may no longer be viable to do so.

The result? Swaziland ranks among societies of the world characterised by the most notable income inequalities.

§ Failure to put in place fiscal austerity measures – including

commitments to implementing policy reforms when called upon to do so by credible multilateral agencies like the International Monetary Fund (IMF). Domestic revenue mobilisation has been on the sidelines of government priority lists, with the establishment of a revenue authority only just being put in place. Further, the introduction of more efficient taxes like value added tax (VAT) has no sense of urgency.

§ Failure to put in place proper financial management systems - that minimises wastage and curbs corrupt practices in the utilisation of public funds. This has resulted in the government losing millions of Emalangeni and is a major obstacle to possibilities of obtaining budget support for official development assistance (ODA) countries. A stark case in point is the EU’s recent rejection of a Swaziland loan request (Times of Swaziland Sunday, 11 October 2010). Another striking illustration was the IMF/World Bank refusal to back Swaziland’s loan application to the African Development Bank (ADB), with a letter of comfort stating that the country’s excessive public spending compromises its loan repayment capacity in the long term.

It should also be noted that Swaziland’s preferential trade arrangements with the United States, through the Africa Growth and Opportunity Act (AGOA), remains under serious threat following Swaziland’s continued “Paragraph A” status at the International Labor Organization (ILO). Depending on the findings and recommendations of a high-level ILO human rights inspection team due to arrive in Swaziland this month, Swaziland could face more than just targeted smart sanctions from an international community characterised by increasing levels of compassion fatigue toward chronic, undemocratic beggars.

§ A largely agrarian economy that remains feudalistic - characterised by gross inefficiencies in its management, with subsistence farming being the most dominant economic activity for around 70% of the population. Underdevelopment of this core sector of the Swaziland economy is no accident of history. The link between the sugar industry, the majority of whose shares are directly controlled by the royal family and multilateral giant Coca-Cola, helps to explain why stifling agricultural development was essential in ensuring that Swazis could not subsist on their perennially meager farm produce;  creating a vicious cycle of dependence on slave-wage labour, itself a rapidly diminishing commodity.

It is also very important to understand that this process was a product of a deliberate project to ensure exclusive control and ownership of the economy by the royal family and their friends. This has shaped the current patterns of accumulation. The economy is characterised by massive concentration in the hands of a tiny minority with land in the hands of a few (largely members of the royal family who are unable to use it for productive purposes). The economy is largely agro-based, with semi-feudal relations frustrating its development potential, as the majority produce for their landlords rather than for national or for their own benefit. There are very high and unsustainable levels of poverty, which are compounded by the systematic destruction of jobs and the lack of creation of new ones. As the economy is no longer expanding, excess dependence on the Southern Africa Customs Union (SACU) revenues have exposed the fragility and lack of foresightedness on the part of the regime who have looted without regard for the future sustainability of the economy. The crisis of the economy is deep and systemic.

Not so long ago, Swaziland was regarded as a middle-income country with a GNP per capita of US$1360 (1999). This global economic ranking illustrates the weakness of the neo-liberal model of economic measurement, as it disregards the huge inequalities and resorts to an artificial or narrow, technicist means of categorisation. The standard of living for the majority of Swazi’s has been steadily and gradually declining since the royal regime’s ascendance to power in 1968.

According to the United Nations Development Programme (UNDP); the Swazi economy is characterised by huge unequal distribution of income and living conditions, regional disparities in income and living conditions, skewed property income and land ownership, inequality in upward mobility and favouritism in social opportunities, unequal access to safe and clean water and sanitation facilities, massive rural and urban poverty and landlessness.

In assessing gender performance, a human development report of the United Nations (UN) used Swaziland as an example when it stated that, “the proportion of female parliamentarians in Swaziland is 6.3% which makes it perform worse than any other country within SADC and to rank 62 out of 70 countries listed under the gender empowerment measure (GEM) in the world”.

The enormity of the current crisis is spoken for when one looks at the facts surrounding Swaziland: life expectancy is now at 31.88 years, 30% of all children are orphaned or vulnerable due to living with a critically ill parent, only 6% of the national budget is allocated to health and 2.4% to social services, 69% of the population live in extreme poverty, 25% of the population live on food aid donations, unemployment is estimated at over 40%. To crown it all, the king has an estimated personal fortune of US$ 200 million. He is rated by Forbes Magazine as one of the richest people in Africa.

The Swazi economy is in the intensive care unit (ICU): Indicators

§ Shrinking economy – characterised by ever declining GDP growth projections as per the 2010/11 Budget speech.

There’s currently almost zero foreign direct investment (FDI),   a horrifying sign for any economy.

§ Irresponsible drawdown of international reserves - to below the three (3) months import cover recommended as a fiscal austerity measure. In the medium term this is threatening the Rand/Lilangeni peg which is what has always held the fragile Swaziland economy together.

§ High deficit - as a result of historically high expenditure patterns in predominantly recurrent type ventures, on the one hand, and vanity projects (e.g., Sikhuphe Airport, Science and Technology Park, royal link roads, etc.), on the other. These have little or no potential for future returns yet their repayment will in the long-term crowd up expenditure in crucial social expenditure programmes.

§ Cash flow problems - which are a sign that the revenue and expenditure management capacity of the state is naught. Whilst this is partly a result of dwindling SACU revenues, it could be argued that this was preceded by periods of windfalls which could have been saved and that policy decisions taken in the past without careful engagement have also had a bearing (e.g., RSA-EU TDCA which is responsible for the shrinking SACU revenue pool in part). For instance, the 2002 agreement and sharing formula with a 30% development component with a Lesotho and Swaziland bias cannot survive current disagreements either. Other changes like the mooted SADC free trade area (FTA) are significant indicators that this is the deepening of a serious economic crisis for Swaziland.

According to a media commentary, “It is estimated that the Swaziland government is overspending by E30 million a month (4.2 million US dollars) and is using its foreign currency reserves to pay bills.” It went on to say, “there is also suspicion that ‘development aid’ destined for Swaziland doesn’t go where it is needed, but instead is siphoned off by King Mswati to pay for his palaces, Mercedes cars and his general lavish lifestyle.”

It summed up by saying, “there is overspending by E30 million a month, little chance of selling bonds or assets or securing loans, and a potentially unsympathetic international community.”

The question is where does all this spending go, and who benefits from it?

Finance Minister Majozi Sithole said that government revenues are so low that ‘non-SACU’ revenues are not enough to pay the government wage bill. There are well-founded fears that the government will not be able to pay civil service salaries from October 2010.

The extent of the crisis is further explained by the revelations that, “the government needs income and it needs it quickly. It is trying all the usual tricks of economists to stay afloat, such as seeking loans, selling assets, issuing bonds”.

However, there is very little, if any success in the forementioned. Only 2 months ago, the World Bank and the IMF refused to offer Swaziland a 500 million US dollar loan from the ADB citing that the government was spending too much for a kingdom of its size. And more recently the government made a commitment to the IMF to cut 7,000 jobs in the public sector to help ease its possibilities for securing a loan.

In the wake of the crisis, Tibiyo the wealth of the nation “held in trust” by the regime for the people has not been publicly audited of its real economic capacity. It is also a fact that various international finance institutions have stated that Swaziland is not “creditworthy”, hence the difficulty in securing loans.

Given this situation, the sale of assets is a last resort. Deplorably, in the same way that Mobuto Seseseko was once wealthier than his country and refused to bail out his country whose debts and obligations were far lesser than his wealth; the Swazi monarchy estimated to be wealthier than the country as a whole, is unwilling to release the resources (ill-gotten and belonging to the people anyway) to better the situation.

Notwithstanding, the real source of the problem is the Tinkhundla system in its entirety,  it’s a fraudulently designed framework founded on the basis of safeguarding and perpetuating the interests of the greedy royal minority to the exclusion of the poor majority.

As early as 1989 the Swazi regime was beginning to realise what the implications of the end of apartheid in South Africa meant for Swaziland. For a long time, the royal regime openly flirted with the apartheid regime, benefitting from the sanctions against apartheid South Africa and acting as a sanctions buster, collaborating with the Pretoria regime and other such global forces. Swaziland was seen as an alternative destination, with apartheid South Africa products being branded as originating from Swaziland. Further, the civil war in Mozambique added to the notion of Swaziland being a rather “peaceful and stable” investment destination.

With democracy, peace and stability descending on South Africa and Mozambique , Swaziland’s competitiveness against a relatively stable Mozambique and a post-apartheid South Africa disappeared. Investors preferred the developed infrastructure in South Africa, access to the sea in both countries, population sizes, and the geo-economic spaces offered by these two countries.

The early 1990s marked a consistent decline in the Swazi economy’s growth rates, though not much in the consumption rates by the ruling elite. Despite and in the midst of deepening poverty levels, expenditure on military and security increased. The parasitic edges of the economy were sharpened to extremes, hence the consistent indicators pointing towards Swaziland ranking amongst the world’s most unequal societies.

The health and education budget for members of the royal family using expensive institutions outside the country continue to skyrocket, whilst education and health facilities in the country continue to deteriorate and collapse. Social expenditure, national development and the interests of ordinary people suffered as royal projects such as state-of-the-art royal villas and clinics received priority funding. This explains the deepening inequalities in income and opportunities for the poor majority of Swazis, particularly for women and those living in rural areas.

The decline in the growth rates of the economy led to the ruling regime introducing neo-liberal economic reforms in the form of their so-called medium-term intervention, the Economic and Social Reform Agenda (ESRA), and what they called their long-term scenario mitigation or planning programme, the National Development Strategy (NDS). Both these programmes have failed! There are now new emerging initiatives that seek to replace these, without an open acknowledgement of the failures of these past initiatives.

According to the Organisation for Economic Co-operation and Development (OECD) report, “the country’s manufacturing sector is hard hit, with virtually all significant manufacturing sub-sectors (cement, agricultural machinery, electronic equipment, refrigerator production, footwear, gloves, office equipment, confectionery, furniture, glass and bricks) affected by the global slowdown in trade. Further, the wood-pulp industry was impacted by forest fires that destroyed timber supplies. Equally, the apparel industry was hit as it is dependent on preferential trade arrangements with the United States through the African Growth and Opportunity Act (AGOA).”

As a member of the Common Monetary Area (CMA), Swaziland’s currency, the lilangeni (SZL) is fixed at parity with the South African rand, which acts as a relative stabilising factor. Without this the economy would have plunged deeper into disaster. In fact, projections indicate that without this, the Swazi currency would be lower than the Mozambican Meticais or be at same level or even lower than the Zim dollar.

Swaziland’s economy grew by 2.4% in 2008 before declining by an estimated 0.2% in 2009. The government plans to finance these deficits using domestic sources including securities, treasury bills and bonds as well as by running down reserves. In the short term, the government plans to increase the current weekly borrowing limit from SZL 10 million to SZL 40 million, thus generating up to SZL 520 million during the 2010/11 fiscal year. Furthermore, about SZL 500 million would be raised through a 2-5 year bond. The government is also considering reviewing the legislation governing domestic borrowing, with a view to increasing the annual limit to more than the current SZL 1 billion.

In comparative terms, Swaziland’s savings are low and the country can barely sustain a deficit without breaching reserve requirements. According to the Swazi budget indicators, consumption has steadily increased from about 85% of GDP in 2003 to 102.6% in 2008. National disposable income has ranged between 105% and 111% of GDP between 2003 and 2008, mainly supported by current transfers which are in part derived from SACU receipts. Investment on the other hand has been declining in real terms from 20.1% of GDP in 2002 to 11.4% in 2008 and 10.6% in 2009.

In this regard, the government has projected that revenue will contract by a cumulative 9 percentage points of GDP between 2009/10 and the last year of the country’s Medium-Term Budget Policy Statement (MTBPS) in 2012/13.  

The current account deficit is expected to widen to 5.4% of GDP in 2010 and 7.4% in 2011, owing mainly to the drop in SACU receipts and the ongoing global economic crisis. The major source of worry is the rate at which the reserves are being depleted in the wake of the failure to secure loans in various sources of international funding and the deepening, yet generalised economic crisis in the country.

Tinkhundla’s solution to the economic crisis: Tax the poor more, give the elite more

Whilst the economy is on a free-fall, there are no credible measures being taken in the medium term to normalise the situation. Instead, the government has engaged in underhanded tactics aimed as fleecing citizens of their last penny. Examples include: a new 3% tax for low income earners, forcing the adoption of new car registration plates, aggressively dealing with traffic offenders through exorbitant fines or bail, new travel documents, the Prime Minister and Finance Minister’s unilateral “home grown Fiscal Adjustment Roadmap” recently presented to the IMF, World Bank, and EU, and others. While these stern measures negatively affect the ordinary taxpayer, they do nothing to tackle the big-time tax evaders.

In fact, for sometime now, the Swazi regime has been involved in an exercise to expand the tax base by targeting all those things upon which the poor and working masses rely for their livelihoods; including trees, domestic animals and other such basics. These measures were originally part of the ESRA policy and are being taken forward with a new sense of determination.

Budget estimates points to about 68% of the budget being allocated for security services.  This bears testament to the priorities of the Swazi regime, which is essentially about protecting the privileged few and keeping the rest in conditions of starvation.

Despite, the government seems unfazed by the gravity of the situation, with unwarranted expenditure continuing:

§ They are going ahead with plans for the 25^th Anniversary for King Mswati III;

§ Wasteful and fruitless expenditure associated with the royal family and high expenditure in functions meant to buy patronage and popularity (e.g., the annual Reed Dance, Incwala, King’s birthday, etc.);

§ Salary increments for politicians and (inevitably) civil servants at a time of crisis;

§ Hefty handshakes for retiring top politicians and inordinately excessive funding for security forces (including the creation of new ranks to be accompanied by increased pay).

In essence, Swaziland’s economy is suffering from a lack of a clearly articulated national development plan or growth path aimed at supporting strategic sectors, and enforcing a redistributive capacity to ensure the effective and full participation of all the people in the development of the country. This surfaces the urgent need for a socioeconomic alternative.

The urgency of an alternative to save the country

It is clear from the foregoing that Swaziland is suffering from a democracy deficit in its governance system. Democracy in Swaziland will ensure that credible institutions tasked with  properly managing the affairs of the state are put in place. In this regard, multiparty democracy holds the only promise for the reform of the Swazi state, both to keep the monarchy in check and to ensure the establishment of these credible institutions with strong checks and balances to run state affairs efficiently.

Meritocracy versus patronage

There has been a deliberate path of rewarding loyalty to the royal family rather than on the basis of excellence or merit (the SPTC/Swazi MTN saga is a case in point). This is a most debilitating strand of corruption, as it kills off honest industry and demotivates those who uphold this value. Their reality is of having to look on in bemused helplessness as the indolent ‘get ahead’ through royal connections.

There is an equally pressing need to change the structure of the economy from export orientation to an import substitution model.

There’s an even bigger need to support an agrarian revolution, coupled with the need to enhance this crucial sector’s horizontal (e.g., through diversified production supported with appropriate farm implements and techniques) and vertical (e.g., through development of capacity to process farm products into finished goods to support other industries) linkages to other economic sectors.

Emerging force for change

Realising that the hopeless state of the economy is foremost a symptom of bad governance, the trade union movement and other progressive social forces inside Swaziland continue to express their disgust and anger. Preparations are currently underway for mass protest action in November 2010. This follows the highly successful Global Week of Action organised by the Swaziland Democracy Campaign (SDC) in September 2010, which woke the world to the reality of the socio-political and economic mess inside Swaziland.

Since its historic launch in Johannesburg on 21 February 2010, the SDC, a campaign-oriented operational wing of the Swaziland United Democratic Front (SUDF), has been active in bringing the massive socio-economic time bomb that has been ticking steadily inside Swaziland since 12 April 1973 to the attention of the world. This time bomb has remained largely unnoticed by the outside world and is now waiting to explode. The SDC has undertaken the task of uniting the forces for democracy both inside and outside Swaziland through engaging in rolling mass protest actions inside Swaziland aimed at building an appreciation of the extent of the Swazi crisis globally. Through this it hopes to ensure that the world takes the necessary measures to support those inside the country that are facing this painful and harsh reality and who are struggling to change the situation for the better.