The Importance of Export-Oriented Growth for Swaziland By: Fanele Chester Published: 28th April 2011 A few economic

statistics prove that Swazilands current economic crisis is the result of consistent underperformance in terms of economic growth for the past decade. Sub-Saharan Africas economic performance, like most emerging market economies (EMEs) and developing economies, has returned to pre-crisis levels. Average real GDP growth for subSaharan Africa is estimated at 5% for 2010, reflecting increased export volumes, investment and capital flows, and increased domestic spending in the region. However, the SADC regions performance fell to 3.9% for 2010, and is projected to average 4.5% in 2011, below the subSaharan average (IMF World Economic Outlook April 2011). Swazilands performance is below that of both sub-Saharan Africa and SADCs averages, and has been so consistently for the past decade. Real GDP growth was at 2% in 2010, and is projected to fall to 0.5% in 2011. Between 2003 and 2010, GDP growth averaged 2.5%, compared to 3.9% from 1990 1999. Thus, where Africa and other developing economies around the world have returned to pre-crisis growth levels, Swaziland is underperforming: Why is this? And more importantly, how can Swaziland reverse its trend of sub-par economic performance? A look into investment trends for the country highlights an insightful fact into the components of economic growth thus far. In 1990, the private sector composition of GDP was at 33%; by 2007, this figure had fallen to 25% - a difference of seven percentage points. During the same period, the public sector composition of GDP rose from 15% to 19%. Although not directly pointing to causation, economic growth in Swaziland has been thus far linked to an expansion of the public sector. This prompts another question: why has the economy been regressing for the past decade? Swazilands fiscal deficit was almost zero percentage of GDP in 2007/2008, and has increased to more than 15% in 2010/2011. It is widely understood that this sharp rise in the deficit was largely due to the decline in SACU revenues, and in part due to increased expenditure. Another explanation lies with the steady fall in private investment in Swaziland, both in terms of FDI and domestic investors. Investment as a composite of GDP was 22% in 1998, and fell to 13% in 2009. More specifically, FDI levels fell from 9.6% to 1.9% during the same period. A few exogenous factors were the cause: the rise in South Africas rank as an investment hub, the effect on human capital and social structure of HIV/AIDS, the expiration of trade preferences such as the Economic Partnership Agreement (EPA) under the EU.

That being said, a contraction of the private sector for developing countries is unusual, and combined with an increase in the public sector, points to crowding out of private sector growth by the less-sustainable public-sector led growth in the country. As a small country with a limited population, and one faced with substandard performance and fiscal imbalance, the development of a strong export-oriented growth strategy would reverse the economic situation for the long term, and would make Swaziland a favourable host country for FDI. Export-oriented growth is a necessity because FDI will only be profitable if it leads to larger markets, which only exist outside Swaziland. The country however does possess strong competitive advantages (over other SADC economies) that can be exploited to increase the current investment levels. These include good labor relations: Swaziland currently ranks 90th in labor market efficiency and 68th in labor-employer relations, compared to South Africas 97th and 132nd rankings respectively (Global Competitiveness Report 2010-2011), and has lower labor costs with competitive hourly wages at 86, compared to 138 in South Africa and 125 in Mauritius (Fontaine, 2008). Swaziland further has good education enrolment rates: the national literacy rate is 82%, and 7% of workers have average education levels of more than 12 years schooling, compared to 5% in both Namibia and Mauritius. In addition, the country enjoys comparatively low crime rates, good physical infrastructure and a modern land regime covering 30% of the country. All these advantages make Swaziland a favourable host to labor-intensive, export-oriented investment. In addition, SADC, EU and the USA are not the only trade destinations open to outward-oriented growth. Recent data shows that there has been a shift in trade patterns between Africa and the world. Exports to Asia increased from 16% in 2000 to 22% in 2009, whereas those to Europe fell from 50.4% to 38.8% during the same period (SARB Financial Stability Review March 2011). Thus, more exposure to fast-growing China and India could also prove beneficial for countries dependent on resource revenue largely generated through exports. In conclusion, a sound economic analysis, with a thorough investigation of the trade opportunities available through existing trade agreements such as Interim EPA under EU and AGOA with the US, as well as new ones with emerging market economies (EMEs), should form one of the pillars of the new economic strategy for Swaziland.

Fanele Chester is the Communications Officer at the Federation of Swaziland Employers & Chamber of Commerce. For full list of references, please email fanelec@businessswaziland.com