Swazi Media Commentary: THE GOVERNMENT'S ECONOMIC CRISIS

Wednesday 15 December 2010

THE GOVERNMENT'S ECONOMIC CRISIS

The Swaziland Government must not be allowed to get away with claiming that the economic meltdown in the kingdom is not of its making.

Time and again Majozi Sithole, who has been Swazi Minister of Finance for the past ten years, alludes to the world banking crisis that started in 2008 as the major cause of Swaziland’s present perilous state.

But this is simply not true. Swaziland’s economy was in a mess long before 2008 and Sithole and the ruling elite in Swaziland, which is headed by King Mswati III, sub-Saharan Africa’s last absolute monarch, must take the blame.

Theirs is a record of poor economic performance – the worst in the whole of sub-Saharan Africa.

And none of this is a secret, although politicians and the media in Swaziland have very short memories and would prefer that we too forgot the truth.

By a coincidence of timing just as Lehman Brothers was collapsing in the United States in 2008, triggering a worldwide banking crisis, the International Monetary Fund (IMF) was issuing a progress report on Swaziland.

The IMF saw a raft of poor performances in all parts of the Swaziland economy, with slow growth, poor gross domestic product (GDP) and 66 percent of the population living in poverty while 20 percent of the population claimed two-thirds of the income.

The report appeared in the IMF Survey Magazine dated 28 July 2008. Here are some extended extracts from that report that clearly show that Swaziland’s economy was heading for the skids, long before the banking collapse. It therefore it follows that the major economic crisis that Swaziland faces today is not connected to that collapse.

The survey reported, ‘When the rest of sub-Saharan Africa was growing over the last decade, the economy of the Kingdom of Swaziland stagnated.

‘The slow growth may have worsened already difficult conditions in the tiny, landlocked country where in 2001, the latest year for which there are data, about two-thirds of its 1 million residents lived in poverty and 20 percent of the population claimed two-thirds of the income. A major contributor to the stagnating Swazi economy has been its financial sector, which, while in the main healthy, has taken steps backward in the past decade.

‘Swaziland's real per capita GDP growth declined from an annual rate of 2 ½ percent during 1980-94 to 0.7 percent since then. In contrast, real growth in all of sub-Saharan Africa has averaged 1 ½ percent annually since 1995 and in other lower-middle-income countries, growth averaged 7 ½ percent.

Shallower banking system

‘Some studies suggest that the deeper the financial system—that is, the more access businesses and individuals have to varied financial services—the better equipped it is to mobilize resources and the more important is its effect on growth, poverty reduction, and income equality.

‘But instead of deepening, or increasing its role in the economy, Swaziland's banking system has, by almost any measure, become shallower. Private sector lending, money supply, and bank deposits as a percentage of GDP have all declined since 1995 while high poverty and income inequality persist in a country that also has the highest incidence of HIV/AIDS in the world.

Financial, real economies linked

‘There are a number of important linkages between the real economy and the financial sector in Swaziland that explain, at least in part, the country's performance:

‘The country mobilizes too little domestic saving (8 percent of GDP) to finance investment, and foreign savings have fallen off since the 1980s and 1990s. Annual investment rates have declined from 25 percent of GDP for the period 1981-94 to 19 percent since then—far below other low-income and lower-middle-income countries in the region.

‘• High government spending, well beyond current revenues, has produced a large civil service wage bill that, together with poor selection and appraisal of public investment projects, has hurt growth.

‘• Access to finance is limited, which constrains financing of growth-enhancing investment projects. The commercial banking system has concentrated on export financing and bypassed a large portion of the adult population. The World Bank estimates that only 35 percent of the Swazi adult population has access to a bank account—too low, given its stage of development . There is no public credit registry, and private credit bureaus cover only 38 percent of the population.

‘• Despite the sizable loans it receives from banks, the export sector has not been an effective engine of growth and employment. Swaziland's main exports are soft-drink concentrates, sugar, textiles, and pulp paper. But growth prospects for those exports are limited because of intense competition from other countries and gradual erosion of preferential arrangements with trading partners such as the United States and the European Union, as well as adverse movements in Swaziland's real exchange rate.

‘• Swaziland has a weak investment climate, which tends to push up the cost of capital and the rate of return investors seek. With few viable real investment opportunities in Swaziland, most private domestic savings—in particular from pension funds and insurance companies—are invested in South Africa's deeper financial markets, which offer a wider array of financial services to a broader spectrum of investors. In response, Swazi authorities have required pension and insurance companies to gradually return a portion of those investments to the domestic market.

‘• The financial sector has become more vulnerable as a result of inadequate regulation and supervision of nonbank financial institutions (NBFIs), especially the savings and credit cooperatives (SCCOs) that have sprung up to fill the financial needs of the many Swazis abandoned by the commercial banking sector. Since 2002, lending by SCCOs has grown 116 percent, compared with 26 percent for banks. Among the NBFIs, pension funds and insurance companies are generally sound, but some SCCOs face severe financial difficulties that could undermine confidence in the financial sector and limit SCCOs' recent gains in access to finance.

‘• The depth of financial markets is further limited by lack of access to collateral for many borrowers. About 60 percent of the land is held in public trust and cannot be used by farmers, for example, to secure loans to invest in increasing agricultural yields. As a result, most of the people who live on these public lands are limited to accumulating savings in traditional assets such as livestock. With no incentives, or ability, to access the formal financial sector they have to rely on subsistence agriculture. The limited prospects for scaling up agricultural yield and growth are a blow to a country in which most people live in rural areas.’

Taken as a whole the IMF report shows that the Swaziland economy has been in decline for many years. The report was published in 2008, but the failings it recorded had been identified for many years before. The international financial community had repeatedly warned the Swaziland Government that it could not continue to be reckless with the economy without there being a major disaster.

That disaster has arrived. Next time Finance Minister Sithole or Barnabas Dlamini, Swaziland’s illegally-appointed Prime Minister, or King Mswati, or any of his other hangers-on try to tell us it’s all the fault of the global banking crisis, hold up a mirror to their faces and show them who it really was who destroyed Swaziland.

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Wednesday 15 December 2010

THE GOVERNMENT'S ECONOMIC CRISIS

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