The Deformed Economy and its Consequences for Swazi People | Freedom House

The Deformed Economy and its Consequences for Swazi People

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With a gross national income per capita of USD 3,362, Swaziland is classified by the World Bank in the lower middle income category. Other countries in the same category include Nigeria, Indonesia and Ukraine. Swaziland is moderately endowed with iron, hydropower, coal and forests in addition to small gold and diamond deposits and excellent soil for sugar cane cultivation. Despite these advantages, from 2005 through 2013, except in 2009, Swaziland’s average GDP growth was substantially lower than the Sub-Saharan Africa regional average.[1] Wealth distribution among the 1.2 million Swazis is uneven. An elite 10 per cent accounts for nearly half of total consumption. Forty per cent of Swazis are unemployed, and this figure does not take into account high levels of under-employment in subsistence farming.

In 2012, the WHO Global Health Observatory[2] reported that the median age of Swazis was 19.82 years with 38 per cent of the population under 15. The fertility rate of 3.4 children per woman was the highest in Southern African. However due to high mortality, annual population growth is 1 per cent. Around 75 per cent of Swazis work in subsistence agriculture on the 56 per cent of Swazi territory which is designated as Swazi Nation Land. Occupants of Swazi Nation Land do not have title deeds. T  he lack of tenured land ownership is a strong disincentive to investment and productivity.
 

Tibiyo Taka Ngwane and royal family dominance of the economy

King Mswati’s personal wealth is estimated by Forbes Magazine at around USD 200 million. In addition, the king controls Tibiyo Taka Ngwane, a fund founded by his father allegedly for purchasing foreigners’ interests in enterprises deemed essential to Swaziland’s development. Every Swazi man was required to contribute, typically one cow. The founding charter, although never registered, defined Tibiyo as a national asset held by the king in trust for all Swazis each of whom was deemed to be a shareholder. Income from Tibiyo’s present total worth of around USD 2 billion supports King Mswati, his dozen wives, their 27 children and those of the king’s royal kinfolk whom he must placate in order to preclude their doing him harm. Like Mswati, Tibiyo is immune from taxation, civil suits and criminal prosecution. Over the past 45 years, Tibiyo has exploited its official status as a ‘Swazi national empowerment vehicle’ to acquire equity at nominal costs in key sectors of the Swazi economy.[3]

The legal status of Tibiyo has been described as ferae naturae, a Latin term meaning “of a wild nature” like an animal running free in the forest and owned by no one. This is because Tibiyo and those who control it cannot be held accountable by anyone or any authority. As a result of its unique status, Tibiyo’s dominance in Swaziland’s economy is invulnerable to competition. King Mswati ensures that the government’s laws and law enforcement, regulations, budgeting and contracting all work in Tibiyo’s favor while placing barriers against would be entrepreneurs who do not enjoy the king’s protection.[4]

Both Sobhuza and Mswati have dispossessed village people of lands which subsequently were folded into Tibiyo’s business assets. One example is the sugar producing fields of the Royal Swaziland Sugar Corporation. These are located on highly fertile land previously occupied by prosperous communities which were forcibly relocated to a marginal farming area where they now live in poverty. Similarly, large areas in Big Bend which were developed into Tibiyo’s sugar cane business were acquired by King Sobhuza through forced evictions without compensation. Mswati has seized people’s homes, land and other properties without indemnifying the owners. In Swaziland, property is insecure, and rightful owners have no effective redress in the legal system which places the king above all laws.[5]
 

International investors

In promoting international investment in Swaziland, the Swazi government boasts of labor costs at 1/3 the level of South Africa and a calm and secure business climate.[6] In an Independent Newspapers ‘Business Report’ issued in July 2013, 60 per cent of 400 firms chosen as a representative sample of the South African business community said they would not mind trading with Swaziland, although only 27 per cent of them do. The survey found that less than 10 per cent of the respondents would consider investing in Swaziland. Deterrents to investment were said to be political instability and an uncertain economic future. Most respondents avoided giving more specific reasons for their reluctance to invest in Swaziland. However one banker probably spoke for many when he said: “We can’t openly discuss what is keeping Swaziland down, because it is governance. People are terrified to talk for fear of being labelled traitors and terrorists, which is what this government does with its critics, no matter how well meaning.”[7]

Foreign companies wishing to enter Swaziland must bribe King Mswati with shares or cash in varying amounts depending on the potential for profitability of the proposed venture and the new business’s possible impact on Mswati’s own business interests. In return, investors who remain in good standing with the king can receive protection from competition.[8]

The MTN saga, which is covered in detail in Annex 5, is an illustrative example of the extent to which the king will go to promote the profitability of a venture in which he has a stake. To boost MTN’s profits, the state owned mobile phone operation, which offered Swazis lower rates than MTN, was put out of business by the prime minister acting in cahoots with the king. A month before the MTN scandal erupted into public view, 25 year old Princess Sikhanyiso Dlamini, King Mswati’s eldest daughter, was appointed to MTN Swaziland’s board of directors. A Swaziland based investment consultant commented:  ‘All big companies in Swaziland have to accommodate royal family members to their boards. The princess’s appointment signals that the time has come for a new generation to enjoy that privilege.’[9]
 

The Swazi government’s financial crisis

Swaziland, along with 4 other Southern African countries[10], is a member of the Southern African Customs Union (SACU), a mechanism through which South Africa channels de facto economic assistance to its neighbors.  In some years, SACU’s annual transfers amounted to as much as 75 per cent of Swaziland’s government revenues. Dependency on SACU allowed Swazi kings to ignore needs for fiscal discipline and economic development which would have increased the domestic tax base and could have improved the life conditions of ordinary Swazis. In SACU boom years through 2008, sizeable shares of SACU funds went into a build-up of government employment and wage increases for civil servants, helping dampen disgruntlement among educated wage earners who otherwise might have actively protested the lack of democracy and economic development.

The International Monetary Fund (IMF) repeatedly warned the Swazi government about over-reliance on SACU support and recommended spending reductions and diversification of revenue sources.[11] These warnings went unheeded. Then between 2008 and 2011 SACU receipts fell by almost 60 per cent resulting in severe liquidity shortages. At the time, the government wage bill was nearly 18 per cent of GDP, proportionately the highest in Africa. Swaziland’s budget deficit for 2010 – 11 reached almost 13 per cent of GDP, and access to domestic borrowing disappeared as lenders lost confidence.

Threatened with bankruptcy, the Swazi civil administration tentatively agreed with the IMF on a Staff Monitored Program (SMP). The SMP agreement included requirements for the government to make financial management and political reforms and envisaged an intense fiscal adjustment amounting to a 5 percentage points of GDP reduction in the deficit in one year and relying mostly on wage cuts. The SMP assumed that the remaining deficit would be financed by domestic and foreign borrowing, including from the African Development Bank (AfDB). However, King Mswati refused to accept the stipulated reforms, the SMP faltered and the AfDB’s budget support plans for Swaziland were put on hold.[12]

In the first quarter of 2011, as the Swazi government began defaulting on some payments, concern about the government’s ability to continue paying  its employees’ salaries sparked street demonstrations. Government authorities were nervous due to the then recent revolutions in North Africa, and they cracked down on protesters, using water cannons and raiding activists’ homes. Human Rights Watch reported that the Swazi government was on the brink of disaster brought on by extravagant spending by the royal family, fiscal indiscipline and corruption.

King Mswati next sought a loan from the South African government which agreed to provide 2.4 billion South African Rand (USD355 million) in SACU advances tied to reform conditions proposed by a broad coalition of Swazi civil society organizations. The actual terms of the conditions were not made public, but their acceptance by the Swazi government would have entailed financial management and political reforms, probably including constitutional changes to permit political parties to participate in elections. As earlier with the IMF’s SMP, Mswati rejected the reform conditions, and the loan amount was never paid out by the South African Treasury.[13]

A financial disaster was averted in early 2012 when SACU suddenly transferred a windfall payment of R 700 million (USD 88 million) to the Swazi Treasury. SACU explained the reason for the windfall as a combination of past underestimates of Swaziland’s share of regional customs receipts and a major upwards revision in estimates of future receipts. Introduction by the Swazi government of a 14 per cent value added tax (VAT) in 2012 brought in additional revenue, but its knock on effects on basic living costs further worsened the precarious life conditions of the poor.
 

The Swazi government’s precarious fiscal future

Over the medium term, SACU revenues are projected to stabilize at about 15 per cent of GDP, a level notably below peaks of 20 per cent in 2009-10 and 23 per cent in 2012-13. Given the low volume of imports into Swaziland in 2011, SACU revenues in 2013-14 are expected to decline again, re-emphasizing the need for the government to increase income from other sources and control spending.  However the government’s only significant effort to broaden its revenue base has been introduction of the VAT, and VAT proceeds are inadequate to offset future reductions in SACU funding.

In their February, 2013 report on their then just concluded consultations with the Swaziland government, the IMF Executive Board ‘cautioned that Swaziland’s economic prospects remain difficult and that, without credible and comprehensive fiscal adjustment and structural reforms, the current fiscal and external position will be unsustainable over the medium term and subject to significant downside risks.’[14]

As early as 2014, the Swazi government will most likely again face a fiscal deficit and an urgent need to reduce its wage bill. Any such action is likely to again spark protests to which the government will probably again respond with force, further damaging Swaziland’s reputation for stability.
 

The consequences of unaccountable government for the Swazi majority

The International Fund for Agricultural Development has reported a widening gap in Swaziland between urban and rural development. 84 per cent of the country's poor live in rural and peri-urban areas, where per capita income is 4 times lower than in urban areas, and food consumption is 2 times lower. Traditional subsistence agriculture is failing due to worsening climatic conditions and farmers being too poor to purchase basic agricultural inputs and due also to a reduced farm labor force weakened by under-nutrition and decimated by disease. 66 per cent of the population is unable to meet their basic food needs, and 43 per cent live in chronic poverty. The current high levels of joblessness will continue to increase as ever larger numbers of the burgeoning youth cohort reach working age and fail to find employment.[15]

According to the UN Human Development Index, 29 per cent of Swazi children under the age of 5 years are stunted. Swaziland has a similar rate of stunting to other countries with less than half of Swaziland’s per capita income. A survey in 2013 by the World Food Program and the Swazi Government found that Swaziland loses 3.1 percent of its gross domestic product (GDP), or some USD 92 million annually, from the long-term impact of chronic childhood hunger. Some 270,000 adults, or more than 40 per cent of the labor force, suffer from physical stunting as a result of chronic malnutrition in early childhood.[16]

With a 26 per cent infection rate for persons between 15 and 49 years of age, Swaziland has the world’s highest rate of HIV infection. 40 per cent of Swazi women who present at pre-natal clinics are HIV positive. In 2011, UNICEF reported that there were approximately 200,000 orphans and vulnerable children in Swaziland. According to Swazi government data, about 23 percent of Swazi children are orphans, most as a result of the HIV/AIDS epidemic. At birth, Swazis have an 80% likelihood of dying before the age of 40 years. According to WHO data, Swazis have an average life expectancy of 48 years placing Swaziland near the bottom of WHO statistics for all countries. This compares to an average life expectancy of 61 years in Botswana, which has also been hit by one of the world’s worst HIV/AIDS epidemics but where accountable governance systems were better able to provide treatment and to promote disease prevention.

Society in Swazi rural communities has suffered a major structural deformation under the simultaneous burdens of caring for inordinate numbers of people afflicted by terminal diseases, financing burial of the dead, coping with the absence of able bodied workers and attempting to assist large numbers of children struggling to survive without adult care givers. The absence of adult parents who traditionally taught  young people how to obtain life support from the land through  planting, tending and harvesting crops; caring for and using draught animals and building and repairing traditional houses and animal pens has precipitously deepened rural poverty and increased already large flows of indigent rural people into peri urban slums causing further disintegration of families, epidemic spread of diseases, alcoholism and other substance addictions and rising criminality.

The desperate life conditions of the great majority of Swazis are similar to the fragile and threatened lives of victims of humanitarian emergencies stemming from natural disasters and armed conflict. However in Swaziland there is a permanent emergency due to the effects on the population of the greed of the royal family and exacerbated by ineptitude and malfeasance in the government.


[1] Christopher Vandome et al, ‘Swaziland: Southern Africa’s Forgotten Crisis’, Chatham House, London, September 2013, pp 6-7.

[2] World Health Organization, Global Health Observatory Data Repository, Africa Region: Swaziland statistics summary (2002 0 2012), http://apps.who.int/gho/data/node.country-swz

[3] Freedom House interviews with leading Swazi business persons, Swaziland and South Africa, March – April 2013.

[4] Ibid.

[5] Freedom House interviews with Swazi attorneys, Swaziland, March 2012.

[6] Swaziland Investment Promotion Authority, http://www.sipa.org.sz

[7] Titus Gwebu, ‘Political instability stops firms investing in Swaziland’, Business Report, July 24, 2013, http://www.iol.co.za/business/news/political-instability-stops-firms-investing-in-swaziland-1.1551578#.UjDe4UoaLIU

[8] Freedom House interviews with Swazi business persons, Swaziland and South Africa. March – April 2013.

[9] Sandile Lukhele, ‘Plum job at MTN for Swazi king’s daughter’, Business Report, September 9, 2012, http://www.iol.co.za/business/companies/plum-job-at-mtn-for-swazi-king’s-daughter-1.1378665#.UjDg7UoaLIU

[10] Botswana, Lesotho, Namibia and South Africa.

[11] International Monetary Fund, ‘IMF Executive Board Concludes 2009 Article IV Consultation with Swaziland’, September 30, 2011, http://www.imf.org/external/np/sec/pn/2011/pn11124.htm

[12] International Monetary Fund, ‘Statement at the Conclusion of an IMF Staff Mission to Swaziland’ August 31, 2011, https://www.imf.org/external/np/sec/pr/2011/pr11318.htm

[13] Reuters, ‘Swaziland says R 2.4 billion loan from South Africa not working out’, Times Live, January 8, 2013, http://www.timeslive.co.za/africa/2013/01/08/swaziland-says-r2,4-billion-loan-from-south-africa-not-working-out

[14] International Monetary Fund, ‘IMF Executive Board Concludes 2012 Article IV Consultation with the kingdom of Swaziland, February 19, 2013, http://www.imf.org/external/np/sec/pn/2013/pn1322.htm

[15] International Fund for Agricultural Development, ‘Rural Poverty in the Kingdom of Swaziland’, http://www.ruralpovertyportal.org/country/home/tags/swaziland

[16] Fox News, ‘Hunger costs Swaziland three percent of GDP’, July 30, 2013, http://www.foxnews.com/world/2013/07/30/hunger-costs-swaziland-three-percent-gdp/