Growth Patterns in the Period 1968-1998

87 035 30%

89 864 29%

88 1 82 3 1 %

86 89 1 3 1 %

89 0 1 5 32%

Overall, since the country's independence in 1 968, its economic growth has been marked by huge fluctuations. These fluctuations are to be expected in an open economy like Swaziland and where agriculture plays a predominant role. About five distinct growth patterns can be observed in the economy over the period 1 968-1 998, and these are: 1 968-1975; 1 976-1 980; 1 98 1 - 1 984; 1985- 1 990 and the 1 990s. For the period immediately after independence, the country enjoyed considerably high average economic growth rates due, in part, to the high international prices for Swaziland's major export commodities, and also due to the high levels of investment in the commercial sector. As reflected in Table 2.7 and Figure 2.2 throughout this period, the overall perfonnance of the economy was marked by positive rates of per capita growth. -0.3% 3 . 1 % - \ .9% -\ .5% 2.4%

The late 1 970s period saw the economy taking a down turn, mainly due to an increase in oil prices and poor world commodity prices, in particular for sugar and woodpulp, Sw�iland's major export earning commodities at that time. Other factors with a dampening effect on the economy included the exhaustion of the iron ore and the recession in South Africa, a major trading partner for Swaziland. On the other hand, the expansion of govemment services sector, financed mainly from foreign aid, helped to sustain the economy and also neutralise the negative effects arising from poor export earnings.

Table 2.7 Gross Domestic Product and Per Capita GDP, 1968-1998

Real GDP GDP

Year E'OOO Growth

1 968 274.7 395 487 1 978 558.2 10.85 520 590 1 988 939. 1 6.23 7 1 7 346 1 989 103 1 .2 8.93 742 8 1 8 1 990 1 1 3 1 .2 8.84 768 880 1 99 1 1 1 56.0 2. 1 5 795 534 1 992 1 1 68.0 1 .03 822 784 1 993 1 203.9 2.98 850 628 1 994 1245.8 3.36 879 08 1 1 995 1276.3 2.39 908 1 1 9 1 996 1 328.0 3.89 928 550 1 997 1 3 64.9 2.70 958 460 1 998 1 403.3 2.74 988 580 Sources: CSO, Annual Statistical Bulletin, Vanous years;

CBS, Annual Reports, Various years; World Bank (2002b).

Per Capita Per capita

GDP Growth 694.7 1072.2 -0.78 1 309. 1 1 8 . 1 1 388.2 5.7 147 1 .2 5.6 1453. 1 - 1 .2 1419.6 -2.4 141 5.3 -0.3 1 4 1 7.2 0.1 1405.4 -0.8 1430.2 1 .7 1424. 1 -0.4 1419.5 -0.3

Figure 2.2 GDP and Per Capita Growth Trends (1 970-1999) 1 600 1400 1 200 ,+ 8 1000 0 0 fil -- p., Cl t) 800 600 400 200 0

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Year

Real GDP - - .• - GDPgrowth per capita growth 20.0 1 5.0 1 0.0 _<Il � <IS � 5.0

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The performance of the economy in the period 1 980-1 984 was influenced largely by external factors. In particular, climatic shocks were experienced (e.g. drought and the 1 984 Cyclone "Domonia") which destroyed infrastructure and disrupted agricultural production. Also, a recession in South Africa and the introduction of competitive incentives to attract investment into South African homelands, led to a slow-down in private investment in the country. The mid- to late 1 980s period saw the country experience unprecedented growth due to an influx in Foreign Direct Investment. Over this period GDP grew by an annual average of over eight percent, with particularly spectacular growth in 1 986 when the economy grew at 1 1 percent and 1 2 . 8 percent, respectively. The high levels of FDI were largely an indirect benefit to Sw�iland arising from the worldwide imposition of sanctions against South Africa's apartheid regime. It is this FDI that caused an upturn in the manufacturing sector, which in-turn, became the major engine of growth for the economy and this encouraged rapid growth in supporting services (such as construction) as well as generating additional revenue which permitted the expansion of government services (CBS, 1 998). Other factors contributing to the increase in manufacturing investments included the improved incentive regime for direct private investment, particUlarly the five-year tax holiday

incentive. Apart from the inflows in the manufacturing sector, growth in the economy was reinforced by improved export prices for sugar and a depreciation of the Lilangeni.

In the 1 990s the economy stagnated due to a decline in FDI, coupled with long spells (1 989-1 994) of drought. In particular, the situation took a down turn in 1 992 with the recession in South Africa and the drought that ravaged the Southern Africa region including Sw�iland. The main reason behind the slow-down in FDI flows into Sw�iland was the peaceful political transition in South Africa and the removal of sanctions against that country causing many businesses to redirect their savings and investment to the more lucrative South African market. Also, following the take over by the Government of National Unity in South Africa, many investors adopted the ''wait and see" attitude, fearing that the changes in South Africa would create a state of anarchy in the whole southern Africa region.

There is no doubt that since independence the country experienced tremendous growth and a rapid industrialisation in the 1 980s which led to a restructuring of the economy, moving it away from an agricultural based one to a more industry based economy. However, to the extent that a large proportion of the manufacturing sector is still agro­ based, the backbone of the Sw�i economy is still agriculture, consequently making the economy 'vulnerable' to natural disasters and the usual fluctuations in international primary commodities' markets. Moreover, there are concerns that the gains of the high economic growth, recorded in the past, have not benefited everyone equally as evidenced by the increasing levels of poverty and the widening disparities between rural and urban communities. Recent reports on poverty in Sw�iland have revealed that the richest 1 0% of the population control almost 40% of the total incomes in the country, whereas the poorest 40% of the population control only 14% of total incomes (World Bank, 2000). In addiction, there are growing concerns on the increasing rate of HIV / AIDS infections and its implications on the labour force and the economy in general. Statistics on the prevalence of RN/AIDS in the country have revealed that the HIV prevalence is above 20 percent and is higher among middle-age groups (20-49 years) (SNAP, 2000).10 The HIV/AIDS pandemic is having a negative

impact on the economy, as potential incomes are lost due to illness and death of workers, and the diversion of labour to caring for the sick. Furthermore the need for

increased public expenditure on health, due to the increased demand for drugs, medical treatment and hospital beds is causing further strain on the public budget and contributing to the worsening government budgetary position (Sw�iland Government, 2001 ).

The above facts, coupled with the continuously increasing rates of unemployment (estimated to be around 40 percent) have been a disturbing development in Sw�iland's economic history. It is these factors and the developments in the international arena (like globalisation and the move towards free trade) that call for a scrutiny of past development strategies and therefore justify the search for alternative forms of development. In the sections that follow a diagnosis of the exports sector, the engine of growth in the last three decades, is carried out in an attempt to understand some of the dynamics of this sector and hopefully unveil the reasons behind the observed structural imbalance in the economy. Furthermore, a brief review of the sources of the government revenue is presented so as to have a fuller picture of the Sw�i economy.