Mantoe Phakathi
THE LOAN proposal directed at President Jacob Zuma by the Swazi government has taken a twist as activists plead with South Africa to hold on to its money until King Mswati III introduces political reforms.
“Getting a loan will not solve the economic crisis. Our problem is poor governance,” said the Swaziland Federation of Labour, which formed part of a delegation that visited South Africa last week.
Swaziland was hit by the economic crunch through a 60 percent reduction in its share of income from the Southern African Customs Unions (Sacu), which accounts for 60 percent of the country’s budget.
Although the country established the Swaziland Revenue Authority (SRA) in March, Sacu still remains its main source of revenue. Faced with one of the highest government wage bills in the region – about 18 percent of gross domestic product (GDP) – revenue collected by the SRA is largely spent on civil service salaries. This accounted for R320 million a month.
According to Swaziland Minister of Finance Majozi Sithole, the government needed the loan to pay domestic debts, amounting to about R1.3 billion, and for public expenses.
It is also difficult for the country to attract donors as it is classified as a lower-middle country, because of its skewed distribution of wealth. To make things worse, the money solicited would be used for budget support and not for development projects.
While some economic experts argued that South Africa would take the knock should Swaziland’s economy crumble, Jean Francois Mercier from Citi Investment Research and Analysis, a division of Citigroup Global Markets, said any impact on South Africa would be minimal.
About 90 percent of Swazi imports come from South Africa and over 60 percent of Swazi exports go to South Africa. Big retailers and financial institutions from South Africa have branches in Swaziland. Its currency, the lilangeni, is also pegged to the rand.
“It’s also in South Africa’s interest to help Swaziland get back to its feet because it (South Africa) has a lot of business interest in Swaziland,” said Zodwa Mabuza, the chief executive of the Federation of Swaziland Business Employers and Chamber of Commerce.
Mercier argued that the financial exposure of South African companies and banks to the Swazi economy was small. “SA Reserve Bank data up to the end of 2009 showed that foreign direct investment (FDI) stocks into Swaziland were only R1.76bn (less than 0.1 percent of GDP and 1.5 percent of total outward FDI in the rest of Africa),” said Mercier. He said in late 2009, South African banks’ Swazi assets were only worth R180m.
The argument of Swazi immigrants flooding to South Africa did not hold, according to Mercier. He said the small Swazi population of 1.2 million people did not suggest any threat of an influx of migrants.
“If one wants to assess which countries in the Southern African Development Community (SADC) could pose the largest risk of a strong migratory flow to South Africa, one should arguably pick those with the largest populations and the lowest income per capita, and while these would include the Democratic Republic of Congo or Tanzania, and possibly Mozambique, Swaziland appears not to be a ‘high-risk’ neighbour in that respect,” Mercier said.
International assistance was necessary, given the lack of confidence local commercial banks had in the government, but an unconditional bailout by South Africa seemed unlikely.
“And in any case, such a move would probably be unpopular with some of the ANC’s constituents, including Cosatu, which has supported unions in Swaziland (pushing) for greater democracy,” Mercier said.
In a week, Zuma was expected to have made his decision on the matter, Sithole said. He preferred not to divulge the amount the kingdom had requested from South Africa, saying only that the country’s deficit was R3bn.
“We are looking at borrowing amounts close to this, and certainly not above R5bn from external sources,” Sithole said.
After Swaziland failed to convince the International Monetary Fund (IMF) of its commitment to fiscal discipline, it turned to Zuma for help amid social unrest.
“We have discussed possible assistance with a country that is a friend and we believe it has the capacity to help, not only financially but also technically,” Sithole said.
Following Swaziland’s failure to adhere to the IMF-approved programme, the country also failed to secure a R1.2bn loan from the African Development Bank.
Among the conditions from the IMF, was cutting public servants’ wages by 4.5 percent, but trade unions opposed this.
If politicians’ wages were cut by 10 percent, it would save the government R6m a year, but the government would retain R240m annually if public servants were to give in.
A stand-off between the government and trade unions has stalled negotiations over pay cuts. Trade unions want the government to scrap lucrative perks for politicians.
Another thorny issue was the nationalisation of Tibiyo Taka Ngwane and its sister company, Tisuka Taka Ngwane, which although set up from funds donated by the Swazi people, have been monopolised by the royal family. Tibiyo owns shares in various companies, including agro-processing, commerce, finance, property, mining, tourism and publishing. Tisuka focuses on the property industry. Despite a public outcry over the non-taxation of these entities, they have not pledged any contribution towards the resuscitation of the Swazi economy.
Sithole told unions that these two entities were not paying tax because their subsidiary companies paid tax.
“Secondly, these entities were formed in terms of the Royal Charter which does not provide for their income to be part of government income,” Sithole wrote in an earlier letter.
Although it is clear that the country is desperate for external financial assistance, the government has done nothing to improve its image.
Chief Justice Michael Ramodibedi suspended high court Judge Thomas Masuku in what many view as a case of victimisation. Masuku had 12 charges against him, one of which was insulting King Mswati III during a judgment.
Investors are not drawn to a country that is broke and has a malfunctioning justice system.