the importance of export-oriented growth

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  • 7/31/2019 The Importance of Export-Oriented Growth

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    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 sub-

    Saharan 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 sub-

    Saharan average (IMF World Economic Outlook April 2011).

    Swazilands performance is below that of both sub-Saharan Africa and SADCs averages, andhas 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.

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    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 theeconomic 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). Swazilandfurther 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 StabilityReview 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@business-

    swaziland.com