COUNTRY REPORT

Namibia Swaziland Namibia at a glance: 2002-03

OVERVIEW Activity within the ruling South West Africa People’s Organisation (SWAPO) will focus on the party congress, scheduled for 2002, at which the candidate to succeed President Sam Nujoma at the 2004 elections will be chosen. SWAPO will face little threat from the opposition parties over the outlook period. Security conditions at the shared border with Angola will improve. Overspending will cause the government to miss the fiscal deficit targets in its medium-term expenditure framework. Growing diamond output will lift the rate of real GDP growth from 3% in 2001 to 3.5% in 2002 and 5% in 2003. Falling inflation in South Africa will cause average inflation to ease from 9.4% in 2001 to 8% in 2002 and 7% in 2003. Higher diamond production will cause the current-account surplus to rise from 2.6% of GDP in 2001 to 4.7% of GDP in 2002 and 6.4% of GDP in 2003. Key changes from last month Political outlook • The withdrawal of Namibian troops from the Democratic Republic of Congo has been completed. The Economist Intelligence Unit does not expect that they will return. Economic policy outlook • Despite the sharp increase in the fiscal deficit projected in the supplementary 2001/02 budget, our deficit forecasts remain at 3.3% of GDP for 2002/03 and 3.1% of GDP for 2003/04 as the recapitalisation of Air Namibia—the main cause of the jump in the deficit—should be a one- off expense. Economic forecast • The South African rand, to which the Namibia dollar is pegged at par, hit new lows against the US dollar in October as a result of increased risk aversion among investors. We have therefore revised out forecasts for the average exchange rate to N$9.7:US$1 for 2002 and N$10.4:US$1 for 2003.

November 2001

The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group.

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Copyright © 2001 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the EIU does not accept responsibility for any loss arising from reliance on it.

ISSN 1356-4218

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Contents

3 Summary

Namibia

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2002-03 8 Political outlook 9 Economic policy outlook 10 Economic forecast 13 The political scene 16 Economic policy 17 The domestic economy 17 Economic trends 21 Mining and energy 23 Fishing 23 Manufacturing 24 Foreign trade and payments

Swaziland

27 Political structure 28 Economic structure 28 Annual indicators 29 Quarterly indicators 30 Outlook for 2002-03 30 Political outlook 31 Economic policy outlook 32 Economic forecast 33 The political scene 36 Economic policy and the economy 38 Foreign trade and payments

List of tables

10 Namibia: international assumptions summary 11 Namibia: forecast summary 18 Namibia: GDP by sector growth rates, 1999–2000 19 Namibia: consumer price inflation, 2001

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 2

20 Namibia: population projections, 1991–2021 23 Namibia: total allowable catches, 2002 25 Namibia: main exports by value, Jan-Jun 25 Namibia: exports to the UK, Jan-Jun 26 Namibia: foreign-exchange reserves, 2001 33 Swaziland: forecast summary 37 Swaziland: changes in employment 38 Swaziland: production and value of mineral sales 39 Swaziland: current account

List of figures

12 Namibia: gross domestic product 12 Namibia: real exchange rates 16 Namibia: fiscal deficit 18 Namibia: real GDP growth 21 Namibia: Antwerp diamond price 39 Swaziland: SACU revenue

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 3

Summary

November 2001

Namibia

Outlook for 2002-03 Activity within the ruling South West Africa People’s Organisation (SWAPO) will focus on the party congress, scheduled for 2002, at which the candidate to succeed President Sam Nujoma at the 2004 elections will be chosen. SWAPO will face little threat from the opposition parties. Security conditions at the shared border with Angola should return nearly to normal by early 2002. Economic policy will focus on accelerating growth and reducing poverty and unemployment. Overspending will cause the government to miss the fiscal deficit targets in its medium-term expenditure framework. Growing diamond output will lift real GDP growth from 3% in 2001 to 3.5% in 2002 and 5% in 2003. Successful implementation of the inflation-targeting policy will cause average inflation to ease from 9.4% in 2001 to 8% in 2002 and 7% in 2003. The Namibia dollar will remain pegged to the South African rand at par. Higher diamond production will cause the current-account surplus to rise from US$80m (2.6% of GDP) in 2001 to US$145m (4.7% of GDP) in 2002 and US$205m (6.4% of GDP) in 2003.

The political scene An anti-corruption bill has been tabled in parliament and it has been agreed that the bill should be extended to cover the president. Details of malpractice in a tender for the distribution of state pensions have emerged. A renewed dusk to dawn curfew has been imposed on parts of Kavango. A new defence bill has been unveiled which will severely restrict media reporting of military activities. Plans have been announced to change the name of the Caprivi region. The government has announced its intention to redistribute some illegally fenced- off communal land as small-scale commercial farming plots.

Economic policy A supplementary budget has been announced in which a sharp widening of the fiscal deficit is projected owing to a bail-out of Air Namibia. A report on the performance of parastatals has recommended that a uniform pay scale be introduced. The bank rate has been cut by 50 basis points.

The domestic economy Real GDP growth rates have been substantially revised downwards for 1999 and 2000. The Bank of Namibia has estimated that real GDP growth may slow in 2001. Annual inflation fell to 7.6% in September as imported inflation eased. The National Planning Commission has projected that total population could more than double by 2021. Quotas have been introduced that will restrict diamond production by Namdeb. Offshore oil exploration is set to resume and Shell is to start a new drilling programme on the offshore Kudu gas field next year to establish the extent of reserves. The total allowable catch for mackerel has been reduced for 2002, although the previous modest increase in the hake catch ceiling for the 2001/02 season should cause an increase in

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fishing output next year. A Malaysian firm has invested in an integrated textile complex to produce finished garments for overseas export markets.

Foreign trade and Exports fell by 6% in US dollar terms in the first half of 2001, but Namibian payments exports to the UK increased strongly during the same period because of the inclusion of rough diamonds in the trade figures for the first time. Foreign reserves have declined owing to lower earnings from diamond sales.

Swaziland

Outlook for 2002-03 The drafting of a new constitution and continued tension between the traditional monarchist establishment and progressive forces in favour of political reform will characterise the forecast period. The recommendations of the report of the Constitutional Review Commission may well not be adopted in the final constitution. Foreign governments will push for limited political reform. Economic liberalisation will progress slowly and unevenly. Monetary policy will remain very closely tied to that in South Africa. After falling to 1.2% in 2001, real GDP is expected to grow by 2.3% in 2002 and 2.8% in 2003 as agricultural and manufacturing production increase. Average inflation will follow the trend in South Africa, and should ease from 6.5% in 2001 to 5.8% in 2002 and 5.5% in 2003. The lilangeni will remain pegged at par to the South African rand. An improvement in the trade balance should allow the current- account balance to improve from deficits of US$52m (4% of GDP) in 2001 and US$2m (0.1% of GDP) in 2002 to a surplus of US$38m (2.8% of GDP) in 2003.

The political scene The report of the Constitutional Review Commission which recommends the retention of the status quo has been presented to the king. The response of progressive groups has been critical but muted. Conservative modernists have raised important questions. Divisions within royal circles have led to the use of royal titles being queried. The term of the chief justice has been extended.

Economic policy and the The Central Bank of Swaziland has recommended a cautious approach to economy external debt management. Real GDP growth slowed to 2.5% in 2000. Total employment grew in 2000. The pulp mill is in trouble, the refrigerator factory has been closed, and the coal mine has been reopened under new ownership. Tenders have been awarded for the enhancement of the telecommunications and electricity networks. Civil service salaries have been increased by 7.5%.

Foreign trade and A deterioration of the trade and services accounts has pushed the current payments account into deficit in 2000 after a surplus was recorded in 1999. The new Southern African Customs Union revenue-sharing formula has been agreed in principle and this will increase the proportion of revenue going to Swaziland.

Editors: Paul Gamble (editor); Douglas Mason (consulting editor) Editorial closing date: October 30th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Namibia 5

Namibia

Political structure

Official name Republic of Namibia

Form of state Unitary republic

Legal system Based on the constitution of 1990 and Roman-Dutch law

National legislature Bicameral; National Assembly, with 72 members elected by universal suffrage and serving a six-year term; National Council, established in 1993, with limited powers of review and 26 members nominated by 13 regional councils for a five-year term

National elections December 1999 (legislative and presidential); next elections due in 2004

Head of state President, currently Sam Nujoma, elected by universal suffrage; a constitutional amendment allowed Mr Nujoma to stand for a third presidential term in 1999

National government President and his appointed cabinet; last reshuffle February 2001

Main political parties South West Africa People’s Organisation (SWAPO), the ruling party; Congress of Democrats (CoD); Democratic Turnhalle Alliance of Namibia (DTA); United Democratic Front (UDF); Democratic Coalition of Namibia (DCN); South West African National Union (SWANU)

Prime minister Hage Geingob

Key ministers Agriculture, water & rural development Helmut Angula Basic education, sport & culture John Mutorwa Defence Erkki Nghimtina Environment & tourism Philemon Malima Finance Nangolo Mbumba Fisheries & marine resources Abraham Iyambo Foreign affairs, information & broadcasting Theo-Ben Gurirab Health & social services Libertina Amathila Higher education, training & employment creation Nahas Angula Home affairs Jerry Ekandjo Justice Ngarikutuke Tjiriange Labour Andimba Toivo ya Toivo Lands, resettlement & rehabilitation Hifikepunye Pohamba Mines & energy Jesaya Nyamu Namibia Central Intelligence Services Peter Tshirumbu Presidential political adviser Kanana Hisboono Prisons & correctional services Marco Hausiko Regional/local government & housing Nicky Iyambo Special adviser for security affairs Peter Tsheehama Trade & industry Hidipo Hamutenya Women’s affairs & child welfare Marlene Mungunda Works, transport & communications Moses Amweelo

Central bank governor Tom Alweendo

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Economic structure

Annual indicators

1996 1997 1998 1999 2000 GDP at market prices (N$ bn) 15.0 16.8 18.8 20.7 23.8 GDP (US$ bn) 3.5 3.6 3.4 3.4 3.4 Real GDP growth (%) 3.2 4.2 3.3 3.4 3.3 Consumer price inflation (av; %)a 8.0 8.8 6.2 8.6 9.2 Population (m)b 1.6 1.6 1.7 1.7 1.8 Exports of goods fob (US$ m) 1,404 1,343 1,278 1,234 1,461 Imports of goods fob (US$ m) –1,531 –1,615 –1,451 –1,472 –1,449 Current-account balance (US$ m) 116 90 162 35 358 Foreign-exchange reserves excl gold (US$ m) 194 251 260 305 260 Total external debt (US$ m) 308 146 128 148 c 158 c Debt-service ratio, paid (%) 1.7 1.3 2.4 1.4 c 1.4 c Exchange rate (av) N$:US$d 4.30 4.61 5.53 6.11 6.94

October 30th 2001 N$9.39:US$1

Origins of gross domestic product 2000 % of total Components of gross domestic product 2000 % of total Agriculture & fishing 11.8 Private consumption 57.3 Mining & quarrying 14.6 Government consumption 27.5 Manufacturing incl fish processing 11.5 Gross domestic fixed investment 18.1 Wholesale & retail trade 9.8 Change in stocks 0.0 Financial services, real estate & business services 14.3 Exports of goods & services 50.1 Government 23.0 Imports of goods & services 52.8 GDP at basic prices incl others 100.0 GDP at market pricese 100.0

Principal exports fob 2000 US$ m Principal imports ciff 2000 US$ m Diamonds 698 Transport equipment 245 Prepared & preserved fish 364 Refined petroleum products 172 Metal ores, including uranium ore 160 Chemical products, rubber & plastics products 168 Meat, meat preparations; hides, skins 78 Food excluding fish, meat, beverages & related 127 Beverages, other food products 59 Machinery & equipment 126 Live animals & animal products 40 Textiles, clothing, leather products & footwear 97

Main destinations of exports 1998 % of total Main origins of imports 1997 % of total UK 43g South Africa 81h South Africa 26 US 4 Spain 14 Germany 2 France 8 Zimbabwe 1 a Windhoek. b Extrapolated from 1991 census. c EIU estimate. d The Namibia dollar (N$), introduced in September 1993, is at par with the South African rand. e Statistical discrepancy in source; does not sum to 100. f Imports cif, before deduction of duties payable, addition of duties on imports from countries other than the Southern African Customs Union (SACU) and central bank adjustments. g Includes Namibian diamonds contracted for marketing by De Beers’ Central Selling Organisation, which are shipped via Switzerland for sale in London. h Includes goods from third countries outside SACU purchased through South African suppliers.

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Quarterly indicators

1999 2000 2001 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Government finance (N$ m) Revenue & grants 1,383.9 1,792.4 n/a n/a n/a n/a n/a n/a Tax revenue 1,275.9 1,684.6 n/a n/a n/a n/a n/a n/a Non-tax revenue 107.6 91.5 n/a n/a n/a n/a n/a n/a Grants 0.4 16.2 n/a n/a n/a n/a n/a n/a Expenditure & net lending 1,858.2 1,831.2 n/a n/a n/a n/a n/a n/a Current expenditure 1,799.5 1,571.4 n/a n/a n/a n/a n/a n/a Capital expenditure 53.7 246.7 n/a n/a n/a n/a n/a n/a Lending & equity participation 5.0 13.2 n/a n/a n/a n/a n/a n/a Balance –474.3 –38.9 n/a n/a n/a n/a n/a n/a Prices Consumer pricesa (1995=100) 137.2 139.7 142.0 145.8 150.9 153.6 157.3 160.5 % change, year on year 8.2 8.5 7.8 9.3 10.0 9.9 10.8 10.1 Financial indicators Exchange rateb N$:US$ (av) 6.098 6.126 6.302 6.858 7.000 7.599 7.826 8.036 N$:US$ (end-period) 6.007 6.155 6.562 6.772 7.257 7.569 8.015 8.065 Interest rates (av; %) Bank of Namibia overdraft 12.00 11.50 11.50 11.25 11.25 11.25 11.25 10.75 Deposit 9.78 8.76 8.05 7.25 7.03 7.23 7.15 7.08 Govt bond yield 15.20 14.42 13.62 14.46 13.71 13.43 12.72 12.06 Lending 16.97 16.87 15.36 15.44 15.07 15.24 15.28 15.42 Prime 18.2 16.8 16.1 15.9 15.9 15.9 15.9 14.5 Treasury bill 12.20 11.59 10.75 10.33 10.13 9.84 9.30 9.25 M1 (end-period; N$ m) 4,508.3 4,496.3 4,360.8 5,159.8 5,130.7 5,766.0 5,491.4 6,010.3 % change, year on year 34.7 22.2 18.9 27.8 13.8 28.2 25.9 16.5 M2 (end-period; N$ m) 8,499.2 8,476.2 8,304.2 8,711.8 8,728.5 9,574.7 9,369.6 9,718.4 % change, year on year 20.4 18.4 13.9 11.2 2.7 13.0 12.8 11.6 Foreign trade & reserves Goods exports fob (N$ m) 1,705.5 2,017.4 1,550.9 1,821.6 1,820.3 2,855.6 2,260.0 2,211.6 Diamonds 502.1 875.7 685.9 1,028.0 747.4 1,784.0 1,224.4 1,147.0 Other mineral products 271.6 360.8 232.1 337.9 301.5 416.4 307.1 341.0 Food and live animals 335.5 250.2 350.3 250.5 485.4 286.7 300.2 297.2 Manufactured products 554.0 476.7 256.2 173.4 247.7 259.6 327.1 313.6 Goods imports fob (N$ m) –2,101.7 –3,113.5 –2,069.4 –2,159.4 –2,168.4 –2,607.6 –2,057.5 –2,159.6 Trade balance (N$ m) –396.3 –1,096.1 –518.5 –337.8 –348.2 248.0 202.5 52.0 Services balance –207.8 –359.2 –67.8 –151.9 –134.7 –147.2 –40.2 –167.8 Income balance 11.4 79.7 –49.0 –236.6 –7.0 43.5 –41.9 –185.1 Transfer balance 718.2 647.4 704.1 747.4 758.4 799.3 826.6 751.0 Current-account balance 123.7 –730.9 –34.0 18.3 265.8 942.6 945.6 448.7 Reserves excl gold (end-period; US$ m) 209.1 305.5 261.4 285.8 242.9 260.0 247.3 246.8 a Windhoek. b The Namibia dollar (N$) is at par with the South African rand.

Sources: Bank of Namibia, Quarterly Bulletin; IMF, International Financial Statistics.

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Outlook for 2002-03

Political outlook

Domestic politics The ruling South West Africa People’s Organisation (SWAPO) faces little threat from the divided opposition. Domestic political activity will focus on preparations for the next SWAPO congress, which is scheduled for 2002, at which a new party president to succeed Sam Nujoma will be chosen. The new SWAPO president will almost certainly become the party’s candidate in the 2004 presidential election. The prime minister, Hage Geingob, the trade and industry minister, Hidipo Hamutenya, the agriculture minister, Helmut Angula, the foreign affairs minister, Theo-Ben Gurirab, and possibly the finance minister, Nangolo Mbumba, are among the frontrunners. Mr Geingob has adopted an increasingly presidential style, but as a member of the minority Damara community—like Mr Gurirab—he will need to work hard to win sufficient backing from northerners, who constitute the majority of SWAPO’s membership. The constitution was amended in 1999 to allow President Nujoma to run for a third term in office, but Mr Nujoma has said on record that he will stand down in favour of a younger leader. However, a fourth term cannot be dismissed completely, especially if, in the absence of an agreed successor, a leadership contest were to split SWAPO. In any event, Mr Nujoma is set to remain firmly in charge of the country for the next three years, whoever is chosen to lead SWAPO into the 2004 election.

The official opposition coalition, comprising the Democratic Turnhalle Alliance and the United Democratic Front, has yet to mount a credible challenge to the government; the Congress of Democrats continues to be the more effective force in parliament. Following allegations that commercial farmers are reluctant to sell farms at fair prices to the state, there will be pressure to speed up land redistribution. President Nujoma told the Namibian National Farmers Union congress in August that the current “willing buyer- willing seller” policy might be changed if it was not working. However, the Economist Intelligence Unit considers this to be just a warning to commercial farmers to co-operate and does not foresee any change to the current policy. President Nujoma also confirmed that a land tax would be introduced and that absentee landowners would be the main target. The trial, delayed until early 2002, of over 100 Caprivians charged with treason for their involvement in secessionist attacks in 1999, may heighten the tension in the Caprivi region.

International relations Attacks by the Angolan rebel movement União Nacional para a Independência Total de Angola (UNITA) on the eastern section of the shared border have continued to ease, but low-level instability is likely throughout the forecast period. The withdrawal of Namibian forces from the Democratic Republic of Congo was completed in October and we do not envisage circumstances under which they will return.

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Economic policy outlook

Policy trends Economic policy during the forecast period will focus on accelerating economic growth, reducing poverty and unemployment, empowering those on low incomes, and bringing in measures to tackle HIV/AIDS. Central to these goals will be the stimulation of activity in the private sector, particularly export- orientated manufacturing, in order to diversify the economy away from agriculture, mining and fishing, all of which are vulnerable to external shocks. However, apart from the commissioning of the Skorpion zinc mine and refinery and some activity in the textiles sector, progress towards the policy goals will be achieved by developing the mainstays of the economy. The impact of the global slowdown may prompt the government to examine whether existing investment-promotion policies are adequate.

Details of the privatisation programme will not be worked out until after the publication of a review of parastatal performance and pay structures, which is due by the end of 2001. The first actual sales, falling short of full privatisation, will not happen until 2002 at the earliest. Initial candidates for privatisation are likely to include Nampower and Telecom Namibia—which will lose its monopoly supplier status in 2002—both of which are profitable.

Fiscal policy As we had expected, the deficit target of 3.6% of GDP for the 2001/02 fiscal year (April-March) will be exceeded. A supplementary budget issued in October forecasts a deficit of 5.3% of GDP. However this forecast does not seem to take account of lower GDP growth and a downward revision to historical data; therefore we are forecasting a deficit of 6.1% of GDP. The jump in the deficit is a result of the one-off expense of recapitalising Air Namibia plus increases in public-sector salaries.

Following a sharp rise in total spending in 2001/02, the three-year medium- term expenditure framework (MTEF) announced in the 2001/02 budget restricts spending growth (at constant 2001/02 prices) to 2% in 2002/03 and 5% in 2003/04. The government’s history of overspending suggests that these targets are unlikely to be met. The targeted fiscal deficit/GDP ratio of 2.9% for both 2002/03 and 2003/04 was based on an average annual real GDP growth rate of 4.8% in 2001-04, which looks optimistic. Nonetheless, we expect the fiscal deficit to improve to 3.3% of GDP in 2002/03 because pre-determined receipts from the Southern African Customs Union (SACU)—the largest source of revenue—will rise from N$2.6bn in 2000/01 to N$2.9bn in 2002/03. Prospects for 2003/04 are more uncertain and depend on the extent of the global economic recovery. Achieving the MTEF deficit target will be difficult, and we are projecting a deficit of 3.1 % of GDP in 2003/04. The MTEF did not set out a strategy for reducing Namibia’s dependence on SACU payments. South Africa’s phased reduction of its external tariffs under World Trade Organisation rules and in line with its free-trade agreements will not have much effect until after the forecast period.

Monetary policy As the Namibia dollar is pegged at par to the rand, the bank rate, set by the Bank of Namibia (the central bank), closely shadows the repurchase (repo) rate set by the South African Reserve Bank (SARB). The central bank followed a

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50-basis-point cut in the South African repo rate in September by reducing the bank rate to 10.25%. SARB will be nervous of additional rate cuts in case they trigger a further weakening of the rand and jeopardise the inflation-targeting regime, although some easing may be possible in 2002. Renewed inflationary pressures may cause a slight rise in interest rates in 2003.

Economic forecast

International assumptions A further slowdown in global growth caused by the attacks on the US in September will have a pronounced impact on Namibia’s economy during the first half of the forecast period owing to lower world commodity prices, especially for diamonds and base metals. The rebound in the global economy projected for 2003 should cause Namibian growth to pick up. Because of the quotas introduced by the De Beers Diamond Trading Company (DTC) before the attacks, the DTC will not purchase the whole output of its Namibian suppliers—Namdeb and De Beers Marine Namibia—in 2001. The deterioration in the outlook for the diamond market may cause the DTC to lower its quotas further or extend their duration. Sluggish growth in the region will limit demand for non-traditional exports.

Namibia: international assumptions summary (% unless otherwise indicated) 2000 2001 2002 2003 Real GDP growth World 4.7 2.2 2.9 4.2 US 4.1 1.1 1.4 3.6 EU 3.3 1.6 1.8 2.5 Exchange rates (av) ¥:US$ 107.8 121.2 124.0 121.5 US$:¤ 0.924 0.903 0.968 1.015 US$:SDR 1.32 1.28 1.30 1.33 Financial indicators ¥ 2-month private bill rate 0.24 0.18 0.10 0.10 US$ 3-month commercial paper rate 6.32 3.61 2.38 5.13 Commodity prices Oil (Brent; US$/b) 28.5 25.4 21.5 20.5 Copper (US cents/lb) 81.3 72.1 72.8 83.3 Food, feedstuffs & beverages (% change in US$ terms) –6.1 0.8 14.1 10.9 Industrial raw materials (% change in US$ terms) 13.4 –7.5 3.7 12.8 Note. Regional GDP growth rates weighted using purchasing power parity (PPP) exchange rates. Economic growth We have reduced our estimate for real GDP growth in 2001 to 3% and lowered our forecast for 2002 to 3.5%, owing to a worsening global outlook and a downward revision to the data for 1999 and 2000. Real GDP growth is expected to rise to 5% in 2003 because of a rebound in diamond production.

Diamond output is expected to fall in 2001 from 1.55m carats to 1.5m carats as De Beers’ affiliates cut production in line with quotas on purchases imposed by the DTC. Diamond output should rise to 1.6m carats in 2002 owing to

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increased recoveries by Namibian Minerals Corporation (Namco) and a new entrant, Canada’s Diamond Fields International (DFI). The ending of quotas, stronger free market prices, further increases in recoveries by De Beers Marine Namibia and full capacity production by Namco and DFI should push production to 1.8m carats in 2003. Overall mining output will grow slightly in 2001 owing to the resumption of copper production by Ongopolo Mining and Processing. Zinc metal production by the Skorpion mine and refinery should begin in 2003, further boosting mining growth.

Forecast summary (% unless otherwise indicated) 2000a 2001b 2002c 2003c Real GDP growth 3.3 3.0 3.5 5.0 Gross agricultural production growth 11.4 1.0 3.8 5.0 Consumer price inflation Average 9.2 9.4 8.0 7.0 Year-end 10.8 8.3 7.5 6.8 Short-term interbank rate 15.3 14.0 13.5 13.8 Government balance (% of GDP)d –2.1 –6.1 –3.3 –3.1 Exports of goods fob (US$ m) 1,461 1,340 1,440 1,585 Imports of goods fob (US$ m) –1,449 –1,540 –1,580 –1,650 Current-account balance (US$ m) 358 80 145 205 % of GDP 10.4 2.6 4.7 6.4 External debt (year-end; US$ m) 158b 163 165 168 Exchange rates N$:US$ (av) 6.94 8.46 9.70 10.40 N$:¥100 (av) 6.44 6.98 7.82 8.56 N$:¤ (year-end) 7.11 8.92 10.30 10.91 N$:SDR (year-end) 9.86 12.31 13.52 14.34

a Actual. b EIU estimates. c EIU forecasts. d Calculated using GDP for fiscal year.

Agricultural output is expected to grow slowly in 2001, owing to a reduced coarse grain harvest in the 2000/01 crop year (July-June) and continued herd restocking. Good rains and higher overseas demand for beef due to cattle disease in Europe should boost agricultural output in 2002. Provided drought does not return, livestock output should rise again in 2003 and, as more cattle are sold to local export abattoirs, meat-processing output should grow strongly in 2002-03. Manufacturing value added rose by 16% year on year in the first quarter of 2001 owing to strong growth in fish processing, mainly of hake; this should more than offset the impact of continuing low pilchard stocks. From 2002 higher quotas, especially for hake and mackerel, should produce strong growth in both fishing and fish processing and this will cause manufacturing to expand more robustly in 2002-03. A new textile and garment factory currently under construction in Windhoek will provide an additional boost to manufacturing.

We expect construction growth to accelerate in 2002 owing to work on major projects, including the Skorpion mine, the electricity infrastructure and the new presidential complex outside Windhoek. Slower growth in government spending should depress construction in 2003 in the absence of major new

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private-sector projects. New transmission lines and substations being constructed by Nampower to supply the Skorpion mine will continue to boost growth in the electricity and water sector during 2002-03. Services growth is likely to have slowed in 2001 and will remain low in 2002 owing to the negative impact of reduced consumer confidence on retail sales and fewer tourist arrivals. Global factors will determine the extent of any recovery in tourism. Growth in government services should slow depending on how well the spending targets in the MTEF are adhered to.

Inflation Year-on-year inflation fell to 7.6% in September, the lowest level since January 2000, mainly because of a slowdown in imported inflation. Given weak global oil prices, and provided that South Africa adheres to its inflation-targeting regime, average inflation will fall from 9.4% in 2001 to 8% in 2002, offsetting the impact of the continued depreciation of the Namibia dollar/South African rand against the US dollar. In 2003 inflation should fall further, to around 7%, provided there is no drought.

Exchange rates The Namibia dollar will remain pegged at par to the South African rand during the forecast period. South Africa’s well-developed financial markets, its low level of foreign reserves and its substantial portfolio of investment flows will continue to make the rand vulnerable to external shocks. The South African Reserve Bank is not expected to intervene to support the value of the rand despite its recent sharp fall against the US dollar. Privatisation revenue in South Africa, which is expected to grow substantially in 2002, will create a cushion of foreign exchange that should help to counter the rand’s periodic weakness. Overall, the Namibia dollar is expected to average N$8.46:US$1 in 2001, N$9.7:US$1 in 2002 and N$10.4:US$1 in 2003.

External sector After an expected fall in 2001 caused by the reintroduction of quotas by the DTC, diamond exports should recover in 2002, provided quotas are eased or phased out. Increased fish and copper exports—from the first year of full production by Ongopolo—should offset lower diamond sales and help total exports to increase slightly in 2001. In 2002 the combination of stronger diamond sales and a higher quota for the hake catch in 2001/02 (May-April)

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will underpin modest growth in exports. Assuming a recovery in the US economy and the global diamond market in 2003, exports of diamonds and base metals should increase, causing overall exports to rise substantially. In 2001-02 imports will be boosted by purchases for the Skorpion zinc project, but this will be offset by weaker imports of consumer goods. We forecast that the trade deficit will widen to US$200m in 2001, before it narrows to US$140m in 2002 and US$65m in 2003 owing to higher diamond exports. The services balance will continue to be affected by the high cost of import-related services and by low tourism receipts. Payments from SACU will remain strong, causing a substantial surplus on the current transfers account. Overall, after falling to US$80m in 2001 (2.6% of GDP), the current-account surplus is forecast to rise to US$145m (4.7% of GDP) in 2002 and US$205m (6.4% of GDP) in 2003.

The political scene

Anti-corruption bill will be In a sign that Namibian politicians are increasingly looking to the post- amended to cover president Nujoma era, the government has agreed that the provisions of an anti- corruption bill, tabled in the National Assembly in September, should be extended to cover the presidency. MPs from both the opposition and the ruling South West African People’s Organisation (SWAPO) stressed that there was no suggestion of any personal corruption by President Sam Nujoma, but that the presidency should be included to ensure that a future head of state could be held accountable if necessary. The prime minister, Hage Geingob, stated in mid-October that the clause exempting the president from the bill’s provisions would be removed, although he stressed that opposition MPs were confused in not realising that other existing instruments already covered the presidency. In fact, the Namibian constitution provides presidential immunity from civil or criminal proceedings in connection with acts performed during his or her term of office. However, a president can be impeached and removed from office by a two-thirds majority vote in both houses of parliament. Evidence of corruption secured under the provisions of the new bill could be an important element of any such action. Mr Geingob also proposed that a new clause be inserted making it mandatory for political office holders and civil servants to declare their assets under a uniform code of conduct following the failure of most MPs to make declarations for the current, voluntary register (August 2001, page 15).

Opposition MPs press for The new bill’s main provision, for the establishment of an anti-corruption judicial role in commission commission with wide powers to probe alleged abuses in both public and private institutions—including rights to obtain warrants to search premises, inspect bank accounts and protect whistle blowers—has been broadly welcomed. However, opposition MPs want the bill amended so that the commission director and deputy director are appointed by the Judicial Service Commission, which includes a high court judge, rather than by the president. The top two officials of the anti-corruption commission will conduct investigations via authorised investigators and will have the power to arrest suspects. In addition, investigators can be appointed by the director with the prime minister’s agreement. The deputy foreign affairs minister, Tuliameni

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Kalomoh, conceded this could affect the commission’s impartiality and credibility, especially if the person being investigated held political office. Opposition MPs have claimed that nobody appointed by the SWAPO leadership will be likely to convict a fellow party member of corruption. This suggests that difficulties may be encountered in investigating officials, especially given the statement made in 2000 by the SWAPO secretary-general, Hifikepunye Pohamba, that party loyalists would increasingly be employed in strategic posts.

Corruption allegations The latest corruption scandal centres on alleged manipulation in a tender in multiply 1999 for the distribution of state pensions involving the under-secretary in Mr Geingob’s office, George Simataa. A firm in which Mr Simataa was a partner reportedly sought to obtain a cash payoff from the highest bidder for the contract in return for withdrawing its own bid, which was the lowest. When this was found out and Mr Simaata’s firm was ruled out of the running in a repeat tendering round, he entered a second bid with a new company. This was also disqualified because of its links with Mr Simaata. The contract, which covered pension payments during 1999-2002, was finally awarded to a third contender. Dismissing a legal challenge to the award by Mr Simaata’s first company and the original highest bidder in mid-October, a high court judge described the proceedings as either corrupt or bordering on it. In response, Mr Simaata maintained his innocence of corruption, describing his involvement as merely a business proposal. The secretary-general of the Congress of Democrats (CoD), Ignatius Shixwameni—who remains an MP contrary to our previous report—claimed during the debate on the anti- corruption bill that some ministers had been known to ask for between 2% and 10% of the value of a contract as a fee when negotiating with foreign investors.

The president tries to Plans have been announced to make a film of President Nujoma’s life. Leading secure his place in history local businesses have already pledged N$90,000 (US$9,750) towards the N$20m budget for the film which will be based on Mr Nujoma’s autobiography, Where Others Wavered, which was published earlier this year. At a recent launch ceremony for the project, Mr Nujoma stressed that the film should depict the struggle of all Namibians for freedom not simply focus on glorifying him. However, the aim is to premier the film on Mr Nujoma’s 74th birthday in May 2002, and his enthusiasm for the project indicates that Namibia’s president is looking to secure his place in history. This would seem to support the view that Mr Nujoma will not stand for a fourth term as national president at the end of 2004 and will give way to a new SWAPO president at the party congress in 2002.

A new curfew is imposed in Although crossborder incursions by suspected members of Angola’s rebel Kavango group, União Nacional para a Independência Total de Angola (UNITA), have reduced in recent months, attacks on Namibian civilians have continued. In October, the commander of the Namibia Defence Force (NDF), Major-General Martin Shalli, announced that a dusk to dawn curfew along the Kavango River had been imposed with immediate effect, during which time inhabitants on both sides of the river will have to stay a minimum of 200 metres from its banks. The announcement confirms that the NDF is continuing “hot pursuit”

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operations inside Angola to deter attacks by UNITA groups. The NDF’s tactics have clearly reduced UNITA’s military capability and most of their recent attacks have involved planting landmines, abducting civilians and cattle theft. Three UNITA members captured by the NDF told representatives of the local media that they had been instructed by their commander to steal food, clothing and cattle. Even at this reduced level, UNITA attacks are still deterring tourists from visiting north-eastern Namibia, and this is having an adverse impact on tourist lodges, restaurants and shops.

New defence bill will The widespread concern about international terrorism in the wake of the restrict media reporting September attacks on the US may have made it easier for the government to push through a controversial new defence bill which contains stringent provisions on the reporting of military activities. Under the bill, tabled in the National Assembly at the end of September by the defence minister, Erkki Nghimtina, it will be an offence to publish information calculated or likely to endanger national security or the safety of the NDF. Mr Nghimtina maintained that this was necessary, especially in the light of the US attacks, as members of the media were not all security conscious and could imperil national security if their actions were not controlled. Defence personnel will be authorised to seize cameras and film if they believe these have been used to photograph military installations. Although the defence ministry claims the provisions are similar to those applicable under the (South African) Defence Act of 1957, which will continue in force until the new bill is enacted, local human rights lawyers and media groups have condemned the prescriptions as potentially uncons- titutional. In its current form, the bill could restrict the right to freedom of expression and the public right to know.

SWAPO proposes changing Tensions could be reignited in the Caprivi region by the decision in August by Caprivi’s name the ruling SWAPO group on the regional council to change the name of the region. The idea was first mooted soon after independence, but was dropped because of fears that a change could provoke tensions between the two main ethnic groups, the Mafwe and the Msubia, who have traditionally competed for superiority in the region. A public consultation on proposed new names was extended beyond the original end-August deadline and the move has been criticised as a diversionary tactic by some Caprivians and the CoD, the only other party represented on the regional council. The present name derives from Count von Caprivi, the German official who secured an extension of Germany’s Sudwest Afrika colony to access the Zambezi River at the end of the 19th century. Lyambai, the Lozi name for the Zambezi, is among the names favoured to replace Caprivi.

Illegally fenced communal The government is dealing with illegally fenced-off land in communal farming land to be redistributed areas, and plans to redistribute underdeveloped and underutilised portions as small-scale plots for commercial farming. The lands, resettlement and rehabilitation minister, Hifikepunye Pohamba, announced the new policy in September. It is based on a feasibility study by international consultants of the farming potential of certain areas in the four central northern regions of Omusati, Oshana, Ohangwena and Oshikoto, plus Kunene region in the northwest. However, negotiating the transfers will be extremely sensitive as

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many communal farmers are opposing the move on the grounds that local, traditional authorities gave the land to them. Some communal farmers have already announced that they will resist attempts to move under plans already announced by Mr Pohamba to subdivide grazing areas in the Mangetti area of Oshikoto region. A government programme to make more productive use of communal farming areas has long been advocated by some agricultural experts and the difficulties the government has encountered in securing land for redistribution from existing commercial farmers has been a key factor in the new policy. In August, President Nujoma told the annual congress of the Namibia National Farmers Union that although the existing willing-buyer willing-seller policy would remain the basis for land acquisition by the government, it might be changed if commercial farmers continued to prove reluctant to sell farms at a fair price. This is likely to have been a bluff in order to get farmers to accelerate the process.

Economic policy

Deficit of 5.3% of GDP is The government’s financial situation has deteriorated more sharply than projected in revised budget previously estimated by the Economist Intelligence Unit, according to the additional budget for the 2001/02 fiscal year (April-March) presented by the finance minister, Nangolo Mbumba, in the National Assembly on October 24th. Compared with the main budget for 2001/02, spending is being raised by a further N$702m (US$76m), or 7% on top of the 16% increase originally estimated. This will bring total spending for the year to a record N$10.5bn. As a result, the forecast for the budget deficit will rise to N$1.5bn, an increase of almost 50% on the original projection, and equivalent to 5.3% of GDP rather than the 3.6% increase initially forecast. Mr Mbumba acknowledged that the higher deficit would have serious consequences for government debt and interest payments, and was not sustainable. There was some good news in that revised data show that the deficit was reduced to 2.1% in 2000/01 from 3.1% in the preceding fiscal year. Budget revenue will also be some N$200m higher than initially forecast for 2001/02, mainly owing to increased diamond taxes and royalties of N$745m—up by N$270m on the original figure. This reflects the higher profitability of diamond mining in 2000 (diamond revenues are paid one year in arrears), although the increase was partially offset by lower tax receipts from non-mining companies.

The additional government spending is mainly because of a major bail-out of the national airline, Air Namibia, and also because of increases in civil service salaries and the cost of withdrawing Namibian troops from the Democratic Republic of Congo earlier this year. Public-sector salaries will now cost the government N$185m more than was estimated in the main budget and the troop withdrawal is estimated to have cost N$130m. However, the biggest extra item is a special authorisation of N$286m to prevent Air Namibia from becoming insolvent. This is in addition to N$10m already provided in the main budget and N$50m drawn down from the contingency provision for 2001/02, bringing the total cost of recapitalising Air Namibia to N$346m. Mr Mbumba pledged that the government would strengthen the financial controls

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of parastatals as part of a new policy framework for the governance of public enterprises, and would also review the part-privatisation of state assets. However, he gave no details of any fundamental restructuring of Air Namibia, including its outstanding debt obligations, and there seems little prospect of the carrier returning to profitability in the near term. Revenue had been sliding even before the global airline and tourism industries were hit by the September attacks on the US. A plan for KLM to take over the management of Air Namibia and acquire a minority shareholding now looks unlikely to go through given the Dutch carrier’s own financial problems. Air Namibia’s difficulties have been mainly caused by ill-conceived fleet renewals over the last three years— including the purchase of its Boeing 747, with which it operates international flights to Germany and the UK—and a top-heavy management structure.

Change to parastatal pay A report on the performance of parastatals, due to be put before the cabinet by structures recommended mid-November, is expected to lead to far-reaching changes in their structure. The most heavily leaked recommendation of the report, compiled by an inter- ministerial committee headed by the agriculture minister, Helmut Angula, is the adoption of a uniform salary structure, to enable pay to be determined on a transparent basis. Recent revelations about the high salaries and fringe benefits enjoyed by some senior executives have caused a public outcry and hindered government efforts to resist demands by public-sector unions for large pay increases. Until now, salary structures have been mainly determined by the boards of parastatals, without reference to pay scales within the civil service. This looks set to change and, coupled with a number of recent personnel changes on parastatal boards, looks certain to increase central government influence over parastatal operations.

Interest rates are cut The Bank of Namibia (the central bank) followed the South African Reserve Bank (SARB) by cutting its bank rate by 50 basis points in June and in September, reducing the rate to 10.25%—because the Namibia dollar is pegged to the South African rand, the central bank shadows SARB’s moves. Namibian commercial banks have, with the usual delay, cut their prime overdraft rates to 14%, from 15.5% in June. Although further interest rate reductions are possible in the short-term, SARB’s ability to keep cutting rates in line with global central banks will be increasingly constrained by the need to adhere to its inflation target. Sine the rand’s continued depreciation is increasing the cost of imported goods, SARB—and therefore the central bank—will have less scope for further rate cuts.

The domestic economy

Economic trends

GDP growth rates have Real GDP growth rates for 1999 and 2000 have been cut substantially in the been revised downwards final national accounts for 2000 published in August by the Central Bureau of Statistics. Real GDP growth in 1999 is calculated to have been almost one percentage point lower than the provisional estimate of 4.3%, and growth for

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2000 was revised to 3.3% rather than the 3.9% originally forecast (May 2001, page 19). In consequence, growth in GDP per head was barely positive, rising by 0.3% in 1999 and by 0.1% in 2000. The downward revisions in overall growth were mainly caused by changes in value-added output by fishing and mining. Fishing output, which includes on-board processing, recorded negative growth in 1999. This was reversed in 2000 when fishing output expanded strongly. However, this was more than offset by a sharp downward adjustment in onshore fish processing in 2000—despite a better performance than in 1999—and by a decline in diamond output. Construction value added was revised downwards for both years; the sector shrank in 2000 compared to the strong positive growth initially estimated. This more than offset upward revisions for financial intermediation. Output growth in wholesale and retail trade was revised upwards for 2000 to above the 1999 rate, in contrast to the weakening growth trend predicted by the preliminary estimates. Revisions to the constant price data were also caused by technical adjustments, including an apparent reclassification of value added by the fishing and fish processing sectors, and changes to the GDP deflator reflecting commodity price changes.

Namibia: GDP by sector growth rates (% change, year on year; constant 1995 prices) 1999 2000 Preliminary Final Preliminary Final Primary 10.2 7.2 4.4 5.3 Agriculture & forestry 12.0 11.1 11.7 10.3 Fishinga 10.9 –1.4 –5.1 13.3 Mining & quarrying 8.4 8.4 3.2 –2.7 o f w h i c h : diamonds 14.5 14.5 0.8 –0.7 Secondary –2.4 –3.2 7.4 0.6 Manufacturing –3.1 –3.7 6.7 4.5 o f w h i c h : f i s h p r o c e s s i n g b –21.0 –21.1 17.1 1.1 Construction –11.6 –13.9 25.5 –5.4 Electricity & water 20.1 20.2 –13.5 –13.5 Tertiary 4.3 3.8 3.2 3.7 Wholesale & retail trade 4.6 3.3 1.8 4.9 Hotels & restaurants –11.7 –11.7 7.4 7.4 Transport & communications 14.4 13.3 4.7 2.9 Financial intermediation –0.2 2.4 3.4 5.6 Real estate & business services 4.9 3.7 0.8 1.5 Government services 3.5 3.3 4.2 4.2 GDP at factor cost 4.3 3.2 4.3 3.6 Taxes less subsidies 4.1 4.9 1.1 0.8 GDP at market prices 4.3 3.4 3.9 3.3

a Includes processing carried out on board vessels. b Processing carried out at onshore plants only.

Source: National Planning Commission, Central Bureau of Statistics, National Accounts, 1993-2000.

Central bank forecasts The Bank of Namibia (the central bank) forecasts in its September 2001 slowing growth in 2001 Quarterly Bulletin that growth in 2001 may slow from the growth rate of 3.3% seen in 2000. This is because of the continued slowdown in the global

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economy and supply constraints in some sectors of the Namibian economy, especially pelagic fishing. However, the central bank is more optimistic about medium-term prospects, forecasting that the economy will take the 5% average annual growth trajectory envisaged—although not achieved—under the now expired first, five-year National Development Plan. It bases this forecast on the expansionary impact of lower interest rates and a number of new mining projects already underway or being planned, in particular the Skorpion zinc mine and refinery in the south. However, the Economist Intelligence Unit expects that real GDP growth of 5% will not be recorded until 2003 when the global economy, and hence demand for diamonds, will pick up.

Annual inflation falls Annual inflation eased further in September to 7.6%, the lowest rate since January 2000, largely because of a slowdown in imported inflation—mainly from South Africa. Increases in domestic food prices, particularly for cereals and cereal products, have also slowed, but this has been partly offset by the higher cost of other items, in particular transport and communications. Commercial imports have now almost balanced the shortfall in the domestic cereal crop in 2001, and since the oil price is expected to remain weak in the near term, Namibia’s inflation rate should continue its downward trend into next year. Despite the slowdown in inflation, the average annual rate for January-September 2001 is 9.6%, compared with 9% in the same period of 2000, and annual average inflation is expected to rise in 2001 owing to much higher food and fuel prices in the first half of the year.

Namibia: consumer prices, 2001 (Windhoek; interim consumer price index; % change, year on year) Jun Jul Aug Sep Food 12.0 10.6 9.6 9.5 All items 9.8 8.5 8.3 7.6 Domestic goods & services 11.8 8.9 8.4 8.3 Imported goods 7.8 8.0 8.1 6.9 Source: Central Bureau of Statistics, Consumer Prices and Inflation.

Population forecast to The national population census carried out at the end of August will provide reach 2.7m by 2021 the first comprehensive demographic data for Namibia since the 1991 census, although a date has yet to be set for the release of the census results. The census will reveal the accuracy of the long-term demographic assumptions (both national and regional) produced by the National Planning Commission (NPC) and published earlier this year. Of the three population growth scenarios used by the NPC—high, medium and low—the medium variant is the one that will be used by planners and it is the only one for which the data have been broken down by region. The projections are based on two components of population change, fertility and mortality rates; net migration is expected to remain insignificant. Under the high growth scenario, based on a modest fall in the fertility rate and the lowest incidence of HIV/AIDS, the population would more than double from the 1991 level to 3m by 2021, compared with 2.5m under the low growth scenario. The medium variant, under which the population would rise by just under 90% to 2.7m, reflects a forecast decline in

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the fertility rate by half to 3% and an average annual population growth rate of just over 2%.

In all but the high growth scenario, life expectancy is projected to fall sharply; from 59 years for males and 63 for females in 1991, to 47 and 54 years respectively under the medium variant, and only 43 and 47 years under the low variant. The medium variant, used for the regional projections, assumes that deaths due to HIV/AIDS will mainly occur prior to 2011 and will decline thereafter. By region, the greatest declines in life expectancy are expected to occur in Karas, Omaheke and Otjozondjupa. In the six northern regions inhabited by over 50% of the total current population, male life expectancy— having fallen to only 38 years by 2011—is expected to recover sharply to 48 years in 2021.

Namibia: population projections (‘000; medium variant) 1991 2021 % of total % change Caprivi 90 89 3.3 –1.1 Erongo 56 271 10.2 383.9 Hardap 67 41 1.5 –38.8 Karas 61 75 2.8 23.0 Kavango 117 162 6.1 38.5 Khomas 167 491 18.4 194.0 Kunene 64 58 2.2 –9.4 Ohangwena 180 226 8.5 25.6 Omaheke 53 106 4.0 100.0 Omusati 190 275 10.3 44.7 Oshana 135 325 12.2 140.7 Oshikoto 129 203 7.6 57.4 Otjozondjupa 103 340 12.8 230.1 Total population 1,410 2,662 100.0 88.8 Source: Central Bureau of Statistics, National Planning Commission, Population Projections 1991-2021, National and Regional Figures, February 2001.

Regional growth rates vary In contrast to the national projections, migration is a significant factor in the considerably of regional population growth forecasts based on the medium variant. An increase in rural-urban migration is the main cause of the substantial population growth forecast for Erongo (including Walvis Bay), Khomas (including Windhoek) and Otjozondjupa (including Okahandja and Otjiwarongo). Erongo’s population is projected to almost quadruple compared with 1991, reflecting continued growth in fishing and Export Processing Zone (EPZ) activities at the coast. By 2021, Khomas is projected to contain almost one-fifth of Namibia’s total population, up from 12% in 1991. Otjozondjupa, which has a similar economic and social profile to Khomas, is forecast to be the next most populous region. In contrast, average population growth in the four north-central regions inhabited predominantly by Namibia’s largest ethnic group—Omusati, Oshana, Ohangwena and Oshikoto—will be less than half the national growth rate, owing to the impact of HIV/AIDS and migration to towns and industries to the south. In consequence, the share of the total

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population in the four north-central regions is forecast to fall from 45% in 1991 to 39% by 2021, less than the combined 41% total for Khomas, Otjozondjupa and Erongo. The slight projected decline in Caprivi’s population reflects the above average incidence of HIV/AIDS. The sharper declines for Hardap and Kunene reflect a significant net migration loss caused by relatively unfavourable economic conditions. In contrast, population growth in Namibia’s most southerly region, Karas, is forecast to increase by above the national average owing to inward migration resulting from the improved employment opportunities created by expansion in agriculture and mining and, potentially, the onshore benefits from development of the Kudu gas field.

Mining and energy

Quotas introduced on The slowdown in the global economy has resulted in a substantial build-up in Namdeb production polished diamond stocks throughout the supply chain, leading De Beers’ Diamond Trading Company (DTC) to announce in August that it is to introduce quotas on purchases from its suppliers. The quotas will be applied retroactively from January 1st 2001. In consequence, Namdeb diamond recoveries—including those by De Beers Marine Namibia (DBMN)—will fall in the second half of 2001. The cutbacks are expected to be concentrated on the less profitable onshore operations north of Oranjemund as the deployment of additional mining vessels will increase offshore recoveries by DBMN. De Beers has not disclosed the size of the quotas being applied and appears to have avoided imposing an across the board reduction as in previous periods of weak demand. Instead, the company says the quotas will be applied to each supplier according to circumstances and reviewed according to market conditions. This may enable Namdeb to maintain supplies of its highest-quality gemstones.

Output by other producers Offshore recoveries by Namibian Minerals Corporation (Namco) will not may fall slightly exceed output in 2000, but production at the new offshore operation of Diamond Fields International (DFI) of Canada (May 2001, page 22), could boost non-Namdeb diamond output. Namco has completed its refinancing after entering provisional liquidation in February, but repairs to its NamSSol

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seabed crawler mining system will not be completed until early 2002. The company produced only 25,000 carats in the first half of 2001, although production from its other two mining vessels is expected to improve in the second half of the year. DFI, which started mining offshore of Lüderitz in June, plans to deploy a second mining vessel this November using airlift technology under its joint venture with South Africa’s Trans Hex group. Namco and DFI both sell on the free market via Antwerp and are therefore not subject to the De Beers quotas, although revenue will be affected by lower diamond prices. Assuming output of 150,000 carats from Namco-DFI, Namibian diamond output would fall to around 1.5m carats in 2001 from 1.55m in 2000.

Offshore oil exploration Prospects for offshore oil exploration have at last begun to look up, although it looks set to resume remains to be seen whether the renewed weakness of global oil prices will adversely affect recently announced plans for drilling. Australia’s Eagle Bay Resources is about to be awarded an exploration permit for the deepwater Block 2814B, offshore from the mouth of the Orange River, where it hopes to target potential reserves of 1.3bn barrels. These are thought to be contained in two prospects in the block, according to an assessment by the National Petroleum Corporation of Namibia (Namcor), and Eagle has reportedly committed to a four-year work programme, including at least one exploration well. Block 2814B lies immediately west of the Kudu gas field and was originally part of Shell’s acreage, but was relinquished several years ago so that Shell could concentrate on assessing the gas reserves in Block 2814A.

The US firm Vanco International plans to drill its first well early in 2002 in Block 1711. The 8,931 sq km block—in which Vanco holds an 88% interest—is in the Namibe Basin; its northern edge forms the maritime boundary between Namibia and Angola. Vanco must drill a well by mid-2002 or relinquish its acreage. The company appears to be optimistic about locating oil, and says that Namibia has now been accorded priority within its African drilling programme. Take up of acreage under the open licensing system adopted by Namibia several years ago has hitherto been disappointing, despite considerable accumulated seismic data, mainly because of the small amount of well information available. Water depths in the Namibe Basin—the subject of a presentation by Namcor and Angola’s national oil company, Sonagol, earlier this year—range from 200-4,000 metres. Only one of the eight blocks on offer, Block 1811, which adjoins Block 1711 to the south, is in Namibian waters.

Shell is conducting a new Further work to establish additional gas reserves to the north of the existing Kudu drilling programme Kudu field has been announced by Shell Exploration and Production Namibia (SEPN) and its partners Energy Africa and Texaco. A seismic survey of a 1,000 sq km area is to be followed by appraisal drilling from January 2002. It is hoped that the existing proven gas reserves of some 560bn cu metres will be doubled. Shell believes that a new international market can be tapped for Kudu gas, based on the deployment of a floating platform producing liquefied natural gas for shipment to the US and other Atlantic Basin consumers. This would be in addition to supplying gas for the planned 750-mw combined-cycle power station at Oranjemund (August 2001, page 20) and, possibly, for new power stations in Northern Cape. If the drilling programme confirms sufficient

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additional reserves, a final investment decision will be taken at the end of 2002, with production scheduled for 2006. The project is provisionally budgeted at US$2bn and SEPN hopes to negotiate less onerous fiscal arrangements with the government, including a significant downward revision to the 25% royalty currently payable on all oil or gas produced in Namibia.

Fishing

New catch ceilings The total allowable catch (tac) ceilings for the 2001-02 fishing season were announced recently confirmed by the cabinet and indicate that the industry will experience mixed fortunes next year. Although a previously-announced increase in the hake tac has been confirmed, the mackerel tac has been reduced substantially because of the declining biomass. As most mackerel caught in Namibian waters are processed on board, and offshore processing is classified as fishing, this will have a negative impact on fishing output in 2002. However, fish processing output, which only covers onshore processing activities, should expand, based on the high hake tac and increased catches of other white fish, especially monkfish and rock lobster. Although this year’s 10,000-tonne pilchard quota was not exceeded, the biomass has yet to show signs of a sustained recovery. A provisional pilchard tac will not be announced until early 2002, but it is unlikely to be increased. The pattern of the tac levels confirms the predominance over the past decade of demersal fishing (fishing of hake and other species living near or at the bottom of the sea), above pelagic (near surface species) and mid-water fishery (mainly mackerel). In 2000, onshore white fish processing accounted for over 80% of land-based value added in fishing, compared with 10% for pelagic fish.

Namibia: total allowable catches, 2002 (tonnes) Total allowable Change in % change, catches tonnage year on year Horse mackerela 350,000 –60,000 –14.6 Hakeb 200,000 6,000 3.1 Craba 2,200 200 10.0 Rock lobsterc 400 50 14.3

a January-December 2002. b May 2001-April 2002. c November 2001-April 2002.

Source: Ministry of Fisheries and Marine Resources

Manufacturing

Malaysia is investing in a Namibia’s efforts to secure a large expansion of its small manufacturing sector large-scale textile operation appear to have been successful. Malaysia’s Ramatex group has decided to establish an integrated textile and garment complex in Windhoek, which it states will be its largest operation outside China. Exports will be mainly to the US under the African Growth and Opportunity Act, which provides duty-free entry for textiles and clothing manufactured in Sub-Saharan Africa. Namibia secured the investment in the face of strong competition from South Africa,

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mainly because of the superior fiscal incentives available under its EPZ regime. In addition to the EPZ concession of zero income tax on all revenue generated by exports outside the Southern Africa Customs Union, Windhoek muni- cipality has waived all local taxes for 99 years on the 43 hectare plot leased by the company in the Otjomuise district. Ramatex intends to invest N$500m (US$55m) in the first phase from 2001-03, creating some 5,000 jobs initially. Investment will rise to N$900m when total employment should be about 10- 15,000. The complex will be comprised of plants for the manufacture of yarn, knitted textile fabric and made up garments; sportswear is expected to be the main final product. In addition to the export revenue earned, the Ramatex project is expected to generate considerable downstream and support-industry opportunities, including packaging and possibly cotton ginning investments. Some 20,000 tonnes of cotton lint will be required annually, which will initially have to be sourced from outside Namibia because the country has no capacity at present to produce lint. Around 4,000 tonnes per year of raw cotton are produced locally, and the government hopes that the project will stimulate an expansion in cash crop farming and the development of cotton ginning.

Foreign trade and payments

Exports decline by 6% in Quarterly export data produced by the Bank of Namibia (the central bank), the first half of 2001 which cover around 70% of total exports by value, show a 14% increase in local currency terms in the first half of 2001compared with the same period in 2000. However, in US-dollar terms this equates to a 6% fall. The principal categories excluded from the central bank data are food and live animals and manufactured products other than processed fish and meat. Diamond exports held up relatively well, declining by just under 1% to US$298m in the first half of 2001 as sales of stockpiles almost offset weaker global prices and sharply decreased production by Namco. Fish exports rose by 19% to US$83m in the first half of 2001, reflecting higher yields and increased onshore processing of white fish (mainly hake), plus firm prices in the main export market, Spain. A 45% fall in meat exports, to US$38m, was almost entirely the result of reduced demand from South Africa, as sales of beef to the UK soared in the first half of 2001 owing to increased demand for imported meat in the wake of the foot- and-mouth epidemic. Exports of other minerals declined by 14% to US$65m because of lower base metal prices, especially for zinc, which more than offset the resumption of blister copper exports by Ongopolo Mining and Processing (formerly Tsumeb Corporation).

Exports may fall more Diamond exports will almost certainly be substantially lower in the second half sharply in the second half of 2001 compared with the same period in 2000, owing to the downward revision in De Beers’ price book and the introduction of export quotas on contracted producers (see Mining and energy). However, this should be at least partly offset by a recovery in Namco’s output and the first production by DFI, both of which market their stones via Antwerp. With the main exception of uranium, which is predominantly sold under long-term contracts, exports of other minerals look vulnerable in the second half of 2001 owing to the steep

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Namibia 25

decline in base metal prices worsened by the economic fallout following the attacks on the US in September. The increased hake catch ceiling set for the May 2001-April 2002 season will cause further growth in fish exports.

Namibia: main exports by value, Jan-Jun (N$ m) 2000 2001 % change Diamonds 1,974 2,366 19.9 Gold 70 92 31.4 Other minerals 500 516 3.2 Fish 461 661 43.4 Meat 454 298 –34.4 Total 3,459 3,933 13.7 US$ma 526 496 –5.7

a Using the period average N$:US$ exchange rates published by the IMF.

Source: Bank of Namibia, Quarterly Bulletin, September 2001.

Exports to the UK have A near 1,200% increase in the value of exports to the UK in the first half of expanded strongly 2001 compared with the same period in 2000 was caused by the inclusion for the first time in official trade figures of rough diamonds imported from Namibia for marketing by De Beers’ Diamond Trading Company in London. In consequence, the trade data place the UK as Namibia’s largest export market by value. Until the latter part of 2000, rough diamond imports into the UK from Namibia, as well as those from Botswana and South Africa, were not recorded by country of origin. This was because of a long-standing arrangement with De Beers that only the global total of rough diamond imports marketed by it in London would be disclosed to protect market confidentiality. However, the policy was changed in 2000 by the then Foreign and Commonwealth Office minister, Peter Hain, to ensure greater transparency in the diamond trade as one of the internationally-agreed measures to restrict the opportunities for illicit dealings in conflict diamonds.

Namibia: exports to the UK, Jan-Jun (£ m) 2000 2001 % change Meat productsa 7.4 11.1 50.0 Fish productsb 1.7 1.3 –23.5 Metal ores 2.4 10.5 337.5 Diamonds n/a 131.7 – Total incl others 12.2 155.1 1,171.3

a Mainly chilled and frozen beef cuts. b Mainly canned pilchards.

Source: UK Customs & Excise, Overseas Trade Statistics of the UK.

The UK imported rough diamonds from Namibia worth £132m (US$187m) in the first half of 2001, equivalent to two-thirds of Namibia’s diamond exports by value for the same period according to central bank data. However, this understates the proportion of Namibian diamond exports going to the UK,

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 26 Namibia

because the Namibian data for total diamond exports include a provision for smuggled stones on top of officially-recorded transactions, which the Economist Intelligence Unit currently estimates to be around 5% of total declared export value. (Most diamonds exported by companies other than Namdeb go to Antwerp, Belgium.) Excluding diamonds, Namibian exports to the UK almost doubled year on year, owing to increased beef and metal ore exports. UK imports of Namibian beef rose to a record £11m in the first half of 2001—equivalent to almost half the total value of Namibian meat exports during the period. This was because of increased demand by meat wholesalers to make up the shortfall in domestic supplies caused by the mass culling and animal movement restrictions introduced by the UK government to combat foot-and-mouth disease.

Foreign reserves continue Owing to a fall in US dollar denominated export earnings, foreign-exchange to fall reserves fell to a low for the year of US$238m at end-May 2001, although they had regained some ground by end-July, according to IMF figures. However, the end-July total of US$243m was US$144m or 37% lower than the record figure seen one year earlier. National data indicate that a recovery continued in August 2001 despite a 50% month-on-month fall in government deposits at the central bank, as this followed a threefold increase related to SACU inflows the previous month. In consequence, end-August deposits remained well above their level of one year earlier, causing a 22% annual rise in local currency- valued foreign-exchange reserves to N$2.3bn (US$276m), equivalent to just under nine weeks of import cover. However, the year-on-year rise in US dollar terms—based on IMF reserves data for August 2000—was a more modest 3%.

Namibia: foreign-exchange reserves, 2001 (US$ m; end-period) May Jun Jul Foreign exchange 238.40 246.71 242.45 SDRs 0.02 0.02 0.02 Reserve position in IMF 0.05 0.05 0.05 Total reserves excluding gold 238.47 246.78 242.52 Source: IMF, International Financial Statistics.

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Swaziland 27 Swaziland

Political structure

Official name Kingdom of Swaziland

Form of state Absolute monarchy

Legal system Parallel systems of Roman-Dutch law and customary law

National legislature A bicameral parliament. The House of Assembly is elected through the tinkhundla electoral system, which has three stages: nomination, primary election and secondary election. A secret ballot is now conducted for the last two stages. The Assembly has 55 elected members and 10 royal appointees. The Senate consists of 30 members, 20 of them royal appointees and 10 selected by the Assembly. The king may legislate by decree

National elections Last parliamentary election October 1998; next election is likely in 2003

Head of state Monarch, succession governed by custom

National government The monarch and his cabinet, last reshuffled in June 2000

Political parties None; party political organisation is banned, although some groups operate illegally

The government Monarch King Mswati III Prime minister Sibusiso Dlamini Deputy prime minister Arthur Khoza

Key ministers Agriculture & co-operatives Roy Fanourakis Economic planning & development Prince Guduza Education John Carmichael Enterprise & employment Lutfo Dlamini Finance Majozi Sithole Foreign affairs & trade Abednego Ntshangase Health & social welfare Phetsile Dlamini Home affairs Prince Sobandla Housing & urban development Albert Shabangu Justice Chief Maweni Simelane Natural resources & energy Magwagwa Mdluli Public service & information Mntonzima Dlamini Public works & transport Titus Mlangeni Tourism & communications Stella Lukhele

Central Bank governor Martin Dlamini

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 28 Swaziland

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market pricesb (E m) 5,307 6,268 7,041 8,102 8,875c Real GDP growthb (%) 4.2 3.9 3.7 3.7 2.5c Consumer price inflationd (av; %) 6.5 7.2 8.0 5.9 7.3c Population (m) 0.94 0.95a 0.96a 0.97a 0.97 Exports fob (US$ m) 849 960 966 941 809e Imports fob (US$ m) 1,054 1,089 1,083 1,052 856e Current-account balance (US$ m) –53 9 –17 17 –40e Reserves excl gold (US$ m) 254 295 359 380 352c Total external debt (US$ m) 222 368 251 290 330 External debt-service ratio (%) 2.9 2.7 2.1 2.5 3.1 Sugar productionf (‘000 tonnes) 471 476 475 534 550 Exchange rate (av; E:US$) 4.30 4.61 5.53 6.11 6.94c

October 30th 2001 E9.39:US$1

Origins of gross domestic product 1999be % of total Components of gross domestic product 1999be % of total Agriculture 10.3 Private consumption 62.1 Industry 45.1 Government consumption 24.4 Manufacturing 35.9 Gross fixed investment 36.7 Services 34.0 Change in stocks & statistical discrepancy 0.9 Government services 16.2 Exports of goods & services 76.5 GDP at factor cost incl othersg 100.0 Imports of goods & services –99.8 GDP at market prices 100.0

Principal exports fob 1999e US$ m Principal imports fob 2000e US$ m Soft drink concentrate 236 Manufactured goods 154 Sugar 103 Machinery & transport equipment 280 Wood pulp 91 Food & live animals 131 Refrigerators 69 Chemicals 111 Citrus & canned fruit 29 Fuel & lubricants 92

Main destinations of exports 1999e % of total Main origins of imports 1999e % of total South Africa 72.0 South Africa 88.8 EU 14.2 EU 5.6 Mozambique 3.7 Japan 0.6 US 3.5 Singapore 0.4 a EIU estimates. b Years beginning July 1st. c Actual. d Low-income index Mbabane and Manzini. e Official estimates. f Crop years beginning May 1st. g Others include forestry, owner-occupied dwellings and other services.

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Swaziland 29

Quarterly indicators

1999 2000 2001 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Central government finance (MK m) Revenue and grants 4,062.1 4,807.1 4,989.5 6,842.2 4,348.2 6,952.7 9,265.7 14,478.9 Revenue 3,417.1 3,995.8 3,439.9 4,093.8 4,291.7 6,061.4 6,127.7 9,013.0 Grants 645.0 811.3 1,549.6 2,748.4 56.4 891.3 3,138.0 5,465.9 Expenditure 5,127.4 6,420.6 6,866.6 6,785.6 6,586.3 10,803.5 12,323.8 13,385.9 Balance before grants –1,710.3 –2,424.8 –3,426.7 –2,691.8 –2,294.6 –4,742.1 –6,196.1 –4,372.9 Balance after grants –1,065.3 –1,613.5 –1,877.1 56.6 –2,238.1 –3,850.8 –3,058.1 1,093.0 Output trends General index (1984=100) 109.5 100.2 115.3 121.5 122.6 107.4 106.7 n/a % change, year on year –14.9 –17.1 6.7 6.9 12.0 7.2 –7.5 n/a Financial indicators Exchange rate: MK:US$ (av) 43.632 43.510 45.477 46.759 50.721 61.339 79.357 79.768 MK:US$ (end-period) 43.203 43.612 46.438 47.178 56.009 74.259 80.076 79.012 Nominal effective rate (1995=100) 44.2 44.3 43.0 42.0 40.7 34.1 27.1 26.7 Real effective rate (1995=100) 111.1 115.6 118.9 123.6 121.6 108.9 96.2 97.9 Interest rates %) Deposit (av) 34.00 34.00 30.83 33.50 34.17 32.50 32.83 37.50 Discount (end-period) 47.00 47.00 47.00 47.00 47.00 44.50 50.23 56.16 Lending (av) 54.00 54.00 52.33 53.50 53.67 52.00 53.33 59.00 Treasury bills (av) 46.98 41.74 36.67 37.97 41.79 32.43 45.87 49.07 M1, (end-period; MK m) 6,874.2 6,880.9 6,651.2 6,360.2 7,648.4 7,980.3 9,096.6 8,557.7 % change, year on year 45.0 37.7 33.0 27.2 11.3 16.0 36.8 34.6 M2, (end-period; MK m) 12,291 12,214 11,974 11,758 13,962 16,661 16,929 15,938 % change, year on year 49.9 29.7 26.5 31.2 13.6 36.4 41.4 35.6 Debt service payments (MK m) 996.9 1,150.8 1,126.6 1,122.2 1,113.1 n/a n/a n/a Principal 655.8 811.0 736.0 731.8 707.2 n/a n/a n/a Interest payments 330.9 327.5 386.0 376.4 400.9 n/a n/a n/a Prices Consumer prices (1990=100) 1,137.9 1,089.6 1,213.9 1,456.1 1,417.5 1,397.9 1,640.3 1,907.3 % change, year on year 52.8 42.9 31.0 29.9 24.6 28.3 35.1 31.0 Sectoral trends Production Electricity (av; m kwh) 87.0 96.6 86.8 82.6 90.4 96.5 91.9 n/a Tea (‘000 tonnes) 9.4 3.5 7.7 18.0 9.9 4.0 10.2 24.6a Cement (‘000 tonnes) 28.2 32.4 30.7 28.4 27.6 33.9 n/a n/a Tobacco auction sales Volume (‘000 tonnes) 66.6 67.8 0.0 0.0 61.9 97.0 n/a n/a Value (MK m) 4,244.9 3,849.3 0.0 0.0 3,056.2 n/a n/a n/a Building plans approvedb (MK m) 583.1 444.5 411.5 240.3 189.8 292.4 502.3c n/a Foreign trade & reserves Exports fob (MK m) 3,723.5 7,561.0 5,115.6 2,302.5 3,374.2 9,033.2 n/a n/a Tobacco 2,279.8 5,692.1 2,931.2 762.5 1,883.8 6,684.9 n/a n/a Imports cif (MK m) –8,221.2 –8,379.7 –7,957.2 –7,872.7 –6,669.9 –8,840.6 n/a n/a Trade balance –4,497.7 –818.7 –2,841.6 –5,570.2 –3,295.7 192.6 n/a n/a Reserves excl gold (end-period;US$ m) 273.5 277.4 250.6 226.7 217.9 209.5 246.9 303.7 a January-June. b Blantyre, Lilongwe, Mzuzu, private and government. c Excluding Lilongwe for December.

Sources: National Statistical Office, Monthly Statistical Bulletin; Reserve Bank of Malawi, Financial & Economic Review; IMF, International Financial Statistics.

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 30 Swaziland

Outlook for 2002-03

Political outlook

Domestic politics The drafting of a new constitution, and continued tension between the traditional monarchist establishment and progressive forces favouring political reform will characterise the forecast period. King Mswati III had stated that the report of the controversial Constitutional Review Commission (CRC), which recommends the retention and strengthening of the present system under which political parties are banned, will be implemented largely unaltered. This is now unlikely to be the case. Pressure for modest reform will grow from various internal and external parties, although the status of the monarchy will not be under threat. A conference hosted in late October by the local, non- governmental organisation Lawyers for Human Rights (LHR), which was funded by the US, called for the inclusion of a bill of rights in the constitution. This is also stipulated under the African Union Charter signed by the king. Such a document is likely to be drawn up and published by LHR. No timetable has been set for the release of the formal constitution, but the process is expected to take at least one year, giving time for reform efforts to build momentum. By revoking Decree No. 2 of 2001, which extended his powers, the king set a precedent that he could well repeat with the constitution. However, there is no guarantee that any concessions will be made and the African Union is highly unlikely to be able to force through changes and will be reluctant to enforce sanctions that are unlikely to be widely observed.

Progressive groups were, not surprisingly, unhappy with the contents of the CRC report. However, they are weak and divided and unlikely to make much headway in a climate of political apathy where the urban population is more concerned about rising unemployment and HIV/AIDS. Nonetheless, the traditionalists have lost support over the years as education has improved and the population has become more urbanised. Conservative groups, such as Sive Siyinqaba Sibahle Sinje (a traditional cultural organisation—in effect, a political party) and the Swaziland Federation of Labour, are becoming increasingly outspoken and, unless police repression of the progressives eases and personality clashes between the leaders of the various progressive groups can be set aside, the conservative groups may well play a large role in promoting reform. More pressure is, however, likely to come from external actors.

International relations Concern over the lack of political reform will ensure that regional governments take a greater interest in events in Swaziland, especially as the situation in Zimbabwe is expected to improve following the presidential election, scheduled for April 2002. The attitude of the South African government will be particularly important over the forecast period. The CRC’s report was widely condemned in the South African press and the Congress of South African Trade Unions (COSATU), which is affiliated to the ruling African National Congress, has called for the isolation of Swaziland by the international community. The South African government will have to balance its ties with COSATU with its reluctance to encourage rapid reform, which could cause instability and further

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Swaziland 31

damage to the region’s international image. Pressure from South Africa will therefore take place mainly behind the scenes. The good governance provisions attached to the Cotonou agreement and the Africa Growth and Opportunity Act (AGOA) will ensure that the EU and the US watch events in Swaziland closely, and the International Labour Organisation will be monitoring labour relations. Should the need arise, these actors are likely to use more overt pressure, which could ultimately be more effective. As government revenue falls in line with declining Southern African Customs Union (SACU) receipts (see below), increased aid flows will be required and this will strengthen the influence of donors.

Economic policy outlook

Policy trends Economic liberalisation will be central to government policy but progress will be slow and implementation patchy. Policymaking will remain largely reactive and will be hindered by the complex interaction between the royal household, unelected advisory bodies, the government and the civil service. Emphasis will be placed on attempts to broaden the revenue base, as receipts from SACU, which account for over 50% of total revenue, will fall from 2005/06 when the EU-South Africa free-trade agreement begins to affect the common revenue pool. An increase in sales tax from 12% to 14% will boost revenue and fiscal reforms will focus on tax administration, revenue collection and the possible introduction of value-added tax. Reform of the civil service is necessary, but it is likely to proceed slowly. Although these measures may improve fiscal performance during the forecast period, they will not be enough to fill the gap once SACU revenue begins to fall sharply.

Some important legislation is likely to receive approval in the forecast period, including the Retirement Fund Act—which could lead to about E300m (US$32m) of domestic pension funds invested outside the country being recalled for local investment—and the Trade and Business Facilitation Bill, which aims to attract investment and enhance industrial competitiveness. PricewaterhouseCoopers has been appointed to produce a policy paper on the reform of public enterprises. This is due to be completed in December and should form the basis of a privatisation policy. However, progress will be slow given the absence of any strong will on the part of the government. Efforts to counteract the effects of HIV/AIDS will be stepped up, but will be heavily dependent on donor support.

Monetary policy Swaziland will remain a member of the Common Monetary Area over the forecast period; therefore monetary policy will in effect be determined in South Africa. Fearing a prolonged slowdown in the domestic economy, the South African Reserve Bank (SARB) cut its repo rate by 50 basis points in September— the Central Bank of Swaziland followed suit and reduced its bank rate from 10% to 9.5% and its prime rate from 13% to 12.5%. The SARB will be nervous of additional rate cuts in case they trigger a further weakening of the rand and jeopardise the inflation-targeting regime, although some easing may be possible in 2002. Renewed inflationary pressures may cause a slight rise in interest rates in 2003.

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 32 Swaziland

Economic forecast

Economic growth The Swaziland Sugar Association has revised down its estimate for the 2001/02 (April-March) crop from 546,000 tonnes to 524,000 tonnes (the 2000/01 crop was 528,241 tonnes) and the maize and cotton crops have been disappointing this season. Agricultural output will be boosted by initial output from the Komati Basin irrigation scheme in 2002; full production is expected by 2004. The cotton industry has been badly affected by drought, but production could increase from 2002 owing to expected world price increases and as the local textile industry develops to exploit duty-free access to the US market under AGOA.

Manufacturing is expected to contract in 2001 because of the closure of several local factories. Performance should be better over the remainder of the forecast period, although growth will be sluggish. Production of the major export earner, soft-drink concentrate, should increase as the Coca Cola plant’s market area widens. The future of the Sappi Usutu pulp mill which has been hit by rising production costs is unclear, but we expect it to survive. If it does close, the timber will be exported and the economy will lose the value added from wood pulp production. New investments to take advantage of AGOA will increase textile output. This year’s cut in the corporate tax rate may yield positive results from 2002. The two-month closure of Maloma Colliery, the country’s last remaining mine, will greatly reduce mining output in 2001, but the new owners should expand output in 2002. The construction industry will show steady growth as a result of new road works, the building of factory shells and the commencement of the Usutu Basin projects. Overall, we expect real GDP growth to be 1.2% in 2001, recovering to 2.3% in 2002 and 2.8% in 2003. Income per head is therefore expected to stagnate. Although the Finance Ministry is still planning to implement the king’s millennium projects— including a new airport, hotel and conference centre—in order to boost tourism and create employment, there are doubts over the viability of these projects and we do not expect any progress on them during the forecast period.

Inflation Official figures show that annual inflation increased from 7% in July to 7.3% in August and 8.8% (provisional) in September. The accuracy of these figures is a cause for concern both to the Central Bank and to businesses, who feel that the rate is really much closer to the South African consumer price index rate (which was 5.8% in September), a view shared by the Economist Intelligence Unit. Since Swaziland receives approximately 85% of its imports from South Africa where the inflation rate is falling, the higher rate of inflation in Swaziland appears inconsistent and the basis of the calculation needs to be reconsidered. Inflation in South Africa is expected to decline further in 2002 and 2003 owing to the success of inflation targeting. The expected fall in international oil prices in 2002 will also ease inflationary pressures and we expect average annual inflation to fall from 6.5% in 2001 to 5.8% in 2002 and 5.5% in 2003.

Exchange rates The lilangeni will remain pegged at par to the South African rand during the forecast period. South Africa’s well-developed financial markets, its low level of

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Swaziland 33

foreign reserves and its substantial portfolio investment flows will continue to make the rand vulnerable to external shocks. The SARB is not expected to intervene to support the value of the rand despite its recent sharp fall against the US dollar. Privatisation revenue in South Africa is expected to grow substantially in 2002 and will create a cushion of foreign exchange that should help to counter the rand’s periodic weakness. Overall, the lilangeni is expected to average N$8.46:US$1 in 2001, N$9.7:US$1 in 2002 and N$10.4:US$1 in 2003.

External sector Exports are expected to fall in 2001 because of the loss of refrigerator exports— after the closure of the Fridgemaster plant—and the continued decline in mining. Export growth will accelerate in 2002 as real GDP growth in South Africa improves, coal mining production returns to previous levels and textiles benefit from privileged access to the US market under AGOA. Imports will be largely demand-driven and are expected to increase slowly until work on the Usutu Basin scheme starts in late-2002 or early-2003—because most imports are denominated in rand, this trend will be less pronounced in US dollar terms. Lower transport costs, caused by falling oil prices, should lead to an improve- ment in the services account. Current transfers are expected to remain strongly positive, reflecting high levels of transfers from SACU. Overall, we expect the current-account balance to improve over the forecast period as the trade deficit narrows.

Swaziland: forecast summary (% unless otherwise indicated) 2000a 2001b 2002c 2003c Real GDP growth 2.5 1.2 2.3 2.8 Consumer price inflation: Average 7.0 6.5 5.8 5.5 Year-end 6.7 6.2 5.6 5.4 Short-term interbank rate 14.0 12.5 12.0 12.5 Government balance (% of GDP) 3.9 4.8 6.5 8.0 Exports of goods fob (US$ m) 810 651 665 680 Import of goods fob (US$ m) –950 –778 –731 –735 Current account balance (US$ m) –50.2 –52.4 –1.8 37.7 % of GDP –3.9 –4.0 –0.1 2.8 Exchange rates (av) E:US$ 6.94 8.46 9.70 10.40 E:¥100 6.44 6.98 7.82 8.56 E:E 7.11 8.92 10.30 10.91 E:SDR 9.86 12.31 13.52 14.34

a Actual. b EIU estimates.c EIU forecasts.

The political scene

The CRC report is made On August 10th King Mswati III was presented with the long-awaited report of public the Constitutional Review Commission (CRC) at an imbizo (a gathering of the Swazi nation called by the king for matters of national importance). The CRC

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 34 Swaziland

was appointed in 1996 for a two-year term, which was subsequently extended, to draw up a report following consultations with a wide range of stakeholders which would form the basis of a new constitution (3rd quarter 1999, page 27). The report in effect recommends that the status quo is maintained (see box), frustrating the hopes of progressive forces and foreign governments that it would promote greater democratisation. Many of the report’s recom- mendations are supported by references to the views of the majority, although no statistical evidence is provided to establish how such an assessment was made—though some is promised. It is independently estimated that the CRC received around 25,000 submissions (the total population over 15 was put at 517,000 in the 1997 census) but group submissions, favoured by progressives, were banned and many urban dwellers were too apathetic to vote. Nonetheless, the views of the CRC do seem to reflect the opinions of the rural population, which constitutes 77% of the total population according to the 1997 census.

Main recommendations of the CRC report:

• The absolute monarchy should continue as it is presently constituted (the report conceded that a small minority recommends that the powers of the monarch be limited).

• Traditional structures such as the senior royal houses and chiefs should be revived and strengthened.

• The system of government based on the tinkhundla (traditional councils) should continue and be strengthened.

• Laws should be introduced at the tinkhundla level before going to parliament. However, the king should retain the power to issue a proclamation or decree when warranted by circumstances.

• Political parties should remain banned (the report states that an insignificant minority recommended that the ban should be lifted).

• The king should retain the power to appoint and dismiss the prime minister, ministers and senior officers of government.

• The courts should continue to work independently and perform their functions with due regard to the customs and traditions of the Swazi nation. Bail should not be accepted and the death penalty should be enforced.

• A bill of rights should not conflict with the customs and traditions of the Swazi nation.

• Land and natural resources should remain the exclusive jurisdiction of the king, to be held in trust for the Swazi nation. There should be stringent controls on mineral prospecting and mining operations, and a return of freehold land acquired by foreigners in the 1980s.

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The progressives’ response Although about 10,000 Swazis attended what was the first imbizo since 1996, is critical but muted trade unions and other progressive forces disobeyed the king’s call. These groups were incensed by the fact that the report recommends the retention of the state of emergency and the controversial 1973 decree banning political parties. The Swaziland Federation of Trade Unions (SFTU) regards the report as a reincarnation of the repealed Decree No 2 of 2001 (August 2001, pages 34- 35). Obed Dlamini, president of the Ngwane National Liberatory Congress—a political movement—and a former prime minister, called the report a political fraud and appealed to the international community to impose sanctions against Swaziland. However, the progressive forces have not staged any public protests owing to concerns about police action.

Conservatives raise An outspoken member of parliament, Mfomfo Nkambule, said that statements questions from what were regarded as the minority in the CRC report raised genuine issues that deserved to be examined, and that the call for multiparty democracy could not be wished away. Sive Siyinqaba Sibahle Sinje made some particularly strong responses including the following.

• It is not acceptable to legislate against freedom of political choice. The recommendation that political parties should be banned should be critically studied to establish whether it can still be applied under modern government in the 21st century.

• A bill of rights has a universal definition under the UN, of which Swaziland is a member. The bill of rights adopted by an individual country should not conflict with the universal definition.

• Some of the powers of the monarchy should be delegated to the legislative, executive and judiciary to allow for transparent governance.

• The report should be debated openly. • The report advocates an even worse form of government than the one the people of Swaziland complained about, which prompted the appointment of the CRC in the first place.

The business community has reacted cautiously but is unhappy about the recommendation that new citizens should undergo a loyalty ritual. It argues that citizenship should be made easier, not harder, for investors. Business is also unhappy about the recommendations regarding land and mineral rights as it thinks they are disincentives to investment.

The authenticity of royal In a move that highlights the divisions within royal circles, a number of the titles is queried late King Sobhuza II’s children, led by Princess Dlalisile, have released a list of 127 princes and princesses who they claim have authority to use royal titles. They feel that they are not receiving their share of royal wealth and resent the use of royal titles by bogus individuals to gain special privileges. Some significant names in Swazi politics, including Prince Mfanasibli (prominent during the regency in the mid-1980s) and Prince Mbilini (a former prime minister), were not on the list, which is restricted to the children of King Sobhuza II, although the children of King Mswati III are also described as real princes and princesses. According to the Times of Swaziland, palace sources

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have hinted for some months that a meeting of royal family members will be held. This could clarify the use of the titles. There does appear to have been a shift in power within the royal household during the king’s illness earlier this year (May 2001, page 34); some members of the royal family are now finding their access to the king restricted.

Term of chief justice is The king has extended the term of office of the chief justice, Stanley Sapire extended (August 2001, page 36), until the end of the year. The chief justice is contesting the retirement age of 65, claiming that it is 75 for High Court judges. The minister of justice, Maweni Simelane, asked the full bench of the High Court to recuse itself from hearing the application on the grounds that they could be biased. However, the judges ruled on October 19th that they would not recuse themselves.

Economic policy and the economy

The central bank is The Annual Report of the Central Bank of Swaziland for 2000/01 (April-March), concerned about debt published in August, raised concern over the build-up of external debt, which is projected to rise from E1.32bn at end-1998 to E2.69bn by end-2001. Some of this growth can be attributed to the fall in the lilangeni; in US dollar terms debt will increase from US$260m at end-1998 to US$334m by end-2001. Improved data collection from the private sector also explains some of the rise in debt. Although the debt ratios are manageable by international standards, the closure of major companies will lower GDP and export earnings and this will have an adverse effect on the debt ratios. The bulk of the debt is in hard currencies and the depreciation of the lilangeni will lead to a rise in debt stock, even if no new loans are contracted. Thus, the Central Bank is advising the government to increase domestic borrowing to reduce exchange-rate risk and to put domestic resources into productive use. There is considerable scope for increased domestic borrowing as outstanding domestic debt is 1% of GDP and the government holds a creditor position with the banking system. Total external debt could continue to grow rapidly, particularly if the millennium projects go ahead, as the government upgrades the infrastructure.

Real GDP growth in 2000 is The Central Bank’s Annual Report gave the first picture of economic estimated at 2.5% performance in 2000. Real GDP growth was estimated to have slowed from 3.7% in 1999 to 2.5% in 2000, below the rate of population growth, owing to lower agricultural and agro-industrial production. This was caused by adverse climatic conditions—heavy rains affected the production of sugar, wood pulp and citrus fruits—and the general global economic slowdown. Manufacturing, particularly of zips and cotton yarn, provided much of the impetus for GDP growth.

The public sector continues According to the Central Bank’s Annual Report, total employment (both formal to grow and informal) grew by less than 1% in 2000. Only 802 new jobs were created, of which only 106 were in the private sector. By contrast, employment in the public sector increased by 2%. This was not in line with the government’s zero

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001 Swaziland 37

growth expenditure policy, and a reduction in the size of the public sector is long overdue. The informal sector’s slow growth is caused partly by the reluctance of the banking industry to extend credit to operators. The slowdown in economic activity led to an increase in the unemployment rate.

Swaziland: changes in employment

1999 2000 % change Private 61,003 61,109 0.2 Public 32,210 32,853 2.0 Informal 17,563 17,616 0.3 Total 110,776 111,578 0.7 Source: Central Bank of Swaziland Annual Report for the Financial Year 2000-2001.

The pulp mill is in trouble One of Swaziland’s oldest and largest manufacturing concerns, the pulp mill run by Usutu Pulp Company, may be forced to close by the end of 2001 if it is unable to reduce costs by about E70m (US$7.5m). Owned by the South African group, Sappi, the company has been badly affected by poor world market conditions. Production costs have risen significantly above the industry norm, and Sappi has had to lend financial support. It is no longer prepared to do this, and is making severe cuts in all areas of the business. The company is discussing the retrenchment of 900 employees with the unions. The total staff consists of 1,593 employees and the mill has the capacity to produce 200,000 tonnes of unbleached pulp per year. In 2000 it produced 154,158 tons, which generated earned exports of E446.1m. If the pulp mill is closed timber exports will increase but the loss in value added will lower real GDP.

The refrigerator factory The Fridgemaster plant of the liquidated Masterfridge company has finally closes been closed and its assets have been auctioned (May 2001, page 38; August 2001, page 38). The liquidators were unable to find a buyer for the entire plant who would continue to operate it. Masterfridge was a major employer and had about 1,500 workers on its payroll. Over E20m was raised from the auction in September, and all that remains to be sold is steel, which is expected to raise E5m. The Chinese company, Shanghai Industrial Investment Corporation, did not follow up its stated interest in the plant. The liquidator may have better results in reviving the confectionery company, Sugar Daddy Candy (August 2001, page 37), as two South African firms are apparently interested in it.

The coal mine reopens The coal mine at Maloma (August 2001, page 37) was purchased in August by Xstrata South Africa, a subsidiary of a Swiss-based natural resource group. Xstrata bought out the 75% shareholding initially held by the American company, Carbonex. Tibiyo Taka Ngwane, the royal conglomerate, retained its 25% stake. The sum involved in the share sale was not disclosed. The mine, which closed on July 19th, reopened on September 7th and all 600 employees were reinstated.

SIPA aims to create 10,000 The general manager of the Swaziland Investment Promotion Authority, Bheki jobs Dlamini, has said that over 10,000 jobs will be created by the end of the year. Eighteen foreign companies with investments totalling over E43m have signed

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agreements to open new factories by March 2002. However, these agreements are mainly in the form of expressions of intent rather than legally binding contracts, and not all will materialise. Many of the projects are aimed at taking advantage of trade concessions under the African Growth and Opportunity Act (AGOA). Acceptance of Swaziland’s procedures for exports under AGOA was published in the US Federal Register of August 8th.

Swaziland: mineral production and sales

1997 1998 1999 2000 Production (tonnes) Asbestos 25,888 27,693 22,912 12,690 Coal 203,115 410,021 426,299 78,043 Quarried stone 455,753 453,334 250,193 304,043 Sales (E ’000) Asbestos 64,113 56,814 57,008 21,442 Coal 19,860 51,000 51,746 48,398 Quarried stone 16,147 12,372 9,758 11,310 Source: Department of geographical survey and mines.

Telecoms and electricity to The Swaziland Posts and Telecommunications Corporation has been awarded a be upgraded E43m loan from the Development Bank of Southern Africa that will be used to improve the efficiency of the telecoms sector, providing 5,000 new lines in urban areas and 1,500 in rural areas. The Swaziland Electricity Board has awarded a tender of E16m for the supply of powerline hardware for the first phase of a rural electrification project. This project is being funded by Taiwan and is expected to be completed by the end of 2001. It will add 700 km of line to the distribution network and reach over 50,000 people. Although the electricity grid has now spread to most areas, rural households still depend mainly on wood, petroleum products and coal for their energy needs.

Civil service salaries are It was announced in September 2001 that civil servants have been awarded a increased 7.5% pay rise for the current financial year, backdated to April. This will cost E84m, as provided for in the budget for 2001/02 (May 2001, page 36). The unions initially demanded a differentiated salary increase averaging 9.97%, but eventually accepted the government’s across-the-board offer.

Foreign trade and payments

Current account in deficit Lower global economic growth reduced sales of some of the main export in 2000 products, including soft-drink concentrate and refrigerators, causing a worsening of the current-account balance from a surplus of 0.5% of GDP in 1999 to a deficit of 3.1% of GDP in 2000 according to preliminary data in the Central Bank’s Annual Report. The data also show a worsening of the services balance caused by a fall in inflows of other services. The traditional sources for financing the current-account deficit—foreign direct investment inflows, transfers from the Southern African Customs Union (SACU) and the remittances of migrant workers—have dwindled or, in the case of SACU

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receipts, are uncertain in the medium to long term. Thus, Swaziland must either expand exports or reduce imports, or achieve both, if it is to attain a more sustainable external balance position. The preference would be to expand exports because if capital goods were affected by a curb on imports economic development would be adversely affected.

Swaziland: current account (E m) 1997 1998 1999 2000a Exports fob 4,429.7 5,361.9 5,479.7 5,626.6 Imports fob 5,016.2 6,057.8 6,223.1 6,394.0 Trade balance –586.5 –695.9 –743.4 –767.4 Net services –554.8 –724.2 –504.5 –712.6 Net incomes 636.3 308.0 530.3 533.9 Net current transfers 546.0 734.1 761.3 667.1 Current-account balance 41.0 –378.0 43.9 –279.0

a Preliminary.

Source: Central Bank of Swaziland, Annual Report for the Financial Year 2000-2001.

Proportion of SACU The renegotiated SACU agreement has been concluded in principle, although revenue received is to grow the institutional framework is still being refined. In terms of the new revenue- sharing formula, the proportion of revenue going to Swaziland will increase. The Ministry of Economic Planning and Development is projecting revenue of E1.9bn for 2002/03 (when the new formula is introduced) as opposed to E1.7bn under the old formula. However, the overall revenue pool—derived from the customs revenue of Botswana, Lesotho, Namibia, South Africa and Swaziland—will begin to fall as a result of trade liberalisation under the EU- South Africa free-trade agreement, World Trade Organisation liberalisation and the SACU Trade Protocol. A significant drop in SACU revenue is not expected until 2005/06 (October 2000, page 36), but this will be serious as SACU revenue accounts for over 50% of total budgetary revenue.

EIU Country Report November 2001 © The Economist Intelligence Unit Limited 2001