Namibia Swaziland at a Glance: 2000-01

COUNTRY REPORT

Namibia Swaziland At a glance: 2000-01

OVERVIEW The domestic political scene will be relatively stable. Insecurity along the north-eastern border will continue, but the situation should stabilise in 2002. Overspending will push the 2000/01 budget deficit above the target of 3.6% of GDP; it is unlikely to be cut significantly in 2001/02. After growing by 3.5% in 2000, real GDP will grow by 5% in 2001, owing to an expansion in offshore diamond output and a resumption in base and precious metal production. Real GDP growth will slow to 4.5% in 2002. Inflation is expected to decline, from 8% in 2000 to 7.5% in 2001 and 7% in 2002. Higher non-diamond exports will improve the trade balance; a surplus is expected in 2001 and 2002 thanks to higher diamond output. The current- account surplus will fall from US$183m in 2000 to US$173m in 2001, before narrowing to US$101m in 2002. Key changes from last month Political outlook • Namibian Defence Force troops have been sent into Angola to strike against UNITA positions, while most of the Angolan army previously stationed in Namibia has been withdrawn across the border. Nonetheless, sporadic crossborder attacks will continue and security in the north-east will remain a concern. Economic policy outlook • Public-sector workers have rejected a pay rise negotiated between their union and the government. Because of this, as well as the continued expenditure on security, the target for the fiscal deficit is unlikely to be achieved. A supplementary budget is expected. Economic forecast • Fuel prices have been increased for the fourth time this year. The impact of this, and the recent sharp fall in the rand, has caused us to raise our forecast for annual average inflation in 2000 from 7.5% to 8%.

October 2000

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Contents

3 Summary

Namibia

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2001-02 8 Political outlook 9 Economic policy outlook 10 Economic forecast 13 The political scene 17 The domestic economy 17 Economic trends 19 Mining 22 Agriculture and fishing 24 Infrastructure 25 Foreign trade and payments

Swaziland

26 Political structure 27 Economic structure 27 Annual indicators 28 Quarterly indicators 30 Outlook for 2001-02 30 Political outlook 31 Economic policy outlook 31 Economic forecast 32 The political scene 34 Economic policy and the economy 36 Foreign trade and payments

List of tables

10 Namibia: international assumptions summary 11 Namibia: forecast summary 19 Namibia: consumer price inflation, 2000 21 Namibia: Namco’s diamond output and earnings, Jan-Jun 22 Namibia: uranium production, Jan-Jun 23 Namibia: coarse grain production, 1999/2000 25 Namibia: main exports by value, Jan-Mar 31 Swaziland: forecast summary 37 Swaziland: foreign direct investment by sector

List of figures

13 Namibia: gross domestic product 13 Namibia: exchange rates 18 Namibia: consumer prices

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 3

Summary

October 2000 Namibia

Outlook for 2001-02 The domestic political scene will be relatively stable over the forecast period. Insecurity along the north-eastern border will continue, but the situation should stabilise in 2002 even in the absence of a political settlement in Angola. Overspending will push the 2000/01 budget deficit above the target of 3.6% of GDP. Without effective expenditure control in 2001/02, the deficit is unlikely to be cut significantly. After growing by 3.5% in 2000, real GDP will grow by 5% in 2001, thanks to an expansion in offshore diamond output, a resumption in base and precious metal production and higher output in fish processing and construction. Growth will slow to 4.5% in 2002 because of slower growth in diamond and fish processing output. Inflation is expected to decline, from 8% in 2000 to 7.5% in 2001 and 7% in 2002, provided the depreciation of the South African rand remains moderate. Higher non-diamond exports will cut the trade deficit, which will be eliminated in 2001; a surplus is expected in 2002 thanks to the expansion of diamond output. The current-account surplus will widen from US$183m in 2000 to US$173m in 2001, before narrowing to US$101m in 2002 owing to lower SACU receipts.

The political scene Crossborder attacks on Namibian civilians by UNITA rebels have continued. Namibian forces have been deployed inside Angola and most Angolan government troops have been withdrawn from Namibia following complaints about their conduct. The home affairs minister has been widely condemned for an outspoken attack on the integrity of foreign judges, which has raised fears of political interference in the judicial process.

Economic policy The cabinet has approved Namibia’s first privatisation programme, although details have still to be worked out and the enterprises to be privatised have not yet been named. Spending will almost certainly have to be increased because of higher than planned civil service pay rises and increased defence costs.

The domestic economy Real GDP growth expanded by just over 1% year on year in the first quarter of 2000, owing to higher agricultural, fishing, and construction output. Annual inflation accelerated to just under 10% in June and July, mainly because of higher fuel prices. Namco has lowered its planned offshore diamond output because of difficult mining conditions.

Foreign trade and Diamond export revenue has risen by 9% year on year in the first quarter. payments However, earnings from all other main export categories excluding fish have fallen over the same period.

Swaziland

Outlook for 2001-02 The political situation will remain stable. In order to maintain trade preferences, traditionalists and the government will comply with a US demand that labour legislation be amended. The Constitutional Review Commission’s report is likely to be just a summary of the submissions made to it, which could jeopardise Swaziland’s inclusion in the Africa Growth and Opportunity Act. Economic reform will move at a slow pace. Interest rate cuts will not resume again until 2001 owing to the fall in the currency. Adverse weather conditions will reduce real GDP growth to 2.4% in 2000, but accelerating growth in South Africa will allow real GDP growth in Swaziland to reach 3.3% in 2001 and 3.5% in 2002. Rises in the price of fuel and fresh produce will increase average inflation in 2000 to 6.4% and will continue to feed in over 2001, lifting the average rate to 6.7%, before it eases to 5.8% in 2002. The lilangeni will appreciate slightly against the US dollar over the remainder of 2000, but it will fall back in 2001 and 2002 in line with inflation differentials.

The political scene The government ignored a US deadline on labour law amendments, but has nevertheless won a reprieve until November 30th on the withdrawal of GSP concessions. A worker stay-away over the controversial changes to the labour laws has met with a muted response.

Economic policy and the The central bank has warned the government over excess spending. Rising oil economy prices lifted the year-on-year inflation rate to 6.7% in July. Negotiations on public servants’ pay increases have broken down. The GSP uncertainty has increased uncertainty in the sugar industry and has resulted in some industrial investment being put on hold. Interest in the mining sector has been reawakened, but investors have been critical over slow licensing procedures.

Foreign trade and The renegotiation of the SACU agreement has nearly been completed. Foreign payments direct investment rose by 12.1% in 1999. The government has been awarded funding for several infrastructure projects.

Editors: Paul Gamble (editor); David Cowan (consulting editor) Editorial closing date: October 9th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 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 March 2000

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 & culture John Mutorwa Defence Erikki Nghimtina Environment & tourism Philemon Malima Finance Nangolo Mbumba Fisheries & marine resources Abrahim Iyambo Foreign affairs & information Theo-Ben Gurirab Health & social services Libertina Amathila Higher education & employment creation Nahas Angula Home affairs Jerry Ekandjo Justice Ngarikutuke Tjiriange Labour Andimba Toivo ya Toivo Lands & resettlement Pendukeni Ithana Mines & energy Jesaya Nyamu Regional/local government & housing Nicky Iyambo Special adviser for security affairs Peter Tsheehama Trade & industry Hidipo Hamutenya Women’s affairs & child development Marlene Mungunda Works, transport & communications Moses Amweelo

Central bank governor Tom Alweendo

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (N$ m) 13,484 15,037 16,598 17,807b 19,631 Real GDP growth (%) 2.1 2.6 3.0 3.7b 3.5 Consumer price inflationc (av; %) 8.0 8.8 6.2 8.6 8.0 Populationd (m) 1.58 1.61 1.66 1.70a 1.73 Exports fob (US$ m) 1,404 1,343 1,278 1,244b 1,340 Imports fob (US$ m) 1,531 1,615 1,451 1,423b 1,430 Current-account balance (US$ m) 116 90 162 154b 183 Total external debt (US$ m) 308 146 128 208b 237 Diamond production (‘000 carats) 1,402 1,416 1,440 1,638 1,700 Uranium oxide production (tonnes) 2,886 3,425 3,257 3,171 3,000 Fish catch (‘000 tonnes) 494 517 580a 620a 670 International reserves (year-end; US$ m) 194 251 260 305 340 Exchange ratee (av; N$:US$) 4.30 4.61 5.53 6.11 6.90

October 16th 2000 N$7.49:US$1

Origins of gross domestic product 1999 % of total Components of gross domestic product 1999 % of total Agriculture & fishing 10.7 Private consumption 60.8 Mining & quarrying 12.5 Government consumption 31.8 Manufacturing (incl fish processing) 16.5 Gross domestic fixed investment 19.6 Wholesale & retail trade 7.5 Change in stocks –0.4 Financial services, real estate & business services 10.9 Exports of goods & services 53.5 Government 27.0 Imports of goods & services –64.3 GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports fob 1999 US$ m Principal imports ciff 1997 US$ m Manufactured products 423 Food & beverages 337 Diamonds 413 Machinery & electrical goods 209 Food & live animals 194 Vehicles & transport equipment 205 Uranium 134 Chemicals & plastics 157 Other minerals 59 Textiles, clothing & footwear 105 Metals & metal products 105

Main destinations of exports 1998 % of total Main origins of imports 1995 % of total UK 43g South Africa 84h South Africa 26 US 4 Spain 14 Germany 2 France 8 Russian Federation 1 a EIU estimates. b Preliminary official estimate. c Windhoek. d Extrapolated from 1991 census. e The Namibia dollar (N$), introduced in September 1993, is at par with the South African rand. 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 all 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.

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Namibia 7

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Government finance (N$ m) Revenue & grants 1,306.5 1,428.0 1,448.2 1,376.1 1,383.9 1,792.4 n/a n/a Tax revenue 1,202.4 1,372.7 1,362.7 1,148.3 1,275.9 1,684.6 n/a n/a Non-tax revenue 95.4 53.0 64.1 218.3 107.6 91.5 n/a n/a Grants 8.7 2.3 21.4 0.5 0.4 16.2 n/a n/a Expenditure & net lending 1,380.0 1,622.9 1,738.2 1,829.3 1,858.2 1,831.2 n/a n/a Current expenditure 1,271.7 1,437.9 1,592.1 1,613.3 1,799.5 1,571.4 n/a n/a Capital expenditure 91.3 141.9 143.9 205.3 53.7 246.7 n/a n/a Lending & equity participation 17.0 7.2 2.2 10.7 5.0 13.2 n/a n/a Balance –73.6 –195.0 –290.0 –462.2 –474.3 –38.9 n/a n/a Prices Consumer pricesa (1995=100) 126.8 128.8 131.8 133.4 137.2 139.7 n/a n/a % change, year on year 6.8 8.0 8.9 8.8 8.2 8.5 n/a n/a Financial indicators Exchange rateb N$:US$ (av) 6.210 5.779 6.085 6.129 6.098 6.126 6.302 6.858 N$:US$ (end-period) 5.873 5.860 6.190 6.036 6.007 6.155 6.562 6.772 Interest rates (av; %) BoN overdraft 21.25 18.75 16.00 14.50 12.00 11.50 11.50 11.50 Deposit 14.02 14.24 13.15 11.57 9.78 8.76 8.05 7.25 Govt bond yield 17.05 16.30 15.10 14.88 15.20 14.67 14.04 14.46 Lending 21.82 22.58 20.76 19.33 16.97 16.87 16.04 15.44 Prime 24.2 23.9 22.4 20.4 18.2 16.8 n/a n/a Treasury bill 20.00 19.45 15.94 13.38 12.20 11.59 10.75 10.33 M1 (end-period; N$ m) 3,346.3 3,680.9 3,667.7 4,038.3 4,508.3 4,496.3 4,360.8 5,159.8 % change, year on year 13.2 27.0 27.7 27.3 34.7 22.2 18.9 27.8 M2 (end-period; N$ m) 7,061.0 7,160.5 7,291.2 7,831.4 8,499.2 8,304.2 8,304.2 8,711.8 % change, year on year 9.5 11.3 12.9 17.9 20.4 15.6 13.9 11.2 Foreign trade & reserves Goods exports fob (annual totals; N$ m) ( 6,656 ) ( 7,602 ) n/a n/a D i a m o n d s ( 2 , 1 6 1 ) ( 2 , 5 2 4 ) n / a n / a Goods imports fob (annual totals; N$ m) ( 8,236 ) ( 8,693 ) n/a n/a Trade balance (annual totals; N$ m) ( 1,580 ) ( –1,091 ) n/a n/a Reserves excl gold (end-period; US$ m) 234.0 260.3 248.5 218.1 209.1 305.5 261.4 282.0 a Windhoek. b The Namibia dollar (N$) is at par with the South African rand.

Outlook for 2001-02

Political outlook

Domestic politics Despite the formation of a coalition between two of the main opposition parties—the Democratic Turnhalle Alliance (DTA) and the United Democratic Front (UDF)—there is little prospect of this new grouping seriously challenging the ruling South West Africa People’s Organisation (SWAPO) over the forecast period. The DTA-UDF coalition became the official opposition in parliament even though the Congress of Democrats (CoD) won the second highest number of votes in the December election. Although there are areas of the country where the combined Damara-Herero rural vote would enable the coalition to gain a few seats at SWAPO’s expense, at present the CoD remains the only real alternative for disillusioned SWAPO supporters in the north.

SWAPO continues to treat the CoD as a pariah, going to extraordinary lengths in hounding a refugee music group which performed at one of the opposition party’s meetings. Matters were compounded by an outspoken attack on foreign judges by the home affairs minister in August after the High Court barred him from having the group arrested. The minister has indirectly retracted his remarks, and President Sam Nujoma is believed to have promised senior judges that judicial independence—one of the pillars of Namibia’s constitution— would not be compromised.

Land redistribution The government continues to reassure commercial farmers about its land redistribution policy, by confirming that it will continue to be based on the “willing-buyer, willing-seller” principle. However, the lands and resettlement minister, Pendukeni Ithana, recently warned that if pressure from the landless became “too great” the government would be forced to expropriate land in the public interest, although compensation would be paid. She added that the impending enactment of land tax legislation would speed up redistribution as farmers would be obliged to pay an annual land tax for each farm they owned, whether productive or unproductive. There seems little doubt that the pace of land resettlement will quicken, as there is widespread feeling that the existing programme is moving too slowly.

International relations Namibian hopes of a marked reduction in crossborder attacks by suspected União Nacional para a Independência Total de Angola (UNITA) rebel forces, since a curfew was imposed along the Okavango river in the north-east in June, have not been fulfilled. The EIU expects that sporadic crossborder attacks will continue into 2001, thereby preventing a recovery in the local tourist industry in the near term. By 2002 UNITA will have been worn down by pressure from the Angolan and Namibian armies and security along the border will have improved.

Tensions along the border remain high, and at the end of August most of the Angolan army was withdrawn back across the border following complaints by local residents and some SWAPO councillors about its indiscipline. In September a large unit of the Namibian Defence Force (NDF) was sent into

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Namibia 9

southern Angola, although the government denied this was a long-term deployment as opposed to a hot-pursuit operation. It seems certain, however, that only concerted co-operation between Namibia and Angola can substantially reduce UNITA’s military capability in the region.

Economic policy outlook

Policy trends The budget for the 2000/01 financial year (April-March), the first since the general election in December 1999, effectively set the policy agenda for the forecast period. The renewed commitment to eradicating poverty, reducing unemployment and empowering those on low incomes was in line with SWAPO’s election pledges.

No further announcements have been made following the cabinet’s approval in June of a joint position paper from the Ministry of Finance and the Ministry of Trade and Industry on divestiture and the dilution of state equity in parastatals. The paper proposed the establishment of an empowerment trust to buy up a proportion of each issue to sell to the public at a later date, with the aim of broadening the ownership of national assets. However, details of the privatisation programme will not emerge until the completion of a review of parastatals’ business operations, to be carried out by consultants. Actual privatisations/divestitures are unlikely before 2001. Air Namibia, Nampower and Telecom Namibia are expected to be among the first candidates.

Fiscal policy The budget for 2000/01 contained some promising elements, notably a renewed commitment to tightening fiscal discipline and curbing excess spending by individual ministries, and the allocation of 15% of total expenditure to capital spending. However, the government is likely to continue to find it difficult to control expenditure and to reduce the budget deficit to the target of 3.6% of GDP in 2000/01. Spending in 2000/01 seems virtually certain to exceed the official projection owing to higher than planned public- sector salary increases—the public-sector unions rejected a 7% general salary increase negotiated with the government in July—and increased defence expenditure. This looks set to feed into the 2001/02 fiscal year when a significant reduction in the budget deficit looks out of reach, further increasing government borrowing and outstanding domestic debt.

Although the introduction of value-added tax and a general review of the tax and incentive system were announced in the budget, the government has still to set out a strategy for diversifying revenue sources to reduce dependence on payments from the Southern African Customs Union (SACU). The phasing out of external tariffs levied by South Africa under World Trade Organisation rules—and in line with South Africa’s free-trade agreement with the EU—will not really bite until 2003-04. When it does, however, the impact on Namibia’s budget will be considerable, as SACU payments have been the largest source of revenue since independence.

Monetary policy Namibia’s bank rate closely shadows the repurchase rate set by the South African Reserve Bank (SARB). The weakness of the rand will encourage the SARB to leave interest rates unchanged for the rest of the year. We therefore

expect that the Bank of Namibia (the central bank) will hold the bank rate at the present level of 11.25% for the remainder of the year, and that commercial banks will maintain prime lending rates at 15.5%. Provided the rand remains stable, we expect Namibian interest rates to move gradually downwards in 2001, before picking up slightly in 2002 in line with policy in South Africa.

Economic forecast

International assumptions World commodity prices—especially for diamonds and base metals—and demand in the major industrialised economies will continue to be crucial to Namibia’s economic prospects. Namibia should benefit in both regards during 2000-02.

Although average OECD real GDP growth is currently projected to slow from this year’s 4.1%, to 3.1% in 2001 and 2.7% in 2002, this will still be above the average for the 1990s. Real GDP growth in the US, the major market for diamonds, is expected to slow significantly from this year’s projection of 5.2%, but this should be partially offset by continued strong growth in Asian countries, the second-biggest market for diamonds.

Namibia: international assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.5 4.9 4.2 4.1 OECD 2.9 4.1 3.1 2.7 EU 2.3 3.4 3.0 2.6 Exchange rates (av) ¥:US$ 113.9 106.7 104.0 102.0 US$:¤ 1.07 0.93 0.95 1.05 US$:SDR 1.37 1.30 1.29 1.35 Financial indicators ¥ 2-month private bill rate 0.27 0.26 0.43 0.98 US$ 3-month commercial paper rate 5.18 6.40 6.55 5.25 Commodity prices Oil (Brent; US$/b) 17.9 28.9 25.4 19.4 Gold (US$/troy oz) 278.8 283.2 275.0 270.0 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 4.2 10.4 Industrial raw materials (% change in US$ terms) –4.3 14.9 8.7 2.3

Note. Regional aggregate GDP growth rates weighted using purchasing power parity (PPP) rates.

The recovery in the global diamond market that began in 1999 is expected to be sustained over the forecast period. Diamond manufacturers and wholesalers have continued to expand their stocks of rough stones, increasing demand for deliveries from principal producers of high-quality gemstones such as Namibia. Continued strength in the market will be crucially dependent on the global industry implementing effective measures to cut the flow of so called conflict diamonds from rebel-held areas of Africa. The steps already taken to establish international certification of the origin of diamonds sold on the world market

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Namibia 11

are encouraging, as both De Beers—which handles two-thirds of the legitimate diamond trade—and diamond importers in Antwerp have agreed to implement tighter controls. Action has been spurred by the threat of legislation by the US Congress and a proposed consumer boycott of diamonds, which would have disastrous consequences for Southern African producers, in particular Namibia and Botswana.

Namibia: forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 2.9 3.5 5.0 4.5 Gross agricultural growth 3.8 8.0 4.5 6.0 Consumer price inflation Average 8.6 8.0 7.5 7.0 Year-end 7.9 9.0 7.0 7.5 Short-term interbank rate 18.5 15.5 13.0 14.0 Government balance (% of GDP) –4.6b –4.4 –4.3 –4.0 Exports of goods fob (US$ bn) 1,244 1,340 1,515 1,635 Imports of goods fob (US$ bn) 1,423 1,430 1,501 1,635 Current-account balance (US$ bn) 154 183 173 101 % of GDP 5.3 6.4 5.6 3.0 External debt (year-end; US$ bn) 208 237 260 279 Exchange rates N$:US$ (av) 6.11 6.90 7.10 7.25 N$:¥100 (av) 5.36 6.28 6.78 7.11 N$:¤ (year-end) 6.18 6.05 7.27 7.75 N$:SDR (year-end) 8.45 8.51 9.59 9.36

a Actual. b EIU estimates. c EIU forecasts.

Economic growth The reduction in the offshore diamond production target for 2000 of the Namibian Mineral Corporation (Namco) to the same level as in 1999 means that the planned expansion in offshore diamond output will now largely take place next year. Coupled with a resumption in base and precious metal production by Tsumeb Corporation (TCL), continued growth in fishing and higher construction output, this will lift real GDP growth in 2001 to 5% from 3.5% in 2000. We expect real GDP growth in 2002 to slow to 4.5%, as offshore diamond production increases more modestly. The major stimulus will be provided by continued strong growth in fishing and the construction sector.

The output expansion originally planned this year by Namco now looks likely to be achieved in 2001. Namco’s output should be in the range of 450,000- 500,000 carats and with the largest offshore producer, De Beers Marine (Debmarine), also expected to increase production to over 600,000 carats, offshore diamond output in 2001 will exceed 1m carats, boosting total diamond output to some 1.8m carats. Until Namco has announced its new planned production targets, forecasting 2002 diamond output can only be tentative, but assuming the global market remains strong we expect overall production to rise, but more modestly, to some 1.9m carats. In 2001 GDP growth will also receive a boost from the first full year of resumed base and precious metal output from the reopened TSL mines and copper smelter.

The coarse grain harvest for the crop year 1999/2000 (July-June) is now estimated at 136,000 tonnes, the best for three years. Predicting future harvests is problematic as, since most crops are rain-fed, production is entirely dependent on climatic factors. However, with most northern households expected to have more than adequate food this year, only a very bad rainy season in 2000/01 would significantly depress cereal output and rural incomes next year. Cattle marketing is currently depressed because of continued restocking, but it should rise sharply in 2001 owing to better grazing conditions. Provided there is no recurrence of drought, this should also be the case in 2002. A greater proportion of cattle is now sold to local export abattoirs, and this will boost meat processing output by around 2% in 2001. The resumption of growth in the shore-based processing of white fish, especially hake, and the recent improvement in pilchard stocks, should enable manufacturing to expand by some 3% in 2001 and possibly 5% in 2002. We expect stronger growth in the construction sector during 2001-02, as government contracts continue to feed in and because of the start of work on the Skorpion zinc mine and refinery and associated infrastructure in the south from the end of this year.

Inflation Rising fuel prices will have a negative impact on inflation, especially during the early part of the forecast period, and we have now raised our forecast for annual inflation in 2000 to 8%. We expect annual average inflation to decline to 7.5% in 2001, and ease to 7% in 2002 owing to the continuing favourable food supply and a reduction in global oil prices.

The price of fuel was increased for the fourth time in six months in mid-June, reflecting the high price of crude oil on the global market and the recent slide in the South African rand against the US dollar. However, food price inflation, which has the largest weighting in the consumer price index, should stay low thanks to an above average harvest in 1999/2000.

Exchange rates The Namibia dollar is pegged at par to the South African rand, which so far this year has fallen by over 19% against the US dollar, to around R7.33:US$1. The prospect of a further strengthening of the US dollarunderpinned by several more interest rate risessuggests that the rand will remain volatile in the short term. Despite this, the Namibia dollar is expected to remain pegged to the rand throughout the forecast period, and will average N$6.90:US$1 in 2000, N$7.10:US$1 in 2001 and N$7.25:US$1 in 2002.

External sector A jump in exports of other minerals, processed fish and beef will more than offset the slight reduction in diamond exports in 2000 and help narrow the trade deficit to US$90m. Despite an upturn in import growth fuelled by items for the Skorpion zinc project, we expect a US$14m trade surplus in 2001 because of expanded offshore diamond production and resumed exports of copper from the Tsumeb Corporation. Further import growth will not prevent the trade surplus widening in 2002, mainly thanks to a further rise in offshore diamond production. The invisibles balance will continue to be affected by higher import-related services and poor tourism receipts owing to border insecurity, but the situation should improve in 2002. Net transfers will remain in surplus, despite slower growth in receipts from the Southern African Customs

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Union, particularly from 2002. We therefore expect a current-account surplus of US$183m in 2000 (6.4% of expected GDP), narrowing to US$173m in 2001 and then falling back to US$101m in 2002.

Export growth throughout the forecast period is predicated on the global demand for diamonds remaining strong, especially in the US, and on prices remaining firm. This will also depend on the global diamond industry implementing effective measures to curb conflict diamonds by an international certification system so that legitimate diamond producers like Namibia are not adversely affected. Diamond exports are expected to rise from US$450m in 2000 to US$490m in 2001 and US$530m in 2002. Combined with higher exports of other minerals, higher processed fish exports (predominantly in 2001) and higher beef exports, total exports should increase from US$1.3bn in 2000 to US$1.5bn in 2001 and US$1.6bn in 2002. Stronger consumer demand and increased procurement of capital plant and equipment for major projects will increase imports, particularly in 2001.

The political scene

Instability continues along Attacks on Namibian civilians along the north-eastern border by groups the north-eastern border suspected of belonging to the Angolan rebel movement, União Nacional para a Independência Total de Angola (UNITA), have continued almost unabated during the past three months. Well over 50 Namibians have been killed and at least four times that number injured since the government invited in the Angolan armed forces at the end of 1999 (July 2000, page 13). This is despite the government’s having reinforced the Namibian Defence Force (NDF), Namibian police and the controversial Special Field Force (SFF)—exclusively recruited from former People’s Liberation Army of Namibia fighters—along the north-eastern border since June and a dusk-to-dawn curfew along the Okavango river. The planting of land mines on roads and raids by small groups has caused most of the deaths and injuries. In one of the most destructive recent attacks, a land mine planted near Omega in western Caprivi, some 120 km east of Rundu, killed 1 and injured 47 Namibians in mid-August.

NDF troops move into The military stakes were raised in September with the dispatch of a large southern Angola contingent of NDF troops into southern Angola to root out UNITA bases, following the withdrawal across the border of most of the Angolan government troops stationed in northern Namibia the previous month. The Angolan government troops stationed in Namibia were ineffective in protecting the border and claims were made by inhabitants of Kavango region and regional councillors from the ruling South West Africa People’s Organisation (SWAPO) that they were becoming increasingly indisciplined. Local residents had become angry at the trading of looted goods by Angolan troops, and one SWAPO MP, Ambrosius Hainguru, accused them of abusing the initial agreement that Namibian territory could be used for logistical purposes as a back-up for attacks on UNITA bases in southern Angola. Only a small detachment of Angolan government troops, who are overseeing logistics and receiving supplies at Rundu airport, now remain. In an unprecedented move, the Kavango regional council, all of whose eight members are SWAPO representatives, issued a statement expressing severe reservations about the operations of Angolan troops and demanded they should only be allowed to collect supplies from the airport when sanctioned by the NDF and should no longer be allowed to roam freely on Namibian soil.

Information available at the time of going to press indicated that around 500 NDF troops were sent to Calais, on the opposite side of the Okavango river to Rundu, and across other currently dry parts of the river in an effort to clear UNITA forces from a strip running 120-km eastwards. Although the deputy defence minister, Victor Simunja, denied claims by the National Society of Human Rights (NSHR) that as many as 3,000 troops had been deployed in Angola, smaller NDF units have regularly launched retaliatory raids across the border against UNITA in recent months.

Kavango residents claim Despite official efforts to downplay the impact of the continued insecurity on compensation the local economy and the tourist industry in particular, normal life in Kavango region has been badly dislocated by the continued UNITA attacks. Conflicting reports have circulated about whether tourism remains depressed or has started to pick up. At the end of August Kazenambo Kazenambo,, the corporate affairs general manager of Namibia Wildlife Resorts (NWR), claimed that the situation had returned to normal, although he acknowledged that tourists arriving from Botswana were choosing to use the trans-Kalahari highway rather than the trans-Caprivi. However, tour operators and hotels say that bookings from overseas tourists have virtually dried up and only government officials and business people are keeping the local lodges going. The impact on local Kavango shop owners and other entrepreneurs has been even more disruptive. According to the Kavango Small Business Association (KSBA), over 2,000 shops have had to be closed down after being looted by UNITA forces. This is forcing villagers to travel long distances to obtain essential supplies. Members of the KSBA and other Kavango residents are pressing for compensation for war damage from Angola, and these demands were conveyed to the speaker of the Angolan national assembly, Ventura de Azevedo, during a visit in August by a delegation which included the Kavango regional governor, Sebastiaan Karupu. Mr de Azevedo also heard complaints

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about the behaviour of Angolan government troops, including claims that they had plundered materials from villages and stolen livestock. However, Angola’s consulate-general in Windhoek issued a statement which, while expressing sympathy with the claimants, said that compensation was unlikely to be paid, as UNITA was not under its control. It seems almost certain that efforts will be made to secure compensation from the Namibian government instead.

The security forces are The tense situation in Kavango has been made worse by instances of brutality accused of brutality committed against local inhabitants by some members of the security forces. In the worst incident, at the end of August, seven villagers were severely beaten in retaliation for the mistaken killing of an NDF soldier, who was suspected of being a UNITA member after he had rampaged through Sivara village threatening to kill people with a hand grenade. However, the Ministry of Defence expressed regret for the incident and warned NDF members not to take the law into their own hands. The soldiers involved in this incident were court-martialled and received two-year suspended prison sentences. In another incident, not specifically related to the border situation, some 2,000 members of the Kxoe community, a nomadic San (Bushman) group, reportedly fled their homes in western Caprivi for Botswana in early September. This followed claims of persecution by security force units searching for members of the secessionist Caprivi Liberation Army (CLA), which launched an abortive armed attack on Kaima Mulilo last year. The acting chief of the Kxoe, Thadeus Chedau, claimed that the crackdown was spearheaded by the Special Field Force (SFF), and that members of his community were assaulted and accused of being CLA members if unable to produce SWAPO membership cards.

Mr Nujoma appoints a new There is some concern that President Sam Nujoma’s appointment of Major- army commander General Solomon Hawala as the new chief of the NDF (with effect from December 1st 2000) could reduce the accountability of the armed forces. General Hawala, who will be promoted to the rank of lieutenant-general, is the current NDF commander and takes over from Lieutenant-General Dimo Hamaambo, who is retiring. During the 1980s, General Hawala earned a fearsome reputation as the man in charge of the interrogation of SWAPO members alleged to be South African spies in Angola. Up to 1,000 SWAPO members were executed or tortured and, although General Hamaambo was commander of SWAPO’s armed wing, the People’s Liberation Army of Namibia (PLAN), he had little direct role in the interrogations, which were reportedly carried out by a special security unit answering only to General Hawala. There are concerns that without General Hamaambo’s restraining influence, the NDF may become more politicised, especially if the insecurity along the border continues for a protracted period.

Mine-proof armoured President Nujoma announced the change in the army leadership at the official vehicle is developed launching of a new missile- and mine-protected armoured vehicle at the Luiperdsvallei military base just south of Windhoek at the end of August. The Werewolf Mk II has been developed by Windhoeker Maschinen Fabrik (WMF), which was taken over by the Ministry of Defence in 1998. The vehicle, a development of an existing mine-proof vehicle manufactured by WMF, was tested in rough terrain and combat simulations in India’s Kashmir province.

The government hopes to win substantial export orders for the vehicle, particularly for UN peacekeeping operations. WMF has now been absorbed into a new state-owned enterprise, the 26th August Holding Company, named after Heroes’ Day, which commemorates the occasion when a PLAN unit engaged in combat with South African forces for the first time, in 1966.

The home affairs minister Border security concerns have overshadowed internal politics during the period attacks foreign judges under review, but the government faced strong criticism after the home affairs minister, Jerry Ekandjo, made an outspoken attack on foreign judges for allegedly not acting in the Namibian national interest. He warned that the work permits of “reactionary” judges who undermine government policies might be withdrawn, a clear violation of the constitution’s guarantee of the impartiality of the judiciary. Mr Ekandjo’s outburst was prompted by a High Court judgment prohibiting the arrest of a music group, the Osire Stars, who had been hounded by the government since performing at a public meeting of the opposition Congress of Democrats (CoD) at Gobabis during June. The band, who comprise Angolan and other refugees, were initially apprehended by the police and then confined to the Osire refugee camp while the authorities reviewed their continued refugee status in Namibia. Despite the fact that the band had previously performed at official functions attended by leading members of SWAPO, the government took strong exception to their appearance at a CoD event, claiming it constituted potential interference in domestic political affairs. In July, when the group disappeared from the Osire camp, immigration and police officials launched a nationwide hunt. Lawyers obtained an interim order from the court until mid-September, barring Mr Ekandjo, who is head of the Namibian police, from detaining or deporting any band members. Subsequently, Mr Ekandjo indirectly apologised to the judges by sending a letter to Mr Nujoma promising to uphold the rule of law. This was then conveyed to the judges who pronounced their satisfaction with the government’s stated commitment to the rule of law and the independence of the judiciary.

Economic policy

Cabinet approves the first The government has adopted guidelines for Namibia’s first-ever privatisation privatisation programme programme in line with those indicated in the budget for the 2000/01 fiscal year (April-March; July 2000, page 17). In June the cabinet adopted a joint proposal from the Ministry of Finance and Ministry of Trade and Industry for a policy of gradual state equity dilution and private-sector participation in government-owned enterprises. Consultants are to be appointed by the cabinet committee on economic development to review the business operations and current structure of parastatal organisations.

Giving low-income Namibians the opportunity to hold shares in part- privatised state firms will be a key element of the sale programme. This is to be achieved through the establishment of an empowerment trust to “warehouse” shares for the purpose of broadening the ownership of national assets. The government remains opposed to the idea of selling off state assets wholesale to

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the private sector. A list of potential privatisation candidates will not be published until a policy framework is in place, and concrete results are not expected for at least a year. The front-runners will almost certainly include parastatals with a good record of commercial viability and operational efficiency, such as the Namibia Power Corporation (Namcor) and Telecom Namibia, along with those that are struggling financially, such as Air Namibia.

Spending set to exceed the An additional budget is likely to be announced in the final quarter of 2000 to 2000/01 budget target authorise extra spending in 2000/01. Higher defence expenditure, due to the increased security presence along the border with Angola, will be a contributory factor, but the main reason that government spending is expected to overshoot the N$8.4bn (US$1.2bn) projected in this year’s budget is a larger than anticipated public-sector pay rise. The 2000/01 budget set aside only N$91m (US$13m) for salary increases this year, but this was increased by N$119m in July under a package that included the re-introduction of the 13th month salary cheque as a bonus. The package broke down into a 2.9% general salary increase backdated to April 1st 2000 and a 4.2% adjustment via the 13th cheque, with rises of 11% for the lowest-paid civil servants.

The package was negotiated by two unions—the Namibia Public Workers’ Union (Napwu) and the Namibia National Teachers’ Union (Nantu). However. in September opposition to the deal by their members forced the union leaders to apologise for not consulting them. In addition, leaders of the 28,000-strong Public Service Union of Namibia (PSUN) have denounced the salary increases as totally inadequate since it is substantially below the rate of inflation, and have strongly criticised the other unions for accepting the government’s package. The secretary-general of the PSUN , Steve Rukoro, has called for fresh negotiations to be conducted in a transparent manner. This makes it likely that the government will be forced into further concessions, as the union has the biggest membership among central government employees and would be able to bring the administrative machine to a halt if it staged a strike. The discon- tent of lower-paid civil servants has been fuelled by the generous pay-off and pension payments made to retiring cabinet members and MPs at the beginning of this year, and approved by the National Assembly before its dissolution prior to the presidential and parliamentary elections of December 1999.

The domestic economy

Economic trends

Modest GDP growth in the The prospects for higher real GDP growth in 2000 have been partly confirmed first quarter of 2000/01 by the upturn in GDP recorded in the first quarter of the 2000/01 fiscal year (April-June). It increased by 1.2% year on year, compared with only 0.2% in the same quarter of 1999/2000, although the figure is subject to revision. However, growth was very uneven throughout the economy. While real value- added output of the agriculture, fishing, construction, transport and government services sectors all increased, output of the mining, manufacturing

and retail trade sectors fell. Lower diamond and uranium production was the main cause of a 4% fall in mining output (compared with a 12% increase in the first quarter of 1999/2000). The agricultural sector grew by 2% thanks to a substantial increase in the volume of small stock marketed which more than offset a decline in cattle sales. Fishing output recorded year-on-year growth of 6%, although this was less than the 7% growth rate achieved in the first quarter of 1999/2000, as larger catches of hake and mackerel were partly offset by a lack of pilchard landings. However, because of the slow recovery in fish processing, manufacturing contacted by 11% in the first quarter. A recovery in the construction industry appears to be well under way and will receive a further boost from the start of the construction of the Skorpion zinc mine and refinery (see Mining). The sector’s real value added rose by 1%, in contrast to a 13% fall in the first quarter of 1999/2000.

Inflation is moving steadily Year-on-year inflation has moved upwards since April, owing to a continued upwards again rise in food prices, especially fresh fruit and vegetables, and dearer fuel. As measured by the Windhoek interim consumer price index, year-on-year inflation reached 9.9% in June this year, almost 2 percentage points higher than in June 1999, before dipping slightly the following month. In July inflation was driven largely by a 5.5% month-on-month increase in the housing, fuel and power component. Although average annual inflation over January-July 2000, at 8.7%, remained fractionally lower than over the same period of 1999, it is now slightly above the average annual rate for the 1999 calendar year. Similarly, average annual food price inflation in January-July this year remained below the 6% rate recorded over the same period of 1999, but the year-on-year rate has more than trebled since the start of this year. Inflationary pressures are set to intensify in the near term because of a further increase in the pump prices of petrol and diesel fuel announced by the government in mid-September, reflecting the continuing rise in the global crude oil price and the depreciation of the rand (to which the Namibian dollar is pegged). These factors are already impacting on Namibia’s CPI: the prices of imported goods are growing much faster than those of domestic goods so far this year—year-on-year inflation for imported goods averaged 11.5% in January-July 2000, compared with 6.4% inflation for domestic goods (excluding local services).

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Namibia: consumer price inflation, 2000 (1990=100; Windhoek interim consumer price index) Apr May Jun Jul Jan-Jul Food index 167.8 168.7 170.2 171.9 – % change, year on year 5.8 6.7 7.0 7.2 5.4 All items index 184.9 186.1 188.6 191.6 – % change year on year 8.9 9.1 9.9 9.6 8.7 Source: Central Bureau of Statistics.

Mining

Anglo invests US$450m in Anglo-American gave the go-ahead in September for the development of the the Skorpion zinc project Skorpion zinc mine and smelter, the largest mining project undertaken in Namibia since independence. Anglo expects the mine—located near the existing Rosh Pinah lead/zinc mine in the south-west—to be one of the world’s lowest-cost zinc producers and given this, and the generous fiscal terms negotiated with the government, anticipates attractive returns from the project. Total capital investment is estimated at US$454m and, on completion in 2003, Skorpion will significantly expand and diversify Namibia’s mineral export earnings and provide some 550 full-time jobs in the sparsely populated south. Construction of the mine is to begin this quarter, with the first production planned in the second quarter of 2003. Full output will be some 150,000 tonnes/year of high-grade zinc metal over a 15-year period. A key inducement in ensuring Anglo decided to locate a refinery at the mine, rather than transporting semi-processed ore for refining in South Africa, was the government’s agreement to grant the plant export-processing zone (EPZ) status, even though the mining sector is normally excluded from the EPZ regime. Although normal taxes and royalties will be payable by the mining operation, the additional value added by the refinery will be completely free of tax. Two separate companies will operate the mine and the refinery, and sales of ore from the mine to the refinery are to be made on an arms-length basis.

Namibia takes a lead over Africa’s major diamond producers, including Namibia, have pledged co- conflict diamonds ordinated action to curtail the flow of conflict diamonds from African rebel- held territories to avert the possibility of a damaging consumer boycott of the global diamond trade. This came a step closer in September with renewed pressure from a bipartisan group of US lawmakers for the enactment of a bill by the US Congress requiring certificates of origin for all rough stones sold on the global market. They warned that failure by the diamond industry to take effective action in banning the sales of gems paying for civil wars in Africa raised the prospect of a boycott. As the US accounts for two-thirds of diamond jewellery sales, this would have a serious economic impact on Namibia and Botswana in particular, which are heavily dependent on diamond export earnings.

An African inter-ministerial council held in Pretoria on September 19th-21st, at which producers from Australia, Canada and Russia were also present, agreed to sponsor a UN resolution to make an international certification system mandatory, in order to halt illegal sales and to protect the interests of the

legitimate diamond industry. The meeting was preceded by a two-day workshop held in Windhoek, attended by representatives from most diamond- producing countries, at which practical measures were put forward for enforcing international certification and making it difficult for dealers from rebel-held territories to operate. These include a legal buyer-legal seller system, criminal penalties for those knowingly purchasing conflict gems, the sealing of diamond parcels, strict border controls and international efforts to combat diamond smuggling. In practice, global certification will be difficult to implement without the full co-operation of the diamond industry in the major import and cutting centres, especially Antwerp and Tel Aviv. An encouraging development in this respect was the establishment in July of a World Diamond Council (WDC) in Antwerp by the World Federation of Diamond Bourses and the International Diamond Manufacturers’ Association. This has as its sole purpose the implementation of measures to curtail the trade in conflict diamonds, including the adoption of a uniform international certification system of sealing and authenticating each parcel of rough stones prior to export.

Namco delays its planned Offshore diamond production by Namibia’s second-biggest marine mining offshore expansion company, Namibian Minerals Corporation (Namco), almost halved in the first six months of 2000 compared with the same period last year, to 99,000 carats, and the increase in output originally planned for this year has been deferred until 2001. However, Namco’s revenue was virtually unchanged, as the average price received for sales of diamonds in Antwerp rose substantially, reflecting the continued strength of the global market. Lower recoveries from Namco’s offshore Lüderitz concession were mainly due to having to reposition the NamSSol seabed mining tool to operationally easier but lower-grade areas, along with delays in upgrading one of the mining vessels acquired through Namco’s takeover of Ocean Diamond Mining (ODM) last year and in commissioning a second purpose-built mining system, Nam 2. However, by July this year, Namco had all three of its current fleet of mining vessels in full operation and, although the production target for 2000 has been lowered from 400,000 carats to 225,000-250,000 carats, a planned increase in output next year should be achieved.

A production target for 2001 has not been announced, although industry analysts expect output to be in the range of 400,000-450,000 carats rather than the 600,000 carats originally forecast at the end of last year, before the current mining problems were encountered. This makes it unlikely that offshore output overall, including recoveries by De Beers Marine (Debmarine) will substantially exceed 1m carats in 2001. Construction and dry-testing of the Nam 2 has now been completed and, along with its mining support vessel, MV Ya Toivo, is due to be commissioned in the final quarter of 2000. Namco’s chairman, Alastair Holberton, expects the currently challenging mining conditions to have only a short-term effect on diamond production, as ongoing technical enhancements to the NamSSol and the introduction of the Nam 2—which incorporates a number of improvements—should ensure significant growth next year.

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Namibia: Namco’s diamond output and earnings, Jan-Jun (‘000 carats unless otherwise indicated) 1999 2000 % change Output 192 99 –48.4 Sales 151 119 –21.2 Sales revenue (US$ m) 22 22 0 Sales value per carat (US$) 146 185 26.7 Net income (US$ m) 11 4 –63.6 Source: Namibian Minerals Corporation, Quarterly Review.

DFI will start commercial- Although Namco has had to cut its production targets, by 2002 Canada’s scale mining in 2002 Diamond Fields International (DFI) could well have started mining its Lüderitz offshore concession which adjoins Namco’s. A detailed feasibility study recently completed by Canada’s AGRA Simons concluded that DFI’s Sea Diamonds project had high profit potential and low initial capital costs. It calculates that mining the 900,000 carats of identified probable reserves over six years in the Marshall Fork and Diaz Reef features would yield an after-tax internal rate of return of 46%, rising to 54% if total reserves of 1.1m carats (including inferred) were mined over seven years. The capital cost, including a mining vessel and support infrastructure, is put at US$28m. DFI is currently discussing financing options with several international banks and expects to announce a decision to proceed once these have been successfully concluded. Planned production would be some 150,000-160,000 carats annually, using a remote-controlled submersible crawler designed by the UK’s Seacor.

Rössing invests in new Production of uranium oxide from the Rössing mine in the first half of 2000 processing technology was 6% lower than in the same period of 1999, at just over 1,500 tonnes. The fall reflects continued weak global prices and reduced delivery commitments (April 2000, page 21). But, under Rössing’s ongoing programme to reduce costs and ensure that the mine remains competitive with Australian and Canadian producers, some US$15m-20m is being spent on a pilot plant using radiometric technology to exclude low-grade waste that cannot currently be separated from the ore sent for treatment to the main processing plant. According to Rössing’s managing director, Dave Smith, a full-scale radiometric plant should significantly reduce costs and also raise the mine’s rated output capacity from 4,500 tonnes to 6,000 tonnes. This would enable annual output to be expanded at minimal cost, should, as is generally expected, a shortfall in primary uranium supplies from mines to the global market develop in 2003-04, owing to the progressive exhaustion of nuclear utility stockpiles.

The pilot plant is planned to be operational next year, and an evaluation of its performance is to be carried out in the second half of 2001, following which a decision on whether to proceed to a full-scale plant will be taken. Both direct and indirect costs are being reduced by cutting staff and hiving off non-core functions under Rössing’s “Beyond 2000” programme. The target of reducing 1998 costs by some 20% by 2002 has been raised to 25-30%, and the mine workforce, which has already been cut from 1,100 to 900, is expected to fall to 700-750 by the end of 2001 through voluntary redundancy and early retirement packages. Rio Tinto, Rössing’s major shareholder, derived net

earnings of US$8m from its share of after-tax profits in the first half of 2000, unchanged on the same period of last year, indicating that the cost reduction programme has stabilised the mine’s financial position.

Namibia: uranium production, Jan-Jun (tonnes) 1999 2000 % change Total output 1,640 1,544 –5.9 Source: Rio Tinto, Quarterly Production Report.

Oil exploration is After several years in which no new offshore oil exploration permits were picking up allocated, a consortium led by Vanco International, a US firm with extensive deepwater acreage in West Africa, was awarded offshore licence area 1711 in the Namibe Basin in June. The northern boundary of the area forms the border between Namibian and Angolan territorial waters. The 35,000-sq-km Namibe Basin, which extends southwards to Walvis Bay, is regarded as the offshore region with the greatest potential for locating a commercially recoverable oil deposit. Vanco holds an 88% stake in the 8,391-sq-km licence area with its partners, National Petroleum Corporation of Namibia (Namcor), and the black empowerment group, Pamue Investment Corporation. In another development that could stimulate further exploration interest, the results of a seismic survey of the Namibe Basin, conducted jointly by Namcor and Angola’s Sonangol, are due to be made available to interested oil companies in the fourth quarter of this year.

Agriculture and fishing

The 1999/2000 harvest is The final crop production estimates for the 1999/2000 agricultural year (July- the best for three years June) confirm that this year’s coarse grain harvest has been the best since 1996/97. Output in all but two of the six northern subsistence farming regions (Kavango and Oshana) is set to match or to exceed local consumption requirements. Based on its second-crop assessment, carried out in May when harvesting was either completed or under way in all regions, the Namibia Early Warning and Food Information Unit (NEWFIU) has raised its production forecast for 1999/2000 to 136,200 tonnes. This is some 9,000 tonnes higher than its previous estimate and about 80% of the record 1996/97 harvest, reflecting the generally favourable rainfall received throughout most growing areas during the October 1999-April 2000 wet season (July 2000, page 23).

The year’s subsistence millet (mahangu) and sorghum harvest in the north was up by 75% on the drought-affected 1998/99 harvest, to 84,000 tonnes, slightly above the average for the previous five seasons. In all, just over 317,000 ha of rain-fed maize, millet and sorghum was planted this year. Of this, 305,000 ha consisted of millet and sorghum plantings by northern subsistence farmers and the remainder was commercial plantings in the Otavi-Grootfontein-Tsumeb maize triangle. The area planted for irrigated maize at the Hardap and Naute dams, Kombat mine, and Namibia Development Corporation (NDC) farms in Kavango and Kunene, remained small at just over 1,100 ha, but provided some 16% of this year’s commercial maize harvest of just over 36,000 tonnes.

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Including the 2,400 tonnes of millet and sorghum, aggregate output of the commercial sub-sector is 38,500 tonnes, above the previous record harvest of 27,000 tonnes in 1996/97 owing to consistently good rainfall throughout the wet season.

Namibia: coarse grain production, 1999/2000a (‘000 tonnes) Output % change on 1998/99 Millet & sorghumb 86.0 74.8 North-central regionsc 74.0 84.1 Kavango 5.7 –5.0 Caprivi 3.9 200.0 Commerciald 2.4 41.2 Maize 50.2 119.2 Commerciale 36.1 73.6 Subsistencef 14.1 571.4 Total 136.2 88.9

a July-June crop year. b Entirely rain-fed. c Ohangwena, Omusati, Oshana, Oshikoto; entirely rain- fed. d Plantings in the Otavi maize triangle. e 84% rain-fed. f Entirely rain-fed crops in Caprivi and Kavango; the Namibia Development Corporation’s irrigated farms in Kunene and Kavango are now included in the commercial sector. Source: Namibia Early Warning and Food Information Unit (NEWFIU), Crop Assessment Report, May 2000.

Cereal import requirement Despite this year’s increased harvest, which includes 4,000 tonnes of irrigated will be as high as last year winter wheat, the forecast cereal import requirement for the 2000/01 marketing year (May-April) is virtually unchanged on 1999/2000, at just over 137,000 tonnes (75,700 tonnes of maize, 61,400 tonnes of wheat) after taking into account opening stocks of 22,000 tonnes. This is due to a change in the calculation of estimated annual consumption, which according to NEWFIU has always proved inaccurate by the end of the marketing year. Previously based on historical trend values for apparent consumption rates, the consumption figure per head is now based on the average derived from past actual consumption of white maize and wheat, giving a total forecast food use requirement of 251,000 tonnes. This assumes a total population of 1.86m and an average annual consumption of 135 kg per head. Including non-food use and closing stocks, total domestic demand is projected at 299,000 tonnes. Local millers have already imported 40,000 tonnes and the remaining 97,000 tonnes will be covered without difficulty by additional commercial imports during the course of the current marketing year.

Pilchard catch ceiling been The short-term outlook for the pelagic industry has significantly improved raised by 10,000 tonnes with the government’s sanctioning of a pilchard final total allowable catch (tac) of 25,000 tonnes for the January-August 2000 season, up from the initial allocation of 15,000 tonnes (July 2000, page 25). The increase was announced in July after a new biomass survey indicated that there were more fish than expected, around 235,000-250,000 tonnes, compared with 180,000 tonnes estimated in March. The industry has broadly welcomed the increase, which is in line with the figure it originally lobbied for, and expects the additional throughput will enable the 3,000 seasonal cannery workers to be employed for longer. However, the fisheries and marine resources minister, Abraham Iyambo,

has cautioned that stocks are still not in a good state and the pelagic industry should not count on substantial increases in the pilchard tac next year. The number of vessels operating in the sector has already shrunk to just over one- fifth of the 50 employed a decade ago, and many smaller operators are being forced out of business by increased costs and competition from South African fishing firms. In contrast, investment in Namibian hake and mackerel operations is continuing to expand, with a newly-formed company, Blue Ocean Products, investing some N$30m (US$4.2m) in a wet-fish trawler capable of catching 4,000 tonnes annually; and a new hake-processing factory at Walvis Bay, which is due to start production in January 2001. Blue Ocean is owned by several Namibian quota-holding firms, which have pooled their entitlements for the new concern.

Infrastructure

A road contract provokes Private construction firms have accused the government of unfairly controversy influencing tendering procedures, following the recent award to the state- owned Roads Contractor Company (RCC) of a contract for upgrading the runway at Walvis Bay airport to international standards. The RCC gained the contract despite tendering at a price of N$72m (US$9.6m), some N$13m more than the lowest bidder, to whom the Namibia Tender Board is obliged to award contracts wherever possible. The RCC is one of two companies set up to take over the road maintenance and construction activities formerly carried out directly by the Ministry of Works, Transport and Communication, and is mainly staffed by former civil servants. It has emerged that the ministry has given the RCC a period of three years to become fully competitive, during which it will be given preferential treatment in the award of government- funded contracts. The rehabilitation of Walvis Bay airport involves extending the runway by 1,300 metres and doubling its width to 60 metres so that wide- bodied aircraft can land, with a view to maximising the export of fresh fish and boosting development of the export-processing zone at the harbour town.

Walvis Bay hopes to With the recent completion of the project to deepen Walvis Bay harbour, the compete with Cape Town Namibian Ports Authority (Namport) is launching a publicity drive to promote the advantages to shippers of using the port and hopes to take business away from South African ports such as Cape Town. Namport invested N$50m in deepening the harbour from 10 metres to just under 13 metres, which will allow container vessels of up to twice the capacity of the previous limit to berth. Walvis Bay has a three- to six-day advantage in sailing time to Europe over Cape Town and Durban, but increasing cargo volumes will depend on the willingness of shippers and hauliers to make use of the trans-Kalahari and trans-Caprivi highways for freight shipments to South Africa and the regional market. The transport links are being promoted by a private-sector initiative, the Walvis Bay Corridor Group (WBCG), which is focusing on imports and exports of cargo via the port to and from Namibia’s eastern neighbours.

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Foreign trade and payments

Diamond exports rise by The Bank of Namibia (the central bank) has started publishing quarterly export 9% in the first quarter statistics with effect from its June 2000 Quarterly Bulletin. The data cover the export categories that account for over 90% of Namibia’s total exports; live animals, hides and other agricultural are the main exclusions, although the coverage of fish exports is not yet fully comprehensive. The data show that in local currency terms, diamond exports rose by 9% year on year in the first quarter of 2000. Higher diamond earnings reflected both an increased volume of exports and a strengthening in prices. In US dollars, in which prices of diamonds sold on the global market are denominated, the increase, to US$101m, was just over 5%, reflecting the depreciation in value of the Namibia dollar.

Most other exports decline With the exception of gold, the value of all Namibia’s other main exports was in value lower during the first quarter of 2000 than in January-March 1999. The value of uranium exports, previously included with other minerals but now published separately for the first time, dropped by 12% in line with reduced output at the Rössing mine. A fall in meat exports by one-third reflected lower volume sales due to cattle herd restocking by commercial farmers after the 1998/99 drought. The value of fish exports was not available for the first quarter of 2000, and the figure for the equivalent period of 1999 was only an estimate, so the apparent 35% decline in overall export earnings is misleading. Excluding fish from the data for both quarters, total exports fell by 3% in local currency terms, and by 8% in US dollar terms. No copper and silver exports are shown because of the closure of the Tsumeb mines and smelter during the period.

Namibia: main exports by value, Jan-Mar (N$ m) 1999 2000 % change Diamonds 583 637 9.3 Fish 543 n/a – Uranium 196 172 –12.2 Meata 197 130 –34.0 Gold 32 34 6.3 Zinc 32 16 –50.0 Lead 5 0 –100.0 Other minerals 201 172 –14.4 Total 1,789 1,161c –35.1 US$ mb 289 184 –36.3

a Mainly beef and game meat. b Converted at the average US$:N$ exchange rate for the period. c Excluding fish. Source: Bank of Namibia, Quarterly Bulletin, June 2000.

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 elections are 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 Majozi Sithole Education Abednego Ntshangase Enterprise & employment Lutfo Dlamini Finance John Carmichael Foreign affairs & trade Albert Shabangu Health & social welfare Phetsile Dlamini Home affairs Prince Sobandla Housing & urban development Stella Lukhele Justice Chief Maweni Simelane Natural resources & energy Magwagwa Mdluli Public service & information Mntonzima Dlamini Public works & transport Prince Guduza Tourism & communications Vacant

Central Bank governor Martin Dlamini

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Swaziland 27

Economic structure

Annual indicators

1996 1997 1998 1999a 2000a GDP at market pricesb (E m) 5,243 6,045 7,035 7,809 8,496 Real GDP growthb (%) 3.6 4.0 2.7 3.1 2.4 Consumer price inflationc (av; %) 6.5 7.2 8.0 5.9d 6.4 Population (m) 0.94 0.95a 0.96a 0.97 0.97 Exports fob (US$ m) 849 959 966 941 881 Imports fob (US$ m) 1,002 1,036 1,017 1,003 928 Current-account balance (US$ m) –52 10 –15 34 47 Reserves excl gold (US$ m) 254 295 359 380 347 Total external debt (US$ m) 222 368 251 290 281 External debt-service ratio (%) 2.9 2.7 2.1 2.5 2.1 Sugar productione (‘000 tonnes) 471 476 475 534 556 Exchange rate (av; E:US$) 4.30 4.61 5.53 6.11d 6.90

October 16th 2000 E7.49:US$1

Origins of gross domestic product 1998bf % of total Components of gross domestic product 1997bf % of total Agriculture 9.8 Private consumption 53.4 Industry 46.3 Government consumption 27.1 of which: manufacturing 36.9 Gross fixed investment 33.0 Services 38.8 Change in stocks & statistical discrepancy 0.9 of which: government services 15.3 Exports of goods & services 81.8 GDP at factor cost incl othersg 100.0 Imports of goods & services –96.3 GDP at market prices 100.0

Principal exports fob 1999f US$ m Principal imports fob 1998f US$ m Soft drink concentrate 236 Manufactured goods 321 Sugar 103 Machinery & transport equipment 282 Wood pulp 91 Food and live animals 170 Refrigerators 69 Chemicals 149 Citrus & canned fruit 29 Fuel & lubricants 127

Main destinations of exports 1998f % of total Main origins of imports 1998f % of total South Africa 65.0 South Africa 84.0 EU 12.2 EU 5.0 Mozambique 11.0 Japan 1.9 US 5.2 Singapore 1.5 a EIU estimates. b Years beginning July 1st. c Low-income index Mbabane and Manzini. d Actual. e Crop years beginning May 1st. f Official estimates. g Includes forestry, owner-occupied dwellings and other services.

Quaterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (Jan 1996=100) 118.7 120.7 121.9 124.2 125.6 126.4 n/a n/a Index ‘A’a % change, year on year 8.2 8.0 6.6 6.2 5.8 4.7 n/a n/a Index ‘B’b 120.3 122.8 125.4 129.3 131.0 132.1 n/a n/a % change, year on year 7.6 6.7 6.8 8.5 8.9 9.3 n/a n/a Financial indicators Exchange rate E:US$ (av) 6.207 5.776 6.083 6.128 6.098 6.126 6.299 6.852 E:US$ (end-period) 5.872 5.860 6.190 6.035 6.004 6.155 6.562 6.771 Interest rates (%) Deposit (av) 13.43 13.43 12.63 9.55 7.53 7.53 6.53 6.53 Discount (end-period) 18.00 18.00 17.00 14.00 12.00 12.00 11.00 11.00 Lending (av) 21.00 21.00 20.00 17.00 15.00 15.00 14.00 14.00 Money market (av) 11.30 12.13 11.85 9.54 7.53 6.54 5.54 5.54 Prime (av) 20.2 21.0 20.7 18.3 16.3 15.0 n/a Treasury bill (av) 12.50 13.88 13.90 12.98 9.66 8.22 7.98 8.14 M1 (end-period; E m) 499.3 500.9 518.7 534.7 580.6 662.7 634.9 691.3 % change, year on year 9.8 1.9 19.5 19.5 16.3 32.3 22.4 29.3 M2 (end-period; E m) 1,851.1 1,924.5 1,976.9 2,079.9 2,172.1 2,225.3 2,207.9 2,098.3 % change, year on year 14.9 12.9 26.1 21.9 17.3 15.6 11.7 0.9 Sectoral trends Sugar exports ('000 tonnes) 76.4 19.9 19.8 107.2 66.3 22.3 40.4 n/a Electricity consumption (m kwh) 182.0 166.9 176.3 181.0 217.5 170.7 164.0 n/a Building plans approved, industrial No. 12 5 10 13 15 11 9 n/a E m 6,235 1,569 3,314 5,769 8,608 3,856 6,345 n/a Foreign trade & reserves Exports fob (E m) 1,626 1,516 n/a n/a n/a n/a n/a n/a Imports fob (E m) 1,631 1,683 n/a n/a n/a n/a n/a n/a Balance (E m) –5 –167 n/a n/a n/a n/a n/a n/a Reserves excl gold (end-period; US$ m) 334.3 358.6 316.9 351.0 368.8 375.9 313.0 354.7 a Middle and high income groups. b Low income groups in Mbabane and Manzini. Sources: ISO, Statistical Bulletin; IMF, International Financial Statistics; Central Bank of Swaziland, Quarterly Review.

Outlook for 2001-02

Political outlook

Domestic politics The process by which the government deals with the threat of Swaziland’s exclusion from the US generalised system of preferences (GSP) will dominate the political scene for the remainder of 2000. Ultimately, the EIU expects the Industrial Relations Act to be amended to conform to GSP requirements. During the forecast period public confidence in the dual system of government is expected to continue to diminish, but protest through mass stay-aways from work is unlikely to materialise unless progressive views are ignored in the new constitution. The death on October 9th of the minister of tourism and communications, George Vilakati, will lead to a cabinet reshuffle, probably after the opening of parliament in February.

There is a risk, however, that the government may fail to amend the Act to conform to the requirements of the GSP. If so, the repercussions, both political and economic, will be of enormous short- and long-term significance. The advice of business and the unions has been vindicated by events, and the traditionalists and the government know that they have no choice but to relent on the amendments, which were inserted into the act by the traditionalist Swazi National Council (SNC) in order to curtail union activities. It will be difficult for the traditionalists to save face, as nothing less than an unambiguous act will satisfy the US, the International Labour Organisation and international unions. Although Swaziland has won a reprieve until the end of November, amendments to the act will have to be made and signed by King Mswati before the incwala recess begins in late-November.

There is also the prospect that the GSP incident could be a watershed in the political evolution of Swaziland. The crisis has clearly illustrated:

• the inability of the dual (traditional and modern) system of administration to take the rapid decisions required in a global economy;

• the power of the SNC to paralyse the cabinet and override parliament; • the inappropriate, indeed damaging, advice given to the king; and • the lack of any clear mechanism to give business leaders access to the king.

The GSP incident has occurred at a time when the government was already considering reform and it may speed up the process. This will be the case especially if the report from the Constitutional Review Commission (CRC), due to be presented to the king before incwala, turns out to be just a summary of submissions made to it. In particular, very few modernists made submissions, so the king’s options are either to impose a constitution based on a flawed process of gathering public opinion or to call for a further exercise in constitution-making with the serious involvement of modernists. Only the latter course will guarantee long-term political stability. An added complication is that Swaziland was missing from the first list of countries to benefit from the Africa Growth and Opportunity Act (AGOA), which will be signed into law by

the US president, in January 2001 because of the government’s failure to amend the Industrial Relations Act. Even if the act is suitably amended ahead of the US deadline and GSP status is retained—a condition for eligibility under the AGOA—it is by no means clear that Swaziland will be included in the second list. There are more stringent qualifications for accession to AGOA than GSP, one of them being progress towards pluralism in government. With Swaziland under critical examination in the US, a failure by the CRC to make clear recommendations on multiparty democracy could be very costly.

Economic policy outlook

Policy trends With domestic pressure for economic reform far less intense than that from the US and ILO, there is little reason to believe that moves towards economic liberalisation will accelerate over the forecast period. Therefore, only slow progress is expected on the passage of long-delayed but important legislation such as the Company Act, the Income Tax Amendment Bill and the Employment Bill. The Income Tax Amendment Bill has been so delayed that it cannot now be applied to the present tax year, which ends on June 30th 2001. Although the Pension Bill, when enacted, could lead to about E300m (US$41m) of Swaziland’s pension funds invested outside the country being recalled for local investment (an estimated E1.8bn is invested with South African fund managers) progress on this will also be slow.

Monetary policy Swaziland will continue to remain a member of the Common Monetary Area over the forecast period and therefore monetary policy will effectively be determined in South Africa. The rand has fallen sharply this year, and although the South African monetary authorities have not been actively defending the rand, we do not expect further cuts in South African interest rates this year, and thus interest rates in Swaziland are also forecast to remain unchanged throughout 2000 at 14%. Interest rate cuts will resume in 2001 before the cycle bottoms out in 2002, although much will depend on interest rate developments in the US and the value of the rand.

Economic forecast

Economic growth The Ministry of Economic Planning will revise its growth forecasts in October, adopting a “with GSP” scenario. Its last forecast for real GDP growth in 2000 was 2.5-3%, which we feel is slightly optimistic. Heavy rains in the first quarter had a significant impact on the output of cotton and maize: the National Early Warning Unit of the Ministry of Agriculture and Co-operatives estimates a maize yield of 71,000 tonnes for 1999/2000, compared with 112,000 tonnes in 1998/99. Although the adverse weather conditions will also hit sucrose yields, production from the new sugar-growing area around Malkerns should keep sugar output at roughly the same level as last year.

The outlook for the leading manufacturing sectors is better. The Sappi Usutu pulp mill is expected to reach its full capacity during the year, coinciding with an improvement in the world woodpulp market and rising prices. Refrigerator

production is expected to increase this year owing to the greater market share established by Masterfridge in South Africa (where it has bought the rights to the Kelvinator brand) and in other regional markets. Output of the major export earner—soft-drink concentrate—should be roughly the same. The construction industry will show steady growth as a result of new road works and the building of the Maguga dam. Assuming normal weather conditions and GSP access, we expect real GDP growth to accelerate to 3.3% in 2001 owing to an up-turn in growth in South Africa. Without GSP access, however, performance will be significantly worse. The sugar industry and several manufacturers would lose duty-free access to their main export market and foreign investment plans would be put on hold. In 2002 we are expecting a further rise in real GDP growth, to 3.5%, thanks to increased production in the clothing and textile industry (as new Taiwanese-owned plants reach full capacity) and continued growth in South Africa.

Inflation Consumer price inflation has risen during the year because of higher maize and fuel prices. A further increase in fuel prices is expected in the fourth quarter. The fall in the lilangeni will add to inflationary pressures. South Africa is the source of over 80% of Swaziland’s imports and, although the lilangeni is at parity with the rand, these goods largely consist of industrial inputs and manufactured goods whose prices have increased because of the foreign inputs used in their production. Year-end inflation in 2000 will be 7.2%. This will fall back to 6.2% in 2001 and 5.4% in 2002 as inflation in South Africa eases.

Exchange rates The lilangeni has fallen to record lows against the US dollar, largely due to the weakness of the euro, the currency of the main trading partners of the Common Monetary Area countries. Further volatility of the currency is expected, although it should appreciate slightly against the US dollar before the end the year to average E6.90:US$1. In 2001 and 2002, we expect the rand, and hence the lilangeni, to depreciate in line with inflation differentials and average E7.10:US$ and E7.25:US$ respectively. However, external shocks could push the lilangeni down much further. In these circumstances it would be very difficult for the currency to rebound as strongly as might otherwise be expected, despite the fact that it is already considerably undervalued against the US dollar.

Swaziland: forecast summary (% unless otherwise indicated) 1999a 2000a 2001b 2002b Real GDP growth (%) 3.1 2.4 3.3 3.5 Consumer price inflation (%): Average 5.9 6.4 6.7 5.8 Year-end 5.2 7.2 6.2 5.4 Short-term interbank rate (%) 15.0 14.0 13.0 10.0 Fiscal balance (% of GDP) 3.2 3.9 3.7 3.4 Exchange rates (av) E:US$ 6.11 6.90 7.10 7.25 E:¥100 5.38 6.47 6.83 7.11 E:¤ 6.50 6.67 6.90 7.75

a EIU estimates. b EIU forecasts.

The political scene

Swaziland gets a temporary Swaziland has won a reprieve until the end of November on the US threat to reprieve on GSP access deny Swazi goods access to trade concessions under the generalised system of preferences (GSP). At issue were the controversial clauses inserted into the Industrial Relations Act of 2000 (July 2000, pages 34-35) by the Swazi National Council (SNC), an unelected body which advises the king. The reprieve was the result of a last-minute trip by a delegation headed by the prime minister, Sibusiso Dlamini, to Washington in late September, at which a 35-page document pleading for the extension was submitted. The US government has insisted that Swaziland’s labour laws should be compatible with US legislation as well as with international standards. The prime minister has said that the government would spare no effort in preventing the loss of GSP status and tripartite discussions in the Labour Advisory Board (LAB) would continue.

ILO criticises the labour Concern about the clauses inserted by the SNC were also raised at the law amendments International Labour Organisation (ILO) conference in Geneva in June, the committee on the application of standards. After King Mswati met the ILO director general, Juan Somavia, in Geneva in late-June, he insisted that the act conformed with the ILO’s requirements. However, the secretary-general of the Swaziland Federation of Trade Unions (SFTU), Jan Sithole, stated on July 18th that the American Federation of Labour and Congress of Industrial Organisations (AFL-CIO) had informed the Swazi delegation to the ILO that the act did not conform with ILO standards. Therefore the AFL-CIO could not support Swaziland’s continued access to the US generalised system of preferences (GSP), unless the act was amended by the end of August.

The offending clauses in the Labour Relations Act

Section 40 Unions and individual members of unions may be held liable for loss or damage to property of individuals or companies as a result of any strike or demonstration regardless of whether or not they are legal.

Section 52 Allows for workers’ councils that may negotiate with an employer on behalf of non-unionised workers.

In late July it was reported that the office of the US trade representative had been reviewing Swaziland’s eligibility for GSP, and was losing patience with the government’s reluctance to delete the SNC’s clauses and revert to the act passed by parliament in 1998. The prime minister stated that the government had received no such communication. The government subsequently gazetted August 25th as the date of commencement of the act, and established a new body—the Conciliation, Mediation and Arbitration Commission (CMAC)— consisting of government, employer and labour representatives, to operate the act. On August 25th the Times of Swaziland reported that the US ambassador, Gregory Johnson, had informed the prime minister that, if Swaziland went ahead with Sections 40 and 52 of the act, it would face withdrawal of GSP

access and hence be ineligible to benefit under the Africa Growth and Opportunity Act (AGOA). However, the king continued to express his satisfaction and duly implemented the act.

Government and interest In the event, it turned out that Swaziland actually had until September 29th to groups clash over the act amend the clauses, after which the US trade representative would make recommendations to President Clinton. In a flurry of activity the Federation of Swaziland Employers (FSE), the Swaziland Chamber of Commerce and Industry (SCCI), the SFTU and the Swaziland Federation of Labour (SFL) all called on the government to take action, and the LAB advised the government to restore the original text. The government ignored this advice, and the debate became personalised: the authorities blaming Mr Sithole and the SFTU for Swaziland’s dilemma, when in fact it was the SNC’s intervention that was at the heart of the problem. Faced with the government’s intransigence, the SFTU resolved to call a mass stay-away on September 25th. However, at a meeting of 1,200 workers on September 24th, the SFTU postponed the stay-away until September 28th and 29th at the request of the SFL, which agreed to join the stay-away (it later withdrew from what would have been the first concerted action by the two labour organisations).

Although the king appealed to all parties to work constructively to find a solution, the government failed to act on repeated advice from the LAB regarding the two clauses. Instead, the prime minister left hurriedly on September 26th for Washington with a secret cabinet petition to present to the US trade representative. The delegation comprised two members of the SNC, one MP, and the minister of enterprise and employment.

The Association of the Swazi Business Community (the Swazi business grouping whose involvement indicates the extent to which the authorities have alienated the business community), the FSE and the SCCI requested an audience with the king, but were referred to the SNC whom they met on September 27th. The business organisations presented a draft petition that they believed could save Swaziland’s GSP status if it received the support of all parties. The SNC replied that the government was handling the matter adequately. The petition was subsequently presented to both the labour organisations, and the LAB faxed it to the US government on September 29th.

The stay-away is poorly The Swaziland National Association of Civil Servants (SNACS) and the supported Swaziland National Association of Teachers (SNAT) both agreed to join the SFTU-SFL stay-away. But, the government filed a last-minute application with the Industrial Court on September 27th seeking to prevent the unions from taking part. The SFL withdrew from the stay-away following a confusingly worded Industrial Court ruling that it should be suspended, and the response of the SFTU-affiliated workers unions was patchy. Schools, post offices, the forestry sector, most sugar estates and a few factories were at least partly closed. Banks opened late, shops were largely unaffected, and civil servants defied their union’s resolution. The cost to the government of manning roadblocks and policing was significant. The LAB met on the first day of the stay-away to discuss its petition, and the unions agreed to call off the stay-away immediately. The stay-away has been criticised as a failure, but the unions did

not make a concerted effort and did not lose face, while the stay-away heightened public awareness of the problem.

Economic policy and the economy

The Central Bank warns on The annual report from the Central Bank of Swaziland for the 1999/2000 government spending financial year (April-March) was released in August. In his governor’s statement, Martin Dlamini weighed some positive developments—a relatively stable exchange rate against the US dollar, falling, single-digit, inflation and a declining trend in interest rates—against negligible growth in income per head. He therefore called for renewed efforts by the fiscal and monetary authorities to create the conditions for higher economic growth, poverty reduction and employment creation. Surveying the macroeconomic situation between 1990 and 1999, the report was critical of several aspects of policy, which, if they continued, would be detrimental to the future of the economy.

Central Bank’s critique of economic policy between 1990 and 1999

• Recurring deficits in the government budget since 1992/93 have mainly been financed by borrowing abroad. This tendency, together with a persistent decline in the external value of the lilangeni, will eventually make it more difficult to meet external debt obligations. A continued reliance on deficits will undermine prospects for sustainable growth and economic stability. A policy of fiscal prudence is required in order to bring government expenditure more closely in line with revenue.

• The government accounts for over 80% of total foreign debt, and its loans have mainly been contracted on non-concessional terms. It is important to obtain concessional terms in future, and to examine the possibility of financing from domestic resources.

• Throughout the 1990s, the growth of private national savings exceeded that of government national savings. This was the result of high levels of government consumption attributable mainly to high civil service wages.

• Private investment growth has been unimpressive, and has been hindered by the reluctance of local banks to lend to small and medium-sized businesses. This needs to be rectified.

• The recommendations on ensuring proper spending by government contained in the National Development Strategy, the Economic and Social Reform Agenda and the Public Sector Management Programme “unfortunately continue to exist only on paper”.

Inflation rises and civil The all-income inflation rate has been rising since May. The year-on-year rate servants reject a pay deal was 5.76% in May, increasing to 6.66% in June and 6.71% in July. The August figure will only be published in October owing to technical problems at the Central Statistical Office. Because of the surge in crude oil prices fuel prices have risen consistently in 2000; the last increase of 28 cents/litre took the price

of unleaded petrol to E3.22/litre in September. Further increases are expected in the last quarter.

Negotiations on civil service pay for the 2000/01 financial year broke down on August 3rd and are now the subject of arbitration. The government raised its initial offer of 4% to 5.8%, but the three public service trade unions (repre- senting civil servants, teachers and nurses) refused to moderate their demand for an 11% average increase. Agreement still has to be reached on an arbitrator.

Uncertainty over GSP raises Although the bulk of Swaziland’s exports go to South Africa, five companies in industry concern the textiles and garments sector would lose access to the bulk of their export markets should Swaziland be excluded from GSP status. Their combined employment is 4,400. The textiles sector is important, as it is one of the few growth sectors and provides a significant number of new employment opportunities in the economy. However, the largest producer, Tuntex Incorporated, has stated that it could perhaps use its multinational associates to find a replacement market.

The implementation of 10 new industrial projects has been suspended until Swaziland’s future GSP access is assured. These investments are all dependent on supplying US markets. The companies include:

• Nien Hsing Textiles, a Taiwanese garment manufacturer which was to become the largest employer in Swaziland with a staff of 4,500;

• FTM Garments, a Taiwanese jeans manufacturer, which was to employ 1,000 people. It has stopped recruitment after taking on only 140 workers;

• Amintex Swaziland, an Iranian company manufacturing protective clothing and garments, which was to employ 600 people.

Just how long these firms will remain patient before considering alternative locations to Swaziland remains to be seen, but it is clear that the Swaziland Investment Promotion Authority (SIPA) will have to work hard to repair the damage caused to the country’s image among foreign investors.

Although Swaziland would not lose its quota on the US sugar market if its GSP status were withdrawn, it would lose its duty-free exemption (on 20,000 tonnes per year) and would therefore have to pay the applicable import duties. The extent of its loss would vary depending on the differential between US and world market prices as well as changes in the exchange rate. The loss of income would threaten the viability of proposed smallholder cane growers in the Komati Basin and Lower Usutu Basin irrigation schemes.

Interest in mining revives With its asbestos reserves at Havelock, and the demand for the fibre, dwindling, Bulembu Mine has applied to the government to reopen the diamond mine at Dvokolwako (closed in 1996) and the coal mine at Mpaka (closed in 1992). The Ministry of Natural Resources is considering several applications for reopening these mines, but the slow licensing procedures have been criticised. The chief executive officer of the Swaziland Investment Promotion Authority, Bheki Dlamini, has said that attention will be given to lessening bureaucratic red tape in the granting of mining licences. Coal

deposits of over 1bn tons in the Lowveld were discovered in 1978, but only one mine (at Maloma) has since been opened, producing 426,000 tonnes in 1999. A liberalisation of the mining laws would give this sector a boost.

Foreign trade and payments

A new SACU agreement is Although originally scheduled to take only three months, six years later, and imminent despite several apparently inviolable deadlines, it now looks as if the renegotiation of the Southern African Customs Union (SACU) agreement is about to reach a conclusion.

SACU’s new revenue-sharing deal

• Each country will receive a share of the common customs revenue pool based on its intra-SACU imports as a proportion of total intra-SACU imports. Since the BLNS countries import much more from South Africa than it does from them, the formula is biased in their favour and implicitly takes account of price-raising effects and other distortions which will in any case decline as tariffs are lowered under WTO obligations.

• 15% of total excise duties will be allocated to development, and will be shared on the basis of an inverse ratio of income per head to the SACU mean, reduced by a factor of 10 to smooth out distortions. Each member country will thus receive between 18% and 22% of the development allocation. Since excise duties are levied mainly on South African production, this is a way of redistributing to the BLNS countries.

• 85% of total excise duties will be allocated on the basis of GDP, which implicitly favours the poorer states—Lesotho, and to a lesser extent, Swaziland—over the richer states such as Botswana.

• It has been proposed that an independent SACU secretariat be established to administer the new agreement. Previously, the agreement was administered by the South African government, which was a source of contention. The new secretariat should also allow any further reforms to be adopted more quickly.

Under the new agreement, it is expected that Swaziland’s total revenue from SACU will increase in the first year (2001/02) and that revenue will be stable until tariffs fall significantly in 2006 under the WTO offer. It will then be possible by consensus to raise the developmental share of excise duties above 15% to assist the BLNS countries.

The basic problem with the existing revenue-sharing formula was that it included a compensation element. This was supposed to offset the fact that under South Africa’s old trade regime, exports from South Africa to the BLNS states (Botswana, Lesotho, Namibia and Swaziland) were more expensive than on the world market. It was also meant to compensate for the concentration of industry within South Africa and the loss of policy discretion. However, with the end of apartheid and with South Africa joining the WTO, the BLNS states continue to benefit from the stabilisation and compensation elements even

though external trade barriers are now being lifted. The compensation element is also magnified, as imports into the BLNS countries have grown more quickly than those into South Africa at a time when South Africa is in great need to increase fiscal revenue.

It is likely that the new agreement will be implemented in stages: it is intended to introduce the revised revenue-sharing arrangements on April 1st 2001, but it will not be possible to redraft the entire agreement for ratification until the institutional structure has been finalised and other aspects relating to common farm and industrial policies have been agreed. It is also likely that the EU will increase aid to the BLNS countries in order to offset any long-term decline in revenue under either the revision of the SACU agreement or as a result of the EU-South Africa free-trade agreement which will reduce the total customs revenue accruing to the BLNS countries.

Foreign direct investment According to preliminary figures in the annual report of the Central Bank of rises in 1999 Swaziland, the total stock of foreign direct investment increased by 12.1% in 1999 to almost E3bn (US$480m). The increase in 1998 was 34.2%. In 1999, fresh investment capital totalled E16.7m for three new companies in the furniture, kitchenware and fertiliser industries, but the major contribution was from reinvested earnings, which grew by 20.9%, mainly as a result of expansion in the sugar, confectionery and textile industries.

Swaziland: foreign direct investment by sector (E m) Sector 1998 1999 % change Manufacturing 1,605.5 1,818.8 13.3 Services 322.2 330.7 2.6 Investment 245.2 229.6 –6.4 Agriculture 332.2 455.4 37.0 Finance 98.4 102.7 4.4 Mining 47.8 35.7 25.4 Total 2,651.4 2,972.8 12.1 Source: Central Bank of Swaziland, Annual Report for the financial year 1999-2000.

Funding for new The government has signed a memorandum with the Japanese government for infrastructure projects the financing of 103 km of paved roads in the Komati Basin area at a cost of E280m, and will be responsible for 12-14% of the costs. After 10 years of negotiations, Italian funding has been released for the rehabilitation of the east-west railway line, which should begin early in 2001. This project involves a soft loan of L20bn (US$65m) with an interest rate of 0.25%, repayable over 28 years with a 12-year grace period. Two EU-funded projects are to be implemented—a ¤5.6m (US$6.4m) four-year fiscal restructuring project, and a ¤5.9m three-year private-sector support programme covering investment promotion, the development of small-scale enterprises and tourism. However, the government has not succeeded in obtaining the estimated E53m of foreign financing required to repair roads damaged in heavy rains earlier in the year.