Namibia Swaziland

COUNTRY REPORT

Namibia Swaziland

1st quarter 1998

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

Namibia 5 Political structure 6 Economic structure 7 Outlook for 1998-99 10 Review 10 The political scene 13 Economic policy 15 The economy 17 Finance 18 Health 18 Agriculture and fishing 20 Mining and energy 22 Industry and infrastructure 23 Transport and communications 25 Foreign trade and payments

Swaziland 26 Political structure 27 Economic structure 28 Outlook for 1998-99 29 Review 29 The political scene 32 The economy 35 Foreign trade and payments

37 Quarterly indicators and trade data

List of tables 10 Namibia: forecast summary 14 Namibia: central government finances, 1997/98 15 Namibia: consumer and food price inflation, 1997 18 Namibia: stock exchange trading 19 Namibia: fish-catch quotas 25 Namibia: foreign reserves, 1997 36 Swaziland: trade balance 37 Namibia: quarterly indicators of economic activity 38 Swaziland: quarterly indicators of economic activity 38 Namibia and Swaziland: UK trade

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List of figures 10 Namibia: gross domestic product 10 Namibia: real exchange rates 29 Swaziland: gross domestic product 29 Swaziland: real exchange rates 34 Swaziland: sugar production

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February 3rd 1998 Summary

1st quarter 1998

Namibia Outlook for 1998-99: Hage Geingob retained the position of prime minister in the December cabinet reshuffle, which has positioned him well for the eventual contest to succeed President Nujoma. The government’s failure to restrain spending this year means that the 1998/99 budget will have to be tight if borrowing levels are not to become unsustainable. GDP growth should reach 4.5% this year, provided the current weakness in the global diamond market is not prolonged by continued turbulence in Asia and the anticipated drought is not too severe. Growth should expand to 5.5% in 1999 as a result of substantially higher diamond output, a recovery in the fishing industry and a more substantive contribution from EPZ developments.

Review: President Nujoma has enlarged the cabinet, bringing in senior party figures. The local authority elections have been postponed until later this month following a dispute over registration procedures. Pressure for more radi- cal land-redistribution policies is mounting, and a new dispute with Botswana over islands in the Linyati and Chobe rivers has developed. An additional budget was tabled in November: public spending for 1997/98 has been revised upwards by 6%, and the budget deficit will be much larger than anticipated. Inflation fell to a low of 7% in November 1997, thanks to a further drop in food prices, but a renewed drought could push the inflation rate up again this year. EPZ developments are gathering steam and new legislation for an offshore finance regime is to be introduced shortly. The stock exchange enjoyed record results in 1997. In spite of recent good rains, a renewed drought is likely. Low fishing quotas have been set for 1998, but they are expected to be revised upwards. Diamond output may have expanded less than expected in 1997 owing to weaker global demand, but uranium production rose by one-fifth. A seawater-desalination plant is to be constructed at Walvis Bay. A feasibility study on a new harbour at Möwe Bay is proceeding. Foreign reserves have continued to increase, albeit modestly.

Swaziland Outlook for 1998-99: Elections are likely to take place in 1998, but details will not be clarified until parliament is opened by the king. The progressive forces will have to decide on their response. The South-east Asian crisis has affected exports of woodpulp, with potentially damaging effects on overall economic growth in Swaziland. The 1998/99 budget is expected to be prudent.

Review: The year has started quietly, with the teachers’ strike ending and the Swaziland Federation of Trade Unions participating in the redrafting of the Industrial Relations Act. The government has clashed with traditional authorities. The debate on the Media Council Bill has been deferred. Territorial claims have upset Mozambique. A recent survey showed that Swazis lack confidence in the future. Supplementary budget estimates have been presented to parliament. The Public Accounts Committee has criticised the misappropriation of funds in government ministries, and the prime minister has promised improved efficiency. The population growth rate has fallen. Finance for infrastructure projects

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is being negotiated. The last remaining international bank has withdrawn from the country. Prospects for the mining industry are mixed. There are plans for expansion in the sugar industry, and soft-drink concentrates are doing well. The inflation rate has fallen. Information about public enterprises has been suppressed and restructuring remains messy. The trade deficit is thought to have widened in 1997.

Editors: Stephanie Wolters; Piers Haben All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Namibia

Political structure

Official name Republic of Namibia

Form of state Unitary republic

Legal system Based on 1990 constitution 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; 26 members, nominated by 13 regional councils for a five-year term

National elections December 1994 (legislative and presidential); next elections due by February 1998 (local authority), December 1999 (legislative and presidential)

Head of state President, currently Sam Nujoma, elected by universal suffrage for a maximum of two five-year terms

National government President and his appointed cabinet; last reshuffle December 1997

Main political parties South West Africa People’s Organisation (Swapo), the ruling party; DTA of Namibia (formerly Democratic Turnhalle Alliance); Democratic Coalition of Namibia (DCN); United Democratic Front (UDF); 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 Theo-Ben Gurirab Health & social services Libertine Amathila Home affairs Jerry Ekandjo Information & broadcasting Ben Amathila Justice Ngarikutuke Tjiriange Labour vacant Lands & resettlement Pendukeni Ithana Mines & energy Andimba Toivo ya Toivo Minister without portfolio Hifikepunye Pohamba Regional/local government & housing Nicky Iyambo

Special advisers to the Economic affairs Gerhard “Gert” Hanekom president Political affairs Kanana Hishoono Security affairs Peter Tsheehama Trade & industry Hidipo Hamutenya Works, transport & communications Oscar “Hampie” Plichta

Central bank governor Tom Alweendo

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Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997a GDP at market pricesb (N$ m) 8,860 10,985 12,262 13,886 15,700 Real GDP growthb (%) –2.0 6.6 5.1 3.0 4.0 Consumer price inflationc (av; %) 8.5 10.8 9.9 8.0 9.0 Populationd (m) 1.49 1.53 1.57 1.62 1.68 Exports fob (US$ m) 1,279 1,337 1,369 1,349 1,500 Imports fob (US$ m) 1,212 1,279 1,467 1,374 1,450 Current account (US$ m) 121 169 50 84 130 Total external debt (US$ m) 362 366 379 307 60e Diamond production (’000 carats) 1,141 1,314 1,382 1,420 1,460 Uranium oxide production (tonnes) 1,976 2,242 2,378 2,886 3,425f Fish catch (’000 tonnes) 789 648 562 494 480 Exchange rateg (av; N$:US$) 3.268 3.551 3.627 4.299 4.620h

January 30th 1998 N$4.93:US$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1996 % of total Agriculture & fishing 9.4 Private consumption 58.9 Mining & quarrying 15.1 Government consumption 29.9 Manufacturing (incl fish processing) 11.7 Gross domestic fixed investment 20.9 Wholesale & retail trade 8.0 Change in stocks –1.1 Financial services & real estate 9.6 Exports of goods & services 49.3 Government 26.1 Imports of goods & services –57.8 GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports 1996 US$ m Principal importsi 1994 US$ m Diamonds 542 Food & beverages 281 Other minerals (incl uranium) 237 Vehicles & transport equipment 203 Fish (processed) 223 Mineral fuels & lubricants 144 Live cattle, sheep & goats 120 Machinery & electrical goods 137 Meat & meat preparations 82 Chemicals & plastics 102 Fish (unprocessed) 66 Textiles, clothing & footwear 72 Total incl others 1,349 Total incl others 1,171

Main destinations of exports 1994 % of total Main origins of imports 1994 % of total UKj 37 South Africak 85 South Africa 25 Côte d’Ivoirea 3 Spaina 10 Japana 3 Japana 8 Germanya 2 a EIU estimates. b Includes fish processing at Walvis Bay and, from 1994, salt extracting. c Windhoek. d Extrapolated from 1991 census. e As of June following the removal of the cancelled bilateral debt owed to South Africa from the central bank’s books. f Actual. g The Namibia dollar (N$), introduced in September 1993, is at par with the South African rand. h January-November actual. i Source different from above. j Includes diamonds shipped via Switzerland for sale by the Central Selling Organisation in London. k Includes goods from third countries purchased through South African suppliers.

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Outlook for 1998-99

A cabinet reshuffle President Sam Nujoma’s cabinet reshuffle in December left all the senior min- tightens the president’s isters, with the exception of the defence minister, Phillemon Malima, in their grip on government— previous posts. Speculation that the trade and industry minister, Hidipo Hamutenya, might be promoted to prime minister proved unfounded. By leaving Hage Geingob in place, Mr Nujoma has ensured that the prime minister will remain one of the strongest contenders for the eventual presidential succession. There seems little doubt that Mr Hamutenya also harbours presidential ambi- tions, and he retains the advantage of being a Kwanyama northerner, the ethnic group that represents the core political support of the ruling South West Africa People’s Organisation (Swapo). If the export processing zone (EPZ) programme succeeds in attracting substantial investment (see The economy), Mr Hamutenya will earn much of the credit, and he was therefore undoubtedly content to retain the trade portfolio. A change at the top of the cabinet now looks unlikely before the 1999 presidential election—in which Mr Nujoma plans to stand for a third term—and soon after that election Mr Geingob and Mr Hamutenya are expected to start mobilising their supporters in the run-up to the contest for the next Swapo presidential nomination.

The retention of the former fisheries minister, Hifikepunye Pohamba, in the cabinet as minister without portfolio, a position he combines with the role of Swapo secretary-general, seems designed to keep one of Mr Nujoma’s most loyal lieutenants close to his side. This, together with the creation of two new political and economic advisory portfolios, which he has staffed with loyal supporters, has strengthened Mr Nujoma’s already considerable grip on the government, and presidential powers are likely to become more extensive during his third term in office.

—amid ongoing efforts to One of the main items due to be addressed at the extraordinary Swapo congress secure a third term legally later this year will be how to ensure that Mr Nujoma can legally stand for a third term. The congress will discuss changes to the party’s constitution, and Mr Pohamba has indicated that revisions to the Namibian constitution will also be on the agenda. The rationale for Mr Nujoma’s eligibility to stand for a third term as president, decided at the party’s congress in May 1997, may prove open to legal challenge in the Supreme Court, and it is likely that any constitutional revision proposed at the forthcoming meeting will meet with the same fate. Our last report incorrectly stated that a constitutional amendment allowing Mr Nujoma to stand for a third term was passed last year. In fact, the party congress in May proposed that there was no need to alter the constitution, because, while it specifies that a president can only serve for two consecutive five-year terms, it also states that he is to receive his mandate for those two terms through direct elections. As Mr Nujoma was appointed for his first term in office by the constituent assembly in 1990, and was directly elected by popular vote for the first time in the 1994 election, Swapo strategists contend that he is entitled to stand for a third term without violating the precise terms of the constitution.

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This proposition is likely to be more acceptable to the opposition parties than amending the constitution, which Swapo has the power to do thanks to its two-thirds majority in parliament. However, it appears Swapo has been advised that this interpretation is legally dubious and that it will have to resort to proposing a constitutional revision. Such a move will almost certainly be strongly resisted by the opposition parties and, since they do not have the strength to block the amendment in parliament, they are likely to take the issue to the High Court.

Swapo’s tactical manoeuvring on the issue has yet to do it any political damage, and Mr Nujoma remains popular with most Namibians. A barometer of the party’s political standing will be provided by the regional authority elections due at the end of 1998. These will be a truer test than the local authority elections, which were due in December 1997 but have been postponed until later this month (see The political scene).

The government’s In November the finance minister, Nangolo Mbumba, tabled a revised budget borrowing requirement is for 1997/98. Its most alarming feature was not so much the spending overshoot worrying itself—which amounts to a net increase of 6% on the original appropriation— as the extent to which the government’s borrowing requirement has soared to finance the widening deficit. The budget sets out an additional net borrowing figure of N$691m (US$140m) for the current financial year—the highest since independence—but it remains unclear how much of the originally budgeted borrowing requirement has been raised. While all the funds are being borrowed on the domestic market rather than from external sources, the interest bill has already increased by over 50% this year and is set to rise again in 1998/99. In addition, if—as seems likely—the government proceeds with the controversial Epupa hydroelectric power project (see Mining and energy), it plans to raise part of the funds needed on the international capital markets next year, which will increase Namibia’s debt-servicing commitments from their present, modest level.

The main cause of the spending overshoot is the increase in civil service salaries in line with the recommendations of the wages and salaries commission (Wascom). Even if the government begins downsizing this year, this will only have an impact on the wage bill in the medium term. Mr Mbumba has promised to draw up a less expansionary budget for 1998/99, but real spending cuts may have to be introduced if the government is to have any hope of achieving its stated deficit target of 3% of GDP. This presents the government with a dilemma, as cuts in the provision of social service would be extremely unpopu- lar with the deprived majority of Namibians and could undermine its support in the run-up to the 1999 presidential and parliamentary elections.

GDP growth will not The EIU’s estimate of real GDP growth in 1997 has been revised downwards exceed 4.5% in 1998— from 4.5% to 4%, primarily because of the weakening in the global diamond market in the second half of the year. Sales of rough stones by De Beer’s Central Selling Organisation (CSO) were down by 14% year on year in the second half of 1997; the company attributes the drop to reduced retail sales in Japan and the East Asian “tiger” economies. Accordingly, the CSO reduced its supplies to the market and Namdeb Diamond Corporation is likely to have cut both

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shipments and output in the second half of 1997. The overall rise in diamond output in 1997 is therefore likely to have been smaller than expected, limiting GDP growth.

Our growth forecast for 1998 has also been revised downwards, from 5% to 4.5%, despite indications that the drought expected this year may not be as severe as previously feared. The encouraging increase in agronomic—as opposed to livestock—output in 1997 suggests that the agricultural sector may do reason- ably well in 1998. Furthermore, the low fish-catch ceilings set for 1998 are expected to be raised once the results of stock surveys due to be conducted early this year are made available, and this should allow a partial recovery for the fishing industry.

However, it remains to be seen to what extent the present crisis in the Asian “tiger” economies will cause sustained global weakness in demand, and an adverse impact on the prices of mineral commodities, which provide the bulk of Namibia’s export earnings. We have revised downwards our world growth forecast for 1998, to 2.9%, and expect demand for both diamonds and uranium to decrease. While there is little prospect of a long-term slump in demand for diamonds, Namibian output is likely to expand by less than previously forecast, while the mining company Rössing has already announced that uranium output will be maintained at 1997 levels.

—but should reach 5% In 1999 GDP growth is still expected to show an improvement, although we next year have made a downward adjustment to our forecast, from 6.5% to 5.5%, reflect- ing the possible knock-on effects of this year’s expected drought and the later than expected start-up for the Haib copper mine. We expect world growth to recover to 3.5% in 1999 and higher demand should underpin a rise in com- modity prices, with demand for diamonds slowly resuming its previous buoy- ancy. This will enable planned increases in Namibian offshore diamond output to proceed, and the combination of higher output by De Beers Marine and the first full year’s production by the UK-based Namibian Minerals Corporation (Namco) should raise overall output to some 1.6m carats and enable overall GDP to continue to rise.

The current-account In line with rising export volumes, diamond exports are forecast to increase surplus will narrow from US$570m in 1997 to US$610m in 1999. This will add some US$100m per in 1998-99 year to export earnings. As a result of the recent upsurge of investor interest in Namibia’s EPZ, at least six factories could become operational next year, while an expected recovery in meat-processing volumes will boost manufacturing output. Furthermore, the construction sector should undergo considerable expansion as work on developing the Kudu offshore gasfield and construction on either the Oranjemund gas station or the Epupa hydroelectric power scheme, or both, should be well under way by the end of 1999.

Imports are also expected to increase substantially as major infrastructural developments get under way, but the visible trade account and the current account are both expected to remain in surplus throughout the forecast period.

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Namibia: forecast summary (US$ m unless otherwise indicated) 1996a 1997b 1998c 1999c Real GDP growth (%) 3.0 4.0 4.5 5.5 Consumer price inflation (av; %) 8.0 9.0 8.5 9.5 Exports fob 1,349d 1,500 1,600 1,800 of which: diamondsd 542 570 590 610 uranium & other minerals 237 280 300 300 fishe 289 310 350 380 meat & meat products 82 75 90 100 Imports fob 1,374 1,450 1,650 1,850 Current-account balance 84 130 90 80 Average exchange ratef (N$:US$) 4.299 4.620 4.900 5.100

a Actual. b EIU estimates. c EIU forecasts. d Includes central bank estimates of smuggled stones, equivalent to about 5% of officially declared sales values. e Unprocessed, semi-processed and canned fish. f Assuming the Namibia dollar remains at par with the South African rand.

Namibia: gross domestic product Namibia: real exchange rates (c) % change, year on year 1990=100 7 120 Namibia 6 Africa N$:US$(d) 110 5

4 100 Pula:US$ 3

2 90

1 80 n/a 0 1995 96 97(a) 98(b) 99(b) (a) EIU estimates. (b) EIU forecasts. (c) Nominal exchange 70 rates adjusted for changes in relative consumer prices. Z$:US$ (d) The Namibia dollar (N$), introduced in September 1993, trades at par with the South African rand. Sources: EIU; IMF, International Financial Statistics; World Economic Outlook. 1990 91 92 93 94 95 9697(a) 97 98(b) 98 9999(b)

Review

The political scene

The cabinet is padded The long-awaited cabinet reshuffle carried out by President Sam Nujoma in out— mid-December appears to contradict the government’s declared strategy of reining in administrative costs (see Economic policy). Contrary to expectations, President Nujoma has increased the number of ministers from 27 to 30, bringing in two senior officials of the ruling party, the South West Africa People’s Organisation (Swapo), and creating the new post of minister without portfolio for the Swapo secretary-general and outgoing fisheries minister, Hifikepunye Pohamba. The latter had indicated that he wanted to devote himself full-time to his duties as party secretary-general, and Mr Nujoma’s decision to retain him in the cabinet was unexpected. Opposition parties have charged that Mr Pohamba’s presence in the cabinet effectively means that his

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Swapo duties will be subsidised by the taxpayer. Mr Nujoma undoubtedly values Mr Pohamba as a trusted senior colleague, but his explanation that Mr Pohamba’s experience alone warranted his continued presence in the cabinet was not wholly convincing. Mr Pohamba’s predecessor as the Swapo secretary-general, the late Moses Garoeb, combined his party duties with the labour portfolio—which has yet to be filled. Similarly, most of the other changes elicited little enthusiasm, with the exception of the promotion of the deputy fisheries minister, Abrahim Iyambo, to succeed Mr Pohamba, the one appointment clearly based on merit. His new deputy is the Swapo information and publicity secretary, Alfeus Naruseb. Meanwhile, the party’s deputy information secretary, Kanana Hishoono, was appointed to the new post of political adviser to Mr Nujoma; he, too, will draw a full ministerial salary and benefits.

—with a new role for Mr Nujoma created a third new portfolio, moving Gerhard “Gert” Hanekom “Gert” Hanekom as from the environment and tourism ministry to the position of special adviser economic affairs adviser on economic affairs. This could prove a more substantive appointment: as a former finance minister, Mr Hanekom seems well-placed to carry out a non- departmental role in co-ordinating economic and financial policies. He is expected to work directly with the presidential economic advisory council, which is chaired by the prime minister, Hage Geingob. This council has spawned several “macro standing committees”, which are intended to facilitate co- operation with the private sector in formulating and implementing investment, economic-empowerment and financial-sector policies. However, a considerable overlap between Mr Hanekom’s functions and those of the finance minister, Nangolo Mbumba, seems inevitable, and it is unclear whether Mr Hanekom will have sufficient resources at his disposal to fulfil his role as economic policy co-ordinator effectively. Mr Hanekom has been replaced at the environment and tourism ministry by Phillemon Malima, whose shift from the defence ministry probably reflects the embarrassment he caused with his dramatic announcement last year of an alleged destabilisation plot involving ex-combatants from South Africa’s disbanded Koevoet counter-insurgency unit and operatives from the South African-based Executive Outcomes (EO) security company. The claims were never substantiated and caused dismay to senior colleagues. EO reportedly maintains close links with a UK-based firm, Branch Energy, which is a shareholder in the Offshore Development Company (ODC), the firm responsible for promoting Namibia’s EPZ.

An electoral commission Owing to an unprecedented mix-up in the registration procedures for the local blunder forces a delay in authority elections, polling has had to be postponed. The elections had been the local elections scheduled to take place on December 2nd 1997 (4th quarter 1997, page 8) but, following an out-of-court settlement over the registration of Swapo’s Rundu candidates in November, President Nujoma was obliged to re-proclaim the nomination process. The elections are now expected to be held later this month. The Electoral Commission had disqualified Swapo’s candidates from contesting Rundu because they failed to complete their registration by the stipulated deadline. When Swapo took its case to the Supreme Court, the Electoral Commission conceded that the presidential proclamation was technically invalid, as it provided for only a 14-day registration period for the elections, rather than the minimum of 15 days stipulated in Namibia’s electoral act. Swapo’s jubilation at

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its success soon proved premature, however, as two opposition parties, the DTA of Namibia and the Democratic Coalition of Namibia (DCN), indicated that they might take legal action to have the elections declared null and void on identical grounds. Their appeal would probably have succeeded, and President Nujoma’s announcement in mid-December that the poll would be postponed was a typically astute damage-limitation exercise, which prevented a technical bungle from developing into a constitutional crisis. Swapo officials and the elections director, Gerhard Tötemeyer, have sought to pin much of the blame for the need to delay the elections on the DTA, which in turn has accused Mr Nujoma of incompetence for signing a technically flawed proclamation in the first place, and has renewed its call for Mr Tötemeyer’s immediate replacement. Swapo is unlikely to suffer a significant backlash from voters over the delay and should retain its majority in most of the 45 authorities it currently controls. The DTA may be the main loser, as it has already spent a large part of its election funds on the aborted campaign. It receives a much smaller share of state funding than Swapo, as funding is allocated according to the proportion of votes received by each party in the 1994 National Assembly elections.

The government struggles The government is facing mounting pressure to take over commercial farmland with the land issue without paying full compensation, and if necessary to revise the constitution. In December, in a speech inaugurating a new land-deeds registry, Mr Nujoma called for more rapid land redistribution. The president urged white farmers, who own 70% of Namibia’s farmland, to show their willingness to sell prod- uctive land at reasonable prices, rather than exaggerate improvements made to the land and inflate the real cost. The deputy minister for lands and resettlement, Martin Kapewasha, subsequently said that the constitution should be amended, since it would be difficult for the government to buy up farms if it was forced to pay market prices, as stipulated by the constitution. At present, farmers are free to charge market prices for their land, and it is clear that the government cannot afford to purchase sufficient land to resettle the large number of landless Namibians. The relevant clause of the constitution, according to which “just compensation” must be paid for any property expropriated in the public interest, is part of the entrenched section on fundamental human rights, which cannot be amended. However, Swapo’s secretary-general, Mr Pohamba, has promised that the government will look into changing the constitution in response to demands for an end to the present “willing-buyer, willing-seller” system.

A new island dispute A dispute about the ownership of two small islands, Situngu and Luyondo, develops with Botswana which lie in the Linyanti and Chobe rivers between Namibia’s Caprivi region and Botswana, is causing renewed bilateral tensions. Although both countries have agreed to accept a ruling—expected later this year—by the International Court of Justice (ICJ) on the sovereignty of Kasikili (Sedudu) island in the Chobe, the fluidity of the present boundaries leaves plenty of scope for further disputes. The latest flare-up was caused by the deployment of Botswana Defence Force (BDF) soldiers on Situngu in December, where they reportedly harvested and ate crops planted by villagers from Singobeka in south-east Caprivi. This sparked claims by local officials that Botswana planned to build a military base on the island and had unilaterally decided to put a stop to its long-standing use

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by Namibian villagers for farming. Indignation in Namibia was exacerbated by a statement from the office of Botswana’s president, Ketumile Masire, that an unnamed Namibian army chief had allegedly accepted Botswana’s sovereignty over the island during a meeting at the beginning of December with the then commander of the BDF, Lieutenant-General Ian Khama. This was denied by Namibia’s defence ministry, although it confirmed that the Namibian Defence Force (NDF) commander, Lieutenant-General Dimo Hamaambo, had discussed security co-operation with his Botswana counterpart. The row was addressed at the first emergency meeting of the Namibia and Botswana Joint Commission on Defence and Security on January 23rd. The commission meets regularly and, at its previous session in November at Walvis Bay, Botswana’s presidential affairs minister, Ponatshego Kedikilwe, had issued a statement saying that his country had no “land-acquisition intention” in Namibia and would respect inter- nationally agreed boundaries. At the emergency meeting the commission re- solved to establish a joint technical committee to determine the boundary between Botswana and Namibia; there is little risk of the latest dispute escalating into an open military confrontation. Meanwhile, the issue of who is to take over as Botswana’s vice-president is being closely watched in Namibia, as Lieutenant- General Khama, who recently resigned as BDF commander, is in the running for the post.

Economic policy

Civil service costs prompt The additional budget tabled in November, which provides for net additional upward spending spending of N$333m (US$68m) for the 1997/98 financial year, drew a largely revisions in 1997/98— negative reaction from economists and opposition parties. The spending increase represents a 6% rise on the original estimate for 1997/98 and a 13% rise on the expenditure outturn for 1996/97 (4th quarter 1997, page 13). Claims that the government has been allowing public finances to spiral out of control appear to have been exaggerated. The two major causes of the spending overshoot are the inexorable rise in the cost of paying civil service salaries and the rapid expansion of expenditure by “social” ministries, especially education and health, in the face of previously pent-up demand from the deprived majority of Namibians. Education alone accounts for 26% of the N$6.1bn (US$1.2bn) revised spending total for 1997/98. In his budget speech the finance minister, Nangolo Mbumba, acknowledged that control of expenditure has been defi- cient, blaming this on weak budget execution by some ministries, but said that stricter controls had been introduced, including regular inspections of spending programmes to prevent ministries from exceeding their budget ceilings. How- ever, it is clear that the full financial implications of implementing the recommendations of the wages and salaries commission (Wascom) on civil servants’ pay and conditions were underestimated when the package was approved by the cabinet two years ago. Just over one-third of the additional spending for 1997/98 is allocated to personnel costs, increasing total outlays by 5%, to N$2.8bn. This represents a record 46% share of the revised spending total, and is clearly unsustainable in the long term if the government is to have any chance of meeting its target of reducing the budget deficit to 3% of GDP by 2000.

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Namibia: central government finances, 1997/98a (N$ m) Original estimate Revised estimate % change Total revenue 5,199 5,390 3.7 Tax revenue 4,542 4,664 2.7 of which: diamond mining 150 285 90.0 other mining companies 60 50 –16.7 other companies 350 345 –1.4 general sales tax 710 710 0.0 additional sales duty 310 315 1.6 fuel levy 350 350 0.0 customs & excise 1,564 1,560 –0.3 Non-tax revenue 532 525 –1.3 of which: diamond royalties 176 176 0.0 External grants 64 102 59.4 Total expenditure 5,754 6,087 5.8 Recurrent 4,755 5,142 8.1 of which: personnel 2,634 2,766 5.0 domestic interest payments 204 325 59.3 Capital 999 1,016 1.7 Balance –555 –697 –25.6 Financing 555 897b – Net borrowing 455 1,146 151.9 Cash reserves 100 –249 349.0

a Totals do not sum in source. b Comprises original borrowing requirement of N$455m, plus an additional N$691m to cover a total projected cash reserve shortfall of N$349m for 1997/98, and a N$142m increase in the budget deficit, to leave a closing positive cash balance of N$200m.

Source: State Revenue Fund.

—and a renewed effort to Mr Mbumba pledged in his budget statement that “practical measures” to re- trim costs is pledged— duce the size of the civil service, or at least suspend growth in the wage bill, would be introduced. The central political problem for the government is that extensive “downsizing” would increase the already high unemployment rate and is strongly opposed by the civil service union. However, the cabinet at last appears to be ready to take more effective action than the partial measures introduced so far, such as the suspension of a new civil servants’ housing loan scheme announced in the additional budget statement. Mr Mbumba said that the government recognises that the excessively large wage bill is crowding out other essential aspects of public-spending programmes. The main way in which the government intends to reduce the size of the civil service will be by commer- cialising and outsourcing non-core functions. Specific recommendations on the services and sectors to be treated in this way will be announced shortly by an interministerial committee chaired by the prime minister, Mr Geingob.

—as borrowing levels soar One positive feature of the additional budget was the 4% upward adjustment of the revenue estimate. This mainly reflects an underestimation of diamond tax receipts and external grant disbursements. The increase will, however, be insufficient to prevent a widening of the budget deficit to N$700m (US$142m), almost 25% higher than the original forecast. This represents an estimated

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4.4% of GDP for 1997/98, compared with an initial projection of 3.5% of GDP. Financing the deficit will necessitate even greater borrowing than these figures indicate. This is because, rather than the expected N$100m positive cash balance, a N$249m deficit has been carried forward from 1996/97, leaving a N$349m hole in the government’s original deficit-financing calculation. Consequently, the total borrowing requirement for 1997/98 has more than doubled, to a record N$1.1bn, as the government estimates that it needs to borrow an additional N$691m to cover the total cash shortfall for 1997/98 and the N$142m increase in the projected budget deficit, and to meet Mr Mbumba’s aim of ensuring a positive cash balance of N$200m at the end of the current financial year. This means a further steep increase in the government’s borrowing costs, with domestic interest payments projected at a record N$325m for 1997/98.

The economy

Inflation falls sharply The most recently published set of inflation statistics confirms that the tight monetary policies followed for the past three years, coupled with reduced consumer demand, have finally produced a slowdown in retail price increases. The year-on-year rate (as measured by the all-items index of Windhoek consumer prices) fell to 7% in November 1997, the lowest level for the year and the sixth successive monthly decline. Compared with November 1996 the annual rate was down by 1.4 percentage points, although the 9% average rate for January- November 1997 was still a full percentage point higher than in the equivalent period of 1996. The main factor slowing overall inflation was a further sharp drop in food prices, to a year-on-year rate of only 1% in November. However, the cost of food rose by an average of 2.4% in January-November 1997, compared with 1.1% for the same period of 1996. This indicates that inflation has only been tamed temporarily, and a renewed upsurge in food prices in the event of resumed drought would push the rate up again.

Namibia: consumer and food price inflation, 1997 (Dec 1992=100 unless otherwise indicated) Sep Oct Nov Jan-Nov All-items indexa 152.4 152.5 152.9 – % change, year on year 7.9 7.4 7.0 9.0 Food index 148.9 149.3 149.9 – % change, year on year 2.5 1.9 1.0 2.4 Domestic goods & services index 157.5 157.2 157.9 – % change, year on year 8.3 7.3 6.8 9.6 Imported goods index 146.8 147.4 147.4 – % change, year on year 7.3 7.5 7.2 9.5

a Covers price changes in Windhoek only; officially categorised as interim pending the introduction of a national index.

Source: Central Statistics Office (CS0).

The annual inflation rate for domestic goods and services continued to ease in September-November, in contrast to the rate for imported goods. By November the year-on-year inflation rate for domestic goods alone had fallen to only 2%, 5 percentage points below that for imported goods, indicating that the

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depreciating South African rand (with which the Namibian dollar trades at par) had again become the main source of cost pressures in Namibia’s economy.

EPZ developments are The government’s efforts to attract investment through the export processing moving full speed ahead— zone (EPZ) have accelerated, with the unveiling of a four-year development plan for Walvis Bay, which the World Bank has pledged to support with a US$10m loan. The loan will be used to expand facilities in the existing EPZ zone near the commercial harbour and to finance urban infrastructure. The loan has in principle been approved, following a favourable assessment carried out by a Bank appraisal mission in 1997.

So far, four companies have invested N$120m to establish factories in the 17 ha of serviced land allocated for the zone’s initial development phase. The municipal plan of action aims to attract six companies a year to establish a more diverse economic base in the town and reduce the unemployment rate, which was estimated at 16% in 1997. The plan acknowledges that at least ten EPZ operations are required in order to absorb a significant number of the 6,000 new job-seekers expected each year. While the fishing industry currently accounts for one-quarter of all jobs, its future is uncertain and it cannot be relied on to provide sufficient numbers of new jobs. According to the action plan, every three EPZ operations can be expected to generate at least one supporting business or service.

—attracting international In December a delegation headed by the mayor of Walvis Bay, Manuel de attention Castro, apparently identified 90 potential EPZ investors during a two-week tour of East Asia, South Africa and Mauritius. Several companies are expected to follow up their interest with visits to Walvis Bay in the coming months. Mr de Castro pointed to the possibility that Anglo-American Corporation (AAC) might relocate some of its industries to Walvis Bay as the most exciting prospect. A Malaysian firm, Automotive Battery Industry (ABI), has decided to invest in Walvis Bay and is expected to finalise its proposals before the end of March. Mr de Castro aims to have five or six EPZ firms in operation by the end of 1998, and has stressed the importance of a gradual expansion of activities. He has been cautious about an ambitious project to extract a variety of minerals from the sea off the coast of Walvis Bay. The N$480m project, which was announced at the beginning of January, is being promoted by International Project Development (IPD), whose managing director, Reinhard Zaire, is a consultant on health and safety to the Mineworkers’ Union of Namibia (MUN; see Mining and energy). Mr Zaire says that the scheme is backed by Germany’s Berlin Engineering Group, and involves the construction of two seawater plants to extract and process aluminium, magnesium, sodium chloride and sulphur, for which markets have already been identified. Production is scheduled to start in April 1999, but a full environmental impact assessment will be required before the scheme can go ahead.

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Finance

An offshore banking The final drafts of three bills regulating offshore business activities—comprising regime is to come into laws for international business companies, international trusts and a Business effect Authority of Namibia—will take the government a step closer to establishing Namibia as a leading offshore financial centre. The bills are expected to be approved by the cabinet in the first half of 1998; they will be accorded priority in the new session of parliament, which starts in February, and should be promulgated by May this year. The legislation has been drafted primarily by a Mauritian consultant, and the government has used as its model the successful Mauritius offshore regime, which has attracted substantial foreign investment inflows. The new investment regime will in effect allow investors to circumvent the remaining restrictions on foreign-exchange transactions imposed by the South African Reserve Bank (SARB, the South African central bank). As a member of the Common Monetary Area (CMA), Namibia is obliged to comply with these restrictions. In particular, it will enable investors in EPZ developments to obtain finance at more competitive rates offshore. The bills have been carefully drafted to allow a leading role for local financial institutions, in expectation of an expansion of their activities to handle the full range of offshore business activities, including asset management, which is already a major growth sector. How- ever, the lack of local management professionals may be a stumbling block; offshore business activities will create demand for financial experts, many of whom may have to be recruited from South Africa or elsewhere overseas.

Asian uncertainties are The Namibian Stock Exchange (NSE) has not escaped the effects of the recent unsettling investors on Asian crisis. In the first two weeks of trading in 1998 the NSE’s overall share the NSE— index fell by 6% from its end-1997 level of 225.9. Worries about the effects of the Asian crisis on world retail jewellery sales were a major factor and caused a sharp drop in the De Beers’ share price, reducing total NSE market capitalisation to N$146bn (US$296m) by mid-January. This indicates the NSE’s high exposure to volatility in South African dual-listed shares, which account for 97% of its total market capitalisation. In contrast, the local share index, which measures the performance of the 12 Namibian-based companies listed on the exchange, declined by only 2% in the first half of January, to 162.

—following record growth However, the Asian effect should prove of limited duration and the NSE looks in 1997 set for further growth this year, following record trading results in 1997. Last year individual transactions almost doubled compared with 1996, while the value of traded shares rose by one-third. Over a two-year comparison the performance was even more impressive, with a fourfold increase in transactions and traded equity values compared with 1995. The major boost was provided by new listings, with seven companies registering on the NSE in 1997, including De Beers and First National Bank of Namibia (FNBN). An improved com- puterised trading and depository system is due to be introduced later this year and, pending changes in Namibia’s banking laws, should make regulation of the market more straightforward.

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Namibia: stock exchange trading

1996 1997 % change No. of transactions 1,957 3,587 83.3 Volume of shares traded (m) 68.6 67.2 –2.0 Value of shares traded (N$ m) 661 901 36.3 NSE overall indexa 218.3 225.9 3.5 NSE local indexa 150.1 164.2 9.4 Market capitalisation (N$ bn) 76.1 154.8 103.4 No. of listed companies 26 33 26.9

a As at December 31st.

Source: Namibian Stock Exchange.

Health

AIDS continues to spread The latest figures on HIV infection confirm that past programmes have been ineffective in stemming the spread of the disease, which last year caused more deaths than malaria. The number of documented HIV cases now stands at 38,000. A new action plan drafted by the national multisectoral committee on HIV and AIDS states that reported cases represent only a small fraction of the real infection rate. The World Health Organisation (WHO) estimates that 150,000 Namibians—or almost 10% of the population—are now infected with the HIV virus. The action plan describes AIDS as a national emergency, owing to the magnitude of its projected socio-economic impact, and proposes a five- year programme, based on close collaboration between UN agencies, government departments, businesses and non-governmental organisations.

Agriculture and fishing

Good rains may yet be Although high levels of rainfall were recorded in most central and northern followed by severe areas in December and January, the possibility of a drought later in the year drought— remains strong (4th quarter 1997, page 16). However, since most dams now contain much more water than they did a year ago, supplies should be ade- quate during the coming dry season for Windhoek and most towns, as well as for crop irrigation schemes at Hardap and Naute in the south. The possible effect of the El Niño climatic phenomenon remains unpredictable but, according to regional weather experts, above-average rainfall in the early part of the wet season is consistent with past patterns, and indicates that dry weather can be expected later in the season. An interministerial committee has been set up to co-ordinate the government’s response to renewed drought and to determine the long-term implications of successive El Niños for agriculture. The Namibian meteorological office is currently predicting that most central and southern areas, along with eastern Caprivi, will overall experience rainfall levels that are 20-30% below the annual average by the end of the wet season in March. Most northern areas have received slightly above-average precipitation so far, but exceptionally high temperatures in December meant that evapora- tion rates were high.

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—and northern crop The planting season for millet (mahangu), the staple food for rural households plantings are delayed in Namibia’s most populous north-central regions, has been adversely affected by poor rainfall in November, when most farmers start preparing their fields. The faster-growing Okashana 1 millet seed is not readily available in outlying areas and, because its marketing and distribution is in private hands, may prove unaffordable for many communal farmers. Ploughing has also been hampered by a shortage of government-supplied tractors, and by the fact that large numbers of oxen and donkeys died during the last drought. No information is yet available about commercial planting rates, but farmers in the Otavi maize triangle—who produced a record crop in 1996/97—have indicated that they will cultivate as much land as rainfall levels permit.

Low fish-catch quotas are The fishing industry has expressed concern at the low catch ceiling provision- set for 1998 ally set by the government for 1998. The total allowable catch (tac) of 320,000 tonnes for the main species is almost one-fifth lower than in 1997. A sharp reduction in the hake quota by over 50%, to 50,000 tonnes, is causing the most dismay. Industry bodies such as the Namibian Hake Fishing Association and Walvis Bay Pelagic Fish Factories have warned that these lower catch levels will inevitably lead to further job losses. Employment in the industry has almost halved since 1994, dropping to 6,000, and the government’s aim of providing 22,000 jobs in the sector by the end of the current five-year National Develop- ment Plan (NDP1) in 1999/2000 has clearly become unrealistic. However, the tacs will be reviewed once the results of a new survey on fish stocks are made available early this year; it is likely that the final hake quota will be close to last year’s, or even higher. Available information indicates that the biomass is slowly recovering, and experience has shown that the early part of the year is the best period to obtain reliable estimates of fish stocks and sizes. A hake survey was conducted in January and the initial tac amount will keep the industry going for three months until additional findings can be evaluated. A survey of the pilchard biomass is scheduled for February. The previous survey, in 1997, indicated a strong cohort of young fish, which means that adult stocks will probably be considered sufficient to allow for a substantial increase in the final tac for 1998. The government has also approved an emergency rebate on fuel levies payable by the industry for 12 months, backdated to April 1997. The effect will be to reduce levies payable by fishing companies from 50.4 cents/litre to just 2.5 cents/litre, costing the government some N$50m in lost revenue.

Namibia: fish-catch quotas (tonnes) 1997 1998a % change Pilchard 25,000 20,000 –20.0 Hake 120,000 50,000 –58.3 Horse mackerel: inshore 75,000 75,000 0.0 mid-water 150,000 150,000 0.0 Total incl others 395,000 320,000 –19.0

a Provisional.

Source: Ministry of Fisheries and Marine Resources.

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Mining and energy

The MUN demands a say The year has begun ominously for the mining industry, with a call by the leadership of the Mineworkers’ Union of Namibia (MUN) for “mass demonstrations” to force companies to transfer shareholdings to their workforces. The strategy was outlined to the MUN’s 8,000 members by the union’s secretary-general, Peter Naholo, who said that this would provide the MUN with the power to secure improved safety conditions and worker benefits. The MUN undoubtedly has the ability to make life difficult for the mining companies, as demonstrated by the continuing effects of the strike that crippled production at the Tsumeb Corporation’s base-metal mining and smelting operations at the end of 1996. Mr Naholo also said that the union would negotiate with mining companies, focusing initially on smaller operators where working conditions are generally worse. It is unclear whether the MUN seriously expects to obtain free shareholdings in the largest companies, such as Namdeb Diamond Corporation and Rössing, and purchasing shares at market value is well beyond its resources unless it has secured an unknown financial backer. However, it is likely that promoters of new developments, such as the Haib copper mine and refinery, will offer a stake to local investors, which could include a trust holding shares on behalf of the MUN.

Weaker demand Until De Beers publishes its annual report in April, it will not be clear how far the constrains growth in reduction in global demand for diamonds in the second half of 1997 affected diamond output— production levels in Namibia (see Outlook for 1998-99). At times of market weakness, De Beers normally restricts purchases of rough stones from the “swing” producers—South Africa, Botswana and Namibia—in which it has effective management control. Sales by the Central Selling Organisation (CSO) in the second half of 1997 were down by 39%, at US$1.8bn, compared with the first half of the year, entailing an inevitable reduction in shipments from producers. Nevertheless, it is unlikely that more than a small downward adjustment in output was made by Namdeb, as for 1997 as a whole CSO sales were only 4% lower than the previous year’s record figure of US$4.8bn. Consequently, Namibian output was probably slightly higher than last year’s 1.4m carats, as expanded offshore recoveries by De Beers Marine will have been at least partly offset by reduced production from Namdeb’s onshore operations.

—but Namco’s mining The current weakness of global demand has not affected the start of offshore plans are unaffected diamond mining by the UK-based Namibian Minerals Corporation (Namco). Its production vessel, M V Kovambo, began operations in the company’s Lüderitz Bay concession in January (4th quarter 1997, page 18). Namco plans to announce its first production results at the end of February, and expects to produce 150,000 carats per year at an approximate value of US$45m. This would increase Namibia’s total offshore output by over one-quarter, to around 600,000 carats, in 1998. The vessel’s NamSSol seabed crawler can operate in waters up to 150 metres deep with a 90% recovery rate of all seabed gravels. The company has not disclosed its marketing strategy, but rough stones will almost certainly be sold on the Antwerp market, as Namco does not intend to use the CSO.

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Rössing will not resume The plan to resume full-capacity output at the Rössing uranium mine has been full-capacity output for shelved for the time being, as a result of a renewed downturn in spot uranium three years prices during the second half of 1997 and what the local management describes as a worsening global outlook for the metal. Production was to have been brought back up to an annual rate of 4,500 tonnes in 1998, but the timing of the output increase is now uncertain and in any case will not happen before 2000. While output was raised by 14% year on year in the first nine months of 1997, the company has been unable to secure additional sales. In 1998 production will be held at last year’s level of 3,200 tonnes. In an attempt to stream- line operations, some employees will be retrained and some operations will be outsourced. Although Rössing’s management has promised that no employees will be laid off, it has refused demands from the MUN to pay annual production bonuses which are part of a six-point plan for improved benefits and allowances tabled by the union in December. A brief strike by workers at the end of last year proved fruitless. Meanwhile, an agreement on procedures for implementing the mine’s occupational, health and safety, and environment code is still outstanding.

Gold Fields Namibia The financial position of Gold Fields Namibia (GFN) looks increasingly precari- reports further losses ous owing to the continuing losses incurred by its Tsumeb Corporation base- metal mining and smelting operations. The company incurred a N$21m (US$4.3m) operating loss in the fourth quarter of 1997, mainly as a result of lower copper prices, bringing total losses for the year to N$83m. GFN has warned that losses on this scale are unsustainable, and the company is now urgently examining technical and financial options to deal with the situation.

GFN’s operations have been given a clean bill of health in a recently completed environmental audit by Germany’s GEO Consult, which found that the high rates of respiratory diseases in the Tsumeb area are not directly connected to emissions from the town’s copper- and lead-smelting complex. The audit, and GFN’s compliance with its recommendations, is a pre-condition for the release of EU funds for mining developments under the Ecu40m (US$43m) Sysmin facility for Namibia. The audit concluded that workers at the complex were “seriously affected” by emissions in the atmosphere but judged town residents to be “less affected”. Health ministry figures show that approximately 30% of the inhabitants suffer from some form of respiratory infection. GEO recom- mended a number of improvements, including more rigorous control of air- borne emissions and more efficient handling of ores and smelter by-products, which the company says it is already implementing. The MUN has accepted that the audit was conducted satisfactorily, but has challenged its findings on the grounds that the data were provided by the Tsumeb Corporation, and has called for an independent investigation.

Electricity imports should The amount of electricity imported by the Namibia Power Corporation be lower this year— (Nampower) from South Africa is expected to be substantially lower this year, owing to an increase in water flow rates at the Ruacana hydrostation. Recent heavy rains in northern Namibia and southern Angola have trebled the Kunene river’s flow rate since early 1997, to some 150 cu metres per second. Nampower paid N$60m to the South African power utility Escom for power imports in 1996/97 to cover a shortfall from Ruacana, but will have to pay out less during

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its current financial year, which runs to end-June 1998, as the required volume of imports should be lower and per unit charges have been reduced under a new tariff agreement between the two utilities.

—and a decision on Epupa The government is almost certain to proceed with the controversial Epupa is expected shortly hydroelectric scheme (4th quarter 1997, page 19). The go-ahead for the project is expected to be given by the cabinet following the conclusion in February of the public hearings on the Namang consortium’s feasibility study. Although the study did not make a definitive recommendation for the location of a new dam and power station, it concluded that Epupa Falls would be economically and technically preferable to a site further west in the Baynes mountains. A larger reservoir could be constructed at Epupa which would enable sufficient water to be stored during periods of low water flow in the Kunene. However, the Ovahimba community will be largely displaced by the construction of the dam, and Ovahimba leaders opposed to the scheme have threatened to take their case to court. Protracted legal uncertainties and widespread opposition to the project could make it difficult for the government to secure donor funding.

Industry and infrastructure

Nambrew takes on SAB in The battle for market share between Namibia Breweries (Nambrew) and its much its own market bigger rival, South African Breweries (SAB), has intensified, with Nambrew gain- ing legal backing for the sale of its own brand of Hofbräu lager in South Africa. A temporary injunction against Nambrew obtained by SAB was overturned in November by the South African high court, which ruled that Hofbräu was not an exclusive brand name. Nambrew has gained a 2% share of the South African beer market through the successful promotion of its additive-free German-style lager, and may soon be able to set up a local brewery. Much will depend on the outcome of SAB’s outstanding application to the Namibian government for permission to open a N$100m (US$20m) brewery at Oshakati. The company has lined up a consortium of local backers—including an influential businessman, Aaron Mushimba, who is President Nujoma’s brother-in-law—which would have a majority stake in the plant. The weight of local support makes it more difficult for the trade and industry minister, Hidipo Hamutenya, to withhold consent for the project, despite the widespread view that Nambrew stands to lose a substantial proportion of its domestic sales and might have to reduce capacity and shed jobs. Namibia is the one remaining country in southern Africa with an independent brewing industry, and Nambrew might find it hard to resist a buyout by SAB if the South African company proceeds with the construction of the Oshakati plant and cuts into Nambrew’s traditionally high profit levels.

Desalinated water should Construction of southern Africa’s first seawater-desalination plant at Walvis be on tap by next year Bay is due to start towards the end of 1998, following a favourable feasibility study by international consultants. Bids from water technology firms will be invited by Namibia Water (Namwater), which plans for the plant to be largely funded by the private sector under a build-operate-own formula. The plant is expected to cost some N$90m and will be of modular design so that capacity can be expanded to keep pace with projected increases in demand in the

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central coastal area. Apart from town councils, the main customers will be the Rössing uranium mine and export processing zone (EPZ) developments at Walvis Bay. Walvis Bay’s mayor, Manuel de Castro, acknowledges that the adequacy of long-term water supplies is a major concern of potential EPZ investors, given declining water levels in the local Kuiseb, Khan and Omaruru rivers from which water is being extracted faster than it is being recharged.

Desalination is very expensive, and the cost of water supplied by the plant will be high, as Namwater has specified that treated seawater must be sold on a full cost-recovery basis from the outset. The Walvis Bay municipality has already approved annual increases of 15% over three years in water tariffs for consumers, starting in 1999 when the plant is scheduled to become operational. The site for the plant has yet to be determined but will have to be far away from Walvis Bay lagoon, which in November was listed as one of four Namibian wetland areas—along with the Orange river delta, Sandwich harbour and the Etosha Pan—under the International Wetlands (Ramsar) Convention.

Transport and communications

Air Namibia is to replace Now that a new management team has been installed at Air Namibia, a dec- its Boeing 747— ision on the acquisition of a new long-haul aircraft is expected to be made this year. The present Boeing 747-SP leased from South African Airways (SAA) and used on the airline’s international flights to Frankfurt and London has become increasingly expensive to service. Likely replacements are the Airbus 340 or Boeing’s latest model, the 777-200. The final decision will largely depend on which manufacturer can offer the most attractive financing package, as Air Namibia is now a stand-alone company and will have to service any borrowing costs itself. The airline is also looking for new partners to expand its international services, which will include a North American route, although a revival of the previous alliance with Germany’s Lufthansa is still under consideration. Air Namibia’s new managing director, Andreas Guibeb, a former permanent secretary at the foreign affairs ministry, held talks with European airlines and manufacturers in January, and has promised that the procurement process will be “transparent”.

—and the launch of a rival Air Namibia will soon face stiff competition on its busiest regional route from operator is delayed Kalahari Express Airlines (KEA), which is owned by a consortium of Hazy Investments, the Saudi Arabian entrepreneur Hani Yamani’s personal investment vehicle, and Namibian interests. KEA has confirmed that it will operate twice-daily flights to Johannesburg and daily flights to Cape Town. The launch of its service has been delayed from October 1997 owing to delays in complet- ing the reconditioning of two Fokker F28 jets. The airline will use Eros airport, which is much closer to the city centre than Windhoek international airport, in the expectation that this will prove particularly attractive to business passen- gers wanting to complete a round trip within a day. Hazy’s local managing director, Adrian Strong, has discounted fears that jet aircraft will inflict unac- ceptable noise levels on residents of Eros’s suburbs. However, under the recip- rocal access provisions of the bilateral air-service agreement with South Africa,

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the number of jets using Eros could double if a South African operator exercises the right to start a matching service.

The viability of a new The government is proceeding with a full-scale evaluation of the feasibility of a harbour at Möwe Bay is new fishing harbour at Möwe Bay, 400 km north of Walvis Bay, despite con- being assessed cerns that the required infrastructure would spoil the pristine environment of the Skeleton Coast National Park, which attracts large numbers of tourists. The deputy works and transport minister, Klaus Dierks, says that the study will measure the impact of a “self-contained” fishing port and determine its economic viability. The main justification for the establishment of a new harbour is the steady northward migration of the pilchard resource, which means that Namibian vessels based at Walvis Bay are spending increasing amounts of time at sea locating the main shoals. In addition, fish products from new onshore processing plants at Möwe Bay could be distributed more efficiently to northern Namibian and Angolan markets. The N$7m (US$1.4m) study is mainly financed by an official assistance grant from the Kuwaiti government, but funding for the estimated N$500m construction costs for the harbour and associated infrastructure has not yet been secured. Mr Dierks expects the fishing industry to contribute a large proportion. However, there is a serious lack of water in the area, and the need to mitigate the adverse environmental impact of the project may make the scheme too costly.

The trans-Kalahari Mr Dierks has stressed that the Möwe Bay project compliments the ongoing highway will open early expansion of harbour facilities at Walvis Bay, where a new container terminal this year is due to be completed this year. The EU has indicated that it will provide funding for a N$75m project to deepen the harbour to accommodate large Panamax-type cellular vessels, which will make its facilities competitive with those of Cape Town’s harbour. More immediately, the imminent completion of the trans-Kalahari highway will open up new opportunities to route cargo destined for South Africa’s Gauteng industrial heartland via Walvis Bay. The Namibian section, between Gobabis and the Buitepos border post, is already tarred and in Botswana work on the remaining 10 km near Ghanzi is due to be completed by the end of February. Once the trans-Kalahari is open throughout, it will cut 425 km from the existing route between Walvis Bay and Pretoria, reducing the distance to 1,800 km.

The US is funding a Plans to extend the railway network northwards into Angola have made pro- northern rail link study gress now that the US Trade and Development Agency has agreed to fund a feasibility study of the economic, technical and environmental aspects of the project. President Nujoma is an enthusiastic supporter of the initiative, arguing that it will promote bilateral trade with Angola and improve the ability of northern Namibian entrepreneurs to sell goods competitively throughout the country. No precise route has yet been identified, but the most logical extension would be to construct an additional line from Tsumeb via the biggest northern town, Oshakati. The study will also identify non-governmental sources of funding and examine the feasibility of using labour-intensive construction methods.

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 Namibia 25

Foreign trade and payments

Exports are estimated at Despite the 4% drop in rough diamond sales by De Beers’ Central Selling US$1.5bn last year Organisation in 1997 (see Mining and energy), Namibia’s total exports are expected to have reached US$1.5bn, in line with the EIU’s previous forecast. The value of diamond exports is estimated to have increased, albeit more modestly than previously projected, to about US$570m, and the expansion in uranium output and sales will easily have made up for the shortfall, boosting total mineral exports to around US$850m. Strong hake prices on the main Spanish market also make it probable that exports of semi-processed fish rose in value to over US$300m, as continuing strong growth in white-fish sales more than offset the minimal earnings from canned fish last year.

Exports of meat and meat products were almost certainly well down on 1996 at some US$75m, owing both to lower slaughter rates and the collapse in demand in Namibia’s main overseas market, the UK, as a result of continuing consumer concerns over bovine spongiform encephelopathy (BSE, “mad cow disease”). Although Namibian beef is grass-fed and certifiably BSE-free, UK consumers are making little distinction between imported and local beef. Nevertheless, overall agricultural exports will have held up better than might have been expected, thanks to a recovery in karakul-pelt prices and increased sales of ostrich and game products. The rise in exports should have been sufficient to return the visible trade balance to a small surplus of US$50m-70m, as imports are estimated to have risen by just 5.5%, to about US$1.45bn.

Foreign reserves are Namibia’s foreign-exchange reserves have shown further modest growth, and edging upwards by end-October 1997 stood at US$232m, the highest level for the year (4th quarter 1997, page 21). This is US$37m higher than in October 1996, but still represents only about six weeks’ import cover.

Namibia: foreign reserves, 1997 (US$ m; end-period) Aug Sep Oct Foreign exchange 215.8 174.2 231.7 SDRs 0.02 0.02 0.02 Reserve position in the IMF 0.04 0.04 0.04 Total reserves excl gold 215.9 174.3 231.7 Source: IMF, International Financial Statistics.

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 26 Swaziland

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 is in three stages: nominations, primary and secondary elections. 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 ten selected by the assembly. The king may legislate by decree

National elections September-October 1993; next elections are scheduled to take place in 1998

Head of state Monarch, succession governed by custom

National government The monarch and his cabinet, last reshuffled in November 1996

Main 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 Sishayi Nxumalo

Key ministers Agriculture & co-operatives Chief Dambuza II Economic planning & development Albert Shabangu Education Solomon Dlamini Enterprise & employment Absalom Dlamini Finance Themba Masuku Foreign affairs & trade Arthur Khoza Health & social welfare Phetsile Dlamini Home affairs Prince Guduza Housing & urban development John Carmichael Justice Chief Maweni Natural resources & energy Mayah ’Enkhaba Dlamini Public service & information Muntu Mswane Public works & transport Dumsani Masango Tourism & communications Musa Nkambule

Central Bank governor Martin Dlamini

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 Swaziland 27

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997a GDP at market pricesb (E m) 3,225 3,770 4,743 5,216 n/a Real GDP growthb (%) 3.2 3.5 2.5 3.0a n/a Consumer price inflationc (av; %) 13.6 15.4 14.6 12.0 n/a Populationa (m) 0.85 0.88 0.91 0.94 0.97 Exports fobd ($ m) 684 783 958 887 937 Imports fob ($ m) 788 831 989 964 1,123 Current account ($ m) –88.1 6.0 39.1 9.3 64.6 Reserves excl gold ($ m) 264 297 298 254 n/a Total external debtb ($ m) 201 190 232 193 178e External debt-service ratiob (%) 2.4 2.7 2.5 2.7 n/a Sugar productionf (’000 tonnes) 457 485 421 465 500e Exchange rate (av; E:$) 3.268 3.551 3.627 4.299 4.620e

January 30th 1998 E4.93:$1

% of % of Origins of gross domestic product 1995a total Components of gross domestic product 1996a total Agriculture 12.1 Private consumption 53.8 Industry 43.0 Government consumption 22.9 Manufacturing 34.5 Gross fixed investment 30.9 Services 44.9 Change in stocks & statistical discrepancy 0.9 GDP at factor cost 100.0 Exports of goods & services 82.2 Imports of goods & services –90.7 GDP at market prices 100.0

Principal exports 1996a $ m Principal imports 1996a $ m Soft-drink concentrate 170e Manufactured goods 297 Sugar 146 Machinery & transport equipment 255 Wood pulp 83 Food & live animals 149 Refrigerators 54e Chemicals 120 Citrus & canned fruit 33 Fuel & lubricants 46 Total domestic exports incl others 887 Total incl others 964

Main destinations of exports 1995 % of total Main origins of imports 1995/96 % of total South Africa 58.3 South Africa 96.7 North Korea 3.4 Japan 0.7 Mozambique 3.1 UK 0.7 EU 16.8 Singapore 0.7 a Official estimates. b Fiscal years beginning April. c Low-income index for Mbabane and Manzini. d Includes re-exports. e EIU estimate. f Crop years (May-April) beginning in calendar years.

Outlook for 1998-99

Elections are likely in With the five-year term of parliament and the cabinet due to expire at the end 1998— of the year, the prime minister, Sibusiso Dlamini, has stated that legislative elections are to take place in 1998. It is widely thought that the elections will not be held until October or November, as an earlier date would necessitate prompt action by the government in finalising electoral rolls and making logistical arrangements. The prime minister, in his new year address to the nation, more or less ruled out the prospect of holding elections under a new constitution. The Constitutional Review Commission (CRC) had been expected to complete its work by August 1998, which would have allowed elections to be held under a different electoral system. However, the CRC has requested a two-year extension, and the 1998 elections will almost certainly be held under the present tinkhundla (traditional), no-party system. The situation will be clarified when King Mswati III makes his opening speech to parliament on February 13th.

—leaving the progressive The “progressive” forces in parliament, which are demanding the institution of forces without a clear multi-party democracy, do not have a coherent approach to the forthcoming agenda elections. Several organisations, including the Swaziland Federation of Trade Unions (SFTU) and the People’s United Democratic Movement (PUDEMO), have called for the dissolution of the present government and its replacement with an interim government, which would represent all groups and manage the constitutional reform process before new elections are held. However, this is extremely unlikely to happen before the CRC has concluded its study. Meanwhile, the forces backing the revival of the Ngwane National Liberatory Congress (NNLC; 4th quarter 1997, page 25), might be prepared to participate in elections in an attempt to change the system from within. Such a revision of tactics may well find popular backing in light of the public’s lack of support for the mass stayaway called by the SFTU in October 1997 and the realities of the deteriorating economic situation.

Economic growth may be The Usutu Pulp Company has announced that it will close from February 1st threatened by market until March 20th owing to cashflow problems following a sharp decline in downturn for woodpulp orders from its main markets in Asia. Some 90% of Usutu’s woodpulp production is exported to these markets, but the financial crisis in Asia has led banks there to refuse letters of credit to importers. This has left some 40,000 tonnes of Usutu woodpulp, worth E70m ($15m), stockpiled at South African ports. While Usutu’s annual maintenance shutdown will be brought forward to coin- cide with the plant closure, the company’s chairman has stated that commercial “downtime” may have to be considered in future unless there is a significant recovery in exports to Asia. Usutu Pulp is one of the four largest companies in Swaziland and, as such, its instability is expected to have a damaging impact on overall economic growth. The government’s real GDP growth forecast of 3% for 1998/99 now seems optimistic. The EIU nonetheless expects woodpulp exports to pick up, on the basis of reports in late January of renewed demand from Asian markets. Other adverse effects on growth in 1998/99 could flow from the agricultural sector owing to the likely impact of the El Niño climatic phenomenon. While the 1997/98 maize crop has not been

affected, the Ministry of Agriculture expects the food security position to be poor for the marketing year 1998/99, with a scarcity of cereals anticipated towards the end of 1998. The 1998/99 budget will be delivered on February 16th, and is largely expected to be prudent, with below-inflationary increases in expenditure and increased revenue opportunities coming from indirect tax- ation, particularly on petroleum products, which at present are relatively cheap.

Swaziland: gross domestic product Swaziland: real exchange rates (c) % change, year on year 1990=100 6 120 Swaziland (a) E:US$(d) 5 Africa 115

4 R:US$

(b) 110 3

2 105

1 100 Pula:US$ 0 1992 93 94 95 96 95 (a) Fiscal years beginning April. (b) Official estimate. (c) Nominal exchange rates adjusted for changes in relative consumer prices. (d) The lilangeni (E) trades at par with the South African rand. Sources: EIU; IMF, International Financial Statistics; World Economic 1990 91 92 93 94 95 96 Outlook.

Review

The political scene

1998 starts on a quiet note For the first time since 1994 Swaziland has started the new year without the immediate threat of mass labour unrest, as support for the Swaziland Federation of Trade Unions (SFTU) continues to dwindle. Calls for a mass stayaway in October were largely ignored by union members, and plans for monthly border blockades have not materialised. Economic reality is hitting home, as illustrated by the measured response of the SFTU secretary-general, Jan Sithole, to the predicament facing the Usutu Pulp Company (see Outlook for 1998-99). He called on workers to face up to a belt-tightening period. The government, hop- ing to capitalise on the lack of support for the unions, is preparing a report on its progress in addressing the 27 demands of the SFTU (1st quarter 1997, page 28). Nonetheless, there is still widespread dissatisfaction with administrative inefficiency and corruption, which was acknowledged by the prime minister in his new year address to the nation. This provides an opportunity for the progressive forces in parliament to marshal significant public support provided they are able to unite around a clear strategy which does not involve strike action and lost wages. Public disillusionment with confrontational policies, and their economic consequences, is evident in the increasing lack of support for strikes, including the proposed strike at Swazi Paper Mills (4th quarter 1997, page 30), which was postponed indefinitely when management informed the union that production had fallen by 50%.

The teachers’ strike is The teachers’ strike, which began on October 13th (4th quarter 1997, page 27), suspended indefinitely lasted six weeks before it was suspended indefinitely. The strike, which never received total support, petered out in November, with schools in several parts of the country opening before the strike was formally called off. The Swaziland National Association of Teachers (SNAT) agreed in December to accept the 8% salary increment awarded to civil servants for the 1997/98 fiscal year. However, negotiations with the government on the 1996/97 increment will continue: SNAT is still demanding an 18% pay rise for 1996/97 rather than the 9.9% awarded. The government has refused this, not least because the higher increase would have to be granted to the entire civil service, thus increasing the budget deficit. Meanwhile, a rival teachers’ union has been established with support from those teachers who have become disillusioned with SNAT and the strikes. As only one union can be registered for each profession, the new union will only be registered if it gains the support of a majority of teachers. SNAT would then be deregistered.

The teachers’ strike meant that the year-end examinations were held under difficult conditions. The results, however, were surprisingly good, causing widespread scepticism about their validity and calls for an investigation into the external examination board. The results allowed the new school year to start smoothly in late January. The threat by the SNAT leadership to resume its strike if the 18% pay rise for 1996/97 is not granted is unlikely to win the support of either the public or the already impecunious teachers.

SFTU finally participates The first draft of the controversial Industrial Relations Act of 1996 (4th quarter in the Industrial Relations 1997, page 25) has been completed, and the document is now being considered Act rewrite by the Labour Advisory Board (LAB). The SFTU withdrew from the redrafting committee on December 4th 1997 in protest at the dismissal of several employees by the Royal Swaziland Sugar Corporation for threatening other workers during the October stayaway. The International Labour Organisation (ILO), which was involved in the redrafting, condemned the SFTU’s withdrawal and then suspended its own participation on the grounds that the full tripartite (government, business and labour) was no longer represented. The ILO’s action was criticised by the Swaziland Federation of Labour (SFL), a separate workers’ organisation. On December 22nd the SFTU decided to rejoin the committee, which is now reported to be proceeding smoothly with its task. The committee’s first report was submitted to the LAB on January 12th, and the final report is scheduled for completion by February 23rd, a deadline that is likely to be met. Failure to produce a substantially new act could result in action against Swaziland, both by the ILO and the US. Swaziland’s position with regard to the Generalised System of Preferences has been investigated in the US, which will announce by the end of March whether Swaziland will lose its trading privi- leges because of a breach of ILO conventions stating that workers and employ- ers have a right to draw up their own constitution and organise their activities.

The government clashes In late 1997 a row broke out between the prime minister, Sibusiso Dlamini, and with the SNC— the Swazi National Council (SNC), a traditional body which was resuscitated by royal decree in August 1996 and is regarded as a “government outside the government”. The SNC summoned the minister of transport, Dumsani Masango, to appear before it in connection with the restructuring of the loss-making

Central Transport Administration (CTA). The restructuring faces widespread opposition in influential quarters. Mr Masango was out of the country at the time, and subsequently stated that his appearance would have to be approved by the prime minister. In the event, only senior ministry officials were questioned, but the prime minister nevertheless criticised the SNC, stating that it had no power to question cabinet ministers or government officials without his consent. This stance was rejected by the acting chairman of the SNC, Prince Phiwokwakhe, but Mr Dlamini retorted that it had been agreed that he and the chairman of the SNC would act as the sole links between the government and the council. The cabinet and the SNC subsequently met to discuss improved working relations.

—and the border Swaziland’s border adjustment committee, charged with negotiating territorial adjustment committee claims, has continued to put forward historical claims to land in neighbouring countries. The committee is not accountable to the government but is control- led by the traditional authorities, notably the king-in-council, and is allocated E250,000 ($55,000) per year from government funds. On an official visit on November 19th 1997 the South African minister of home affairs, Mangosothu Buthelezi, reiterated the position of his government (3rd quarter 1996, page 25), namely that it adheres to the Organisation of African Unity charter in respect of colonial boundaries, and that Swaziland’s claims to part of Mpumulanga province will therefore not be considered. However, the committee extended its claims on November 27th when Prince Khuzulwandhle, supported by the former prime minister, Prince Bhekimpi, informed the Senate that Swaziland has a legitimate claim to parts of southern Mozambique, including the capital, Maputo. This was rejected by Mozambique, whose president, Joaquim Alberto Chissano, pointed to the serious consequences of the move. The Swazi prime minister, Mr Dlamini, subsequently officially distanced his government from the claim. This drew a riposte from the former minister of justice, Zonke Khumalo, that the border issue is beyond the government’s jurisdiction, falling instead within the remit of the traditional authorities. Public outbursts by traditional authorities which conflict with government policy have been criticised by the private sector for showing Swaziland in a poor light in the regional and international media, and discouraging investment.

The debate on the media The contentious Media Council Bill (4th quarter 1997, page 28) was tabled in bill is deferred parliament on November 24th. Members of parliament criticised the government’s attempts to control the media, describing the penalties contained in the bill as excessive, and referred to possible international repercussions. After a short debate a select committee was established to investigate the bill. It is likely that the media will be asked to draw up a code of conduct whereby they regulate themselves. The proposed legislation has been strongly criticised by the media, the Law Society of Swaziland and the SFTU.

A survey shows a lack of A survey of political opinion in six Southern African countries, conducted by confidence South Africa’s Helen Suzman Foundation, showed that respondents in Swaziland were positive about progress in the past five years. However, there was a clear divide between women, older people and the rural population, all of whom felt they had fared badly, and men, younger people and urban residents,

who were more positive. However, relative optimism about the recent past gave way to pessimism about the future, attributed to uncertainty about the political system. Traditionalists, concentrated among the older, less educated and lower paid, were doggedly confident about the future, but the younger, better educated and higher-income groups were gloomy. The verdict on the government’s record was more damning in Swaziland than in other countries: 67% of those questioned believed that the government had fulfilled none or very few of its promises. Only 22% were opposed to multi-party democracy, but 75% said that they were afraid openly to criticise the present system.

The economy

Supplementary budgets The minister of finance, Themba Masuku, tabled the first supplementary are requested budget estimates on October 31st and the second on November 25th. The first expenditure estimates of E78.5m ($17m), consisting of E49.9m for recurrent spending and E28.6m for capital spending, were approved by parliament. The second supplementary estimates were for E94m ($20m), of which parliament approved just over E91m. Of this, E75m was for recurrent and the balance for capital expenditure. Recurrent expenditure was mainly to cover salary awards to civil servants.

Despite these supplementary requests, the EIU expects that the government will not record a deficit in 1997/98. Revenue has been higher than expected and there has been substantial under-implementation, especially on the capital budget. The supplementary requests have been financed from these savings.

Parliament’s approval of an E3m ($650,000) allocation to the Swaziland Tele- vision Authority (STVA) was condemned by the national press in light of a refusal to grant an E3m subsidy for a major hospital. The press suggested that the provision of health for thousands of people was being jeopardised in favour of subsidised trips abroad for STVA staff covering royal tours.

The prime minister Following the report of the Public Accounts Committee in October 1997, promises civil service which pointed to a serious lack of expenditure control in most ministries, the review prime minister, Sibusiso Dlamini, acknowledged the problems in the civil service in his new year statement to the nation. External agencies have pointed out that the civil service is too large in relation to GDP, and the government is aware of negative public perceptions regarding inefficiency and corruption. In view of this the Public-Sector Management Programme (PSMP) is currently being implemented, with studies on overstaffing and early retirement options. The management audits of all ministries are also being reviewed and upgraded, and in future will comment on the effectiveness and efficiency of each ministry. The prime minister emphasised that greater fiscal prudence is required of the civil service. The targeted budget deficit for 1998/99 is approximately E70m ($14m), and all expenditure increases for ministries are being kept below the rate of inflation.

The 1997 census reveals The 1997 census estimated the population at 966,000, with a provisional pop- population slowdown ulation growth rate of 2.7% per year in 1986-97, compared with 3.2% per year in 1976-86. This is consistent with other studies, which indicate that by 1991

fertility growth had declined, and can also be explained by the repatriation in the 1990s of Mozambican refugees, who had been included in the 1986 census. However, infant mortality has fallen dramatically in the past 30 years and, in his new year address, the prime minister appealed to the Swazi people to take the population issue seriously. He called for a concerted effort to reduce the fertility rate and hence the rate of population growth. At present rates, the population will double in 21 years, endangering economic and social welfare targets. A National Population Council has been formed and will commence the urgent task of drawing up a population policy and programme. However, the increasing number of HIV and AIDS-related cases is beginning to pose a major problem, and AIDS could become the leading cause of death within the next ten years.

Infrastructure projects Swaziland is to link into a 400-kv power line from Camden in South Africa’s will continue to be Mpumulanga province to Maputo, which will serve a newly established smelter financed by external funds project. This project replaces the previously proposed 275-kv fourth feeder line, which had lower capacity and carried higher tariffs. Negotiations are under way to establish a joint venture between the Swaziland Electricity Board (SEB), South Africa’s Escom and the Mozambican transmission company MOTACO to find funding and operate the line. The Development Bank of Southern Africa (DBSA) has expressed an interest in part-funding the line.

The Komati Basin Water Authority (KOBWA) has raised over E600m ($130m) of the required E1.2bn for the construction of the Maguga Dam in Piggs Peak. KOBWA is the project implementor and will take up the loans, which are fully guaranteed by the South African government, with the Swaziland government in turn guaranteeing 40% to South Africa (2nd quarter 1996, page 33). KOBWA raised E375m ($8.5m) on a listed bond issue in South Africa through Hambros Bank and Rand Merchant Bank, and has also raised money from the Public Service Pension Fund and the DBSA.

The British Department for International Development (DFID) is financing a pre-feasibility study of a western rail link from Swaziland to Mpumulanga province in South Africa. This could provide an alternative route from the Witwatersrand and Mpumulanga to the east-coast ports in Mozambique and KwaZulu-Natal, as well as a route for traffic between Swaziland and the Witwatersrand. The Italian government is to fund the rehabilitation of the east-west line for the Swaziland Railway (SR). The rehabilitation will reduce maintenance costs by 80%, increasing profitability, while improving safety. The project will start in March 1998 and is expected to be completed by April 2000.

The EU is funding a feasibility study of the Usutu Basin irrigation scheme. The study will determine the overall viability of the project and the most appropri- ate size of the dam. The alternatives are a dam with capacity of 150 cu metres to irrigate 14,000 ha, or a dam of 100 cu metres to irrigate 7,500 ha. Some 24 km of canals are envisaged from the river to the dam which will not be built on the river itself. The main focus of the irrigation project will be on sugarcane, citrus and tropical fruit grown by smallholders. The study will also assess the viability of high-value crops such as flowers for export.

A major bank merger is The last remaining international bank in Swaziland, Barclays Bank of the UK, completed has sold its shareholding in Barclays Bank of Swaziland to Standard Bank Swaziland, a subsidiary of the South African Standard Bank. The 60% shareholding was acquired with effect from January 1st 1998. The operations of the two banks in Swaziland have been merged under the banner of Standard Bank Swaziland, the other shareholders being the government and a local conglom- erate, Swaki Investment Corporation. The merger will inevitably involve staff cutbacks, but a generous voluntary early-retirement scheme has been negotiated with unions. Finalisation of the merger was held up for two months pending agreement on this issue.

Mining experiences mixed The future of the asbestos mine at Bulembu is bleak. Global demand has de- fortunes clined and world prices have remained stagnant since France halted asbestos- based imports at the beginning of 1997. In an attempt at diversification, the Bulembu company is bidding to resuscitate the diamond mine at Dvokolwako, but this will prove difficult; the mine was closed in December 1996 owing to insufficient deposits.

The outlook for gold mining is more encouraging, despite the recent decline in international gold prices. A Canadian mining firm, Tan Range, is to prospect and mine for gold north of Piggs Peak under an agreement with Johannesburg Consolidated Investment (JCI), a large shareholder in Tan Range. JCI was granted a two-year prospecting licence in 1995. Exploration work is continuing, and further negotiations with the government are under way for a licence to prospect and mine for gold further south at Forbes Reef. We do not expect exploration to be affected by the proposed unbundling of the JCI group.

Sugar producers announce Swaziland hopes to increase annual sugar production by 150,000 tonnes, to expansion plans 650,000 tonnes, over the next five years, according to the minister of finance. Two of Swaziland’s three sugar mills have announced plans to expand their plant capacity and area under cane. Swaziland: sugar production tonnes bn Illovo Sugar is undertaking a E45m ($9.5m) plant expansion at the Ubombo

700 Ranches mill, increasing production by 25,000 tonnes, to 200,000 tonnes, by 2000. The Royal Swaziland Sugar Corporation will spend E320m ($70m) over

600 the next five years on the expansion of its factory and cane-growing operation. Its output will increase, with additional cane being obtained from the newly planted Malkerns area and from small growers. The upgrading of the factory is 500 part of a bid to increase productivity in Swaziland’s sugar industry.

400 The local demand for sugar is expected to increase in 1998. Conco, a 100% Coca-Cola subsidiary which uses sugar in its soft-drink concentrate, showed a 20% rise in sales volumes in 1997. It is the only plant in Southern Africa 92/93 94/95 96/97 1991/92 93/94 95/96 2002/03 (a) making the concentrate and expects to expand by 15% in 1998. About 70% of

(a) Targeted output over the next five years. its product is exported to South Africa. It also supplies 16 other countries in Source: Swaziland Sugar Association. Africa, and is now poised to penetrate new markets in North and East Africa. Conco is the largest private-sector foreign-exchange earner in Swaziland.

The publication of Public No quarterly reports of the Public Enterprise Unit (PEU) have been released since Enterprise Unit reports is 1994, despite having been written and printed until June 1997. According to suppressed— local newspapers, the cabinet has withheld information on the comparative

performance of the enterprises from the public. This is almost certainly in response to pressure from traditionalists, once again demonstrating the weakness of the dual system of government.

—as restructuring remains The resistance to the PEU is indicative of a more general resistance to public- messy enterprise reform, with policy on restructuring marked by confusion and delay. Joint-venture negotiations between the Royal Swaziland National Airways Corporation (RSNAC) and British Airways-Comair, offering terms highly favourable to Swaziland, were allowed to lapse in late 1997. The government has now given RSNAC a fresh mandate to find a strategic partner. In the meantime, the chief executive officer is being paid a monthly salary despite the fact that his post was declared redundant a year ago.

The Swaziland Development and Savings Bank (Swazi Bank) has been divided into a “new bank” and an “old bank” (3rd quarter 1997, page 30). The old bank will be governed by a king’s order-in-council and will receive debts collected, although the actual collections will be handled for a fee by a debt-recovery unit in the new bank. The new bank will focus on development banking. It had previously been suggested that Swazi Bank should enter commercial banking, but the Barclays-Standard merger has convinced the government that there is not sufficient demand for another commercial bank.

Bidding for the lucrative cellular phone network is proceeding as a separate exercise rather than as part of the overall restructuring of the Posts and Telecoms Corporation (PTC), as previously planned. The bidders are unhappy with the 30% shareholding allocated to them. The government proposes a 51% holding for itself and 19% for the public. Only three of the original 13 bidders have submitted bids. These are Vodacom (a Swazi private-sector consortium, including the royal investment trust, Tibiyo TakaNgwane), Swazitel (led by the parastatal SPTC) and Mobile Telephone Networks (MTN; a South African-led consortium). The tender is expected to be awarded by the end of March 1998.

Inflation falls Following problems with the 1997 inflation figures (4th quarter 1997, page 31) a new consumer price index (CPI) series has been published for September, October and November 1997. The November rate fell to below the September level, standing at 8.7%, 6.8% and 7% for the low-, middle- and high-income groups respectively. The Central Statistical Office ascribed the decline largely to falling food prices.

Foreign trade and payments

The trade deficit is In its Quarterly Review for September 1997 the Central Bank of Swaziland details estimated to have the assumptions underlying its balance-of-payments expectations for 1997. widened in 1997 Exports are expected to have gained from the continued depreciation of the lilangeni, despite the adverse effect on output of worsening industrial relations. A nominal increase in export revenue is predicted. The import bill is also expected to have risen in local-currency terms, influenced by currency depreciation, inflation in exporting countries, and falling Southern Africans Customs Union import duties. No major growth is expected in inflows of foreign direct investment (FDI) owing to the poor economic and political conditions in

Swaziland, although reinvested earnings from companies are expected to yield a net FDI inflow.

Swaziland: trade balance (E m) 1996 1997 Exports 3,752 4,314 Imports –4,376 –5,167 Balance –624 –852 Source: Central Bank of Swaziland, Quarterly Review, September 1997.

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 Quarterly indicators and trade data 37

Quarterly indicators and trade data

Namibia: quarterly indicators of economic activity

1995 1996 1997 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Mining production Annual totals Uranium oxide tonnes ( 2,378 ) ( 2,886 ) ( 3,425 ) Diamonds ’000 carats ( 1,382 ) ( 1,420 ) ( 1,460 ) Qtrly totals Copper ore ’000 tonnes 6.1 6.7 5.6 6.0 3.0 0.8 3.9 6.1 5.5 3.8ab Zinc ore “ 10.5 9.6 7.5 7.2b 7.2 7.2 8.3 17.5 18.8 12.4ab Agriculture Annual totals Cattle marketed ’000 ( n/a ) ( 448c ) ( n/a ) Fish catch ’000 tonnes ( 562 ) ( 494 ) ( 480 ) Prices Monthly av Consumer pricesd: 1990=100 176.4 179.0 182.6 185.5 190.4 n/a n/a n/a n/a n/a change year on year % 9.4 8.4 7.6 7.9 7.9 n/a n/a n/a n/a n/a Money End-Qtr M1, seasonally adj: N$ m 1,800.1 1,523.5 1,725.4 2,376.6 2,042.9 2,352.5 2,595.4 3,451.1 2,776.9 2,885.7e change year on year % 9.1 7.5 –1.9 13.8 13.5 54.4 50.4 45.2 35.9 n/a Foreign trade Annual totals Goods exports fob US$ m ( 1,369 ) ( 1,349 ) ( n/a ) Goods imports fob “ ( 1,467 ) ( 1,374 ) ( n/a ) Exchange holdings End-Qtr Foreign exchange US$ m 169.1 220.9 235.7 216.6 164.1 193.8 148.6 148.7 174.2 231.7e Exchange ratef Market rate N$:US$ 3.650 3.648 3.981 4.335 4.530 4.683 4.423 4.531 4.662 4.856g

Note. Annual figures of most of the series shown above will be found in the Country Profile. a October-November. b Estimate. c January-October. d Windhoek. e End-October. f The Namibia dollar (N$) is at par with the South African rand. g End-November.

Sources: National sources; World Bureau of Metal Statistics, World Metal Statistics; IMF, International Financial Statistics.

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 38 Quarterly indicators and trade data

Swaziland: quarterly indicators of economic activity

1995 1996 1997 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Exports Qtrly totals Sugar ’000 tonnes 74.3 64.4 28.2 56.8 82.3 74.1 22.2 94.3 84.0 1.9a Prices Monthly av Consumer prices: 1990=100 185.2 188.7 196.0 200.2 209.4 222.7 231.8 n/a n/a n/a change year on year % 13.6 11.3 10.4 8.5 13.1 18.0 18.3 n/a n/a n/a Money End-Qtr M1, seasonally adj: E m 350.0 339.0 329.9 348.1 379.0 395.7 381.5 455.7 454.6 427.2b change year on year % 6.0 16.9 –4.4 –3.1 8.3 16.7 15.6 30.9 19.9 n/a Foreign trade Annual totals Exports fob E m ( 3,472 ) ( 3,813 ) ( n/a ) Imports cif “ ( 4,006 ) ( 4,607 ) ( n/a ) Exchange holdings End-Qtr Foreign exchange US$ m 227.8 285.0 252.9 260.8 268.1 241.2 250.3 277.3 290.1 311.6c Exchange rate Market rate E:US$ 3.650 3.648 3.981 4.334 4.530 4.683 4.422 4.530 4.662 4.856c

Note. Annual figures of most of the series shown above will be found in the Country Profile. a October only. b End-October. c End-November.

Sources: ISO, Statistical Bulletin; IMF, International Financial Statistics.

Namibia and Swaziland: UK trade (£ ’000) Namibia Swaziland Jan-Nov Jan-Nov Jan-Nov Jan-Nov 1996 1997 1996 1997 UK exports fob Food, drink & tobacco 276 706 72 52 Chemicals 185 261 490 690 Textile yarn, fabrics & manufactures 89 12 0 53 Non-metallic mineral manufactures 6 91 1 1 Iron & steel 266 103 42 665 Metal manufactures 432 136 17 11 Machinery incl electric 1,646 1,020 646 406 Transport equipment 1,556 170 99 301 Clothing 31 181 5 15 Scientific instruments etc 393 199 262 353 Total incl others 6,625 3,589 1,834 2,913 UK imports cif Meat & preparations 21,413 14,100 1,382 691 Fish & preparations 1,989 788 0 0 Fruit, vegetables & preparations 13 166 5,205 5,348 Sugar & preparations 0 0 31,504 34,815 Chemicals 3 95 14 0 Textile yarn, fabrics & manufactures 16 2 981 786 Machinery & transport equipment 509 72 5 52 Furniture 0 0 325 326 Clothing 1 0 0 135 Total incl others 24,501 5,446 39,604 42,266 Source: UK HM Customs & Excise, Business Monitor, MM20.