Namibia Swaziland

COUNTRY REPORT

Namibia Swaziland

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April 2000

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Contents

3 Summary

Namibia

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2000-01 8 Political outlook 9 Economic policy 10 Economic forecast 13 The political scene 17 Economic policy 19 The domestic economy 19 Economic trends 20 Mining 21 Industry 22 Agriculture & fishing 23 Infrastructure 23 Foreign trade and payments

Swaziland

25 Political structure 26 Economic structure 26 Annual indicators 27 Quarterly indicators 28 Outlook for 2000-01 29 The political scene 31 Economic policy and the economy

List of tables

11 Namibia: forecast summary 17 Namibia: government finances, 1999/2000 18 Namibia: defence spending 19 Namibia: private-sector credit 21 Namibia: uranium oxide production 24 Namibia: external debt 32 Swaziland: budget 33 Swaziland: recurrent expenditure by sector, 2000/01

List of figures

13 Namibia: gross domestic product 13 Namibia: real exchange rates 19 Namibia: inflation, 1999 23 Namibia: foreign reserves, 1999 32 Swaziland: recurrent expenditure, 2000/01 33 Swaziland: revenue, 2000/01 34 Swaziland: migrant labour in South African mines

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March 31st 2000 Summary

April 2000

Namibia

Outlook for 2000-01 In the short term the political dominance of President Sam Nujoma and the ruling SWAPO will mean continuity in policy. Yet there are signs that the CoD may become a credible party of opposition. Instability along the northern border appears set to continue, as the government has reaffirmed its support for the Angolan government and will allow Angolan forces to attack UNITA from Namibian soil. Government policy will continue to focus on employment creation, although tighter budgets are expected in 2000/01 and 2001/02. Higher production of fish and offshore diamonds will increase the rate of growth of real GDP to 4.5% in 2000 and 5% in 2001. Inflation is expected to fall marginally, to an average of 7.5% in 2000, as Namibia imports lower South African inflation. The Namibia dollar will remain at par with the rand, and rebound in the latter half of the year to produce an average rate of N$6.30:US$1 in 2000, before slipping to N$6.50:US$1 in 2001. The trade deficit will narrow in 2000, but lower tourism receipts will shrink the current- account surplus to $170m from an estimated $243m in 1999. In 2001 the current-account surplus will widen to $223m as an improved trade surplus combines with a recovery in tourism.

The political scene Angolan troops have been deployed on Namibian territory, encouraging attacks by UNITA and creating instability. Tourism has been badly affected, and more Caprivians have fled to Botswana. Namibia has lost its case against Botswana over Kasikili island. President Nujoma has been sworn in for a third term, but there is not yet an official opposition.

Economic policy Higher military costs have driven up the 1999/2000 additional budget. VAT is to be introduced in October. Internal debt has been rising.

The domestic economy • Inflation has continued to fall, but private credit is on the rise. • Offshore diamond production appears to have risen sharply. Uranium output has fallen. Tsumeb may soon be out of liquidation, allowing production to start again by mid-2001.

• Rains have caused flooding and damage to crops in the south, most severely affecting ostrich farming.

• Walvis Bay is being deepened to accommodate larger vessels.

Foreign trade and Sales of diamond stockpiles have boosted exports in 1999 and allowed foreign payments reserve levels to grow. Foreign debt has continued to grow modestly, but debt- service obligations remain well under control.

Swaziland

Outlook for 2000-01 King Mswati III has set a November deadline for the constitutional review commission, but it still remains unclear what he expects to be delivered on that date. The frustration of progressive forces at the lack of progress on reform is unlikely to boil over into unrest. The backlog of legislation is likely to be reduced in 2000. Swaziland will need to turn to new sources of revenue as SACU receipts diminish, but this process will not begin until 2003. Real GDP growth in 2000 is expected to be lower than last year’s estimate of 3.1%. Prospects are better for 2001, depending upon weather, as the South African economy recovers. Prices may come under short-term pressure as heavy rains lead to temporary food shortages, but inflation should remain under control in 2000-01.

The political scene King Mswati has called on the government to perform better in 2000, and has set another date for the constitutional review commission’s report. A royal- owned newspaper has been closed under controversial circumstances.

Economic policy and the The real rate of GDP growth in 1998 has been revised upwards to 2.7%. A new economy budget presented to parliament projects a larger budget deficit. Personnel costs have continued to take the lion’s share of public expenditure. Unemployment has risen. Heavy rains have caused severe damage. Several new investment projects have been announced.

Editor: Todd Moss All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Full schedule on www/eiu.com/schedule

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Namibia

Political structure

Official name Republic of Namibia

Form of state Unitary republic

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

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

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

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

National government President and his appointed cabinet; last reshuffle March 2000

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

Prime minister Hage Geingob

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

Central bank governor Tom Alweendo

Economic structure

Annual indicators

1995 1996 1997 1998 1999a GDP at market prices (N$ m) 11,694 13,421 14,901 16,826 18,507 Real GDP growth (%) 3.7 2.1 2.6 2.4 3.0 Consumer price inflationb (av; %) 10.0 8.0 8.8 6.2 8.6c Populationd (m) 1.54 1.58 1.61 1.64 1.67 Exports fob (US$ m) 1,418 1,404 1,343 1,278 1,450 Imports fob (US$ m) 1,548 1,531 1,615 1,451 1,500 Current-account balance (US$ m) 176 116 90 162 243 Total external debt (US$ m) 380 308 146 128 146 Diamond production (‘000 carats) 1,385 1,402 1,416 1,440 1,550 Uranium oxide production (tonnes) 2,378 2,886 3,425 3,257 3,171c Fish catch (‘000 tonnes) 562 494 517 580a 620 International reserves (year-end; US$ m) 221 194 251 260 305c Exchange ratee (av; N$:US$) 3.63 4.30 4.61 5.53 6.11c

March 24th 2000 N$6.49:US$1

Origins of gross domestic product 1998 % of total Components of gross domestic product 1998 % of total Agriculture & fishing 12.2 Private consumption 58.5 Mining & quarrying 12.6 Government consumption 31.5 Manufacturing (incl fish processing) 16.3 Gross domestic fixed investment 18.1 Wholesale & retail trade 7.4 Change in stocks 1.8 Financial services & real estate 10.0 Exports of goods & services 52.7 Government 26.9 Imports of goods & services –62.6 GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports fob 1998 US$ m Principal imports ciff 1997 US$ m Diamonds 389 Food & beverages 337 Processed fish 365 Machinery & electrical goods 209 Other manufactures 232 Vehicles & transport equipment 205 Other minerals (incl uranium) 187 Chemicals & plastics 157 Live animals & animal products 102 Textiles, clothing & footwear 105 Metals & metal products 105

Main destinations of exports 1998 % of total Main origins of imports 1995 % of total UK 43g South Africa 84h South Africa 26 US 4 Spain 14 Germany 2 France 8 Russian Federation 1 a EIU estimates. b Windhoek. c Actual. d Extrapolated from 1991 census. e The Namibia dollar (N$), introduced in September 1993, is at par with the South African rand. f Imports cif, before deduction of duties payable, addition of duties on imports from countries other than the Southern African Customs Union (SACU) and central bank adjustments. g Includes all Namibian diamonds contracted for marketing by De Beers’ Central Selling Organisation, which are shipped via Switzerland for sale in London. h Includes goods from third countries outside SACU purchased through South African suppliers.

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Quarterly indicators

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Consumer pricesa (1995=100) 121.0 122.6 126.8 128.8 n/a n/a n/a n/a % change, year on year 5.1 4.9 6.8 8.0 n/a n/a n/a n/a Financial indicators Exchange rateb N$:US$ (av) 4.950 5.174 6.210 5.779 6.085 6.129 6.098 6.126 N$:US$ (end-period) 5.035 5.867 5.873 5.860 6.190 6.036 6.007 6.155 Interest rates (av; %) BoN overdraft 16.00 18.00 21.25 18.75 16.00 14.50 12.00 11.50 Deposit 12.14 11.37 14.02 14.24 13.15 11.57 9.78 8.76 Govt bond yield 13.40 13.66 17.05 16.30 15.10 14.88 15.20 14.67 Lending 19.54 18.94 21.82 22.58 20.76 19.33 16.97 16.87 Treasury bill 14.82 14.67 20.00 19.45 15.94 13.38 12.20 11.59 M1 (end-period; N$ m) 2,872.8 3,172.8 3,346.3 3,680.9 3,667.7 4,038.3 3,860.8 3,793.6 % change, year on year 4.4 6.4 13.2 27.0 27.7 27.3 15.4 3.1 M2 (end-period; N$ m) 6,460.4 6,644.7 7,061.0 7,160.5 7,291.2 7,831.4 7,851.8 7,773.5 % change, year on year 7.0 0.6 9.5 11.3 12.9 17.9 11.2 8.6 Foreign trade & reserves Goods exports fob (annual totals; N$ m) ( 7,066.8 ) ( n/a ) D i a m o n d s ( 2 , 4 3 6 . 2 ) ( n / a ) Goods imports fob (annual totals; N$ m) ( – 8 , 0 2 1 . 2 ) ( n / a ) Trade balance (annual totals; N$ m) ( –954.4 ) ( n/a ) Reserves excl gold (end-period; US$ m) 257.3 219.1 234.0 260.3 248.5 218.1 209.1 305.5 a Windhoek. b The Namibia dollar (N$) is at par with the South African rand.

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

Outlook for 2000-01

Political outlook

Domestic politics In the short-term the political dominance of President Sam Nujoma and his ruling South West African Peoples’ Organisation (SWAPO) will mean continuity in prevailing policy. Mr Nujoma is believed to be healthy at 70-years old and is expected to serve out his full five year-term, which expires in late 2004. In accordance with the constitution, a new government will be named in March or April. There was speculation that Mr Nujoma might use the recent cabinet reshuffle to bring younger members into the government, but few changes occurred. In fact, the information portfolio was given to the minister of foreign affairs, Theo-Ben Gurirab, one of the president’s closest confidants, signalling an even greater concentration of power at the centre. Nevertheless, many of Mr Nujoma’s closest senior colleagues are likely to retire soon, which may lead in time to a loosening of the president’s present tight grip over the party. In any case, Mr Nujoma does not appear likely to shed his authoritarian reputation in the near future.

Although the numbers clearly indicate SWAPO’s domination of Namibia’s politics—it holds 55 of the 72 seats in the National Assembly—there are signs that a viable opposition movement may be in the making. The breakaway Congress of Democrats (CoD) party, led by a former member of SWAPO and guerrilla fighter, Ben Ulenga, has emerged as the main political alternative to the ruling party. The CoD just beat the Democratic Turnhalle Alliance (DTA) into third place in the presidential election in December, though each party won seven parliamentary seats. Although the CoD failed to make significant inroads into SWAPO’s support in its political heartland of northern Namibia, Mr Ulenga has established the CoD as a viable party and will present a legitimate voice of dissent within the National Assembly. Although there were obvious regional voting patterns, the election result showed that the CoD has national appeal, rather than predominantly ethnically based support, as in the case of the DTA and the smaller United Democratic Front (UDF). This is a relatively rare feat in African politics and augurs well for the continued functioning of multi-party politics in Namibia. Although the opposition in parliament is now more divided, the CoD has the advantage over the DTA of not being tainted by an association with the previous South African colonial regime—although SWAPO’s portrayal of Mr Ulenga as a “sell-out” during the campaign appeared to hurt him, especially among the crucial northern voters.

Most SWAPO leaders, including Mr Nujoma, clearly feel deep bitterness towards Mr Ulenga for having deserted his former political home, although his criticism of its lack of internal democracy was privately endorsed by many members of the ruling party. It appears that SWAPO sees the CoD as its main challenger and is thus encouraging the DTA and UDF to co-operate to form the official opposition, thus denying Mr Ulenga a more prominent voice (see The political scene).

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International relations In the absence of a clear military defeat of Angola’s rebel movement União Nacional para Independência Total de Angola (UNITA), or a negotiated solution to the Angolan conflict—neither of which is probable in the near term—the insecurity prevailing along Namibia’s northern border since the end of 1999 looks set to continue. The Namibian government’s decision to allow Angolan government troops to operate from its territory against UNITA has left border villages and other installations exposed to reprisal raids by the rebel forces, although these have taken the form mainly of sporadic attacks by small groups rather than a co-ordinated military campaign (see The political scene). The government appears firmly committed to maintaining its support for Angola despite the adverse impact on Namibia’s civilian population and economic activities in the north. In the short term this will have a significant negative impact on the country’s tourism industry as overseas tour operators no longer view Namibia as a safe holiday destination (although there remains little risk to visitors outside the border region) and this will take some time to reverse. There is also a risk that, with the perception that Namibia is no longer a safe destination, the attitude of foreign investors may become less favourable. However, the country’s major projects in the south, including the Skorpion zinc mine and refinery and the Kudu offshore gasfield, are unlikely to be affected.

Namibia’s involvement in the civil war in the Democratic Republic of the Congo (DRC), where it has up to 2,000 troops in support of the beleaguered DRC president, Laurent Kabila, is also expected to continue. With the stalling of the DRC peace agreement, and the multitudinous factions involved unlikely to find common ground, Mr Kabila will continue to rely on regional allies, primarily Zimbabwe, but also Namibia and Angola. Indeed, it appears that the spillover of Angolan fighting into Namibia has hardened Mr Nujoma’s resolve to aid his allies.

Economic policy

Policy trends The EIU expects that government policy—especially fiscal policy—will be dominated by concerns over the need to generate new employment and reduce the budget deficit. At his recent inauguration Mr Nujoma pledged that if re-elected, SWAPO would create tens of thousands of new jobs, help establish more small and medium-sized enterprises and attract major new investment to diversify the economy. However, although the continued expansion of the fishing industry and offshore diamond mining are undoubtedly on course, these have created only a few thousand new jobs, many of which have been offset by job losses in other mining companies and in manufacturing. Some new jobs will be generated by the ongoing expansion of capacity at Walvis Bay and Lüderitz harbours, the exploitation of the Kudu gasfield and construction of a large gas-fired power plant at Oranjemund, and the development of copper and zinc mines. However, job creation has been disappointing in the export processing zone (EPZ) programme and the much delayed Epupa hydroelectric scheme. In addition, exploitation of the Kudu field is unlikely to start before 2002-03 at the earliest, and much of the investment required to

expand and diversify the productive economic sector will have to come from private investment sources.

Fiscal policy To attract greater private-sector investment the government will have to take effective action to curb growth in the public sector and reduce the fiscal deficit. As jobs in the civil service are one of the main perks given to party members and former guerrillas, it is politically difficult for the government to cut their number significantly. But, at the least, foreign investors will be looking for more effective action to rein in public-sector expenditure. In this context, the additional budget for the 1999/2000 financial year (April-March), which was postponed until after the election, contained extra (mainly defence-related) spending commitments, but did not signal an irresponsible loosening of the fiscus (see Economic policy). This makes it likely that the forthcoming budget for 2000/01 will not as stringent as had been hoped—the official target is a deficit of 3% of GDP—but will be tighter than the current one. We expect the overall deficit to be reduced from an estimated 4.7% of GDP in 1999/2000 to 4.2% of GDP in 2000/01, and another fall to 3.7% of GDP in 2001/02, assuming that defence commitments can be slowly reduced from 2001.

Monetary policy As inflation is relatively under control and interest rates are expected to come down soon in South Africa, the Bank of Namibia (the central bank) may be able to loosen monetary policy slightly in 2000-01. Even though inflation ended 1999 below 8%, prime lending rates were still 18.5%. Even if inflation remains roughly steady, there is considerable room for lower interest rates, although concerns about capital flight and the value of the rand will keep rates relatively high in South Africa, thus forcing the Bank of Namibia also to maintain a tight monetary policy as well. Therefore, we expect prime interest rates to fall to only about 13.5% in both 2000 and 2001.

Economic forecast

International assumptions International commodity prices will continue to be crucial to Namibia’s economic prospects. In 1999 metal and mineral prices sank to about two-thirds of their 1990 levels in real terms, owing to the slump in Asian demand and the oversupply of certain metals, such as copper. However, Asia is expected to show a strong recovery in 2000, with world economic growth projected by the EIU to increase to 4.1% in 2000 from 3.4% in 1999—with a consequent improvement in demand for metals and minerals. A recovery in Asian demand for diamonds is already apparent, and De Beers has already lifted its 85% purchasing quota for Namibia. De Beers’ recent declaration that it will no longer purchase Angolan diamonds on the open market will further increase its requirements for high-quality gemstones, which comprise the bulk of Namibia’s output. Sales of rough diamonds by De Beers’ Central Selling Organisation were a record US$5.2bn in 1999, and the group expects sales this year at least to match this figure owing to continued strong consumer demand for retail diamond jewellery in the US market and reduced stocks at cutting centres. South Africa will also see real GDP growth increase from 1.2% in 1999 to 4.2% in 2000, which is likely to boost demand for Namibian products.

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Namibia: forecast summary (US$ m unless otherwise indicated) 1998a 1999b 2000c 2001c Real GDP growth (%) 2.4 3.0 4.5 5.0 Consumer price inflationd (av; %) 6.2 8.6a 7.5 8.0 Exports fob 1,278 1,450 1,535 1,720 of which: diamondse 389 530 580 650 fishf 368 410 440 480 manufactured productsg 232 250 260 280 uranium & other minerals 187 155 160 220h Imports fob 1,451 1,500 1,555 1,680 Current-account balance 162 243 170 223 Average exchange rate (N$:US$) 5.53 6.11a 6.30 6.50

a Actual. b EIU estimates. c EIU forecasts. d Windhoek. e Includes estimates by the Bank of Namibia of smuggled stones, equivalent to 5-10% of officially recorded sales. f Processed, semi-processed and unprocessed fish products. g Excluding prepared and preserved fish; mainly meat and meat preparations, beverages and other processed foods. h Assuming the Tsumeb mines are back in full production by mid-2001.

Economic growth Despite the adverse impact of the unsettled border situation on the tourist industry and some local economic activities in the Oshikango-Oshakati area, we expect some buoyancy in the economy in the short term. Primarily reflecting the positive impact of the forthcoming reduction in interest rates and the continued expansion in fishing and offshore diamond mining, real GDP will grow by 4.5% this year, up from an estimated 3% in 1999. There is no real danger that Namibia’s core economic activities, located mainly well south of the border, will be directly affected by instability in the north.

A further increase in offshore diamond recoveries to some 520,000 carats by De Beers Marine (Debmarine) is expected in 2000, but the major boost to output will come from the Namibian Minerals Corporation (Namco) which, having produced an above-target 260,000 carats in 1999, forecasts a further increase in production to an annualised 450,000 carats by the end of this year with the commissioning of its second vessel and new equipment. In addition, a third entrant into the offshore mining sector, Canada’s Diamond Fields International, could start operations by 2001. Overall, Namibian diamond output will exceed 1.6m carats in 2000, up from some 1.5m carats in 1999, with a further increase to over 1.7m carats in 2001.

The prospects for an above-average harvest this year, due to good rains, along with a further increase in the value of white fish output (especially hake) and an upturn in construction activities, will provide a further boost to GDP in 2000. Fish catch ceilings for several important species have been increased for the current fishing season, as a result of accumulated evidence that the biomass has largely recovered in the past few years owing to restricted catch quotas. An increasing number of the hake fishing fleet are wetfish vessels which require onshore processing facilities, and an increase in physical landings will translate into higher fish processing output, which will provide a sizeable boost to overall manufacturing output. Finally, further cuts in interest rates will also stimulate expansion in credit to the private sector.

Assuming that positive trends in fishing and mining continue in 2001, real GDP growth is expected to rise to 5% in 2001. In addition, the Tsumeb mines are expected to reopen—now that a deal for taking them out of liquidation is virtually assured—and a recovery in tourism is forecast. Although extraction from the Kudu gasfield is unlikely to begin before 2002-03, construction of related infrastructure may get under way in 2001. This would provide a major boost to construction and other services, which—along with continued expansion in financial services—should help the economy to achieve its highest real growth rate since 1994.

Inflation Pressure on consumer prices remained relatively steady in 1999: the Central Bureau of Statistics reported a year-end rate of 7.9%, and an annual average of 8.6%, up from 6.2% in 1998. Food, beverages, transport and communications have continued to be the major drivers in the consumer price index. Inflation trends in Namibia tend to mirror those in South Africa—where year-on-year inflation dropped to 2.2% in December—but pressure on prices has eased less rapidly in Namibia, and with a considerable time lag. The South African Reserve Bank (SARB, the central bank) is expected to maintain relatively tight monetary policy and introduce explicit inflation targeting in 2000, which should benefit Namibia. Yet, higher international oil prices and uncertainty over weather-dependent food supplies—and hence food prices—will maintain modest pressure on prices. We therefore forecast that average inflation will fall to only 7.5% in 2000. In 2001 prices are expected again to come under moderate pressure from trends in South Africa: prices are forecast to rise by an average of 8%, despite falling international oil prices.

Exchange rates Despite occasional nationalist rhetoric from politicians, the Namibia dollar is expected to remain pegged at par to the South African rand throughout the forecast period. The central bank governor, Tom Alweendo, is understood to be close to his counterpart at the SARB, Tito Mboweni, and there is little reason to suspect that bilateral relations will deteriorate. Indeed, the Bank of Namibia has recently reiterated that the peg will remain in force for the foreseeable future. Thus, Namibia’s exchange rate will remain largely out of its control and in the hands of the South African monetary authorities. Although the rand remained relatively stable—falling only by about 5% against the US dollar over the course of 1999, it has fallen by that amount again in just the first quarter of 2000—to R6.49:US$1. However, South African inflation is expected to remain under control, a manageable current-account deficit is forecast and higher economic growth should relieve most of the current pressure. We therefore expect a slight recovery in the rand against the US dollar in the final three quarters of 2000, leaving an average exchange rate of N$6.30:US$1. In 2001 the Namibia dollar (and the rand) should depreciate roughly in line with inflation differentials with major trading partners to an average of N$6.50:US$1 in 2001.

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Higher diamond and fish export earnings will narrow Namibia’s foreign trade External sector deficit to just $20m in 2000, before going into a modest $40m surplus in 2001. Export growth in both years is expected to stem mainly from a recovery in the global diamond industry, especially as Asia and Japan show improved economic performance. Namibia’s diamond exports are forecast to reach $580m in 2000 and about $650m in 2001, while total exports will grow from $1.45bn in 1999 to $1.54bn in 2000 and $1.72bn in 2001. Exports in 2001 will also be boosted by the return to production of the Tsumeb base and precious metal mines. Improved export performance will be partly offset by steady import growth, driven by higher consumer demand and increased procure- ments of capital plant, equipment and construction inputs. The invisibles balance will be affected by higher import-related services, while tourism receipts, which had been promising, will be severely affected in 2000 by insecurity in the north, although they are expected to recover in 2001. Overall, we forecast that the current-account surplus will narrow from an estimated $243m in 1999 to $170m in 2000, before widening again to $223m in 2001.

The political scene

Angolan troops are The government’s agreement to the deployment of Angolan troops on deployed in Namibia Namibian soil to fight the Angolan rebel forces of UNITA was apparently taken by the cabinet in early December after detailed consultations with the Angolan government, but kept secret until the end of that month. The first reports of deployments by the Angolan armed forces (Forças Armadas Angolanas, FAA) inside Namibia were denied, but the government subsequently confirmed that Namibia was providing logistical support to their operations, as it was in Namibia’s national interest to support a friendly neighbouring country—a similar justification made for the dispatch of Namibian Defence Force (NDF) troops to the Democratic Republic of Congo in 1999. Heavy artillery and other equipment has been stationed by the FAA at key points along the border, with the largest contingents in and around the Kavango regional capital of Rundu.

In early January the defence minister, Erikki Nghimtina, acknowledged that Namibian troops were providing direct support to Angolan government forces in the interests of eradicating UNITA as a viable military force once and for all. No figures for the number of either FAA or NDF forces involved have been officially disclosed, but at least 5,000 Angolan troops are estimated to be deployed south of the border with a similar number of Namibian troops, including a paramilitary police unit, the Special Field Force (SFF).

Border areas with Angola Although the operation achieved some initial military successes including the have become unsafe capture of Calai, a long-time UNITA stronghold in south-eastern Angola, the impact on Namibian border communities has proved devastating, with a steady escalation in attacks by suspected rebel forces. Most of these attacks have been carried out by small groups, which the Namibian authorities initially claimed were mainly bandits, although some 80 alleged UNITA soldiers captured by the NDF were publicly paraded in Rundu at the end of January. The involvement of the SFF in defending Namibian civilians from attack, has proved controversial, as their previous deployment after the Caprivi secessionist attack in 1999 resulted in accusations of assault and torture of Kavango residents suspected of being Angolan rebels and bandits.

Namibians flee from border The border region of Kavango and western Caprivi has become increasingly villages perilous for both the inhabitants and travellers through the area. There have been almost 30 separate reported incidents of armed robbery and other attacks by suspected members of UNITA since the start of the year, and several villages east of Rundu have been temporarily abandoned by their inhabitants. Most of the attacks have been carried out by small UNITA groups, forced out of southern Angola by the FAA’s military offensive, in search of cash to buy food rather than as part of a co-ordinated military counteroffensive. The most serious incidents have been attacks on vehicles, including the killing of three French children and five Namibian nurses along the trans-Caprivi highway in western Caprivi at the beginning of January, and of a further three Namibians in the same area at the end of February. The NDF has been providing regular armed escorts, but most of those attacked have been driving along the highway unaccompanied. Kavango residents maintain that the government has failed to protect them, and at the end of February some 500 inhabitants of the Geiriku border area staged a protest march to the tribal office at Ndiyoni some 100 km east of Rundu. Many of the marchers said they had been forced to flee their homes and sleep in the bush to escape the robbings and killings and claimed the government had failed to take any action in response to previous meetings.

The local tourist industry is The insecurity along much of the north-eastern border has hit tourism badly, badly affected and a number of tourist lodges and tour operators have cancelled their bookings. In mid-February ten lodges were temporarily closed as the operators felt unable to guarantee the security of guests, putting some 200 Namibians out of work, while large overseas operators that normally run tours to Namibia together with South Africa have been offering Botswana as an alternative. Although the worst impact has been in Kavango and parts of Caprivi, the general instability led a US vehicle assembly firm, Barden International, to suspend its activities at Oshikango. At the beginning of February the company

EIU Country Report April 2000 © The Economist Intelligence Unit Limited 2000 Namibia 15

removed all vehicles from its bonded warehouse in the Oshikango export processing zone to its assembly plant in Windhoek following a UNITA attack on Santa Clara, just across the border in Angola. Barden’s plans to invest N$50m (US$7.7m) on facilities in Oshikango for the export of vehicles and components to Angola have also been put on hold and the company has been forced to take out additional insurance cover for its operations there. Most short-term insurers have warned businesses operating in the border area that they will not pay out for loss or damage directly caused by acts of war.

SWAPO refuses to end Since at least February there have been growing calls by Namibia’s churches military support for Angola and other organisations for the removal of Angolan troops from Namibian soil, and for the government to pursue mediation rather than military intervention in Angola. Although the churches have in the past supported the ruling party, the South West African Peoples’ Organisation (SWAPO), they have grown more critical in recent years, especially following the revelations of the killing and mistreatment of party dissidents prior to independence. This had reduced their influence on the SWAPO leadership, and in February the prime minister, Hage Geingob, rejected as well-intentioned but ill-advised the suggestion of the Council of Churches in Namibia that the government should promote dialogue to end the Angolan conflict. He maintained there was no guarantee that UNITA would respect a commitment entered into through negotiation. A similar rebuff was delivered in a nationwide broadcast by the president, Sam Nujoma, in early March on the grounds that UNITA was not interested in a peaceful solution and that it was the patriotic duty of Namibians to co-operate fully with the security forces in defending the country’s territorial integrity.

More Caprivians flee The growing insecurity along the northern border and alleged harassment by to Botswana security forces has triggered a further exodus of Caprivians to Botswana; some 400 crossed the border during February. This may lead to renewed tensions with Botswana, as the Caprivians are being accommodated at the Dukwe refugee camp near Gaborone, where they have joined some 1,000 Namibians who are still there since fleeing Caprivi at the end of 1998 (1st quarter 1999, pages 11-12). The UN High Commissioner for Refugees still hopes to complete a voluntary repatriation exercise, which was halted after the armed attack by Caprivi separatists on Katima Mulilo in August 1999. The Caprivi secessionist leader, Mishake Muyongo, and the Mafwe tribal chief, Boniface Mamili, are still wanted in Namibia on treason charges, but Denmark—where the two men were transferred from Botswana last year—has rejected Namibia’s request for the men’s extradition.

Namibia loses its claim to Prospects for resolving border disputes with Botswana have improved Kasikili island following a long-awaited decision by the International Court of Justice (ICJ) in The Hague in December. By a vote of 11 to 4, the ICJ ruled that the border between Namibia and Botswana along the Linyanti and Chobe rivers follows the deepest soundings of the river’s northern channel, thereby placing the uninhabited 3.5-sq-km Kasikili/Sedudu island within Botswana’s territory. President Nujoma announced his unqualified acceptance of the ruling, although some Caprivi leaders and parliamentarians from both sides of the house have voiced fears that Botswana may now lay claim to other islands

whose sovereignty is in dispute, including the much larger 92-sq-km Situngu island. However, an agreement setting up a joint commission with Botswana to resolve remaining sovereignty disputes along a 350-km stretch of the Linyanti- Chobe waterway was ratified by the Namibian parliament in February. This provides for the demarcation of the border by an eight-member commission of technical experts, and both governments have accepted that its conclusions will be final and binding.

President Nujoma is sworn Marking Namibia’s tenth anniversary of independence, President Nujoma was in for a third term sworn in for his third five-year term of office on March 21st. As expected, a new cabinet was also named, although there were few changes. The main change was the award of the information portfolio to the minister of foreign affairs, Theo-Ben Gurirab. The outgoing minister of information, Ben Amathila, who is married to the minister of health, Libertina Amathila, probably retired voluntarily, but the appointment of Mr Gurirab places even more power in the hands of a Nujoma confidant. Hifikepunye Pohambo seems to have lost his post as minister without portfolio, though he remains in an influential position as secretary-general of SWAPO.

The CoD is not recognised Despite winning slightly more votes than the Democratic Turnhalle Alliance as the official opposition (DTA) in the December general election, the Congress of Democrats (CoD) has yet to gain the status of official opposition in parliament (1st quarter 2000, pages 11-12). SWAPO remains bitterly hostile to the CoD leader, Ben Ulenga, who is a former SWAPO member, and is unwilling to transact parliamentary business with his party which it would have to do if it became the official opposition. SWAPO appears to be much more comfortable with the prospect of the DTA remaining the main opposition party, despite its pre-independence links with South Africa. Both the CoD and the DTA have seven seats in parliament, leaving the United Democratic Front (UDF) with two crucial seats. The UDF leader, Justus Garoeb, has held talks with both parties about forming an opposition bloc, and there have been persistent reports that the government is seeking to facilitate a deal between the UDF and the DTA. In February the prime minister, Hage Geingob, issued a denial of media reports that a meeting between the DTA and the UDF had been held in his office.

The land bill will come The Communal Land Reform Bill was finally approved by parliament in into effect unamended February, without being amended to take account of the views of about 2,100 individuals and organisations consulted by a parliamentary standing committee. The issue had become increasingly contentious: the government and the committee were fiercely at odds. The main criticism of the bill has been that, although it bans illegal fencing, it does not deal with land fenced off without the permission of local chiefs prior to its enactment. Large areas of communal land in the north have been fenced off in recent years, which has denied many poor farmers access to grazing for their livestock. Even many legal transactions, some reputedly involving government ministers and officials, have not been properly documented.

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Economic policy

Military costs show up in The additional budget for the 1999/2000 financial year (April-March), delayed the additional budget from last November because of the elections, was tabled in the National Assembly by the minister of finance, Nangolo Mbumba, at the end of January. As expected, most of the increased spending allocation is to cover the cost of Namibia’s continued military involvement in the Democratic Republic of Congo (DRC), with gross additional spending set at N$373m (US$58m). Allowing for N$115m in suspensions of previously-budgeted expenditure, the net additional amount is N$258m, a 3% increase on the expenditure estimate of N$7.75bn in the main 1999/2000 budget. However, the increase will be partly offset by an extra N$176m in revenue and grants now forecast for the current year. This reflects higher than expected receipts from individual income tax, non-resident shareholders’ tax and sales taxes, and an increase of N$57m in external grant aid. In consequence, the increase in the budget deficit is only a fairly modest N$82m, and according to Mr Mbumba should not prove difficult to fund through further issues of government securities on the domestic financial market. In December 1999 the government introduced a new 12-month Treasury bill, in addition to the existing 91- and 182-day bills, raising N$150m that month and a further N$100m in January. Mr Mbumba also stated that the government’s cash balance at the Bank of Namibia (the central bank) had been maintained at a “comfortable” level throughout the fiscal year and no other forms of funding were needed to finance the increased deficit. Nevertheless, the revised deficit of N$881m will represent 4.5% of the forecast GDP for 1999/2000, compared with 4.2% of GDP in the main budget, despite a slight upward adjustment in expected GDP.

Namibia: government finances, 1999/2000 (N$ m unless otherwise indicated) Main budget Additional budget % change Total revenue 6,952 7,128 2.5 Tax revenue 6,253 6,391 2.2 of which: income tax on individuals 1,164 1,280 10.0 diamond mining 200 200 0.0 non-mining companies 440 440 0.0 general sales tax 900 965 7.2 customs & excise 2,241 2,241 0.0 Non-tax revenue 589 573 –2.7 of which: diamond royalties 205 205 0.0 External grants 82 139 69.5 Total expenditure 7,751 8,009 3.3 Current 6,673 6,814 2.1 of which: personnel expenditure 3,611 3,678 1.9 Capital 1,078 1,195 10.9 Overall balance –799 –881 10.3 % of GDP –4.2 –4.5 – Source: Ministry of Finance, Estimate of Additional Expenditure for the Financial Year Ending 31 March 2000.

Defence spending rises The breakdown of additional spending shows that N$173m (US$27m), or 46% of the new money, is for defence, boosting its share of total expenditure from 8% in the 1999/2000 main budget to more than 10%. Defence spending will actually rise by 30% to N$732m, almost two-thirds higher than the allocation of N$443m in 1998/99. Mr Mbumba maintained that the additional spending was not solely related to Namibia’s involvement in the DRC, but also included funding for expansion of the Namibia Defence Force (NDF) Air Wing. An amount of N$24m—specifically used to cover the DRC costs—had already been financed from the transfer of funds from the contingency provision included in the allocation for the Ministry of Finance in the main budget. It is unclear how the subsequent DRC costs have been financed, as the specific purposes of the additional defence allocation were not disclosed in the budget document. A further N$74m is allocated to the NDF for “conditions of service”, bringing the army’s total personnel costs to N$319m in 1999/2000, with an extra N$58m allocated for NDF operational equipment and machinery and N$37m for materials and supplies. The other main spending allocations were an extra N$49m for basic education and culture, of which N$23m is for the construction and renovation of school buildings.

Namibia: Defence spendinga

1998/99 1999/2000 % change Defence expenditure (N$ m) 443 732 65 % of total expenditure 6.4 10.3 –

a According to additional budgets for both financial years.

Source: Ministry of Finance

VAT is to be introduced Mr Mbumba also confirmed that existing indirect taxes (additional sales duty in October and general sales tax) will be replaced by value-added tax (VAT) in October 2000 (1st quarter 2000, page 15). Proposals by private firms and other bodies for changes to the present VAT ratings of certain products will also be considered. In particular, Namibia Breweries is hopeful that beer will be down- rated from a luxury product, attracting a 30% levy, to the standard 15% bracket (see Industry).

Internal debt is rising Although the additional budget requires only a small increase in the sharply government’s 1999/2000 borrowing requirement, outstanding domestic debt is continuing to accumulate at a worrying rate, imposing a growing repayment burden. An extra N$20m (US$3m) was allocated to the Ministry of Finance for repayment of interest on government debt, on top of the N$479m provided in the main budget. Including smaller amounts budgeted for public debt repayments, this brings the total allocation for payment of interest and borrowing charges in 1999/2000 to N$515m, 6% more than in the previous year. This may be offset to a certain extent by lower borrowing costs on new T- bill and government stock issues, which should reduce repayments during the next fiscal year beginning on April 1st.

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The domestic economy

Economic trends

Inflation continues to fall Having briefly surged to 8.8% in both October and November 1999, year-on- year inflation as measured by the Windhoek interim consumer price index (CPI) fell to 7.9% in December, the lowest level recorded during the year. A further decline in food price inflation to a year-on-year rate of only 3% in December was the major contributory factor to the reduction. In 1999 as a whole the average rate was 8.6%, 2.4 percentage points higher than in 1998. Although the outlook for inflation remains currently benign, as this season’s good rains will keep down the cost of food staples, upward pressure is being exerted by the continuing rise in international crude oil prices and reduced subsidies by the government. Petrol prices were increased—for the fourth time in eight months—by another 4% to N$2.64/litre (US$0.41/litre); diesel went up by 8% to N$2.50/litre. With the National Energy Fund now virtually depleted, the government has little choice but to continue to reduce subsidies.

Namibia: consumer prices (% change, year on year) 1998 1999 Year-end 8.7 7.9 Annual average 6.2 8.6 Source: Central Bureau of Statistics.

Private-sector credit starts Financial data for the third quarter of 1999 indicate that private credit lending rising again had begun to pick up in response to the lower interest rate environment prevailing since the start of 1999. Encouragingly, credit to businesses grew faster, up by an annualised 6%, contrasting with a 4% decline in the second quarter, whereas credit to individuals, although still the biggest component of overall lending, increased only fractionally. In sectoral terms, the biggest private credit increases on an annualised basis were to agriculture and fishing, contrasting with a sharp drop in lending to manufacturing and a more modest decline in credit to mining. However, on a quarterly basis, lending to mining grew by 5%, compared with a 50% decline in the second quarter.

Namibia: private-sector credit (N$ m) Sep 1998 Sep 1999 % change Agriculture 299 430 43.8 Fishing 344 454 32.0 Mining 130 119 –8.5 Manufacturing 346 179 –48.3 Building & construction 926 935 1.0 Commerce & services 1,951 2,117 8.5 Individuals & others 2,946 2,954 0.3 Total 6,942 7,188 3.5 Source: Bank of Namibia, Quarterly Bulletin, December 1999.

Mining

Exploration restrictions in In a move to encourage further exploration for diamonds and other minerals, the Sperrgebiet are eased the currently restricted Diamond Area No. 1, also known as the Sperrgebiet (forbidden territory) is being opened up for general prospecting. Until now Namdeb Diamond Corporation, the De Beers-Namibian government 50:50 joint venture, has enjoyed exclusive rights to the 26,000 sq km area in the south-western Namib. This development coincides with the introduction of a new diamond act, to be approved April, to replace existing legislation govern- ing the handling of all diamonds mined in Namibia. The act enables firms or individuals to apply for diamond dealing licences, subject to strict controls, but police permits will still be required to access the Sperrgebiet. Namdeb is giving up some of its 26 exclusive prospecting licences over areas with marginal diamond prospects. The new diamond act also extends protection to offshore resources up to the limits of Namibia’s 220 km exclusive economic zone, in view of the growing proportion of marine recoveries in overall output.

Several firms, including Anglo American and Cominco, are expected to apply for base metals prospecting licences. The south-east portion of the Sperrgebiet adjoins the Rosh Pinah lead-zinc mine and the Skorpion zinc prospect, while geological information from a recently completed high-resolution airborne survey indicates that there may be minable deposits further west.

Offshore output is set to Namibia’s diamond output looks likely to exceed 1.6m carats in 2000. The UK- rise this year based Namibian Minerals Corporation (Namco) has announced that production from its Lüderitz Bay grant will increase by 45% to an annualised 400,000 carats by the end of 2000, while De Beers Marine (Debmarine) will also continue to expand its output (1st quarter 2000, page 18). In 1998 Namibia’s total diamond production was 1.44m carats; this is estimated to have risen to some 1.55m carats in 1999, as Debmarine increased recoveries to some 500,000 carats and Namco more than doubled production to 274,000 carats, including 17,000 carats from two months’ operations of Ocean Diamond Mining (ODM), following acquisition of the latter in October 1999. Namco’s target assumes the continued optimum operations of its present production vessel, the planned commissioning of a second vessel during the third quarter of 2000 and the phased upgrading of the three mining vessels acquired in the ODM takeover. Namco has secured US$25m in funding for its new Nam II seabed mining system and onboard processing plant from HSBC Equator Bank and Nedbank Africa. Including 1m carats from ODM licence areas, the total diamond resource available to Namco is currently 3.7m carats, which is expected to be revised upwards after completion this year of a new exploration programme on its Hottentots Bay concession.

Canada’s Diamond Fields International (DFI) is set to become Namibia’s third marine producer next year and will shortly commission a full feasibility study on mining its Lüderitz offshore concession. The Vancouver-based company AGRA Simons recently completed a positive scoping study of the 100-ha Marshall Fork channel, one of four known diamond-bearing areas within DFI’s 660-sq-km Namibian offshore acreage, which reportedly shows strong potential for seabed mining.

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Uranium output falls Production of uranium oxide from Rössing mine recorded a decline of almost slightly 3% in 1999 to just under 3,200 tonnes. However, this was still the second highest annual output recorded since 1991, and the mine management expects to maintain production at the current level, representing about 75% of installed capacity, until the projected upturn in global demand for primary uranium in 2003.

Namibia: uranium oxide production (‘000 tonnes) 1998 1999 % change Total output 3,257 3,171 –2.6 Source: Rio Tinto, Quarterly Production Report.

Tsumeb may soon be taken The long-drawn-out sale of Namibia’s provisionally liquidated main base out of liquidation metals producer, Tsumeb Corporation (TCL), may now be nearing a conclu- sion. In February the company’s creditors accepted a compromise proposal by a local consortium, Ongopolo Mining and Processing (OMP; 1st quarter 2000, page 19). This would involve buying the firm for N$57m (US$8.8m) and taking it out of liquidation in return for guarantees that present and past directors of TCL and its parent companies, Gold Fields Namibia and Gold Fields South Africa, will not face legal prosecution for mismanagement. The government has also dropped a N$44m environmental claim against TCL. Local mining sources now expect the OMP bid to succeed. In this event, the mines and smelter could be back in operation by the end of the year, although full production is unlikely to be achieved until mid-2001. The Australian-backed rival bidder, Metals & Mining Corporation of Namibia, which appeared to be the front-runner for a takeover of TCL in 1999, is now likely to withdraw its offer.

Industry

Nambrew sales soar In the year to January 31st 2000 sales of beer by Namibia Breweries (Nambrew) exceeded 1m hectolitres for the first time in its financial year to January 31st 2000. This was nearly double the output in 1994, largely owing to continued growth in exports to South Africa. Sales to the South African premium lager market now account for one-third of Nambrew’s total sales. The prospect of stronger competition from South African Breweries (SAB) on the domestic market have receded, as the government is not expected to respond to calls by trade unions to grant SAB a brewing licence in order to create more jobs. Nambrew’s ability to fend off the SAB threat has been strengthened by a joint- venture agreement signed between its parent company, Ohlthaver & List Trust Company, and Germany’s Beck at the end of 1999. This provides for distribution of Beck lagers, both locally and in South Africa, while the Bremen- based firm will also invest in Nambrew. On the downside, imposition of VAT on beer at the 30% luxury rate would hit local beer sales (see Economic policy) and the intensification of the civil war in Angola has adversely affected soft drink exports.

India provides a credit line In a boost to the government’s drive to develop new manufacturing for EPZ firms enterprises, the Export and Import Bank of India has provided a N$30m (US$4.6m) credit line for use by wholly-owned Namibian firms and joint ventures investing in export processing zone (EPZ) activities. The financing should benefit some small and medium-sized EPZ firms, but does come with some restrictions and must be used for the purchase of Indian equipment.

Agriculture and fishing

New long-term exploitation There may be some changes in the structure of the fishing industry owing to rights are on offer the reallocation of long-term fishery exploitation licences in the next few months and a government clampdown on licensees selling their rights without authorisation. The Ministry of Fisheries and Marine Resources has received over 500 applications for the four-, seven- and ten-year rights on offer, which include 38 licenses for hake, the most lucrative species. Although the government favours the establishment of joint ventures between Namibians and foreign firms (most existing operations are such joint ventures), provisions encouraging “Namibianisation” have been ignored by some licensees. In practice, given the importance of hake exports, the government is likely to renew rights to most bona fide operators, but it will be looking to attract new investment in the processing of mackerel and other white fish. Few new applicants are likely in the troubled pelagic sector, where pilchard stocks have diminished once again and the canned fish market is currently oversupplied. United Fishing Enterprises (UFE), the largest shore-based processor, may even suspend operations shortly.

Rains cause flooding Heavy rainfall throughout most of Namibia during the latter part of February in the south and early March makes the prospects good for an above-average harvest this year in the northern millet- and maize-producing regions. However, the rains caused some floods in the south, which caused extensive damage to property and ostrich farms. The torrential rains, the heaviest in the area since 1972, produced a huge inflow into the Hardap dam and required the opening of its sluice gates, which caused the already swollen Fish River to burst its banks. The most serious impact will be on the ostrich industry, mainly based on farms around Mariental, about 260 km south of Windhoek, which has expanded rapidly in recent years. The largest firm, Ostrich Production Namibia, now projects a 20% reduction on its previous production target for the current season of 25,000 slaughter birds owing to the destruction of over 3,000 eggs and a large number of chicks.

Grape production is In a significant diversification of Namibia’s agricultural sector, production of expanding seedless table grapes for export to the EU is being stepped up. At present, some 350 ha are planted for grapes at the Aussenkehr irrigated farm near the Noordoewer border point with South Africa on the Orange River. According to the Ministry of Agriculture, 2,100 tonnes of grapes worth some N$20m (US$3m) were exported to EU countries during the 1998/99 season, and a planned expansion of plantings to 1,250 ha within the next two years is expected to boost exports to over 21,000 tonnes by 2003. Should this happen,

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grapes would come second only to beef as a source of agricultural export earnings. The dry conditions of southern Namibia are ideal for grape production under irrigation, and they are ready for picking several weeks ahead of South African grapes, giving Namibia a competitive advantage in exporting for winter sales in Europe.

Infrastructure

Walvis Bay harbour is The prospects of Walvis Bay becoming a regional cargo hub and potentially being deepened competitive with Cape Town should be enhanced by a N$50m (US$7.7m) four- month harbour deepening project started in February. This involves dredging the commercial harbour from the current depth of 10 metres to 12.8 metres, enabling container vessels with a capacity of 2,200-2,400 tonne equivalent units (teu) to be berthed, compared with the present limit to much smaller 700-1,200-teu vessels. This will complete the first phase of a N$200m investment programme initiated two years ago by the Namibian Ports Authority, which included a new container terminal opened in 1999. However, for Walvis Bay to compete as a regional port, and for the Trans-Kalahari highway to become an important route to the Gauteng area in South Africa, the government will have to sort out its ongoing bureaucratic border problems with Botswana.

Foreign trade and payments

The sale of Namdeb’s Although no foreign trade figures for 1999 have yet been published, the value stockpile boosts 1999 exports of exports is estimated to have risen sizeably over the last year, owing to the purchase of the diamond stockpile accumulated by Namdeb (the De Beers- Namibian government joint venture) by De Beers’ Central Selling Organisation (CSO) during the second half of the year and increased offshore diamond output (4th quarter 1999, page 22). De Beers disclosed at the presentation of its annual results in March 2000 that, as well as removing quotas on exports from contracted diamond producers in 1999, the CSO’s record rough diamond sales of US$5.2bn that year had enabled it to absorb almost US$1bn of diamonds stockpiled by Namdeb and it counterpart in Botswana, Debswana. The EIU estimates the value of stockpiled stones purchased from Namdeb at US$100m- US$150m which, coupled with increased offshore recoveries, will have pushed diamond exports well above US$500m, compared with US$389m in 1998.

Foreign reserves increase The disposal of Namdeb’s stockpile and higher diamond sales boosted foreign- exchange reserves by US$60m in December 1999 to a record year-end level of US$305m, equal to an estimated 1.9 months of import cover. Reserves had risen even more sharply, by US$76m, in July 1999—most likely when proceeds from a phased sale of the diamond stockpile took effect. A bullish outlook for the global diamond market and projected increases in Namibian offshore production should push reserves above US$350m in 2000.

Foreign debt continues to The latest data on Namibia’s external debt supplied by the Bank of Namibia increase at a modest rate (the central bank) show that total outstanding external liabilities increased by 4% in 1998 to a year-end total of N$728m (US$124m). This was equivalent to only 4.5% of Namibia’s GDP, fractionally less than in 1997. Whereas private foreign debt almost halved, public external debt increased by 54% in 1998 (although much of this change is probably due to currency movements). The severe drop in private foreign debt is reflected in an eightfold increase in debt service to N$240m, which probably captures the repayment of a single large private loan (no details were available as this report went to press). As a result, the debt-service ratio rose sharply to 2.8% (still a relatively modest figure), although this was also partly due to the fall in exports. These trends reflected the beginning of principal repayments on medium-term bilateral soft loans from China and other donors. The upward trend in debt-service payments is likely to have continued in 1999 with the government’s part-underwriting of the cost of Air Namibia’s new Boeing 747 aircraft.

Namibia: external debt (N$ m; outstanding at year-end) 1997 1998 % change Public external debt 354 545 54.1 Bilateral loans 200 335 68.0 Multilateral loans 142 210 47.4 Others 12 0 – Private external debt 345 182 –47.1 Financial institutions 219 47 –78.5 Others 126 135 7.1 Total external debt 699 728 4.2 External debt service 26.0 239.9 822.7 Ratios Debt-service ratio (%) 0.3 2.8 – Total external debt (% of GDP) 4.6 4.5 – Public external debt (% of GDP) 2.3 2.3 – Source: Bank of Namibia.

At current levels, Namibia’s outstanding external debt remains extremely low and is unlikely to be a constraint on private and public investment. Low levels of debt should also enable the government to borrow from multilateral agencies and international capital markets over the next few years to finance its share of the cost the Kudu gas and Epupa hydroelectric projects without undue difficulty. However, Namibia’s ability to raise the large sums required for these projects could be adversely affected by continued instability along the border with Angola, as private financial institutions may downgrade the country’s creditworthiness owing to the increased political risk. (The EIU normally quotes World Bank data on external debt, contained in Global Development Finance, rather than national sources, but Global Development Finance does not cover Namibia.)

EIU Country Report April 2000 © The Economist Intelligence Unit Limited 2000 Swaziland 25

Swaziland

Political structure

Official name Kingdom of Swaziland

Form of state Absolute monarchy

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

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

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

Head of state Monarch, succession governed by custom

National government The monarch and his cabinet, last reshuffled in November 1998

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 Arthur Khoza

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

Central Bank governor Martin Dlamini

Economic structure

Annual indicators

1995 1996 1997 1998 1999a GDP at market pricesb (E m) 5,243 6,045 6,714a 7,418a 8,107 Real GDP growthb (%) 3.2 3.6 3.7 2.7c 3.1c Consumer price inflationd (av; %) 12.2 6.4 7.1 8.2 6.1e Population (m) 0.91 0.94 0.95a 0.96a 0.97 Exports fobf (US$ m) 868 850 864 790 825 Imports fob (US$ m) 1,009 1,050 1,041 941 1,050 Current-account balance (US$ m) 21 –46 –48 –7 –50 Reserves excl gold (US$ m) 298 254 295 359 380 Total external debt (US$ m) 235 222 368 251 290 External debt-service ratio (%) 1.8 2.9 2.7 2.1 2.5 Sugar productiong (‘000 tonnes) 421 471 476 475 485 Exchange rate (av; E:US$) 3.63 4.30 4.61 5.53 6.11e

March 24th 2000 E6.49:$1

Origins of gross domestic product 1997bc % of total Components of gross domestic product 1997bc % of total Agriculture 9.8 Private consumption 53.4 Industry 47.7 Government consumption 27.1 of which: manufacturing 38.0 Gross fixed investment 33.0 Services 42.5 Change in stocks & statistical discrepancy 0.9 GDP at factor cost 100.0 Exports of goods & services 81.8 Imports of goods & services –96.3 GDP at market prices 100.0

Principal exports fob 1998c US$ m Principal imports fob 1997c US$ m Soft drink concentrate 383 Manufactured goods 296 Sugar 106 Machinery & transport equipment 286 Wood pulp 75 Chemicals 174 Refrigerators 50 Fuel & lubricants 149 Citrus & canned fruit 30 Food & live animals 133

Main destinations of exports 1997c % of total Main origins of imports 1997c % of total South Africa 74.0 South Africa 82.9 EU 12.3 EU 5.5 Mozambique 5.2 Japan 1.9 US 2.4 Singapore 1.5 a EIU estimate. b Years beginning July 1st. c Official estimate. d Low-income index Mbabane and Manzini. e Actual. f Including re-exports. g Crop years (May-April) beginning in the year given.

Quarterly indicators

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Consumer prices (1995=100) 119.7 122.5 124.3 126.5 127.9 130.2 132.3 132.6 % change, year on year 8.3 7.4 8.6 8.1 6.9 6.3 6.4 4.8 Financial indicators Exchange rate E:US$ (av) 4.950 5.166 6.207 5.776 6.083 6.128 6.098 6.126 E:US$ (end-period) 5.034 5.866 5.872 5.860 6.190 6.035 6.004 6.155 Interest rates (%) Deposit (av) 10.08 12.18 13.43 13.43 12.63 9.55 7.53 7.53 Discount (end-period) 14.75 16.75 18.00 18.00 17.00 14.00 12.00 12.00 Lending (av) 17.75 19.75 21.00 21.00 20.00 17.00 15.00 15.00 Money market (av) 9.55 9.55 11.30 12.13 11.85 9.54 7.53 6.54 Treasury bill (av) 13.61 12.38 12.50 13.88 13.90 12.98 9.66 8.22 M1 (end-period; E m) 434.0 498.2 499.3 500.9 518.7 534.7 580.6 662.7 % change, year on year 17.5 5.3 9.8 1.9 19.5 19.5 16.3 32.3 M2 (end-period; E m) 1,567.7 1,706.4 1,851.1 1,924.5 1,976.9 2,079.9 2,172.1 2,225.3 % change, year on year 17.0 11.4 14.9 12.9 26.1 21.9 17.3 15.6 Sectoral trends Sugar exports (‘000 tonnes) 24.9 107.3 76.4 19.9 19.8 107.2 n/a n/a Foreign trade & reserves Exports fob (annual totals; E m) ( 4,367 ) ( n/a ) Imports fob (annual totals; E m) ( 5,608 ) ( n/a ) Reserves excl gold (end-period; US$ m) 313.6 326.9 334.3 358.6 316.9 351.0 368.8 n/a Sources: ISO, Statistical Bulletin; IMF, International Financial Statistics; Central Bank of Swaziland, Quarterly Review.

Outlook for 2000-01

Political outlook King Mswati III has set a November deadline for the constitutional review commission (CRC), but it remains unclear what he expects to be delivered on that date. With hearings of submissions still to be completed, it is unlikely that the CRC will be able to produce its final report in 2000 (see The political scene). In effect, this means that the process will drag on, and a new draft constitution is not likely until—at the earliest—late 2001. It is possible, though, that the call by Sive Siyinqaba, the conservative cultural organisation (and generally regarded as a front for the Imbokodvo National Movement, the traditionalist party of the late King Sobhuza II), for the removal of the ban on political parties is a sign that some influential conservatives consider the so- called progressive forces to be too weak to be a threat. Indeed, some clearly see no purpose in continuing the pretence that political parties do not exist de facto. Sive Siyinqaba may be a conservative force, but overall it appears to favour a more democratic system.

The patience of the progressive forces is being strained by the lack of movement on political reform, but there is no sign of anything—barring a major blunder by the traditional authorities or the government—which might provoke mass action on the scale of the 1996-97 stayaways. The Swaziland Youth Congress (Swayoco) intends to stage a commemoration on April 12th, the anniversary of the 1973 decree prohibiting political parties, but there will be little support from a generally apathetic public. Swayoco leads the progressive movement’s external campaign, having established links with the Commonwealth Youth Forum and the International Union of Socialist Youth, both of which are calling for Swaziland’s isolation. Building such external links may start to irritate the traditionalists.

Economic policy The backlog of important legislation, which has built up over several years because of political stalling, continues to frustrate technocrats in the public service as well as business leaders and donors (1st quarter 2000, page 29). Even though the king has called for legislative action in 2000, royal assent is delaying the enactment of two important bills: the Industrial Relations Bill and the Income Tax Amendment Bill. The minister of finance, John Carmichael, has stated that the government will give priority to the Securities Bill which will formalise and promote the development of the capital market. Another bill to be tabled seeks to establish the Swaziland Tourism Authority (1st quarter 2000, page 34). The long-delayed development plan for 2000-03 will also be introduced.

There will continue to be unease in Swaziland about the potential impact of the EU-South Africa free-trade agreement over both increased competition from European products in South African markets and the severe reduction in the total pool of Southern African Customs Union (SACU) receipts. SACU receipts provide more than half of the government’s revenue, and a medium- term strategy for diversifying revenue sources will soon become an imperative (see Economic policy and the economy). The ill effects of these changes, however, will probably be mitigated by several factors.

• SACU remittances are not expected to begin to fall until 2003. • The EU has set up a specific fund to assist affected countries, especially the smaller Swaziland and Lesotho.

• Sugar and beef are currently excluded from the free-trade agreement.

In any event, fears over Swaziland’s loss of special access to Europe’s beef markets are probably overstated, as the country has been unable to meet its annual quota of 3,000 tonnes, and exports only around 500 tonnes a year.

Economic forecast The Ministry of Economic Planning had expected real GDP to grow by 3.2% in 2000, but has revised that figure downwards to 2.5-3%. Although increased output is expected in major manufacturing sectors, such as soft-drink concentrates, woodpulp and refrigerators, the heavy rains in January-March will result in greatly reduced production of maize (already estimated to be 37% below the previous year’s figure), cotton and sugarcane. The EIU expects real GDP growth in 2000 at the lower end of the government’s projected range. With higher GDP growth in South Africa expected, prospects are reasonably good for improved economic performance in 2001, depending upon weather conditions.

Year-on-year inflation fell to 5.9% by year-end, leaving an annual average for 1999 of 6.1%, compared with 8.2% in 1998. However, the Central Bank of Swaziland does not expect this downward trend to continue in 2000: pressure on prices will come from a scarcity of fresh produce, as a result of rain damage in major producing areas in Southern Africa (see Economic policy and the economy) and increases in the price of fuel caused by rising world oil prices. South Africa, the major source of Swaziland’s imports, saw its inflation rate fall to 2.2% at end-1999, but it expects prices to rise marginally for similar reasons. Yet tight South African monetary policy should keep inflation well under control, while price rises from food shortages should prove only temporary.

Despite these short-term inflationary pressures, Swaziland’s interest rates are expected to come down over the medium term as long as non-food inflation stays in single digits. The Central Bank cut the discount rate from 12% to 11% on January 24th, and this allowed commercial banks to reduce their prime lending rates by 1 percentage point to 14%. One potential problem is that the Central Statistical Office was found not to be Y2K compliant, and new inflation figures may not be available until May.

The political scene

The king calls for a year of King Mswati III officially opened the new parliamentary session on delivery February 11th with a speech in which he attacked the abuse of public office by politicians and identified foreign investment, poverty alleviation and fighting corruption as the main priorities for the government this year.

In his speech the king:

• called for “delivery” from parliament and the government, the judiciary and the courts, including the clearing of the backlog of legislation (see Outlook 2000-01);

• urged that the country adopt a “genuinely welcoming attitude to foreign investment” (this was a rebuke to politicians who regularly rail against foreign investors);

• attacked politicians for abusing their office to enrich themselves and appealed to people to report such cases to the Anti-Corruption Unit (this was most likely a reference to the controversy surrounding land deals carried out by the minister of finance, John Carmichael, when he was minister of housing and urban development); and

• expressed concern that the E20m ($3m) allocated to development projects to alleviate poverty in rural areas in 1999 had not been used, but stated that an additional E20m would nevertheless be allocated in 2000.

Another target date is set King Mswati said he expected the Constitutional Review Commission (CRC) to for the CRC submit its report to the royal kraal before the Incwala festival in November. However, this deadline, originally set for 1998, and then delayed to 1999, appears to be so flexible that this part of his speech was greeted with considerable cynicism (1st quarter 2000, pages 28 and 30). The chairman of the CRC, Prince Mangaliso, said on February 24th that he was optimistic that the new deadline would be met. He expected that all public submissions would be heard by the end of April, when work on the final report might start. However, in view of the large number of witnesses still to be heard, this timetable may not be realistic. More importantly, there is some uncertainty over what exactly the CRC is expected to deliver in November: a new draft constitution or simply a report on the submissions. In either case, the constitutional review process, which began in 1996, is expected to remain a long drawn-out affair.

A royal-owned newspaper The Swazi Observer, owned by Tibiyo Taka Ngwane, the King’s conglomerate, is closed was abruptly closed on February 17th. A statement from the board of directors cited financial reasons for the closure, even though the board had recently approved a five-year expansion plan for the newspaper group without mentioning any financial problems. It is widely believed that the order came from the king. Founded in 1982, the Swazi Observer was regarded as a government mouthpiece and its circulation never matched that of the Times of Swaziland. It failed to make a profit, and its circulation and revenue were largely underpinned by advertisements from the government and sales to ministries. The newspaper had, however, recently become increasingly outspoken. Since November the authorities—through the police, the attorney- general and the prime minister—had been pressuring the editorial staff and senior journalists to reveal their sources for several controversial articles

The closure was criticised both at home and abroad. The Human Rights Association of Swaziland called it a “setback on the road to democracy”, while the Windhoek-based Media Institute of Southern Africa and the New York- based Committee to Protect Journalists expressed their concern about the

threat to freedom of expression. The board of directors issued a statement saying that they were considering the restructuring and financial reorganisation of the group. Some of the affected journalists—the group employed 100 staff including 30 journalists—suspect that the move is aimed at getting rid of the senior staff involved in the controversial reports, and that the newspaper will be transformed into a government publication incorporating the low-circulation government newsletter, Swaziland Today.

The closure of the Swazi Observer leaves the Times of Swaziland as the only local daily newspaper—although South African newspapers are regularly available— and the only independent entity in the Swaziland media with the exception of the monthly magazine, The Nation. This journal, which generally takes a pro- democratic line, is now being edited by the former Times editor, Bheki Makhubu, who was dismissed in October (1st quarter 2000, page 32).

A new advisory body is to The prime minister, Sibusiso Dlamini, in his annual performance report, stated be established that the cabinet had approved the establishment of an advisory council on policy issues. This would be similar to the Swazi National Council standing committee which advises the king on traditional matters. The council would consist of 21 members expected to be drawn from a wide range of expertise, and would meet quarterly for two days at a time. A short-list of candidates was reportedly being prepared for submission to the cabinet. The council may review progress in government initiatives such as the National Development Strategy, the Economic and Social Reform Agenda, and the Public Sector Management Programme. It is unclear why the council is being set up, since the work envisaged for it is already being done by the Public Policy Co- ordinating Unit, which the prime minister last year said was being restructured.

Economic policy and the economy

Real GDP growth in 1998 is The minister of finance, John Carmichael, presented his budget speech on revised upwards to 2.7% February 28th. Although the speech contained no surprises, it was widely criticised for its silence over the failure to implement promises over new legislation and the reform of public enterprises. However, the government did raise its estimate for real GDP growth in 1998 to 2.7% (the previous estimate was 2.3%), although this figure is still to be treated as preliminary.

The minister also told parliament that the level of economic activity picked up in 1999 mainly because of improved global and regional conditions, which increased the demand for Swaziland’s exports. Although no new data were released—a new data set will probably be available after Article IV consultation with the IMF is concluded in April—he also claimed that the main manufacturing sectors all recorded increased production as did agriculture.

A rising budget deficit is The final budget outturn for the 1998/99 financial year (April-March) was a forecast small deficit of E7.1m ($1m), compared with an expected deficit of E196m, attributable mainly to underexpenditure on capital projects and a small rise in revenue. However, in 1999/2000 it is estimated that the deficit will increase to E244m, slightly below the initial figure of E276m. The budget proposed for

2000/01 predicts that the deficit will increase to E337m, the equivalent of 4% of GDP. Despite a gradual loosening of fiscal policy, Mr Carmichael pointed to a declining pool of revenue sources (see below), arguing that it was essential that expenditure be reduced in coming years.

Swaziland: budgeta (E ‘000) 1998/99 1999/2000 2000/01 Actual Estimate Estimate Total revenue & grants 2,275,035 2,551,578 2,766,908 Revenue 2,230,295 2,421,489 2,630,215 Grants 44,740 130,089 136,693 Total expenditure 2,282,171 2,827,740 3,104,072 Statutory expenditure (excl redemption) 68,640 55,040 81,238 Appropriated recurrent expenditure 1,651,620 1,828,295 2,062,601 Capital expenditure 561,911 944,405 960,233 Budget balance –7,136 –276,162 –337,164 Net foreign financing 88,514 249,562 385,738 Drawdown of foreign loans 161,276 327,262 468,238 Redemption of foreign loans –72,762 –77,700 –82,500 Net local financing –81,378 26,600 –48,574 Total financing 7,136 276,162 337,164

a Financial years (April-March).

Source: Budget speech

Personnel costs are the main In the 2000/01 budget personnel continued to be the largest item of drain on public resources expenditure, accounting for 56% of recurrent expenditure. Pay increases of 15% covering two financial years were included in supplementaries which raised the 1999/2000 deficit, and Mr Carmichael criticised this practice for discrediting the budgetary process. Referring to the fact that the recommendations of the Salaries Review Commission (2nd quarter 1999, page 27) were still to be implemented, he warned that the government could not afford any increases without a reduction in public-sector staffing.

Swaziland: recurrent expenditure by sector, 2000/01 (% of total recurrent expenditure) General public services 34.8 Education 23.0 Public order & safety 16.1 Health 8.0 Transport 5.6 Agriculture 3.6 Interest 2.7 Others 6.2 Source: 2000/01 budget.

The economy relies too much The minister of finance also stated that reliance on revenue from the Southern on trade-based taxation African Customs Union (SACU) was a major weakness. SACU receipts were estimated to account for 53% of total government revenue, up from 50% the previous year and representing a 15% increase in value. However, the impending implementation of free trade in the Southern African Development Community (SADC) and between the EU and South Africa, and the finalisation of the revised SACU agreement with a changed revenue-sharing formula, are likely to cause a long-term decline in revenue from trade taxes. The second largest item of revenue—company and personal income taxes—is expected to fall by 3% as a result of income tax amendments. Swaziland is caught in a dilemma: it is keen to reduce taxes to attract new investment (4th quarter 1999, page 30), but its other sources of revenue appear to be declining. Sales tax is to be raised from 12% to 14% (matching the value-added tax rate in South Africa) and is expected to yield 9% more revenue, while grant funding is expected to increase by 5% in 2000/01.

Unemployment is rising The Ministry of Labour has released statistics showing that 1,287 workers were laid off in 1998, of whom 448 were in manufacturing and processing industries and 242 in building and construction. In 1997 only 354 workers were laid off. These figures are certainly underestimates because redundancies involving five or fewer workers are not reported by employers, but they do point to a trend. The ministry put unemployment at 45% in 1998, total employment having

fallen by 3.4% to 109,185. The problem was made worse by the fact that migrant labour to South African mines fell for the third successive year, reaching 10,338 in 1998, compared with 12,960 in 1997. Figures for 1999 are not yet available, but mine recruitment almost certainly fell further.

Heavy rains cause serious Although Swaziland largely escaped the ravages of Cyclone Eline, which caused damage devastation in neighbouring countries in February, the exceptionally heavy and almost continuous rains since January will be a substantial cost to the economy. The authorities expect an influx of Mozambican refugees, although there are no official estimates of numbers. The latest damage estimates for infrastructure amount to E56m ($8.6m), but this is surely an underestimate as heavy rains are continuing into late March. Other impacts from the rains include the following.

• Road repairs will cost at least E53m ($8m), while more funds will be required to repair damaged footbridges, waterpipes and railway lines.

• The Swaziland Railway is expected to lose over E2.5m ($385,000) in March- May because some of the traffic that normally uses Swaziland has been diverted via Botswana following the closure of the Beitbridge border between South Africa and Zimbabwe.

• Cyclone Eline directly affected at least 800 families in the Lubombo district bordering Mozambique, and the government has allocated E520,000 for disaster relief.

• Fresh produce is becoming is becoming increasingly scarce and the price is rising—potato prices have increased by 90%.

• Reported malaria cases in eastern Swaziland have doubled, and livestock diseases there are expected to increase.

• Maize and cotton crops have been destroyed in some areas, and the growth of sugarcane has been stunted by lack of sunshine during the growing period.

A sugar merger is likely to On December 9th the Royal Swaziland Sugar Corporation, the holding go ahead company of Simunye Sugar, offered to purchase the adjoining Mhlume Sugar for an undisclosed sum. A takeover would create the country’s largest company and consolidate the industry into two producers of refined sugar, and could strengthen the industry against foreign takeovers. The third sugar producer, Ubombo Ranches, is already in the hands of South Africa’s Illovo Sugar. An evaluation of the merger by the South African office of KPMG should be ready by the end of April, after which the deal is expected to be concluded.

The Central Bank targets In an effort to spur economic growth, the governor of the Central Bank of venture capital Swaziland, Martin Dlamini, in his annual policy statement, has targeted new outlets for venture capital in order to overcome the country’s ineffective financial structure. According to Mr Dlamini, there are no effective ways to convert savings into domestic investment, while financial institutions shun risk-taking, preferring to invest in South African money markets to get higher returns. The Central Bank proposes the establishment of specialised institutions aimed at long-term financing to provide venture capital for

domestic investments. This idea is, however, not new to the region, and several other countries, notably Botswana, have launched similar schemes. The Central Bank also hopes to restructure the moribund stockmarket, making it more attractive for investment.

New investment is The Swaziland Investment Promotion Authority has reported several new attracted investments in the country.

• Sugar Daddy Candy is to expand its operations to include a biscuit- processing plant, creating 100 new jobs.

• The conversion of 2,000 ha to sugarcane at Big Bend will create 400 new jobs by 2003.

• The Taiwan-based Gold Investments, which manufactures jumpers for export to the US, will spend E3m on expansion before the end of the year. It currently employs 210 staff, and will be increase this by another 300 (3rd quarter 1998, page 31).

• The Taiwan-based textile company, Tuntex, will expand its operations over the next 3-4 years to become the largest private-sector employer in Swaziland (4th quarter 1999, page 22).