Namibia Swaziland

COUNTRY REPORT

Namibia Swaziland

1st quarter 1997

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 40 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 4 Political structure 5 Economic structure 6 Outlook for 1997-98 9 Review 9 The political scene 11 Economic policy 13 The economy 15 Agriculture and fishing 17 Mining and energy 19 Industry 20 Tourism and transport 21 Foreign trade and payments

Swaziland 23 Political structure 24 Economic structure 25 Outlook for 1997-98 26 Review 26 The political scene 29 The economy 33 Foreign trade and payments

35 Quarterly indicators and trade data

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List of tables 8 Namibia: forecast summary 12 Namibia: central government revenue and expenditure 14 Namibia: consumer and food price inflation, 1996 16 Namibia: livestock marketing, 1996 18 Tsumeb metal production and sales, 1996 21 Namibia: Walvis Bay cargo traffic, 1995/96 22 Namibia: foreign reserves, 1996 34 Swaziland: balance-of-payments projections, 1996 35 Namibia: quarterly indicators of economic activity 36 Swaziland: quarterly indicators of economic activity 36 Namibia and Swaziland: UK trade

List of figures 9 Namibia: gross domestic product 9 Namibia: real exchange rates 14 Namibia: money supply growth 26 Swaziland: gross domestic product 26 Swaziland: real exchange rates 31 Swaziland: central government operations 33 Swaziland: trade with South Africa

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February 5, 1997 Summary

1st quarter 1997

Namibia Outlook for 1997-98: Swapo appears to be preparing to change the constitution so that Mr Nujoma, can stand again for office and avert open warfare between rival party factions. Real growth fell to an estimated 1.5% last year, and with a further deterioration in fishing activities and no conclusive sign of the drought ending, the EIU’s 1997 growth forecast has been adjusted downwards to 3.5%. The economy is still set to recover quite strongly in 1998, due to higher offshore diamond and uranium output and an expansion in manufacturing output from new EPZ plants. Exports will increase, but by less than previously forecast, while the improvement in the current-account balance will also be weaker.

Review: Mr Nujoma has strongly criticised the local press and proposed its “Namibianisation”. A woman has been appointed as ombudsman; a new presidential jet is being acquired and another instance of official corruption has been uncovered. Budget spending has been raised by a net 7% for 1995/96 and GDP contracted by 2% in the second quarter of 1996. The drought shows only some indications of easing, but crop prospects have improved, although the livestock situation remains critical. A zero pilchard catch ceiling has been set for 1997, but new deepsea fish rights are being awarded. Uranium output rose by about 20% last year and economic reserves have been confirmed at the Kudu gas field. Namibian meat exporters face increasing difficulties due to deregulation of the South African market.

Swaziland Outlook for 1997-98: Indications are that the opposing positions of the traditionalists and the progressive forces are hardening. The impact of an important report on economic reform might be blunted by the lack of progress on political reform. The stayaway will damage the economy. Progress is expected on the establishment of an investment promotion agency, the restructuring of public enterprises, and the conclusion of a new SACU agreement.

Review: The cabinet has been reshuffled and a number of ministries revamped. The resignation of the former minister of finance has been greeted with dismay. The Constitutional Review Commission has still not commenced its work, and a progressive leader has been withdrawn from its membership. Labour’s 27 demands mask the fact that the need for a new political system is at the heart of growing impatience and polarisation in Swazi society. The stayaway call has been mostly adhered to. The draft report on economic reform has been debated. Swaziland is rated the freest economy in sub-Saharan Africa. A supplementary budget has been approved. Economic growth has slowed, and the deficit has widened. Some new investments have been announced. Some regional agreements have been signed. Inflation figures are problematic. The prime interest rate has risen. A balance-of-payments surplus has been projected for 1996.

Editors: Kristina Quattek; Gill Tudor 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 five-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 December 1999 (legislative and presidential)

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

National government President and his appointed cabinet; last reshuffle March 1995

Main political parties South West Africa People’s Organisation (Swapo), the ruling party; DTA of Namibia (formerly Democratic Turnhalle Alliance); United Democratic Front (UDF); South West African National Union (Swanu)

The government President Sam Shafiishuna Nujoma Prime minister, in charge of public service personnel Hage Gottfried Geingob Deputy prime minister Hendrik Witbooi

Key ministers Agriculture, water & rural development Helmut Angula Basic education & culture John Mutorwa Defence Phillemon Malima Environment & tourism Gerhard “Gert” Hanekom Finance Nangolo Mbumba Fisheries & marine resources Hifikepunye Pohamba Foreign affairs Theo-Ben Gurirab Health & social services Libertina Amathila Home affairs Jerry Ekandjo Information & broadcasting Ben Amathila Justice Ngarikutuke Tjiriange Labour Moses Garoeb Lands & resettlement Pendukeni Ithana Mines & energy Andimba Toivo ya Toivo Prisons & correctional services Marco Hausiko Regional/local government & housing Nicky Iyambo Tertiary education & vocational training Nahas Angula 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 1992 1993 1994 1995 1996a GDP at market pricesb N$ m 7,866 8,353 10,391 11,470 n/a Real GDP growthb % 8.2 –1.9 6.5 4.1 1.5 Consumer price inflationc % 17.7 8.5 10.8 9.9 8.0 Populationd m 1.44 1.49 1.53 1.57 1.62 Exports fob US$ m 1,327 1,279 1,337 1,431 1,450 Imports fob US$ m 1,263 1,212 1,279 1,467 1,550 Current account US$ m 85 121 169 112 50 Total external debte US$ m 291 290 301 315 315f Diamond production ’000 carats 1,549 1,141 1,314 1,382 1,350 Uranium oxide production tons 1,973 1,976 2,242 2,378 2,886f Fish catch ’000 tons 654 789 648 562 510 Exchange rate (av) N$:US$g 2.852 3.268 3.551 3.627 4.300

January 31, 1997 N$4.567:US$1

Origins of gross domestic product 1995 % of total Components of gross domestic product 1995 % of total Agriculture & fishing 15.4 Private consumption 53.7 Mining & quarrying 11.3 Government consumption 32.2 Manufacturing (incl fish processing) 8.9 Gross domestic fixed investment 22.3 Wholesale & retail trade 8.5 Change in stocks –1.7 Financial services & real estate 10.6 Exports of goods & services 54.6 Government 27.7 Imports of goods & services –61.2 GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports 1995 US$ m Principal imports 1994 US$ m Diamonds 486 Food & beverages 281 Fish (processed) 320 Vehicles & transport equipment 203 Other minerals (incl uranium) 247 Mineral fuels & lubricants 144 Live cattle, sheep & goat 133 Machinery & electrical goods 137 Meat & meat preparations 115 Chemicals & plastics 102 Fish (unprocessed) 57 Textiles, clothing & footwear 72 Total incl others 1,431 Total incl othersh 1,171

Main destinations of exports 1994 % of total Main origins of imports 1994 % of total UKi 37 South Africaj 85 South Africa 25 Japana 3 Spaina 10 Côte d’Ivoirea 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 Years ending March 31. f Actual. g The Namibia dollar (N$), introduced in September 1993, is at par with the South African rand. h Source different from above. i Includes diamonds shipped via Switzerland for sale by the CSO in London. j Includes goods from third countries purchased through South African suppliers.

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Outlook for 1997-98

The issue of a third Although the ruling South West Africa People’s Organisation (Swapo) has yet presidential term is to announce publicly whether it will try and amend the constitution to allow proving divisive— the president, Sam Nujoma, to stand for a third term of office, the issue is already proving divisive within the party. According to some reports, the Swapo politburo has already decided in principle to back a change, and will use the forthcoming party congress this August to launch the plan. The party leadership is concerned that it will otherwise prove impossible to prevent increasingly open jockeying for power among the party’s major factions, which reflect ethnic rather than ideological differences. Mr Nujoma is himself apparently now virtually convinced of the need to stay in office in the interests of party unity and the absence of any agreed successor.

—with the Kwanyama However, he is finding it increasingly difficult to keep the lid on ethnic ten- majority beginning to flex sions between subgroups of the dominant Oshivambo northerners, and be- its muscles tween the latter and Namibia’s minority groups, especially the Herero, Damara, Okavango and Nama. The recent decision of the deputy prime minister, Hendrik Witbooi, not to resign from parliament to represent his Nama community in the new council of traditional leaders, was made largely at the behest of Mr Nujoma to avoid unbalancing Swapo’s top leadership. But the president, who is himself from the small Ngandjero subgroup of the Oshivambo, is now facing criticism from the Kwanyama and Ndonga factions, representing the largest Oshivambo subgroups, for keeping too many members of the minority communities in key government and party posts. The pending restoration of the Oukwanyama kingdom under the heir-apparent, Kornelius Mwetupunga, shows that the Kwanyama faction is now mobilising more strongly, which is likely to increase ethnic tensions in the north. The restoration was reportedly engineered largely by the deputy youth and sports minister, Hadino Hishongwa, whose powerful cabinet allies include the trade and industry minister, Hidipo Hamutenya, as well as the speaker of the upper house of parliament, the National Council, Kandindima Nehova. Mr Nehova’s campaign for equality of pay and status between the council and the National Assembly is opposed by the prime minister, Hage Geingob. The latter is being portrayed as too close to the president and a favoured group of foreign investors. As he lacks a constituency within the party, Mr Geingob, a Damara, could be vulnerable to pressure for his removal as prime minister at the next Swapo congress.

The economic recovery With as yet no clear meteorological indications that the protracted drought has will remain weak this definitely broken and given a further deterioration since last year in fishing year— industry conditions, the economic outlook for 1997 appears less promising than envisaged in our last report. The EIU has accordingly revised downwards its economic growth forecast for 1997 to 3.5%. This largely reflects the knock- on effects of adverse economic trends in 1996; we calculate real GDP growth barely reached 1.5%, because overall diamond production was virtually unchanged compared with 1995—despite a further rise in offshore recoveries— while fish catches and processed output seem certain to have fallen even more sharply than anticipated, due to a contraction in white fish and pilchard landings. Coupled with a sharper than predicted fall in beef processing, the impact

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on manufacturing output cannot fail to have been highly negative. The one positive element was the greater than targeted increase in uranium output, with the Rössing mine now operating above two-thirds of its capacity for the first time in four years. This year, the zero catch ceiling initially allocated for pilchards means a large chunk of onshore processing capacity will be heavily underutilised, and this will only be partially offset by the start-up of commercial deepsea fishing under new licences. Even if good rains have been received by the end of the wet season in March, pasture lands will not fully recover immediately, but an improved crop harvest looks probable and the rapidly expanding ostrich farming sector should also ensure that, overall, agricultural sector growth is again positive.

—but mining output The mining sector, whose importance had diminished in recent years with the should continue to expand expansion of the fishing industry, is likely to prove once more the economy’s main motor in 1997. Offshore diamond recoveries are set to increase substan- tially, as De Beers Marine (DBM) is deploying an additional production vessel in its Namibian concession, while production from smaller, independent operators will also become more significant. This should boost offshore output by some 130,000-150,000 carats to a level of 570,000-590,000 carats. Provided onshore output remains relatively constant, overall production should be in the region of 1.5m-1.6m carats, slightly below our previous forecast. Despite the current uncertainties affecting the global diamond market, due to De Beers’ problems in concluding a new sales agreement with Russia, demand for higher quality gemstones at the top end of the scale remains firm. The value of rough diamonds sold by De Beers’ Central Selling Organisation (CSO) rose by 7% to US$4.8bn last year, the same rate of increase as in 1995. Namibian diamonds (onshore/offshore combined) sell for an average of around US$315 per carat— the highest of any producer—and although marine stones are mainly smaller in size, their equally fine quality makes operations in this sector, despite high initial costs, commercially attractive. Improving global demand for uranium should also enable the Rössing mine to continue to raise output in 1997. This will be materially aided by a two-year wage pact concluded with the workforce. Production of copper and other metals produced by Gold Fields Namibia (GFN) should also recover, as operations are now returning virtually to normal, and the company plans to increase exploration and development activities. Up to 16 licences for export processing zone (EPZ) enterprises have now also been approved, of which about half have started operations or are at the construction stage. These will make an initially modest impact during 1997, but will somewhat counteract the impact of reduced fishing output on manufacturing real value-added, and should also provide jobs for some of the retrenched fishery workers in Walvis Bay.

Growth could still put on Stronger economic performance still looks attainable in 1998, although we a spurt in 1998— have adjusted our forecast downwards to 5%. This is mainly to encompass the probability that the fishing sector’s recovery will be less robust than previously assumed and the negative impact of liberalised trade in agricultural products on Namibia’s meat exports to South Africa. However, the positive factors previously identified should still be in play. Diamond production should expand even more sharply than in 1997, as the Namibian Minerals Corporation

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(Namco) would be mining commercially offshore at a projected 150,000- 200,000 carats annually, while a further incremental increase in DBM recoveries will take place with the deployment of a sixth production vessel.

A continued expansion in uranium output to 3,500-4,000 tons is also probable, and refined copper production at Haib is anticipated to start during the second half of the year. This would provide a significant additional boost to overall mining output, as the project, if realised, would be the biggest development since the Rössing mine was opened in the 1970s. By 1998 the number of EPZ factories in operation is likely to be around 20-25, and this would lift manufacturing real value added by a substantial margin. A reduction in interest rates from their prevailing high levels should also be possible next year. The Bank of Namibia (the central bank) is no longer tracking South African rates auto- matically, and will take the opportunity to reduce domestic interest rates, provided inflation and monetary growth can continue to be curtailed.

—but maintaining fiscal The prospects for sustainable economic growth next year will also be strongly stability will be vital influenced by the government’s ability to meet its target of steadily reducing the budget deficit. The 1997/98 budget, due to be presented in March, will be especially crucial to maintaining business confidence in the light of the present fragile economic climate. Although additional spending approved for 1996/97 represents only a net 7% rise on the initial budget forecast, the resulting higher deficit is a step in the wrong direction. Tighter financial controls have been promised for 1997/98 but past performance suggests that reigning in ministerial overspending will continue to prove difficult. The rising level of internal debt will also need to be curtailed to avoid borrowing costs becoming a burden on available resources. A formal debt cancellation agreement with South Africa, due to be concluded in the first half of 1997, will wipe out most, but not all, of Namibia’s outstanding external debt. But external lending from donors, albeit largely on concessional terms, is steadily increasing and large additional sums will have to be borrowed for the Okavango water supply project and, if it goes ahead, the Epupa hydroelectric scheme.

Namibia: forecast summary (US$ m unless otherwise indicated) 1995a 1996b 1997c 1998c Real GDP growth (%) 4.1 1.5 3.5 5.0 Consumer price inflation (%) 9.9 8.0 9.5 9.0 Exports fob 1,431 1,450 1,550 1,740 of which: diamondsd 486 500 550 620 other minerals 247 270 300 325 fishe 377 350 370 380 meat products 115 105 110 110 Imports fob 1,467 1,550 1,590 1,680 Current-account balance 112 50 90 160 Average exchange rate (N$:US$)f 3.627 4.300 4.750 5.000

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

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Export prospects are We have recalculated projected exports in 1997-98 to take account of the slightly less favourable downturn in fishing sector output and a reduced expansion rate in overall diamond exports. However, higher than previously forecast uranium and copper exports should make up some of this shortfall in both years, while deepsea fish catches and a probable resumption of the expansion in hake output next year should see a renewed rise in fish exports. Total exports are now projected at N$1.55bn (US$000) this year and N$1.74bn in 1998. We expect imports to rise in line with the previous forecast, resulting in a lower projected current- account surplus in 1997 and 1998, of US$90m and US$160m respectively.

Namibia: gross domestic product Namibia: real exchange rates (c) % change, year on year 1990=100 8 120 Namibia Africa R:US$(d) 6 110

4 100

2 90 n/a 0 1994 95 96(a) 97(b) 98(b) Pula:US$ 80 (a) EIU estimates. (b) EIU forecasts. (c) Nominal exchange rates adjusted for changes in relative consumer prices. Z$:US$ (d) The Namibia dollar (N$), introduced in September 1993, is at par with the South African rand. Sources: EIU; IMF, International Financial Statistics, World Economic Outlook. 1990 91 92 93 94 95 96(a) 97(b) 98(b)

Review

The political scene

Mr Nujoma has denounced The growing sensitivity of the ruling South West Africa People’s Organisation the “foreign-controlled” (Swapo) to critical press coverage—particularly over the issue of its former press— detainees and official corruption—was underlined by an unprecedented attack on the media by the president, Sam Nujoma. His comments in a December interview with the government-owned (and loss-making) New Era weekly are seen as a thinly veiled threat to “Namibianise” the press. Mr Nujoma described the “enemy press”, claiming that “foreigners” were in control, and said he was “waiting for Namibians to take over the media”. This was undoubtedly a coded reference to the largest private publishing group, Democratic Media Holdings (DMH), owned by white Namibians associated with the opposition DTA party. However, DMH newspapers, including the Die Republikein daily and Windhoek Observer weekly, are ostensibly run by trusts. Most journalists are black or Namibian nationals, and there are no foreign owners. The government has made no attempt to censor the press, but official documents are being released more selectively, and the reports of the Franks inquiry commission, set up by Mr Nujoma in 1991 to probe official corruption, have never been published in full.

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—but an outright Freedom of expression is among the fundamental rights and freedoms guaran- takeover is extremely teed by the Namibian constitution’s entrenched clauses. Any attempt by the unlikely government or a surrogate company to buy up DMH against its wishes with the aim of changing its publications’ editorial stance, Zimbabwe-style, would meet a storm of protest and would probably be ruled illegal by the courts. The information and broadcasting minister, Ben Amathila, a leading cabinet mod- erate, responded to the concern expressed by the Journalists Association of Namibia (JAN) at Mr Nujoma’s remarks by reaffirming that the entrenched clauses remained inviolate. However, he suggested the press should exercise “sensitivity” to help safeguard Namibia’s democracy.

The new ombudsman has A lawyer and women’s rights activist, Beince Gawanas, has been appointed by promised to combat Mr Nujoma as ombudsman on the recommendation of the Judicial Service corruption Commission (JSC). Ms Gawanas, who is chair of the Law Reform Commission, and on the board of the Bank of Namibia (the central bank), is well qualified and widely respected. Ms Gawanas, a member of the Damara community, has pledged to try and prevent, as well as rectify, abuses of individual rights, and to bring corrupt officials to book. However, she was not the first choice of Mr Nujoma, who last September had to rescind his unilateral appointment of the previous acting ombudsman, Ephraim Kasuto, as this was done without a recommendation from the JSC and was therefore unconstitutional. A long- heralded anti-corruption bill, due to be introduced early this year, is expected to delegate responsibility for combating fraud to the ombudsman and auditor- general, rather than setting up a specific investigative agency.

A new presidential jet is Plans for the purchase of a new executive jet for Mr Nujoma have again called being purchased— into question the government’s spending priorities when most Namibians are reeling from the effect of the protracted drought. The new jet which, together with two helicopters, is expected to cost some N$200m (US$44m) would replace the Falcon 200B jet acquired for Mr Nujoma in 1992. The transport minister, Oscar “Hampie” Plichta, who announced the proposed purchase in November, claimed that the new jet would cut down on fuel and maintenance costs and that continued reliance on the Falcon posed a risk to Mr Nujoma’s safety. This conflicts with claims made at the time of the equally controversial purchase of the Falcon that it would have a 10-20-year lifespan. The opposition parties are now busy reviving claims that substantial kick-backs were involved in its purchase and that the same will happen when the new jet is bought. According to the auditor-general’s report on the government accounts for 1995/96, the Falcon is in fact the only one of the eight government-owned aircraft not operating at a loss. While N$500,000 was incurred on maintenance, the N$3m earned from hiring out the Falcon more than offset the N$1.1m total operating costs.

—and the NHE has become Fraud charges against senior managers from the National Housing Enterprise embroiled in scandal (NHE)—the parastatal responsible for implementing the government’s low- income housing programme—are only the latest indication that official corruption is in danger of becoming endemic. The NHE chief executive, Axaro Tsowaseb, and two senior colleagues, were arrested at the end of October on charges of fraud and bribery in connection with a refurbishment project for the

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single quarters building in Windhoek’s Katutura suburb. The charges allege that the officials conspired with the contractor to inflate the project’s N$24m final cost and received bribes disguised as “business loans”. The scandal has cast a shadow over the health minister, Libertina Amathila, as the fraud oc- curred when she was still the housing minister. Mrs Amathila was forced to defend her reputation by making a formal statement in the National Assembly in November. She told MPs that while her office had been aware of alleged irregularities in connection with the project and had set up an inquiry, there had been difficulties in proving specific malpractice. The disruption will increase the NHE’s existing difficulties in meeting its house building targets. The NHE’s 1995/96 annual report reveals that only 155 houses were built, down from 411 in the preceding year. The decline reflects a shortage of funds, while a lack of serviced land and infrastructure was another constraint. However, a further 496 houses were constructed under donor-funded projects.

Botswana’s concerns over Namibia’s decision to implement the Okavango water supply project on an the Okavango scheme emergency basis, to prevent Windhoek running out of water within two years, have to be allayed has raised a storm of protest within Botswana (4th quarter 1996, page 8). The government aims to complete the project, involving a 250-km pipeline from the Okavango to the main water supply network, by October 1998. But Botswana tourist operators and conservationists maintain that the planned extraction of up to 20m cu metres/year would damage the Okavango delta’s fragile wetland ecology. In response, the Namibian government has been forced to agree to extending the current feasibility study to include an assessment of the project’s impact on Botswana’s delta region, the river’s drainage basin. In addition, Gaborone has been promised that supplies would only be extracted during serious water shortages. Both countries, along with Angola, are members of the Okavango Commission (Okacom), set up in 1994 to over- see integrated use of the river. The Okacom agreement stipulates that water usage should be equitable and without harm to other users. Despite this, Namibian water officials initially claimed there was insufficient time for studies or consultations in Botswana. However, Botswana’s opposition to the scheme could jeopardise Namibia’s chances of receiving donor support to cover the estimated N$900m cost. The technical study and environmental impact assessment are due to be completed in March, and Botswana will have the opportunity to make a considered judgement when the engineering design study is submitted before the year-end.

Economic policy

The 1996/97 budget has After only two months in the job the finance minister, Nangolo Mbumba, had after all had to be the unenviable task in November of introducing an additional budget to fi- revised— nance expanded drought relief measures and other spending appropriations for the 1996/97 fiscal year. This was despite the prediction earlier in the year by his predecessor, Helmut Angula, that there would be no need for an additional budget for 1996/97 as the government would be able to use contingency funds for extra drought relief measures (3rd quarter 1996, page 10). However, in response to strong criticism of the government’s apparent U-turn by opposition parties and the independent Namibia Economic Policy Research Unit

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(Nepru), Mr Angula now claims his previous remarks had been taken out of context.

—with an expenditure The gross additional spending appropriation of N$785m (US$172m) represents increase of 7%— a 15% increase on the total N$5.1bn expenditure provided for in the main 1996/97 (April-March) budget. While drought relief was allocated an extra N$160m, the bulk of the additional appropriation (N$452m) was, in fact, to fully implement the first phase of public service pay restructuring, in line with the recommendations of the wages and salary commission (Wascom) published in March 1996. However, in what appears to be somewhat creative accounting, Mr Mbumba explained that the subtraction of “savings and suspensions”, left a net spending increase of only N$368m, equivalent to a more modest 7% rise on the original expenditure estimate. Most of the N$417m in savings comprised the N$352m originally allocated to the prime minister’s office for Wascom. This money has been reallocated to the individual ministries, according to their revised personnel expenditure requirements. In consequence, the extra amount actually needed for Wascom was N$100m, 27% of the 1996/97 net spending increase, according to Mr Mbumba. Other extra allocations were to the main spending ministries to avoid “seriously impairing their operations”, and N$66m to cover an increase in borrowing costs—mainly redemptions and interest re- payments on internal registered stock and Treasury bills.

Namibia: central government revenue and expenditure (N$ m) 1996/97 Main budget Revised budget % change Total revenue 4,524 4,771 5.5 Tax revenue 3,987 4,206 5.5 of which: personal income tax 695 750 7.9 diamond mining 100 90 –10.0 other mining 40 60 50.0 non-mining companies 318 360 13.2 general sales tax 620 680 9.7 additional sales duty 295 290 –1.7 customs & excise 1,348 1,348 0.0 Non-tax revenuea 501 497 –0.8 of which: diamond royalties 160 160 0.0 External grants 35 68 94.3 Total expenditure 5,073 5,441 7.3 Recurrent 4,249 4,590 8.0 Capital 824 851 3.3 Balance –549 –670 22.0 Financing Net borrowing 450 470 4.4 Cash reservesb 100 200 100.0

a Includes capital returns from lending and equity. b Drawn down from preceding financial year.

Source: State Revenue Fund, Estimate of Additional Expenditure for the Financial Year ending March 31, 1997.

—and a higher projected The revenue estimate was also revised upwards, by 5%, to N$4.8bn, due mainly budget deficit to higher tax receipts. But the revised budget deficit is nevertheless higher at

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N$670m, and as a proportion of GDP it has increased from a projected 4.1% to 4.9%. This makes the government’s medium-term target of reducing the deficit to 3% of GDP by the year 2000 more difficult to achieve, despite Mr Mbumba’s reaffirmation that fiscal discipline will be tightened in the 1997/98 budget. An “unproportional increase in government borrowing” for 1996/97 is expected to be avoided, due to the government’s bringing forwards of cash reserves— provisionally put at N$200m—from 1995/96. Mr Mbumba did not actually use the word surplus to describe this sum, which would seem to confirm that outstanding cash reserves are being further drawn down. Based on this assump- tion, the revised borrowing requirement of N$470m represents only a small increase on the original forecast, and is to be financed entirely by government stock issues on the domestic market.

The economy

GDP contracted in the The Bank of Namibia (the central bank) in its most recent Quarterly Bulletin, second quarter of 1996— covering economic developments up to the second quarter of last year, estimated that real GDP declined by 2% over the 12 months to June, compared with the 1% real annual output decrease recorded in the first quarter. However, the downturn was heavily influenced by an unusually large reduction of 13.5% in general government value added in the second quarter of 1996 and, exclud- ing this sector, the rest of the economy managed 1.7% real GDP growth. In the quarter, mining output rose by 12.5%, reflecting a 54% rise in uranium production and 6% expansion in diamond output, and, compared with a 27% contraction in the first quarter of 1996, agricultural output expanded by 30%. This was due to higher marketing levels of cattle as farmers sold cattle before their condition deteriorated—a trend not sustained subsequently—and increased cereals output. Fishing output shrank by almost 39%—the sharpest decline the industry has recorded since independence—with reduced catches of all the main species. Virtually no pilchard were caught during the second quarter of 1996, while catches of hake and horse mackerel fell by 35% and 19% respectively. However, landings of these two fish vary considerably from month to month, and catch rates, while still lower than in 1995, recorded a partial recovery later in the year. The sector recording the worst performance was manufacturing, with a 55% contraction in output during the second quarter, compared with the 11% increase recorded in the first quarter of the previous year. Despite higher cattle sales, lower average carcass weights resulted in a 13% drop in processed meat output, while fish processing, of which pilchard canning is the most important subsector, declined by nearly 80%. Retail sector growth was a barely positive 0.1% during the second quarter of 1996, compared with the 4% increase recorded in the equivalent period of 1995.

—and an interest rate Financially hard-pressed companies, particularly in the commercial agricul- increase is kept to a ture, fishing and retailing sectors, will be further stretched as they are forced to minimum— absorb another increase in borrowing costs. The Bank of Namibia increased its base rate by one-quarter of a percentage point to 17.75% at the end of November, in response to a further rise in South African interest rates. But to minimise the impact on Namibia’s depressed economy, the central bank did not replicate the full 1 percentage point increase in South Africa’s base rate to

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17%. The deputy governor, Tom Alweendo, who took over from Jaafar Ahmad in December, is the first Namibian to hold the central bank governorship, said the previous 1.5 percentage point differential with South Africa was unjustified by economic circumstances in Namibia. The clear implication is that the central bank will seek to narrow the differential further in coming months by continuing to notch up its base rate by less than rate rises in South Africa, or—less likely in the short term—by a reduction. However, Namibian commercial banks increased their prime overdraft rates by three-quarters of a percentage point to 20.75% in December, although mortgage rates were raised by only a quarter of a percentage point to 21%. The banks cited tight South African money-market conditions as the main justification, and stated that the accom- panying three-quarters of a percentage point rise in deposit rates would enable Namibia to continue to offer competitive rates to investors.

—as monetary expansion The South African rate increase was made in response to a jump in the annual eases— inflation rate in October, high growth levels in money supply and credit extension. In contrast, Namibia’s prevailing high interest rates, coupled with the reduced tempo of economic activities, have somewhat curtailed monetary growth and reduced the expansion in lending to the private sector (4th quarter Namibia: money supply growth 1996, page 13). The latest data on monetary trends published by the central % change, year on year bank show the 12-month growth rate in money supply (M2) had declined from 50 M1 29% in September 1995 to 16% in September 1996, while the growth rate in M2 40 total domestic credit decreased from 27% to 17% over the same period. How- ever, in October annual M2 growth accelerated again to 20%. This indicates 30 that a touch on the interest rate tiller was probably a necessary corrective,

20 especially as inflation has resumed an upwards path. Namibia: consumer and food price inflation, 1996 10 (1992=100) a 0 Sep Oct Nov Jan-Nov All items index 141.3 142.0 142.9 - -10 % change, year on year 8.3 8.5 8.6 8.0 Q1 . Q3 . Q1 . Q3 . Q1 . Q3 1994 95 96 Food index 140.8 144.4 146.4 – Source: IMF, International Financial Statistics. % change, year on year 10.3 10.6 10.7 5.6

a Monthly average.

Source: Central Statistics Office.

—but inflation continues The year-on-year inflation rate rose from 8.3% in September 1996 to 8.6% in to creep up November of that year, as measured by the all-items index of Windhoek consumer prices. However, during the first 11 months of 1996 the monthly average year-on-year inflation rate of 8% was still 2 percentage points below the rate of the corresponding period of 1995. The main source of renewed infla- tionary pressures were rising food prices; in September-November the food index recorded an average year-on-year inflation rate of 10.6%. The continued depreciation of the South African rand (and thus the Namibia dollar) also remained a significant contributory cause. Year-on-year inflation of imported tradeable goods averaged just under 9% during September-November, compared with an average of 12% for domestic tradeables. However, as imported goods have a 48% weighting in the all-items index, compared with only 20% for domestic tradeables, import price changes have the greater impact on

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Namibia’s overall inflation rate. The year-on-year inflation rate for non- tradeables, with a 32% weighting, more than halved from the first half of 1996, to an average of only 6% during September-November.

Agriculture and fishing

The drought shows some The prospects for cereal crops in the current season (May-April) appear slightly sign of easing— better than last year, with heavy rain in parts of the north and north-eastern districts during January. However, it is too early to assume the drought has definitely ended. As of December, rainfall remained below the seasonal norm throughout the north, according to the latest crop and food security bulletin published by the Namibian Early Warning and Food Information Unit (Newfiu). In the four north-central regions, where most of the millet (mahangu) crop is grown by subsistence farmers, planting was delayed due to late and insufficient rain. So far, the Caprivi region has experienced the best conditions, with crops sown in the flood plains already flowering. Although about half the commercial farmers in the Otavi maize triangle had finished ploughing by December, planting was still sporadic. However, an increased 1996/97 winter wheat harvest of 2,500 tons is estimated for the Hardap irrigation scheme in the south, due to higher yields. This compares favourably with a 1,730-ton harvest in 1995/96, although below the 5,500 tons produced in 1994/95.

—and no cereal shortage is With cereal imports arriving on schedule, Newfiu assesses the national food anticipated— supply situation as satisfactory, although an estimated 180,000 Namibians— some 103,000 of whom are subsistence farmers and the remainder livestock owners—continue to need food relief. The overall cereal import requirement for the current 1996/97 marketing year remains unchanged at 107,400 tons, of which 45,100 tons had been delivered by December. An additional 10,100 tons of maize is being imported to provide adequate stocks for the start of the new marketing year in May. All imports are being commercially procured by mill- ers, with no food aid imports received or planned for the remainder of the 1996/97 season.

—but recovery of the However, it will require an exceptionally good rainy season for the commercial livestock sector will be livestock sector to recover fully from the drought. While sheep farming pas- slow— tures have improved in the southern Karas region, the condition of cattle in most commercial farming districts remains poor. Only the Gobabis cattle farming district in the east received significant rainfall at the beginning of this year. The persistent drought, low meat prices and bad debts has slashed earnings by the Agra Cooperative, which provides marketing services and farming inputs to its members. Agra lost N$2.3m (US$600,000) in the year ending July 31, 1996, and has sold off unprofitable investments to concentrate on its core activities.

—and livestock sales have Although sales of livestock through the Meat Board of Namibia held up well declined sharply during the first half of 1996, marketing levels subsequently declined, with a pronounced fall in exports of dressed cattle carcasses. During July-October 1996 an average 15,000 head per month were slaughtered for export, down from 19,500 head in January-June, while aggregate cattle and sheep sales declined by over 30% on the same basis.

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Namibia: livestock marketing, 1996 (’000 head) Jan-Jun Jul-Oct Cattle Sheep Cattle Sheep Export abbattoirs 117 2 60 0 Commercial areas 107 2 53 0 Communal areas 10 0 7 0 Live exports 184 540 63 210 Local marketa 14 64 9 35 Total 315 605b 133b 245

a Excludes informal sector supplies. b Total does not add exactly in the source.

Source: Meat Board of Namibia.

The fishing industry faces Pelagic fishing companies are urgently seeking financial relief from the govern- a tough year— ment, in the wake of the fishery and marine resources ministry’s an- nouncement in November of a zero pilchard catch allocation for the 1997 season. A package of measures is under review by the cabinet, and may include waiving fuel levies and short-term subsidies. Many firms are already on the brink of bankruptcy after two years of low catches, and with no canned pilchard produced in 1996, although export orders were met from stocks. One of the largest pilchard quota holders, Namibian Sea Products, has already recorded a N$1m net loss for the first half of 1996, compared with a N$5.5m profit for the same period of 1995. Although the position is to be reviewed in March, it seems unlikely that the pilchard resource will be deemed to have recovered sufficiently for more than a minimal catch ceiling at best. Most of the pelagic sector’s 6,000 employees—out of a 10,000-strong industry workforce—are being retrenched. The industry had requested a 20,000-ton total allowable catch (tac), the same as last year, and the Pelagic Fish Processors and Boat Owners Association chairman, Willem Pronk, claims this would have enabled firms to start catching available fish immediately once the season starts in March.

—and lower white fish The white fish sector will also have to scale down activities this year, as the tacs have been set— government has reduced tacs for hake from 170,000 tons in 1996 to 110,000 tons and mackerel from 400,000 tons to 250,000 tons, of which 170,000 tons comprises midwater trawling. Official catch figures for last year have yet to be published, but are expected to confirm an overall drop in landings, due to a decline in catching rates and fish sizes. The midwater mackerel catch is estimated at 225,000 tons, down 13% on 1995, prompting renewed calls by the Midwater Trawling Association (MTA) for a reduction in quota fees and the waiving of payments for uncaught quotas. However, in December the government announced the suspension of quota allocations for 24 hake and mackerel firms, pending payment of N$18m in fishing fund levies and quota fee arrears. This applies to 16 of the 24 midwater mackerel firms, which owe N$11m, with quotas for only 104,000 tons initially allocated. The MTA has also requested that vessels be allowed to take on fuel at sea, rather than being compelled to pay the higher local price charged at Walvis Bay.

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—but new deepsea fishing However, the fishing industry will receive something of a boost from the immi- rights are being allocated nent award of the first exploitation rights for deepsea fish. The government received 40 applications for the three licences on offer, reflecting the commercial potential of orange roughy, a rare bottom-dwelling species currently abun- dant off the Namibian and South African coasts. However, there is little information on the size of stocks, so modest catch ceilings will be set initially. Roughy fillets currently retail at US$10/kg in the USA, the main market, and the licence conditions stipulate that the Namibian catch must be processed onshore. But some fishery experts are warning that due to its late breeding age—at 30 years of an average 100-year life—roughy is especially susceptible to overfishing. One of the successful applicants is expected to be New Zealand’s Sealord Fishing, which has conducted experimental trawling since 1994. Gendor Fishing, Sealord’s joint venture with General Development Company of Namibia (Gendev) and Dori Namibia, caught over 5,000 tons of roughy, making Namibia the second biggest supplier after New Zealand.

Mining and energy

Offshore diamond output Namdeb Diamond Corporation (Namdeb) produced an estimated 1.35m carats continues to expand last year, a slight decline from the 1.38m carats mined in 1995. However, this reflected a further drop in onshore output, while offshore recoveries rose by some 4% to a record 470,000 carats. De Beers Marine, which mines the largest offshore concession under contract to Namdeb, is deploying a fifth mining vessel this year, which should lift recoveries to around 500,000 carats. In addition, Cape Town-based Ocean Diamond Mining (ODM) expects to exceed its 55,000 carat production target for the year ending March 31, 1997, and has started mining the larger Halifax Island basin deposit. This contains diamonds averaging 0.4-0.5 carat in size, with sales fetching US$185-190 per carat on the Antwerp market. The UK-based Namibian Mineral Corporation (Namco) in- tends to start commercial operations in the third quarter of 1997 and has commissioned the USA’s Dresser Industries to design and construct its first production vessel’s mining system. Mining will target the Koichab feature of Namco’s 400-sq km Lüderitz Bay permit, where a 2.4m carat resource has been identified.

Rössing concludes a Rössing Uranium concluded a two-year wage agreement with the Mineworkers ground-breaking wage Union of Namibia (MUN) at the end of 1996, which leaves the company deal well-placed to take advantage of growing demand on the global market. The agreement provides for basic salary increases of 11% in 1997 and 10% in 1998. Rössing can now plan ahead with confidence that operations will not be dis- rupted by industrial action. Production of uranium oxide rose by just over 20% last year to 2,886 tons, exceeding the original 2,700-ton target for 1996, as a result of higher delivery requirements.

Operations at Tsumeb are Operations at the Tsumeb Corporation’s base metal mines recommenced in getting back on track December, although repairs to the smelter complex will only be completed during February (4th quarter 1996, page 18). A new lead furnace, supplied by Australia’s Ausmelt, is also being commissioned during the first quarter of 1997. However, there was a further setback in January with severe flooding of

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the Kombat mine, expected to result in six weeks’ production being lost. In addition, the Tsumeb mine open pit and upper levels, where mining continued after closure of the main deep shaft in mid-1996, are not being reopened. Gold Fields Namibia (GFN), Tsumeb’s parent company, has applied for a loan from the government’s EU Sysmin facility to finance exploration of the Asis Far West orebody adjoining Kombat, and is continuing shaft fault development work at the Otjihase mine east of Windhoek. Earnings fell by almost 20% last year because of the strike, and GFN recorded an operating loss of N$44m (US$1m), compared with a profit of N$24m in 1995. However, this operating loss was turned into a N$11m net profit by a N$25m insurance pay out for strike-related damage and other sundry revenue.

Namibia: Tsumeb metal production and sales, 1996 % change, tons year on year Production Ore milled 859,000 –37.7 Metal in concentrates (copper, lead, silver) 22,516 –38.1 Smelter output Blister copper 20,413 –31.5 Refined lead 18,844 –29.6 Sales Copper 18,308 -27.0 Lead 24,416 10.1 Silver 43 –35.8 Revenue from sales (N$ m) 283 –18.9 Source: Gold Fields Namibia.

The Haib copper mine In contrast, negotiations between the government and Australia’s Great Fitzroy could be on stream within Mines (GFM) over the US$500m Haib copper mine and refinery development two years are progressing without difficulty and production start-up is scheduled for the second half of 1998 (3rd quarter 1996, pages 16-17). GFM has completed most of the technical and financial studies for the project, and has decided that the higher grade material, an estimated 300m tons averaging 0.4% copper, will be treated by roast leach electrowinning. Projected output is 115,000 tons/year of cathode copper and small amounts of gold and molybdenum.

Development of the Kudu Although detailed results have yet to be published, the first well recently drilled gasfield has moved a step on the offshore Kudu gasfield by Shell Exploration and Production Namibia closer— (SEPN) has confirmed the presence of commercially recoverable reserves. A production test had identified “economic” gas reserves sufficient for “a large- volume export scheme”, according to SEPN. It seems probable that the total resource will prove larger than the 3trn cu ft (85bn cu metres) adopted for SEPN’s base-case field development model. This projects gas output of 250m cu ft/day, sufficient for a 1,750-mw power station. Work on a drilling platform and production wells could start in 1998/99 for first gas production in 2002, according to the SEPN managing director, Ger Kegge. SEPN is continuing discussions with South Africa’s power utility, Escom, on a contract to supply gas for power generation at Saldhana Bay, or for electricity exports from a gas-fired station at Oranjemund. A smaller fast-track project to supply a power plant at Walvis Bay for local electricity demand only is also being considered.

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—but the Epupa hydro An early development of Kudu field might lead to a postponement or scaling- scheme remains highly down of the proposed 450-mw Epupa hydro scheme on the Kunene river, controversial although the government regards both as necessary to meet future electricity demand. Local environmental groups opposed to Epupa maintain that Kudu would provide a constant supply, while hydro output would depend on rainfall patterns and the regulation of dams inside Angola, which have been out of action for 20 years. The NamAng consortium’s Epupa feasibility study should be finished in July, but the selection of a site for final assessment is proving controversial. Out of five options, NamAng chose a Baynes mountains site, some 40 km downstream from Epupa falls, as having the least environmental impact. But a second site 7 km downstream from Epupa, with a larger water storage potential, has now been included at the government’s insistence. Many Ovahimba remain opposed to the project in any form, as land used for grazing and containing ancestral graves would be lost.

Industry

Investment in EPZ firms is The establishment of new manufacturing plants with export processing zone growing steadily— (EPZ) status is proceeding at an encouraging rate (4th quarter 1996, page 14). At the end of November an N$30m (US$7m) motor vehicle component factory, wholly owned by Germany’s Weser Metall Uniformtechnik, was officially opened by the president, Sam Nujoma. Weser produces parts for Audi, Volks- wagen and other German vehicle manufacturers, and its Walvis Bay plant will be used to supply existing overseas and South African customers.

Nine plants were in operation or under construction at the end of January, of which five are located in Walvis Bay, and a total of 18 developments have been granted EPZ status by the trade and industry ministry. An overall N$310m has been committed to these developments, of which N$158m comprises inwards investment, with the balance consisting of equity capital from Namibian investors or loan finance. One project has been cancelled and another deferred, but if all the others reach the operational stage, just under 3,000 new jobs are expected to be created. One of the new developments granted EPZ status is a N$72m ostrich meat-processing plant and tannery at Keetmanshoop, in which the major investors are local commercial farmers and the government institutions pensions fund (GIPF).

—and a General Motors A US firm, Barden Industries (BI), has started work on a N$33m assembly plant assembly plant is being for General Motors (GM) vehicles in Windhoek, after winning a N$138m order opened to replace most of the government vehicle fleet. BI is a leading African- American company and its owner, Don Barden, took Mr Nujoma on a tour of GM’s Detroit headquarters in 1995. The plant is due to open in June and provide 70 local jobs. It will not qualify initially for EPZ status, as most sales will be in the local and South African markets. The order for the supply of some 800 vehicles during 1997/98 was not put out to tender, ostensibly because there were no alternative domestic suppliers. Vehicles imported from Detroit will be re- assembled and converted to right-hand drive, but it is not clear whether they will satisfy the local content rule and qualify for duty-free access to South Africa. South Korea’s Hyundai is having to convert its Botswana plant

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to completely knocked-down (CKD) assembly, after pressure by South African manufacturers to end duty-free imports of semi knocked-down (SKD) vehicles.

Tourism and transport

Government resorts are The state-owned accommodation establishments in national parks will shortly being commercialised— be transferred to a new parastatal, Namibia Wildlife Resorts (NWR), as part of the government’s strategy of reducing its direct involvement in the tourism industry. NWR, due to be established this April, will take over 12 resorts and eight camping areas. Although the government will initially be its sole shareholder, provision has been made for issuing shares to private investors and the NWR will run its business on strictly commercial lines, according to the environment and tourism minister, Gert Hanekom. A Namibia Tourism Board (NTB), mainly drawn from the private sector, is also due to be set up by April. The ministry’s tourism directorate will become primarily a policy and planning section.

—but gambling licence Under an amendment to the casinos and gambling houses act approved in approvals have been December, no more gaming licences are being issued for the time being. The suspended moratorium will remain in force until an official inquiry into the effects of gambling on society publishes its report later this year. This is expected to recommend, at the minimum, tighter regulation of the gaming industry, in view of the growing evidence that many Namibians’ lives are being ruined by gambling-incurred debts. Some cabinet members support even stronger measures, and the fisheries and marine resources minister, Hifikepunye Pohamba, has called for the gambling act to be repealed in toto. In addition to four hotel casino licences, 280 gambling houses have been approved, but 72 pending applications will now be put on hold.

Walvis Bay and Lüderitz The Namibian Ports Authority (Namport) has launched a N$352m (US$77m) harbours are being four-year investment programme to modernise and extend harbour facilities at upgraded Walvis Bay and Lüderitz. The developments at Walvis Bay are aimed at increasing usage of the port by international shippers, who will be able to access regional markets directly through the trans-Caprivi and trans-Kalahari high- ways scheduled for completion in fiscal 1998/99. Germany’s Kreditanstalt für Wiederaufbau (KfW) has provided a N$34m soft loan (at 2% over 30 years) to part-finance the N$80m cost of two short-term projects: the upgrading of the Walvis Bay container terminal; and the modernisation of the tanker jetty, dry-dock and quayside facilities. At Lüderitz, a N$68m multi-purpose quay to service the fishing and offshore diamond industries is being wholly funded by an Ecu12m (US$14m) loan from the European Investment Bank (EIB). Deepen- ing three of Walvis Bay’s eight harbour berths to 12.8 metres has the highest priority of the remaining projects. The government hopes to obtain grants to cover the N$65m cost under the western corridor programme adopted by the Southern African Development Community (SADC). Namport’s turnover rose by almost 20% to N$68m for the year ending April 30, 1996, while retained profits increased by over two-thirds to N$13m. Cargo traffic was up by 5.4% overall, as a fall in most export shipments was more than offset by increased landings of petroleum products and cereals.

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Namibia: Walvis Bay cargo traffic, 1995/96

’000 tons % change Cargo landed 1,215 9.5 of which: petroleum products 719 24.0 maize/wheat 130 109.7 Cargo shipped 653 -1.8 of which: salt 297 -19.7 manganese ore 104 351.7 fish products 76 -30.3 copper/lead 38 -2.6 Cargo transshipped 38 18.8 Total 1,906 5.4 Containerised cargo (%) 18.0 3.3 Source: Namibian Ports Authority.

Foreign trade and payments

The EU-South Africa trade Intensive lobbying by Namibia and its Southern African Development pact could prove Community (SADC) partners appears to have succeeded in persuading the EU to detrimental to Namibia— take account of their concerns over the proposed bilateral free-trade agreement (FTA) with South Africa. In any case, South Africa appears to have lost some of its initial enthusiasm for the deal, and made it clear in January that it would not accept the EU’s proposals on the FTA. Instead, it insisted on a wider develop- mental accord that also takes into account the concerns of the neighbouring countries. SADC members have been particularly concerned at the impact of an FTA on regional trade in agricultural products, as the heavy subsidies received by EU producers mean they would enjoy an unfair advantage in the South African market. Namibia’s livestock industry would be the major loser from a removal of external tariffs by South Africa, which is currently the market for 70% of Namibian exports of live animals and processed meat. The fishing industry also fears that prices paid by EU importers, especially for hake, could fall as suppliers switch to equivalent products from South Africa. Initially, EU negotiators main- tained the FTA’s potential impact was a bilateral matter between South Africa and its regional partners. But at an EU-SADC ministerial conference in Windhoek in October 1996, European officials pledged that the FTA would not impact negatively on South Africa’s neighbours, and compensation would be considered for any perceived disadvantages.

—and meat exports to Progressive import deregulation and new quality controls introduced by South South Africa face other Africa have already had an adverse impact on Namibian meat exporters. Since problems November 1996 Namibian products have had to be approved by South African veterinary authorities before an import licence can be issued. Exporters claim that the additional paperwork and over-rigid application of the new rules have caused a substantial loss of orders. In the meantime, quantitative restrictions on imports from outside the Southern African Customs Union (SACU) have been removed, resulting in a sharp increase in subsidised EU beef imports and lower prices for Namibian products.

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Foreign reserves are Namibia’s foreign reserves have shown little growth over the past year, and accumulating only slowly have yet to exceed US$250m. The latest IMF data show that in October 1996, foreign reserves totalled N$195m, below the end-1995 level of US$221m. This makes it unlikely that Namibia will consider delinking its currency from the rand in the short-term as reserves of around N$400m-500m would probably be the minimum required to build confidence and provide adequate import coverage to underpin an independently valued Namibia dollar.

Namibia: foreign reserves, 1996 (US$ m; end-period) Jul Aug Sep Oct Foreign exchange 238.19 207.27 164.06 195.27 SDRs 0.02 0.02 0.02 0.02 Reserve position in the IMF 0.03 0.04 0.04 0.04 Total reserves excl gold 238.23 207.33 164.12 195.33 Source: IMF, International Financial Statistics.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Swaziland 23

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 ten 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 to be announced

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 & cooperatives 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 Absalom Dlamini Public works & transport Dumasani Masango Tourism & communications Musa Nkambule

Central Bank governor James Nxumalo

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Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at market pricesa E m 2,761 3,206 3,712 4,249 n/a Real GDP growtha % 1.2 3.8 3.7 2.9 2.9b Consumer price inflationc % 9.4 13.6 15.4 14.6 n/a Populationd m 0.82 0.85 0.88 0.91 0.94 Exports fobe$ m 639 674 745 798 700b Imports fob $ m 767 774 819 898 831b Current account $ m 23 –41 –41 –51 –68b Reserves excl gold $ m 309 264 297 298 298f Total external debta $ m 198 201 194 213 n/a External debt-service ratioa % 2.3 2.8 2.8 2.5 n/a Sugar productiong ’000 tons 495 457 485 421 465b Exchange rate (av) E:$ 2.852 3.268 3.551 3.627 4,300h

January 31, 1997 E4.567:$1

% of % of Origins of gross domestic product 1994b total Components of gross domestic product 1994b total Agriculture 11.2 Private consumption 51.3 Industry 40.0 Government consumption 23.5 Manufacturing 36.1 Gross fixed investment 25.2 Services 48.8 Exports of goods & services 82.7 GDP at factor cost 100.0 Imports of goods & services –82.8 GDP at market prices incl others 100.0

Principal exports 1995b $ m Principal imports cif 1995b $ m Soft-drink concentrate 189h Manufactured goods 297 Sugar 122 Machinery & transport equipment 255 Textiles 48 Food & live animals 149 Woodpulp 140 Chemicals 120 Refrigerators 46 Fuel & lubricants 46 Total domestic exports incl others 776 Total incl others 1,017

Main destinations of exports 1994 % of total Main origins of imports 1994/95 % of total South Africa 58.0 South Africa 88.0 Mozambique 5.8 Japan 1.7 USA 3.1 UK 1.4 EU 19.8 USA 1.1 a Years beginning April. b Official estimates. c Low-income index for Mbabane and Manzini. d Official estimates, assuming fertility decline. e Includes re-exports. f November actual. g Crop years (May-April) beginning in calendar years. h EIU estimate.

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Outlook for 1997-98

Political positions harden Swaziland starts a third successive year with labour unrest. Indications are that both the government and the progressive forces will adopt hardline positions as the demands for visible political reform become more strident. There is a real possibility of the situation deteriorating into one of open confrontation and violence, although there is no uniform view within the Swaziland Federation of Trade Unions (SFTU) as to whether the strike should be upheld until its 27 demands are met. The gap between traditionalists and the progressive forces has widened, and events in the first few months of 1997 are likely to determine which side will regulate the pace of inevitable political reforms. Despite the outcry caused by its deployment during the 1996 stayaway, it is possible that the army might be called in again in an attempt to pre-empt the intimidation of workers, shop owners and public transport operators which accompanied the previous stayaway. Although army leaders are thought to favour the status quo, it is not known how much stomach the rank and file have for taking tough action in what is a small, ethnically homogeneous society. The use of force would not be without risk, and further attempts could be made by concerned regional leaders to influence the king (3rd quarter 1996, page 25).

Political stasis may blunt With the question of political change being paramount, the failure of the the impact of the ESRA— Constitutional Review Commission (CRC) to even commence its work will probably mean that the report on the Economic and Social Reform Agenda (ESRA), launched by the prime minister and due to be published in February, will have limited impact. Both business and labour in Swaziland argue that economic and social reform cannot be tackled in isolation in a climate of political uncertainty such as exists at present.

—while stayaways will Both the government and the business sector implored the Swaziland Federa- damage economic tion of Trade Unions (SFTU) to back off from its threats, pointing to the adverse prospects effect the mass stayaway would have on investor confidence, job creation and economic growth. The good rains and resultant improved crop prospects will not be sufficient to trigger economic recovery if the stayaway carries on. The Federation of Swaziland Employers (FSE), estimates that only 30% of normal GDP is being produced during the strike. It has warned that a number of industries might relocate to neighbouring countries, and many shopowners and businesses would close to avoid looting, damage to property and harass- ment of staff.

Action is expected on The long-delayed one-stop Swaziland Investment Promotion Authority is to be investment promotion, established by June, and a new code targeted at increasing the level of private parastatal restructuring— investment will be adopted. On the public enterprise front, the restructuring of Swazibank, the Central Transport Administration (CTA), the Royal Swazi National Airways Corporation (RSNAC), and the Swaziland Posts and Telecom- munications Corporation (SPTC), is expected to progress in 1997. Discussions between the RSNAC and the South African carrier, Comair, regarding a joint venture (3rd quarter 1996, page 27) have already reopened.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 26 Swaziland

—and regional deals The renegotiation of the Southern African Customs Union (SACU) agreement should be completed by the end of the year, in time for ratification by the parliaments of the five countries in the first quarter of 1998, with implement- ation following at the beginning of the 1998/99 fiscal year. Agreement on a revised revenue-sharing formula is expected by April and on the institutional framework by July. Negotiations on the proposed Southern African Development Community (SADC) free-trade area will get under way early in the year, but are unlikely to be completed before the second half of 1998, further complicating the finalisation of the proposed South Africa-EU free-trade agreement. A study by a Zimbabwe-based consultancy, Imani Development, on the impact of the latter agreement on the smaller SACU economies should be completed in February.

Swaziland: gross domestic product Swaziland: real exchange rates (c) % change, year on year 1990=100 5.0 110 Swaziland (a) Africa R:US$(d) 4.0

100 3.0 (b) Pula:US$

2.0 90

1.0

80 0.0 Z$:US$ 1991 92 93 94 95 96 (a) Years beginning April. (b) Official projection. (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 Outlook.

Review

The political scene

The cabinet is reshuffled— On November 12 the prime minister, Sibusiso Dlamini, announced a number of changes to his cabinet. Four ministers (including three princes) were removed while several were transferred to other portfolios. Only six retained their portfolios. The major surprise was the transfer of Derek von Wissell from finance to tourism and communications. However, he rejected the offer the following day and tendered his resignation. He was immediately replaced by Musa Nkambule. This brought to four the number of new ministers, the others being Dumsani Masango (public works and transport), Phetsile Dlamini (health and social welfare) and Prince Guduza (home affairs).

Mrs Dlamini is the only woman in the cabinet. In other significant moves, Themba Masuku was transferred to finance from economic planning and development where he was replaced by Albert Shabangu, formerly at labour and public service.

—and ministries are The number of ministries was reduced by the amalgamation of labour and revamped public service with commerce and industry into a new Ministry of Enterprise and Employment. Some old ministries have been renamed: other new ministries are tourism and communications, public works and transport, public service and information, and foreign affairs and trade. The significant changes in these ministries are:

• the Ministry of Enterprise and Employment will be responsible for facilitat- ing investment and trade, and for handling localisation, work permits and trading licences; and

• the Ministry of Foreign Affairs and Trade has a new brief, namely, to focus on international cooperation and trade as well as on donors and potential foreign partners with a view to attracting investment, development finance and technical assistance.

It is not altogether clear what the dividing line will be between these ministries in certain fields. The Federation of Swaziland Employers (FSE) was critical of the merger of labour and commerce, believing that it will compromise the drive to attract foreign investment since the new ministry consists of sections with very different focus areas. The FSE was also unhappy about the rapid turnover of finance ministers—Mr Masuku is the third in less than two years— as this would convey a negative message to the world and cast doubts over the stability of monetary and fiscal policy.

Dismay greets Mr von The transfer of Mr von Wissell, an able and highly respected minister of fi- Wissell’s departure nance, was greeted with shock, and his stature rose with his resignation on principle—a first for Swaziland. It is generally believed that he was moved from finance because of his determination to restructure the Swazibank which is owed millions by princes, members of parliament, cabinet ministers and other prominent individuals (4th quarter 1995, page 27). This has earned him the enmity of influential individuals in the traditionalist camp. Mr von Wissell’s transfer was interpreted as implying that the government would not implement his policies concerning Swazibank. However, both the prime minister, who had earlier announced that the process of restructuring the bank would be halted to allow it to be reviewed by parliament, and the new minister of finance subsequently stated that the restructuring would proceed. It is clear that the progressive forces will not allow the Swazibank matter to rest.

The constitutional The Constitutional Review Commission (CRC), appointed in July last year commission is mired in (3rd quarter 1996, page 22), had not yet commenced its work by late January. administrative confusion— Its terms of reference and conditions of work had only just been finalised, but its budget had not been completed, and it was not yet able to draw up its work plan. The government has requested a massive E45m ($9.8m) from the international community to fund the work of the 30-member commission over a two-year period.

—as PUDEMO withdraws The statement by the chairman, Prince Mangaliso, that the government would grant the CRC an extension if the two years were not enough, has angered the progressive forces, already champing at the bit at the absence of any progress. After threatening to do so for several months, the People’s United Democratic

Movement (PUDEMO) finally announced in mid-January that it was withdraw- ing its president, Mario Masuku, from the CRC. PUDEMO stated that it would stay out until the government proved its commitment to real change. At its congress earlier in January, PUDEMO had declared 1997 to be the year of political change. In the meantime, the Swaziland Federation of Trade Unions (SFTU) envisages further stayaways and views them as the final push to remove the present system of government.

The SFTU’s 27 demands Although the SFTU has based its stayaway call on the alleged failure of the mask the real issue— government to meet all of its 27 demands made three years ago (1st quarter 1995, page 31), it is clear that this is a smoke screen. Before the southern hemisphere summer holiday parliamentary recess the SFTU had ample opportunity to meet the prime minister and government to discuss the 27 demands, some of which have already been met and others of which are being monitored by the Labour Advisory Board as agreed by both sides.

—which is a new political While the SFTU has scored one success in that the government has decided not system to take it to court for damages suffered in the 1996 mass stayaway, what it and the progressive forces really want is the repeal of the 1973 decree banning political parties. In addition, they want the removal of the present cabinet, the appointment of an interim government, and the framing of a new constitution by a representative body, not one (such as the CRC) appointed by the king. The extent of political support for the progressive forces is unknown, but on the need for political change they voice the same concerns as many moderates. The 1973 decree has been rendered largely ineffectual by increasingly open political activities, and it clearly is a major divisive issue. The king has stated that he would lift the decree if there were evidence that this is what the public wanted. To do so now would deflate much of the aggression from the progressive forces.

Already, no rank or institution in the country is beyond criticism any more. Examples of mismanagement and dubious deals exposed in the press are symptomatic of the mood in a society poised for change. Among the recent issues to have surfaced are the following.

• The role of Tisuka Taka Ngwane and Tibiyo Taka Ngwane, two organisations established by King Sobhuza II to develop enterprises to be held in trust for the Swazi Nation. While Tibiyo operates in public and publishes an annual report and accounts, Tisuka’s operations have been secret, and it is seen as a royal rather than a national enterprise.

• The report of the commission of inquiry into the affairs of the Manzini city council which has led to leading officials being suspended or resigning. The council has been dissolved pending an election.

The strike goes ahead Despite pressure from the government, the SFTU voted on January 19 in favour of an indefinite mass stayaway commencing February 3. The meeting was attended by only 1,000 persons—not all of them SFTU members. There was an apparent lack of enthusiasm for further radical action by many of the SFTU’s 21 affiliated unions, and four of them even intimated that they would not join the action. Following the vote, the government stepped up its pressure on the SFTU, and the Swazi National Council reportedly arrested four SFTU leaders

without the knowledge of the prime minister or the king. The union federation, undeterred by this and the fact that the Swaziland National Association of Teachers (SNAT) called off its strike scheduled for January 28, went ahead with the stayaway. About half of Swaziland’s civil servants were reported to have stayed at home and the sugar industry, the country’s largest foreign exchange earner, as well as the timber industry were brought to a standstill. Police were deployed across the kingdom. Several fire bombs were let off in Manzini, and there has been violence in Piggs Peak where schools were forced to close. Some sabotage of electricity lines resulted in power failures in various parts of the country. In Mbabane ministries were functioning, and life was near normal. The strike appeared set to continue, with several unions saying they would hold up the action until the 27 demands are met. However, this position was not uniformly accepted throughout the country. The Swaziland government has formally complained about interference from the Congress of South African Trade Unions (COSATU) which has collaborated with the SFTU on the South African side to stop formal freight transport. The South African government has issued a statement urging Swaziland to proceed with constitutional reform and to release the SFTU leaders for negotiations. The two countries’ foreign ministers met on February 4 to discuss the crisis.

The economy

The economic policy draft The prime minister, Sibusiso Dlamini, presented the draft report on the proposal is debated— Economic and Social Reform Agenda (ESRA) to discussion groups in late November. A series of workshops were held, and the report was also examined by the World Bank, IMF and UN Development Programme (UNDP). The report has been finalised and will now be tabled in cabinet after the official opening of parliament at the end of January. The prime minister, in his new year’s message to the nation, stated that the ESRA is focused on three main targets— accelerating economic growth, improving social welfare and ensuring good governance. Initial reaction from those who have seen the report is that some of the measures suggested are unworkable in the time frame set out, and will require exceptional levels of coordination among ministries.

—but key legislation The private sector remains concerned that several key bills, all of which would remains stalled go a long way towards improving business confidence, are still being held up by the complicated system of dual government. This legislation comprises the following.

• The Insurance and Pensions Bill. This bill was sent to the king for royal assent early in 1996, and it is thought to have been blocked by some influential senators who have vested interests in the insurance industry. The bill is now to be returned to parliament, and the Ministry of Finance wants it enacted in 1997. Of the 18 companies which had indicated an interest in entering the Swaziland insurance and pension industry, only two remain willing to do so. Millions of emalangeni in potential revenue and many jobs have been lost in the process. Nonetheless, the enactment of the bill is expected to attract investment into the insurance industry. The ESRA report has set a June 1997 deadline for enactment.

• The Securities Bill. Drafting of this legislation is complete, and it will be presented to parliament early in 1997. This legislation will be important for regulating firms in the securities market.

• The Income Tax Bill. This is still being hotly debated by the private sector, and there is a view that it may not be passed in time for introduction in July as has been planned.

• The Company Act. This act, passed in 1912, should be amended and enacted by the end of 1997. It is regarded as a priority by the ESRA report.

• The Industrial Relations Act. This controversial legislation was stated to be invalid by two South African advocates (4th quarter 1996, page 26), and will have to be sent back to parliament.

Swaziland is rated freest According to the 1997 Index of Freedom published by the Heritage Foundation economy in sub-Saharan and the Wall Street Journal, Swaziland is the economically freest country in Africa— sub-Saharan Africa, overtaking Botswana and Uganda during 1996. Its global ranking was joint fiftieth with eight other countries. Of the ten factors used in compiling the ratings, Swaziland’s strengths lay in low levels of government intervention and inflation, low barriers to foreign investment, and a high level of protection of private property.

—but the Groprop debacle A major controversy has erupted over the government’s decision to suspend could be damaging Groprop, the investment arm of the Swaziland National Provident Fund (SNPF), from the Swaziland stock exchange. Groprop was the first listed property company in Swaziland. It was approved by the cabinet, and the government appointed its board. The listing was opened to the public on November 18 and closed on December 6. The suspension late in 1996 was at the behest of traditionalists who were concerned that the SNPF had lost control over the proper- ties even though it was to remain the largest and controlling shareholder. The government’s decision has been strongly criticised by the local business sector as well as by the international financial community including the IMF, which feels that the suspension could be sending the wrong signals to potential investors and thus have serious repercussions for the country.

An E223m supplementary Supplementary Estimates No1 of 1996/97 covering the period until March 31, budget is approved— 1997, were approved by parliament in December. The supplementary appropriation totals E223.2m ($48.5m), of which E92.8m is for recurrent expenditure and E130.4m for capital expenditure. The recurrent expenditure includes a E12m subsidy for the Royal Swazi National Airways Corporation (RSNAC), while the main items in the supplementary capital budget are E83m for the capitalisation of Swazibank and E22m for the Mbabane-Manzini highway.

—but health services face The mission hospital system is in financial straits. Two of Swaziland’s major a financial crisis— hospitals and six clinics had their government subsidies cut in 1996 and were threatening to close by the end of the year, having already begun to limit their services. In December the government allocated E2.2m to these institutions to keep them operating until the end of the financial year in March. The new minister of health, Phetsile Dlamini, has stated that a system of ensuring future government funding is being worked out.

—as the economy dips and Recent estimates of the Central Statistical Office (CSO) show that economic the deficit widens growth slowed to 2.9% in 1995/96 from a level of 3.7% in 1994/95. The 1996/97 growth rate is expected to be about the same as 1995/96. These rates imply falling per head incomes for the last two years. In the meantime, the projected fiscal deficit has widened to about E250m due to the supplementary appropriations, from an estimated outturn of E36m in 1995/96, and the prime minister has stated that Swaziland has entered a difficult period from a financial point of view with uncertainty regarding future levels of revenue from the Southern African Customs Union (SACU). A World Bank/IMF mission in late 1996 apparently identified the lack of commitment to necessary, albeit tough, reforms—including a reduction in the size of the civil service, the control of real wage increases, a reform of public enterprises and the determination of alternative sources of revenue—as a major factor constraining economic recovery.

Swaziland: central government operations E m 2,000 Revenue & grants 1,600 Total expenditure & net lending Overall surplus/deficit

1,200

800

400

-,400 1988/89 89/90 90/91 91/92 92/93 93/94 94/95 94/96(a) 95/96(b)

(a) Estimated outturn. (b) Budget. Source: Central Bank of Swaziland, Annual Report 1995-96.

New investments are The last quarter has seen a number of new investments in Swaziland. In Janu- announced— ary one of South Africa’s largest commercial banks, Nedcor Bank, purchased Standard Chartered’s 55% interest in Standard Chartered Bank Swaziland Limited. In November another South African company, NSA Investments, took a 9% equity stake in one of Swaziland’s largest manufacturers, Masterfridge, which is quoted on both the Johannesburg and Swaziland stock exchanges. The holding will rise to 20% in July. The initial purchase consists of 7.5 million shares for E23.9m, with a further E17.3m due in July. Masterfridge is eyeing export markets in African countries outside the SACU area which it already supplies. Further investments have been made in the clothing and textiles industry. An E4m jeans factory supplying the UK market commenced operations in October and is planning a significant expansion, while a E20m Taiwan garment factory is being constructed to come on stream in September 1997. This plant will employ 1,000 when in full production. There has been speculation that Swaziland could benefit from the relocation of Taiwan firms as a result of South Africa’s recent decision to sever diplomatic ties with Taiwan.

—and crop estimates rise Excellent rains this season have led to major storage dams being close to capacity with assured water supplies for the next season. The early projections are for sugar production of 490,000 tons in 1997/98 compared with 465,000 tons in 1996/97. A good season in the citrus industry is expected, while the Southern

Africa Development Community (SADC) Regional Early-Warning Unit branch in the Ministry of Agriculture and Cooperatives has for the first time in many years estimated a maize surplus for Swaziland in 1996. The kingdom is one of only four mainland SADC countries with a surplus, the others being South Africa, Zimbabwe and Zambia. The final official production estimate for maize for the 1995/96 year is 135,627 tons. This excludes maize grown in commercial farming areas; but the figure is an overestimate because not all the area planted is harvested.

Maize marketing might be The maize industry has made suggestions to the government regarding market- liberalised ing following South Africa’s decision to liberalise its industry. Swaziland has an agreement with Botswana, Lesotho and Namibia (the BLNS grouping) to maintain controls in order to protect indigenous farmers against South African competition. At present, prices in the BLNS countries are higher than in South Africa, and the government will have to decide whether to deregulate the industry or to retain statutory controls.

Agreements with The government has concluded a number of agreements with South Africa and immediate neighbours are Mozambique. The tripartite protocol establishing the Lubombo Initiative (LI) signed was signed in late October, and a ministerial meeting in February will consider project proposals, the majority of which are in eco-tourism. The initiative, first discussed in October 1996, covers the area from the South African port of Richards Bay north through Swaziland to Maputo and is related to the Maputo Corridor initiative. Swaziland also signed an extradition treaty with Mozambique in November: this was necessitated by growing cross-border cattle rustling, and excludes political crimes. In addition, the chambers of commerce and industry of Swaziland and the adjoining South African province of Mpumalanga have signed an Agreement of Mutual Understanding and Co-operation to promote trade relations and commercial links. This agreement will facilitate Swaziland’s participation in the trilateral Maputo Corridor project (3rd quarter 1996, pages 27-28).

Inflation figures are The debate surrounding official estimates of Swaziland’s inflation rate (4th disregarded quarter 1996, page 31) continues. CSO figures for the year-on-year rate are 15.5% for September and October and 15% for November. According to the CSO the main cause of high inflation was the increase in food prices, but it is generally felt that this is not sufficient reason for the sharp rise in inflation in the second half of 1996. There is little confidence in the official figures, and the South African inflation rate is being used for budget planning.

The official rate could have a severe negative impact on wage negotiations in 1997. It is significantly higher than the South African rate, which stood at 8.4% year on year in September, to which Swaziland’s true inflation rate is thought to approximate; but if the unions pitch their wage demands at the official rate, there would be serious consequences for the Swazi economy. The current weights used in calculating the consumer price index are based on a 1985 income and expenditure survey, and results of the 1995 survey are not yet available for the index to be reworked. However, pressure may be put on domestic price levels in Swaziland by an 8% rise in electricity tariffs in January.

Prime lending rate The Central Bank of Swaziland has increased the prime lending rate from increases 18.75% to 19.25% with effect from November 28 in response to a percentage point increase in the Central Bank’s discount rate to 16.75%. The bank rate increase was influenced by money market developments in South Africa, with the South African Reserve Bank increasing its prime lending rate by 1 percentage point in a bid to stabilise the falling rand. The prime rate in South Africa is now 20.25%. Swaziland has followed suit in order to minimise the interest rate differential. Commercial banks responded to the Central Bank’s move by rais- ing their rates proportionately.

Foreign trade and payments

A large balance-of- The Central Bank of Swaziland’s Quarterly Review for September 1996 contains payments surplus is balance-of-payments projections for the year both for total trade and trade projected with South Africa. An overall surplus of E119.5m ($28m) is projected, up from E108.2m in 1995 and a deficit of E4.5m in 1994. However, the current-account deficit has worsened rapidly in the last three years—from E91.7m in 1994 to E171.4m in 1995 and E292.9m in 1996—largely explained by a widening in the trade deficit from E262.1m in 1994 to an estimated E563.1m. Export earnings were forecast to grow at only 3.4% in 1996 compared with 10% in 1995 because of dampened market prices and some reductions in output, but growth in the value of imports is expected to fall only slightly to 9.9% compared with 11.8% in 1995. A slight improvement in the services balance is forecast, although it remains in deficit, while net official transfers are expected to rise as a result of higher customs union receipts. The capital account reflects a marked improvement, the net inflow being a reversal of the deficit position in 1994. This is attributable to increased inflows of foreign direct investment in the form of equity and to high levels of reinvested earnings. The outflow of short-term capital by the banking sector was forecast to rise from E17.8m in 1995 to E195.4m in 1996 as a result of the relaxation in the local assets requirement effected in May 1996 which allows local commercial banks to place more of their assets in foreign currencies.

Swaziland: trade with South Africa E m 500

250

0 Service balance -,250 Current-account balance -,500 Trade balance

-,750

-1,000

-1,250

1992 93 94 95 96

Source: Central Bank of Swaziland, Quarterly Review.

Continued membership of Swaziland’s high level of integration with South Africa is clearly illustrated in CMA is recommended both the current and capital accounts. Both the Southern African Customs Union (SACU) and Common Monetary Area (CMA) are critical in this integration. A joint World Bank/Swaziland government report on the financial sector has recommended that Swaziland retain its membership of the CMA “unless economic policy management in South Africa deteriorates seriously”. The report also recommends that the lilangeni should retain parity with the rand for the foreseeable future, that Swaziland should extract the maximum possible advantage from its close relationships with South Africa in the CMA and SACU, that it should work for greater cooperation with the South African monetary authorities and for full coordination of economic policies in the CMA, and that efforts by the central bank to maintain lower interest rates than in South Africa should be discontinued.

Swaziland: balance-of-payments projections, 1996 (E m) With With other South Africa countries Total Merchandise trade balance –1,268.8 705.7 –563.1 Exports fob 1,779.6 1,232.2 3,011.9 Imports fob –3,048.4 –526.6 –3.575.0 Services balance 107.8 –354.4 –246.5 Credit 636.5 234.3 870.8 Debit –528.6 –588.7 –1,117.3 Goods & services balance –1,160.9 351.4 –809.6 Transfers (net) 241.3 275.4 516.7 Official (net) 241.5 275.4 516.9 Private (net) –0.2 0.0 –0.2 Current-account balance –919.6 626.7 –292.9 Long-term capital (net) 104.7 –72.9 31.8 Public sector (net) –4.9 –23.2 –28.1 Private sector (net) 109.6 –49.7 60.0 Banks (short term) –183.1 –12.2 –195.4 Other short-term capital 354.1 –115.1 238.9 Capital-account balance 275.7 –200.2 75.4 Errors & omissions 803.6 –466.6 337.0 Overall balance 159.6 –40.1 119.5 Reserve movements (- indicates increase in net official reserves) Foreign assets: central bank –26.4 –160.4 –186.8 government –143.2 0.0 –143.2 Liabilities with IMF 0.0 –0.1 –0.1 Valuation changes 10.0 200.5 210.6 Net change 159.6 –40.1 119.5 Source: Central Bank of Swaziland, Quarterly Review.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 35

Quarterly indicators and trade data

Namibia: quarterly indicators of economic activity

1994 1995 1996 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 tons ( 2,242 ) ( 2,378 ) ( n/a ) Diamonds ’000 carats ( 1,314 ) ( 1,382 ) ( n/a ) Qtrly totals Copper ore ’000 tons 7.2 8.4 6.1 5.5 6.1 6.7 5.6 6.0 3.0 0.0a Zinc ore “ 8.3 8.5 7.8 10.6 10.5 9.6 7.5 7.2b 7.2b 4.8ab Agriculture Annual totals Cattle marketed ’000 ( 397 ) ( n/a ) ( 448c ) Fish catch ’000 tons ( 648 ) ( 562 ) ( n/a ) Prices Monthly av Consumer pricesd: 1990=100 161.3 165.1 169.7 171.9 176.4 179.0 182.6 185.5 190.4 n/a change year on year % 11.8 11.9 11.9 10.5 9.4 8.4 7.6 7.9 7.9 n/a Money End-Qtr M1 N$ m 1,850.9 1,682.8 1,812.9 1,825.8 1,949.5 1,822.2 1,811.7 2,060.5 2,188.0 2,617.1e change year on year % 47.0 14.7 34.3 24.7 5.3 8.3 –0.1 12.9 12.2 n/a Foreign trade Annual totals Exports fob US$ m ( 1,337 ) ( 1,431 ) ( n/a ) Imports fob “ ( 1,279 ) ( 1,467 ) ( n/a ) Exchange holdings End-Qtr Foreign exchange US$ m 184.8 202.6 196.5 180.6 169.1 220.9 235.7 216.6 164.1 185.0e Exchange ratef Market rate N$:US$ 3.565 3.544 3.591 3.637 3.650 3.648 3.981 4.335 4.530 4.683

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

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 36 Quarterly indicators and trade data

Swaziland: quarterly indicators of economic activity

1994 1995 1996 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 tons 83.2 109.5 61.3 75.3 74.3 64.4 14.2 56.8 82.3 n/a Prices Monthly av Consumer prices: 1990=100 163.0 169.5 177.6 184.5 185.2 188.7 196.0 200.2 209.4 218.6a change year on year % 15.0 15.8 17.1 17.1 13.6 11.3 10.4 8.5 13.1 n/a Money End-Qtr M1, seasonally adj: E m 332.0 289.9 341.8 358.9 352.9 338.8 326.9 347.5 382.8 385.5b change year on year % 31.2 7.2 6.1 28.2 6.3 16.9 –4.4 –3.2 8.5 n/a Foreign trade Annual totals Exports fob E m ( 2,646 ) ( 2,894 ) ( n/a ) Imports cif “ ( 3,292 ) ( 3,687 ) ( n/a ) Exchange holdings End-Qtr Foreign exchange US$ m 234.3 284.0 238.8 226.9 227.8 285.0 252.9 260.8 268.1 284.7c Exchange rate Market rate E:US$ 3.565 3.543 3.591 3.636 3.650 3.648 3.981 4.334 4.530 4.683

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.

Namibia and Swaziland: UK trade (£ ’000) Namibia Swaziland Jan-Nov Jan-Nov Jan-Nov Jan-Nov 1995 1996 1995 1996 UK imports cif Meat & preparations 17,206 21,413 825 1,382 Fish & preparations 6,521 1,989 0 0 Fruit, vegetables & preparations 94 13 5,026 5,205 Sugar & preparations 0 0 31,434 31,504 Chemicals 203 3 15 14 Textile yarn, fabrics & manufactures 14 16 428 981 Machinery & transport equipment 422 509 42 5 Furniture 0 0 825 325 Clothing 3 1 0 0 Total incl others 25,367 24,501 39,026 39,604 UK exports fob Food, drink & tobacco 74 276 18 72 Chemicals 319 185 365 490 Textile yarn, fabrics & manufactures 54 89 5 0 Non-metallic mineral manufactures 11 6 20 1 Iron & steel 1 266 310 42 Metal manufactures 579 432 3 17 Machinery incl electric 2,432 1,646 507 646 Transport equipment 892 1,556 166 99 Clothing 106 31 3 5 Scientific instruments etc 281 393 61 262 Total incl others 5,475 6,625 2,009 1,834