Swazi political risk is unknown factor in FDI equation

CIPS 23 March 2011

Swazi political risk is unknown factor in FDI equation

Kingdom welcomes investors in export drive and multinationals are biting

WE ARE a small country so we’re export-driven in all our investment initiatives," Swazi Commerce, Industry and Trade Minister Jabulile Mashwama says.

Flanked by SA and Mozambique, Swaziland has a population of 1,2-million and a total area of 17363km². SA is its main competitor as well as its largest trading partner, so Southern Africa’s last absolute monarchy is pushing to differentiate itself from its neighbour as an exporter.

"The more exports we have, the better it is for the economy. In manufacturing, we’re focusing on value-addition rather than raw materials, an issue Africa suffers from," Ms Mashwama says. "I cannot overemphasise value-addition as a way to develop the Swazi economy."

In 2008-09, exports totalled $2,15bn, and included products such as soft-drink concentrates, sugar, wood and cotton yarn.

Motor vehicles, machinery, transport equipment and petroleum products accounted for most of its imports, which totalled $2,4bn.

More than 50% of exports are destined for SA, whence come about 80% of its imports.

The Swazi government’s focus on manufacturing and processing development has seen these two sectors driving economic growth in recent years. Manufacturing accounts for 32% of gross domestic product — estimated at $2,6bn in 2008 by the World Bank — and is dominated by the private sector. The country also plays host to several multinationals such as the Coca-Cola concentrate factory, YKK Africa — a global manufacturer of zips, textiles and plastics — and Cadbury.

But Swaziland holds up Peterstow Aquapower, a global drill-manufacturing company, as its "flagship" investment.

"It is an anchor, an attraction, a pull factor," says Zizwe Vilane, the Swaziland Investment Promotion Authority’s (Sipa’s) director for foreign direct investment. "The fact that Peterstow has come into Swaziland says Swaziland can now go to the world."

The company imports its raw materials and manufactures drills for deep-level mining, road breakers and powerpacks at its factory in Ngwenya.

Peterstow director Alan Barrows says they chose Swaziland over SA because of lower costs, the educated workforce and the availability of labour generally. The company takes students from the Swaziland College of Technology and trains them on-site. Swaziland has an 87% literacy rate.

Ms Mashwama is less diplomatic. "Swaziland is small. There is one community, the same tribe, so culturally it’s easier to deal with. It doesn’t have the racial history of antagonism (that SA does), so it’s easier for companies to settle into. It’s a smaller country, so there are smaller issues, fewer egos to deal with. It is run like the private sector, so there is less bureaucracy."

Power security is also one of the country’s draw cards, according to Mr Vilane. "We buy 80% of our electricity from Eskom through guaranteed power purchase agreements," he says.

While SA was suffering load-shedding in 2008, Peterstow still had its lights on. In fact, Mr Barrows cites storms and inclement weather as the biggest electricity risk for the company.

Without being specific, Sipa CEO Phiwayinkosi Ginindza says there are several energy initiatives on the cards. With Swaziland’s drive to attract foreign companies, "reliable energy is critical for their operations", Mr Ginindza says. "Swaziland only requires 280MW, so with our energy plans we could supply Mozambique and neighbouring South African provinces."

"Come 2013-14, SA’s power will be too expensive," Mr Vilane says. "We have gas deposits here, so we are in talks with a Spanish firm to build a gas-fired power station here. Gas turbines could produce as much as 1200MW."

He mentions the possibility of increased hydropower and coal-generated electricity capacity, as well as pilot solar projects. But the country’s focus is not on green power, he says.

"The green economy is too expensive. Climate change is (affecting) us, but let those who have the technology and money put their money where their mouths are."

As it looks to producing its own power, the Swazi government is engaging with Peterstow on the best options. "The government wants to make sure Peterstow is successful. We want to see more companies like them," Ms Mashwama says.

But she is silent on political risk. Some believe Swaziland is on the cusp of upheaval, after a 60% fall in Southern African Customs Union receipts last year, coupled with an International Monetary Fund-led structural adjustment programme. While the minister is meeting investors in Mbabane, thousands of public servants have taken to the streets, complaining of unpaid salaries and job cuts.

In response, King Mswati has called for Swazis to "work harder and sacrifice more", instead of protesting against the country’s economic downturn.

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