Given the gloomy economic forecasts, a looming financial crisis, and declining revenue from the Southern African Customs Union (SACU), Emaswati can no longer afford to remain complacent – there has to be a major mind-set shift to turn the economy around.
It is against this backdrop that the Eswatini Economic Policy Analysis and Research Centre (ESEPARC) hosted a seminar themed; ‘Rekindling Made in Eswatini for the Next 50 Years of Trade… A Conversation’, to take a look at the status quo and identify the available opportunities within the economy that could help Emaswati generate income and create wealth.
To kick-start the conversation, Executive Director Dr Thula Sizwe Dlamini notes that there is a need to rectify the market failures that impede industry from developing. He says the country needs an effective Industrial Policy that focuses on encouraging the development of sectors that provide more opportunities for learning or those that have more spill-overs to other sectors.
“Government needs to support those sectors that have the greatest spill-overs from learning. Industrial policy is an instrument that is used to help the economy become a learning society – the key thing here is learning,” he says. “Industrial policy is defined as a strategic effort to encourage development and growth of the manufacturing sector and other sectors of the economy, the capabilities of domestic firms, and promoting structural transformation.”
Dr Dlamini says government could, for instance, develop the livestock sector through supporting farmers by providing them with technology for artificial insemination to contribute to the development and growth of the beef-processing sector at the industrial level. He notes that other interventions include policies that deliberately attempt to create competitive local industries in the production of basic goods and services.
Adding, Dr Dlamini noted that industrial policy changes as per the needs of industry in a particular country and once companies have developed that competitive edge, then some elements of that industrial policy can be removed to allow these companies to compete at a global level. However, he says it is important that these firms must have gained the abilities to produce, as well as access to local markets, and they must have introduced new technologies in the economy.
“So, how do we develop or bring about technologies that will increase our capacities for learning as a people? How can we increase the learning capacities of individuals, organisations, and society through industrial policy? We need to ask ourselves what we want Eswatini to be known for in the world besides sugar and our cultural events. There are so many opportunities for Emaswati to develop new sectors and new markets,” opines Dr Dlamini.
Leveraging science, technology, and innovation
It all starts with innovation, as Associate Researcher Tengetile Hlophe explains. She notes that innovation is the foundational component of social and economic development, and many countries are developing policies towards trying to enhance their capacities in innovation and trying to use innovation for social and economic development.
“However, many countries, including Eswatini, have been failing to drive development through innovation. For instance, Eswatini has been failing to increase its GDP (gross domestic product) over the past years and GDP growth has been lower than 2% over the years,” she notes.
Tengetile says the low growth rates have been characterised by low levels of innovation and competitiveness, as most of Eswatini’s innovations are imported – a study conducted by ESEPARC shows that more than 50% of firms in the country import their innovations.
“It is important for us to understand where we come from historically and our potential as a country when it comes to innovation. For instance, in 1972, Eswatini had at least 63 manufacturing companies; but how many do we have now? These companies manufactured butter, cement, televisions, and radios. Imagine if we still had those companies, we probably would be manufacturing smartphones here as we would have built the capacity to do so by now,” she adds.
Tengetile further notes that Eswatini also manufactured the Tinkhabi tractor in yesteryears, which was equivalent to the country’s ‘gold’ as it related to the needs of Emaswati, helping farmers to perform activities that households needed for their sustenance. This tractor performed various functions that included ploughing the fields, maize milling, and transportation of goods.
“Most of the tractors we have today can only perform one function, that is, to plough the fields and that’s it. Also, they have become so expensive, our farmers can only afford to hire them whereas in yesteryears, Emaswati were able to own Tinkhabi,” adds the associate researcher.
Also, she observes that during that time, Eswatini made huge investments towards research and development, which is evidenced through the establishment of Malkerns Research Station in 1958 to conduct research on vegetable cultivars such as beans, maize, ground nuts, strawberries, cotton, and others, which is no longer done today.
Tengetile further notes that evidence shows that the research conducted at the time played a role in improving agriculture productivity. Reports state that research and development in Eswatini was a big thing and it was actually looking at the improvement in productivity of farmers and other agricultural activities.
“So, why should we care and why is it important? It is important because innovation is a cumulative process, so we build on the activities we perform on a daily basis. If we want to build our innovative capacities and be competitive in the global market, we need to build on the skills and capacities that we have locally,” she states.
“As a country we need to understand what potential we have and what we can do with it so that we can further drive innovation and development in the next 50 years. We need to understand innovation from a historical perspective to identify what we can tap into from our indigenous knowledge.”
The associate researcher identifies traditional medicine and food, as well as handicraft sectors as potential drivers of economic development if these are tapped into in the right manner. She says moreover, the knowledge in these sectors is transferred through the household and as production grows over the years, technology improves. Hence, Eswatini can be able to build these capacities through households.
However, Tengetile notes that the traditional sectors are faced with many challenges, some of which are scarcity of raw material, infrastructure, and market access. “We are not supporting our traditional sectors and local value chains. But there is hope and opportunity for Eswatini through science and technology; we now have the Royal Science and Technology Park which can be used to leverage on science and technology for development.
“Science and technology helps us to increase efficiency in production, it helps us improve our production processes, and through research and development, producers can enhance their products so that they are able to compete globally. There are opportunities for Eswatini to export its traditional foods and medicine to global markets if we can improve on our packaging and processes through research and development,” she adds.
Tengetile says the handicraft sector can also be improved by integrating the craft with modern technology so that the products remain relevant. She says making the necessary investments into research and development, as well as supporting technological adoption can certainly improve Eswatini’s traditional sectors.
She concludes that it is important for developing countries to invest in their home-grown capacities in scientific research and technological know-how. “As we are aspiring to be a knowledge economy, we need these capacities because knowledge is the new success, hence we need to invest in our technological capacities as a country.”
Evolution of trade in last 50 years
Once the products are available for export, the next step is to trade globally. So where do we stand in terms of global trade? What has happened in the last 50 years and what is the status quo now?
Senior Research Fellow Dr Thabo Sacolo says Eswatini needs to appreciate the efforts that have been made in promoting trade through institutional arrangements and infrastructure development. However, he notes that trade in Eswatini has not changed much over the years; there has virtually been no improvement at all in the country’s exports, except for sugar.
“So the question is: are we making use of or under-utilising our trade agreements? Consider this for a moment: even though we have the potential to produce, our imports have been increasing over the years while exports declined. This means that we certainly have a market in Eswatini but local producers are not taking advantage of the available opportunities, instead, businesses from outside the country are taking advantage of this market. We are increasingly importing more and more of the basic commodities that we consume on a daily basis.”
Dr Sacolo says an analysis of data on seeds shows that even though Eswatini has had a research station since 1958, 60 years later the country is still spending close to E45 million in the importation of seeds. “Most intriguing about this is the fact that the amount of seeds we are importing is declining though, which might seem like we are now producing our own, but this is not the case at all – what it means is that we are producing less and less food. This data tells us that we are still going to import more food because we are producing less.”
Dr Sacolo discussed that the most dominant imports are maize seeds and yet seeds are the most valuable component of the food value chain. For instance, a tonne of maize costs around E2,500 whereas a 10kg of maize seeds costs up to E1,000 which translates to approximately E100,000 a tonne – clearly that is where the money is, he opines.
The Senior Research Fellow (SRF) says by supporting the domestic market, Eswatini has a huge potential to supply the demand for commodities that the country currently imports from South Africa. Dr Sacolo noted that the country still imports most of its manufacturing goods, which means the country exports most of the jobs it so desperately want to create.
“Of note is that we import a large amount of machinery, however, this is not for production purposes but instead the type of machinery we import includes items such as motor vehicles. The data shows that an appetite for manufacturing exists as this sector accounts for 86% of our imports, so clearly there are opportunities in this sector,” he adds.
“The trade balance shows that we are a net importer, which means that we support external markets more than we do our own, hence our balance of payments has remained negative most of the time since independence.”
Adding, Dr Sacolo notes that while a lot has been done in terms of setting up institutions to promote trade, the composition of Eswatini’s exports has not changed much and South Africa remains the single largest source of imports for the country, as well as a large chunk of Eswatini’s exports even though there are so many other markets in the region, for example, Mozambique.
“We need an Industrial Policy that will compel our economy to focus domestic production because before we can talk about trade, we need to produce first. We are not seeing the benefits of our trade agreements because we are not focusing on domestic production. We also need to identify and address the core economic challenges that impede domestic production and exports – Malkerns Research Station could play a fundamental role in this,” he recommends.
Driving economic growth in Eswatini
“What happens when you take your money to spend in South Africa? How can we keep saying we want to grow the economy of Eswatini when we keep exporting our jobs?” asks Research Economist Mangaliso Mohammed.
“It is a given that we are all consumers. What we are currently doing is this: we wake up in the morning, use soap to bath, eat breakfast, etc. but you find that in all the things we use in our daily routines, not even one of these products is made in Eswatini – and that’s where the problem lies.”
Mangaliso says if Emaswati take their hard-earned cash to spend it on South African made products, they are essentially saying jobs in Eswatini do not matter and the economy in Eswatini simply does not matter.
“So what we need to do as Emaswati, is to think about our economy and what it means to us. We need to have a very strong private sector, where we as Emaswati can create businesses that will produce these products that we consume on a daily basis so that we are not so dependent on South African imports. It does not help our economy at all if businesses import goods from South Africa or Mozambique simply to re-sell them here in Eswatini instead of producing them locally.”
Mangaliso notes that if goods are produced domestically, the production skills needed would also improve with time and yet if businesses do not act now, Eswatini will continue to import and other countries will continue to develop while this country lags behind.
“When we talk about the economy we are talking about the production of goods and services that we consume as well as export. While we all understand that we need to consume certain products, we are so detached from understanding where these goods come from. We need a mind-set shift; instead of striving to get an education so as to secure an office job, we should be thinking about the production of goods and services, where the money is,” he opines.
Eswatini’s economy grows by around 2% and in drought situations, by about 0.9% of gross domestic product (GDP) – and that is a problem, the researcher states. He further observes that Mozambique, for example, is growing by 5.5% while Eswatini seems to have hit the glass ceiling. Hence, Eswatini needs to overcome this so that when the economy grows it creates opportunities for all citizens to be able to generate income and create wealth for themselves.
“We need to take lessons from other countries like our neighbours, which have been able to set up their manufacturing sectors to drive domestic production. If we engage in the production of goods and services, we are talking of inclusive growth because we all have skills and capacities, so there will be opportunities for everyone to participate in the economy.
“To understand why we are not growing needs an appreciation of the structure of Eswatini’s economy; we already have in place trade agreements and institutional frameworks meant to ensure that Emaswati are able to make a mark in the global economy, but there is no activity going on there, all we are known for is sugar and that needs to change,” adds the researcher.
Mangaliso states that data on the overview of Eswatini’s economy shows that the manufacturing sector accounts for 35% of the economy, which essentially means that a third of the country’s GDP comes from this sector. However, most of this GDP is tied within the sugar sector; the country exports sugar, which is then value-added in other countries and then Eswatini imports these products at a very high cost whereas the kingdom could be processing the sugar locally.
“Our GDP is worth about E54 billion and we use about E32 billion on intermediate goods and services as inputs to produce this figure. We find that instead of having our economy spread across different sectors, the beverages sector takes up most of that economy and we find that the sector puts in about E358 million as intermediate goods and services for value addition to produce an estimated E14.3 billion, which amounts to about 40 times what they use as inputs,” he added.
“This is an indication that there is no connection within our economy. The beverages sector produces concentrates that are exported, which we then import as processed soft-drinks. Of the E14 billion made by the beverages sector, very little makes it into the hands of Emaswati because local enterprises (SMEs) are not connected to this industry.”
Mangaliso further notes that the construction industry uses E4 billion to produce goods worth E5.8 billion, and the industry is currently booming in Eswatini, which means there are a lot of opportunities for business but if the industry imports all or most of its intermediate goods, the money that circulates within this industry becomes minimal and therefore the economy does not gain much as most of the country’s Emalangeni get spent in South Africa.
“It is clear that even though there are many available opportunities there are still some challenges in harnessing these fully. For instance, our smallholder farmers are more than capable of producing for the domestic market but they lack the technologies to enhance their production processes so that we are food secure.
“It must be clear that we are not saying Eswatini should close its borders to importers, but we also should be producing domestically so that we are able to benefit and generate income. The agriculture sector offers a lot of opportunities for Emaswati as there is a connection between households and the sector. Instead of selling tomatoes as a raw product, we need to engage in agro-processing and produce sauces and other tomato value-added products,” he suggests.
Mangaliso reiterates that Eswatini’s trade has not diversified much since 1968; people are naive on what they can trade in yet the country has products that are unique to Eswatini such as amaranth (imbuya), umhlabelo and many others, which producers should be thinking about how to package to make them attractive to the global market.
Adding, the research fellow states that reigniting growth in Eswatini is about expanding the economic base – which is essentially the people who are actively engaged in economic activities by ensuring that Emaswati produce goods and services that can be flooded into the market.
“Currently, we are happy to be middlemen; we go into retail and import goods we have not produced yet the money (or value creation) is in the production of these goods. We need a new stock of entrepreneurs to produce goods and services in Eswatini; we need to support local value chains that focus on goods made in Eswatini so that we can increase the number of times our currency (Lilangeni) circulates within our economy before it leaves to other countries.
“We need to leverage science and technology to ready ourselves for the economy of the future because the world keeps evolving and if we do not focus on domestic production, we will continue to play catch up. We have to start somewhere; even if at first we have teething challenges, we will eventually get to a point where we produce quality goods of acceptable international standards as we gain experience and expertise,” recommends Mangaliso.
Moreover, he says, Eswatini has a youthful population so it is important to engage them in the economy as they are the future, particularly in the small and medium enterprise (SME) sector. Also, he emphasises that the private sector needs to play a huge role in turning the economy around instead of looking towards government for business.