Since the country wants to export more to take advantage of its trade agreements, it is important that the production component of the GDP equation is prioritised as a way to establish a new stock of multi-million Emalangeni MSMEs that can produce quality goods for export to world markets. This means more business investments and more exports!
Eswatini is largely a consuming economy with private consumption (C) at E45.037 billion in 2016/17, which is 20% shy of the country’s GDP (E56.518 billion). The country is a net importer of goods and services spending as much as E25.943 billion on imports and earning E25.351 billion from exports. Exports add to GDP while imports subtract from GDP. In the 2016/17 picture of the economy, the country was importing more than it was exporting resulting in a trade deficit. To grow the country’s GDP, Eswatini needs to also channel concerted effort towards stimulating the production of final goods (finished products instead of raw materials) so that it can supply the local economy where appropriate and export the rest to regional and world markets. To be able to unleash a new set of manufacturing companies in the existing and new sectors of the economy, Eswatini would therefore need a much more increased level of business investment (I) to generate the necessary capital/stimulus to support production. The level of business investment (I) in the economy is quite low equivalent to 13.5% (E7.631 billion) of GDP in 2016/17 while consumption (C) is almost six times the value of business investment in the economy.
Investment in the economy is important because it signifies the level of savings versus consumption and the extent to which the economy is able to generate new capital. In fact, central government spending (G) in 2016/17 was equivalent to 58.2% of the level of private investment in the economy. If one considers that government also has another huge investment portfolio through the state owned enterprises, the level of government investment in the economy is much higher than private sector investment. This means the Government of Eswatini is one of the largest and key player in the economy while the level of business investment for private sector expansion remains subdued at a significantly low level.
Higher business investments in the economy can yield higher levels of capital formation, which in turn increases the economy’s production capacity (potential GDP). The economy needs an increased accumulation of capital stock in order to perform at an even higher level of production of goods and services. The higher the capital formation, the faster the economy can grow its aggregate income, that is, GDP. To compare Eswatini to one of the largest economy in the world, USA GDP in 2019 was 70% private consumption, 18% business investment, 17% government spending, and negative 5% net exports. While the USA also has a trade deficit, it is a much larger economy with a huge population to support consumption. In addition, the USA has high business investment above government spending, which always provides the necessary stimulus to keep business activities growing.
What to do to ensure 2020 is the year of the MSMEs
The take home message is that while a consuming economy is not a bad thing, the country still needs to boost local production of goods and services to increase and diversify its portfolio of exports.
Over and above intensifying the level of production, the country needs to find and implement winning strategies to attract business investment to keep the production of goods and services going all the time. In addition to attracting FDIs, the country needs to also seriously consider the role or contribution of local business investment in the form of local MSMEs that would become the backbone of the economy through which all other investments, including FDIs, could be enhanced. Indeed, let us all make 2020 the year of the MSMEs.
