US attributes Eswatini business growth to technocrat ministers
MBABANE –The increase in foreign investment in Eswatini is linked to a number of ministers with private sector experience.
This is contained in the United States Department of State’s 2022 Investment Climate Statement.
“Since the 2018 election that saw a number of ministers with private sector experience join the Cabinet, foreign investments have increased,” the United States (US) Government states.
The US Government did not disclose the names of the ministers with private sector experience. However, they include –
Cleopas Dlamini, the Prime Minister,
Manqoba Khumalo, the Minister of Commerce, Industry and Trade;
Neal Rijkenberg, the Minister of Finance;
Dr Tambo Gina, the Minister of Economic Planning and Development;
Pholile Shakantu, the Minister of Justice and Constitutional Affairs;
Moses Vilakati, the Minister of Tourism and Environmental Cooporation;
Jabulani Mabuza, the Minister of Agriculture
Lizzie Nkosi, the Minister of Health;
Thuli Dladla, the Minister of Foreign Affairs and International Cooperation;
The current prime minister succeeded the late Ambrose Dlamini ,who had vast private sector experience as he led Nedbank Eswatini and Eswatini MTN, before his appointment to Hospital Hill.
The late former Minister of Natural Resources and Energy, Peter Bhembe, was a technocrat as well.
Americans say they have observed recent positive developments that include the country’s commercial operation of a 10MW solar powered plant as well as the opening of a Kelloggs–Tolaram factory that produces noodles for export.
They also observed the first 24hour border operation between Eswatini and South Africa.
Alpheous Nxumalo, the Government Spokesperson, said, on the premise of the principle of collective responsibility, he would like to be careful to attribute the successes and/or failures of government to certain individual Cabinet ministers.
While it is true that the positive economic performance and foreign investment increase may be largely due to the private sector experienced ministers, he said they could not have achieved anything in isolation of their colleagues at Hospital Hill and probably the professional civil servants cadre.
Nxumalo said government was acknowledging the importance of the diversity of the professional background of Cabinet ministers as the American Government was normally doing as well.
He said the ministers’ contribution was significant and important but only when it was being executed in the whole Government machinery and by the support of other typical political leaders.
‘‘Since the 2018 election that saw a number of ministers with private sector experience join the Cabinet, foreign investments have increased,” the United States Government states.”
AGOA
After Eswatini regained AGOA eligibility, the US Government said the country had worked to redefine itself through the economic recovery strategy as an export-oriented, private sector led economy.
“The government built or is in the process building a number of factory shells that benefit manufacturing firms,” it is stated in the report.
According to the statement or report, incentives to invest in Eswatini include repatriation of profits, fully serviced industrial sites, purpose-built factory shells at competitive rates, and duty exemptions on raw materials for manufacture of goods to be exported outside the Southern African Customs Union (SACU).
The US Department of State states that financial incentives for all investors include tax allowances and deductions for new enterprises, including a 10-year exemption from withholding tax on dividends and a low corporate tax rate of 10 per cent for approved investment projects. Americans say new investors also enjoy duty-free import of machinery and equipment. The report mentions that the Special Economic Zone (SEZ) investors may benefit from a 20-year exemption from all corporate taxation (followed by taxation at five per cent); full refunds of customs duties, value-added tax, and other taxes payable on goods purchased for use as raw material, equipment, machinery and manufacturing; unrestricted repatriation of profits; and full exemption from foreign exchange controls for all operations conducted within the SEZ.
In the year 2021, it is stated in the report that six mining licences were granted by the King, for prospecting in gold, diamonds and coal. Eswatini’s land tenure system, where the majority of rural land is ‘held in trust for the Swati nation,’ continues to discourage long-term investment in commercial real estate and agriculture, the US report states.
“Eswatini has historically been a services economy with South African retail service providers being among the major employers,” reads the report.
“However, due to developments in the Africa continental free trade area, it is likely that strategic manufacturing for export will again take the lead in the near future as there is new enthusiasm towards foreign market opportunities.”
It is said that the government of the Kingdom of Eswatini regards foreign direct investment (FDI) as one of the five pillars of its sustainable development and inclusive growth (SDIG) Programme.
It also regards FDI as means to drive the country’s economic growth, obtain access to foreign markets for its exports, and improve international competitiveness.
While the government has strongly encouraged foreign investment over the past 15 years, the US mentioned that it only recently adopted a formal strategy for achieving measurable progress.
It is stated that Eswatini does not have a unified policy on investment. Instead, individual ministries have their own investment facilitation policies, which include policies on small and medium enterprises (SME), agriculture, energy, transportation, mining, education, and telecommunications.
Calls for more concerted action on these policies have intensified in the last few years, as Eswatini has suffered from drought, fiscal challenges and general economic recession.
The Eswatini Constitution states, generally, that non-citizens and/or companies with a majority of non-citizen shareholders may not own land unless they were vested in their ownership rights before the supreme law entered into force in 2005.
On the other hand, the Constitution’s general prohibition “may not be used to undermine or frustrate an existing or new legitimate business undertaking of which land is a significant factor or base.
“Furthermore, non-citizens and non-citizen majority-owned companies may hold long-term (up to 99 years) leases on title and Swazi Nation Land. Besides land ownership laws, there are no laws that discriminate against foreign investors,” the US Government said.
“In 2019, the government listed some of its title deed land to make it available for long-term leasing for commercial purposes.”
In practice, Americans say they have observed that most successful foreign investors associate local partners to navigate Eswatini’s complex bureaucracy.
The US Government states that most of the country’s land is Eswatini Nation Land held by the King ‘in trust for the nation’ and cannot be purchased by foreign investors.
It is said that foreign investors that require significant land for their enterprise must engage the Land Management Board to negotiate long-term leases.
Americans says the Eswatini Investment Promotion Authority (EIPA) is the State-owned enterprise (SOE) charged with designing and implementing strategies for attracting desired foreign investors.
EIPA services include:
Attract and promote local and foreign direct investments; Identify and disseminate trade and investment opportunities; Provide investor facilitation and aftercare services;
Promote internal and external trade;
Undertake research and policy analysis;
Facilitate company registration and business licenses/permits; Facilitate work permits and visas for investors;
Provide a one stop shop information and support facility for businesses;
Export product development; Facilitation of participation in external trade fairs;
Buyer-Seller Missions;
They say the Government of the Kingdom of Eswatini continues its attempts to improve the ease of doing business in the country through the Investor Roadmap Unit (IRU).
The IRU engages with businesses and government to review and report on the progress and implementation of the investor roadmap reforms.
EIPA has an aftercare division for purposes of investment retention that serves as a direct avenue for investors to communicate concerns they may have.
Most investors who stay beyond the initial period during which the Government of Eswatini offers investment incentives have opted to remain long-term.
It is said that both foreign and domestic private entities have a right to establish businesses and acquire and dispose of interest in business enterprises.
Foreign investors own several of Eswatini’s largest private businesses, either fully or with minority participation by Eswatini institutions, according to the Americans.
FOREIGN OWNERSHIP
The US Department of State states that there are no general limits on foreign ownership and control of companies, which can be 100 per cent foreign owned and controlled.
The only exceptions on foreign ownership and control are in the mining sector and in relation to land ownership. The US says the Mines and Minerals Act of 2011 requires that the King (in trust for the Swazi Nation) be granted a 25-per cent equity stake in all mining ventures, with another 25 per cent equity stake granted to the government.
There are also sector-specific trade exclusions that prohibit foreign control, which include business dealings in firearms, radioactive material, explosives, hazardous waste, and security printing.
It is mentioned in the report that foreign investments are screened only through standard background and credit checks. Under the Money Laundering and Financing of Terrorism
(Prevention) Act of 2011, investors must submit certain documents including proof of residence and source of income for deposits.
EIPA also conducts general screening of FDI monies through credit bureau checks and Interpol. This screening is not a barrier to investing in Eswatini.
“There are no discriminatory mechanisms applied against US foreign direct investors,” reads the report.
MANUFACTURING
The US Department of State states that the Eswatini Government is prioritising the energy sector, particularly renewable energy, and developed a Grid Code and Renewable Energy and Independent Power Producer (RE&IPP) Policy to create a transparent regulatory regime and attract investment.
Eswatini generally imports 80 per cent of its power from South Africa and Mozambique. With both South Africa and Mozambique experiencing electricity shortages, Eswatini is working to increase its own energy generation using renewable sources, including hydro and solar projects.
With the emergence of COVID-19, they said the need for information, communication and technology (ICT) business and infrastructure opportunities found their way to the top of the priority list for the Eswatini Government.
ICT became the core of the new normal. Eswatini is supporting ICT initiatives such as e-governance and further development of the Royal Science and Technology Park. The digital migration programme of the Southern African Development Community (SADC) also presents ICT opportunities in the country.
There have been no investment policy reviews for Eswatini in the last three years.
Through its membership in the Southern African Customs Union(SACU), its ratification of the African Continental Free Trade Agreement and its participation in the work of the World Trade Organisation (WTO), Eswatini continues to pursue the importance of trade in development.
Eswatini does not have a single overarching business facilitation policy. Policies that address business facilitation are spread across the spectrum of relevant ministries; it is said in the statement.
The government does not specifically promote or incentivise outward investment, which remains a relatively new phenomenon for Eswatini.
Americans say the government generally does not restrict domestic investors from investing abroad. The only two exceptions apply to the Public Service Pension Fund and the Eswatini National Provident Fund, which are State-owned enterprises (SOEs) required by law to invest a minimum of 50 per cent of their balance sheets in the domestic economy.
Eswatini has bilateral investment treaties in force with the United Kingdom, Taiwan and Germany. Eswatini has signed bilateral investment agreements with Egypt, Kuwait and Mauritius, but these have not entered into force.
In 2019, Eswatini amended its tax treaty with Mauritius on the assumption that once the treaty is ratified the amendments will come into effect January 2022. The US Government says Eswatini does not have a bilateral investment treaty with the United States.
However, they say the country is currently negotiating a tax information exchange agreement with the United States.
In general, they say the laws of the country are transparent, including laws to foster competition. The Swaziland Competition Act came into force in 2007, and the Competition Commission Regulations came into effect in 2011.
The Swaziland Competition Commission (SCC) is a statutory body charged with the administration and enforcement of the Competition Act of 2007.
The legal and regulatory environment is underdeveloped, but currently growing as the government has recently established additional regulatory bodies in the financial, energy, communications, and construction procurement sectors. These bodies generally attempt to emulate the regulatory practices of South Africa or Britain.
Eswatini’s rule-making and regulatory authority lies with the central government and may be delegated by the relevant line ministry to a department, parastatal, or Board. The primary custodian of policy and regulation is the minister responsible for the relevant law.
All laws, regulations, and policies are applied at a national level. There are no regulatory processes managed by non-governmental organisations (NGOs) or private sector associations. Regulatory enforcement actions can be reviewed through the court system, and court rulings are publicly available.
The US Department of State states that adherence to the International Financial Reporting Standard (IFRS) is required for listed companies, financial institutions, and government-owned companies. It remains optional for small and medium enterprises.
They also observed that foreign investors coming into the country could join Business Eswatini on equal footing with Eswatini nationals.
It is mentioned in the report that the Constitution and law provide for an independent judiciary.
The US Government states that the courts are generally independent of executive control or influence in non-political criminal and civil cases not involving the royal family or government officials.
They say the current judicial process is procedurally competent, fair, and reliable, although the capacity of the judiciary to handle cases in a timely manner is extremely limited, creating significant case backlogs.
Enforcement of laws and regulations is appealable up to the Supreme Court.
It is said that the law prohibits expropriation and nationalisation. The Eswatini Constitution narrowly limits the government powers to deprive a landowner of ‘property or any interest in or right over property,’ except where ‘necessary,’ conducted pursuant to a court order, and compensated by the ‘prompt payment of fair and adequate compensation.’
Anyone whose property interests are threatened by expropriation is also expressly granted due process rights under the Constitution. There have been no recent cases of foreign-owned businesses being expropriated, and when disputes have arisen in the past, there has been due process through Eswatini institutions and/or international tribunals.
Eswatini is a member State of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). It is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. There is no specific legislation providing for enforcement of awards under international conventions, but the Eswatini legal system has effectively enforced court decisions and international arbitration awards in the past.
Eswatini is a member State of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the Multilateral Investment Guarantee Agency (MIGA). The country, as a member of SACU, signed a Trade, Investment and Development Cooperative Agreement in 2008 with the United States. There have been no claims under this agreement.
There have been at least two major investment disputes involving foreign investors in the past 10 years, but none involving USA citizens.
The Eswatini Government accepts binding international arbitration of investment disputes between foreign investors and the State. All government agreements with international investors/parties include venue and choice of law provisions.
It is said that local courts recognise and enforce foreign arbitral awards issued against the government, but do not have jurisdiction against the King, who is constitutionally protected.
Eswatini has not had any reported incidents of extrajudicial action against foreign investors.