SWAZILAND INCORPORATED: 2022 & BEYOND
One of the reasons that inspired this column is the desire to change and put the country on the growth trajectory. I believe that we cannot one and the same thing every time and hope to get different results.
It is my view that as country some of the policies we have tried have not given us the desired result hence we have to change our approach.
One of the key decisions that we need to embrace is the understanding that for the country to be on the growth path, government’s involvement in business has to be minimal. I believe there is something we can learn from some developing countries in Africa or East Asia or South America. His Majesty King Mswati III’s vision of Swaziland is that it must achieve First World Status by the Year 2022, a target which is now under five years away.
I believe His Majesty the King can benefit a lot in terms of how we take Swaziland forward if we can establish a Chief Executive Officers Council (these are industry key players) who other than Cabinet will have regular meetings with the King to share ideas on what the country needs to do in order to achieve its target. Let me caution though that the industry players should be those who deal with the outside world or should I say those who embrace globalisation. As things stands, our economy is heavily depended on government and that is even illustrated by the number of public enterprises we have, which tells you on face value that our economy is in the hands of government. It is my view that such a powerful board can bring fresh ideas on what Swaziland needs to do to accelerate towards achieving first World Status. Singapore remains as a good example of a country that achieved First World Status within a single generation (within 30 years).
Having read Greg Mills’ book “Why Africa is Poor” and what Africans can do about it, I liked the points he makes in his conclusion. In his book, Mills when he discuss Swaziland’s case he says much of our challenge is at home, not external. I quote: “The reforms would have to go deeper than tinkering with border opening hours or red tape, whatever the improvements in business efficiency these changes could bring. For Swaziland’s economic decline was rooted in poor governance. Here resided the core challenge, and it was one that had to be confronted by the Monarchy alone. Self-preservation of the Monarchy demanded it gave up some of its powers, wealth and privileges. Yet it would have to be done in a way that preserved the strengths the institution offered Swaziland. Such a reform process would have to involve dialogue with the opposition, headed by the unions. “But here are some good news. However, desperate its fiscal situation, Swaziland is no Liberia or Congo. Things did work. There was a well-educated population. Its infrastructure was sound. It was located next to – and could service – the more powerful economy in Africa, South Africa. But to do all this, it needed both the right diagnosis and medicine. “One civil society activist said: ‘We need to face the facts head on. It’s like going to a doctor. We need to say what the problem is otherwise we will get the wrong treatment.’ To make full use of its assets, Swaziland would have to shift from denial to dealing with its core political challenges to its economic health.” So dealing broadly with the challenges facing Africa and Swaziland included, I find his conclusion relevant to what we also need to do.
Ensuring the basics are in place:
Long-term, job intensive growth is going to be difficult without ensuring the following elements; macroeconomic and political stability, skills, transparency, rule of law, government efficiency, suitable infrastructure, honesty and harmonious relationship with unions and meritocracy.
Targeting specific sectors and multinationals:
In successful high growth countries, government agencies established which businesses needed investment and wherever possible provided it, targeting business abroad, recognising that multinational corporations brought not only capital and skills, but technology. Alongside private investment, bank credit is the lifeblood of an economy. Africa will not reach the necessary double-digit growth unless market access is opened up and a banking regime put in place that facilities the flow of capital. At the same time, there is a need to limit the leverage of the banks (eight times may be a reasonable level), thereby forcing them to be well capitalised, but critically at the same time ensuring that the micromanagement of such institutions is avoided.
Embracing and championing globalisation:
This requires efforts into attracting and not protecting industries. Such an outward orientation demands being aware of and responding to competition: from the region, for example and from others, including BRICS (Brazil, Russia, India, China and South Africa). This demands countries continuously reinventing their economies and always being price sensitive given that costs are an important aspect of competitiveness. It requires building and refreshing competences, teaching people to think and not just to learn, and focusing on results rather than only processes of government.
Africa is not able to compete utilsing its human capital advantage without opening up access – for both trade and people. The costs of trade is not just about tariffs, but also the costs of delays at the border and the paperwork involved. An ambitious, forward looking agenda would seek, within a short time frame, to remove all import and export quotas and tariffs. After all, what industry is much of Africa seeking to protect? The government could also commit to a deadline to dramatically simplify import and export procedures, setting a goal that it should take no more than, say ten days to import or export things. Instead of establishing new tariff barriers, governments should commit to adopting the standards and technical specifications of OECD countries and other major trading partners. Tourism would similarly be expedited, as in Georgia for example, through the removal of visa requirements for citizens of all countries with a per capita greater than a certain level. Making a country easier to visit encourages a greater volume of tourists, critical for an industry with considerable economic multiplier potential. Other such “soft” issues, such as the welcome given (or not) to expats, are similarly important to investors.
Aligning government, the unions and business in a shared growth formula:
Leadership should be able to assert a vision of shared prosperity – or failure. It is essential, too, to employ the concept of ‘whole government’: ensure there is no overlap, and that government departments are functionally focused and aligned.
Widening Africa’s tax base and income, increasing its formal employment and making it more attractive to investors all have one common aspect to their solution: tax reform. The basic building blocks of this pariah are for simplified administration, fewer tax categories and for low, flat taxes. This is a critical building block for growth and recovery beyond aid. It would also assist in eliminating rent seeking. Such an approach would aim to encourage liquidity and investment through savings by eliminating taxes on savings, capital gains, and income on dividends and interest.
Food security and diversity:
Contemporary African schemes have focused largely on shortterm donor financing of inputs, notably seed and fertilizer. This has been both economically and socially costly, and not necessarily effective. Governments should back private sector-led extension services. This would enable Africa to quickly achieve food self sufficiency and security and reduce reliance on donors to enable such monies to be put to productive rather than often consumptive purposes. Such private sector-led schemes have been successful elsewhere on the continent, notably in Mozambique.
Public service reform and deregulation:
The establishment of a meritocratic, professional civil service is vital. As Lee Kuan Yew observes, the single most decisive factor in Singapore’s success in transforming itself from a swamp to a developed nation in 30 years was the ‘ability of its ministers and high quality of civil servants who supported them.’ The objectives of any reform package should be to streamline and enhance the quality of public services, thereby reducing the burden on already weak government (and overburdened people) through fewer regulations, licensing, and permits. This would also minimise the opportunities for corruption, involving a full review of every permit requirement. African governments should consider a licensing law that minimises the interactions required, creating a single window concept for applications, minimising bureaucratic discretion by adopting the silence is consent practice law, that no response within a set number of days deems granting of the authority by the government. This could also freeze the number of licences required by law.
The aim of any legislation should be to encourage new entrants into the formal labour market. This carries advantages, political and economic, of increasing the size of the very small middle class, increasing bankability. This requires the renewing of labour codes in a way that takes the government out of negotiations between business and employees. Since wages and formal employment levels have declined so markedly, there would be much attraction in not adopting a minimum wage, a la Singapore and Georgia.
Use of fiscal incentives for investors has been a successful spur to growth, as see in successful developing country cases such as Costa Rica, El Salvador, Colombia, Singapore, India, Malaysia, Vietnam and Morocco.
Keeping the currency competitive:
Keeping the currency weak, and thus encouraging exports, is a challenge, especially where there is a private banking sector. Where the government owns the banks, it can control the extent of credit and money supply, thus limiting the dangers of inflation. While any government can print more money to weaken its currency, this runs the risk of inflation where government cannot control the banks. Pegging the currency value can also lead to problems, including currency volatility and less strict adherence to the fundamentals, especially unchecked state spending. For commodity exporters, sterilising inflows by placing them in a special fund is one method to avoid Dutch disease. Setting a high ratio of reserves to lending can ensure the banking sector limits lending even where the currency is cheaply valued.
‘Financial’ and ‘talent inclusion’ is key to expansion. The extension of a credit system to previously marginalised people will not only improve their lives by bringing them into the formal economy, but can also create, but can also create a groundswell of economic change to drive African economies forward. Similarly, there is a related need to teach good financial habits to potential entrepreneurs, reducing the impact in the process of the greater birth lottery – where and into what they were born.
Greg Mills closed by quoting Adam Smith’s golden rule of economics which is that transactions will take place if both sides mutually benefit. “Put differently, it is about price and technology competitiveness – for the manufacturer, this requires being able to supply something to the market cheaper than their competitors. For countries starting on a development path, catchup growth depends on elements of social and political stability – essentially peace – plus the factors of labour and capital. If you are poor, small adjustment make growth possible and easy.”