Friday, November 28, 2008

Industries contributing positively to economy in Swaziland

By Hlengiwe Ndlovu

WHILST the influence of agriculture has changed and declined, it has been established that the manufacturing, retail, wholesale and construction industries have had a strong impact on the growth of the country's economy in recent years.

In addition, it has been found that the transport and financial services industries have also contributed positively to the economy.

During a presentation, Central Bank of Swaziland (CBS) Acting Head of Research Vusi Mabilisa said the wholesale and retail sectors were driven by salary increments in government and the private sector, increased credit and government's proclivity to spend.

However, he warned that growth driven by consumption was not sustainable and was inflationary as it does not augur well for long-term economic growth.

Mabilisa said with levels of unemployment having reached 22%, the country's economy was operating below capacity.

"Swaziland has to embark on a massive investment drive with a three pronged approach and this should be investment in human capital, mobilisation of financial resources and the development of supportive infrastructure," he said.

Mabilisa said the country's inflation had been fluctuating in a cyclical trend in the past 10 years, having peaked at 12% in the second half of 2002 before declining to 3% in the second quarter of 2004.

He said from the second half of 2004 onwards, inflation had increased to reach a peak a 13.9% during the third quarter of 2008.

"The main factors behind inflation growth have been food and transport inflation due to the hike in oil prices. Other items have also contributed to a lesser extent than the two," said the acting head of research.

Mabilisa said other factors that have influenced Swaziland's inflation were the South Africa inflation, exchange rate developments and the review of the consumer basket.

"Swaziland's inflation tracks that of South Africa very closely, mainly due to the currency peg between the two countries.

From 2000, South Africa started targeting an inflation rate of 3 to 6%, rendering Swaziland to also target inflation on a defacto basis," he said.

Meanwhile, Mabilisa said because Swaziland was a net importer for food and crude oil, the country's inflation was largely influenced by exchange rate developments.

He said that last year's consumer basket review resulted in an increase on the importance of food and transport inflation from a joint weight of 32.469% to 46.330% and the weight of food inflation alone grew from 24.532% to 37.730% from April 2007, whilst that of transport increased by 0.663% of a percentage point to 8.600% in the same period.

Mabilisa said this meant that the inflation in the country was, therefore, sensitive to these products.