African Kingdom of Eswatini Has a $1.7 Billion Plan to Fix Virus-Hit Economy

(Bloomberg) --

The southern African Kingdom of Eswatini has formulated a 30 billion emalangeni ($1.73 billion) “Marshall Plan” to shore up an economy devastated by the coronavirus pandemic and a lockdown to curb its spread.

The plan aims to garner investment in 97 projects in seven industries, ranging from textiles to agriculture, and create more than 39,000 jobs. About three-quarters of the money will come from private investors and the balance from the government, which will fund its share from its existing budget and loans from international institutions, Finance Minister Neal Rijkenburg said in an online briefing to Bloomberg.

The plan envisions private companies being the key driver of economic growth and a diminished role for the government, which will focus on making it easier and cheaper to do business. A review of state companies will be undertaken with a view to selling some and shutting others.

“We are really opening ourselves up, we want people to come and set up here,” Prime Minister Ambrose Dlamini said in the same briefing. “We want to lower our corporate tax rate, to use that as a competitive advantage. Currently it is about 27.5%, we want to drop it to as low as 12.5%.”

A landlocked nation of 1.1 million people, Eswatini has been led by King Mswati III since 1986 and was previously known as Swaziland before changing its official name in 2018. Several top business executives, including Dlamini and Rijkenburg, were allocated key economic portfolios in the cabinet when the current administration took office in late 2018.

Their efforts to ignite economic growth were frustrated by revenue constraints and a slump in neighboring South Africa, which buys the bulk of Eswatini’s exports. The advent of the coronavirus has made their task all the more difficult, with a 6.7% contraction expected this year as opposed to a 2.8% expansion forecast in the February budget.

The country’s ratio of debt-to-gross domestic product is expected to rise to 38% as it borrows more to fund its recovery plan, and could reach as high as 50% if an economic turnaround doesn’t materialize, Rijkenburg said. Budgeted expenditure on wages, goods and services, capital projects and transfers to state companies will be reduced by 3.3 billion emalangeni over the next three years, savings that should keep the budget deficit to within 6.5% of GDP.

IMF Loan

Eswatini has already received $110.4 million in emergency assistance from the International Monetary Fund and secured a 2 billion emalangeni loan from the African Export-Import Bank. It sees scope to borrow another $100 million from the IMF and $200 million from the World Bank. The total economic support package will equate to more than a third of Eswatini’s $4.4 billion gross domestic product.

Commerce, Industry and Trade Minister Manqoba Khumalo said the government had engaged business groups on its new plan, asked them to submit a list of potential investments and identify what needs to be done for them to materialize within two years.

“One of the key unintended consequence was that it’s brought private sector and business closer than before,” he said. “We realized the role of government really has to transform Eswatini from being regulation-based to being investment-based. We need to really have a private-sector mentality within government.”

Other highlights:

• A minimum of 5 billion emalangeni will be directed toward micro, small and medium-sized enterprises.
• The central bank is adjusting its requirements for loan guarantees to increase access to credit.
• The government will set up a new unit that will work with investors to oversee the implementation of the projects, and ensure any bottlenecks are addressed.
• The country aims to become self-sufficient in energy by 2026, and double foreign tourist arrivals.

©2020 Bloomberg L.P.