Trade Performance Review 2005: Swaziland

Year of publication: 
Simiso Mkhonta & S'khumbuzo Dlamini
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Swaziland has an open trade policy, and government policy is geared towards increasing trade through the expansion of the manufacturing sector, which it is the driving force of economic and social development. The Kingdom's trade pattern is, to a large extent, region-centred because of its close proximity to South Africa and the country's membership of SACU.

Swaziland is landlocked by SA and Mozambique, which have access to the sea through ports in Durban and Maputo. This brings about extra costs for products destined for Swaziland. Costs of imported products are augmented by this phenomenon as well as exports. The elasticities of the products are important in determining mark-ups on the products. The high elasticties associated with exports and low elasticities associated with imports have a negative impact on the trade balance. The nature of the imports is such that they are mainly intermediate goods are more of necessity hence the low elasticities.

But the strengthening of the local currency against major currencies recently has helped mitigate the situation. Swaziland's trade balance the period 1999 to 2003 had huge swings. The trade balance improved from a deficit of E1,331-million in 1999 to surplus of E3,682m in 2004 largely due to hikes in textile exports, and good performance of the sugar industry.

The trade surplus of E3,682m is by far the largest the economy has experienced. The improvement in the trade balance is mainly attributed to the effects of the AGOA, which saw a surge in exports to the US since the year 2000. Due to the high external value of the local currency unit against the US dollar and other trading currencies, and the closure of some exporting firms, there was an observed reduction in the value of exports destined to markets outside the Common Monetary Area (CMA), of which Swaziland, Lesotho and SA are a part. The currencies of Swaziland and Lesotho are pegged at par with the SA rand and there is a free mobility of capital in the CMA. Due to SA's zealous pursuit of inflation targeting by cautiously adjusting the interest rate, the SA rand has strengthened, strengthening the currencies of Lesotho and Swaziland and rendering their exports less competitive.

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