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AFRICA: Swaziland in Crisis as Customs Union Revenue Is Slashed

Mantoe Phakathi

MBABANE, Feb 8 2011 (IPS) - Apart from the looming job losses in Swaziland’s public sector, small and medium enterprises (SMEs) have also warned of retrenchments following the government’s decision to suspend procurement from small businesses.

Workers during a recent protest in Mbabane about the Swaziland government's financial crisis. Credit: Mantoe Phakathi/IPS

Workers during a recent protest in Mbabane about the Swaziland government's financial crisis. Credit: Mantoe Phakathi/IPS

The government of the southern African autocratic monarchy has been forced to cut expenditure after its receipts from the Southern African Customs Union (SACU) shrunk with 60 percent.

SACU receipts contribute more than half of the country’s national revenue; due to changes in the revenue formula, Swaziland’s share has dropped from 741 million dollars to 281 million dollars.

South Africa, the dominant partner in SACU, has driven an agenda to have the revenue formula changed as it regards its small neighbours as benefiting from income that they are not fully entitled to.

The government’s sudden exercise in fiscal discipline comes after recommendations by the International Monetary Fund (IMF) that the government not purchase any new goods and services unless already committed to, postpone all new investment projects, and slow down the implementation of existing ones in line with available financing.

The Swaziland cabinet took a decision that all ministries that require financing for any basic materials should write to the minister of finance requesting authorisation.

A cash flow committee, consisting of the governor of the central bank, the accountant general and the ministry of finance, has been established to monitor developments, the minister of finance, Majozi Sithole, told IPS.

“It is such assessments that enable the ministry to decide which expenditure to accept and which not to accept,” Sithole explained. The committee also helps prevent government from over-committing itself, which protects suppliers from not being paid for services and goods rendered.

The majority of SMEs in the country are sustained by supplying the government with stationery, building material and protective clothing.

“We are not getting any contracts from government right now, except those dealing with education and health supplies,” Ezekiel Mabuza, vice-president of the Federation of the Swaziland Business Community (FESBC), told IPS.

FESBC has close to 300 members, the majority of which are dependent on state tenders and which are now losing millions of dollars.

The SMEs have been left with no choice but to downscale their services. “We can no longer justify the number of people in our employ because we are not getting as much business as we used to,” said Mabuza.

FESBC has yet to sit down to work out the number of people whose jobs are on the line. “It would be difficult to state the figures for now,” said Mabuza.

FESBC Mbabane branch chairperson Titus Thwala blamed SME dependency on the small size of the Swaziland economy: “The market is too small. That is why a lot of small businesses are servicing the state.”

He said it was very “sad” that the government did not consult with businesspeople before suspending procurement. “The government had already put some goods and services out on tender. We were informed of the suspension only after applying for the tenders,” said Thwala.

Mabuza added that government knew about the approaching fiscal challenges more than five years ago but did nothing to prepare the business community. IMF reports in the last few years have also continually warned the Swaziland government that SACU receipts will decrease after 2010.

“It would have been easier, had we been made aware of the problem over the years,” said Mabuza. “Right now, we are taken by surprise, which is why a lot of our workers will suffer.”

The finance minister blamed part of the fiscal crisis on businesspeople that he accused of conniving with public servants in looting state resources through bogus sales. Sithole told the parliament recently that the government loses about 5,7 million dollars a month to corruption.

He told a recent meeting on the fiscal crisis that some companies would supply government with unnecessary furniture just to get money “for the weekend”. “If we could stop at least most of the corruption that drains our resources, our recovery would be quicker,” said Sithole.

The state currently survives through borrowed funds to pay wages, which has left little money to buy goods and services.

“The government has to minimise the cost of borrowing by only borrowing as and when cash is needed. This requires close monitoring,” explained Sithole.

Swaziland would have borrowed 286 million dollars by the end of the financial year in March 2011, increasing the domestic debt to 357 million dollars. The government raised the domestic borrowing ceiling from 143 million dollars to 428 million dollars.

One of the reasons for the Swaziland government’s borrowing from domestic sources is that the IMF refused to give it the go-ahead to source funding from the African Development Bank (AfDB) until it puts its house in order.

While local banks have agreed to lend money to the government, SMEs are not so lucky. “The risk is lower when you lend to the government, compared to the entrepreneur.

“This puts SMEs at a disadvantage when it comes to access to loans,” said Zodwa Mabuza, chief executive officer of the Federation of Swaziland Business Employers and Chamber of Commerce.

SMEs have always struggled to get funding from local banks and they do not stand a chance when competing with government, she added.

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