KPMG Dinner

April 14, 2005

      I am very appreciative of the opportunity to speak to you tonight and to try to address the topic of "challenges facing economic growth and investment in Swaziland". I think it is appropriate to say at the outset that my views are certainly not comprehensive and that necessarily the views of someone like myself will reflect my own perspective that may be somewhat narrow and cannot adequately represent the experience and knowledge of the economic and business landscape that many of you here tonight have in abundance and can discuss better than I.

      That said, let me give you my perspective: 

      US Embassy's everywhere, including Swaziland, have the objective of advancing and promoting business, particularly of course U.S. business. Doing so is a key element in advancing President Bush's broader agenda linking US economic prosperity to economic and political freedom. It is certainly part of my official obligation to promote business, trade and investment in Swaziland.

      The United States has three principle goals in Swaziland: (1) to help Swaziland fight the growing HIV/AIDS pandemic with the most effective programs possible; (2) to promote stronger democratic institutions and practices; and (3) to promote economic growth and opportunity.

      While it is the last item--economic growth and opportunity--that is the most relevant subject for tonight's discussion, it is also very appropriate to start off by mentioning the first item--HIV/AIDS--as it influences and increasingly undercuts the last.

      HIV/AIDS

      We are all familiar with the devastating effects that HOV/AIDS is having on Swaziland. The prevalence rate at 38.6% was already the world's highest and an official announcement that the rate is over 42% is apparently on the horizon. Swaziland has over 70,000 orphaned and vulnerable children and that number is projected to grow past 100,000 by the end of the decade--an astounding statistic. Rural communities in Swaziland are missing entire generations--and as we all know--the hardest hit are those in their prime wage earning years.

      To help mitigate the effects of HIV/AIDS in Swaziland, the U.S. government is engaged on many levels, from the global to the local.  The U.S. is the largest investor in the Global Fund to Fight AIDS, Tuberculosis, and Malaria.  The U.S. pledge to the Fund is more than 35% and Swaziland receives roughly $50 million from the Fund.  In addition, the U.S. government will, in 2005/2006, double its bilateral funding for HIV/AIDS programs in Swaziland. 

      Although Swaziland is not a so-called “focus country” on the President’s Emergency Plan for HIV/AIDS Relief, it can tap into the resources and expertise available to the nearby countries that are.   The U.S. funds programs in Swaziland through USAID and CDC target voluntary counseling and testing, human capacity building, pediatric AIDS work, the prevention of mother to child transmission, and behavior change.  Swaziland is host to over 50 Peace Corps Volunteers, all actively engaged in HIV/AIDS prevention and education.

      In addition, the U.S. Department of Labor and the International Labor Organization fund a three-year, multi-national HIV/AIDS Workplace Education Program to reduce risk behaviors among targeted workers and reduce the level of employment-related discrimination against persons living with HIV/AIDS.

      The African Development Foundation is providing grants up to a $1.0 million a year for food security projects in AIDS effected communities and the Dept of Defense is providing VCT training, equipment and services to the Swazi military. The bilateral funding total for HIV/AIDS programs is now over $10 million and coupled with the US contribution to the Global Fund, we are currently providing over $30 million for programs to counter HIV/AIDS in Swaziland.

      Now let me go back to the topic and mention some of the current challenges--in addition to HIV/AIDS--to economic growth that Swaziland is facing.

      One is the value of the rand that influences the competitiveness of production and exports;

      Two, is the end of the WTOs Agreement on Textiles and Clothing that happened this January and that opened the world to more quota free competition in world markets and influenced the comparative advantage and competitiveness of textile production in places like Swaziland.

      Three, relatively high transportation costs.

      Four, relatively expensive factors of production.

      Other challenges, frankly, relate to Swaziland's poor international image, the recent Rule of Law crisis--both of which have not acted to stimulate or promote increased investment-- and finally an internal one, the lack of an Investment Code.

      One of the positive incentives to invest in Swaziland--and a US initiative--has been the Africa Growth & Opportunity Act (AGOA).

      AGOA

      Swaziland became AGOA eligible on October 2, 2000 and qualified for the apparel provision on July 26, 2001, and is eligible for the special rule for apparel.  This rule provides the opportunity for the apparel industry to use non-U.S. fabric and yarn in apparel wholly assembled in Swaziland, and still qualify for duty and quota-free treatment until 2007.  As a result, Swaziland’s exports to the U.S. are heavily concentrated in apparel.  In 2003, AGOA exports totaled 78% of Swaziland exports to the U.S. and AGOA apparel exports accounted for at least 5% of Swaziland’s GDP.  The apparel industry has created over 30,000 jobs, mostly for women, and at least 28 firms are producing apparel products. 

      Swaziland’s apparel industry has taken a hit in these last few months, for two main reasons: the end of the Agreement on Textiles and Clothing (ATC) and the strengthening rand.  Over 5,000 jobs have been reported lost and several factories have either had to shut down or suspend operations.  With the end of the ATC on December 31, 2004 and the 40-year old quota system that governed global textile and apparel trade was dismantled.  Now the textile and apparel trade is subject to the same discipline and rules as trade in other products.   In the middle of this global change, Swaziland’s producers cite the rand’s appreciation as an additional major reason for job loses in the apparel sector and a loss of nearly 50% in potential revenue in 2004.  To break even, we’ve heard, the rand must trade between 7.25 – 7.5 to the dollar.  It has been some time since the rand has been at this level.

      The Embassy has been actively engaged in assisting Swaziland compete in the post-quota environment and to take full advantage of AGOA and other U.S. government initiatives.  In November 2004, before anyone in Swaziland was discussing the imminent end of the ATC, the Embassy engaged experts from USAID to produce a report focusing of the effects of the end of the ATC on Swaziland and recommend ways forward.  Once published, we shared this valuable report with all major stakeholders – government officials, business leaders, union representatives, the press, pretty much, anyone interested in the subject.  We then held a follow-up seminar at the beginning of March, inviting all of the same stakeholders to form a task force to develop a plan to best combat the problem. 

      Over 6,000 products are eligible for export under AGOA, and Swaziland needs to find its comparative advantage in some of these other areas.  Swaziland producers may wish to consider shifting to higher-tariff items where the advantage is greater.  Greater vertical integration of cotton/yarn/fabric/apparel sectors would also help, as would multi-country production sharing. 

      The U.S. International Trade Commission is in the process of identifying potential competitive sectors and barriers that impede growth in those sectors.  We will share that report with all interested parties when it is available at the end of July. 

      Other Challenges to Investment

      Although Swaziland’s government encourages foreign investment, the country lacks major legislation to support a solid investment climate.  The U.S. government, through the Embassy and USAID, is working closely with the Swaziland Investment Promotion Authority (SIPA), to help design and implement strategies for attracting desired foreign investment.  In addition to providing technical assistance to the organization, USAID experts are in the process of developing an “Investor Roadmap” – a document that will identify barriers and constraints for increasing both foreign and domestic investments in Swaziland.  Three investment experts were recently in Swaziland for three weeks and we are expecting their report very soon.  The group will return in May to present their findings and recommendations to both the public and private sectors and we are happy to have you join us at that event.   Our hope is that the Investor Roadmap will become the basis for the much-needed Investment Code for Swaziland.

      At the same time, we are working with another group from USAID engaged in a transportation study.  We often hear that transportation costs are a major barrier to trade in the region and Swaziland, as a country without access to the sea, faces some unique challenges.  That report will dovetail nicely with the Investor Roadmap in providing much-needed information.

      MCA

      Finally, one major goal of ours, although ambitious, is for Swaziland to become eligible for the Millennium Challenge Account.  The MCA was established by President Bush in 2004 and it provides development assistance to countries that follow three criteria:  ruling justly, investing in their people, and encouraging economic freedom.  At this time, Swaziland misses MCA eligibility in several areas, but it is our hope that with a little directed assistance and development of a policy reform roadmap and political will, we hope Swaziland can qualify.  To give you an idea of the magnitude of the program, 16 countries worldwide were MCA eligible in 2004 and Congress appropriated $1 billion for these MCA countries in additional developmental investment.

      Key principals of the MCA include:

• Reduce Poverty through Economic Growth: The MCA will focus specifically on promoting sustainable economic growth that reduces poverty through investments in areas such as agriculture, education, private sector development, and capacity building.
• Operate in Partnership: Countries that receive MCA assistance will be responsible for identifying barriers to their own development, ensuring civil society participation, and developing the framework for a MCA program. MCA participation requires a high-level commitment from the host government.
• Focus on Results: MCA assistance will go to those countries that have developed well-designed programs with clear objectives, benchmarks to measure progress, procedures to ensure fiscal accountability for the use of MCA assistance, and a plan for effective monitoring and objective evaluation of results.

      I repeat we hope that Swaziland will eventually become eligible for this program.

      Conclusion

      I hope that I have been able to highlight a few of the things the Embassy is doing to assist Swaziland in facing its challenges in the economic arena.   We are not in the position to fix Swaziland’s problems or do the government’s job.  Our hope is that by providing the right tools, information not previously available, and the technical expertise, Swaziland will be in the position to begin to find its own solutions.  Our goal is to see Swaziland enjoy strong economic growth and the opportunities that growth brings.  Thank you.