‘SA ‘JUNK’ STATUS ESWATINI’S EYE OPENER’

MBABANE - “The fact that South Africa’ economic trend has been downgraded by international investment agencies must be an eye opener for Eswatini.”  This is the feeling of Southern African Research Foundation on Economic Development Regional Coordinator Dr George H Choongwa.

He said based on the understanding that since the country was a pegged economy, it stood a high chance to have a worse reactive effect of whatever economic wave sweeping through its counter partner, South Africa.

“Structural change for investment would be the best consideration for Eswatini. This would enable the country to relocate its economic resources in order to gain a balanced outcome of economic viability. The country can consider revision of key economic indicators that landed South Africa to a worse position according to the Moody’s analysis. Critical areas for consideration include: power supply, business and investor confidence, interest rates, as well as promoting sustainable foreign investment climate,” he said.

With regard to the power supply, Choongwa noted that South Africa experienced poor trends which in turn frustrated the industrial sector of the economy.
“However, on the Eswatini side this is not as bad as it has been in South Africa.  They would take this comparative advantage as a springboard for better returns on attracting balanced investment climate.

“A combination of the recent xenophobia and current COVID-19 puts South Africa on a spotlight for lost investment confidence and this might even worsen in the near future. However, Eswatini on the other hand, stands a better chance on the basis of its continued peace and social economic stability,” he said.

rates

The seasoned economist said the fact that Eswatini was not in a position to de-link so as to devalue the currency for attraction of foreign direct investments; reduction in the investment interest rates could play a better bargaining power to the country.

“In this regard, special packages can be offered to prospective investors who can be attracted to try the Eswatini new business.
“It must be noted that like what happened to South Africa where credit rating was considered one of the lowest globally, increased the country’s cost of borrowing as this raises investor’s premium demanded on the debt.  

This would eventually increase the cost of capital which would in turn frustrate the investment confidence in the country,” he said.
Choongwa said the Eswatini monetary policy had of late been on a positive trend, managing inflation rate to single digit over a sustained period.

crackdown

“However, with the economic crackdown in South Africa, this sovereignty is likely to be lost in Eswatini. Once the financial sector bleeds, then the entire economic outlook of Eswatini would be weak, making even the entire economic viability of a positive outlook with growth of about two per cent completely impossible. It is in this regard that the Central Bank of Eswatini engaged in a more need-based and practical adjustment on the monetary policy as to preserve the current financial status,” he highlighted.

With regard to measures taken by Central Bank of Eswatini in loosening monetary policy in order to accommodate the current situation of COVID-19, Choongwa said it could be advisable that it took into consideration additional incentives that would preserve public finance as the pandemic was sweeping across the entire economy, particularly the financial sector which might result into a significant drop down in equities and bonds due to sell-off of investors’ high degree of unanticipated risk on the financial market.

“There is need for the country to consider promoting an attractive sustainable investment framework for strategic competitive investment in the country.  This would take into consideration some of the following key areas:  improvement on economic value, job creation, and fundamentally, issues of sustainability that would bring positive impact on the following namely: social, environmental, and developmental aspect of the economy,” he said.

approach

The absence of providing the more comprehensive and need-based approach in combating possibilities of economic meltdown experienced in South Africa, according to Choongwa, would be a suicidal mission for the country. 

“If no proper precaution measures were put in place to save the economy, Eswatini is likely to have a serious negative impact of economic performance which would challenge economic growth over a considerable period of time.
“The country’s debt burden is equally likely to rise to unbearable levels, which would cripple the entire liquidity of the economy,” he said.

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