2009 Index of Economic Freedom

Quick Facts

Population:

• 1.1 million

GDP (PPP):

• $5.3 billion
• 2.8% growth
• 2.6% 5-year compound annual growth
• $4671 per capita

Unemployment:

• 40.0%

Inflation (CPI):

• 8.2%

FDI Inflow:

• $36.3 million

Swaziland's economic freedom score is 59.1, making its economy the 89th freest in the 2009 Index. Its score is 0.6 point better than last year, primarily reflecting an improvement in government size. Swaziland is ranked 9th out of 46 countries in the Sub-Saharan Africa region, and its overall score is approximately the world average.

Despite a fairly diversified economic base, Swaziland's economic growth has lagged behind that of competitors in the region. Over the past five years, Swaziland has recorded average annual economic expansion of around 2.5 percent. Low productivity and sparse investment have contributed to sluggish economic growth. Privatization is part of the government's reform agenda, but progress has been marginal.

Swaziland is weakest in freedom from corruption and financial freedom. Inflation is moderate, but government interference distorts the prices of a significant number of goods. Burdensome tariff and non-tariff barriers limit overall trade freedom. Total government expenditures equal about a third of GDP. Corruption is widespread. The financial sector is extremely small and subject to political interference and unclear rules.

Background Back to the top

Swaziland has one of the world's highest HIV/AIDS rates, estimated at over 40 percent of adults. Its economy is closely linked to South Africa, which is the source of most imports and the destination for most exports. Swaziland is part of the Southern African Customs Union (with Botswana, Lesotho, Namibia, and South Africa) and the Common Monetary Area (with Lesotho, Namibia, and South Africa). Most of the population is rural, and many people engage in subsistence agriculture or herding. The cane sugar and soft-drink concentrate industries are the leading export earners and private-sector employers. Coal and diamonds are mined for export. Under the 2006 constitution, King Mswati III holds supreme executive, legislative, and judicial powers. In practice, authority is delegated to the prime minister, his cabinet, and traditional government structures.

Business Freedom 68.6 Back to the top

The overall freedom to conduct a business is constrained by Swaziland's regulatory environment. Starting a business takes an average of 61 days, compared to the world average of 38 days. Obtaining a business license takes less than the world average of 18 procedures and 225 days. Closing a business is fairly straightforward but costly.

Trade Freedom 71.6 Back to the top

Swaziland's weighted average tariff rate was 9.2 percent in 2006. Services market access barriers, select import permit requirements, import taxes, and weak enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Swaziland's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 64.3 Back to the top

Swaziland has moderately high tax rates. The top income tax rate is 33 percent, and the top corporate tax rate is 30 percent. Other taxes include a real estate tax and a fuel tax. In the most recent year, overall tax revenue as a percentage of GDP rose dramatically to 39.8 percent because of high international fuel prices.

Government Size 70.6 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 31.3 percent of GDP. Implementation of the privatization agenda is undermined by a lack of political will.

Monetary Freedom73.1 Back to the top

Inflation is relatively high, averaging 7.2 percent between 2005 and 2007. The government influences prices through regulations and numerous state-owned enterprises and utilities, and government-administered prices account for approximately 16 percent of the consumer price index. Ten points were deducted from Swaziland's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom50.0 Back to the top

There are no formal policies or practices that discriminate against foreign investment, and companies can be 100 percent foreign-owned. Foreign investment faces minimal screening but is restricted in the telephone, water, and electricity sectors. Foreign investors are required to use domestic labor when possible, and the process for obtaining residence and work permits can be burdensome. In general, the investment regime lacks important legislative underpinning and institutional capacity for implementation. With some restrictions, residents and non-residents may hold foreign exchange accounts. Payments and transfers are subject to quantitative limits and government approval in some cases. The central bank must approve most inward capital transfers. Most other capital transactions require documentation or face restrictions. The new constitution bars the foreign ownership of land, with some exceptions.

Financial Freedom40.0 Back to the top

Swaziland's financial system is very small and subject to considerable government influence. Supervision of banking is insufficient. The non-bank financial sector is dominated by the government. The government owns 41 percent of the Swaziland Royal Insurance Corporation, which has a monopoly on insurance and controls the Royal Investment Trust, a profit-centered fund that has been criticized for allegedly being a vehicle for embezzlement. Two state-owned pension funds dominate the pension sector. Capital markets are small and centered on the Swaziland Stock Exchange.

Property Rights50.0 Back to the top

The judiciary suffers from inadequate training, low salaries, and a small budget. Delays are common, and the executive branch significantly influences decisions. Protection of patents, trademarks, and copyrights is inadequate. The government has acceded to the WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement but has not signed the World Intellectual Property Organization's Internet agreement.

Freedom From Corruption33.0 Back to the top

Corruption is perceived as widespread. Swaziland ranks 84th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption is seen as significant in the executive and legislative branches of government, and efforts to combat it are viewed as insufficient. Credible reports indicate that unqualified businesses have won contracts because of the owners' relationships with government officials.

Labor Freedom69.6 Back to the top

Swaziland's relatively flexible labor regulations facilitate employment growth. The non-salary cost of employing a worker is low, but the cost of laying off a worker is high. In the absence of a robust private sector, the formal labor market is not fully developed.