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2009 Investment Climate Statement - Swaziland


2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009
Report
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Openness To Foreign Investment

The Government of the Kingdom of Swaziland (GKOS) encourages foreign direct investment by providing factory shells to the textile and apparel industry and extending tax allowances to foreign firms. Financial incentives for all investors also include generous tax allowances and deductions for new enterprises, including a 10-year exemption from withholding tax on dividends and a low corporate tax of 10 percent for approved investment projects. New investors also enjoy duty-free import of machinery and equipment.

The 2008 Companies Bill, replacing the outdated Companies Act of 1912, affects incoming foreign direct investment. The new Act’s main objective is to streamline the constitution, incorporation, and registration of companies. The act will also improve the management, administration and dissolution of companies and puts Swaziland’s corporate laws in line with regional and international developments. The GKOS continues to work with the European Union, African Development Fund and the USAID/Southern Africa Global Competitiveness Hub in the development of its Investment Policy, creating a Revenue Authority, and improving trade policies.

Swaziland's judicial system upholds the sanctity of contracts.

There are no formal policies or practices that are discriminatory to foreign-owned investors, and companies can be 100 percent foreign-owned. The new Constitution bars the vesting of ownership of land in foreign-owned companies or foreigners unless ownership was attained before the promulgation of the Constitution on February 8, 2006. However, the Constitution states that this provision "may not be used to undermine or frustrate an existing or new legitimate business undertaking of which land is a significant factor or base."

Foreign investment is screened to the extent that the specific Swazi financial institution which the investor employs will perform typical background checks. If the investors come in with their own funding from outside the country, there is no requirement for further screening. As a general rule, all investors are screened for credit worthiness and business ethics track record as well as criminal record. In 2007 a Competition Commission was established but it does not review foreign investors for competition concerns.

There are no formal policies or practices discriminatory to foreign-owned investors and companies. Foreign investors are free to invest in all sectors of the Swazi economy, aside from the GKOS monopolies in telephones, water, and electricity. Other areas in which the GKOS disallows investment are in the manufacturing of arms, chemical and biological weapons, radio-active materials, explosives and manufacturing involving hazardous waste treatment or disposal.

To date, implementation of Swaziland's Privatization Policy, approved by the Cabinet in December 2006, has been slow. In June 2007 the Ministry of Natural Resources and Energy began reviewing applications for private energy suppliers, but no licenses have been granted. In December 2007, the Swaziland Electricity Board (SEB) became the Swaziland Electricity Company, beginning the privatization process. Plans to privatize Swazi Post and Telecommunications Corporation (SPTC) are ongoing. The GKOS promulgated the National Information and Communication Technology (ICT) policy in August 2007. The policy is to help transform SPTC from a dual operator/regulator into two separate entities. The insurance industry was de-monopolized in 2006 and a regulatory office started operating in April 2007. Three players have come into the market. (Comment: The Insurance Act of 2005 requires all local insurance companies to invest 30 percent of their assets in Swaziland by 2009.)

Upon their privatization, provisions of these services will, in theory, offer the possibility of joint ventures for foreign investors.

The mobile phone company MTN is still the sole cellular operator in the country. MTN’s monopoly expired in November 2008. SPTC granted MTN a ten-year license for GSM Mobile technology without the monopoly caveat. No other mobile phone company has been awarded a license.

There is no discrimination against foreign investors after investment.

Any company wishing to do business in Swaziland must adopt articles of incorporation or association. This requirement is non-discriminatory.

Non-governmental organizations (NGOs) support foreign investment except when specific locally-owned businesses are threatened. NGOs may publicly protest and attempt to block award of licenses, but the in light of the need for increased jobs and revenue, there is firm government commitment to foreign investment.

In the World Bank’s "Doing Business 2009", Swaziland ranked 108th out of 181 countries for ease of doing business, and ranked 153rd in starting a business. The GKOS has recognized the need to facilitate a faster business registration process and curb other bureaucratic delays. The Swaziland Investment Promotion Authority (SIPA), established to become a one-stop-shop for foreign investors and to design and implement strategies for attracting desired foreign investors, has not accomplished its mandate. A 2005 U.S. Agency for International Development (USAID) financed assessment study highlighted underfunding as one of the challenges facing SIPA. Government estimates show that the GKOS has not implemented the improved funding recommendation.

Conversion And Transfer Policies

The Central Bank's prior approval is necessary for all capital transfers into Swaziland from outside the Common Monetary Area (CMA), to avoid subsequent repatriation of interest, dividends, profits and other income accrued, but no restrictions are placed on the transfers. In practice, approval is routinely granted when required for genuine investment activity, but frustrating bureaucratic delays are common. When converting funds, the investor's bank uses its discretion to decide if there is need to seek the Central Bank's approval.

No recent changes have been made to Swaziland's remittance policies.

There is a straightforward process for obtaining foreign currency. A resident requiring currency other than emalangeni(E) or rand for permissible purposes must apply through an authorized dealer, and a resident who acquires foreign currency must sell it to an authorized dealer for local currency within 90 days. No person is permitted to hold or deal in foreign currency other than an authorized dealer. Authorized dealers in Swaziland are First National Bank of Swaziland (FNB), Nedbank, Standard Bank, and Swazi Bank.

The average delay period for remitting investments is dependent on the mode for remitting funds. SWIFT transfers average a week while electronic transfers typically take less than a week.

Dividends derived from current trading profits are freely transferable on submission of documentation (including latest annual financial statements of the company concerned), subject to provision for the non-resident shareholders' tax of 15 percent. Local credit facilities may not be utilized for paying dividends. The GKOS does not issue dollar-denominated bonds. There are no limitations on the inflow or outflow of funds for remittance.

The Central Bank of Swaziland monitors the flow of foreign investment in and out of the country, as it follows all foreign exchange. The Central Bank has formal powers to screen and regulate foreign exchange, and with it investment, but these powers are exercised in a formal, routine, and equitable manner. There have been no changes in policies or practices in recent years, even though there is now some concern that unscrupulous investors are taking improper advantage of the extremely liberal policies of the government.

Expropriation And Compensation

Expropriation and nationalization are prohibited. There have been no known cases of a foreign business being expropriated. Swaziland's land tenure system can be confusing for investors. Approximately sixty percent is Swazi Nation Land, land held by the monarchy in trust for the people of Swaziland. Land leases are unclear and uncertainty exists as to the details of land ownership rights. For example, a Minister can publish in the government gazette a "notice of intention to take property", list the properties to be taken, and take them. Historically, this only affected properties with absent landlords. Recently however, owners in a township in Matsapha complained in the press that compensation the government paid for land to build an Information, Communication, Technology Park was not at market value. According to the constitution, the Land Management Board will vet applications by non-citizens to acquire land in the country, among other things. This board is not operational.

The Embassy does not believe the GKOS will engage in expropriatory actions in the near future.

There are no sectors that are at risk for expropriation or any similar action.

There are no laws forcing local ownership.

There are no cases of "creeping expropriation."

Dispute Settlement

The government has a good record of handling investment disputes. Most investor disputes are employee related. Official government intervention/ arbitration is available upon request, but most investment disputes are handled within the judiciary system, usually via the Industrial Relations Court.

There have been a few investment disputes between foreign investors in the last few years, but there is no pattern to the disputes.

Swaziland has a dual legal system comprised of Roman-Dutch law and customary law. This parallel system can be confusing and has, at times, presented problems for foreign-owned businesses. In addition to a Western-style court system, Swaziland's traditional courts, with the King as supreme authority, are available for dispute settlement. Swazi employees have brought grievances against foreign employers to these traditional courts. Such disputes, however, can be transferred to the formal court system at the option of the foreign employer/investor. The Industrial Relations Act of 2000 created the Conciliation, Mediation and Arbitration Commission to resolve employer-employee disputes.

In general, the Swazi legal system has effectively enforced property and contractual rights. The court system is considered free and fair. Judgments of foreign courts are accepted and enforced. There is no comprehensive commercial law. Swaziland's bankruptcy law, the Insolvency Act of 1955, is silent on the currency used in monetary judgments. The court has jurisdiction over the property of a person who has ordinarily resided in or carried on business for 12 months in Swaziland before the lodging of the petition.

The GKOS accepts binding international arbitration of investment disputes between foreign investors and the state. Any agreement with international investors/parties includes a clause stating where arbitration will take place and which laws will apply. Swaziland does not have a domestic arbitration body for investment disputes.

Swaziland is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). There is no specific legislation providing for enforcement of ICSID awards.

Performance Requirements/Incentives

The GKOS does not maintain any measures which are alleged to violate the WTO's TRIMS text.

There are two performance requirements that may affect foreign business in Swaziland. Swazi government policy requires hiring qualified Swazi workers where possible. This has discouraged some business people from relocating to Swaziland, as it may present difficulties for spouses to find work. The other performance requirement affects only exporters who wish to label their product as made in Swaziland. Local export authorities require that the local content of such exports be at least 25 percent. This determination, however, is often difficult to make, and seems to be conducted on a case-by-case basis.

Investment incentives for qualifying investments, particularly those in export-driven manufacturing, mining, and international services, include: a tax rate of 10 percent for the first ten-year period, available for businesses that qualify under the Development Approval Order; no capital gains tax; 30 percent tax on profit; no withholding tax on declared dividends; factory shells rented at cost; a 100 percent training allowance; a potential tax rate of 0 percent for new manufacturing companies, at the discretion of the Minister for Finance; imports of capital goods for productive investments are duty free; imports of raw materials are duty free provided the final product is exported outside SACU; and losses may be carried forward indefinitely.

There are no performance requirements for establishing, maintaining, or expanding an investment. To receive duty free status on capital goods imports, the investment must be considered productive.

There are no requirements regarding the purchase or export of goods.

There is no requirement on composition of ownership, equity diversification, or that there is a technology transfer.

The GKOS does not impose "offset" requirements.

The government does require companies to employ Swazi nationals, unless they can not find a qualified national.

There are no enforcement procedures for performance requirements. The updated Companies Act expects companies to lodge annual returns with the Registrar of Companies. The return should include name of the auditors, nominal and issued share capital, names and addresses of members (in case of a private company), among other things. Investors are not required to disclose proprietary information as part of the regulatory process.

U.S. and foreign firms are not able to participate in government financed and/or subsidized research and development programs.

Residence and work permits are a major source of tension between the expatriate business community and a government otherwise friendly to foreign investment. All foreign nationals working in Swaziland require work and residence permits. Employers must apply to the Immigration Office for a work permit, demonstrating that no Swazi is available to fill the vacancy. Residence permits are only good for two years, at which time they must be renewed. Although they almost always are awarded, expatriate business people complain that the process is cumbersome, exasperating, and is a reported source for unofficial "expedition" payments.

There are no discriminatory or preferential export or import policies affecting foreign investors.

Right To Private Ownership And Establishment

The majority of Swaziland's largest businesses are owned by foreign investors, either fully or with minority participation by Swazi institutions. There are no restrictions on foreign ownership that are discriminatory against foreign investors. Foreign firms in Swaziland most often dominate the sectors they are in and so receive preferential treatment in matters of supplies and other necessities, even where there are Swazi enterprises in the same sector. Both foreign and domestic private entities have a right to establish businesses, and acquire and dispose of interests in business enterprises.

There are no competitive equality standards.

Protection Of Property Rights

The GKOS recognizes and enforces secured interests in property, both moveable and real. There is a recognized and reliable system of recording such security interests.

The legal system protects and facilitates acquisition and disposition of property.

Adherence to key international agreements on intellectual property rights is minimal.

Protection for patents, trademarks and copyrights is currently inadequate under Swazi law. Patents are currently protected under a 1936 act that automatically extends patent protection, upon proper application, to products that have been patented in either South Africa or Great Britain. The African Regional Industrial Property Organization in Harare assisted in drafting a new patent law. The draft law includes protection for pharmaceutical and agricultural chemical products.

Trademark protection is addressed in the 1994 Trademarks Act.
Copyright protection is addressed under four statutes, dated 1912, 1918, 1933 and 1936.

Swaziland has an intellectual property rights regime inherited from the colonial era, under which copyrights, patents, and trademarks were somewhat protected under various acts promulgated by the colonial authorities. According to the Registrar General, the acts have not been implemented and copyright protection in Swaziland is "limited." There is a draft updated Copyright Act based on the World Intellectual Property Rights Organization (WIPO) standards. Swaziland does not have a bilateral copyright agreement with the United States.

There are no ongoing disputes with regard to patents, trademarks, or copyrights in Swaziland.

The government has acceded to the WTO TRIPS agreement. Implementation and enforcement are minimal due to the small number of patent disputes. The GKOS has not signed the WIPO Internet agreement.

Transparency Of The Regulatory Systems

In 2008, a competition bill to de-monopolize parastatals was passed. GKOS has started to implement the law. A board has been appointed and the recruitment of the Chief Executive Officer is ongoing. The unit will be governed by the public enterprise unit law. It is the government's stated policy to foster a free market economy, and the government's actions and decisions in individual matters have generally upheld that objective.

Swaziland does not have other laws that distort or impede investment.

Bureaucratic procedures are a problem.

There are no informal regulatory processes.

Proposed laws and regulations are published in the government Gazette thirty days prior to the bill's presentation to Parliament. Ministries sometimes consult with selected members of the public and private sector.

While commercial bank accounting systems are generally transparent and consistent with international norms, legal and regulatory systems are more obscure and unpredictable.

There are no efforts to restrict foreign participation in industry standards-setting organizations.

Efficient Capital Markets And Portfolio Investment

Efficient capital markets in Swaziland are in their infancy, yet policy -- or rather an under-presence of policy -- supports the relatively free flow of financial resources in the product and factor markets. The Kingdom's financial market is closely tied to that of South Africa and operates under conditions generally similar to the conditions of that market. Commercial banks offer credit on market terms, but the rules of the CMA forbid non-Swazis from raising domestic loan capital, although they can apply to the Central Bank for exception. This restriction has not greatly discouraged foreign capital flows into Swaziland in the past, but could increasingly sour the Swazi investment climate as regional competitors build investment regimes more attractive to foreign business.

At present, there is no effective regulatory system established to encourage portfolio investment. There is a small stock exchange with six companies currently trading two types of shares, equity shares and bonds.

The Financial Institutions Order of 1975 regulates banks. The four major banks in Swaziland (Nedbank, Standard Bank, SwaziBank, and FNB) are considered sound. Total industry assets increased by 31 percent, from USD 500 million (E5.1 billion) in December 2006 to USD 660 million (E6.7 billion).

"Cross share-holding" and "stable shareholder" arrangements do not exist in Swaziland. There have been no hostile takeovers by domestic or foreign interests. Since Swaziland's financial markets are just emerging, a variety of credit instruments have yet to be developed.

Political Violence

There have been no major incidents involving political violence to commercial prospects or installations in Swaziland, but political institutions and figures have been targeted with Molotov cocktails in the past. Labor unrest contains political overtones due to a restriction on political parties. As Swazi society becomes increasingly politicized, civil disturbances have increased. Labor protests occur, resulting from a mix of political and economic reasons. The Industrial Relations Act (IRA) does not permit "strikes;" however, it provides that employees who are not engaged in "essential services" have the right to participate in peaceful protest action to promote their socioeconomic interests. The law details the steps to be followed when disputes arise and provides penalties for employers who conduct unauthorized lockouts.

Corruption

In 2007, the Prevention of Corruption law came into effect and an Anti-Corruption Unit exists. The Commissioner has said the unit lacked sufficient financing, transport and manpower. Announcements have recently been published inviting applications for Commission staff positions. No complaints have been prosecuted. The Minister of Finance in his 2005 Budget Speech said the GKOS was losing USD 4 million (E40 million) per month through corruption. Civil society believes the number is larger. The Coordinating Assembly for Non-Governmental Organizations (CANGO) believes USD 6 million (E60 million) is lost per month.

Swaziland is a signatory to: the UN Anti-Corruption Convention, African Union Convention on Preventing and Combating Corruption and Related Offences, and the SADC Protocol against Corruption. It has not ratified the UN Anticorruption Convention. Swaziland is not a signatory to the OECD Convention on Combating Bribery.

Corruption is not considered a significant obstacle to FDI.

Giving or receiving a bribe is illegal. A convicted person faces a maximum of a 100,000 emalageni fine and ten years imprisonment. A convicted law enforcement officer or public prosecutor faces a maximum fine of 200,000 emalageni and twenty years in prison.

Bilateral Investment Agreements

Swaziland has investment agreements with Great Britain, Germany and the European Union (EU). The Cotonou Agreement between the EU and the African, Caribbean and Pacific (ACP) countries expired on December 31, 2007. Swaziland has signed an interim Economic Partnership Agreement (EPA) with the EU. In 2008, a Trade, Investment, and Development Cooperative Agreement was signed between SACU and the U.S.

Swaziland has bilateral investment protection agreements with Egypt, Germany, Taiwan, Mauritius, and the United Kingdom.

Swaziland does not have a bilateral agreement with the U.S. Swaziland tax policy is relatively straightforward and there are no issues of concern.

OPIC And Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC), the U.S. Trade and Development Guarantee Agency, and the Multilateral International Guarantee Agency are active in Swaziland and are sources for export financing and insurance. Blue Financial Services, a South African based finance services provider, opened in Swaziland in 2008. It announced that it plans to use USD 10 million (E101 million) of a USD 70 Million (707 million) OPIC loan in Swaziland.

In 2008, the Embassy used approximately USD 2.7 million (E27 million) in local currency. The average exchange rate in 2008 was 8.27 emalangeni for one U.S. dollar. The Embassy purchases local currency at the official exchange rate. In early 2008, the Central Bank predicted future devaluation of the rand to 8.1 emalangeni to the dollar. New developments make it more probable the exchange will be a minimum of 9 emalangeni to the dollar.

Labor

The 27 percent HIV/AIDS prevalence rate leaves a young populace (71 percent of the population is under 30), with few employment opportunities. There is a high level of domestic underemployment and a severe shortage of technically skilled labor, resulting in a heavy reliance on expatriate technicians, accountants, and engineers.

Swaziland adheres to the International Labor Organization (ILO) conventions protecting workers' rights. Labor – management relations are generally amicable, but there were a number of strike actions during the year.

The government does require companies to employ Swazi nationals, unless they can not find a qualified national.

Foreign Trade Zones; Free Ports

Swaziland does not have any free trade zones, but supports four industrial areas. The largest is in Matsapha, located between the main cities of Mbabane and Manzini. It has direct rail and road links. The Matsapha Industrial Estates dry port maximizes time and cost savings for importers and exporters using the ports of Durban and Port Richards, South Africa and Maputo, Mozambique.

Foreign Direct Investment Statistics

The Central Bank tracks foreign direct investment (FDI) by type and sector. The manufacturing sector continued its position as the largest contributor of FDI. Preliminary data indicate a 4.5 percent increase in the overall stock of FDI into Swaziland, rising from USD 574 million in 2006 to USD 600 million in 2007. This was due to an increase in FDI channeled to investment, finance and service sectors. The equity component of FDI increased by 4.7 percent, from USD 75.94 million in 2006 to USD 79.50 million in 2007. Reinvested earnings recorded a 14.7 percent increase from USD 310 million in 2006 to USD 356 million in 2007. FDI inflows have increased in the manufacturing, textile, agriculture and beef industries. In 2007, the local beef industry was allowed to re-enter the EU market.

Total Foreign Direct Investment into Swaziland:
By Type, 2002 - 2007
(USD Million)

-20022003200420052006
 (revised)
2007
(est.)
Equity73.0970.2867.2271.7475.9479.50
Reinvested272.13252.89276.60262.11310.54356.14
- Earnings
Long-term60.2169.6181.9884.2093.6495.56
- Capital
Short-term119.1083.9195.3574.2793.3386.41
- Capital
TOTAL FDI524.53476.69521.19492.32573.46599.60

The following figures are in percentages:

Change In
Total FDI
23.7-9.19.3-5.516.54.6
Earnings10.7-11.39.3-5.914.2-7.4
Average
-Inflation11.77.43.44.85.38.1

Source: Central Bank of Swaziland
ROE: USD1/E10.10

Total Foreign Direct Investment into Swaziland:
By Sector,
2003 –2007: Change in percentages
(USD Million

200320042005
-   StockChangeStockChangeStockChange
Manufacturing309.03-9.4340.5910.2308.05-9.6
Services42.91-21.347.2010.033.39-29.3
Investment13.8712.517.8929.012.29-31.3
Agriculture78.02-4.670.26-9.996.1136.8
Finance27.3437.228.755.234.8021.0
Mining5.52-62.516.49198.47.67-53.5
TOTAL476.69521.18492.31

Sector2006(revised)2007(preliminary)
- Stock Change Stock  Change
Manufacturing331.827.7335.391.1
Services72.47117.1492.5727.7
Investment17.6543.724.5939.3
Agriculture104.138.397.03-6.8
Finance36.966.242.3314.5
Mining7.670.07.670.0
TOTAL570.70599.58



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