VII. Investment Climate The Government has for over a decade had an explicit policy of welcoming and seeking foreign investment. The emphasis on that policy has increased in the last few years as the country has suffered from drought, recession generally, and the changing and volatile political situation in South Africa. Far from discriminating against foreign investors, the government has been accused of favoring them over local entrepreneurs. In spite of its explicit policy to encourage foreign participation in the country's development the government has not on its own been very effective in implementing that policy. The government has largely left events to take their own course and follow the trends, interests and opportunities that the country's location and resources offer. The emphasis on foreign investment is more a matter of policy statements by the government and individual ministers than a matter of laws and institutions to support such policy. The Central Bank of Swaziland follows 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. Transfers must be cleared formally through the Central Bank but no restrictions have been placed on them. 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. Legislation to screen out fly-by-night investors has been adumbrated. The only restrictive performance requirement for foreign investors is in the area of labor. Expatriate workers can only be hired and given residence permits if no Swazi is available to do the work. The residence permits for two years are however routinely granted and renewed. Business does complain that the routine is cumbersome and exasperating and the Chamber of Commerce has proposed a more streamlined procedure. The Swazi government owns a third of a corporation, Swaziland Industrial Development Company (SIDC) that is dedicated to promoting and participating in industrial development in Swaziland. Other partners in SIDC are German Investment and Development Company, Netherlands Development Finance Company, International Finance Company, Commonwealth Development Corporation and Two of Swaziland's major banks, Barclays Bank of Swaziland and Standard Chartered Bank Swaziland Limited. SIDC has since its incorporation in 1986 been a major vehicle attracting and supporting medium size foreign investment to Swaziland both through equity participation, and through loans. SIDC is now involved in some thirty ventures and its participation in them is in total around 30 million dollars. Expropriation is prohibited by law. There have been no disputes between investors and Swaziland in the surveyable past. In private disputes, property and contractual rights are enforceable under the Roman Dutch codes that Swaziland shares with South Africa. There are two areas where performance requirements play a role. The more significant one is the requirement to hire a Swazi worker where that is possible. The other performance requirement is effective only for exporters that wish to be able to label their product as Swazi made. They are under the control of the local export authorities who require that the local content of the export be 25 percent. Nearly all of the largest businesses in Swaziland are owned by foreign investors either fully or with minority participation by Swazi institutions. There are thus no restrictions on foreign ownership that are discriminatory against foreign investors. Foreign firms in Swaziland most often dominate the sectors that they are in and so receive preferential treatment in matters of supplies and other necessities even where there are Swazi enterprises in the sector with them. A process of privatization of parastatals has just begun with the offer of an insurance company for sale in the very near future. Participation by foreign investors will be welcome. Several other parastatal enterprises are expected to be privatized in coming years without any restriction on the national origin of investors that may seek participation, e.g. Post and Telecommunication Corp., Swaziland Water and Sewage Board, and the Swaziland Railway. Protection for patents, trademarks and copyrights is currently inadequate under Swazi law. The ministry of Justice which is responsible for these concerns has been working on improved laws. A bill on patents is yet to be submitted to Parliament. Trademarks are currently protected by a 1936 act that is inadequate for modern circumstances. There is no protection for copyrights under Swazi law but the Ministry of Justice has sought assistance internationally to formulate such laws. There are no laws on the books that protect or promote competition. It is however the stated policy of the government to foster a free market economy and the government's action and decisions in individual matters do in fact tend to that objective. In any area of legislation, Swazi laws generally have not been originally designed or later specifically formed to take account of the requirements of a free market or to secure its undistorted functioning. As far as business established by foreign investors in Swaziland is concerned this does not seem much of an impediment as there are seldom more than just a few firms in each sector of activity and the markets are almost always outside Swaziland. Bureaucratic procedures in Swaziland generally tend to be cumbersome and inefficient and have certainly not been universally reformed to fit demands of transparency. Regulations that investors in Swaziland complain about are those that govern the granting of residence permits to expatriate workers. The financial market in Swaziland is closely tied to the financial market in South Africa and operates under conditions generally similar to the conditions of that market. In that part of the market where foreign investment is prevalent credit is allocated on market terms and if any discrimination is practiced it tends to favor the foreign investor. There is a fledgling stock market in Swaziland but it is far too small to invite significant portfolio investments. Rather it offers people a chance to participate in Swazi enterprises in the long term. Swaziland has investment agreements with Great Britain and Germany. Such agreements are under consideration with the Netherlands and the United States. Some 70 percent of the population is still engaged in traditional agriculture at the subsistence level. Literacy is however relatively high at an estimated 69 percent of the population, among the formally employed 30 percent of the people of working age have bilingual literacy in English and siSwati. The largest proportion of those that have the equivalent of a high school education or better seek and find employment in the public sector or in up to middle management level in the private sector. Foreign owned firms do complain that Swazi's generally do not have and do not develop management skills and attitudes that permit them to be promoted beyond the middle level responsibilities. Even in the public sector top management has until recently been entrusted largely to expatriates. This is changing and in terms of skills this state of affairs is being addressed at the University of Swaziland, at Swaziland College of Technology and various other informal institutions. There is a reasonable supply of skilled labor and craftsmen in low technology fields, however, there is no such supply in high technology fields. Labor management relations have generally been good and peaceful in recent years. Strikes are infrequent and in the private sector in the last few years have been more occasioned by jurisdictional disputes among the unions than by differences over wages or working conditions. Unions have not been a strong force in the private sector. Unions have however had a significant impact on the public sector and they have wrung considerable gains from the government. There is no foreign trade zone in Swaziland but there are preliminary plans for establishing such a zone at Matsapha where the airport and major railroad yard are located. There is no policy of encouraging Swazis or Swazi business to invest abroad generally, but a handful of Swazi businesses have investments abroad, primarily in South Africa. The Central Bank keeps records of foreign direct investment in Swaziland and of Swazi investment's abroad. These records go back to 1981 and now encompass some 150 investments in Swaziland and some 40 Swazi agents investing abroad. The records of investment flow and accumulation are kept under four headings for incoming investments, namely: Equity Capital, Reinvested Earnings, Long Term Loans, and Short Term Loans. In the records of outgoing investment the same headings are used except the category of reinvested earnings is of course missing. The seven year series of total investment in millions of emalangeni at years end from 1987 to 1993 is as follows: Equity Capital in 87 13486 88 36685 89 56098 90 -3806 91 40121 92 13137 93 44708 Reinvested Earnings 87 85828 88 5837 89 126880 90 73739 91 67526 92 80906 93 79982 Long Term Loans in 87 -26308 88 44785 89 11512 90 -92049 91 31366 92 -28787 93 4798 Short Term Loans in 87 23959 88 50496 89 20643 90 36913 91 62485 92 154171 93 127495 Equity Capital out 87 441 88 -5459 89 -7390 90 -6 91 -763 92 75 93 -946 Long Term Loans out 87 -8219 88 -15136 89 -17780 90 -15587 91 -39125 92 57308 93 -574 Short Term Loans out 87 -110594.7 88 -246111.27 89 -2237 90 -93104.1 91 -131341.48 92 -172688.78 93 -372307.43 The exchange rate at years end, Emalangeni per Dollar 87 2.0294 88 2.2869 89 2.6230 90 2.5879 91 2.7610 92 2.8522 93 3.267 About 30 percent of the incoming investment is from South Africa and about half of the outgoing investment goes to South Africa. A further breakdown of the sources and targets of investment is not available from the Central Bank, but it is surmised that Britain has the largest share after South Africa followed by Germany and the Netherlands. The Central Bank has further broken down incoming investment by sector of the Swazi Economy. In 1992 the cumulative share of agriculture in total investment was 34 percent, the share of manufacturing 30 percent, of services 27 percent of mining 3 percent and the remaining 5 percent falling to unspecified other sectors of the economy.