## _cr08355 ## Source details **Canonical URL:** [_cr08355](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08355.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08355.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08355.pdf.json) --- ### Introduction - Non-bank financial institutions (NBFIs) provide alternatives to banks for translating household savings into enterprise investment and for spreading risks. - In Botswana, Lesotho, Namibia and Swaziland the contractual savings sector dominates the NBFIs; other NBFIs include leasing and venture capital companies, credit cooperatives, unit trusts, brokers, asset and fund managers, mutual funds, building societies, burial societies, and various micro lenders. - In Swaziland during 2008 the number of NBFIs is growing significantly as they attempt to take advantage of the requirement that insurance and retirement funds must increase their holdings of domestic assets from 10 to 30 percent of total assets by 2009. - Lack of adequate legal and regulatory supervision may have negatively influenced NBFI activities and limited their potential contribution to economic growth. - NBFIs can complement or compete with banks; their effectiveness depends on financial system sophistication, ease of access to formal financial services, financial literacy, and income levels. ### Role, drivers, and prior findings (overview) - Historical and theoretical context: - Financial intermediation expands with rising income (Goldsmith); finance–growth linkage evidenced in King and Levine (1993a, 1993b) but shown weak or negative in some low-income contexts (Deidda and Fattah (2002); Harris (1997); Xu (2000)). - Rising NBFI importance poses challenges for monetary management and policy (Gurley and Shaw, 1955). - Growth drivers in the four countries: - Relatively small financial sectors and high costs of formal banking services. - Limited banking access for rural residents and informal-income earners, creating demand for SCCOs and microfinance. - Insufficient regulatory support and poor coordination among supervisory agencies enabling regulatory arbitrage. - IMF prior findings: - Financing constraints widespread, particularly in agriculture, due to high financing costs, weak legal and institutional environments, and banks’ sectoral lending preferences. - Rapid NBFI growth filled gaps left by banks but often without adequate regulatory and supervisory frameworks, creating threats to financial stability. ### Key country-level data and statistics (Swaziland aggregates and indicators) - Basic data: - Area (square kilometers) 17,364 - Population (2006) 1,018,449 - Population growth rate (2006) in percent 0.38 - Formal employment (2005) 92,102 - IMF Position (Janurary 3, 2008): - Quota SDR 50.70 million - Fund holdings of emalangeni SDR 44.15 million - Holdings of SDRs SDR 2.55 million - Exchange rate as of August 31, 2008 US$1 = E 7.69 - Selected macroeconomic indicators (annual percentage change, unless stated otherwise; percent of GDP where noted): - GDP at constant prices (2002–2007): 1.8 3.9 2.5 2.2 2.9 3.5 - GDP per capita at constant prices (2002–2007): 1.4 3.5 2.1 1.8 2.5 3.1 - GDP deflator (2002–2007): 8.6 5.9 4.4 6.6 6.5 9.0 - CPI (period average) (2002–2007): 11.7 7.4 3.4 4.8 5.3 8.2 - CPI (end of period) (2002–2007): 11.5 4.6 3.2 6.3 5.5 9.8 - Current account balance (millions of U.S. dollars) (2002–2007): 57.6 124.2 71.4 -102.6 -196.7 -41.2 - Export volume, f.o.b. (2002–2007): 19.4 0.7 33.2 -15.5 -2.6 -3.7 - Import volume, f.o.b. (2002–2007): -5.9 -15.3 -1.6 -2.0 -2.4 4.0 - Real effective exchange rate (end of period, IMF Information Notice System trade-weighted): 6.0 13.0 11.8 -2.6 -8.0 3.3 - Broad money (2002–2007): 13.1 14.1 10.4 5.9 25.1 21.4 - Domestic Credit (2002–2007): 58.3 34.4 30.9 10.6 -4.9 -28.7 - Central government (net): 42.1 13.1 4.8 -5.6 -26.7 -50.0 - Private sector: 16.2 21.3 26.1 16.2 21.8 21.4 - Prime lending rate (percent; end of period) (2002–2007): 16.5 11.5 11.0 10.5 12.5 14.5 - Interest rate on 12-month time deposits (percent; end of period) (2002–2007): 9.5 4.2 4.1 3.5 8.5 10.0 - Discount rate (end of period) (2002–2007): 13.5 8.0 7.5 7.5 9.0 11.0 - Gross national savings (2002–2007): 24.7 25.6 22.3 14.5 9.3 14.8 - Of which: government 3.0 3.4 3.7 6.7 12.8 15.3 - Gross domestic investment (2002–2007): 19.9 18.8 19.2 18.6 16.7 16.2 - Of which: government 7.5 5.9 8.5 8.8 7.9 8.5 - Central government finances (fiscal year Apr 1–Mar 31): - Total revenue and grants (2003/04–2007/08): 26.7 27.9 32.1 33.2 43.0 39.7 - Of which: South African Customs Union (SACU) receipts 12.6 13.4 18.4 18.7 28.5 23.8 - Total expenditure and net lending (2003/04–2007/08): 31.3 30.8 36.9 34.8 32.5 33.3 - Current expenditure and net lending: 23.7 24.5 28.5 26.7 25.1 24.8 - Central government balance (including grants): -4.6 -2.9 -4.7 -1.6 10.5 6.4 - Primary balance (including grants): -3.3 -1.7 -3.6 -0.4 11.4 7.4 - Government debt: 21.8 22.5 18.5 16.5 17.4 18.8 - Non-SACU fiscal balance: -23.2 -20.3 -18.0 -17.3 - External sector and reserves: - Current account balance (percent of GDP): 4.8 6.8 3.1 -4.1 -7.4 -1.4 - Trade balance (merchandise goods): 7.6 5.7 4.0 -10.2 -9.4 -8.5 - Capital and financial account balance: -12.5 2.8 -8.7 -1.4 11.5 26.4 - Overall balance: -8.0 -3.5 0.3 0.4 5.6 12.4 - External debt (percent of GDP): 29.5 22.7 18.2 17.2 16.6 16.7 - Memorandum items: - GDP in current prices (millions of emalangeni) (2002–2007): 12,519 13,775 14,739 16,050 18,078 20,386 - Balance of payments (millions of U.S. dollars): -100 -64 7 111 150 358 - Gross official reserves (millions of U.S. dollars) (2002–2007): 260 265 262 244 367 747 - (months of imports of goods and nonfactor services): 2.7 2.1 1.5 1.3 1.9 3.6 - Net official international reserves (millions of U.S. dollars): 217 212 258 240 363 743 - (months of imports of goods and nonfactor services): 2.3 1.6 1.5 1.3 1.9 3.5 - Total external debt (millions of U.S. dollars): 351 413 485 435 441 507 - Notes: Sources: Swazi authorities; and IMF staff projections. Data caveats and notes preserved as in source. ### NBFI structure and comparative magnitudes - Aggregate finding: In all SACU countries total assets of NBFIs are far larger than those of commercial banks. - Total assets of banks and non-bank institutions (percent of GDP, end-2006) — selected entries: - Botswana: Banks 60 / Non-Banking 81 / Insurance 21 / Pension Funds 48 / Building societies 2 / Savings 4 / Credit unions 6 - Lesotho: Banks 42 / Non-Banking 23 / Insurance 18 / Pension Funds 5 / Credit unions 0.2 - Namibia: Banks 85 / Non-Banking 90 / Insurance 36 / Pension Funds 54 / Credit unions 1 - Swaziland: Banks 31 / Non-Banking 54 / Insurance 2 / Pension Funds 41 / Building societies 3 / Savings 2 / Credit unions 6 - South Africa: Banks 120 / Non-Banking 208 / Insurance 79 / Pension Funds 95 / Investment Funds 35 - CMA effects: - Common Monetary Area (CMA) agreement reduced currency risk and facilitated South African shareholder entrance into banking and NBFI sectors; CMA-imposed limits on non-CMA investments motivated South African company entry in CMA financial institutions. ### Characteristics, instruments, and regulatory considerations - Instruments and monetary aggregates: - Credit cooperatives, building societies, and mutual funds issue liabilities comparable to liabilities included in broad measures of money; SCCO accounts could be included in broad money but are not because they are not reported regularly to the central bank. - Pension funds’ main liabilities are members’ contributions and returns on investments; insurers issue actuarially based liabilities. - Pension funds and insurance assets (selected statistics): - Botswana: over 100 private and fully funded pension funds; total assets at end-2006 amounting to 48 percent of GDP. - Namibia: more than 500 pension funds; assets estimated at 57 percent of GDP; government institutions’ pension fund accounts for about 73 percent of total assets. - Swaziland: pension fund assets equal to 46 percent of GDP (85 percent of total assets of the NBFI). - Lesotho: pension fund assets about 10 percent of GDP. - Insurance sector averages around 43 percent of GDP in financial assets. - Botswana insurance companies assets around 26 percent of GDP. - Lesotho one private insurance company, assets about 15 percent of GDP. - Swaziland five insurance companies; market assets no more than 4 percent as of end-2007. - Insurance companies in Botswana and Namibia have foreign participation above 90 percent; top three insurers in Namibia account for more than 85 percent of premiums; largest four to five companies comprise 82 percent of assets. - Investment behavior and returns: - Pension funds and insurers invest extensively overseas; domestic investment often limited to government bonds and bank deposits. - Namibia returns during 2003-2007 averaged between 3 and 4 percent. - Reported average term-deposit return: 10 percent; benchmark rate of return: 5 percent in real terms. - Recent returns in South Africa over the last three years averaged about 9 percent (noted as starting to decline recently). - Swaziland government pension fund increased funding position to 95 percent of actuarial liabilities due to relatively high returns in South Africa. - Ownership and supervision: - Pension and national provident funds are domestically owned; public government pension funds cover on average more than 70 percent of sector assets. - Insurance companies in Botswana, Lesotho and Namibia are mostly foreign-owned; Namibia’s reinsurance business is state-owned. - SCCOs are domestically owned; micro-lending institutions often attached to NGOs or commercial banks. - Regulatory responsibilities spread across Registrars of pension funds and insurance companies, central banks, ministries of finance/trade, with oversight gaps for SCCOs in Lesotho and Swaziland. ### Savings & Credit Cooperatives (SCCOs), microfinance, and domestic capital markets - SCCOs and microfinance: - Rapid SCCO growth across all four countries to serve those without bank access; primary activities are savings and loan products. - Supervisory shortcomings: insufficient oversight and prudential regulation have resulted in governance issues and member complaints, including lack of funds available upon request. - Share of total NBFI assets: - Lesotho: credit cooperatives about 7 percent. - Namibia: credit cooperatives share is negligible. - Botswana: cooperatives 5 percent. - Swaziland: cooperatives 3 percent (equivalent to about 4 percent of the banking system deposits). - Some microfinance institutions accept deposits; data reporting to monetary authorities is often lacking. - Stock exchanges and capital market constraints: - Stock exchanges in Botswana, Namibia and Swaziland are relatively underdeveloped; Lesotho does not have a stock exchange. - Domestic market capitalization is much smaller than dual-listing components: - Botswana: domestic component is 5.4 percent of the foreign listing. - Namibia: domestic market capitalization barely reaches 0.5 percent (of foreign listing). - Low free-float and buy-and-hold institutional behavior reduce transactions and liquidity. - Pension funds and insurance companies could mobilize large long-term resources to develop markets, but lack of domestic instruments prompts overseas investment and capital outflows to South Africa. - Policy-relevant domestic allocation rules: - All countries have similar requirements for pension funds and insurance companies to invest up to 35 percent of assets in local markets; Botswana sets a minimum of 30 percent domestic assets holding. - Practical effectiveness limited because individuals may invest directly in other CMA countries; in mature markets cross-listing allows local pension funds to count investments as domestic. ### Interactions with the financial system and real economy - NBFIs may complement banks or compete, promoting efficiency, innovation, improved corporate governance, and better financial information. - Asset holdings of NBFIs are much higher than those of commercial banks, motivating analysis of their role in economic development; data shortages prevent complete assessment. - In Swaziland, pension funds and institutional investors compete directly with the financial sector in lending due to domestic investment requirements (30 percent), lending to industry participants (sugar and electricity) at market rates. - NBFI domestic investment opportunities often include low-yielding government paper, low-interest housing loans, and building low-rent housing units. - NBFIs inject liquidity into the banking sector by holding term-deposits rather than investing all assets abroad. ### Policy implications and recommendations (lessons and action points) - Strengthen legal and regulatory supervision tailored to the diversity of NBFIs: - Distinguish regulatory approaches for deposit-taking institutions (credit unions, savings and loan societies) versus contractual savings institutions (pension funds, insurers). - Improve coordination among supervisory agencies to reduce regulatory arbitrage and improve oversight coverage. - Encourage NBFI development where it complements broader financial deepening while ensuring prudential safeguards and transparency. - Monitor implications of mandated shifts in fund asset allocations (e.g., requirement to increase domestic holdings from 10 to 30 percent by 2009) on domestic liquidity, asset pricing, and risk exposure. - Develop domestic long-term instruments (government and corporate) to provide alternative investment vehicles for pension funds and insurers and reduce capital outflows to South Africa. - Strengthen SCCO supervision and reporting to monetary authorities to protect members and limit fiscal contingent liabilities from potential government bailouts. - Design regulation in line with economic structures and stage of development, balancing long-term sustainability of institutions with regulatory capacity constraints. - Broader structural reforms recommended: improve business climate, legal establishment, governance, trading and settlement systems, accounting and auditing standards, and information disclosure to mobilize NBFI resources for private-sector development. ### Concluding assessment - Rapid NBFI growth in Botswana, Lesotho, Namibia and Swaziland reflects unmet demand from underserved segments and structural constraints in banking systems. - Despite high levels of NBFI capitalization, anecdotal evidence points to a negligible impact on real growth to date; further development and proper regulation could translate capitalization into productive financing. - The global financial crisis underscores the need for efficient regulatory and supervisory frameworks to manage systemic risks arising from expanding NBFI sectors. *Prepared by Alfredo Torrez and Thomson Fontaine; sources: Swazi authorities and IMF staff projections as reported in the chapter.* ### Introduction............................................................................................................ ### SWAZILAND: THE ROLE OF NON-BANK FINANCIAL INSTITUTIONS IN BOTSWANA, LESOTHO, NAMIBIA AND SWAZILAND ### Introduction - A country’s financial structure is crucial for generating growth and macroeconomic stability; non-bank financial institutions (NBFIs) provide alternatives to banks for translating household savings into enterprise investment and for spreading risks. - NBFIs mainly include leasing and venture capital companies, contractual savings and institutional investors such as pension funds, insurance companies, and mutual funds; in Botswana, Lesotho, Namibia and Swaziland the contractual savings sector dominates the NBFIs. - Other NBFIs in these countries include credit cooperatives, unit trusts, brokers, asset and fund managers, and various micro lenders. - In Swaziland during 2008 the number of NBFIs is growing significantly as they attempt to take advantage of the liquidity surge from the requirement that insurance and retirement funds must increase their holdings of domestic assets from 10 to 30 percent of total assets by 2009. - Lack of adequate legal and regulatory supervision may have negatively influenced the activities of the NBFI sector and limited its potential contribution to economic growth. - NBFIs can complement banks or compete with them; their effectiveness depends on the sophistication of the financial system, ease of access to formal financial services, financial sophistication, and income levels. - In many sub-Saharan African (SSA) countries, pervasive rural poverty and widespread unemployment have facilitated growth in NBFIs serving populations underserved by the small formal banking sector. ### Role, drivers, and prior findings (Overview of NBFIs in developing countries) - Historical and theoretical context: - Goldsmith: increased economic activity and rising income expand financial intermediation through banks and NBFIs. - McKinnon and Shaw: reshaped development-economics view on finance and growth. - King and Levine (1993a, 1993b): cross-country analysis supporting finance–growth linkage; other studies (Deidda and Fattah (2002), Harris (1997)) find the relation weak or insignificant at low per-capita income; Nu (2000) finds negative relationship in some cases. - Gurley and Shaw (1955): rising NBFI importance poses challenges for monetary management and policy; NBFIs grew where bank restrictions created space. - Growth drivers in Botswana, Lesotho, Namibia and Swaziland: - Relatively small financial sectors and high costs of formal banking services. - Limited access to banking services for rural residents and those without steady incomes, creating demand for SCCOs and microfinance institutions. - Insufficient regulatory support and poor coordination among supervisory agencies enabling regulatory arbitrage and weakening supervision. - IMF prior findings: - IMF studies noted the need for financial sector reforms in SSA and low-income countries to support economic development and improve services to the poor. - Financing constraints were widespread, especially in agriculture; reasons include high financing costs, weak legal and institutional environments, and banks’ preference for certain sectors. - Rapid growth of NBFIs filled gaps left by banks but often without adequate regulatory and supervisory frameworks, creating threats to financial stability. ### Key country-level data and statistics (selected aggregates and indicators) - Basic data (Swaziland): - Area (square kilometers) 17,364 - Population (2006) 1,018,449 - Population growth rate (2006) in percent 0.38 - Formal employment (2005) 92,102 - IMF Position (Janurary 3, 2008) - Quota SDR 50.70 million - Fund holdings of emalangeni SDR 44.15 million - Holdings of SDRs SDR 2.55 million - Exchange rate as of August 31, 2008 US$1 = E 7.69 - Selected macroeconomic indicators (annual percentage change, unless stated otherwise; percent of GDP where noted): - GDP at constant prices (2002–2007): 1.8 3.9 2.5 2.2 2.9 3.5 - GDP per capita at constant prices (2002–2007): 1.4 3.5 2.1 1.8 2.5 3.1 - GDP deflator (2002–2007): 8.6 5.9 4.4 6.6 6.5 9.0 - CPI (period average) (2002–2007): 11.7 7.4 3.4 4.8 5.3 8.2 - CPI (end of period) (2002–2007): 11.5 4.6 3.2 6.3 5.5 9.8 - Current account balance (millions of U.S. dollars) (2002–2007): 57.6 124.2 71.4 -102.6 -196.7 -41.2 - Export volume, f.o.b. (2002–2007): 19.4 0.7 33.2 -15.5 -2.6 -3.7 - Import volume, f.o.b. (2002–2007): -5.9 -15.3 -1.6 -2.0 -2.4 4.0 - Real effective exchange rate (end of period, IMF Information Notice System trade-weighted): 6.0 13.0 11.8 -2.6 -8.0 3.3 - Broad money (2002–2007): 13.1 14.1 10.4 5.9 25.1 21.4 - Domestic Credit (2002–2007): 58.3 34.4 30.9 10.6 -4.9 -28.7 - Central government (net): 42.1 13.1 4.8 -5.6 -26.7 -50.0 - Private sector: 16.2 21.3 26.1 16.2 21.8 21.4 - Prime lending rate (percent; end of period) (2002–2007): 16.5 11.5 11.0 10.5 12.5 14.5 - Interest rate on 12-month time deposits (percent; end of period) (2002–2007): 9.5 4.2 4.1 3.5 8.5 10.0 - Discount rate (end of period) (2002–2007): 13.5 8.0 7.5 7.5 9.0 11.0 - Gross national savings (2002–2007): 24.7 25.6 22.3 14.5 9.3 14.8 - Of which: government 3.0 3.4 3.7 6.7 12.8 15.3 - Gross domestic investment (2002–2007): 19.9 18.8 19.2 18.6 16.7 16.2 - Of which: government 7.5 5.9 8.5 8.8 7.9 8.5 - Central government finances (fiscal year; the fiscal year runs from April 1 to March 31): - Total revenue and grants (2003/04–2007/08): 26.7 27.9 32.1 33.2 43.0 39.7 - Of which: South African Customs Union (SACU) receipts 12.6 13.4 18.4 18.7 28.5 23.8 - Total expenditure and net lending (2003/04–2007/08): 31.3 30.8 36.9 34.8 32.5 33.3 - Current expenditure and net lending: 23.7 24.5 28.5 26.7 25.1 24.8 - Central government balance (including grants): -4.6 -2.9 -4.7 -1.6 10.5 6.4 - Primary balance (including grants): -3.3 -1.7 -3.6 -0.4 11.4 7.4 - Government debt: 21.8 22.5 18.5 16.5 17.4 18.8 - Non-SACU fiscal balance: -23.2 -20.3 -18.0 -17.3 - External sector and reserves: - Current account balance (percent of GDP): 4.8 6.8 3.1 -4.1 -7.4 -1.4 - Trade balance (merchandise goods): 7.6 5.7 4.0 -10.2 -9.4 -8.5 - Capital and financial account balance: -12.5 2.8 -8.7 -1.4 11.5 26.4 - Overall balance: -8.0 -3.5 0.3 0.4 5.6 12.4 - External debt (percent of GDP): 29.5 22.7 18.2 17.2 16.6 16.7 - Memorandum items: - GDP in current prices (millions of emalangeni) (2002–2007): 12,519 13,775 14,739 16,050 18,078 20,386 - Balance of payments (millions of U.S. dollars): -100 -64 7 111 150 358 - Gross official reserves (millions of U.S. dollars) (2002–2007): 260 265 262 244 367 747 - (months of imports of goods and nonfactor services): 2.7 2.1 1.5 1.3 1.9 3.6 - Net official international reserves (millions of U.S. dollars): 217 212 258 240 363 743 - (months of imports of goods and nonfactor services): 2.3 1.6 1.5 1.3 1.9 3.5 - Total external debt (millions of U.S. dollars): 351 413 485 435 441 507 - Sources: Swazi authorities; and IMF staff projections. - Notes included in source: 1 IMF Information Notice System trade-weighted; end of period. 2 Data for 2007 pertain to the latest available actual information-September 2007. 3 Includes government holdings abroad. 4 The fiscal year runs from April 1 to March 31. 5 The official GDP numbers from 1994 to 2006 were significantly revised. ### NBFI structure and comparative magnitudes - Aggregate statement: In all SACU countries the total assets of NBFIs are far larger than that of the commercial banks. - Table 1: Total Assets of Banks and Non Bank Institutions (Total Assets in Percent of GDP as of end-2006) - Banks / Non-Banking / Insurance / Pension Funds / Investment Funds / Building societies / Savings / credit unions / Other - Botswana 60 81 21 48 - 2 4 6 - Lesotho 42 23 18 5 - - - 0.2 - Namibia 85 90 36 54 - - - 1 - Swaziland 31 54 2 41 - 3 2 6 - South Africa 120 208 79 95 35 - - - - Source: Various IMF reports and country authorities. - CMA effects: - The Common Monetary Area (CMA) agreement among Lesotho, Namibia, South Africa, and Swaziland has allowed entrance of South African shareholders in banking and NBFI sectors by eliminating currency risk and facilitating foreign portfolio investments among members. - CMA-imposed limits on non-CMA investments have motivated the entrance of South African companies in most financial institutions within the CMA. ### Characteristics and regulatory considerations of NBFIs (Botswana, Lesotho, Namibia, Swaziland) - Diversity and key players: - NBFIs range from private money lenders in Lesotho to sophisticated capital markets in Namibia. - Pension funds, insurance companies, stock exchanges, and SCCOs are the most important players. - Other intermediaries: fund administrators, unit trusts, asset managers, investment consultants, insurance brokers, dealers, exchange houses, burial societies, special investment vehicles, finance and leasing companies, friendly societies, savings clubs, etc. - Classification and supervisory implications: - NBFIs can be classified into deposit-taking institutions (credit unions, credit cooperatives, savings and loans, building and loans, money lenders) and non-deposit taking institutions (insurance companies, finance companies, securities dealers, pension funds). - Oversight of non-bank deposit-taking institutions is closer to banking supervision; regulation and supervision of contractual savings institutions typically differs and requires tailored approaches. - Table 2: Number of Banks and Non-Bank Financial Institutions (as reported) - Financial Institutions: Botswana / Lesotho / Namibia / Swaziland - Banks: 11 3 7 5 - Commercial banks: 6 3 4 4 - Foreign controlled bank: 6 3 3 Yes - Domestic owned bank 0 0 1 1 Yes - Investment bank: 0 1 1 No - Development banks 2 2 No - Savings bank 1 1 Yes - Building Society 1 1 1 1 Yes - Non Bank Financial Institutions totals by category (selected entries): - Total NBFIs: 827 186 953 265 - Development financial institutions: 12 1 No - Pension Funds: 1 1 5 5 50 200 No - Of which: Government Pension Fund 1 1 2 - Insurance Cias (companies): 54 43 25 No - Of which: Foreign controlled 4 28 - Insurance brokers: 14 8 No - Credit Cooperatives: 36 16 05 256 Yes - Term lenders: 4 13 Yes - Cash Lenders: 600 No - Post Office savings bank: 1 1 Yes - Microfinance: 256 100+ No - Asset management Cias. 35 No - Stock brokers 4 No - Mortgage and House Cias. 2 1 Yes - Credit reference bureaus 2 No - Unit trust 9 2 No - Total financial institutions: 839 189 961 271 - Source: Various IMF reports and country authorities. - Note: Some microfinance institutions accept deposits; question in table: Deposit Taking Institution? ### Interactions with the financial system and real economy - NBFIs may complement banks or compete, pushing banks to be more efficient and responsive. - The extent to which NBFIs fill services gaps depends on: - Financial system sophistication - Ease of access to formal financial services - Level of financial literacy - Average income levels - In SSA, NBFIs expanded where banking access was limited; but expansion often occurred without adequate regulatory frameworks, raising financial stability concerns. - Earlier IMF studies concluded that the financial sector required reforms to support economic development and improve service quality to the poor; agriculture was particularly underserved. ### Conclusion (lessons and policy implications) - NBFIs play an increasingly important role in SACU countries, often holding total assets that exceed commercial banks’ assets. - Growth of NBFIs reflects unmet demand for financial services from segments underserved by banks, but regulatory and supervisory weaknesses risk undermining stability and limiting contributions to growth. - Policy implications from the analysis: - Strengthen legal and regulatory supervision tailored to the diversity of NBFIs (distinct approaches for deposit-taking vs. contractual savings institutions). - Improve coordination among supervisory agencies to reduce regulatory arbitrage. - Encourage NBFI development where it complements broader financial deepening while ensuring prudential safeguards. - Monitor implications of rules that shift pension and insurance fund asset allocations (e.g., requirement to increase domestic holdings from 10 to 30 percent by 2009) on domestic liquidity and risk exposure. *Prepared by Alfredo Torrez and Thomson Fontaine; sources: Swazi authorities and IMF staff projections as reported in the chapter.* ### 14. Credit cooperatives, building societies, and mutual funds, issue liabilities that ### _cr08355 - 14. Credit cooperatives, building societies, and mutual funds, issue liabilities that ### Overview of NBFIs and instruments - Credit cooperatives, building societies, and mutual funds issue liabilities comparable to liabilities included in broad measures of money. - Other NBFIs (leasing, asset management companies, venture capital and private equity firms) raise capital via shareholder contributions and by issuing shares and equities exchanged in capital markets. - Some NBFIs have limited exposure to the derivatives markets. - Typical financial instruments provided by most SCCOs in Botswana, Lesotho, Namibia, and Swaziland include savings accounts, investment deposits, cooperatives shares of certificates, and car and housing loans. - Shares in mutual funds, life insurance premiums, reserve pension funds and equity options are offered in all four countries; some NBFIs offer financial consultancy services. - Note: These SCCO accounts could be included in national definitions of broad money and credit but are not because they are not reported regularly to the central bank. ### Pension funds and insurance companies — liabilities, assets, and market behavior - Pension funds’ main liabilities: members’ contributions (employers and employees) and returns on investments; they do not issue market-transacted liabilities (technical reserves of pension funds). - Insurance companies issue actuarially based liabilities (insurance policies and annuities). - Assets of pension funds and insurers are typically longer-term and may take the form of equity investments generally held to maturity; the secondary market for these instruments practically does not exist in these countries. - Market development: there is not a substantive market for equities in any of these countries, except for Botswana. Key statistics on pension funds and insurance assets: - Botswana: over 100 private and fully funded pension funds, with total assets at end-2006 amounting to 48 percent of GDP. - Namibia: more than 500 pension funds, with assets estimated at 57 percent of GDP. - Swaziland: pension fund assets equal to 46 percent of GDP (85 percent of total assets of the NBFI). - Lesotho: pension fund assets about 10 percent of GDP. - Government institutions’ pension fund in Namibia accounts for about 73 percent of total assets. - Botswana operates a social pension system that reached 49 percent of GDP at end 2006. Insurance sector statistics and concentration: - Insurance sector accumulates on average around 43 percent of GDP in financial assets. - Namibia: 16 long-term insurers and 12 short-term insurers; top three in each segment account for more than 85 percent of total premiums. - Botswana: total assets of insurance companies amount to around 26 percent of GDP. - Lesotho: one private insurance company, assets about 15 percent of GDP. - Swaziland: five insurance companies; market assets no more than 4 percent as of end-2007. - Insurance companies in Botswana and Namibia have foreign participation above 90 percent. - Market concentration: largest four to five companies comprise 82 percent of assets. Investment behavior and returns: - Pension funds and insurers invest extensively overseas while meeting domestic asset requirements; domestic investment often a small fraction (government bonds, bank deposits). - Reasons to invest offshore: absence of local investment opportunities and close corporate integration with South African companies. - Namibia returns during 2003-2007 averaged between 3 and 4 percent. - Swaziland: government pension fund increased funding position to 95 percent of actuarial liabilities due to relatively high returns in South Africa. - Botswana: lack of long-term local assets led pension funds to invest domestic assets in commercial bank deposits linked to the Bank of Botswana certificate (Bob) rate. - Government increased local currency bond issuance in 2008 to provide alternative domestic investment vehicles for pension funds and allow central bank to scale bank Bob issuance. - Reported average term-deposit return: 10 percent; benchmark rate of return: 5 percent in real terms. - Recent returns in South Africa over the last three years averaged about 9 percent (noted as starting to decline recently). ### Ownership and regulatory structure - Ownership is mixed: both local and foreign ownership. - Pension and national provident funds in Botswana, Lesotho, Namibia, and Swaziland are domestically owned. - Public government pension funds are the largest, covering on average more than 70 percent of the sector’s assets. - Insurance companies in Botswana, Lesotho and Namibia are mostly foreign-owned; Namibia’s reinsurance business is state-owned. - Swaziland: Royal Insurance Company is 40 percent government owned; newer insurers have both foreign and domestic shareholders. - SCCOs in each country are domestically owned; micro-lending institutions often attached to NGOs or commercial banks. - Other NBFIs are generally dominated by South African firms. Regulatory and supervisory arrangements: - Pension funds and insurance companies supervised by the Registrar of pension funds and insurance companies in most countries. - Credit cooperatives are under the authority of some government ministries. - Central banks oversee unit trusts, mutual funds, and financial companies. - In Lesotho and Swaziland, oversight of SCCOs has been generally inadequate due to lack of comprehensive analysis of growth and loan portfolio quality. (Extract of regulatory table elements preserved in text table form in the source; regulators include Bank of Botswana (BOB), Central Bank of Lesotho, Bank of Namibia (BON), Central Bank of Swaziland (CBS), NAMFISA, Registrars of Insurance and Pension Funds, Ministries of Finance and Trade, among others — as listed in the source.) ### Saving and credit cooperatives (SCCOs), microfinance, and other NBFIs - Rapid growth of SCCOs in all four countries to provide services to those without bank access; primary activities: savings and loan products. - Contributing factors to growth: prohibitive bank fees and high bank borrowing costs. - Supervisory shortcomings: insufficient oversight and prudential regulation have resulted in governance issues and member complaints, including lack of funds available upon request. - Importance by country (share of total NBFI assets): - Lesotho: total assets of credit cooperatives about 7 percent of total NBFI assets. - Namibia: credit cooperatives share is negligible. - Botswana: cooperatives have 5 percent of total NBFI assets. - Swaziland: cooperatives have 3 percent of total NBFI assets (equivalent to about 4 percent of the banking system deposits). - SCCOs issue savings deposits that could be included in money aggregates but balance sheet information is not compiled and reported timely; activities overseen by government agencies rather than monetary authorities. - Informal lenders and microfinance institutions serve as important suppliers for small businesses and individuals; tend to charge high up-front fees and are supervised by non-financial entities (e.g., Ministry of Enterprise), causing data reporting issues. ### Stock exchanges, pension funds’ potential, and domestic capital markets - Stock exchanges in Botswana, Namibia and Swaziland are relatively underdeveloped and sometimes lack sufficient regulatory support. - Lesotho does not have a stock exchange. - Contribution to domestic private sector development is limited; most listed companies linked to major mining companies and South African financial institutions. - Domestic market capitalization is much smaller than dual-listing component: - Botswana: domestic component is 5.4 percent of the foreign listing. - Namibia: domestic market capitalization barely reaches 0.5 percent (of foreign listing). - Low free-float and buy-and-hold behavior of institutional investors reduce transactions and liquidity. - Text Table excerpts (as reported in source): - Dual listing and domestic listing company counts and total listings presented in the source tables. - Examples of market instruments and shares of GDP were tabulated in the source (T-bills, T-bonds, C.Bank Certificate, Corporate securities, etc.) for Botswana, Lesotho, Namibia, Swaziland, and South Africa. Pension funds and capital market development: - Pension funds and insurance companies can mobilize large, long-term and stable financial resources and potentially transform financial markets. - Impact depends on size, investment policies, and management practices; development requires efficient trading and settlement systems, modern accounting and auditing standards, and promotion of information disclosure. - All countries have similar requirements for pension funds and insurance companies to invest up to 35 percent of their assets in local markets; Botswana sets a minimum of 30 percent domestic assets holding. - Practical effectiveness of these regulations is limited because individuals remain free to invest directly in other CMA countries. - In mature markets (Namibia and Botswana), cross-listing allows local pension funds to count investments as domestic. - Swaziland: only 5 listed companies with very little trading. ### NBFIs’ role in the financial system and real economy - Asset holdings of NBFIs in these countries are much higher than that of formal banking institutions, motivating analysis of their role in economic development; shortage of data prevents complete analysis. - Pension funds and insurance companies’ transactions are mostly linked to investment abroad, with residual domestic impact due to lack of domestic opportunities. - SCCOs, with membership in the thousands and notable assets, potentially can contribute meaningfully to economic growth. - In Swaziland, pension funds and institutional investors compete directly with the financial sector in lending due to domestic investment requirements (30 percent), lending directly to industry participants (sugar and electricity sectors) at market rates. - Investment opportunities for NBFIs include low-yielding government paper, low-interest housing loans, and building low-rent housing units. - NBFIs inject liquidity into the local banking sector by keeping some assets in term-deposits (average return of 10 percent) rather than investing abroad. - Recent trend: large share of investments in South Africa where returns averaged about 9 percent over the last three years, with those returns starting to decline because of the slowdown of the South African economy. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08355.pdf* ### 31. Banks and other specialist institutions like leasing and venture capital ### 31. Banks and other specialist institutions like leasing and venture capital ### Role of banks and specialist NBFIs - Banks and other specialist institutions like leasing and venture capital companies could enhance NBFIs in the expansion of their financing role. - Pension funds and insurance companies rely on the formal banking system in channeling resources, usually by increasing liquidity in the markets. - As NBFIs reach critical mass, they are likely to help: - promote competition, - stimulate financial innovation, - improve financial information, - strengthen corporate governance, and - encourage more robust regulation. - The low level of personal wealth and the absence of a financial culture, including a dearth of financially skilled people, further limit the deepening and contribution of the financial sector towards economic development. - It is therefore important to strike a balance between having a good record of financial performance and contributing towards deepening of the financial markets. ### NBFIs and poverty reduction - NBFIs could play a more meaningful role in contributing to reducing poverty through: - deepening of the financial sector, - increasing access to finance, and - lowering transaction costs. - For a number of the rural poor, their only form of financing is only through microfinance institutions that may be organized at the local level. - To the extent that financing from micro lenders assist in enabling the rural poor to engage in productive activities, this would have some impact on reducing poverty. - Throughout Botswana, Lesotho, Namibia and Swaziland, small loans from micro lenders and in some instances SCCOs have been channeled into productive uses, particularly in support of subsistence agriculture. ### Conclusion: status and challenges - Despite the proliferation of NBFIs in Botswana, Lesotho, Namibia and Swaziland, financing is still very limited. - The rapid growth of NBFIs in these countries reflects as much on the restrictive financial system as it does on the pervasive rural poverty and widespread unemployment. - The challenge remains to find a way to channel these resources to productive uses. - Anecdotal evidence points to a very negligible impact on real growth within the countries under review, despite the high level of capitalization. - Further development and proper regulation of NBFIs could translate to tangible gains, since when financial development is sustainable, the credit market becomes more competitive and more efficient over time, and this could eventually contribute to economic growth. ### Capital markets and external investment flows - Pension funds and insurance companies with substantial financial resources could help develop capital markets. - These entities usually demand securities, which are normally in short supply. - Limited liquidity is a major obstacle to the development of the stock market in Botswana, Namibia and Swaziland. - Lack of attractive domestic investment opportunities has led to outflows of savings from these countries into the liquid and relatively well developed markets in neighboring South Africa. - Access to such markets has benefited financial institutions and individuals who are able to invest in a diversified range of products. - Understanding the type of flows will help in designing policies to better manage these capital flows; allowing higher interest rate and more attractive domestic investment opportunities could reduce such outflows. ### Supervision, regulation, and fiscal risks - Effective supervision of the non-bank financial institutions in the countries under review needs further strengthening to allow an orderly expansion that could better serve the real sector needs. - Failure to properly regulate the NBFI sector could result in serious consequences for participants. - In all the countries, complaints from clients are increasing as the under supervised SCCOs take advantage of the lax regulations. - This trend raises the distinct possibility that government may be forced to intervene to bail out these institutions, putting further pressure on the government budget. ### Lessons from the global financial crisis and policy implications - The current global financial crisis provides useful lessons on the importance of an efficient regulatory and supervisory framework. - Regulation should be in line with economic structures and the stage of economic development. - Regulation should be designed to strike a balance between facilitating the long-term sustainability of the financial institutions and avoiding placing an undue burden on the regulatory body. - Government must provide a sound economic environment, accompanied by structural reforms (improving the business climate, legal establishment, and governance) to provide stability to all players in the financial market, along with transparency and accountable institutions. *Source: _cr08355 - 31. Banks and other specialist institutions like leasing and venture capital* ### References ### _cr08355 - References ### References - A.M. Gulde, C. Patillo, J. Christensen, and others, Sub-Saharan Africa, Financial Sector Challenges, IMF, 2006. - Cameron R., 1967, Banking in The Early Stages of Industrialization: A Study in Comparative Economic History, Oxford University Press, New York, NY (1967). - D. Vittas, The Role of Non-Bank Financial intermediaries in Egypt and other MENA countries, Development Research Group, The world Bank, November 1997. - R. Cameron, Banking and Economic Development: Some Lessons of History, Oxford University Press, New York, NY (1972). - L. Deidda and B. Fattouh, Non-linearity between finance and growth, Economics Letters 74 (2002), pp. 339–345. - R. W. Goldsmith, Financial Structure and Development New Haven: Yale University Press (1969). - R.D.F. Harris, Stock market and development: a re-assessment, European Economic Review 41 (1997), pp. 139–146. - R.G. King and R. Levine, Finance and growth: Schumpeter might be right, Quarterly Journal of Economics 109 (1993), pp. 717–737. - R. Levine, Financial development and economic growth: views and agenda, Journal of Economic Literature 35 (1997), pp. 688–726. - R.G. King and R. Levine, Finance, entrepreneurship, and growth theory and evidence, Journal of Monetary Economics 32 (1993), pp. 513–542. - R.I. McKinnon, Financial liberalization and economic development: reassessment of interest rate policies in Asia and Latin America, Oxford Review of Economic Policy 4 (1989), pp.34–56. - E. S. Shaw, Financial Deepening in Economic Development New York: Oxford University Press (1973). - Z. Xu, Financial development, investment, and economic growth, Economic Enquiry 38 (2000), pp. 331–344. - Bank of Botswana, Annual Report. - Bank of Namibia, Annual Report. - Botswana Stock Exchange Annual Report. - Central Bank of Swaziland, Annual Report. - Namibia Stock exchange Annual Report. - Swaziland Stock Exchange Annual Report. ### Statistical appendix — macro aggregates and GDP (selected key figures) - GDP at factor cost (2003–07, In millions of emalangeni): - 2003: 9,276.0 - 2004: 9,509.9 - 2005: 9,725.5 - 2006: 10,007.2 - 2007: 10,347.6 - GDP at market prices (2003–07, In millions of emalangeni): - 2003: 11,211.3 - 2004: 11,486.6 - 2005: 11,733.7 - 2006: 12,073.9 - 2007: 12,493.6 - GDP at current prices (2003–07, In millions of emalangeni): - 2003: 13,774.6 - 2004: 14,738.7 - 2005: 16,050.0 - 2006: 18,077.8 - 2007: 20,386.4 - GDP deflator (index, 2000 =100): - 2003: 122.9 - 2004: 128.3 - 2005: 136.8 - 2006: 149.7 - 2007: 163.2 - Percent change: 2003: 5.9; 2004: 4.4; 2005: 6.6; 2006: 9.5; 2007: 9.0 ### Sectoral composition and growth (selected) - Shares of GDP at factor cost (2003–07, In percent of GDP at factor cost): - Agriculture and livestock: 11.6, 11.0, 11.3, 10.7, 10.7 - Manufacturing: 38.0, 37.5, 37.0, 36.7, 36.6 - Services: 42.7, 44.1, 45.1, 45.9, 46.4 - GDP at market prices — annual percentage change (selected): - 2003: 3.9 - 2004: 2.5 - 2005: 2.2 - 2006: 2.9 - 2007: 3.5 - Services components at 2000 constant prices (2003–07, In millions of emalangeni): - Wholesale and retail: 579.9, 638.6, 689.2, 766.4, 843.5 - Hotels and restaurants: 174.4, 180.1, 196.9, 212.5, 228.2 - Transport: 354.0, 374.0, 389.6, 372.0, 378.9 - Communications: 395.2, 493.6, 561.4, 589.8, 602.3 - Banking, finance, and insurance: 390.7, 394.3, 399.1, 423.2, 430.1 - Government services: 1,382.1, 1,426.8, 1,446.8, 1,512.5, 1,578.8 ### Government finances (selected fiscal aggregates) - Central government total revenue and grants (2003/04–2007/08, In millions of emalangeni): - 2003/04: 3,908.4 - 2004/05: 4,841.8 - 2005/06: 5,499.1 - 2006/07: 8,020.6 - 2007/08: 8,341.1 - Tax revenue (same period, In millions of emalangeni): - 2003/04: 3,660.5 - 2004/05: 4,627.8 - 2005/06: 5,189.5 - 2006/07: 7,682.8 - 2007/08: 7,564.9 - SACU receipts (2003/04–2007/08, In millions of emalangeni): - 2003/04: 1,878.1 - 2004/05: 2,772.8 - 2005/06: 3,101.1 - 2006/07: 5,321.8 - 2007/08: 4,989.9 - Total expenditure and net lending (2003/04–2007/08, In millions of emalangeni): - 2003/04: 4,314.0 - 2004/05: 5,557.0 - 2005/06: 5,757.7 - 2006/07: 6,062.7 - 2007/08: 6,992.9 - Overall balance (including grants, 2003/04–2007/08, In millions of emalangeni): - 2003/04: -405.6 - 2004/05: -715.2 - 2005/06: -258.7 - 2006/07: 1,957.9 - 2007/08: 1,348.2 - Government debt (2003/04–2007/08, In millions of emalangeni): - Total government debt: 2,852.1; 2,800.7; 2,729.9; 3,251.7; 3,940.1 - Foreign: 2,488.7; 2,293.3; 2,303.0; 2,742.3; 3,500.1 - Domestic: 363.5; 507.4; 426.9; 509.4; 440.0 - Fiscal year note: The fiscal year runs from April 1 to March 31. ### Public expenditure composition and transfers (selected) - Current expenditure (2003/04–2007/08, In millions of emalangeni): - 2003/04: 3,437.2 - 2004/05: 4,295.0 - 2005/06: 4,416.3 - 2006/07: 4,681.3 - 2007/08: 5,217.3 - Wages and salaries (2003/04–2007/08, In millions of emalangeni): - 2003/04: 1,668.9 - 2004/05: 1,964.0 - 2005/06: 2,443.0 - 2006/07: 2,588.7 - 2007/08: 2,750.2 - Capital expenditure (2003/04–2007/08, In millions of emalangeni): - 2003/04: 817.8 - 2004/05: 1,259.0 - 2005/06: 1,409.7 - 2006/07: 1,436.6 - 2007/08: 1,732.7 - Total government transfer payments (2003/04–2007/08, In millions of emalangeni): - Total: 421.4; 742.1; 783.1; 726.4; 912.8 ### External sector and balance of payments (selected) - Current account balance (2003–07, Millions of U.S. dollars): - 2003: 124.2 - 2004: 51.7 - 2005: -102.6 - 2006: -196.7 - 2007: -41.2 - Exports, f.o.b. (2003–07, Millions of U.S. dollars): - 2003: 1,387.1 - 2004: 1,808.9 - 2005: 1,636.5 - 2006: 1,663.9 - 2007: 1,766.8 - Imports, f.o.b. (2003–07, Millions of U.S. dollars): - 2003: -1,283.2 - 2004: -1,717.9 - 2005: -1,894.6 - 2006: -1,916.1 - 2007: -2,013.3 - Gross official reserves (end of period, 2003–07, Millions of U.S. dollars): 264.8; 261.8; 244.4; 367.4; 747.2 - In months of imports of goods and services: 2.1; 1.5; 1.3; 1.9; 3.6 - Lilangeni per U.S. dollar (end of period): 2003: 6.64; 2004: 5.63; 2005: 6.33; 2006: 6.97; 2007: 6.8 ### Monetary and financial sector (selected) - Monetary survey — Broad money (M2), end-of-year (2003–08, In millions of Emalangeni): - 2003: 2,969.0 - 2004: 3,278.0 - 2005: 3,471.0 - 2006: 4,342.0 - 2007: 5,272.8 - 2008: 5,756.4 - Net foreign assets (Monetary authorities, June, 2003–08, In millions of Emalangeni): - 2003: 1,404.7 - 2004: 1,450.2 - 2005: 1,518.4 - 2006: 2,584.6 - 2007: 5,059.6 - 2008: 5,817.8 - Reserve money (2003–08, In millions of Emalangeni): 430.3; 477.1; 489.9; 566.1; 705.7; 770.7 - Private sector deposits (commercial banks, 2003–07, In millions of emalangeni): 2,663.7; 2,945.9; 3,221.2; 4,088.2; 5,022.5 - Commercial banks — claims on private sector (2003–07, In millions of emalangeni): 2,328; 3,013; 3,531; 3,635; 5,216 - Commercial banks — total assets = liabilities (2003–07, In millions of emalangeni): 3,204; 4,030; 5,087; 5,683; 6,828 ### Interest rates and financial indicators (selected) - Central Bank of Swaziland discount rates (selected dates and values): - 2003 Dec: 8.0 - 2004 Dec: 7.5 - 2005 Dec: 7.0 - 2006 Dec: 9.00 - 2007 Dec: 11.00 - 2008 June: 11.50 - Treasury bills (Swaziland) (selected): 7.9; 7.6; 6.9; 8.5; 9.9; 9.8; 10.30 (years/periods as shown) - Prime lending rate (Swaziland) (selected): 11.5; 11.0; 10.5; 12.5; 14.5; 14.5; 15.00 - Commercial banks performance ratios (Basle capital ratio Tier 1, Dec. 2003–2007): - 2003: 14 - 2004: 14 - 2005: 15 - 2006: 20 - 2007: 23 - 2007 (Dec) / 2008 (June) entries include 21; 18 ### Labor, population, and social indicators (selected) - Population (in thousands, 2002–07): - 2002: 999.4 - 2003: 1,003.2 - 2004: 1,006.9 - 2005: 1,010.8 - 2006: 1,014.6 - 2007: 1,018.4 - Annual population growth (2002–07): 0.37; 0.36; 0.36; 0.37; 0.37; 0.37 - Labor force (World Bank estimates, 2002–07, in thousands): 314.9; 319.1; 322.3; 331.8; 337.2; ... - Unemployment rate (in percent): 30.0; 29.0; 30.0; 30.0; 30.0; 30.0 - Retail price indices of urban families (CPI, April 2007 = 100) — All-groups index (July, 2003–2008): - 2003: 82.0 - 2004: 84.6 - 2005: 90.0 - 2006: 94.9 - 2007: 106.9 - 2008 (July): 116.9 - Consumer price index in South Africa (e-o-p) — percent change (selected): 0.3; 3.5; 3.6; 5.8; 9.0; 12.2 ### Agriculture, sugar, and other exports (selected) - Sugar production and related (crop years / calendar where indicated): - Cane (2002/03–2006/07, in thousands of metric tons): 4,609; 5,046; 4,884; 5,165; 4,931 - Sugar (2002/03–2006/07, in thousands of metric tons): 583; 628; 598; 653; 623 - Area under cultivation (2002/03–2006/07, in thousands of hectares): 48.0; 49.9; 50.9; 52.2; 52.2 - Domestic consumption and local sales (calendar year, in thousands of metric tons): 281.0; 332.0; 311.0; 314.5; 318.2 - Merchandise exports — total domestic exports (2003–07, In millions of U.S. dollars): 1,170; 1,709; 1,580; 1,539; 1,678 - Total exports, f.o.b. (2003–07, In millions of U.S. dollars): 1,387; 1,809; 1,637; 1,664; 1,767 - Principal export categories (2003–07, selected volumes and values): - Wood pulp (volume, 2003–07, thousands): 168; 181; 197; 230; 246 - Wood pulp (value, 2003–07, In millions of emalangeni): 425; 446; 518; 633; 697 ### Public and external debt (selected) - Public sector external debt outstanding (2003–07, In millions of U.S. dollars): - TOTAL DEBT OUTSTANDING: 414.5; 484.1; 435.2; 441.6; 498.4 - PUBLIC DEBT: 353.6; 414.2; 373.2; 376.1; 433.8 - Central Government (of public debt): 300.4; 356.3; 323.6; 341.0; 405.7 - Multilateral organizations (2003–07): 169.5; 214.8; 223.5; 230.7; 252.0 - Bilateral (2003–07): 150.4; 158.4; 92.1; 89.1; 119.2 - Public sector external debt service (2003–07, In millions of U.S. dollars): - TOTAL DEBT SERVICE (2003–2007): 42.6; 46.8; 37.6; 41.2; 42.1 - Principal: 19.3; 22.7; 16.2; 20.4; 23.3 - Interest: 23.2; 24.0; 21.2; 20.7; 18.8 - Disbursements: 17.4; 32.3; 44.3; 50.5; 41.8 *Italic: Source — _cr08355 - References (statistical appendix and bibliography) from the supplied PDF content.* ### 1. Taxes on net income and ### 1. Taxes on net income and profits ### 1.1 Taxes on companies — Company income tax (normal tax) - Legal basis: Income Tax Order, 1975, as amended. - Scope: - Annual income tax levied on taxable income derived from sources in Swaziland, or deemed to be in Swaziland, by all companies, foreign or domestic, public or private. - Agricultural cooperatives, insurance societies, and public utility companies are considered companies for taxation purposes. - Taxable income: - Defined as gross income (excluding capital receipts, and foreign and exempt income) less allowable deductions (including loss offsets) incurred in the process of production in Swaziland. - For farming companies, net change in livestock and produce held is deemed income (except for companies that opted otherwise under previous tax laws) and will be valued at purchase price or current market prices, whichever is lower. - Exemptions (examples): - Dividend receipts of companies; receipts and accruals of life insurance companies; pension benefits or provident funds; noninvestment profits of societies and associations derived solely through transactions with individual members. - Rates: - (a) Companies: 30 percent of taxable income. - (b) Companies granted development approval order: 10 percent of taxable income. ### Provisional tax (companies and certain individuals) - Applicability: - All companies, directors of private companies, and any person whose income, other than remuneration under the PAYE scheme, exceeds E 1,000 per annum. - Payment schedule (advance payments on estimated income): - (a) On or before the last day of the six months of the year of assessment, one-half of the tax payable on the estimated income for the year. - (b) On or before the last day of the year of assessment, the total taxes payable on the estimated income for the year less the amount of the previous provisional tax payment. - Estimated income floor: normally not less than the taxable income in the preceding year of assessment. - Company year of assessment: the year in respect of which its financial accounts are drawn up. - Farmers: one payment of provisional tax on or before the end of the year of assessment. - Phasing-in (historical): five-year phasing-in for provisional tax (one-fifth payable in 1985/86, full payments due in 1990/91). - 1994 amendment: companies required to make a third provisional payment due six months after the close of the year of assessment. ### Special exemptions and development approval orders - New business exemptions: - A new business engaged in a manufacturing industry not already in existence in Swaziland, or (from July 1, 1987) any business predominantly engaged in exporting goods from Swaziland, is exempt from normal tax for the first five years unless cumulative taxable income less cumulative local wage bill exceeds 150 percent of the value of the assets (excess taxed). - The Minister of Finance decides on newness, manufacturing status, and exporting predominance. - Development approval order: - Minister of Finance, with prior cabinet approval, may declare a business a development enterprise and issue a "development approval order" granting additional tax concessions. ### Deductions, allowances, and sectoral incentives - General deductions: - Expenditures and losses incurred in production of income (excluding capital expenditures and dividend payments), interest charges, "reasonable" depreciation allowances for plants, and 4 percent for buildings used in production, plus actual expenditures on repairs and maintenance. - University grants: grants for capital projects (buildings, fittings, furniture, and related capital items) to the University of Swaziland are exempt. - Listing fees: direct "listing" fees on the Swaziland Stock Exchange — only one-third claimable in year of expense; balance spread equally in next two years. - Pension scheme contributions: - Limited to 20 percent of employee remuneration and annuities (less employees' contribution) up to E 1,750 per employee. - Total contribution to retirement annuity funds limited to the greatest of: - (a) 15 percent of taxable income accruing to the taxpayer in respect of trade carried on by him, provided such amount shall not exceed E 5,000 per annum; or - (b) E 3,500 less contributions made by the taxpayer to a pension fund; or - (c) E 1,750. - Training expenditures: - All expenses relating to the training of Swazi employees are deductible (in effect 200 percent) for taxpayers engaged in a gazetted industry with scheme approval by the Commissioner. - Research expenditures: - Expenditures for research related to production deductible at the rate of annual cost or 4 percent of the total contract value, whichever is greater. - Initial allowances: - Available for machinery or plants, infrastructural machinery or facilities (including transmission equipment, and lines and pipes), and buildings housing such machinery or plants and used for the first time in a manufacturing business at the rate of 50 percent granted in the first year of assessment during which the asset was first used. - Handicraft and cottage industry incentives: - Approved cottage industry companies: additional deduction of 133 percent in respect of "approved export promotion expenditure." - Approved export trading houses (handicraft sector): additional deduction of 150 percent in respect of "approved export promotion expenditure." - Additional allowance subject to company achieving an increase in volume of exports in the subsequent year. - National disaster contributions: contributions in cash or in kind during the year toward any national disaster scheme established by government are deductible. - Farming special deductions: - Special (100 percent) deductions (not exceeding 30 percent of gross income) allowable for a variety of on-farm expenditures (e.g., irrigation and fencing). - Where these deductions are made, initial and depreciation allowances are not allowable. ### 1.12 Casino tax - Legal basis: Casino Tax Act, 1963 (Act No. 56, 1963, as amended). - Structure (effective from July 1, 1985): annual license fee plus a levy based on percentage of gross gaming room takings less winnings paid out; payable annually. Licensee is liable to normal tax. - Rates and fees: - (a) Annual license fee: E 2,000. - (b) Levy on gross gaming room takings less winnings: - First year of operation: no levy. - Second, third, fourth, fifth, and sixth years of operation: a levy of 2.0 percent. - Seventh year and subsequent years of operation: a levy of 4.5 percent. ### 1.21 Individual income tax (normal tax) - Legal basis: Income Tax Order, 1975, as amended. - Scope: - Payable on income received by or accruing to all persons from sources within Swaziland or deemed to be within Swaziland. - Taxable income = gross income (excluding capital receipts and exempt income) less losses and allowable deductions. - Taxable income includes annuities, wages and salaries, rent, investment income, and benefits in kind. - Administration: - Employees subject to monthly withholding at source (Final Deduction System for employees in many cases). - Other taxpayers assessed annually. - Nonresidents liable for income tax on income earned in Swaziland (including benefits in kind); dividends and interest payments subject to special taxes (see 1.31 and 1.32). - Personal income tax legislation integrated with company tax legislation. - Exemptions (examples): - Every person ordinarily resident in Swaziland whose taxable income in one year of assessment does not exceed E 14,000 per annum. - Salaries of U.K. and South African civil servants; consular personnel not permanent residents; war pensions and gratuities; first E 1,000 of interest income from a deposit in a financial institution; interest received by nonresidents from Swaziland government securities and bonds; capital sums due from a provident fund or benefit fund (pension: one third of total value of annuity may be commuted); capital sums in commutation of a retirement annuity; gratuities to a maximum of 25 percent of total remuneration for services rendered prior to 1 July, 2001; severance allowance or notice pay under Employment Act on termination of services is exempt; first E 30,000 received on retrenchment or retirement. - Note: reference to attached Income Tax Amendment Bill of 2004 proposing adjustments for fiscal drag. - Deductions: - In addition to those for companies where appropriate, employee contributions to pension funds (maximum E 1,750 where the pension fund is not established by law). - Death, accident, sickness, or unemployment insurance and contributions to provident and benefit funds (other than a medical aid fund) deductible at a rate of 10 percent to a maximum of E 180 (with qualification for policies entered after July 1, 1974). - Final Deduction System (FDS): - Introduced by Income Tax (Amendment) Act No. 6 of 1994; operational from July 1, 1993. - FDS constitutes a final liability to tax related to a full year of assessment. - Applies to employees with only employment income subject to FDS; such employees are not required to furnish an income tax return if no other taxable income. - Individual normal tax rates (marginal tax rates): - Taxable income (in Emalangeni) and marginal tax rate (In percent): - 0 – 14,000 : 0 - 14,001 – 20,000 : 12 - 20,001 - 30,000 : 19 - 30,001 - 36,000 : 26 - 36,000 : 33 - Trust income: 33 percent of taxable income. - Rates of normal tax for retiring or redundant individuals (Income Tax (Amendment) Order 2003): - Taxable income (in Emalangeni) and marginal tax rate (In percent): - 30,000 - 60,000 : 12 - 60,001 – 90,000 : 19 - 90,001 – 120,000 : 26 - 120,001 : 33 - Provisional tax for individuals: - System in operation for self-employed persons and other individuals whose income, other than remuneration subject to PAYE, exceeds E 1,000 per annum. ### 1.22 Graded tax - Legal basis: Graded Tax Act of 1968, as amended. - Scope: Payable by all persons (apart from noted exemptions) resident or domiciled in Swaziland; akin to a head tax; determined on gross income and payable annually (employees: monthly deduction at source). - Exemptions: persons under apparent age of 18; women earning less than E 15 per month; visitors; students; the chronically ill. - Gross income bands and tax payable: - E 0 - E 299 : E 4.20 - E 300 - E 449 : E 6.00 - E 450 - E 600 : E 12.00 - Over E 600 : E 18.00 ### Taxes on nonresidents and special withholding taxes - 1.31 Tax on nonresidents' interest receipts: - Legal basis: Income Tax Order, 1975, as amended. - Payable by persons not resident in Swaziland or companies not registered in Swaziland on accrued interest where the debtor is domiciled in Swaziland. - Recipient legally liable to pay within 14 days of accrual; normally paid by debtor and deducted from remitted interest. - Exemptions: interest on loans specifically exempt by government; building society shares; interest from loans to agricultural cooperatives and public utilities established by parliament; interest received by church, charitable, or educational organizations; interest amounting to E 20 or less in a full tax year; interest on importers’ bills or notes handled through banking system. - Rate: 10 percent of the interest accrued. - 1.32 Tax on nonresident shareholders (dividends): - Legal basis: Income Tax Order, 1975, as amended. - Payable by persons not resident in Swaziland or companies not registered in Swaziland on dividends received from a company domiciled in Swaziland; payable on interim and final dividends within 30 days. - Recipient legally liable but normally paid by payer and deducted from dividends. - Exemptions: dividends paid by agricultural cooperatives; dividends received by church, charitable, or educational institutions; dividends accruing to a nonresident shareholder exempted by government in writing. - Rates: - 12½ percent where dividends payable to a company incorporated (but not a branch of company headquartered in a third country) in Botswana, Lesotho, Namibia, and South Africa. - 15 percent for all other destinations. - 1.33 Tax on branch profits: - Payable on deemed repatriated income of a branch of a nonresident company. - No exemptions. - Rates: - 15 percent generally. - 12½ percent where repatriated profits payable to a company incorporated (but not a branch of company headquartered in a third country) in Botswana, Lesotho, Mozambique, Namibia, and South Africa. - 1.34 Tax on nonresident contractors: - Legal basis: Income Tax Order, 1975, as amended. - Payable by every person who makes payment to a nonresident person under an agreement relating to construction operations; deducted from each payment. - Nonresident remains obliged to furnish returns; assessments credited with contractors' tax paid on his behalf. - No exemptions. - Rate: 15 percent. - 1.35 Tax on nonresident for Swaziland source services contract: - Payable by all nonresident persons on amounts derived from performance of services giving rise to Swaziland source income. - Tax payable on gross amount at source by withholding; the tax is a final tax. - No exemptions. - Rate: 15 percent. - 1.36 Tax on nonresident entertainers and sportsmen: - Payable by nonresident entertainers and sportsmen performing in Swaziland on remuneration or gross receipts of performances where receipts received directly by performers. - Legal liability with recipients; payer required to withhold tax from any remuneration payable. - No exemptions. - Rate: 15 percent. - 1.37 Tax on royalties and management charge paid to nonresident persons: - Payable by nonresident persons on gross amount of any royalty and management charge derived from a source in Swaziland; withheld at source and is a final tax. - No exemptions. - Rate: 15 percent. - 1.38 Tax on interest paid to residents: - Legal basis: Income Tax Order, 1975, as amended. - Payable by residents on the gross amount of interest derived from every financial institution; withheld at source and is a final tax. - No exemptions. - Rate: 10 percent. *Source: _cr08355 - 1. Taxes on net income and profits (PDF chapter).* ### 1.39 Withholding tax on ### _cr08355 - 1.39 Withholding tax on ### Withholding tax on dividends paid to resident persons - Tax is payable by a person (other than a company) resident or carrying on business in Swaziland. - There are no exemptions. - Tax is payable at the rate of 10 percent. ### Tax clearance certificates - A system of tax clearance is in operation. - In terms of a gazette regulation published recently, tax clearance is presently needed for: - the issue, renewal, or transfer of any license, other than renewal of motor vehicle licenses, or similar document relating to any trade, business, profession, or vocation; - the transfer of immovable property or any endorsement to any title deed having the effect of transferring property; - the registration or deregistration of a company; - first registration of motor vehicles in Swaziland; - the tendering for the provision of goods or services to the government or a parastatal body, in excess of E 5,000. ### Social security contributions - None. ### Taxes on property — overview - See section 3.42 for Mineral rights tax details. - Real estate tax: - The rate of tax varies with the size, or dutiable value, of the estate. - Formula: for every E 200 (or part thereof) in dutiable value, the tax rate rises by 0.015 percent. - Maximum tax rate of 33 1/3 percent (reached at a dutiable estate value of E 445,667). ### Tax on unutilized land - Legal basis: Land Tax Order, 1974, King's Order-In-Council No. 35, 1974. - Came into force on June 1, 1975. - Levied by a Land Taxation Board on land deemed underdeveloped after a hearing initiated by the Minister of Agriculture (for agricultural land) or the Minister of Local Administration (for urban land). - Tax may be levied on all or part of a property owner's land. ### Death and succession duties - All death and succession duties under the Death Duties Act, 1942, were abolished by the Death Duties (Repeal) Act, 1985. ### Property transfer tax — Transfer duty - Legal basis: Chapter 107 of the Laws, Revised Edition, 1959. - Duty levied on sale or long-term lease of fixed property situated in Swaziland. - Person liable: party acquiring title to the property, or entering into a lease of 25 years duration (or longer), or entering into the lease of a claim for mineral rights for any period. - Base: value of the property being acquired or leased. - Exemptions include transfers by gift for public, municipal, religious, or charitable uses; government purchases; purchases by public hospitals (for the sole use of the hospital); settlement of jointly owned property between married persons upon divorce, or on the death of one party. - Rates: - 2 percent on the first E 40,000 of transferred property value; - 4 percent of any amount exceeding E 40,000, but only E 60,000 and 6 percent on any amount exceeding E 60,000. ### Mineral rights tax (Mineral Rights Tax, Order No. 34, 1973) - Holders of mining rights subject to three distinct taxes: - (a) Transfer of mining rights: - taxed at the rate of 27 ½ percent on the first E 20,000 of transferred value and 37 ½ percent above E 20,000. - (b) Ground tax on unexploited mineral rights: - E 10 per ha. in each of the first five years, rising to E 50 per ha. thereafter, if there has been no exploitation. - (c) Capital gains tax on gains from shares in mineral rights: - 37 ½ percent of that gain. ### Taxes on goods and services — Sales tax - Legal basis: Sales Tax Act (Act. No. 12 of 1983). - Levied at the import and manufacturing levels; collected on certain services and all goods other than those specifically exempted. - Valuation on imported goods from outside the customs union area: 110 percent of customs value plus customs duties payable. - Proceeds paid directly to the Swazi government and not into the SACU pool. - Many exemptions: necessities and intermediate goods for manufacturing, certain medical supplies, temporary imports, certain personal imports, electricity, etc. - Rates: - 14 percent on imported and locally manufactured or produced goods. - 25 percent on all kinds of alcoholic beverages (imported or locally brewed), except traditional beer. - 14 percent on traditional beer. - 14 percent on accommodation let & food supplied by hotels or restaurants. - 20 percent on locally manufactured tobacco products. - 25 percent on imported tobacco products. ### Selective excises (Customs and Excise Act, Act No. 21 of 1971) - Specific duties payable by importer or manufacturer of beer, tobacco, and cigarettes. - Rates set by South Africa; proceeds pooled under the Customs Union Agreement. - Exemption for exported goods. - Examples of specific rates: - malt beer 340 ml E 43.57; - Sorghum beer 1 liter E 7.82; - Spirits (average) 750 ml E 1,184.00; - Sparkling wine 1 liter E 227.60; - Fortified wine 1 liter E 182.50; - Unfortified wine 1 liter E 80.70; - Cigarettes 20 E 350.80; - Pipe tobacco 25 grams E 131.30. ### Business and professional licenses (Trading Licence Act, 1975) - Annual license fees for betting shops, companies with a place of business in Swaziland, persons or companies trading in Swaziland, and establishments licensed to sell or serve liquor. - No exemptions listed. - Annual fees: - Betting licenses charged on the basis of annual turnover. - Company license fees vary from E 20 per annum for companies with a share capital of less than E 10,000 to E 200 per annum for companies with a share capital above E 50,000. - Trading licenses generally between E 50 and E 500 per annum*. - Liquor licenses vary between E 25 and E 750 per annum. - *The Trading Licences (Amendment of Schedule B) Regulations 2003. ### Motor vehicle taxes (Motor vehicle license fees, Road Traffic Act, 1965) - License fees levied annually; rates vary with type and weight of vehicle. - No exemptions listed. - Annual fees for motor vehicles: - Motorcycles E60.00; - Motorcycles (with sidecar) E 60.00; - Tractors E 60.00; - Tractors (with trailer) E60.00; - Earthmover E 150.00. - Other vehicles (by weight): - Kilograms — Emalangeni: - 1-1,000 70-100 - 1,001-2,000 110-145 - 2,001-3,000 170-220 - 3,001-4,000 235-290 - 4,001-5,000 300-345 - 5,001-6,000 360-405 - 6,001-7,000 420-465 - 7,001-8,000 480-525 - 8,001-9,000 555-585 - *The Road Traffic (Amendment of Schedule) Notice, 2004. ### Fuel oil levy and related levies - Levies and taxes: - Fuel oil levy: 40 cents per liter. - Motor Vehicle Accident (MVA) Fund: 10 cents per liter. - Sales tax component: 18 cents per liter. - Customs & excise: 4 cents per liter. - Sales tax: 14 percent of import parity (changes are usually undertaken anytime deemed necessary). - Exemptions: - Exemptions for projects initiated at regional level like Southern African Development Community (SADC). - Exemption on fuel used by rail and diplomats and His Majesty and the Indlovukazi (Queen Mother). ### Taxes on international trade and transactions — Duties on imports - Legal basis: Customs Union Agreement, 1969 Legal Notice (No. 71 of 1969) and Customs, Fiscal, Excise, and Sales Duties Act, 1971 (Act No. 21 of 1971). - Common taxation system with Botswana, Lesotho, Namibia, and South Africa. - Import duties levied at point of entry into common customs area; proceeds pooled and divided among countries according to a formula. - Duty rates set by South Africa on the basis of the six-digit Harmonized Commodity Description and Coding System. - Rate structure includes general and most-favored-nation clauses. - Most duties are ad valorem; some specific duties apply. - Rebates, remissions, and refunds allowed in some cases (mostly for raw materials and semimanufactures), conforming to South African rebates. - There are 45 ad valorem rates, ranging from 0 to over 70 percent. ### Taxes on exports — Sugar levy (Sugar Export Levy Act No. 4 of 1997) - Tax on all sugar exported from Swaziland to the EU. - Levy collected from millers and growers by the Swaziland Sugar Association (SSA), which remits it quarterly to the government. - No exemptions listed. - Levy is on the net ex-mill protocol sales to the European Union to be applied two years in arrears. - Net ex-mill export protocol sales proceeds defined as the Swazi currency equivalent of the gross amount received by the association in respect of all sales of sugar exported, less expenses as prescribed in the act, and is payable on a quarterly basis. ### Cattle export slaughter tax - Details not available. - No longer enforced, but not yet repealed. ### Other taxes — Stamp taxes (Chapter 100 of the Laws; Stamp Duties Act, 1970 (Act No. 37) and 1974 (Act No. 13), amended by the Finance Act of 1985) - Payable on a wide range of legal documents (affidavits, bills of exchange, checks, bonds, contract notes, receipts, property transfers, etc.). - Exemptions: Government and specified public enterprises. - Examples of stamp duties: - Checks carry a 6 percent stamp duty. - Receipts for payments of E 2 or more carry an E 0.10 duty. - Customs bills of entry an E 0.40 duty. - Affidavits, agreements, and contracts an E 1 stamp duty. ### Miscellaneous licenses — Registration of Dogs Act, 1953 (as amended) - Dog licenses charged; law not enforced but not repealed. - Dog license tax: - E 1 per annum in rural areas. - E 3 per annum in urban areas. ### Local taxes — Property tax and municipal/user fees - Property tax collected in principal towns (Mbabane and Manzini); land and improvements taxed at different rates with quinquennial valuation assessments. - Exemptions include government-owned property. - Rates: - 4 percent of the land value and 0.5 percent of the value of improvements in both towns. - Mbabane indicative user fees and charges (examples): - Clearance certificates E37.00; - Admin. fees (residential) E47.00 – E326.00; - Admin. fees (commercial) E93.00 – E1,026.00; - Copies of valuation roll E6.50 – E875.00; - Animal pound E40.00–E75.00; - Parking permit fees E0.16–E 0.27; - Trading license inspection fees: - Category 1 E0.00 - E85.00; - Category 2 E200.00; - Category 3 E600.00; - Category 4 E600.00. - Abattoir fees E14.00 – E70.00; - Environment monitoring E50.00 – E70.00; - Markets (selected examples): - Vegetables A & B E180.00 p.a; - Handicraft C E520.00 p.a; - Handicraft D E720.00 p.a; - Hire rates for council equipment/plant E80.00 – E250.00; - Recreational facilities fees E3.00 – E200,00; - Cemetery fees E50.00 – E2,500.00; - Refuse removal E10.00 – E210.00; - Septic tanker fees E15.00 – E732.00; - Building fees E0.50 – E1,500.00; - Advertising E440.00 – E3,300.00. *Sources as provided in the original document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08355.pdf_