Determinants Of Swaziland Manufacturing Output – Supply And Demand Approaches

By Patrick Ndzinisa
May 2007
The paper analyzed the determinants of the manufacturing output in Swaziland from a supply and demand perspective. The results from the supply equation confirmed the relative importance of both human- and physical capital. The study also confirmed the strong linkage between agricultural- and manufacturing output, indicating an elasticity of manufacturing production with regard to agricultural output of +0.43

Meanwhile the demand equation also emphasized the importance of both foreign and domestic demand in determining manufacturing output. The coefficient for foreign demand, proxied by manufactured good exports, signified the reliance of the Swazi economy, particularly manufacturing output, on export for growth. It has been also observed that whilst FDI positively and significantly affects manufacturing output it does so in the short-run. The absence of long run FDI benefits is surprising, but may reflect unique Swaziland circumstances, where FDI in the 1980’s was largely in response to sanctions imposed on its neighbour, South Africa.
The paper thus argues that in the light of Swaziland’s manufacturing dependence on the agricultural sector, the country should institute policy measures to enlarge and diversify its economic base; there is a need to invest in human capital in order to complement the increase in physical capital; the country should pursue vigorous strategies through SIPA in order to promote FDIs with long term benefits, hence manufacturing output growth. Economic policy should encourage a competitive environment. In this regard sound monetary and fiscal policies aimed at inflation stability will play an important role.