ESWATINI FACES ECONOMIC UNCERTAINTY AMID US-SA TENSIONS

MBABANE - Eswatini’s economy is facing potential turbulence as the ongoing trade tensions between South Africa and the United States (US) threaten to disrupt key economic ties. Given Eswatini’s heavy reliance on South Africa for trade, the potential fallout from this impasse could significantly impact local businesses, government revenues and export markets.  The situation is so concerning that the Central Bank of Eswatini (CBE) recently decided to keep interest rates unchanged while raising its inflation forecast, citing these uncertainties.

At the heart of the tensions is the possibility that South Africa could lose its benefits under the African Growth and Opportunity Act (AGOA), a U.S. trade agreement that provides duty-free access to the American market for African countries that meet certain economic and political criteria.If the US follows through with threats to revoke South Africa’s AGOA privileges, the ripple effects will extend beyond its borders—hitting Eswatini hard due to its economic interdependence with its larger neighbour.

Eswatini’s trade and economic stability are closely linked to South Africa in multiple ways:
1. Trade through SACU
Eswatini is a member of the Southern African Customs Union (SACU), which allows for free trade among member States, including South Africa, Botswana, Lesotho and Namibia. If South Africa faces restrictions from the US, the revenue generated from SACU’s customs pool—of which Eswatini is a beneficiary—could decline, affecting government’s ability to finance essential services.

2. Exports and imports
Over 80 per cent of Eswatini’s trade is conducted with South Africa, making it the kingdom’s largest trading partner. Many of Eswatini’s goods either originate from or transit through South Africa. Any disruptions in South Africa’s trade with the US could indirectly slow down Eswatini’s export flow and increase import costs.

3. Investment and business operations
Many South African businesses operate in Eswatini, particularly in the retail, banking and manufacturing sectors. If South Africa experiences economic downturns due to trade losses, investments in Eswatini could shrink, leading to potential job losses and reduced economic activity.

Eswatini also benefits from AGOA, although its direct trade with the US is minimal compared to South Africa. The bigger concern is that if South Africa is excluded, Eswatini could also be scrutinised, particularly regarding compliance with AGOA’s governance and labour requirements. Moreover, many Eswatini exports, particularly in textiles and agriculture, pass through South African ports before reaching the US If South Africa’s AGOA status is revoked, it could complicate Eswatini’s logistics and make US market access more expensive and uncertain.

The economic risks posed by the South Africa-US impasse were underscored by the CBE’s recent monetary policy decision. In its January 2025 Monetary Policy Statement, CBE Governor Dr. Phil Mnisi announced that the bank had decided to keep the benchmark interest rate unchanged, citing the uncertainties surrounding global and regional economic developments, including the fallout from the AGOA situation.At the same time, the CBE raised its inflation forecast for 2025, signalling concerns about rising costs of imported goods and potential disruptions to the supply chain. If South Africa experiences trade restrictions, the cost of goods entering Eswatini could rise sharply, putting additional pressure on local inflation.

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