Industrial Policy for Eswatini 2023-2033

1.1 Brief overview of the previous IP ........................................................................................... 14

1.2 Rationale for the new Industrial Policy .................................................................................. 14 1.3 Connecting the Industrial Policy to the Government Priorities ............................................. 15

1.4 Connecting the Industrial Policy to the SADC Industrialization Strategy and Roadmap (2015- 2063) ............................................................................................................................................ 16

1.5 The EQuIP Methodology ........................................................................................................ 16

1.6 Process for designing the new Industrial Policy in Eswatini ................................................... 18 2. INDUSTRIAL POLICY IN THE CONTEXT OF THE NATIONAL DEVELOPMENT OF ESWATINI ................ 19

2.1 Overview of the National Development Goals ....................................................................... 19 2.2 Connecting Industrial Policy to selected National Development Goals ................................. 21

2.3 Contribution of the new Industrial Policy to the selected National Development Goals – Brief diagnostic............................................................................................................................. 22

2.3.1 Economic Recovery (NDG1)................................................................................................. 22 2.3.1.1 Expand domestic production and value addition to improve industrial performance .... 22

2.3.1.2 Diversify the economy to reduce vulnerability ................................................................ 24

2.3.2 Sustainable and Inclusive Growth (NDG2) .......................................................................... 26

2.3.2.1 Quality employment ......................................................................................................... 28

2.3.2.2 Gender equality ................................................................................................................ 29

2.3.2.3 MSME Participation .......................................................................................................... 31

2.3.2.4 Youth participation ........................................................................................................... 32

2.3.2.5 Persons living with disabilities participation .................................................................... 32 2.3.3 Well managed natural resources and environmental sustainability (NDG 3) ..................... 33 2.3.3.1 Resource and material extraction – economic growth decoupling .................................. 33

2.3.3.2 Circular Economy .............................................................................................................. 35 2.4 Harmonization of the Industrial Policy with other national policies ...................................... 35

2.5 Institutional Architecture for the Industrial Policy ................................................................. 37 3. IP VISION STATEMENT ...................................................................................................................... 45 4. INDUSTRIAL POLICY OBJECTIVES ...................................................................................................... 45

4.1 Objective 1: Maximizing domestic benefits by strengthening national value chains and increasing domestic production capacities .................................................................................. 47

4.1.1 Description .......................................................................................................................... 47 3

4.1.2 Challenge ............................................................................................................................. 47

4.1.3 Impediments ....................................................................................................................... 48

4.1.4 Contribution to NDGs .......................................................................................................... 48

4.2 Objective 2: Boosting value addition in resource-based sectors to ensure inclusive industrialization............................................................................................................................ 48 4.2.1Description ........................................................................................................................... 48

4.2.2 Challenge ............................................................................................................................. 50

4.2.3 Impediments ....................................................................................................................... 51

4.2.4 Contribution to NDGs .......................................................................................................... 52

4.3 Objective 3: Enhancing economic resilience by diversifying production and export markets ..................................................................................................................................................... 52

4.3.1 Description .......................................................................................................................... 52

4.3.2 Challenges ........................................................................................................................... 52

4.3.3 Impediments ....................................................................................................................... 54

4.3.4 Contribution to NDGs .......................................................................................................... 54

4.4 Objective 4: Supporting decent wage sectors and build new sector for the creation of quality jobs ................................................................................................................................... 54

4.4.1 Description .......................................................................................................................... 54

4.4.2 Challenges ........................................................................................................................... 55

4.4.3 Impediments ....................................................................................................................... 56

4.4.4 Contribution to NDG............................................................................................................ 56 4.5 Objective 5: Promote green industrialization by supporting circular economy, waste management, and renewable energy/energy efficiency initiatives ............................................. 56

4.5.1 Description .......................................................................................................................... 56

4.5.2 Challenges ........................................................................................................................... 57

4.5.3 Impediments ....................................................................................................................... 59

4.5.4 Contribution to NDGs .......................................................................................................... 59

4.6 Trade-Offs between Objectives.............................................................................................. 59 5. INDUSTRIAL POLICY INTERVENTION AREAS AND PRELIMINARY INSTRUMENTS ............................. 60

5.1 Intervention Area 1: Improve the effectiveness of the allocation of finance to local producers ..................................................................................................................................... 61

5.1.1. Relation to policy objectives............................................................................................... 61

5.1.2 Rationale of the IA ............................................................................................................... 63

5.1.3 Current Performance ........................................................................................................... 63

5.1.4 Underlying constraint based on available instruments ....................................................... 63 4

5.2 Intervention Area 2: Improve access to information ............................................................ 65

5.2.1. Relation to policy objectives: ............................................................................................. 65

5.2.2 Rational of the IA ................................................................................................................. 65

5.2.3 Current Performance ........................................................................................................... 66

5.2.4 Underlying constraint based on available instruments: ...................................................... 66 5.3 Intervention Area 3: Improve and match skills to the needs of the manufacturing sector .. 67

5.3.1 Relation to Policy objectives................................................................................................ 67

5.3.2 Rational of the IA: ................................................................................................................ 68

5.3.3 Current performance........................................................................................................... 68

5.3.4 Underlying constraints based on available instruments ..................................................... 69

5.4 Intervention Area 4: Improve the regulatory framework to ease the manufacturing activity ..................................................................................................................................................... 70

5.4.1. Relation to Policy objectives............................................................................................... 70

5.4.2 Rational of the IA: ................................................................................................................ 70

5.4.3 Current Performance:.......................................................................................................... 70

5.4.4 Underlying constraint based on available instruments: ...................................................... 71 5.5 Intervention Area 5: Increase vertical integration in national value chains .......................... 72

5.5.1. Relation to policy objectives .............................................................................................. 72

5.5.2 Rational of the IA ................................................................................................................. 72

5.5.2 Current Performance ........................................................................................................... 72

5.5.3 Underlying constraint based on available instruments ....................................................... 73

5.6 Intervention Area 6: Improve standardization, metrology, conformity assessment and accreditation ................................................................................................................................ 74

5.6.1. Relation to Policy objectives .............................................................................................. 74

5.6.2. Rational of the IA ................................................................................................................ 74

5.6.3. Current performance.......................................................................................................... 75 5.6.4. Underlying constraints based on available instruments .................................................... 75 5.7 Intervention Area 7: Expand alternative renewable sources locally produced..................... 76

5.7.1. Relation to policy objectives.............................................................................................. 76

5.7.2 Rational of the IA: ................................................................................................................ 77

5.7.3 Current Performance ........................................................................................................... 77

5.7.4 Underlying constraint based on available instruments: ...................................................... 78 6. PRESELECTED POTENTIAL INSTRUMENTS – PILOT ACTION PLAN .................................................... 79 7. MONITORING AND EVALUATION FRAMEWORK .............................................................................. 84 5

7.1 Theories of Change (ToC) ....................................................................................................... 85

7.2 Indicators................................................................................................................................ 88 7.2.1. Preselected indicators to measure Industrial Policy Objectives ........................................ 89

7.2.1. Preselected indicators to measure Intervention Areas ..................................................... 92 8. ANNEX .............................................................................................................................................. 97

8.1 Annex 1: List of institutions that participated in the consultation process............................ 97 Figures Figure 1: EQuIP Intervention Logic for industrial policy ....................................................................... 17 Figure 2: EQuIP methodology for industrial policy design ................................................................... 17 Figure 3: Structure of the value added by sector in Eswatini, 2000-2020............................................ 22 Figure 4: Manufacturing Value Added as a share of gross domestic product, 2010-2020................... 23 Figure 5: sector Valued added in total manufacturing value added, 2011-2020 ................................. 24 Figure 6: Manufactured exports concentration, 2020 ......................................................................... 25 Figure 7: Manufactured export market concentration, 2020 .............................................................. 26 Figure 8: Emploment structure in Eswatini by sector, 2010-2019 ....................................................... 27 Figure 9: Emploment structure in the manufacturing sector in Eswatini , 2019 .................................. 27 Figure 10: Average montly wages per sector in Eswatini, 2019 ........................................................... 28 Figure 11: Manufacturing employment and wages, 2019 ................................................................... 28 Figure 12: Employment by economic sector and gender, 2019 ........................................................... 29 Figure 13: Average montly wages by sector and gender, 2019 ........................................................... 30 Figure 14: MSME participation by sector in Eswatini, 2017 ................................................................. 31 Figure 15: People living with disabilities involved in the manufacturing sector, 2021 ........................ 32 Figure 16: Decoupling of Material extraction and energy consumption from economic growth in Eswatini ................................................................................................................................................ 33 Figure 17: Material Domestic extraction by group in Eswatini, 1970-2019 ........................................ 34 Figure 18: Total final energy consumption by sector in Eswatini, 1990-2020 ..................................... 34 Figure 19: Key Government Ministries & Agencies and other institutions for the implementation of the industrial policy .............................................................................................................................. 38 Figure 20: Intervention logic – 2 levels................................................................................................. 46 Figure 21: Imports of raw material and semi-finished textiles as a share of finished textile exports, 2010-2020 ............................................................................................................................................ 48 Figure 22: Share of raw and semifinished products in total exports, 2010-2020 ................................ 50 Figure 23: Average montly wages in manufacturing sectors (focus on the wood sector), 2019 ......... 51 Figure 24: Top ten manufactured exports from Eswatini, 2021........................................................... 53 Figure 25: Top 5 markets for the top 3 manufactured export products from Eswatini, 2021 ............. 54 Figure 26: Average montly wages per sector in Eswatini, 2016 ........................................................... 55 Figure 27: Average montly wages in manufacturing sectors (focus on the textile sector), 2019 ........ 56 Figure 28: Waste management in Eswatini, 2017 ................................................................................ 58 Figure 29: Renewable Energy share in Total Final Energy Consumption (TFEC) (%), 2000-2017 ......... 58 Figure 30: Intervention logic – 3 levels................................................................................................. 61 Figure 31: Intervention logic – 4 levels................................................................................................. 79 6 Tables Table 1: Key national policies to harmonize with the industrial policy ............................................... 37 Table 2: Roles and main accions of key institutions for the implementation of the industrial policy. 45 Table 3: Preliminary identified instruments related to the inervention area 1 .................................. 65 Table 4: Preliminary identified instruments related to the inervention area 2 .................................. 67 Table 5: Preliminary identified instruments related to the inervention area 3 .................................. 69 Table 6: Preliminary identified instruments related to the inervention area 4 .................................. 71 Table 7: Preliminary identified instruments related to the inervention area 5 .................................. 74 Table 8: Preliminary identified instruments related to the inervention area 6 .................................. 76 Table 9: Preliminary identified instruments related to the inervention area 7 .................................. 78 Table 10: Preselected potential instruments (pilot for a initial phase) ................................................ 83 Table 11: Preselected indicators to measure Industrial Policy objectives........................................... 92 Table 12: Preselected indicators to measure Intervention Areas ....................................................... 93 Boxes Box 1: Women economic empowerment in Eswatini .......................................................................... 30 Box 2: MSME development in manufacturing can contribute to growth and employment ................ 31 Box 3: The potential of the resource based sector in Eswatini ............................................................ 50 7 EXECUTIVE SUMMARY An Industrial Policy plays a significant role in helping governments to achieve economic growth, social development and environmental sustainability. More specifically, it is key for governments to fast-track national industrial development as it can help countries to enhance competitiveness and accelerate economic growth, generate decent employment, diversify the economy, build economic resilience, reduce inequality and poverty, and support green industrialization, to name a few. In addition, it is important to have the Industrial Policy of Eswatini aligned to the country’s National Development Goals (NDGs). This ensures a context-appropriate Industrial Policy package which is aligned to national priorities, facilitates inter-institutional and multi- stakeholder dialogue, ensures that the Industrial Policy vision receives national support as well as improves the government transparency and legitimacy by providing a clear rationale for Industrial Policy. For Eswatini, the New Industrial Policy intends to contribute to three specific National Development Goals related to economic recovery, sustainable and inclusive growth, and well managed natural resources and environmental sustainability. The Industrial Policy (2023-2033) is aligned to the SADC Industrialization Strategy and Roadmap, particularly to Phase II which covers the period 2021 – 2050, focusing on diversification, enhancement of productivity and competitiveness, and increasing regional industrial development and integration. Moreover, the focus of the policy on inclusion, and environmental sustainability is also aligned to the SADC Industrialization Strategy and the UN SDGs . The review of the country’s National Industrial Development Policy 2015 -2022 was informed by the need to define a new evidenced-based Industrial Policy which uses real data to inform the strategic direction that the country needs to take for Eswatini to achieve structural transformation of the economy. The new Industrial Policy for Eswatini has been developed using the “Enhancing the Quality of Industrial Policies” (EQuIP) methodology, a tool developed by the United Nations Industrial Development Organization (UNIDO) and the German Development Cooperation (GDC) to empower governments to effectively design industrial policies. The new Industrial Policy will also have a well-designed Monitoring & Evaluation Framework to track progress and provide a reality check during implementation. In addition, the new Industrial Policy was designed considering a participatory approach where key stakeholders were invited to consultation workshops to enrich the policy making process. The EQuIP tool offers a systematic step-by-step approach to structure the Industrial Policy design process. It provides a framework for policy makers to build an Intervention Logic that maps each of the main components of the Industrial Policy with a goal-oriented approach as illustrated in the figure below. The first step is to establish the contribution of the Industrial 8 Policy to the National Development Goals (NDGs). Secondly, based on the NDGs and main challenges faced by the industrial sector, define Industrial Policy Objectives which are the direct and specific goals of the policy. Thirdly, considering the established objectives, identify Intervention Areas as concrete preconditions that are required in the economy to achieve the objectives. Finally, propose potential Industrial Policy Instruments which are ultimately the specific actions or interventions that the government will implement to achieve the required changes in the Intervention Areas and Objectives. EQUIP INTERVENTION LOGIC FOR INDUSTRIAL POLICY Based on the EQuIP participatory policy making approach the stakeholders came up with the following Vision for the Industrial Policy “By 2033, the industrial sector in Eswatini is diversified in high-added products which benefits the local population by creating decent jobs and generating equal opportunities for all, while accounting for environmental sustainability practices and enhancing economic resilience.” To define relevant Industrial Policy Objectives (IPOs), the policy review team and core team utilized the EQuIP methodology, which involved following key steps and leveraging data analysis to define evidence-based IPOs. The core team and stakeholders then came up with the following objectives: Objective 1: Maximizing domestic benefits by strengthening national value chains and increasing domestic production capacities; Objective 2: Boosting value addition in resource-based sectors to ensure inclusive industrialization; Objective 3: Enhancing economic resilience by diversifying production and export markets; Objective 4: Supporting decent wage sectors and build new sector for the creation of quality jobs; 9 Objective 5: Promote green industrialization by supporting circular economy, waste management, and renewable energy and energy efficiency initiatives. The following Intervention Areas (IAs) and policy instruments (existing and new) were identified to initiate the implementation of a first phase of the Industrial Policy The preselected IAS and potential instruments are mentioned below: a. Improve the effectiveness of the allocation of finance to producers for which the Eswatini Agricultural Development Fund is key to boost investment in agricultural infrastructure and capacity building. Further to address the challenge of access to finance, it is crucial to have a targeted financial scheme with special focus on women, youth and people living with disabilities involved in the resource-based sectors of the economy to ensure the participation of these target groups in the manufacturing sector. b. Improving access to information through the establishment of an industrial platform is key. This platform will centralize statistical information about the trade and productive performance of the manufacturing sector of Eswatini, as well as indicators on structural drivers that influence its level of competitiveness and market intelligence. c. Improve the regulatory framework to ease the manufacturing activity where there is a need for a law or regulation for FDI to guarantee benefits for the economy and local producers. Such a provision can be incorporated in the review of the National Investment Policy, where it will be stipulated that FDI guarantees benefits and links to local firms and is embedded in the local economy. d. Increase vertical integration in national value chains by establishing an Agro-Industrial Park in the country, where agricultural and industrial activities within resource-based sectors will be integrated to enhance productivity, value addition and market access. e. Improve standardization, metrology, conformity assessment and accreditation by training MSMEs of pilot sectors to improve quality standards is key. This will address the issue of compliance to international standards as well as enhance Eswatini’s economic resilience by enabling the diversification of production and export markets. f. Improve and match skills to the needs of the manufacturing sector by aligning the curriculum and technical courses to the industry demand. g. Expand alternative renewable energy sources produced locally to encourage investment in this sector. The government can explore the use of targeted tax incentives and create a green energy certificate for companies or individuals for generating electricity from a green resource to promote the uptake of renewable energy. The figure below was developed during the process of this policy formulation, and it shows the Intervention Logic which spells out how the National Development Goals, the Industrial Policy Objectives, Intervention Areas and potential Instruments relate to each other. 10 The implementation of the Industrial Development Policy (2023-2033) will be over a 10 (ten) year period with continuous monitoring and evaluation. 11 LIST OF ACRONYMS AU Africa Union BE Business Eswatini CFI Centre for Financial Inclusion CSO Central Statistical Office DAO Development Approval Order ENIDC Eswatini National Industrial Development Corporation EQuIP Enhancing the Quality of Industrial Policies ESWADE Eswatini Water and Agricultural Development Enterprise ESWASA Eswatini Standards Authority FDI Foreign Direct Investment FINCLUDE Financial Inclusion and Cluster Development GAPs Good Agricultural Practices GDC German Development Cooperation GDP Gross Domestic Product GPI Global Policy Incubator IA Intervention Area IMICC Interministerial Manufacturing Industry Coordination Committee IP Industrial Policy IPO Industrial Policy Objective IPRT Industrial Policy Review Team ISIC International Standard Industrial Classification M&E Monitoring and Evaluation MCIT Ministry of Commerce, Industry and Trade MEPD Ministry of Economic Planning and Development MICT Ministry of Information, Communication and Technology MOA Ministry of Agriculture MOET Ministry of Education and Training MOF Ministry of Finance MOLSS Ministry of Labour and Social Security MOSCYA Ministry of Sports, Culture and Youth Affairs MOTEA Ministry of Tourism and Environmental Affairs MSME Micro, Small and Medium Enterprise MVA Manufacturing Value Added NAB National Accreditation Body NAF National Accreditation Focal Point NAMBOARD National Agricultural Marketing Board NDG National Development Goals NDP National Development Plan NEETs Not in Education, Employment and Training 12 NIP New Industrial Policy PMO Prime Minister’s Office PPCU Policy and Programme Coordination Unit RB Resource-based R&D Research & Development RQID Regulatory, Quality Infrastructure Department SADC Southern African Development Community SADCAS Southern African Development Community Accreditation Service SEZ Special Economic Zone SISR SADC Industrialization Strategy and Roadmap MSMESMME Small, Mirco, Small and Medium Enterprise SPS Sanitary and Phytosanitary SSELGS Small Scale Enterprise Loan Guarantee Scheme STEM Science, Technology, Engineering and Mathematics ESWASA Eswatini Standards Authority TFEC Total Final Energy Consumption TVET Technical, Vocational, Education and Training UNDP United Nations Development Programme UNESWA University of Eswatini UNIDO United Nations Industrial Development Organization WITAD Women in Trade and Development WITS World Integrated Trade Solution 13 1. INTRODUCTION

1.1 Brief overview of the previous IP The Industrial Development Policy (2015-2022) sought to achieve structural change in Eswatini’s growth path through value addition and diversification for a globally competitive industrial sector by 2022. The main objectives of the old Industrial Policy (2015-2022) were: - To enhance manufacturing and services contribution to GDP to above 50% and increase manufactured exports by 5%. - To promote diversification of the country’s industrial activities and increase employment in the manufacturing sector by 5% per year. - To increase utilization and beneficiation of local and regional raw materials in the production of goods for domestic and export markets by 50%. - To promote broad based industrialization path by increasing the participation of SMME in the manufacturing sector by 10%. The main challenges with this policy and the reason why it required to be reviewed and updated are the following: - The objectives were not well defined, and not considered evidence-based information, hence the difficulty in the implementation of the policy. - No baselines for the year 2015 were determined at the policy design phase for the main objectives, which limited the possibility to measure any improvement. For example, although there were objectives on increasing manufactured exports and manufacturing employment by 5%, it was unknown what these percentages were in the year 2015 when the policy was developed. - Targets established for the different objectives are not clear how they were calculated. - Some of the objectives were lumped together, hence making it difficult to be specific on a certain aspect of the objective. For instance, the first objective sought to enhance manufacturing and services contribution to GDP to above 50 % and increase manufactured exports by 5 % which is confusing as it is addressing three different aspects in one objective. - No Monitoring and Evaluation Framework was established, hence there were also challenges to monitor the progress and evaluate the achievement of these objectives. - Furthermore, the old policy also lacked consideration for broader national development context as it was not aligned with other sectoral policies and the National Development Goals of Eswatini.

1.2 Rationale for the new Industrial Policy The government of Eswatini realizes that the industrial sector is a significant contributor to the economy and has a strong potential to maximize domestic benefits, ensure an inclusive 14 industrialization, enhance economic resilience, create quality jobs and promote green industrialization, amongst others. Hence, Eswatini needs to define a new evidence-based Industrial Policy which uses real data to inform the strategic direction that the country needs to take for it to achieve structural transformation of the economy. The new Industrial Policy also needs to have a well-designed Monitoring & Evaluation Framework to track progress and provide a reality check during implementation. In addition to this, it is key that the new Industrial Policy is designed considering national and regional priorities to ensure that the industrialization process contributes to the specific goals established at a broader level. Moreover, industrial development and competitiveness has been prioritised in all the Regional Economic Communities (RECS) such as the Southern African Customs Union (SACU), and the Common Market for Eastern and Southern Africa (COMESA) where Eswatini is a member. This Industrial Policy is also aligned to the continental development agenda, the African Union Agenda 2063, in particular the African Continental Free Trade Area (AfCTA). Additionally, the Industrial Policy is in support of the aspirations of the United Nations Agenda 2030, the Sustainable Development Goals (SDGs). Since this Industrial Policy is premised on the pursuit of Inclusive and Sustainable Industrial Development, it has strong linkages to all the SDGS, with particular focus on the following SDGs; SDG 5: Achieve gender equality and empower all women and girls SDG 7: Ensure access to affordable, reliable, sustainable, and modern energy for all SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all SDG 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation SDG 10: Reduce inequality within and among countries SDG 11: Make cities and human settlements inclusive, resilient and sustainable SDG 12: Ensure sustainable consumption and production patterns SDG 13: Take urgent action to combat climate change and its impacts

1.3 Connecting the Industrial Policy to the Government Priorities An Industrial Policy plays a significant role in helping governments to achieve their National Development Goals. It is a potent tool for governments to fast-track national development as it can help countries to enhance competitiveness and accelerate economic growth, generate 15 decent employment, diversify the economy, build economic resilience, reduce inequality and poverty, and support a green industrialization, amongst others. For Eswatini, the New Industrial Policy intends to contribute to three specific National Development Goals related to economic recovery, sustainable and inclusive growth, and well managed natural resources & environmental sustainability.

1.4 Connecting the Industrial Policy to the SADC Industrialization Strategy and Roadmap (2015-2063) The primary orientation of the SADC Industrialization Strategy and Roadmap is to achieve structural transformation of the SADC region by industrializing the economy, upgrading the production system and promoting closer regional integration. Moreover, the SADC Strategy is anchored on three pillars: industrialization as a champion for economic and technological transformation, competitiveness, and regional integration and geography as the context for industrial development and economic prosperity. The SADC Industrialization Strategy is aligned to the African Union Agenda 2063. It is premised on three growth phases: Phase 1 (2015-2020), Phase II (2021- 2050), and Phase III (2051- 2063). The new Industrial Policy (2023-2033) will be aligned to the SADC Strategy, particularly to Phase II which focuses on diversification, enhancement of productivity and competitiveness, and increased regional industrial development and integration. Moreover, the focus of the policy on inclusion, and environmental sustainability is also aligned to the SADC Industrialization Strategy and Roadmap.

1.5 The EQuIP Methodology The new Industrial Policy for Eswatini has been developed using the “Enhancing the Quality of Industrial Polices” (EQuIP) methodology, a tool developed by the United Nations Industrial Development Organization (UNIDO) and the German Development Cooperation (GDC) to empower governments to effectively design industrial policies (See Annex 1). The EQuIP considers three pillars: tailor made based on country needs, provides capacity development through on-the-job coaching and knowledge transfer, and intends to be transformative by introducing structural changes in the economy. The EQuIP tool offers a systematic step-by-step approach to structure the Industrial Policy design process. It provides a framework for policy makers to build an Intervention Logic that maps each of the main components of the Industrial Policy with a goal-oriented approach (Figure 1). The first step is to establish the contribution of the Industrial Policy to the National Development Goals (NDGs). Second, based on the NDGs and main challenges faced by the industrial sector, define Industrial Policy Objectives which are the direct and specific goals of the policy. Third, considering the established objectives, identify Intervention Areas as concrete preconditions that are required in the economy to achieve the objectives. Finally, 16 propose potential Industrial Policy Instruments which are ultimately the specific actions/interventions that the government will implement to achieve the required changes in the Intervention Areas and Objectives. FIGURE 1: EQUIP INTERVENTION LOGIC FOR INDUSTRIAL POLICY There are also two key components in the EQuIP methodology. The first one is related to the use of an evidence-based approach for decision making that makes it objective, practical, and transparent. The second one refers to its participatory approach that requires coordination and collaboration from various stakeholders throughout the policy design process to ensure transparency, inclusiveness, appropriation, and effective implementation of the Industrial Policy. A summary of the EQuIP methodology is reflected in Figure 2. Evidence- based (EQuIP Diagnostics) 1 Link IP to 2 3 Select 4 Define Assess and National Intervention industrial Policy Select Policy Development Areas & Target Objectives instruments Goals Groups Stakeholder inputs (Consultation events) FIGURE 2: EQUIP METHODOLOGY FOR INDUSTRIAL POLICY DESIGN 17

1.6 Process for designing the new Industrial Policy in Eswatini The process of designing the New Industrial Policy for Eswatini was conducted in two phases. During Phase I (January – June 2022) a “Industrial Policy Review Team” was constituted to strengthen its technical capacities to participate actively and contribute to the policy process. The capacity building was conducted by the Industrial Policy Experts from Global Policy Incubators (GPI), where members of the team received training on the EQuIP methodology for policy design, and on conducting a diagnostic of the industrial sector, as well as data analysis using various international and national databases. The “Industrial Policy Review Team” was constituted of representatives from different departments of the Ministry of Commerce Industry and Trade (MCIT) such as Department of Industry – Core Team; Trade Department; Micro, Small, and Medium Enterprises Unit (MSME); Regulatory Infrastructure and Quality Department (RQID); and Planning Department. Other members of the “Industrial Policy Review Team” came from various government ministries such as the Ministry of Agriculture, Ministry of Economic Planning and Development, Ministry of Labour and Social Security, Prime Minister’s Office ( Policy and Programmes Coordination Unit), Ministry of Finance, Ministry of Information, Communication and Technology. There were also representatives from the University of Eswatini and Business Eswatini representing the private sector. Consequently, during Phase II (January – August 2023) of the Industrial Policy design process, members of the Core Team from MCIT embarked on the actual drafting of the policy while also gathering views from the various relevant and key stakeholders during consultation workshops which were also facilitated by the Industrial Policy Experts from GPI. This ensured a participatory approach during the policy design since it involved several stakeholders to inform the new Industrial Policy. Annex 2 shows a list of institutions that were part of the policy design process during the two phases. It is worth noting that since this policy has a strong commitment on promoting Women Economic Empowerment as a key to eliminate (or at least reduce) the gender gap in Eswatini, the process has considered consultation workshops where women organizations and female representatives have participated from the beginning to ensure that they are part of the decision-making process of the economy and their needs and interests are well captured. The institutions involved were, Women in Trade and Development, COMESA Federation of Women in Business Eswatini, and the Gender and Family Issues Unit from the Deputy Prime Minister’s Office . Table 1 shows the total number of participants during the different consultation workshops showing a gender balance. 18 Consulta3ons Male Female Total par3cipants par3cipants Incep3on workshop 32 28 60 Workshop 1 on Na3onal 29 26 55 Development Goals Workshop 2 on Policy 25 25 50 Objec3ves and IP Vision Workshop 3 on Interven3on 22 25 47 Day 1 Areas and Preliminary 20 17 37 Day 2 Instruments TABLE 1: NUMBER OF PARTICIPANTS IN THE CONSULTATION WORKSHOPS Source: Registration list at the workshops 2. INDUSTRIAL POLICY IN THE CONTEXT OF THE NATIONAL DEVELOPMENT OF ESWATINI It is important to have the Industrial Policy of the country aligned to the country’s National Development Goals (NDGs). This ensures a context-appropriate industrial policy package which is aligned to national priorities, facilitates inter-institutional and multi-stakeholder dialogue, ensures that the industrial policy vision receives national support as well as improves the government transparency and legitimacy by providing a clear rationale for industrial policy. The National Development Plan (NDP) is the main document that guides the allocation of national resources to achieve the key development agenda and priorities set by the Government.

2.1 Overview of the National Development Goals The NDP seeks to address the challenges that Eswatini is faced with such as sluggish growth, fiscal crisis, high levels of unemployment (particularly youth unemployment), high levels of inequality and poverty, declining Foreign Direct Investment (FDI) inflows, and the lack of social cohesion within society. Eswatini NDGs are outlined in the NDP which provides the country’s overall development framework and are the following six (6): i. Good Governance, Economic Recovery, and Macro- Fiscal Stability Seeks to stabilize the fiscal crisis, improve fiscal expenditure management, mitigate resource envelope risks and restore the role of the public sector in the economy of Eswatini. 19 ii. Enhanced and Dynamic Private sector that Supports Inclusive and Sustainable Inclusive Growth Refers to a dynamic and agile private sector that is innovative and responsive to global opportunities which is key for restoring economic growth and laying the foundations for long-term development. The government will continue investing in tackling the obstacles hindering the competitiveness of Eswatini’s business, particularly infrastructural facilities, and the difficult business environment. The focus is on increasing the vibrancy and competitiveness of the private sector, exploiting the potential of utilizing mineral resources, increasing employment, stimulating investment, fostering dynamic entrepreneurship and MSME growth and participation to resuscitate economic growth in Eswatini. iii. Enhanced Social and Human Capital Development and Sustainable livelihoods Recognizes the enhancement of social and human capital development as one of its priority development goals that will contribute to the improved human potential and is essential for development across all key sectors of the economy. Therefore, the government remains committed to developing well educated, skilled and healthy people required to operate and maintain infrastructure, and to build dynamic businesses. Moreover, the government needs to reduce poverty rates of all forms, enhance food security, improve social protection services, as well as improve access to proper sanitation and hygiene and decent housing. iv. Efficient Public Service Delivery that Respects Human Rights, Justice and the Rule of Law Refers to an efficient public sector that respects human rights, justice and the rule of law and remains one of the key government development goals. Under this goal, the government seeks to have a dependable, reliable, and efficient public sector, strengthen the implementation and enforcement of human rights, and enhance service delivery as well as foster rural and community development to improve the livelihoods and welfare of Emaswati. v. Well Managed Natural Resources , Environmental Sustainability and Disaster Risk Management Determines the need for a more inclusive, sustainable, and efficient management of natural resources and the environment, with resilience to climate change and sustainable disaster risk management mechanism as key to development. Policy direction should be more towards renewable and clean energy, mainstreaming climate change and environmental sustainability in projects and programmes to mitigate against the experience of recurring droughts and other natural disasters related to environmental 20 degradation. The government of Eswatini also recognizes the need to strengthen the enabling environment for green growth. vi. Investment in Infrastructure to expand Economic Network and Digital Innovation Establishes the importance of quality infrastructure to improve the country’s competitiveness and drive economic growth. In this regard, the government wants to; upgrade physical infrastructure to enhance access and connectivity, improve coverage, quality, reliability, and affordability of digital infrastructure and services, sustainable, clean and affordable energy as well as invest in the water services industry. Infrastructure is deemed as among the key drivers of economic growth and development by the government.

2.2 Connecting Industrial Policy to Selected National Development Goals Out of these six National Development Goals stated in the NDP, three goals were selected as they represented the three main pillars to which the Industrial Policy can make the largest contribution to the economy. The three NDGs are: i. Good Governance, Economic recovery, and Macro-Fiscal Stability ii. Enhanced and Dynamic Private sector that Supports Inclusive and Sustainable Growth iii. Well Managed Natural Resources and Environmental Sustainability and Disaster Risk Management It is worth mentioning that upon further scrutiny and discussion it was agreed that these three NDGs will be referred as stated below, intending to highlight the specific elements within each NDG that can be addressed through the new Industrial Policy. i. Economic Recovery (NDG1) The focus is on economic recovery as the Eswatini economy suffered a huge blow during the COVID-19 pandemic and there is great need to create opportunities for income and wealth generation in the key sectors of the economy. ii. Sustainable and Inclusive Growth (NDG2) It is key for the Eswatini economy to be sustained over time and be inclusive by not neglecting any section of the population, particularly the marginalised and vulnerable. 21 iii. Environmental Sustainability (NDG3) There is need for a sustainable and efficient management of natural resources and the environment and the mainstreaming of climate change and environmental sustainability in government policies, projects, and programmes.

2.3 Contribution of the new Industrial Policy to the selected National Development Goals – Brief diagnostic

2.3.1 Economic Recovery (NDG1) To contribute to economic recovery and resilience the country needs to focus on two main pillars: 1) Expand domestic production and value addition to improve industrial performance, and 2) diversify the economy to reduce vulnerability to external shocks.

2.3.1.1 Expand domestic production and value addition to improve industrial performance The data analysis illustrates that the Eswatini manufacturing sector is a significant contributor to the economy together with the service sector. However, Figure 3 below shows that while the share of the Manufacturing Value Added (MVA) in the economy is high, ranging between 31.6% in 2000 and 29.1% in 2020, its relative share has decreased during these years. FIGURE 3: STRUCTURE OF THE VALUE ADDED BY SECTOR IN ESWATINI, 2000-2020 22 Source: Central Statistical Office When comparing the share of MVA in total Gross Domestic Product (GDP) for Eswatini and comparator countries (Mauritius, Botswana, Brazil), Figure 4 shows that the share for Eswatini is impressive and much higher than the other countries (29.1% in 2020 versus 11% for Mauritius, 6% for Botswana and 10% for Brazil). Also, in terms of the MVA per capita, Eswatini is performing well ahead of the benchmarking countries. It registered the highest value of US$ 1,094.2 per capita, although it has declined since the pandemic. FIGURE 4: MANUFACTURING VALUE ADDED AS A SHARE OF GROSS DOMESTIC PRODUCT, 2010-2020 Source: World Development Indicators Despite the high contribution of the manufacturing sector towards GDP and high MVA per capita, the situation is problematic as the data shows that there are very few sectors and companies that are contributing to this performance. Figure 5 illustrates that the manufacturer of beverages accounted for 58% of the total MVA in 2020, followed by manufacture of sugar (13%), manufacture of textiles (10%), manufacture of cocoa & chocolate (6%), and manufacture of wood and its products (4%). These five sectors together represented 91% of total MVA and are not considered high technology or sophisticated sectors, which usually bring interesting benefits to the economy due to the spill over effects. Also, in most of these sectors the type of activities that Eswatini develops are not the ones that incorporate high value addition. This situation illustrates the need for Eswatini to diversify into other manufacturing sectors. For the Industrial Policy to contribute to economic recovery, build resilience and reduce vulnerability, it needs to identify which manufacturing subsectors can play an active and dynamic role. This could be achieved by intra-sectoral upgrading from low valued-added to higher value-added activities (e.g. shifting from unprocessed wood to 23 furniture), or by intersectoral upgrading from one manufacturing sector to another (e.g. shifting from the textile & apparel sector towards a fruit processing sector that can incorporate advanced technology). FIGURE 5: SECTOR VALUED ADDED IN TOTAL MANUFACTURING VALUE ADDED, 2011-2020 Source: Central Statistical Office

2.3.1.2 Diversify the economy to reduce vulnerability Diversification of export products Another area of the economy where Eswatini needs to build resilience and reduce vulnerability to external shocks is in export products and markets. Eswatini is doing well in this area in terms of having a high share of manufactured exports in total exports when compared with its comparators, as manufactured exports constituted of over 90% in total exports in 2020 (except for Mauritius that also registered a concentration over 90%, Brazil reached over 50% and Botswana over 20% in the same year). However, the main challenge is that Eswatini’s exports are highly concentrated and when compared to the benchmarking countries, it exhibits the highest concentration. For instance, over 89% of the manufactured exports of Eswatini come from the top 3 groups of products as shown in Figure 6, namely; chemicals , followed food products , and wearing apparel. Such high dependence on just three groups of manufactured exports exposes the country’s economy to external shocks, rendering it extremely vulnerable. Countries such as Brazil registered the lowest share (58%) due to the strong focus on export diversification strategies over the last 25 years and a process of understanding the firm-level processes which support the introduction of new export products. 24 The Industrial Policy can support diversification of manufacturing exports to move away from the dependency on chemical, food, and textiles & apparel products that in some cases incorporate low value addition, generate low employment or are produced by few large companies owned by foreign investors. 100% 90% 80% 70% 60% 75% 89% 87% 58% 76% 50% 40% 30% 20% 10% 0% Mauritius Eswatini Lesotho Brazil Botswana Other manuf. exports Top 3 manuf. exports FIGURE 6: MANUFACTURED EXPORTS CONCENTRATION, 2020 Source: UN COMTRADE through WITS Diversification of export markets Moreover, the other challenge with the destination of the exports coming from Eswatini is that they are highly concentrated to a few markets as shown in Figure 7. This is problematic as it means that the economy is highly vulnerable to demand shocks if the countries that are our major export destination experience abrupt shocks and crises. The country’s industrial policy needs to assist the country’s economy by ensuring that the export markets are diversified. Figure 7 illustrates that in 2020, the top 5 export markets for Eswatini manufactures as a whole represented 84% and were: Republic of South Africa, Kenya, Nigeria, Mozambique, and the United Kingdom. Eswatini therefore needs to focus more on strategizing on how to penetrate more export destinations, so that the country’s export markets are more diversified, and the economy builds more resilience. The country further needs to maximise its use of trade agreements with various trade partners to ensure that it reaches more market destinations for the country’s manufactured exports. This is particularly important as well as reducing the country’s dependence on South Africa as a main market. 25 FIGURE 7: MANUFACTURED EXPORT MARKET CONCENTRATION, 2020 Source: UN-COMTRADE through WITS

2.3.2 Sustainable and Inclusive Growth (NDG2) It is very important that Eswatini’s Industrial Policy contributes towards economic growth which can be sustained over time and that ensures active economic participation of women, the youth, persons living with disabilities as well as MSMEs. Currently, the Eswatini economy is not inclusive as the above-mentioned groups are not equally benefiting from the country’s manufacturing activities and this has created a highly unequal society. For instance, women wages in the manufacturing sector are 11% lower than that of men. Youth participation in the manufacturing sector is at 13.5%. Moreover, only 13 % of the MSMEs are involved in manufacturing sector, with only 11% of persons living with disability involved in manufacturing. It is therefore important that all these groups of the population actively participate for the country to attain inclusive and sustainable growth and ultimately achieve its National Development Goals. The Industrial Policy can alleviate this challenge of low participation by: a) promoting the creation of other manufacturing sectors that can offer better quality of jobs and benefits to the society; b) promoting sectors and jobs that could bring higher women participation and trigger Women Economic Empowerment; c) promoting laws, regulation and incentives to attract more MSMEs participation; and d) promoting jobs that can attract the youth and people living with disabilities and provide incentives to companies to hire them. Figure 8 below shows the employment structure for Eswatini, and it indicates that the manufacturing sector (together with the service sector) is a significant contributor to employment creation in the country, representing about 20% towards total employment. 26 This percentage is the highest compared to the benchmarking countries where Mauritius registered 12.6%, South Africa 10.8%, and Lesotho 9.1%. FIGURE 8: EMPLOMENT STRUCTURE IN ESWATINI BY SECTOR, 2010-2019 Source: Central Statistical Office Despite the important contribution of the manufacturing sector to employment generation, the first challenge is related to the high concentration on only a few manufacturing subsectors. Figure 9 shows that the largest contribution towards employment in the manufacturing sector comes from the weaving of textiles, other textiles, and wearing apparel. This unequal distribution of employment in the different sub sectors illustrate the need for Eswatini to diversify and promote other manufacturing activities that can create good job opportunities and quality employment. FIGURE 9: EMPLOMENT STRUCTURE IN THE MANUFACTURING SECTOR IN ESWATINI , 2019 Source: Central Statistical Office 27

2.3.2.1 Quality employment Another current challenge that Eswatini is facing is that although the manufacturing sector is such a significant creator of employment in the country, the sector is not creating high quality jobs yet as the average wages in manufacturing are among the lowest. Figure 10 shows that the average monthly wages in manufacturing reached US$ 200 compared to other sectors such as Mining & Quarrying and Public sectors double or more than double this amount. FIGURE 10: AVERAGE MONTLY WAGES PER SECTOR IN ESWATINI, 2019 Source: Central Statistical Office Also, the manufacturing sectors that create more employment are not the ones that pay higher wages. Figure 11 illustrates this discrepancy, for instance the weaving of textiles, wearing apparel and knitted and crocheted fabrics employ a large number of workers, yet the median monthly earnings are low. The Industrial Policy therefore needs to promote sectors within manufacturing that pay higher wages to reduce inequality as well as foster social cohesion. FIGURE 11: MANUFACTURING EMPLOYMENT AND WAGES, 2019 28 Source: Central Statistical Office

2.3.2.2 Gender equality The analysis shows that there exists a gender gap in overall employment in Eswatini, in most of the sectors male employment is higher than female employment. However, the manufacturing sector is contributing to close this gap as it shows that female employment is higher (Figure 12). This may be attributed to the nature of the sub sectors were the manufacturing sector has mostly focused on, the clothing and textiles which employs more women than men. FIGURE 12: EMPLOYMENT BY ECONOMIC SECTOR AND GENDER, 2019 Source: Central Statistical Office Although the manufacturing sector employs more women than men in Eswatini, females earn 11% less than their male counterparts in Eswatini as shown in Figure 13. Additionally, labour statistics for Eswatini show that the proportion of women in managerial positions is 41.6%, women representation in parliament is at a low 9.6%, and women representation in local government is only 14.2%, showing the scarce participation of women in decision making processes. 29 FIGURE 13: AVERAGE MONTLY WAGES BY SECTOR AND GENDER, 2019 Source: Central Statistical Office The Industrial Policy needs to focus on promoting Women Economic Empowerment as well as creating better quality jobs for women to increase their participation in the economy and decrease the gender inequality in Eswatini. Women Economic Empowerment (WEE) in the manufacturing sector of Eswatini is crucial for fostering inclusive and sustainable development. By promoting equal access to opportunities, resources, and decision-making roles, women can contribute significantly to the country's economic growth. According to “Women in Trade and Development”, one of the stakeholders that participated during the consultation process, whose mission is to empower adolescents girls and women including people living with disabilities and female refugees, considers that initiatives such as: a) providing training and mentorship programs to improve skills, b) supporting access to funding with clear preferences for women, c) improving the dissemination of information about the industrial sector (e.g. who does what), the benefits that women in the productive sector can access, the quality standards that they need to comply; d) creating and providing access to centralized productive infrastructure to support women conduct their businesses, can help empower women in manufacturing and enhance their participation in this sector. In addition to this, the COMESA Federation of Women in Businesses, believes that promoting associativity among women entrepreneurs and creating cooperatives, developing financial management skills, and supporting women marketing their products can also promote the full potential of the female workforce and drive economic progress. BOX 1: WOMEN ECONOMIC EMPOWERMENT IN ESWATINI Source: Interviews conducted with representatives of Women in Trade and Development and COMESA Federation of Women in Businesses 30

2.3.2.3 MSME participation Latest data show that the MSMEs in Eswatini participate more in other sectors than in manufacturing. According to the FinScope 2017 MSME Survey, only 13 % of MSME business owners are involved in the manufacturing sector. The leading sector was wholesale/retail (39%), followed by Agriculture/farming (23%), and Community and Household (13%). This Industrial Policy should seek to change this current situation so that MSMEs have a higher role and can also benefit. Figure 14 illustrates the MSME participation in the manufacturing sector in Eswatini. Wholesale/Retail 39% Agriculture/farming 23% Community and Household 13% Manufacturing 13% Other sectors 12% FIGURE 14: MSME PARTICIPATION BY SECTOR IN ESWATINI, 2017 Source: Finscope, MSME Survey 2017 One example of how the correct support can trigger the development of MSMEs can be seen with ‘Acero Steel Frames’ which is a liSwati-owned company based in Matsapha, that manufactures steel door and window frames as well as structural steel fabrication for warehouses and manufactures meter boxes, brick forces and other steel products. The Small Enterprises Development Company (SEDCO) contributed in supporting the development of this company by creating a conducive environment for its growth. The business incubation programme at SEDCO has played an instrumental role in shaping the business into the success story it is today. Acero Steel Frames is currently employing more than 20 EmaSwati, where most of them are young people, and is contributing to the economic growth of the country. Through the Industry Department from MCIT and its initiative to develop the industrial sector, Acero Steel Frames has been able to acquire industrial plot at a subsidized rate for its manufacturing plant. The Company won the Entrepreneur of the Year Award in 2023. BOX 2: MSME DEVELOPMENT IN MANUFACTURING CAN CONTRIBUTE TO GROWTH AND EMPLOYMENT Source: Industrial Policy Core Team from MCIT 31

2.3.2.4 Youth participation The youth participation in the manufacturing sector of Eswatini is also limited. According to the Integrated Labour Force Survey 2021, the percentage of youth employed in the manufacturing sector was 12.5 % and 13.4 % for the youth in the 15-25 and 15-35 age group respectively. Additionally, unemployment rates are generally high in Eswatini, and even higher among the female youth since the unemployment rate is at 54%, while for male youth it is 48%. Moreover, female youth not involved in education, employment and training (NEET) stands at 41% compared with 30% of male youth. This displays the low levels of youth involvement in the Eswatini economy. The Industrial Policy can be a significant tool used to promote the youth’s participation in the economy and foster inclusion, thus enabling Eswatini to achieve its national development goals.

2.3.2.5 Persons living with disabilities participation The labour force survey of 2021 shows that people living with disabilities in Eswatini are not actively participating in the economy. The percentage of this group employed in the manufacturing sector shown in Figure 15 is even lower than that of the youth at 11.8% for both sexes (11.0% for males and 12.4 % for females). This low participation rate justifies the significant role of Industrial Policy in helping the country to achieve inclusion by ensuring the participation of these marginalised groups in the economy. Both sexes 11.80% Female 12.40% Male 11% 10% 11% 11% 12% 12% 13% 13% FIGURE 15: PEOPLE LIVING WITH DISABILITIES INVOLVED IN THE MANUFACTURING SECTOR, 2021 Source: Integrated Labour Force Survey, 2021 32

2.3.3 Well managed natural resources and environmental sustainability (NDG 3) The country’s industrial development initiative cannot come at the expense of the environment and resource depletion. It should promote productive activities with low environmental impact that incorporates environmentally friendly and circular strategies. The two key elements related to environmental sustainability to which the Industrial Policy can make greater contributions are associated with the resource extraction-economic growth decoupling approach and the circular economy approach.

2.3.3.1 Resource and material extraction – economic growth decoupling The industrial policy can promote the development of a manufacturing sector that ensures a higher material and resource use efficiency while promoting growth by: a) reducing material extraction and establish incentives to use alternative materials to produce goods and services, and b) reducing resource (e.g. energy) consumption and provide incentives to use renewable energy to produce goods and services. Figure 16 shows an upward trend in material extraction, energy consumption and economic growth in Eswatini over the period from 2005 to 2019, meaning that there is no economic growth decoupling effect happening in the country. The Industrial Policy needs to reverse this upward trend as it is not sustainable, hence the need to decouple material extraction and energy consumption from economic growth. 50% 40% 30% 20% 10% 0% -10% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Material extraction in million tonnes (% of change) GDP in constant prices 2011 (% of change) Total Final Energy Consumption in TJ (% of change) FIGURE 16: DECOUPLING OF MATERIAL EXTRACTION AND ENERGY CONSUMPTION FROM ECONOMIC GROWTH IN ESWATINI Source: Central Statistical Office, International Energy Agency, MaterialsFlows.Net More specifically, domestic material extraction in Eswatini has tripled in the last 50 years, in the period running from 1970 to 2019 as seen in Figure 17. Biomass had the largest share in overall material extraction in 2019 (79.2%), followed by non-metallic minerals (13.6%), metal ores (6.3%), and fossil fuels (0.8%). Overall, biomass consists mainly of waste from sugar cane 33 and other crops. This information is even more significant when analyzing the per capita values as the material extraction for Eswatini was 14.3 tonnes per capita which is 9.7 % above the global average (13.0 tonnes per capita). 15M 10M tonnes 5M 0 1970 1980 1990 2000 2010 Metal ores Fossil fuels Non-metalic minerals Biomass FIGURE 17: MATERIAL DOMESTIC EXTRACTION BY GROUP IN ESWATINI, 1970-2019 Source: MaterialsFlows.Net On the other hand, Total Final Energy Consumption (TFEC) in Eswatini has increased in the overall period of 1990-2020, but mainly since 2010 going from 32,741 TJ to 42,688 TJ in 2020. In the 1990s, the residential sector was the main contributor to the TFEC, however through the years, the industrial sector has surpassed this behaviour and in 2020 represented 33% of TFEC compared to the 28% of the residential sector. This suggests that while the industrial sector grows is important to incorporate measures to promote energy efficiency practices and the use of more renewable energy instead. 50 000 40 000 Industry 30 000 Transport 20 000 Residential 10 000 Agriculture/ 0 Forestry 1990 1992 1994 1996 1998 2000 2002 2004 2008 2010 2012 2014 2016 2018 2020 Industry Transport Residential Commercial and public services Agriculture/Forestry Non-specified FIGURE 18: TOTAL FINAL ENERGY CONSUMPTION BY SECTOR IN ESWATINI, 1990-2020 Source: International Energy Agency 34

2.3.3.2 Circular Economy Another important challenge in Eswatini is that the economy has been on a linear trajectory, which involves extraction, consumption and discarding which is an inefficient use of resources as it results in the generation of a lot of waste. There is a need to change this trend so that the economy adopts a circular economy approach whereby materials circulate in the production cycle as much as possible. The products and services are designed from the beginning to eliminate waste or turn it into new resources, and natural capital is regenerated to reduce negative environmental impact. Moreover, waste generation and management is a major issue in Eswatini as waste generation has tripled since 1996 and 45% of waste generated is burnt, 26% is disposed into landfills and only 29% of the waste is recycled. In addition, CO2 emissions are one of the critical elements that need to be tackled since it is creating a strong negative environmental impact for the country. These challenges can be addressed through the creation of manufacturing sectors that motivate the incorporation of circular economy strategies in the production processes and development of new circular business models. The Industrial Policy cannot just influence the change of the production patterns, but also the change of the consumption patterns towards more responsible practices such as reuse, repair, remanufacture, and recycling. There is scarcity of quantitative data which captures circular strategies that has been incorporated into the production or consumption processes in Eswatini. Therefore, the need to generate information that captures the improvement and implementation of this approach to analyze how the Industrial Policy and the manufacturing sector would be contributing to the NDG3.

2.4 Harmonization of the Industrial Policy with other national policies For a successful implementation of the Industrial Policy, there must be harmonization and mainstreaming with other complementary national policies from other government ministries and departments. On the other hand, there could be other policy areas that need to be considered to avoid and minimize conflict. Table 2 presents 13 national policies that are considered strategic to contemplate not just during the design phase of the Industrial Policy, but also during implementation. Name of Policy Role of Policy Responsible Ins3tu3on Create a socio-economic, legal and ins2tu2onal 1.Na3onal environment necessary for a strong, compe22ve, Coopera3ve MCIT- Coopera2ves sustainable and vibrant coopera2ve movement responsive Development Policy Department to members’ needs and aspira2ons, which meaningfully (2017) contribute to na2onal development. 35 Name of Policy Role of Policy Responsible Ins3tu3on Build upon the achievements of the 2010 to advance gender equality and equity by ensuring fair and equitable 2.Na3onal Gender distribu2on of economic, social and poli2cal resources Deputy Prime Policy (2022) and full par2cipa2on at community and policy level Minister’s Office regardless of gender and to highlight challenges caused by gender dispari2es in the country. Provide, facilitate, and support an all-inclusive mul2- sectoral na2onal youth development framework that is focused on facilita2ng the improvement and Ministry of Sports, 3.Eswa3ni Na3onal strengthening of the youth capabili2es and providing Culture, and Youth Youth Policy (2020) opportuni2es and plaJorms for the young people to Affairs u2lize their capabili2es for their personal development and that of their communi2es and the country through a comprehensive, integrated, and concentrated approach. Create a technical and vocalonal educalon and 4.Technical, skills development system that is responsive to Voca3onal, Educa3on Ministry of Educa2on market demand, and a training system and and Training (TVET) and Training Policy (2020) mechanisms for formal, non-formal and informal qualificalons. Create a modern, comprehensive, targeted and coherent 5.Na3onal MSME framework that will create a highly profitable and Ministry of Commerce Policy (2018)(2023 entrepreneurial sector, characterized by innova2ve, Industry and Trade - draQ) compe22ve and sustainable businesses and supported by MSME Unit an enabling ins2tu2onal and regulatory environment. Meet the energy needs of the country in a sustainable 6.Na3onal Energy Ministry of Natural manner that contributes to the economic growth and Policy (2018) Resources and Energy wellbeing on the Popula2on of Eswa2ni. Ensure equitable access to inclusive, life long, quality 7.Na3onal Educa3on educa2on and training for all Swazi ci2zens through Ministry of Educa2on and Training Sector sustained implementa2on and resourcing of a and Training Policy (2018) comprehensive educa2on and training Policy. Develop a sustainable, climate resilient and inclusive low- 8.Swaziland Na3onal Ministry of Tourism carbon green growth society and provide a mechanism for Climate Change Policy and Environmental coordina2on and building of partnerships in addressing (2016) Affairs climate change in Eswa2ni. Make Eswa2ni a country where persons with disability have equal opportuni2es to par2cipate freely as equal partners in society and be empowered to realize their full 9.Swaziland Na3onal poten2al in all spheres of life without discrimina2on. Deputy Prime Disability Policy Moreover, the goal of the Policy is to promote, protect, Minister’s Office (2013) and ensure full and equal enjoyment of all human rights and fundamental freedoms by Persons with Disability and to promote respect for their inherent dignity. 36 Name of Policy Role of Policy Responsible Ins3tu3on Enhance na2onal socio-economic development by encouraging beneficial ac2vi2es of ICT in all sectors 10.Na3onal through the provision of a conducive environment that Ministry of Informa3on and will progressively maximize the quan2ty & security of the Informa2on, Communica3on life of the people of Eswa2ni and make the best use of the Communica2on and Infrastructure Policy country’s human and natural resources and promote Technology (2012) mul2-layered coopera2on and knowledge sharing na2onally, regionally and globally. Promote economic and social development by facilita2ng interna2onal trade and investment, improving compe22veness, suppor2ng business development, and 11.Na3onal improving consumer protec2on in areas of quality, health, MCIT- Regulatory, Regulatory and safety, and environment. Moreover, the policy aims at Quality Infrastructure Quality Policy (2010) addressing the country’s challenges of lacking coherent Department (2023 draQ) regulatory and quality infrastructure that effec2vely supports industrial produc2on, trade, regula2on and discharge of social services. Have an empowered, resilient, and more egalitarian Swazi Na2on that promotes the holis2c, equitable, and 12.Na3onal Social sustainable development of all its people and is able to Deputy Prime Development Policy care and support the most vulnerable members of its Minister’s Office (2010) popula2on as they progress towards self-reliance and meaningful par2cipa2on in the socio-economic development of the country. Ensure that the agriculture sector contributes fully to the socio-economic development of the country and provide 13.Comprehensive clear guidance on policy op2ons and measures necessary Agriculture Sector to enhance sustainable agriculture sector development Ministry of Agriculture Policy (CASP) (2005) and its contribu2on to overall economic growth, poverty allevia2on, food security and sustainable natural resources management. TABLE 2: KEY NATIONAL POLICIES TO HARMONIZE WITH THE INDUSTRIAL POLICY Source: Industrial Policy Core Team from MCIT

2.5 Institutional Architecture for the Industrial Policy The Ministry of Commerce, Industry and Trade through the Department of Industry, serves as the primary government institution responsible to lead the formulation, implementation and monitoring of the Industrial Policy. Moreover, it is imperative to restructure the Industry Department to enable the effective coordination, facilitation and implementation of the Industrial Policy. Additionally, for a 37 successful execution of the Industrial Policy, it is key to collaborate and coordinate actions with other relevant Government Ministries and Agencies and other institutions identified in Figure 19. The Prime Ministers Ministry of Office Economic Academia Planning &Developme nt Ministry of Business Labour and Eswatini Social Federation of Eswatini Ministry of Business Finance Community Women Empowermen Ministry of t Agriculture Organizations Ministry of Commerce Industry and Trade Ministry of Information Civil Society Comunication & Technology Ministry of Development Tourism & Partners Environmenta l Affairs Ministry of Ministry of Sports, Natural Culture & Resources & Youth Affairs Energy Deputy Prime Ministry of Minister's Ministry of Education & Office Housing and Training Urban Development FIGURE 19: KEY GOVERNMENT MINISTRIES & AGENCIES AND OTHER INSTITUTIONS FOR THE IMPLEMENTATION OF THE INDUSTRIAL POLICY Source: Industrial Policy Core Team from MCIT A summary of the main roles and responsibilities of these institutions are presented in Table 3. Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy 1.Ministry of Commerce, Industry Spearhead and coordinate the • Chair and coordinate the and Trade implementa2on of the Industrial works of the IP Policy. • Review, restructure and capacitate the structure Promote Public-Private of the Industry Investment in Industrial Department for the Development projects. effec2ve coordina2on, Engagement in industrializa2on facilita2on and ini2a2ves at regional and implementa2on of the interna2onal level that can Industrial Policy. 38 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy complement the implementa2on • Develop Ac2on Agenda, of the Industrial Policy Guidelines and opera2onal arrangements/Terms of Reference for the IP. In collabora2on with MoF and Ministry of Economic Planning to mobilize development partners to support industrial sector development • Expedite dra]ing of key industrial support legisla2on. • Undertake studies to support the implementa2on of the industrial policy. • Allocate space to investors in the established industrial, Special Economic Zones and business/Science parks across the country. • Inspect, monitor and periodically report on all aspects of the Industrial Policy implementa2on. • Strengthen the backward and forward linkages between MSMEs and FDI in the Manufacturing sector • Promote the sourcing of raw materials from local producers 2.Office of the Prime Ensure harmony and coherence in • Strengthen the Policy Minister/CABINET policy implementa2on. and Programme Coordina2ng Unit (PPCU) to ensure harmoniza2on and coherence in the implementa2on of the Industrial Policy. • Promote and facilitate coopera2on and 39 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy collabora2on among Ministries, Departments and Agencies. 3.Ministry of Agriculture Ensure adequate produc2on and • Facilitate the acquisi2on supply of high quality agro raw of climate change NAMBOARD materials necessary for value adapta2on technologies ESWADE addi2on that enhance resilient, produc2ve and sustainable agricultural systems. • Develop and implement dedicated agricultural extension services and business skills development programmes in produc2on areas. • Promote bulk handling and supply of agricultural products through improved storage facili2es. • Undertake quality improvement in the agricultural raw material supplies through the adop2on of Good Agricultural Prac2ces (GAPs), traceability guidelines, and Sanitary and Phytosanitary (SPS) regula2ons. 4. Ministry of Educa3on and Support industrial skills • Equip ter2ary, voca2onal, Training development. research and technological ins2tu2ons with laboratories and Implement the skills audit report workshop equipment to enhance prac2cal skills acquisi2on. • Review educa2on curricula to tailor academic work towards industrial labour needs. 40 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy • Strengthen the TVET Policy to address exis2ng skills mismatch. 5. Ministry of Labour and Social Promote occupa2onal health and • Ensure that Occupa2onal Security safety in the industrial sector. Safety and Health, labour laws and regula2ons, Enforcement of labour laws and gender, cultural and regula2ons within the industrial sector equity concerns are mainstreamed into all Industrial opera2ons. • Carry out regular statutory and rou2ne inspec2ons to ensure Occupa2onal Safety and Health in industrial establishments. • Orient academic scholarships to address prac2cal industry needs. 6. Ministry of Informa3on, Support technology development • Strengthen the Communica3on and Technology and upgrading in the industrial opera2onaliza2on of sector. science and technology parks and business Enhance commercializa2on of incuba2on centres. R&D from Academia. • Strengthen the ini2a2ves Facilitate the development and and linkages between incorpora2on of science and technology developers technology and innova2on in the and industrialists. na2onal industrial development process, through the Eswa2ni • Facilitate coordina2on of Royal Science Technology Park crea2vity and innova2on (RSTP). ecosystem. • Create awareness of technology transfer, adop2on and upgrading. • Improve and streamline the na2onal science and technology policy environment to foster 41 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy scien2fic and technological innova2on. • Strengthen na2onal system for research, product development, technology transfer and intellectual property management. • Increase public understanding and apprecia2on of science and technology 7.Ministry of Tourism and Ensure industrial development is • In collabora2on with Environmental Affairs balanced with environmental Environmental Authority conserva2on and sustainable implement strategies management. aimed at emission reduc2on and pollu2on control in the Industrial Sector • Promote waste recycling • Create awareness on good waste management prac2ces 8. Ministry of Housing and Support industrial land acquisi2on • Create awareness on Urban Development for industrialists. good waste management prac2ces • In collabora2on with MCIT, facilitate access to land for industrial establishments • Develop physical plans that ensure peaceful coexistence of industries and human seblements. 9. Ministry of Economic Planning Develop guiding principles and and Development strategies for sector priori2za2on • Priori2se industrial in the Na2onal Development Plan. development in the 42 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy Na2onal Development Strategy - Na2onal Budget, Sectoral Development Policies Medium Term and Plans - Popula2on Issues - Expenditure Framework Sta2s2cs - Census and other na2onal planning frameworks to ensure that Na2onal Development goals are achieved. • Track progress of industrial sector performance against its expected contribu2on to NDGs 10. Academia Undertake scien2fic research, • Provide industrial training and industrial research and technology innova2ons. development infrastructure such as laboratories and student incuba2on facili2es that support industrial product development and innova2on. 11. Eswa3ni Investment Abract investment for • Undertake measures to Promo3on Authority manufacturing sector. facilitate investment in priority value chains as s2pulated in this policy. • Provide one stop centre for investment 12. Ministry of Natural Resources Strengthen Energy Policy to • Design green energy and Energy ensure affordable, accessible and cer2fica2on to promote efficient energy for industry. local renewable energy genera2on. Promote local content in Energy • In collabora2on with Infrastructure projects MoF, develop specific tax incen2ves for renewable energy projects and investments. 13. Eswa3ni Na3onal Industrial Promote and facilitate • Invest in strategic priority Development Corpora3on Government’s investment in sectors to promote industrial development projects. industrial development to enhance wealth and job crea2on. 43 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy • Leverage partnerships and networks to mobilise resources for industrial development 14. Ministry of Finance Create an induc2ve environment • Support industrial for financial markets to support development through industrial development projects. Tax and non- tax Incen2ves 15. Eswa3ni Environmental Ensure compliance to • Build capacity of Authority environmental standards and industries to comply with regula2ons in the industrial sector environmental standards and regula2ons. • Monitor compliance of industrial ac2vi2es with environmental guidelines. 16. Eswa3ni Revenue Authority Implement and enforce exis2ng • Control smuggling of tax regimes to support to manufactured products industrial development to protect local industries. • Implement the Digital Tracking System (DTS) for manufactured goods 17. Eswa3ni Standards Authority Develop and enforce standards to • Fast track development enhance the compe22veness of and dissemina2on of manufactured products in standards. domes2c and interna2onal markets • Increase tes2ng capacity and reduce turnaround 2me for issuance of test reports. • Decentralize and leverage partnerships with other Government ins2tu2ons in promo2on of standards. • Decentralize and leverage partnerships with other Government ins2tu2ons in promo2on of standards. 44 Ins3tu3on Role Specific ac3ons to support industrial development through the Industrial Policy • Support MSMEs to adopt and implement na2onal and interna2onal standards. 18. Small Enterprises Promote enterprise development • Provide training, advisory Development Company and sound management prac2ces and entrepreneurship in support of industrialisa2on. development services to manufacturing enterprises. • Develop training programmes for developing skills in priority sectors of NIP TABLE 3: ROLES AND MAIN ACCIONS OF KEY INSTITUTIONS FOR THE IMPLEMENTATION OF THE INDUSTRIAL POLICY Source: Industrial Policy Core Team from MCIT 3. IP VISION STATEMENT After a process of consultation with national stakeholders1 the vision of this Industrial Policy can be synthetized in the following way: “By 2033, the industrial sector in Eswatini is diversified in high value-added products which benefits the local population by creating decent jobs and generating equal opportunities for all, while accounting for environmental sustainability practices and enhancing economic resilience.” 4. INDUSTRIAL POLICY OBJECTIVES To define relevant Industrial Policy Objectives (IPOs), the policy review team and core team dwelled on the EQuIP methodology, which involved following key steps and leveraging data analysis to define evidence-based IPOs. 1 During the stakeholder consulta2on held on April 27 and 28 in Eswa2ni, the core team presented a proposed vision for the Industrial Policy. The proposed vision was based on an exercise of iden2fying key elements contained in the objec2ves that needed to be men2oned as part of the vision. Also, of describing how the team foresees the industrial sector in the future. During the session stakeholders made different proposals and voted for the one that best described the type of industrial sector they desire to have in the future. 45 As a first step, the team analysed common IPOs and the current industrial performance of Eswatini to preselect the most relevant IPOs for Eswatini from a list provided by the EQuIP methodology 2 . The team then deliberated to refine the common IPOs to tailor them to Eswatini, which led to the following list of seven preliminary IPOs for Eswatini: • Maximize domestic benefits by strengthening national value chains and increase domestic production capacities, • Boost value addition in resource-based sectors to ensure inclusive industrialization, • To enhance economic resilience by diversifying production and export markets, • Supporting high wage sectors and build new sectors for the creation of quality jobs, • Support circular economy through promotion of green industries to reduce pollution, • Boost export performance by moving away from simple and primary products to advanced products, • Ensure that the manufacturing contribution to the economy is maintained overtime. Consequent to further analysis by the Core Team the preliminary IPOs were discussed and fine-tuned and merged into five objectives. After a consultation workshop with a wider key stakeholder representation, the preliminary IPOs were refined and adjusted to the five IPOs for Eswatini and aligned to the selected NDGs as expressed in Figure 20. Enhanced and Dynamic Well Managed Natural National Good Governance, Private Sector Supporting Resources and Development Goals Economic Recovery and Sustainable and Inclusive Environmental = Impact Fiscal Stability Growth Sustainability Maximize domestic Boost value Enhance economic Supporting decent Promote green benefits by addition in resilience by wage sectors and industrialization by strengthening resource-based diversifying build new sectors supporting circular national value sectors to production and for the creation of economy, waste Industrial Policy chains and ensure inclusive export markets quality jobs management and Objectives = increase domestic industrialization renewable energy/ Outcome production energy efficiency capacities initiatives Objective 1 Objective 2 Objective 3 Objective 4 Objective 5 FIGURE 20: INTERVENTION LOGIC – 2 LEVELS 2 The ten EQuIP industrial policy objec2ves are to: increase produc2ve ac2vi2es, deepen market integra2on, maximize domes2c benefits, generate produc2ve employment, improve quality of employment, ensure inclusive produc2on, build economic resilience, promote self-sufficiency, promote resource efficiency, and reduce pollu2on. 46

4.1 Objective 1: Maximizing domestic benefits by strengthening national value chains and increasing domestic production capacities

4.1.1 Description A value chain comprises various business activities and processes involved in the creation of a product or a service. It consists of multiple stages of a product or service's lifecycle from conception to the final consumer. Moreover, it recognises that the design, production and marketing of products involves a chain of activities divided among different enterprises. Maximizing domestic benefits for Eswatini involves strengthening national value chains through the development of industries with strong backward linkages, this is linking industrial sectors with the primary sector to process domestically available raw materials, instead of importing them from abroad. In addition to this, to maximize domestic benefits, promoting the increase in domestic production and capacities may be a relevant strategy to reduce imports, create local employment and minimize leakages out of the economy by circulating money within the local market through increasing domestic ownership in the productive sectors.

4.1.2 Challenge The challenge for Eswatini is that, although the manufacturing sector is such a strong contributor to GDP in the country, it has weak linkages with other sectors of the economy. This has resulted in low quality employment in the country and heavy reliance of certain sectors on imports in their production processes. In addition, despite having high MVA per capita and high levels of Foreign Direct Investment (FDI), foreign firms that have invested in the manufacturing sector did not enable Eswatini to maximize domestic benefits. A sector whose potential has not been fully reached in Eswatini is the textile sector. Figure 21 illustrates that the textile sector is importing more than 50% of the raw and semi-finished materials used in the production processes. So, strengthening local value chains and increasing production may enable Eswatini to benefit to a greater extent from the textile sector, with positive impact in terms of employment and value added. 47 60% 54% 50% 43% 43% 40% 30% 20% 10% 0% 2010 2015 2020 FIGURE 21: IMPORTS OF RAW MATERIAL AND SEMI-FINISHED TEXTILES AS A SHARE OF FINISHED TEXTILE EXPORTS, 2010-2020 Source: UN-COMTRADE through WITS

4.1.3 Impediments The main impediments that need to be improved to achieve this objective include among others; limited access to finance, low technical expertise, lack of skills, poor quality standards, inadequate infrastructure, poor backward linkages and the lack of the required raw materials needed, poor regulatory framework on localization and skills transfer requirements.

4.1.4 Contribution to NDGs Maximizing domestic benefits and strengthening local value chains can help Eswatini to strengthen national inter-firm linkages thus boosting local income generation, increase employment, reduce poverty and inequality. In particular, this objective is directly related to promote NDG 1 “Economic Recovery”.

4.2 Objective 2: Boosting value addition in resource-based sectors to ensure inclusive industrialization.

4.2.1 Description Value added may be defined as the final output of a product minus intermediate inputs. There may be several strategies to boost value added such as (i) increasing the level of processing3, (ii) incorporating differentiating, for instance through improving marketing/packaging, or (iii) improving overall quality. 3 It is worth no2ng that processing a product may increase value added while in some instances a high level of processing does not necessarily increase value of the product. 48 Resource-based (RB) sectors are essentially sectors associated with the extraction of resources from the ground for further processing. The resources can come from agriculture, fisheries, mining, metals, and forestry4. Inclusive industrialization implies participation of all those who are willing and able to take part in the industrialization process and calls for a process in which the local population in Eswatini; men, women, youth, rural and urban, people living with disabilities, participate actively both as owners and drivers of industry and as workers, depending on their expertise5. Inclusive industrialization requires Eswatini to introduce and implement policies that support such participation and practical interventions to build local capacity for industrialization and living standards for all people. Moreover, boosting value addition in these sectors has great potential to generate high quality employment, foster backward and forward linkages in various sectors of the economy to achieve inclusive industrialization and strengthen value chains. The Resource Based (RB)sectors represented 88% in the total Manufacturing Value Added of Eswatini in 2020. Although the annual average growth rate of all the RB sectors was only 0.8% between 2011 and 2020, there were some sub sectors that registered high growth rates (above this average) such as the manufacture of wood and wood products (22.8%), manufacture of bakery products (7.7%), processing and preserving of fruits and vegetables (4.7%), manufacture of paper and paper products (3.9%), and manufacture of sugar confectionery (2.6%). While the textile and apparel sector in Eswatini is the major contributor for employment generation within manufacturing, the RB sectors have the potential to improve their performance and create jobs if the country dedicates efforts to incorporate value addition and process the raw material available in the country. In terms of the trade performance of the RB sectors, data shows that they represented 32.4% of the total exports in Eswatini in 2020 (a significant increase in participation compared to the 15.3% of 2010). This is related to the fact that several of these sectors are dynamic in Eswatini since the annual average growth rate for the RB sectors was 9.2% between 2010-2020 compared to the average growth rate of the world that was only 2.8% in the same period. 4 The technology classifica2on used to categorize the resource-based sector is the one developed by UNIDO for the Interna2onal Standard Industrial Classifica2on (ISIC) Rev 3 shown in Annex 3. 5 UNIDO defines inclusive industrial development as the primary source of income genera2on which allows for rapid and sustained increases in living standards for all people. The approach is based on two main pillars: the first one is about crea2ng shared prosperity for all, and the second focuses on safeguarding the environment. 49 Annual Average Annual Average Category Eswatini exports (thousand USD) Growth Rate World Growth Rate Eswatini 2010 2020 2010-2020 2010-2020 Resource based sectors 233,505.5 565,543.4 2.8% 9.2% Total exports 1,526,523.7 1,747,783.7 2.1% 1.4% RB/Total 15.3% 32.4% Among all the RB sectors the manufacture of wood veneer sheets, the manufacture of soft drinks, and the manufacture of sugar registered the highest exports growth rates (49%, 34% and 19% respectively between 2010-2020). However, there are other activities like the processing and preserving of fruits that can have a significant potential for both domestic consumption and exports considering the level of local and international demand. This will also support the objective of exports diversification in the country. Due to the favorable climate and fertile soil in Eswatini some of the key fruits with potential include citrus fruits (oranges, grapefruits, lemons, and limes), and tropical fruits (mango, papaya, pineapples). All these fruits have high possibilities of processing, but investment, infrastructure development, value addition and quality compliance will play a major role. BOX 3: THE POTENTIAL OF THE RESOURCE BASED SECTOR IN ESWATINI Source: UN-COMTRADE through WITS and Central Statistical Office

4.2.2 Challenge Eswatini’s manufacturing sector is characterized by low value-added production with limited backward and forward linkages. Disadvantaged groups such as female, youth, people living with disabilities and MSMEs exhibit a low participation in the manufacturing space. Statistical evidence shows that the country exports mostly raw and semi-finished products with little or no value addition. On average, in 10 value chains shown in Figure 22, the share of raw materials and semi-finished products in total exports represented more than 55% in 2020. Figure 21 highlights the most important trading sectors for Eswatini, they mostly export products with low value addition in terms of the level of transformation (wood, leather, metal, chemicals, mineral, fish, sugar, spices & cereals, oilseeds & fats, beverages & spirits). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Spices, cereal and Sugar meat Beverages Diary Other Petroleum Fruit & Mineral Machinery Oilseeds, fats Fish Coffee & Wood Textile Leather Metal Chemicals vegetables tea & Spirits Agriculture and oil others 2010 2015 2020 FIGURE 22: SHARE OF RAW AND SEMIFINISHED PRODUCTS IN TOTAL EXPORTS, 2010-2020 50 Source: UN-COMTRADE through WITS For example, value addition in the wood sector is very low. In 2020, raw and semi-finished products in total exports represented 90%. By developing other segments within the sector (e.g. furniture) and incorporating value addition could increase employment and capture more benefits. By increasing value addition and developing more beneficial segments of the wood sector, it can also contribute to inclusive industrialization. This considering that in 2016, the labour force involved in the manufacture of wood and wood products and manufacture of furniture was mostly male (2,105 in total from which there were 1,796 male), but there is a strong potential for female employment depending on the type of activity (i.e furniture design). In addition to that, high value-added segments in the wood sector can also play an important role in inclusive industrialization for Eswatini through improving the quality of jobs in the country. Figure 23 illustrates that in 2019, median monthly wages in the furniture segment were at E3,112.00 which is higher than the median monthly wages in the pulp, paper, and paperboard sector which was E1,58.30 in the same year. This clearly shows that boosting value addition in the country’s resource-based sectors can significantly enhance inclusive industrialization through improved wages locally. 9000 8000 7000 6000 Median monthly earnings (Local currency 5000 4000 3112.00 3000 2000 1558.30 1000 0 Porcelain and ceramic.. Malt liquors and malt Treatment and coating of. Medical and dental. Sugar Builders’ carpentry and. Vegetables and oils and fats Preparation and spinning of. Bakery Products Finishing of textiles Wooden containers Weaving of textiles Finishing of textiles Clay building materials Other chemical products. Other chemical products. Cement, lime and plaster Articles of concrete…. Other pumps, compressors.. Knitted and crocheted. Electronic components and.. Processing and Preserving.. Glass and glass products Basic iron and steel Plastics production Furniture Soap and detergents.. Parts and accessories for. Fertilizers and nitrogen.. Wearing apparel, except fur.. Pulp. Paper and paperboard Motor vehicles Knitted and crocheted. FIGURE 23: AVERAGE MONTLY WAGES IN MANUFACTURING SECTORS (FOCUS ON THE WOOD SECTOR), 2019 Source: Central Statistical Office

4.2.3 Impediments To realize value addition potential for inclusive industrialization, measures are required to address impediments related to access to finance, infrastructure development and technology and lack of skills required to participate in value-addition activities. 51

4.2.4 Contribution to NDGs Boosting value addition in resource-based sectors and strengthening backward and forward linkages will increase income; employment in more sectors and regions;incorporate vulnerable groups such as women, youth, MSMEs and people living with disabilities; reduce poverty and inequalities and enhance social cohesion and unity. In particular, this objective is directly related to NDG 2 “Sustainable and Inclusive Growth”.

4.3 Objective 3: Enhancing economic resilience by diversifying production and export markets

4.3.1 Description Economic resilience is the ability of the economy to cope, recover and reconstruct after a shock. It can also be defined as the ability to recover from a shock and adapt to changing circumstances in the wider economy and strengthen the ability to respond to potential future shocks as well as the ability to smoothen the impact of shocks. Diversifying production and exports markets can help to decrease the exposure and the vulnerability of a country to specific shocks, hence its resilience. Another important consideration is to diversify into products with low price volatility. Both the number of products and export markets in Eswatini are currently highly concentrated, which makes the economy vulnerable to shocks. Improving its resilience through diversifying products and export markets should then be a priority.

4.3.2 Challenges Eswatini currently faces the challenge of producing a limited number of products in the manufacturing sector. For instance, the top three products in 2021 contributed over 56% as a percentage of total manufactured exports. These top three products each contribute 32%, 14% and 10% respectively. The other products that follow these top three each contribute less than 9% in total manufactures, which is negligible and problematic. This poses a risk for the Eswatini economy as it remains vulnerable to shocks, thus the need to pursue a product diversification strategy to enhance economic resilience in the country. Figure 24 shows the top ten manufactured exports from Eswatini in the year 2021. It clearly illustrates that the country is largely dependent on the top three manufactured exports which shows the lack of diversification in manufactured export products. 52 2021 (Thousand % in total Harmonized System 8 digit USD) manufactures 33021000 : Mixtures of Odoriferous Substances and Mixtures (including Alcoholic Solutions) with a Basis of one or More of These Substances 618,713,391.32 32% 38249999 : Other Chemical Products and Preparations 265,733,770.26 14% 17011300 : Raw cane sugar for refining, in solid form, not containing added flavouring or colouring, obtained without centrifugation, with sucrose content 69° to 93°, containing only natural anhedral microcrystals 200,187,551.33 10% 17011400 : Raw cane sugar for refining, in solid form, not containing added flavouring or colouring matter (excl. cane sugar of 17011300) 184,036,349.34 9% 44071100 : Wood of Coniferous Species 82,443,807.65 4% 62046210 : Women's or girls' trousers, bib & brace overalls, breeches & shorts, not knit or crocheted, of cotton 36,160,171.96 2% 62034210 : Men's or boys' trousers, overalls & shorts, not knitted or crocheted, of cotton 29,820,193.16 2% 22071000 : Undenatured Ethyl Alcohol of an Alcoholic Strength by Volume of 80% or Higher Undenatured ethyl alcohol of an alcoholic strength by volume of 80 per cent vol. or higher 28,600,260.92 1% 19021900 : Other Macaroni 25,559,503.80 1% 62034310 : Men's or boys' trousers, bib & brace overalls, breeches & shorts, not knitted or crocheted, of syn. Fibers 21,291,226.21 1% FIGURE 24: TOP TEN MANUFACTURED EXPORTS FROM ESWATINI, 2021 Source: Eswatini Revenue Services (ERS) – Custom Department In addition to these limited export products in the country’s total manufactures, there is a high concentration of manufactured exports markets. The main export market for Eswatini in 2021 is the Republic of South Africa. Currently, for the top three exports from Eswatini, more than 65% are exported to South Africa, showing high dependence on this market. The other top trading partners are Kenya, Nigeria, Zimbabwe, Mozambique, Tanzania, among others. Figure 25 shows top markets for the top three export manufactured products. 53 Raw cane sugar for refining,in solid form, not containing added flavoring or coloring matter, Mixtures of Odoriferous Other Chemical Products and obtained without centrifugation, with sucrose Substances, 2021 Preparations content 69% to 93%, containing only natural anhedral microcrytals Tanzania Mozambique 5% Zimbabwe 5% 6% Andorra Zambia Zimbabwe 0.013% 0.006% Kenya 6% 7% Nigeria 9% Nigeria Kenya 12% 11% South Africa South Africa South Africa 70% 99.97% 69% FIGURE 25: TOP 5 MARKETS FOR THE TOP 3 MANUFACTURED EXPORT PRODUCTS FROM ESWATINI, 2021 Source: Eswatini Revenue Services (ERS) – Custom Department Data diagnostics show that the Eswatini economy is highly vulnerable to external shocks such as commodity price volatility, global demand shocks, crises such as the COVID-19 pandemic and the Russia-Ukraine war. Moreover, if Eswatini can diversify the economy by producing a variety of products, it can build resilience and withstand vulnerability in a significant way. Eswatini needs to pursue both product and export diversification strategies to enhance economic resilience.

4.3.3 Impediments Impediments to achieve this objective include conflicting policies within government, lack of Research & Development (R&D), poor market intelligence, weak regulations, insufficient information on trade agreements. Other impediments relate to lack of quality and standards, limited coordination and cluster formation among local producers to access export markets.

4.3.4 Contribution to NDGs Diversifying the production structure and export markets, can help to reduce the vulnerability to external shocks (such as demand shocks emanating from the changes in global markets and pandemics such as the recent COVID-19), enhance resilience, contribute to economic recovery, and boost economic stability for Eswatini. In particular, this objective is directly related to NDG 1 “Economic Recovery”.

4.4 Objective 4: Supporting decent wage sectors and build new sector for the creation of quality jobs

4.4.1 Description There is no consensus on what quality jobs involve. They may relate to some or all the following elements: receiving living wage or decent earnings, basic benefits, career-building 54 opportunities, wealth-building opportunities, social benefits, a fair and engaging workplace, and safeguarding workers’ rights. Decent wage sectors are the sectors or sub sectors that offer decent wages6. This could be achieved either within the sector (intra-sectoral shift) or concentrating in new high wage sectors (inter-sectoral shift). This objective seeks to generate quality jobs in productive sectors and emphasise on the creation of stable and quality employment opportunities to boost social cohesion, eradicate poverty and reduce inequality.

4.4.2 Challenges Although the manufacturing sector contributes to job creation in the country (Figure 8), employment in this sector is of poor quality and exhibits low wages. Figure 26 shows in general that the manufacturing sector is the one that pays the lowest average monthly wages compared to the other sectors in the economy (less than 200 US$). 500 450 400 350 300 US$ 250 200 150 100 50 0 Agriculture Manufacturing Construction Mining and quarrying; Trade. Transportation, Public Electricity, gas and Accommodation and Administration, water supply Food, and Business and Community. Social Administrative Services and other Services and Activities FIGURE 26: AVERAGE MONTLY WAGES PER SECTOR IN ESWATINI, 2016 Source: International Labour Organization The textile and apparel sector, for example, does not create high paying jobs and the working conditions of workers are unfavorable. Figure 27 shows the manufacturing wages in Eswatini in 2019 and illustrates that this sector is in fact one of the sectors that registered the lowest wages. As part of this sector, it may be beneficial to engage in more rewarding activities such as clothing design or the development of biomaterials. In general, prioritizing and supporting sectors that offer decent wages and building new sectors should be the focus of this policy. 6 One may want to define decent wages as wages above the minimum wage. 55 9000 8000 7000 6000 Median monthly earnings (Local currency 5000 4000 3000 2000 1000 0 Malt liquors and malt Sugar Vegetables and oils and fats Finishing of textiles Wooden containers Weaving of textiles Finishing of textiles Clay building materials Cement, lime and plaster Porcelain and ceramic.. Treatment and coating of. Medical and dental. Builders’ carpentry and. Preparation and spinning of. Bakery Products Glass and glass products Other chemical products. Other chemical products. Basic iron and steel Articles of concrete…. Plastics production Other pumps, compressors.. Furniture Knitted and crocheted. Soap and detergents.. Electronic components and.. Processing and Preserving.. Parts and accessories for. Fertilizers and nitrogen.. Wearing apparel, except fur.. Pulp. Paper and paperboard Motor vehicles Knitted and crocheted. FIGURE 27: AVERAGE MONTLY WAGES IN MANUFACTURING SECTORS (FOCUS ON THE TEXTILE SECTOR), 2019 Source: Central Statistical Office

4.4.3 Impediments Some of the identified constraints to achieving this objective include impediments related to lack of expertise and skills development, poor infrastructure and technology, lack of information in terms of labour market demand, lack of information on R&D, and high levels of casual and informal labour.

4.4.4 Contribution to NDG Supporting quality jobs and building new decent wage sectors is necessary to improve social cohesion, reduce inequality and reduce poverty. These elements will mainly support the achievement of the national development goal NDG 2 “Sustainable and Inclusive Growth”.

4.5 Objective 5: Promote green industrialization by supporting circular economy, waste management, and renewable energy/energy efficiency initiatives.

4.5.1 Description This objective is about the promotion of green industrialization and for Eswatini it is focused on three components which are: the circular economy, waste management and renewable energy/energy efficiency initiatives. Green industry, as defined by the United Nations Industrial Development Organization (UNIDO) means economies striving for a more sustainable pathway of growth, by undertaking green public investments and implementing public policy initiatives that encourage environmentally responsible private investments. In 56 this regard, this objective seeks to pursue a more environmentally sustainable industrial development path. On one hand, adopting the circular economy approach in Eswatini as part of the desired industrial development will serve to support the transformation of linear business models into circular ones and improve the consumer behavior to shift consumption to more responsible patterns. Moreover, improving the waste management system starts with a correct segregation at the source, collection, transportation, processing, and final disposal of garbage, is pertinent and must be taken into consideration when pursuing industrial development. Mistreatment of solid waste is one of the major issues in the country and is a source of pollution and health issues. Lastly, energy efficiency may be described as the practice of using less energy to generate the same amount of useful output; the use of less energy to perform the same task or produce the same result. Energy efficiency is beneficial as it saves money for businesses and the economy, it increases the reliability of the electricity grid, and provides environmental benefits as well. However, it is important to complement energy efficiency initiatives with the shift toward the use of renewable energy (solar, wind, hydro, waste, etc) to reduce the reliance on fossil fuels and decrease pollution caused by Greenhouse gas emissions.

4.5.2 Challenges It has been proven that the Eswatini economy has over the years displayed a linear economy whereby resources are extracted, produced, consumed and discarded. Material extraction in Eswatini, as mentioned previously, has tripled over the last 50 years. Moreover, the economy shows a positive correlation between economic growth and the consumption of materials and resources. This clearly shows that Eswatini is in pursuit of an unsustainable growth path, hence the need to decouple the economy and consequently pursue a circular economy. Additionally, waste management is a challenge as more than 45% of the waste generated in the country is burnt and the recycling of solid waste has only reached 29%, limiting the possibility to give materials a second life use. Figure 28 illustrates the state of waste management in Eswatini. 57 Net disposed waste 26% 61,843 tonnes Burnt waste 45% 106,413 tonnes Recycled waste 29% 70.086 tonnes FIGURE 28: WASTE MANAGEMENT IN ESWATINI, 2017 Source: Centre for Science and Environment. Solid waste management in Eswatini. Challenges and opportunities Finally, according to the UNDP State of the Environment Report for Eswatini (2020), renewable energy as a share of Total Final Energy Consumption in the country represented 60% compared to the 20% at a world level (Figure 29). This is mainly driven by biomass and hydro sources, even though there is a high potential of solar sources in Eswatini. 100 Eswatini 80 %Shore in TFEC 60 40 Global Trend 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2014 2015 ©International Energy Agency (IEA) and UN Statistics Division (UNSD) FIGURE 29: RENEWABLE ENERGY SHARE IN TOTAL FINAL ENERGY CONSUMPTION (TFEC) (%), 2000-2017 Source: Review and Update of the State of Environment Report – Ministry of Tourism and Environmental Affairs- UNDP 58 Despite these apparent good figures7, Eswatini continues to import about 70% of its electricity from neighboring countries such as South Africa and Mozambique which is problematic as it makes the country to remain vulnerable to energy supply and highly dependent on external energy sources.

4.5.3 Impediments Impediments are the insufficient knowledge and awareness of the benefits of green industrialization and the circular economy. Also, the lack of financial resources to increase renewable energy generation in the country and construct the required infrastructure. Lack of policies, laws and regulations to prevent old attitudes and incentivize producers and consumers to pursue environmentally friendly practices are also a problem in Eswatini.

4.5.4 Contribution to NDGs This objective is directly linked to NDG 3 “Environmental sustainability”. The attainment of this objective will ensure that Eswatini pursues its structural transformation through the Industrial Policy by ensuring that development is not achieved at the expense of environmental sustainability, and it will help Eswatini to achieve Sustainable Industrialization.

4.6 Trade-Offs between Objectives Overall, the five defined objectives complement each other to set out a combination of elements that help to establish the type of industrialization that Eswatini is willing to pursue in the following years. Strengthening local value chains, a shift from low to high value-added activities, and the promotion of quality investments, will ensure that Eswatini benefits from the opportunities that the industrial sector offers. At the same time, this will allow the involvement of vulnerable groups in the economic process such as women, youth, MSMEs and people living with disabilities, while ensuring the creation of quality jobs. Furthermore, new local high value-added activities are also a foundation to foster the diversification of products and markets to reduce the vulnerability of the economy, but also ensuring the incorporation of environmental sound practices. Based on this, stakeholders believed that there are not significant trade-offs between the objectives except for Objective 5. During the consultation process it was clear that Objective 5 is the one that has a higher risk of being compromised as some stakeholders are not yet convinced that economic growth can be simultaneously achieved while also safeguarding the environment and pursuing circular economy initiatives. 7 The high value could be explained by the fact that Total Final Energy Consump2on only captures energy consumed by end users from the industry, residen2al, transport and services sector. The energy sector that produces electricity is not covered, and this one relies mainly on fossil fuel in Eswa2ni. 59 5. INDUSTRIAL POLICY INTERVENTION AREAS AND PRELIMINARY INSTRUMENTS To define Intervention Areas (IAs) for the Industrial Policy, a stakeholder consultation workshop was held in Eswatini on March 9th and 10th. Based on the EQuIP methodology, as a first step, the stakeholders identified the main impediments / preconditions that need to improve in the productive sector to achieve the 5 defined IPOs. Further analysis was done by the Core Team who complemented the identified impediments, obtaining a total number of 14 impediments that were transformed into the following IAs: • Improve the effectiveness of the allocation of finance to local producers, • Promote associativity and arrangements between local producers, • Increase R&D and promote innovation, • Improve infrastructure (physical and digital), • Boost technology adoption, • Improve access to information (develop market information), • Improve and match skills to the needs of the manufacturing sector, • Increase the level of formalization of MSME, • Improve the regulatory framework to ease the manufacturing activity, • Attract quality Foreign Direct Investment (FDI), • Increase vertical integration in national value chains, • Improve standardization, metrology, conformity assessment and accreditation, • Expand alternative renewable sources locally produced, • Increase and improve recycling, As a second step, quantitative and qualitative information was obtained to understand the current performance of the 14 IAs and identify the main challenges for an evidence base analysis. Continuing with the process, another consultation workshop was held in Eswatini on April 28th and 29th to discuss the findings with the stakeholders and complement the assessment of IAs based on available instruments. This analysis was done relaying on an inventory of policy instruments developed by the Core Team. While the 14 IAs are important to achieve the IPOs and contribute to the selected NDGs of Eswatini, it is worth mentioning that selectivity, as part of a policy process, is crucial to narrow the intervention and maximize the effectiveness by focusing on key issues, economize on limited resources available, and develop a clear intervention logic that outlines how the government support will achieve the desired objectives. Therefore, a process of prioritization of key IAs was developed by the Core Team with the technical support from GPI. The main criteria used was: 1) identify IAs whose improvement 60 can address at least 2 IPOs, 2) IAs that can address the issue of other IAs (e.g attract quality FDI can be tackled through the improvement of the regulatory framework to ease the manufacturing activity), and 3) IAs that have a Policy or Strategy and a specific institution to support its improvement. Figure 30 shows the intervention logic considering the 7 IAs selected based on the previous criteria. Enhanced and Dynamic Well Managed Natural National Good Governance, Private Sector Supporting Resources and Development Goals Economic Recovery and Sustainable and Inclusive Environmental = Impact Fiscal Stability Growth Sustainability Maximize domestic Boost value Enhance economic Supporting decent Promote green benefits by addition in resilience by wage sectors and industrialization by strengthening resource-based diversifying build new sectors supporting circular national value sectors to production and for the creation of economy, waste Industrial Policy chains and ensure inclusive export markets quality jobs management and Objectives = increase domestic industrialization renewable energy/ Outcome production energy efficiency capacities initiatives Objective 1 Objective 2 Objective 3 Objective 4 Objective 5 1. Improve the 2. Improve Maximize Boost value Enhance Supporting Promote green effectiveness of access to domestic benefits addition in economic decent wage industrialization by the allocation of information by strengthening resource-based resilience by sectors and build supporting circular finance to local national value sectors to diversifying new sectors for economy, waste Industrial Policy Producers chains and ensure inclusive production and the creation of management and Objectives = increase domestic industrialization export markets quality jobs renewable energy/ Outcome production energy efficiency capacities initiatives Support Objective Support Objective Support Objective Support Objective Support Objective Support Objective Support Objective 1, 2, 3, 5 2, 3, 5 1, 2, 3, 5 1,4,5 1, 2 2, 3 2,5 FIGURE 30: INTERVENTION LOGIC – 3 LEVELS

5.1 Intervention Area 1: Improve the effectiveness of the allocation of finance to local producers

5.1.1. Relation to policy objectives Objective 1. Maximize domestic benefits by strengthening national value chains and increase domestic production capacities: • To strengthen the industrial sector of Eswatini there is a need to improve the allocation of finance by the different actors of the economy. To achieve the above objective there is a need for financial institutions to finance production equipment, 61 technologies, the development of input materials currently imported and land infrastructure. From the bankers’ perspective, the problem is not so much a lack of financial resources but a deficiency of effective demand for credit. Many MSMEs, especially microenterprises, are unable to submit basic financial information about their business – either because they operate in the informal sector or are incapable of demonstrating a good understanding of their business and its prospects. From the entrepreneur’s view, especially MSMEs, the issue seems to be that banks are biased in their evaluation of requests for credit: “they see problems rather than prospects”. Considering the above statements there is a need to improve the available instruments and make finance accessible and affordable. Also, financial institutions should be knowledgeable of sectors that have a potential to make profit. • Improving the financial landscape will bring the possibility of strengthening value chains and increasing domestic production to maximize local benefits. Objective 2. Boost value addition in resource-based sectors to ensure inclusive industrialization • To achieve this objective, it is crucial to improve the allocation of finance to boost value addition and develop new agro-processing activities that can bring better benefits. Although a Eswatini National Industrial Development Corporation (ENIDC) was established to finance agro-processing sectors there is still not much production or processing that has been financed due to lack of knowledge or demonstration of understanding of the businesses on these sectors. This perspective places the onus on business development and support services, and calls on the Government to boost institutional capacity to provide such support to businesses especially the MSMEs. Objective 3. Enhance economic resilience by diversifying production and export markets • Improving the effective allocation of finance is key to support the development of more products and create new ones. The lack of diversification at a country level is reflected in the characteristics of MSMEs. These are concentrated in few and low value-added products like sugarcane cultivation, with limited growth prospects. • Over 90 per cent of the estimated 68,536 MSMEs are qualified as “low impact” enterprises and most of them are informal. Therefore, this unattractive performance has a negative effect on the financial institutions when allocating financial resources. Objective 5. Promote Green Industrialization by supporting circular economy, waste management and renewable energy and energy efficiency initiatives • Improving the effective allocation of finance can support the incorporation of a circular economy, waste management and renewable energy and efficiency strategies into the production processes to make them more efficient and competitive. Some of these strategies have not been afforded the opportunity to be financed due to the lack of understanding of their profitability. But now to achieve this objective there is 62 need to create awareness in the financial institutions on the economic and environmental benefits of the circular economy, waste management, renewable energy and energy efficiency initiatives.

5.1.2 Rationale of the IA The amount of credit from national banks allocated to private sector as a share of total GDP can give an indication (proxy) of how strong the bank system is to make funds available for the private sector, and also, if the private sector is effectively accessing the funds. Therefore, this main indicator can be used to understand the current situation of financial allocation in Eswatini.

5.1.3 Current Performance In 2020, Eswatini registered 20% of credit allocated to the private sector as a % of GDP. When compared to benchmarking countries such as Brazil (70%), Mauritius (92%) and Botswana (40%), the country has the lowest share and has not increased since 2012, not even during COVID 19, like in the other countries. The limited access to finance lowers the opportunity of the private sector to invest in more production, develop new activities and products, invest in better technologies, etc. In terms of MSME financial access in Eswatini, the International Finance Corporation through its MSME Financial Gap Report shows that the unattended MSMEs´ financial demand was equivalent to 45% of GDP in 2017. This share is the highest compared to other countries such as Brazil (35%), Botswana (19%) and Mauritius (4%). Moreover, there is a gender gap in terms of financial inclusion in Eswatini for business owners of MSMEs according to the FinScope. Micro, small and medium enterprises (MSME) survey of 2017. The level of exclusion is 12% of female MSMEs owners compared to 10% of male MSMEs owners. Also, there is a higher dependency of female MSMEs owners of accessing informal financial services (13% compared to 8%).

5.1.4 Underlying constraint based on available instruments This section is based on the assessment of some available instruments for financial allocation in Eswatini that needs to be improve or new ones that needs to be created. Table 4 shows potential instruments that have been identified preliminary between the Core Team of MCIT and stakeholders during the consultation process. Overall lack of information dissemination on the number of financial instruments available to entrepreneurs. Therefore, they find it difficult and time consuming to identify the right financial support they could benefit from. Moreover, the type of financial instruments available are not in any way addressing their needs and beneficiaries would benefit from complementary instruments to better leverage 63 financial support. For instance, most grants seem inefficient since entrepreneurs get trained to access them, but they lack business skills to develop medium-term viable projects. Group lending leads to inefficiencies since group formation tends to be organised by third parties, which only see association to access loans. Therefore, groups are not always coherently formed and skilled entrepreneurs tend to shy away from getting such loans to avoid taking high risks, which also reduces their ability to grow their business. Instruments Name Instrument Status / Description of the Related Industrial Comment Instrument Policy Objectives Credit Guarantee scheme: Existing. Need to CREDIT GUARANTEE Objective 1 Small Scale Enterprise improve the SCHEME: The Small loan guarantee scheme dissemination of Scale Enterprise Loan Export credit guarantee information Guarantee Scheme scheme (SSELGS) administered through the Central Bank to provide credit guarantee to viable small businesses which would not obtain credit from the banks due to a lack of collateral Youth Enterprise Existing. There is a need Objective 3 and 5 Revolving Fund to improve the dissemination of information and need to be capitalized Eswatini National Existing. The main issue This fund is meant to Objective 2 Development Corporation with this scheme is fund business in the Fund funding. It needs to agro-processing increase. 100 million seem to be sufficient to increase the impact of the programme MSME Agricultural New. Need to fund Eswatini Agricultural Objective 3 Development Fund8 identified value chains Development Fund to from the resource- boost investments in based sector agricultural infrastructure and capacity building 8 The only financial product that is available for smallholder farmers is the one that is financing the sugar farmers through the assistance of the Eswatini Water & Agricultural Development Enterprise (ESWADE) who offers capacity building for sugarcane farmers. There is also the Financial Inclusion and Cluster Development (FINCLUDE) that also act as a guarantee for smallholder farmers in identified sectors. This scheme is managed by the Centre of Financial Inclusion (CFI). 64 Financial scheme for New. Need to fund Finance which will Objeclve 2 women and youth produclve inilalves adopt an inclusive lead by women and target approach youth targelng married and unmarried youth, (18- 35 yrs) and women headed households TABLE 4: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 1 Source: Industrial Policy Core Team from MCIT

5.2 Intervention Area 2: Improve access to information

5.2.1. Relation to policy objectives: Objective 2: Boost value addition in resource-based sectors to ensure inclusive industrialization • Getting relevant information on funding opportunities, in particular in relation to resource-based sectors, may enable entrepreneurs to engage in activities with higher value added. They may also access useful information to differentiate or engage in relevant sectors of the value chains with high potential. Objective 3: Enhance economic resilience by diversifying production and export markets • Market intelligence can also highlight opportunities for diversification (products and markets) • Better understanding how local and international markets are performing enable to respond to changes in markets’ demand. • Information on laws, regulations and trade agreements may enable entrepreneurs to make more informed decisions. Objective 5: Support circular economy, waste management and renewable energy/ energy efficiency initiatives to promote green industrialisation: • Increased access to relevant information can enable stakeholders to identify business opportunities in relation to recycling.

5.2.2 Rational of the IA The availability of existing information to relevant stakeholders in a country reflects the capacity of a country to empower its citizens for them to make informed and evidence-based decisions. Information can relate to potential opportunities to develop their businesses such as (i) access to funding or business or (ii) market intelligence. 65

5.2.3 Current Performance A precondition to develop efficient information systems and information platforms for decision-making is to have access to the right technical capacity. Poor statistical capacity can lead to systems that provide limited and biased information which gives rise to inefficient decision-making. The World Bank Indicator on statistical capacity9 shows that Eswatini is performing relatively well compared to its peer countries such as Botswana and the Seychelles. The important improvements in statistical capacity from 2016 have enabled the country to display stronger statistical capacity than Botswana and to catch up with the Seychelles. Despite relatively good statistical capacity, Eswatini needs to improve access to information to relevant stakeholders. There are currently very few market intelligence digital platforms such as the agricultural platform and the trade information system. Discussions with stakeholders have highlighted that a market intelligence platform gathering market intelligence on industry is needed to help local companies and entrepreneurs to identify opportunities. Finally, to improve waste management such as recyclingand create economic opportunities, a waste matchmaking platform would enable waste producers to derive economic income from their waste, while creating opportunities at the local level to value waste through transforming it to make new products.

5.2.4 Underlying constraint based on available instruments: This section is based on the assessment of instruments related to information and market intelligence needs that are not already provided. Table 5 shows potential instruments that have been identified preliminary between the Core Team of MCIT and stakeholders during the consultation process. Instruments Name Instrument Status / Descrip3on of the Related Industrial Comment Instrument Policy Objec3ves Informa3on New Forum on the patenlng Objeclves 2 and 3 dissemina3on tool to process, or webpage raise awareness displaying a document paten3ng processes with key steps 9 The Sta2s2cal Capacity Indicator is a composite score assessing the capacity of a country’s sta2s2cal system. It is based on a diagnos2c framework assessing the following areas: methodology; data sources; and periodicity and 2meliness. Countries are scored against 25 criteria in these areas, using publicly available informa2on and/or country input. The overall Sta2s2cal Capacity score is then calculated as a simple average of all three area scores on a scale of 0-100. 66 Informa3on New The following funding Objeclves 2, 3 and dissemina3on tools on schemes should be 5 funding opportuni3es displayed: (which could be - Small Scale Enterprise forums or a plaaorm) loan Guarantee Scheme - Youth revolving fund - New funding schemes (e.g. for women) Industrial plaaorm New. Needs to be A planorm that Objeclve 2 and 3 develop within the centralizes stalslcal MCIT informalon about the trade and produclve performance of the manufacturing sector of Eswalni, as well as indicators on structural drivers that influence the level of compellveness and indicators for market intelligence TABLE 5: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 2 Source: Industrial Policy Core Team from MCIT

5.3 Intervention Area 3: Improve and match skills to the needs of the manufacturing sector

5.3.1 Relation to Policy objectives Objective 1. Maximize domestic benefits by strengthening national value chains and increase domestic production capacities. • Skills development and matching skills to the needs of the manufacturing sector will enable participation in segments of the value chain more beneficial, increase production capacities and strengthen the national value chain. This means that domestic benefits will come as a result. Objective 2. Boost value addition in resource-based sectors to ensure inclusive industrialization. • Skilled and well-trained workforce is a prerequisite condition for increasing and enabling value addition. Specifically, skills development will support increase in productivity, and also, the participation of the marginalized groups in industrialization (women, youth, MSMEs and people living with disabilities) who will be provided more opportunities based on the new qualifications. 67 Objective 3. Enhance economic resilience by diversifying production and export markets. • To enhance the resilience of the economy, there is a need for skills development. Skills are essential for enabling production of more and new sophisticated products whose prices are less volatile compared to commodities. Skills will also help to identify, negotiate and access new markets to diversify exports. Objective 5. Promote green industrialization by supporting circular economy, waste management and renewable energy/ energy efficiency initiatives. • Skills development will promote and support the adoption of sustainable activities. Developing green skills can promote sustainable and resource-efficient industrialization. Specifically, green skills are important to help the adaptation of products, services and processes to the transformation due to climate change and environmental requirements.

5.3.2 Rational of the IA: The ratio of the labour force with advanced education is an indication of the capacity of a country to engage in high value activities. Graduates in Science, Technology and Mathematics (STEM) can engage in and create value-added activities through innovation. On the other hand, the share of youth Not in Education, Employment and Training (NEETs) reflects potential loss in production and productivity.

5.3.3 Current performance Adequate skilled manpower and high labour productivity are critical to industrial development and competitiveness. Education and skills development therefore play a critical role in socio-economic development. It provides opportunities for growth, poverty reduction, employment, productivity and human development. The Ministry of Education and Training and the Ministry of Labour and Social Security are responsible for human capital formation and skills development in Eswatini. The TVET policy was adopted to create a technical and vocational education and skills development system that is responsive to market demand, and training system and mechanisms for formal, non- formal and informal qualifications. Eswatini has a relatively high literacy rate of 89% and with 83% of labour the force with advanced education. This implies that the workforce in Eswatini is skilled and easily trainable. However, the economy still suffers from shortage of critical skills to drive industrialisation. There is a mismatch between the skills produced in the higher learning institutions and the skills demanded by industry. Moreover, Eswatini has a high share of youth that is not in education, employment or training (NEET). World Bank data show that 36% of youth was NEET in 2019, meaning that the potential loss in production and productivity is high in Eswatini. Additionally, Eswatini 68 experiences a very low percentage of STEM graduates. In 2006 for example, Eswatini recorded 4.06% STEM graduates, compared to 0% recorded in 2015. The current training skills development programs are not properly aligned with the country’s industrial development needs. The vocational and institutions of higher learning are underfunded. The Government needs to commit increased resources to technical, vocational and commercial education and training to develop critical skills and manpower to meet the country’s industrial development needs. For instance, digital and green literacy including problem solving skills are becoming increasingly important in promoting inclusive and sustainable industrialisation. Other benefits associated with skills development is increased employability and participation of the population in high paying jobs.

5.3.4 Underlying constraints based on available instruments This section is based on the assessment of current instruments for human capital formation and skills development that needs to be improved or new ones that need to be created. Table 6 shows potential instruments that have been identified preliminary between the Core Team of MCIT and stakeholders during the consultation process. The evaluation of the existing tools and methods used for human capital development and skill enhancement in the education sector reveals a significant misalignment with the skills required in the country. As a result, there is a pressing need not only to harmonize these tools but also to align the curriculum and technical courses with the skills demanded in the manufacturing sector. Instruments Name Instrument Status / Descrip3on of the Related Industrial Comment Instrument Policy Objec3ves Industrial and Exislng. Among others, rules the Objeclve 1, 2, 3 and Voca3onal Training Act establishment of Industrial 5 192 and Vocalonal Training Board, its dules and funclons. Also, rules training levies and the establishment of an Industrial and Vocalonal Training Fund Higher Educa3on act, Exislng Among others, rules the Objeclve 1, 2, 3 and 2013 establishment of a Higher 5 Educalon Council, its powers, and funclons Curriculum and New Educalon system to Objeclve 1, 2, 3 and technical courses ensure that the skill 5 alignment to the produced by local training industry demand insltulons meet the demand requirements of the industry TABLE 6: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 3 69 Source: Industrial Policy Core Team from MCIT

5.4 Intervention Area 4: Improve the regulatory framework to ease the manufacturing activity

5.4.1. Relation to Policy objectives Objective 1: Maximise Domestic Benefits by Strengthening National Value Chains and Increase Domestic Production Capacities • Improving the regulatory framework to increase the ease and the cost of doing business will encourage the private sector to open businesses and therefore increase the number and the size of companies, strengthen national value chains and increase domestic production capacities. Objective 4: Support decent wage sectors and build new sectors for the creation of quality jobs • Increasing the ease of the manufacturing activity through regulations in decent wage sectors will enable the shift from traditional low income earning jobs and lead to higher quality jobs. Furthermore, regulating FDIs for example stipulating on employee training programmes and technology transfer can also increase the number of quality jobs. Objective 5: Promote green industrialization by supporting circular economy, waste management and renewable energy/ energy efficiency initiatives - Regulation can play a role in influencing the adoption of circular economy, waste management practices, renewable energy and energy efficiency initiatives. These will help to reduce production costs, improve the competitiveness level of the manufacturing sector and make it more efficient, while driving towards green industrialization.

5.4.2 Rationale of the IA: The availability of an updated regulatory framework that responds to the needs of a country in the productive sector and promote business development in a responsible way reflects the capacity of a country to incentivize entrepreneurship, increase the number and size of companies in the manufacturing sector (creating opportunities to venture into higher quality jobs) and impact competitiveness. Regulation can further play a role in influencing the adoption of the circular economy, waste management and renewable energy as well as energy efficiency initiatives.

5.4.3 Current Performance: Eswatini’s manufacturing sector is a significant contributor to the economy in terms of output and employment and has a high Manufacturing Value Added per capita when compared to a 70 number of countries in the SADC region. Despite this high contribution towards GDP and high MVA per capita and contribution to employment generation, investment in the sector has not proven to maximize local benefits and strengthen local value chains. Moreover, there are few sectors which make a significant contribution to the MVA that are not necessarily high value sectors. The low ease of doing business and limited updated regulation towards enforcing contracts, protecting low minority investors, starting a business and getting electricity, as well as accessing a high cost electricity, are main issues that are enablers in manufacturing which need to be addressed.

5.4.4 Underlying constraint based on available instruments: This section is based on the assessment of current instruments related to the regulatory framework that show that they are not specific to increasing and ease the manufacturing activity. Table 7 also shows a potential instrument that needs to be updated to stipulate that foreign investment links to local firms and is embedded in the local economy. This potential instrument has been identified preliminary between the Core Team of MCIT and stakeholders during the consultation process. Instruments Name Instrument Status / Description of the Instrument Related Industrial Comment Policy Objectives Citizens Economic Newly enacted law The Act seeks to empower Objective 1 and 4 Empowerment Act (Passed as law June Eswatini businesses through 2023) but not specific economic empowerment for manufacturing measures such as preferential procurement, promotion of local and foreign investment opportunities in specific sectors that will be reserved for citizen-owned companies and regional development inclusive of establishment of cooperatives and other community-based projects National Investment Existing. Needs to be Policy that promotes FDI to Objective 1 and 4 Policy reviewed to stipulate guarantee benefits for the that FDI links to local economy and local producers firms and is embedded in the local economy TABLE 7: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 4 Source: Industrial Policy Core Team from MCIT 71

5.5 Intervention Area 5: Increase vertical integration in national value chains

5.5.1. Relation to policy objectives Objective 1. Maximize domestic benefits by strengthening national value chains and increase domestic production capacities. • Increasing vertical integration in national value chains will help Eswatini to create backward and forward linkages, therefore strengthening national value chains. • This can support the development of new and more beneficial segments (e.g. design) and products and also lower the dependency of imported inputs. This will help to increase and retain the benefits within the local economy. Objective 2. Boost value addition in resource-based sectors to ensure inclusive industrialization. • Increasing vertical integration in national value chains in specific sectors within the manufacturing sector will promote the incorporation of value addition. • This will allow Eswatini to support the processing of raw materials and generate more benefits by exporting higher value-added products, while involving targeted groups (e.g. MSMEs, youth, women and people living with disabilities) that are engaged in the productive activity.

5.5.2 Rationale of the IA The share of imports of raw and semi-finished materials measured as a share of finished exports in specific sectors provide an indication of how much a sector is dependent on imported inputs and the level of vertical integration locally. Moreover, the share of raw and semi-finished products in total exports provide evidence of the level of value addition (processing) in a specific sector, and also the level of vertical integration.

5.5.2 Current Performance Reducing the dependency on imported raw material that can be produced locally, but also increase value addition through processing is critical to increase vertical integration and achieve a robust industrial development. The example of the textile and apparel sector in Eswatini was mentioned previously, where statistics show that in 2020 raw and semi-finished material, imported mainly from the Republic of South Africa, represented 54% of the finished textile exports. Opposite to this, trends in other manufacturing subsectors show that a high proportion of exports comprise of raw and semi-finished material in total exports. An example of this can 72 be seen in the wood, chemicals, minerals, fish, sugar, spices and food and beverages subsectors, where almost 100% of the exports are in raw and semi-finished form. This is an indication that Eswatini shows a low level of value addition. There is need to cover more segments of the value chains to create more value and ensure that it remains in the country.

5.5.3 Underlying constraint based on available instruments This section is based on the analysis of the information related to instruments for promoting vertical integration in national value chains. The assessment revealed that several policy instruments have been implemented to promote manufacturing activities. However, these instruments are limited in promoting and supporting vertical integration. Table 8 also shows a potential new instrument that can be developed to promote vertical integration and has been identified preliminarily between the Core Team of MCIT and stakeholders during the consultation process. Instruments Instrument Descrip3on of the instrument Related Industrial Name Status / Policy Objec3ves Comment Produc3on Exis2ng An instrument created to boost the Objec2ve 1 Incen3ve produc2on capacity and compe22ons of Scheme (PIS) the tex2le and apparel sector. Special Exis2ng The act was promulgated to bolster Objec2ves 2 Economic economic development and job crea2on Zones Act (SEZ by providing special incen2ves to firms Act) 2018 opera2ng within a special economic zone. Such incen2ves include a 20-year tax holiday, and exemp2ons from foreign exchange controls for ac2vi2es performed in the special economic zone Development Exis2ng A tax concession on corporate tax up to a Objec2ves 1 and 2 Approval maximum rate of 10% instead of 27.5% for Order (DAO) a period of not exceeding 10 years including exemp2on from withholding tax on dividends during the ten years. This is applied to newly approved investments, businesses or enterprises in the manufacturing, mining, interna2onal services, and tourism sectors Factory Shells Exis2ng Meant to provide readily available factory Objec2ve 1 space for firms in the Industrial Exis2ng Non-finance incen2ve providing serviced Objec2ves 1 and 2 infrastructure industrial land (infrastructure) to domes2c (Industrial and foreign investors at a below market Estates value(subsidized) Development programme) Exemp3on on Exis2ng It provides exemp2on on import du2es for Objec2ves 1 and 2 imported machine and equipment and other 73 machinery intermediate goods, imported for and manufacturing of export products. equipment Customs Du3es Agro-Industrial New Develop a designated area where Objec2ves 1 and 2 Park agricultural and industrial ac2vi2es will be integrated to enhance produc2vity, value addi2on and market access TABLE 8: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 5 Source: Industrial Policy Core Team from MCIT

5.6 Intervention Area 6: Improve standardization, metrology, conformity assessment and accreditation.

5.6.1. Relation to Policy objectives Objective 2. Boost value addition in resource-based sectors to ensure inclusive industrialization. - Value addition can be incorporated through quality improvement in products and services. Therefore, for Eswatini to produce goods that comply with international standards can be beneficial to improve quality and differentiate from competition. This will allow to compete in a better position in both, local and external markets. Objective 3: Enhance Economic resilience by diversifying production and export markets: - To enhance economic resilience through diversification in production and exports markets the country needs to improve compliance to quality standards and ease the accreditation process for testing and calibration services. The costs of compliance to quality and standards has to be affordable to MSMEs and the accreditation process for testing and calibration services should be simpler.

5.6.2. Rationale of the IA The number of products certified in the manufacturing sector that have international recognition give an indication of the capacity of the country to improve compliance to quality standards and increase value addition but also exports. The number of enterprises and MSMEs certified in quality management systems in the manufacturing sector also give an indication of the capacity of the country to improve compliance to quality standards and increase value addition but also exports. 74 Improving compliance to quality standards and easing the process for testing and calibration services especially for MSMEs, will enhance Eswatini’s economic resilience by enabling the diversification of production and export markets.

5.6.3. Current performance The Eswatini Standards Authority (SWASA) offers certification for products and management systems that are accredited. However, MSMEs cannot access this service due to high costs. In addition, Eswatini has limited accredited laboratories and for the products that cannot be certified in the country (with an international recognition), companies have to certify their products outside which is very expensive. SWASA has developed a “local access market certification scheme”, specifically for MSMEs called, Ingelo Certification Scheme: The Scheme is aligned to International Standards. SWASA has certified one (1) product in the manufacturing sector, and the certification of three (3) more products are in process. Six (6) companies have been certified in quality management systems and three (3) companies in food safety management systems in the current year to date. In terms of accreditation, the National Accreditation Focal Point (NAFP) in Eswatini was established in 2008. National Accreditation Focal Points were established in SADC Member States who do not have a National Accreditation Body and are using the Multi-Economy Accreditation Body called the Southern African Development Community in Accreditation Services (SADCAS) to accredit their conformity assessment bodies. There is limited availability of suitably accredited laboratories and inadequately developed conformity assessment service provision in the country. This has resulted in trading partners not having much confidence in the results produced regarding products made in Eswatini. The country has approximately 120 laboratories of which only 11 are accredited: Seven (7) are testing laboratories, one (1) is a calibration laboratory and three (3) are medical laboratories. The Eswatini Standards Authority Certification Scheme is also accredited.

5.6.4. Underlying constraints based on available instruments This section is based on the analysis of the information related to instruments for improving standardization, metrology, conformity assessment and accreditation. The assessment revealed that at the moment there is one instrument significantly useful for the purpose of this Industrial Policy shown in Table 9 (Ingelo Certification Scheme). This Table also mentions a potential new instrument that can be developed to improve the quality of products among MSMEs and has been identified preliminarily between the Core Team of MCIT and stakeholders during the consultation process. 75 Instruments Name Instrument Status / Description of the Related Industrial Comment instrument Policy Objectives Ingelo Cer3fica3on Existing Local access market Objective 2 Scheme cerlficalon scheme specifically for MSMEs that is aligned to internalonal standards Technical training New Training of MSMEs in Objective 2 and 3 program for MSMEs to priority/pilot sectors improve the quality of to ensure compliance products and processes to international standards as well as enhance Eswatini’s economic resilience by enabling the diversification of production and export markets TABLE 9: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 6 Source: Industrial Policy Core Team from MCIT

5.7 Intervention Area 7: Expand alternative renewable sources locally produced

5.7.1. Relation to policy objectives Objective 2. Boost value addition in resource-based sectors to ensure inclusive industrialization • Expanding the use of alternative renewable energy sources (hydro, wind and solar) will support that production processes in Eswatini become more sustainable. Specifically, it will lower the negative externalities associated with the transformation processes of manufacturing by using cleaner energy. This means that boost value addition through processing does not have to come at the expense of the environment. Objective 5. Promote green industrialization by supporting circular economy, waste management and renewable energy/ energy efficiency initiatives and • Expanding the use of alternative renewable energy sources will help to reduce production costs, improve the competitiveness level of the manufacturing sector and make it more efficient, while driving towards a green industrialization. 76 • The increase of alternative renewable energy production will also contribute to reducing the vulnerability that Eswatini exhibits caused by the energy import dependency from South Africa, encouraging a more efficient green industrialization.

5.7.2 Rationale of the IA: Renewable energy as a share of Total Final Energy Consumption (TFEC) gives an indication of the amount of clean energy used in the country (by different sectors of the economy) and the remaining opportunity to transform the energy matrix of the country. Providing clean energy and changing the energy matrix is crucial to contribute with climate action by reducing the Greenhouse Gas Emissions, but will also open opportunities for countries like Eswatini with abundant renewable power resources to produce it. Such sources can provide energy at a lower cost compared to fossil-fuel, which in turn can lower costs to access energy for enterprises, enhancing the overall competitiveness of the manufacturing sector. Total Final Energy Consumption (TFEC) by sector gives an indication of the contribution of each sector in the energy use of the country. Although, TFEC only considers the total energy consumed by end users, (e.g., residential sector, industry, agriculture, transport), excluding the energy used by the energy sector to produce electricity, including for deliveries and transformation.

5.7.3 Current Performance The TFEC in Eswatini during 2018 was 1Mtoe. Industry was the sector with the highest energy consumption (42% of total TFEC) and also one of the sectors that drives ambient air pollution, although a large proportion comes from biofuel and waste. Despite this, industry can benefit by using more renewable energy in its production process, since this implies lower costs and lower environmental damage. The residential and transport sector contributed 28% and 19% in TFEC respectively, but the latter relies entirely on oil as a source. In general, Eswatini´s available renewable energy resources represented 60% of the TFEC compared to 20% in the global trend. This is mainly driven by biomass & hydro sources, specially the one produced through the waste generated in the wood and sugar sector (bagasse). This positive trend is related to the fact that TFEC only considers the total energy consumed by end users (e.g., residential sector, industry, agriculture, transport). Knowing that approximately 80% of the electricity supply in Eswatini is imported from South Africa,10 which is based on oil and coal, data suggests that the energy matrix of the country still have an important reliance on fossil fuel.11 Also, this import dependency has created a strong vulnerable situation for all the sectors in the economy, mainly for the industrial sector 10 Electricity supplied was imported from South Africa’s Electricity Supply Commission (ESKOM) and the Southern African Power Pool (SAPP). 11 The Energy balance shows that biomass (58%) had the largest share in Eswatini's energy mix in 2017, however fossil fuel sources played an important role. Petroleum contributed 28%, electricity 9%, coal 4%, hydro 1% and solar less than 1%. 77 (the biggest consumer), encouraging the relevance of having wider local production and access to alternative renewable energy sources such as solar energy. The potential benefits associated with this are not just associated with a drastic reduction of GHE, but also to a reduction in the production costs, considering that renewables will be cost- competitive in the medium-long run. Despite this, it is important to highlight that the investment required to produce more renewable energy is significant, therefore the importance of having good instruments to support this type of initiative.

5.7.4 Underlying constraint based on available instruments: This section is based on the analysis of some instruments available to support the implementation of renewable energy initiatives. The assessment suggests that there is a need to align them more to the green legislation of the country as shown in Table 10. In some other cases, it shows that there are other instruments that have been defined in different policies and strategies like the Independent Power Producer Policy and the National Energy Policy but require to be implemented and be more sector specific. Finally, it also mentions potential new instruments that can be developed to encourage the expansion of alternative renewable energy sources locally produced and that have been identified preliminarily between the Core Team of MCIT and stakeholders during the consultation process. Instruments Name Instrument Status / Descrip3on of the instrument Related Comment Industrial Policy Objec3ves Environmental Audit, Exis2ng Needs to be aligned to the green Objec2ve 5 Assessment and Review legisla2on of the country Regula3ons, 2022 Incen3ves for renewable Exis2ng Men2oned as instruments to Objec2ve 5 energy equipment (import promote the produc2on of du3es, tax exemp3ons, renewable energy. This is part of VAT refunds) the Independent Power Producer Policy Green energy cer3fica3on New Green cer2ficate for companies Objec2ve 2 and or individuals for genera2ng 5 electricity from a green resource to promote the uptake of renewable energy Tax incen3ves to New A specific tax incen2ves for Objec2ve 2 and businesses and individuals individuals and companies 5 who invests in renewable which aimed at the promo2on energy projects of renewable energy genera2on in the country TABLE 10: IDENTIFIED INSTRUMENTS RELATED TO THE INERVENTION AREA 7 Source: Industrial Policy Core Team from MCIT 78 6. PRESELECTED POTENTIAL INSTRUMENTS – PILOT ACTION PLAN Based on the instruments that were mapped and suggested in the previous section, as part of the 7 IAs, the Core Team with the technical support from GPI, preselected 9 potential key instruments that can be designed or improved to be implemented on an initial phase. These instruments were preselected considering that they are: 1) complementary between them, 2) tackle main issues discussed during the consultation process, and 3) constitute the basis for the implementation of other policy instruments in the medium term. Figure 31 shows the intervention logic considering the 9 potential instruments based on the previous criteria. National Enhanced and Dynamic Private Sector Well Managed Natural Development Goals Good Governance, Economic Supporting Sustainable and Inclusive Resources and Environmental = Impact Recovery and Fiscal Stability Growth Sustainability Promote green Industrial Policy Maximize domestic Boost value addition in Enhance economic Supporting decent wage industrialization by benefits by strengthening resource-based resilience by diversifying sectors and build new supporting circular Objectives = national value chains and Sectors to ensure inclusive production and export sectors for the creation of economy, waste Outcome increase domestic industrialization markets quality jobs management and production capacities renewable energy/ energy efficiency initiatives Objective 1 Objective 2 Objective 3 Objective 4 Objective 5 1. Improve the 2. Improve 3. Improve and 4. Improve 5. Increase vertical 6. Improve 7. Expand effectiveness of access to match skills to the regulatory integration in standardization, alternative Industrial Policy the allocation of information the needs of the framework to ease national value metrology, renewable sources Objectives = finance to local manufacturing the manufacturing chains conformity locally produced Outcome Producers sector activity assessment and accreditation Support Objective Support Objective Support Objective Support Objective Support Objective Support Objective Support Objective 1, 2, 3, 5 2, 3, 5 1, 2, 3, 5 1,4,5 1, 2 2, 3 2,5 Eswatini Agricultural Industrial Curriculum and Law or regulation Technical training Tax incentives Agroindustrial Development Fund Platform technical courses for FDI to for MSMEs of to businesses ParK Instruments= Financial scheme with alignment to the guarantee benefits selected sectors and individuals Activities focus on women, youth industry demand for the economy to improve who invests in and people living with and local produces the quality of renewable energy disabilities products and projects processes Green energy certification FIGURE 31: INTERVENTION LOGIC – 4 LEVELS Table 11 shows the main elements of a Pilot Action Plan highlighting the 9 potential instruments selected and their contribution to improve the 7 Intervention Areas and achieve the 5 Industrial Policy Objectives. The Table also specifies the main activities that need to be conducted to design the instruments, the time required for the implementation of the instruments, as well as institutional responsibilities and an estimated budget. During the design phase of the specific instruments, the establishment of indicators and milestones for monitoring and evaluation will be crucial. This will complement the monitoring and evaluation framework presented in the next section. 79 Timeframe for Sources to Estimated Responsible Supporting Description of the the collect the budget for the Main activities to implement the institution for the institutions for the Intervention Area Instrument instrument and implementation instrument implementation instrument implementation implementation of expected impact of the implementation of the of the instrument the instrument instrument status instrument

1.1 MSME Eswatini Agricultural 1.1.1 Develop guidelines and criteria 5 years Ministry of Ministry of NAMBORAD, E60,000,000.00 Agricultural Development Fund to for accessing the fund Agriculture Agriculture Eswatini Cotton Development boost investments in 1.1.2 Create awareness on the fund Annual reports Board, MSME Unit, Fund Agricultural 1.1.3 Screen applications and ESWADE, infrastructure and disburse funds Development capacity building Finance

1.1.4 Enforce collaboration between Institutions the agricultural fund and relevant institutions 1. Improve the 1.1.5 Monitor and evaluate the effectiveness of Agricultural fund the allocation of 1.2 Financial A targeted financial 1.2.1 Develop guidelines and criteria 1 year Ministry of Ministry of FINCLUDE, Centre E3,000,000.00 finance to local scheme with scheme that will focus for this targetted financial scheme Finance, Office Finance, ENIDC for Financial produces special focus on on women, youth, and 1.2.2 Create awareness on the Annual Report Inclusion, DPM's women, youth and people living with scheme office, Ministry of , people living with disabilities involved in 1.2.3 Create awareness on the Sports, Youth and disabilities the resourced based economic and social benefits of Culture, sectors of the economy involving women, youth and people to ensure the living with disabilities in the participation of these economy target groups in the

1.2.4 Monitor and evaluate the manufacturing sector financial scheme

2.1 Industrial A platform that 2.1.1 Engage the Ministry of ICT on 1 year MCIT Industry Ministry of Ministry of ICT, E3,000,000.00 Platform centralizes statistical the design of the Industrial platform annual budgets Commerce Public Service, information about the and define the structure of the and quartely Industry and National Statistics trade and productive platform reports Trade-Industry Office, Royal performance of the 2.1.2 Identify and engage dept Science and manufacturing sector of stakeholders who will provide Technology Park 2. Improve access Eswatini, as well as content for the Industrial Platform to information indicators on structural drivers that influence 2.1.3 Hire an Industrial Statistics and the level of Information Officer competitiveness and indicators for market 2.1.4 Collect, compile, analyse and intelligence disseminate industrial information 80 Timeframe for Sources to Estimated Responsible Supporting Description of the the collect the budget for the Main activities to implement the institution for the institutions for the Intervention Area Instrument instrument and implementation instrument implementation instrument implementation implementation of expected impact of the implementation of the of the instrument the instrument instrument status instrument Education system to 3.1.1 Conduct workshops between 5 years Ministries Ministry of Ministry of Labour E2,000,000.00 ensure that the skill universities, centres for skills budgets and Education and and Social produced by local development, TVET Centres and quarterly reports Training, Ministry Security, Ministry 3. Improve and training institutions private sector representatives to of Labour and of Finance,

3.1 Curriculum and match skills to meet the demand identify skills required by the private Social Security, Training technical courses the needs of the requirements of the sector Training Institutions, alignment to the manufacturing industry Institutions, Private sector industry demand sector academia, institutions

3.1.2 Incorporate the skills required Ministry of by the private sector into academic Finance, private curriculum of these institutions sector institutions

4.1 National Reviewing the National 4.1.1 Review the National 2 years Annual Reports Ministry of Ministry of E1,500,000.00 Investment Policy Investment policy for it Investment Policy based on the on FDI from EIPA, Commerce Economic Planning for FDI to to stipulate that FDI evidence and a participatory Central Bank Industry and and Development, 4. Improve the guarantee benefits links to local firms and is approach Annual Report Trade, EIPA, Eswatini regulatory for the economy embedded in the local 4.1.2 Conduct stakeholders’ Investor Roadmap Competition framework to and local produces economy consultation workshops on new Unit Commission ease the Investment Policy manufacturing

4.1.3 Validate new Investment Policy activity

4.1.4 Launch new Investment Policy

4.1.5 Implement new Investment Policy

5.1 Agro-industrial Develop a designated 5.1.1 Identify and acquire an area in 5 years Ministry of Ministry of Ministry of E850,000,000.00 Park area where agricultural which to develop the Agro-industrial Commerce Commerce Agriculture, and industrial activities Park Industry and Industry and Ministry of will be integrated to 5.1.2 Approach development Trade - Industry Trade -Industry Economic Planning 5. Increase enhance productivity, annual budgets dept and ENIDC and Development, partners for assistance for vertical value addition, and and quartely Ministry of developing the agro-industrial park integration in market access reports Finance, EIPA,

5.1.3 Develop budget for the national value Construction establishment of the Agro-industrial chains Industry Council, Park NAMBOARD,

5.1.4 Develop guidelines for the ESWADE criteria to prioritise women, youth and persons living with disabilities 81 Timeframe for Sources to Estimated Responsible Supporting Description of the the collect the budget for the Main activities to implement the institution for the institutions for the Intervention Area Instrument instrument and implementation instrument implementation instrument implementation implementation of expected impact of the implementation of the of the instrument the instrument instrument status instrument

5.1.5 Develop guidelines for the criteria to select business initiatives to be established in the agro- industrial park

5.1.6 Develop and operationalize Agro-industrial Park Training of MSMEs in 6.1.1 Develop training module for Over the 5 year Participants Ministry of SEDCO, EIPA, E1,500,000.00 priority/pilot sectors to MSME training programme on period certificates; Commerce National each year (5 ensure compliance to quality, standards, and conformity Training reports Industry and Laboratory years) international standards etc and Quarterly Trade: Regulatory Association; as well as enhance 6.1.2 Conduct a needs assessment to reports and Quality FESBC; Business Eswatini's economic identify MSMEs that will be Infrastructure Eswatini;

6.1 Technical resilience by enabling beneficiaries of the training Department 6. Improve training for the diversification of programme (RQID) and standardization, MSMEs of selected production and export ESWASA metrology, 6.1.3 Perform a quality assessment sectors to improve markets conformity of the MSME's to identify main areas the quality of assessment and of improvement products and accreditation 6.1.4 Create awareness on the processes importance of quality assurance

6.1.5 Train MSMEs on quality assurance of identified areas

6.1.6 Monitor MSME's on quality improvement

7.1 Green energy Issuing a green Continuous Registry for Ministry of MCIT, E1,000,000.00 certification certificate to companies timeframe for Companies with Natural Resources EIPA,ESWASA 7. Expand or individuals for 7.1.1 Develop criteria for Local Green green green and Energy alternative generating electricity Energy Certification certification certification (MNRE), Eswatini renewable from a green resource 7.1.2 Consult relevant stakeholders Energy sources locally to promote the uptake on Green Certificate development Regulatory produced of renewable energy 7.1.3 Create awareness on Local Authority (ESERA), green certification Renewable Energy 82 Timeframe for Sources to Estimated Responsible Supporting Description of the the collect the budget for the Main activities to implement the institution for the institutions for the Intervention Area Instrument instrument and implementation instrument implementation instrument implementation implementation of expected impact of the implementation of the of the instrument the instrument instrument status instrument

7.1.4 Audit firms and companies and Association of issuing green certificates if they Eswatini comply (REASWA)

7.2 Tax incentives A specific tax incentives 1 Financial year Customs data Ministry of MCIT, EIPA E1,500,000.00 to businesses and for individuals and to develop (ERS) Finance, Eswatini

7.2.1 Conduct an analysis on best individuals who companies which aimed specific tax Revenue Services, practice on incentives for renewable invests in at the promotion of incentive for Eswatini Energy energy renewable energy renewable energy Renewable Regulatory

7.2.2 Design appropriate incentives projects generation in the Energy Authority to encourage and promote country such as: individuals and companies to invest Waiver of import duties in renewable energy projects and taxes on renewable energy equipment; VAT Refunds on renewable 7.2.3 create awareness on the energy equipment; and economic, social, and environmental Income "tax incentive" benefits of investing in renewable on companies and energy projects businesses investing in renewable energy projects, paying a lower tax than the normal 7.2.4 Design a programme for corporate tax paid by individuals and companies to other ordinary develop and present renewable companies energy projects E Total 857,500,000.00 TABLE 11: PRESELECTED POTENTIAL INSTRUMENTS Source: Industrial Policy Core Team from MCIT 83 7. MONITORING AND EVALUATION FRAMEWORK This section lays out a theoretical framework or “results framework 12 ” to Monitor and Evaluate (M&E) the performance of the new Industrial Policy (IP) in Eswatini. More specifically, for each Industrial Policy Objective (IPO), through designing Theories of Change (ToC) it describes expected causal pathways to highlight the contribution of the industrial policy to impact13. Then, it includes indicators to measure each moment of these expected causal pathways. This method enables practitioners to verify whether the policy contributed (or is contributing) to impact14, but it does not enable them to claim with certainty that results are only triggered by the policy. More specifically, indicators can be impacted by external factors or other policies1516, which may lead to biased results. Therefore, in addition to analysing indicators, practitioners may also carry out qualitative analyses to better understand potential phenomena that could potentially impact results. To operationalise this theoretical framework, two main steps must be carried out during the implementation phase of the project. First, a full analysis of (i) the capacity to collect data, (ii) to aggregate data and (iii) to create visualisation tools such as dashboards is necessary. Then, defining processes and responsibilities (i) to collect17 and verify the data, (ii) to analyse the data and (iii) for reporting purposes is needed18. The first subsection presents the intervention logic of the industrial policy and the expected causal pathways associated with it. The second subsection describes relevant indicators to measure each moment of these causal pathways. The last subsection suggests how to define potential targets for outcomes of interest. 12 A results framework is “an explicit articulation (graphic display, matrix, or summary) of the different levels, or chains, of results expected from a particular intervention—project, program, or development strategy” (World Bank, 2012). Various results frameworks exists such as logical frameworks, logic models, theories of change, results chains, and outcome mapping. 13 The exercise is limited to Interven2on Areas (IAs), Industrial Policy Outcomes (IPOs) and Na2onal Development Goals (NDGs) since instruments are yet to be defined. 14 The only way to verify with certainty whether a policy or a programme had the desired impact is to rely on Rigorous Impact Evalua2ons (RIE). Unlike M&E approaches, RIE is able to find the causal impact of a policy or a programme on a target group and show what would have happened in the absence of the interven2on. In other words, they enable to abribute varia2ons in outcomes of interest to a specific interven2on. To do so, they rely on the comparison of (i) a treatment group, which are units of observa2ons which were exposed to an interven2on, to (ii) a control group, which are units of observa2ons which were not exposed to the interven2on. 15 Indicators that are closer to impact are more vulnerable to shocks and complementary or antagonist policies. 16 Other factors, such as the self-selec2on of par2cipants to benefit from instruments could also bias results. 17 Including frequency of data collec2on and data analysis. 18 Repor2ng may highlight the need for correc2ve measures to improve, refine or add complementary industrial policy instruments. 84

7.1 Theories of Change (ToC) To understand how Industrial Policy Instruments (IPIs) are expected to contribute to Industrial Policy Objectives (IPOs) and, subsequently, to National Development Goals (NDGs), this section presents high-level Theories of Change (ToC) for each IPO. More specifically, for each IPO (or “Outcome”), it includes a mapping of relevant Industrial Policy Instruments 19 (or “activities”), Intervention Areas (IAs) (or “outputs"), and National Development Goals (or “impact”)2021. In the five following ToCs, relevant indicators to measure each moment of these ToCs are included within white boxes. Further consultations may lead to adjustments to this preliminary selection of indicators to monitor and evaluate the performance of the IP. This preliminary selection of indicators to measure IPOs and IAs has been included within the ToCs diagrams (i) to emphasise the outcomes-based nature of this industrial policy22 and (ii) to help policymakers to better grasp the concepts behind each moment of the ToC. • Objective 1 Maximize domestic benefits by strengthening national value chains and increasing domestic production capacities STEP 1: INTERVENTION LOGIC: INDUSTRIAL POLICY OBJECTIVE 1 Step 1. Read and discuss in group the intervention logic related to the National Development Goals (NDGs) Enhanced and National Good Governance, Dynamic Private Development Goals = Economic Recovery and Sector Supporting Impact Fiscal Stability Sustainable and Inclusive Growth Maximize domestic benefits Number of workers/ EDIs and MVA / FDIs Industrial Policy Objective = Outcome 1. Ratio of imports of raw materials and semi- 1. Strengthening national value chains processed goods against exportss of final goods 2. Increase domestic production capacities 2. Manufacturing Value Added (MVA) per capita Improve the Improve and match Improve the Increase vertical effectiveness of the skills in the needs of regulatory framework integration in national Intervention Area = allocation of finance the manufacturing to ease manufacturing VC Outputs to local producers sector activities • Domestic credit to • No updates in law/ • Imports of raw private sector by banks regulations which material and semi- (% of GDP) • No beneficiaries of are under the finished textile as • Financial inclusion vocational training in management of the a share of finished of MSME Business manufacturing MCIT textile exports Owners (disaggregated • No MSMEs • Share of raw and by gander) formalised per year semi-finished products in total exports 19 The whole set of relevant policy instruments may be defined during a second phase of the project. 20 Industrial Policy Instruments (IPIs) have not been defined yet. Therefore, corresponding boxes from each graph are leg empty but they must be completed ager the validahon of the instruments. 21 More work is needed to define assumphons of the expected causal pathways, and to list potenhal external factors such as other policies or shocks that may impact results. 22 For more informahon on the indicators, see Subsechon on indicators. 85 • Objective 2: Boost value addition in resource-based sectors to ensure inclusive industrialization STEP 1: Intervention logic Industrial Policy Objective 2 Enhanced and Dynamic National Good Governance, Private Sector Development Goals = Economic Recovery and Supporting Sustainable Impact Fiscal Stability and Inclusive Growth MSME contribution to total MVA and % of female Ensure inclusive industrialization workers/youth/people living with disabilities in the manufacturing sector Industrial Policy Objective = Outcome Boost value addition in resource-based sectors VA in resource-based sectors Improve the Improve Improve and match effectiveness of the Increase vertical standardization, skills to the needs of Intervention Area = allocation of finance integration in national metrology, conformity the manufacturing Outputs to local producers Vc assessment and sector accreditation • Domestic credit to • Imports of raw • N products certified private sector of banks material and semi in the manufacturing % of GDP) • Beneficiaries of finished textile as sector that have • Financial inclusion vocational trainings in a share of finished international of MSME Business manufacturing textile exports recognition Owners (disaggregated • Share of raw and • N MSMEs certified in by gender) semi-finished quality management • products in total systems in the exports manufacturing sector • Objective 3: Enhance economic resilience by diversifying production and export markets STEP 1: Intervention logic: Industrial Policy Objective 3 Enhanced and Well Managed Natural National Good Governance, Dynamic Private Resources and Development Goals = Economic Recovery and Sector Supporting Environmental Impact Fiscal Stability Sustainable and Sustainability Inclusive Growth Enhance economic resilience Recovery time from increase in unemployment Industrial Policy Objective = Outcome 1. Share of main 5 export manufacturing Diversifying production and export markets products in total manufacturing exports Improve the Improve Improve and match Improve access to effectiveness of the standardization, skills to the needs of information Intervention Area = allocation of finance metrology, conformity the manufacturing Outputs to local producers assessment and sector accreditation • Domestic credit to • No market intelligence • No products certified private sector by banks platforms in the manufacturing % of GDP) • No beneficiaries of • No information platforms sector that have or/ and forums on • Financial inclusion oF vocational trainings in international patenting processes ISME Business Owners manuraccuring • No information platform recognition (disaggregated by on current skills needs in • IN MSMESs gender) manufacturing certified in quality • No information platforms management or/ and forums on systems in the fundraising opportunists manufacturing sector 86 • Objective 4: Supporting decent wage sectors and build new sectors for the creation of quality jobs Intervention logic: Industrial Policy Objective 4 Enhanced and National Good Governance, Dynamic Private Development Goals = Economic Recovery and Sector Supporting Impact Fiscal Stability Sustainable and Inclusive Growth Creation of quality jobs • Number of employees with decent minimum wage Industrial Policy Objective = Outcome 1. Support decent wage sectors 1. VA for existing manufacturing sub-sectors 2. Build new sectors with decent wage with decent minimum wage 2. VA for new promising manufacturing sub- sectors with decent minimum wage Intervention Area = Improve the regulatory framework to Outputs ease manufacturing activities • No updates in laws/regulations which are under the management of the MCIT • No MSMEs formalized per year • Objective 5: Promote green industrialization by supporting circular economy, waste management and renewal and energy efficiency initiatives Intervention logic: Industrial Policy Objective 5 Enhanced and Well Managed Natural National Good Governance, Dynamic Private Resources and Development Goals = Economic Recovery and Sector Supporting Environmental Impact Fiscal Stability Sustainable and Sustainability Inclusive Growth Promote green industrialization % of change of material extraction, total final energy consumption, and GDP Industrial Policy Objective = Outcome 1. 002 emissions in manufacturing/MVA Support circular economy, waste 2. Waste generation/GDP 3. Recycling rate as a share of waste management and renewable energy collection efficiency initiatives 4. Energy in manufacturing/MVA 5. Share of renewable energy over total final energy consumption Improve the Expand alternative Improve and match Improve the effectiveness of the renewable sources skills to the needs of regulatory framework Intervention Area = allocation of finance locally produced the manufacturing to ease manufacturing Outputs to local producers sector activities • • Domestic credit to • No updates in laws/ • Renewable Energy private sector by banks regulations which are share in Total Fina % of GDP • N beneficiaries of under the management of • Energy Consumption the MCIT • Financial incision vocational trainings in (TFEC %) • No MSMEs formalised or MSME Business manufacturing per year Owners (disaggregated by gender) For each Theory of Change (ToC), specific assumptions and a list of exogenous factors must be defined through a stakeholder meeting in a second phase of this project. Assumptions can be defined as “the core beliefs that underpin a theory of change and explain the ´theory´ behind the different elements of your theory of change and how they connect” (InFocus, 2020). For instance, if the government finances a vocational programme to improve productivity in the manufacturing sector, a key assumption is that the participants of the training will acquire relevant skills that will improve their productivity. External factors can be 87 social, economic, political, or natural factors that can influence various moments of a ToC, and in particular, the outcomes and the impact of the programme. The rest of this subsection lays out Theories of Change (ToC) for each Industrial Policy Objective (information of instruments must be added once they are finally validated.

7.2 Indicators This subsection includes a preliminary list of indicators to monitor and evaluate the contribution of the instruments to the Intervention Areas (IAs) and the Industrial Policy Objectives (IPOs). Indicators related to instruments must be defined after the selection of the policy instruments. To select relevant indicators to monitor and evaluate the impact of the industrial policy authors relied on the SMART principles, and indicators related to instruments may also be defined according to SMART principles. 88

7.2.1. Preselected indicators to measure Industrial Policy Objectives This list of preselected 20 indicators to assess the contribution of the policy instruments to the IPOs was selected according to the SMART principles23. Other criteria such as data availability were considered. Table 12 includes for each IPO the preselected indicators and the component and the subcomponent of the IPO they refer to. It also describes the type of indicator24, the way the indicator is selected, and the rationale for the selection of each indicator. Objec've Component Subcomponent Indicator type Indicator Unit Data source Repor'ng Ra'onal Frequency Objec've 1 Maximize Maximizing Decent job Final outcome 1 Number of workers / Workers per Na:onal Yearly This indicator captures whether FDIs are domes'c benefits by domes:c crea:on FDIs 100,000 data ; WDI associated with job crea:on. strengthening na'onal benefit Emalangeni (or value chains and $10,000) increasing domes'c Local Final outcome 2 MVA / FDIs n/a (ra:o) World Yearly This indicator captures whether FDIs are produc'on capaci'es development Developmen associated with Manufacturing Value t Indicators; Added. A high value of this indicator may WDI indicate that FDIs enable local companies to engage in ac:vi:es crea:ng value added. Strengthenin n/a Intermediate Ra:o of imports of % WITS Yearly The indicator captures the import g of value outcome 1 raw materials and dependency of a country from foreign raw chains semi-processed materials. A lower value of this indicator goods against may indicate that the dependency exports of final goods decreased, and more local inputs are being used in the value chain. Domes:c n/a Intermediate Manufacturing Value Emalangeni per World Yearly MVA per capita is a key indicator of a produc:on outcome 2 Added (MVA) per capita (or $ per Developmen country’s industrial capacity. It provides capaci:es capita capita) t Indicators insight into the country’s level of industrialisa:on (adjusted for popula:on 23 Indicators are defined as SMART if they follow the following criteria23: • Specific. A specific indicator will be narrowly defined and will describe exactly what needs to be measured. • Measurable. A measurable indicator is one which can be aligned with a specific numeric or ranked value to show improvement over time. • Achievable. Defining your indicators for milestones which are realistically achievable is key to success, and also in ensuring that during the conceptualisation phases, the project exists within the realm of what is actually possible to achieve. • Relevant. Ensuring indicators are relevant provides for a consideration of the context in which the project is operating. • Timely. Time-bound indicators are those which include a date by which you expect to see the change, giving substance and life to the project as a whole. 24 Intermediate outcomes can be thought of as precondihons for final outcomes. 89 Objec've Component Subcomponent Indicator type Indicator Unit Data source Repor'ng Ra'onal Frequency size) and gives an indica:on of its capacity to add value in the manufacturing process. Objec've 2: Boost Inclusive MSME’ Final outcome 1 MSME contribu:on % Findscope Yearly This indicator reflects the extent to which value addi'on in industrializat inclusion to total MVA MSME MSMEs capture MVA and, subsequently, resource-based sectors ion survey benefit from manufacturing. to ensure inclusive Female’ Final outcome 2 % of female workers % Female: ILO Yearly This indicator captures the extent to industrializa'on inclusion in the manufacturing Youth and which women benefit from the sector PLD: manufacturing sector. Integrated Labour Force Survey Youth’ inclusion Final outcome 3 % of youth workers % Local data Yearly This indicator captures the extent to in the manufacturing which youth benefit from the sector manufacturing sector. People with Final outcome 4 % of people living % Local data Yearly The indicator reflects the capacity of the disabili:es’ with disabili:es who manufacturing sector to include people inclusion work in the living with disabili:es. manufacturing sector Value n/a Intermediate VA in resource-based Emalangeni (or Local data Yearly This indicator reflects the capacity of the addi:on in outcome 1 sectors $) country to generate VA in resource-based resource- sectors, which are expected to be based sect inclusive for the case of Eswa:ni Objec've 3: Enhance Economic Recovery from Final outcome 2 Recovery :me from Days Time to Monthly Shocks may increase unemployment. economic resilience by resilience socks increase in inverse a Time to recover from an increase in diversifying produc'on unemployment nega:ve unemployment reflects the ability of the and export markets trend economy to recover from a nega:ve shock. Diversifica:o Products Intermediate Share of main 5 % UN- Yearly Diversified economies with various export n outcome 1 export COMTRADE products are less vulnerable to shocks. manufacturing but check The indicator is then a good measure of products in total with expected resilience. manufacturing Na:onal exports data through WITS Markets Intermediate Share of main 5 % UN- Yearly Diversified economies with various outcome 2 exports markets for COMTRADE exports markets are less vulnerable to manufacturing in but check shocks. The indicator is then a good total exports with measure of expected resilience. Na:onal data through WITS Objec've 4: Suppor'ng Quality jobs Decent wage Final outcome 1 Number of Count Local data Yearly “Decent” wages can be thought of as decent wage sectors employees with wages enabling workers to access at least 90 Objec've Component Subcomponent Indicator type Indicator Unit Data source Repor'ng Ra'onal Frequency and build new sectors decent minimum a basket of essen:al goods. The underlying for the crea'on of wage assump:on is that these decent wages quality jobs give them access to standards of living which are above a poverty line. We suggest to use as a benchmark the minimum wage in the formal sector. Suppor:ng n/a Intermediate VA for exis:ng Emalangeni(or Local data Yearly “Decent” wages can be thought of as decent wage outcome 1 manufacturing $) TBD wages enabling workers to access at least (exis:ng) subsectors with a basket of essen:al goods. The higher the sectors decent minimum size of the sectors with decent minimum wage wages, the higher the likelihood that it provides a large number of decent wages. Objec've 5: Promote Promote Decoupling Final outcome 1 Material extrac:on Million tonnes Material Yearly The rela:on of the tree indicators green industrializa'on green effect (% of change ) Flow.Net captures the resource and material by suppor'ng circular industrializat extrac:on – economic growth decoupling economy, waste ion Total Final Energy TJ (% of effect to understand if economic growth management and Consump:on change) Interna:onal is happening in the country but not at the renewal and energy Energy expense of the environment. GDP should efficiency ini'a'ves Gross Domes:c Agency exhibit an upward trend, while the other Product two a downward trend or at least that is USD constant star:ng to separate from the GDP trend. prices (% of World change) Developmen Ideally this rela:on should be analyzed t Indicators not for the whole economy but for the manufacturing or the industrial sector Promote Emissions Intermediate CO2 emissions in Tonnes per Interna:onal Yearly This indicator captures the propor:on of green outcome 1 manufacturing/MVA Emalangeni (or Energy CO2 emissions that has been generated industrializat $) Agency & by the manufacturing sector ion WDI or CSO Promote Waste Intermediate Solid Waste Tonnes per Na:onal Yearly This indicator captures the average green outcome 2 genera:on/GDP Emalangeni (or data & WDI amount of solid waste generated by unit industrializat (ideally industry and $) or CSO of GDP created (e.g. by Emalangeni). The ion hazardous solid lower the value, the lower the nega:ve waste environmental impact of the genera:on/GDP) manufacturing sector Promote Waste / Circular Intermediate Recycling rate as a % Na:onal Yearly This indicator captures the extent to green economy outcome 3 share of waste data which the waste collected is recycled for industrializat collec:on poten:al use. The higher the share, the ion higher the possibility of reincorpora:ng materials into the produc:on processes Promote Energy Intermediate Industry energy Ktoe per $ Interna:onal Yearly This indicator captures the average green outcome 4 consump:on/ Energy amount of energy needed to create one industry VA unit of manufacturing value added. The 91 Objec've Component Subcomponent Indicator type Indicator Unit Data source Repor'ng Ra'onal Frequency industrializat Agency and lower the value the lower the energy ion WDI intensity of the manufacturing sector Promote Energy Intermediate Renewable Energy % Interna:onal Yearly Renewable energy as a share of total final green outcome 5 share in Total Final Energy energy consump:on. Gives and indica:on industrializat Energy Consump:on Agency of the amount of clean energy used in the ion (TFEC %) country and the remaining opportunity to transform the energy matrix of the country TABLE 12: PRESELECTED INDICATORS TO MEASURE INDUSTRIAL POLICY OBJECTIVES During the implementation phase, additional elements must be completed (in line with the subsection on targets) such as data collection agents or entities, data frequency which must be in line with reporting needs, as well as various processes.

7.2.1. Preselected indicators to measure Intervention Areas This list of preselected 15 indicators to assess the contribution of the policy instruments to IAs was selected according to the SMART principles. Other criteria such as data availability were considered. Table 13 includes for each IA the preselected indicators and the component and the subcomponent of the IPO they refer to. It also describes the type of indicator, the source of data, the suggested reporting frequency and the rationale for the selection of each indicator. Interven'on area Related objec'ves Indicator Unit Data source Repor'ng Ra'onal Frequency 1. Improve the Objec:ves 1, 2,3, Domes:c credit to % World Yearly Gives an indica:on (proxy) of how strong the bank system is to effec'veness of the 4 and 5. private sector by banks Development make funds available for the private sector and if the laper is alloca'on of finance (% of GDP) Indicators (WDI) effec:vely accessing the funds. to local producers Financial inclusion of % Local data Yearly Level of MSME access (by strand) to diverse financial products MSME Business Owners and services in Eswa:ni. Gives an indica:on (proxy) of how well (disaggregated by equipped the MSME group is to boost and improve their gender) produc:ve ac:vity. This is relevant considering MSMEs sector is recognized as a significant contributor to economic growth and development and mass employment. 2.Improve access to Objec:ve 3 Number of industrial Count Local data Yearly An industrial plaqorm can support the iden:fica:on of market informa'on plaqorms opportuni:es and provide informa:on about the industrial performance and capabili:es of the country 92 Interven'on area Related objec'ves Indicator Unit Data source Repor'ng Ra'onal Frequency N informa:on plaqorms Count Local data Yearly A plaqorm or forum on paten:ng processes can provide or/ and forums on informa:on and guidance on how to obtain a patent and paten:ng processes incen:vize innova:on Number of informa:on Count Local data Yearly A plaqorm or forums on funding opportuni:es can provide plaqorms or/ and forums informa:on to incen:vize investment in produc:ve ac:vi:es on funding opportuni:es 3.Improve and Objec:ve 1,2,3, 4 N beneficiaries of Count Local data Yearly match skills to the and 5 voca:onal trainings in needs of the manufacturing manufacturing sector 4.Improve the Objec:ves 1, 2, 4 Number of updates in Count Local data Yearly Regula:on is a driver of industrial development, which may regulatory and 5 laws/regula:ons which incen:vise entrepreneurship as well as impact compe::veness. framework to ease are under the manufacturing management of the MCIT ac'vi'es N MSMEs formalised per Count Local data Yearly Formalisa:on levels may reflect the incen:ves that the regulatory year framework gives to companies to enter the formal sector. 5.Increase ver'cal Objec:ve 1 Imports of raw material % Local data Yearly Imports of raw and semi-finished materials as a share of finished integra'on in and semi-finished tex:le exports in specific sectors give an indica:on of how much this na'onal VC as a share of finished sector depends on imported inputs. This related to FDI level in tex:le exports the specific sector also gives and orienta:on of how much benefits stays in the country. Share of raw and semi- % WITS Yearly Share of raw and semi-finished products as a share of total finished products in total exports provide evidence of the level of value addi:on exports (processing) in a specific sector 6.Improve Objec:ve 2 and 3 Number of products Count Local data Yearly Adop:ng interna:onal quality standards may increase demand standardiza'on, cer:fied in the for products and, subsequently, the capacity to export. Also will metrology manufacturing sector ensure that good quality products can compete in beper conformity that have interna:onal condi:ons in the local market as well assessment and recogni:on. accredita'on Number of of MSMEs cer:fied in management systems in the manufacturing sector 7.Expand alterna've Objec:ve 5 Renewable electricity GWh Interna:onal Yearly Renewable electricity genera:on by source. Gives an indica:on renewable resources genera:on by source Energy Agency of the amount of electricity generated by clean sources in the locally produced (GWh) country TABLE 13: PRESELECTED INDICATORS TO MEASURE INTERVENTION AREAS 93 During the implementation phase, additional elements must be defined such as specific targets, data collection agents or entities, data frequency which must be in line with reporting needs, as well as various processes. 94 M&E targets This subsection presents recommendations to define targets at the Industrial Policy Objective (IPO) level25. To define quantitative targets, there is no one-size-fits-all methodology. Targets may be set up based on past performance, peer country performance, and resources dedicated to current and new policy instruments. Selected approaches may depend on data availability and internal capacity to run analyses to define targets. To develop preliminary targets at the IPO level for this new policy, as a starting point, we recommend two main methodologies as follows: • Benchmarking exercise. When historical data is available for Eswatini and peer countries 26 , we recommend calculating the growth rates of the indicator for each country over a reference period of ten years. Then, based on the aforementioned analysis, we suggest defining the highest average growth rate and second highest average growth rates over the reference period. Adding the average highest growth rate, the current value of the indicator for Eswatini enables to obtain a preliminary “high target” for the following year. Repeating the exercise based on the value obtained at Y+1 enables us to calculate a target for the year Y+2. Applying the same methodology, the average medium growth rate enables us to obtain a preliminary “medium” target. • Historical data only. When historical data is only available for Eswatini, one way to obtain a preliminary “high target” and a preliminary “medium target” is to respectively extract the highest and the medium yearly growth rate over the reference period. Then, preliminary targets can be obtained in the same fashion as in the benchmarking exercise. A main drawback of the methodology is that it does not provide any incentives for the country to improve the current efficiency in line with peer countries. So, additional instruments (or updates of the new instruments) are only expected to improve outcomes up to the past best performance of the country. However, with adequate instruments, one may expect higher achievements than just the best past achievements. • No historical data available at the country level. We recommend collecting at least a baseline data for one year available, and then create M&E targets based on the “benchmarking exercise” methodology. Analysing previous performances to define targets involves strong assumptions. It suggests that expected future performance should only depend on the past performance of the country or the most performing peer countries. Therefore, once these preliminary targets are 25 Defining targets for Na2onal Development Goals is out of the scope of this project. To define targets for instruments, data on current instruments, as well as budgets are needed. Moreover, although it may be useful to define such targets at the instrument level, we only recommend monitoring spending and ac2vi2es without puvng specific objec2ves. This enables to put the focus on results i.e. Industrial Policy Objec2ves (IPOs), and to give more flexibility on how instruments are implemented. 26 For the sake of this exercise, the following peer countries were selected: Botswana, The Seychelles and Brazil. 95 defined, we suggest leveraging qualitative information to refine them. Qualitative information on the expected budget, the outcomes of past projects, or the efficiency of the previous instruments may give information to the policymakers on whether it makes sense to raise preliminary targets or not. For instance, if an important budget is allocated to an instrument that may drastically impact an indicator, policymakers may decide to raise the target above the preliminary “high” target27. Targets may be impacted by other policies or external factors (economic shocks, natural disasters, etc.). Therefore, although targets defined in such a manner are informative, one may be cautious when interpreting performance in line with targets. For instance, in case of poor performance, additional information may be needed to assess whether policy instruments were irrelevant or not implemented correctly, or whether poor performance is due to external factor that are not under the managing control of the policymakers. Next steps for the implementation of the M&E framework As mentioned at the beginning of this section, to operationalise this theoretical framework, two main steps must be carried out during the implementation phase. First, a full analysis of (i) the capacity to collect data, (ii) to aggregate data and (iii) to create visualisation tools such as dashboards is necessary. Then, defining processes and responsibilities (i) to collect28 and verify the data, (ii) to analyse the data and (iii) for reporting purposes is needed29. 27 This qualitaCve analysis may involve some degree of subjecCvity. Therefore, we recommend running a workshop with key stakeholders to refine preliminary targets. 28 Including frequency of data collec2on and data analysis. 29 Repor2ng may highlight the need for correc2ve measures to improve, refine or add complementary industrial policy instruments. 96 8. ANNEX

Annex 1: Methodological considerations a. EQuIP analytical toolkit for industrial performance diagnostic The development of the Industrial Performance Diagnosis used for the decision-making process of this Policy was based on the EQuIP Analytical Toolkits (see figure below). The full EQuIP toolbox provides a long list of diagnostic and analytical indicators to be used for evidence-based Industrial Policy in a multi-dimensional approach; meaning that the analytical exercise contemplated economic, social and environmental considerations. Based on the needs, context and data availability of Eswatini, a series of indicators were selected and presented throughout the document. This Annex also provides an overview of the main data sources used, the benchmark countries selected, and product classifications used in the process. b. Data sources Data source Dimension Level World Development Indicators (WDI) Economic Interna2onal UN – COMTRADE through World Trade Interna2onal Integrated Trade Solu3ons (WITS) Central Sta3s3cal Office Social (employment, wages) and Na2onal Economic (value addi2on) Eswa3ni Revenue Services (ERS) – Trade Na2onal Custom Department Material Flow Net Environment Interna2onal Interna3onal Energy Agency Environment Interna2onal 97 c. Benchmark countries In the global economy and when talking about industrial performance and competitiveness, the performance of others; hence the need for comparison. Benchmarking also helps to contextualize the country's development and to assess relative performance. It is also useful to identify ‘best practice’ through benchmarking. Mauritius, Botswana, Lesotho, and Brazil were chosen as benchmarks for Eswatini. In the case of Botswana, Lesotho and Mauritius since they have some regional similarities as they are in the Southern African Development Community or have some similarities in terms of the size of the country or possess some similar trends in the manufacturing sector. While Brazil was selected more as a role model and an important competitor in the sugar sector (one of the most relevant in Eswatini among the resource-based sectors) d. Product group classification When looking into “manufacturing” data, the International Standard Industrial Classification of all Economic Activities (ISIC Rev 3) was used to obtain some economic, social and trade information. The category that classifies manufacturing is shown in the highlighted zone of the below graph. 98 For some trade analysis the HS at 6-digit of the Harmonized System nomenclature was also used.

Annex 2: List of institutions that participated in the consultation process No. Name of Institution Department 1 Ministry of Commerce, Industry and Trade Industry Department Commerce Department Micro, Small and Medium Enterprise (MSME) Unit International Trade Department (ITD) Regulatory Quality Infrastructure Department (RQID) Handcraft Department Planning Unit Cooperatives Department Registrar of Intellectual Property (IP) Weights and Measures Planning Unit 2 Prime Minister’s Office Policy and Programme Coordinating Unit (PPCU) 3 Deputy Prime Minister’s Office Gender Coordination Unit 4 Ministry of Agriculture Planning Unit 5 Ministry of Economic Planning and Development Central Statistical Office Macroeconomic Unit 6 Ministry of Natural Resources and Energy Energy Department 7 Ministry of Education and Training 8 Ministry of Labour and Social Security 9 Ministry of Tourism and Environmental Affairs 10 Ministry of Tinkhundla Administration 11 Ministry of Finance 12 Ministry of Information, Communication and Technology 13 Ministry of Sports, Culture and Youth Affairs (MSCYA) 14 Business Eswatini 15 Central Bank of Eswatini 16 Eswatini Investment Promotion Authority (EIPA) 17 COMESA Federation of Women in Business Eswatini Chapter (COMFWB) 18 European Union Delegation 19 Eswatini Standards Authority (ESWASA) 20 Eswatini Water and Agricultural Development Enterprise (ESWADE) 21 Eswatini Bank 22 National Agriculture Marketing Board (NAMBOARD) 23 Eswatini College of Technology (ECOT) 24 Eswatini Cotton Board (ECB) 25 Eswatini Revenue Authority (ERS) 26 Eswatini Development Finance Corporation (FINCORP) 27 University of Eswatini (UNESWA) 28 Centre for Financial Inclusion (CFI) 99 29 Coordination Assembly of Non-Governmental Organizations (CANGO) 30 Eswatini Energy Regulatory Authority (ESERA) 31 Eswatini Economic Policy Analysis and Research Centre (ESEPARC) 32 Eswatini Environmental Authority (EEA) 33 Federation of Eswatini Business Community (FESBC) 34 United Nations Development Programme (UNDP) 35 Eswatini Competition Commission (ESCC) 36 Eswatini National Industrial Development Corporation (ENIDC) 37 Women in Trade and Development (WITAD) 38 Small Enterprise Development Company (SEDCO) 39 Coalition of Informal Economy Association of Swaziland (CIEAS) 40 Youth Enterprise Revolving Fund (YERF) 41 Luhlelo Lolunotsisa Tebhizinisi (LULOTE) 42 Women In Informal Cross Border Trade (SIVE LESINEBUNYE) 43 Umhluma Organization 44 Construction Industry Council (CIC) 45 Umhluma Women and Youth Foundation 46 Vocational and Commercial Training Institute Matsapha (Gwamile VOCTIM)

Annex 3: Technology Classification ISIC Rev 3 Technology Classifica3on ISIC Code Rev Descrip3on 3 Resource based 151 Processed meat, fish, fruit, vegetables, fats Resource based 1520 Dairy products Resource based 153 Grain mill products; starches; animal feeds Resource based 154 Other food products Resource based 155 Beverages Resource based 1600 Tobacco products Low technology 171 Spinning, weaving and finishing of tex2les Low technology 172 Other tex2les Low technology 1730 Knibed and crocheted fabrics and ar2cles Low technology 1810 Wearing apparel, except fur apparel Low technology 1820 Dressing & dyeing of fur; processing of fur Low technology 191 Tanning, dressing and processing of leather Low technology 1920 Footwear Resource based 2010 Sawmilling and planing of wood Resource based 202 Products of wood, cork, straw, etc. Resource based 210 Paper and paper products Other 221 Publishing Other 222 Prin2ng and related service ac2vi2es Other 2230 Reproduc2on of recorded media Low technology 2310 Coke oven products 100 Resource based 2320 Refined petroleum products Medium and high technology 2330 Processing of nuclear fuel Medium and high technology 241 Basic chemicals Medium and high technology 242 Other chemicals Medium and high technology 2430 Man-made fibres Resource based 251 Rubber products Medium and high technology 2520 Plas2c products Resource based 2610 Glass and glass products Resource based 269 Non-metallic mineral products n.e.c. Medium and high technology 2710 Basic iron and steel Resource based 2720 Basic precious and non-ferrous metals Resource based 273 Cas2ng of metals Low technology 281 Struct.metal products;tanks;steam generators Low technology 289 Other metal products; metal working services Medium and high technology 291 General purpose machinery Medium and high technology 292 Special purpose machinery Medium and high technology 2930 Domes2c appliances n.e.c. Medium and high technology 3000 Office, accoun2ng and compu2ng machinery Medium and high technology 3110 Electric motors, generators and transformers Medium and high technology 3120 Electricity distribu2on & control apparatus Medium and high technology 3130 Insulated wire and cable Medium and high technology 3140 Accumulators, primary cells and baberies Medium and high technology 3150 Ligh2ng equipment and electric lamps Medium and high technology 3190 Other electrical equipment n.e.c. Medium and high technology 3210 Electronic valves, tubes, etc. Medium and high technology 3220 TV/radio transmibers; line comm. apparatus Medium and high technology 3230 TV and radio receivers and associated goods Medium and high technology 331 Medical, measuring, tes2ng appliances, etc. Medium and high technology 3320 Op2cal instruments & photographic equipment Medium and high technology 3330 Watches and clocks Medium and high technology 3410 Motor vehicles Medium and high technology 3420 Automobile bodies, trailers & semi-trailers Medium and high technology 3430 Parts/accessories for automobiles Medium and high technology 351 Building and repairing of ships and boats Medium and high technology 3520 Railway/tramway locomo2ves & rolling stock Medium and high technology 3530 Aircra] and spacecra] Medium and high technology 359 Transport equipment n.e.c. Low technology 3610 Furniture Low technology 369 Manufacturing n.e.c. Other 3710 Recycling of metal waste and scrap Other 3720 Recycling of non-metal waste and scrap 3999 Total manufacturing (D) 101 Acknowledgements The Ministry of Commerce, Industry and Trade (MCIT) extends its sincere gratitude and appreciation to the donors, development partners or implementing agents for their joint efforts in providing technical and financial assistance for the development of this important project. Also not forgetting the staff in the Industry Department of the Ministry for a job well done. The successful development of this Policy Document is attributed to the “Core Team” 1 * comprising officials from the Industry Department in the Ministry, which was established to undertake various tasks including data analysis, coordination, and drafting of this policy document, with technical support from GPI Consultants. Profound appreciation also extends to all private and public sector organizations and companies who provided valuable input to the development of this policy. *1. Ms. Zamanyambose B. Mtetwa – Industry Department (MCIT) 2. Ms. Siphiwangubani L. Sikhondze - Industry Department (MCIT) 3. Mr. David C. Mabuza - Industry Department (MCIT) 4. Mr. Mthayiphi D. Dlamini - Industry Department (MCIT) 5. Ms. Philiswa Dlamini – MSME Unit (MCIT) 6. Ms. Nokwethu Mavuso - Industry Department (MCIT) INDUSTRIAL POLICY FOR ESWATINI 2023-2033