Swaziland's economy is based firmly on free market principles. The benefits of a modern economy are primarily enjoyed by the growing urban population. The majority supports itself through subsistence agriculture on rural homesteads. A relatively diversified industrial sector accounts for the largest component of the formal economy at 43% of GDP in 1999. Because of its small size, Swaziland relies heavily on the export sector, composed primarily of large firms with predominantly foreign ownership.
Surrounded almost entirely by South Africa, Swaziland's economy is heavily influenced by its dominant neighbor. The economy benefited considerably from investments that might otherwise have gone to South Africa during period when there were international sanctions imposed on that country. On the other hand, the Swazi economy will likely suffer as a reformed South Africa attracts investment that had been going to Swaziland. In 1996, South Africa accounted for an estimated 96% of Swaziland's imports, 60% of its exports, and 50% of its foreign direct investment. In addition, remittances from Swaziland nationals working in South African mines substantially add to domestically earned income. This overwhelming presence has led some analysts to view the Swazi economy as a small, developing part of the much larger South African economy. The economy grew by 3.6% between 1988 and 1998, and by 2.5% in 2001. Projected growth in the South African economy is expected to boost Swazi exports and in turn stimulate growth.
In 2002, the budget deficit was estimated at 4.8% of GDP. The government had taken few steps to restructure the public sector and privatize state-owned enterprises. As of 2003, the government had plans to build a new international airport, convention center, hotel, and theme park. Swaziland's membership in the Southern African Customs Union (SACU) with South Africa, Botswana, Lesotho, and Namibia, allows for the virtually unimpeded exchange of goods between the countries, subject to South Africa's import control requirements.