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Namibia: The challenge of sustained and inclusive growth

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The Growth Lab at Harvard CID prepared this presentation to be shared with Namibia's High Panel for Economic Growth, established by President Hage Geingob.

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Namibia: The challenge of sustained and inclusive growth

  1. 1. The challenge of sustained and inclusive prosperity in Namibia The Growth Lab at Harvard University November 9th, 2019
  2. 2. Benchmarks Regional International 2 South Africa Botswana Angola Zambia Australia New Zealand Peru Chile
  3. 3. The Namibian century: unprecedented progress African peers International peers GDP per capita 2000=100 GDP per capita 2000=100 3Economic growth and productive diversification in Namibia 11/09/2019 Namibia Namibia Botswana Swaziland Lesotho South Africa Chile Australia New Zealand Peru Kazakhstan
  4. 4. And poverty declined 4 0 10 20 30 40 2003 2007 2011 2015 Year $1.90 / day $3.20 / day $5.50 / day International poverty lines based on 2011 US$, PPP Source: WDI Namibia: Poverty Rates
  5. 5. But if we start the watch in 1980, the picture changes African peers International peers 5Economic growth and productive diversification in Namibia 11/09/2019 GDP per capita 1980=100 GDP per capita 1980=100 Namibia Namibia Botswana Swaziland Lesotho South Africa Chile Australia New Zealand Peru
  6. 6. -2.7 -1.6 0.6 0.7 3.5 3.1 3.3 3,509 Min 3,935 Med 6,121 Max g80s: -2.1 g90s: 0.7 g00s: 3.3 g: 0.8 R 2 : 0.57 σΔy: 3.3 3.553.63.653.73.753.8 log(GDPPC) 1980 1985 1990 1995 2000 2005 2010 2015 Years Note: GDP per capita (constant 2005 US$), log Data source: World Development Indicators Overall, ten, and five year growth rates 21st March 1990: Independence Day 6Economic growth and productive diversification in Namibia 11/09/2019 A 4-year recession …because the 1980s were very bad and the 1990s were stagnant
  7. 7. Growth acceleration (2000-2015) and ensuing slow-down were export-driven Namibia’s Exports, 2017: $5.72B 7Economic growth and productive diversification in Namibia 11/09/2019
  8. 8. 50 60 70 80 90 100 110 120 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Namibia: Terms of Trade Index (2015=100) Source: UNCTAD. In part, this was due to a terms of trade improvement in 1990-2007 that then stabilized from 2008 onwards 8Economic growth and productive diversification in Namibia 11/09/2019
  9. 9. But Namibia gained market share, South Africa did not 9 0 .0005 .001 .0015 .002 2000 2005 2010 2015 2020 year Textiles Electronics Minerals Machinery Source: UN COMTRADE NAM: Share of world exports by export subgroup 0 .01 .02 .03 .04 Shareofworldexports 2000 2005 2010 2015 2020 year Textiles Electronics Minerals Machinery Source: UN COMTRADE ZAF: Share of world exports by export subgroup Namibia South Africa
  10. 10. So the income gap between NAM and ZAF fell by 45%, from 36% (2000) to 20% (2015) 10Economic growth and productive diversification in Namibia 11/09/2019 Namibia’s GDP per capita as a share of South Africa’s
  11. 11. But both South Africa and Namibia are falling behind Botswana 6000800010000120001400016000GDPpercapita,PPP(constant2011international$) 1990 2000 2010 2020 Year GDP per capita, PPP (constant 2011 international $)GDP per capita, PPP (constant 2011 international $) GDP per capita, PPP (constant 2011 international $) 11 Namibia Botswana South Africa
  12. 12. From 2008 to 2015, fiscal policy went into an super-expansionary mode 12 • Averages 2009-2018 (% of GDP): • Fiscal revenues 31.6 • Current expenditure 30.9 • Capital expenditure 5.9 • Overall fiscal deficit 5.5 • Primary fiscal deficit 3.6 Economic growth and productive diversification in Namibia 11/09/2019 General government
  13. 13. 13 Fiscal balance swing from 6.6% surplus to 2016 8.6% deficit: 15.2 percentage points + 6.6% - 17.2% + 2.0% -8.6% Fiscal Balance: Changes 2008-2016 (% of GDP) 2008 Fiscal balance Expenditure Variation Revenue Variation 2016 Fiscal balance
  14. 14. 10.5 15.6 4.4 7 4.6 11.6 1.8 1.7 3.9 6.5 0 5 10 15 20 25 30 35 40 45 2008 2016 Public Expenditure as % of GDP Public Expenditure as % of GDP Personnel Goods and services Subsidies and transfers Interest payments Capital expenditure 17.2 14 Between 2008 and 2016 there was a massive fiscal expansion (17.2 percentage points), where tax revenues registered a mild increase (2.0 percentage points) 16.9 20.5 2.4 2 12.5 11.3 0 5 10 15 20 25 30 35 40 45 2008 2016 Public Revenue as % of GDP Public Revenue as % of GDP SACU and Trade Taxes Non-tax revenue Tax revenue (ex SACU and Trade Taxes) 2 25.2 42.4 31.8 33.8
  15. 15. 15 Fiscal consolidation has been contractionary in output and maybe a bit in revenues Fiscal Balance: Changes 2016-2019 (% of GDP) 2016 Fiscal balance Expenditure Variation Revenue Variation 2019 Fiscal balance -8.6% +8.2% -5.1% -5.4%
  16. 16. 15.6 15.1 7 3.5 11.6 9.3 1.7 3.3 6.5 3 0 5 10 15 20 25 30 35 40 45 2016 2019 Public Expenditure as % of GDP Public Expenditure as % of GDP Personnel Goods and services Subsidies and transfers Interest payments Capital expenditure -8.2 16 Large efforts to consolidate expenditure were met with significant decrease in public revenues 20.5 18.1 2 1.7 11.3 8.9 0 5 10 15 20 25 30 35 40 45 2016 2019 Public Revenue as % of GDP Public Revenue as % of GDP SACU and Trade Taxes Non-tax revenue Tax revenue (ex SACU and Trade Taxes) -5.1 42.4 34.2 33.8 28.7
  17. 17. Fall in commodity prices also affected the capacity of neighbors to purchase Namibian exports: Exports to Angola fell 90% 2010-2017 (75% 2014-2017) 17Economic growth and productive diversification in Namibia 11/09/2019
  18. 18. The fiscal adjustment has not been able to stop the increase in the debt/GDP ratio 18
  19. 19. Between 2015 and 2018 the spread to 10-year South African bonds widened by 150bp 19Economic growth and productive diversification in Namibia 11/09/2019 Namibia South Africa Spread
  20. 20. Contribution to Economic Growth by Sector The boom was in mining and non-tradables, the bust was in non-tradables 20Economic growth and productive diversification in Namibia 11/09/2019 -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Wholesale and retail trade, repairs Construction Transport, and communication Producers of Government Services Hotels and restaurants Private household with employed persons Community, social and personal service activities Electricity and water Fishing and fish processing on board Manufacturing Real estate and business services Agriculture and forestry Financial intermediation Mining and quarrying 2016-2018 2000-2015
  21. 21. Interpretation • The growth acceleration after 2000 was export led • But after 2007, the government adopted an unsustainable fiscal policy • …this lead to unsustainable growth in non-tradables and a widening current account deficit • This forced the government to adopt a contractionary fiscal policy leading to an inevitable bust • With some extra bad luck associated with poor performance in Angola and ZAF • There is still need for further fiscal consolidation • ...so growth will not come from fiscal stimulus • It will have to come from more fundamental sources • More on this in the next session 21
  22. 22. Other difficult challenges 22
  23. 23. Inequality and unemployment are among the highest in the world ARG ARM AUS AUT BDI BEL BEN BFA BGD BGR BLR BOL BRA BTN BWA CAN CHE CHL CHN CIV CMR COL COM CRI CYP CZE DEU DNK DOMECU EGY ESP EST ETH FIN FJI FRA FSM GAB GBR GEO GHA GMB GRC GTM HND HRV HUN IDN IRL IRN ISL ISR ITA KAZ KEN KGZ LBR LCA LKA LTU LUX LVA MAR MDA MEX MKD MLT MMR MNEMNG MOZ MRT MWI MYS NAM NER NIC NLD NOR PAK PAN PER PHL POL PRT PRY PSE ROM RUS RWA SLB SLV SRB SVK SVN SWE SYC TGO THA TJK TLS TON TUN TUR UGA UKR URY USA VNM WSM XKX YEM ZAF ZMB 2030405060 Ginicoefficientcirca2015 3 3.5 4 4.5 5 GDP per capita at PPP, $ at constant 2011, logs 23 AFG AGO ALB ARB ARE ARG ARM AUSAUT AZE BDI BEL BEN BFA BGD BGR BHR BHS BIH BLR BLZ BOL BRA BRB BRN BTN BWA CAF CANCEB CHE CHI CHL CHN CIV CMR COD COG COL COM CPV CRI CSS CUB CYP CZEDEU DJI DNK DOM DZA EAP EAR EAS ECA ECS ECU EGY EMU ERI ESP EST ETH EUU FCS FIN FJI FRA GAB GBR GEO GHA GIN GMB GNB GNQ GRC GTM GUM GUY HIC HKG HND HPC HRV HTI HUNIBDIBT IDA IDB IDNIDX IND IRL IRN IRQ ISL ISR ITA JAM JOR JPN KAZ KEN KGZ KHM KOR KWT LAC LAO LBN LBR LBY LCA LCN LDCLIC LKALMC LMY LSO LTE LTU LUX LVA MAC MAR MDA MDG MDV MEA MEX MIC MKD MLI MLT MMR MNA MNE MNG MOZ MRT MUS MWI MYS NAC NAM NCL NER NGA NIC NLD NOR NPL NZL OED OMN OSS PAK PAN PER PHLPNG POL PRE PRI PRK PRT PRY PSE PSS PST PYF QAT ROM RUS RWA SAS SAU SDN SEN SGP SLB SLE SLV SOM SRB SSA SSD SSF SST STP SUR SVK SVN SWE SWZ SYR TCD TEA TEC TGO THA TJK TKM TLA TLS TMN TON TSA TSS TTO TUN TUR TZAUGA UKR UMC URY USAUZB VCT VEN VIR VNM VUTWLD WSM YEM ZAF ZMB ZWE 0102030 TotalUnemployment,%ofthelaborforce,ILO 20 40 60 80 100 Total Labor Force Participation Rate, ILO
  24. 24. Total Population 2,413,643 Working-age population 1,531,967 (63.5%) Economically active 1,090,153 (71.2%) Employed 725,742 (66.6% EAP, 47.4% WAP) Formal main job 307,068 (42.3% Emp.) Informal main job 418,674 (57.7% Emp.) Unemployed (broad) 364,411 (33.4% EAP, 23.8% WAP) Economically inactive 438,770 (28.6%) Non-response 3,044 (0.2%) Population under 15yrs 881,676 (36.5%) Very few people work in the formal sector Comparison with 2016 Survey • Population: +3.8% • Working-age population: +3.6% • Under 15yrs: +4.2% • Economically Active: +6.2% • Economically inactive: -2.9% • Employed: +7.2% • Unemployed: +4.3% % of unemployed over the total EAP fell from 34% to 33.4% Source: LFS, 2018
  25. 25. Very few people work in formal firms 25 Government SOEs / Parastatal Private companies, enterprises, cooperatives Private HH, individual Don’t know 82,675 (31.4%) 27,945(10.6%) 138,691 (52.6%) 13,441 (5.1%) 837 (0.3%) Employed 725,742 (66.6% EAP, 47.4% WAP) Formal main job 307,068 (42.3% Emp.) Informal main job 418,674 (57.7% Emp.) 110,620 in the public sector
  26. 26. Why is Namibia so unequal? 26
  27. 27. Beyond the traditional narrative • In the traditional narrative, Apartheid restricted the opportunities of Africans to acquire skills and property • This generates inequality between Africans and Europeans • …and between those that are more educated and those that are less • Is this what explains the high inequality in Namibia? • Can this explain the low employment ratio? 27
  28. 28. 28 Gini coefficients within language groups Read & Write Yes (89.9%) African (66.4%) Bantu (63.2%) Oshiwambo (47.3%) Other Bantu (15.9%) Other African (3.2%) Other African (3.2%) Afrikaans (14.6%) Afrikaans (14.6%) Afrikaans (14.6%) European (18.5%) Germanic (17.6%) English (17.0%) German (0.6%) Dutch (0.01%) Romantic (0.9%) Romantic (0.9%) Asian (0.01%) Chinese (0.01%) Chinese (0.01%) Other/don’t know (0.5%) Other/don’t know (0.5%) Other/don’t know (0.5%) No (10.1%) 429 427 314 702 735 1,821 136 631 Average (USD) German (0.6%) English (17.0%) Afrikaans (14.6%) Gini within each group 0.63 0.63 0.54 0.61 0.59 0.50 0.59 0.55 *Reported Incomes Source: LFS, 2018
  29. 29. There are very large differences in income by education level 0 5 10 15 20 25 30 35 % Highest level of education obtained (2018) (% of employed population) - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Average monthly wage by educational attainment (2018 USD) Source: LFS, 2018
  30. 30. 24.6 24.6 24.6 106.4 106.4 137.2 0 50 100 150 200 250 300 350 400 450 Man-Informal-Rural Man-Informal-Urban Man-Formal-Urban Man-Formal-Urban-Public Sector Man Rural Informal Urban premium Formal premium Public sector premium 30 Inequality is driven by labor market status 100.0 124.6 106.4 368.3
  31. 31. 136 136 351 351 323 32362 9 153 0 50 100 150 200 250 300 350 400 450 500 Rural Urban Rural Urban Private Public Informal Formal Formal Namibia: Average monthly wages (US$) Profile: Man, completed junior secondary, 30-34 yearsl old 31 198 360 476 Inequality is driven by labor market status
  32. 32. Educational attainment is also low across levels 32
  33. 33. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 All Formal Informal Inequality based on Education Within Group Between Group
  34. 34. Implications • There is huge wage inequality within ethnic groups • Even within education groups • The gap seems to be more related to formal vs. informal than urban vs. rural • We need a theory to explain this • In addition, we need to understand the cause of the low employment rates • Which is an additional source of inequality • Good questions for the next session 34

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