Doing business in Namibia

1. NS4301
Summer 2015
Economy of Namibia

2. Background I
• Namibia attained Independence in 1990 after more than a
century of colonial rule
• First imperial Germany (until 1915), and
• South Africa, under a League of Nations mandate from
1920
• Moves towards independence gathered pace in the 1950s
and 1960s with the South West Africa Peoples’
Organization (SWAPO) declaring armed struggle in 1966
• As apartheid South Africa fought brush war against
SWAPO that group received military assistance from
Cuba, China and North Korea
2

3. Background II
• Military stalemate of the 1980s finally brought to an end
by UN-brokered peace negotiations and elections
• Saw SWAPO win majority and form Namibia’s first
independent government
• Pre-independence history critical in understanding post-
independence economic policies.
• SWAPO which has won every election has entrenched its
position as dominant party
• Has pursued economic policies which can be
characterized as
• Mildly nationalistic
• Pan-Africanist, and
• Statist while remaining generally market-friendly and open
towards foreign investment 3

4. Background III
• Namibia has had considerable economic success since
independence from South Africa in 1990
• Keys
• Sound economic management
• Good governance
• Basic civil freedoms and
• Respect for human rights
• Country inherited
• A well-functioning physical infrastructure
• A market economy
• Rich natural resources and
• A relatively strong public administration
4

5. Background IV
• Country also inherited
• Extreme economic social and economic inequalities
• dualistic economy and society
• Country vulnerable to
• Short and long-term environmental shocks
• All major sources of growth depend heavily on the country’s
fragile ecosystem
• This environment has made job creation difficult
• Poverty and inequality remain very high
• There has been official pressure on white and foreign
landowners to sell their property to the government so
that landless Namibians can be resettled
• Concerns that if current economic problems can not be
resolved, government will turn to more radical measures.5

6. Background VI
6

7. Economic Policies I
• Country’s decision to formalize membership in South
African Customs Union (SACU) meant that trade policy
remained outside hands of Namibian policy makers
• Changes in tariffs and non-tariff barriers continued to be
driven by South Africa’s commitment to the WTO
• Despite establishment of its own central bank and the
introduction of the Namibian dollar in 1993 monetary
policy has remained tied to that of South Africa
• Namibia dollar has stayed pegged one-to-one to the
South African Rand which remains legal tender
• The fixed exchange rate means interest rates and
inflation are largely determined by decisions in South
Africa
• Having effectively tied its own hands on monetary and
trade policy, country’s focus has been on fiscal policy 7

8. Economic Policies II
• In period following independence Namibia found
generous support for its development programs
• In 1997 South Africa formally wrote off pre-independence
debts leaving government virtually debt free
• Size of government and the stock of public debt
expanded in 1990s due to heavy spending on
• Public administration
• Education
• Health and
• Namibia’s system of welfare cash transfers
• Government set a self-imposed limit on debt at 25% of
GDP
• At the time of the global economic crisis government in
position to actively use public spending to counter
downturn in country’s exports. 8

9. Economic Policies III
• Namibia’s success in maintaining macroeconomic
stability has yielded virtually uninterrupted growth
• Growth accelerated from 3% a year in the 1990s to 4.5%
in the 2000s
• However increase largely due to international minerals
boom
• Namibia world class producer of gem diamonds, and
uranium oxide and exports wide variety of other minerals.
• Country now on verge of becoming more dependent on
minerals sector than ever
• Uranium likely to take the place of diamonds as major
mining activity
• Foreign investment has flowed into a variety of sectors
not just mining 9

10. Namibia: WEF I
10

11. Economic Policies IV
• Economic policy has had good deal more success in
achieving macroeconomic stability than in achieving
• productivity growth,
• innovation and
• export competitiveness.
• Education policies have failed short in developing skills
and attitudes in the labor forces.
• Labor market policies have generally served to help
those already in work while creating additional rigidity
which discourage the use of labor.
• As a result formal employment has stagnated.
• Nabila has had good steady growth, but it has benefitted
the urban (and especially white) middle classes
11

12. Economic Policies V
• Economic expansion has not translated into rapid
employment growth so that levels of poverty and
inequality remain high.
• Still little sign of organized disquiet on a scale that could
force policy change.
• However danger is that policymakers might conclude that
past policies have filed, and turn to more nationalistic,
authoritarian, and less market oriented approaches.
12

13. Recent Developments I
• Economy grew at 4.8% expansion in 2014--supported by
a pre-election surge in spending
• Growth should decelerate to 4.4% in 2015, as the
government reverts to a tighter fiscal stance.
• Although a modest recovery is expected in currently
depressed minerals prices in 2015
• production and exports in the key mining sector will remain
sluggish
• Tourism will be held back by the uneven economic
recovery in Europe, the main source of visitors to
Namibia.
13

14. Real GDP Growth
14

15. GDP by Sector
15

16. External Debt Position
16

17. Recent Developments III
• Stepped-up construction activity will provide a significant
impulse to the economy, as the development of a number
of major mining projects continues
• These include
• the US$2bn Husab uranium mine,
• as well as the Otjikoto gold mine and
• the Tsumeb copper smelter.
• When fully completed (some time in 2017), Husab is set
to become the second-largest uranium mine in the world.
• The mining sector projects currently under way will help
spur faster growth in manufacturing
• because of the impetus they will provide to downstream
activities, such as the production of industrial chemicals.
• Against this backdrop, real GDP growth is forecast to
average 4.9% in 2016-19. 17

18. Policy Trends I
• The government's broadly pro-business policy stance is
likely to be sustained in 2015-19.
• The policy agenda will be guided by the fourth national
development plan (NDP4; 2012/13-2016/17)
• which prioritizes measures to reduce poverty and income
inequality.
• also incorporates the provisions of a new industrialization policy
that focuses on agro-processing, mineral beneficiation and
import-substituting industries.
• The plan is more focused than its predecessors
• It sets specific targets for four priority sectors:
• manufacturing,
• logistics/transport,
• tourism and
• agriculture.
18

19. Policy Trends II
• The government envisages that the investment target of
US$17.8bn under NDP4 will be largely secured through
public-private partnerships (PPPs).
• Although this appears to be an ambitious goal, the PPP
model has already been used successfully in some areas,
such as electricity generation.
• The launch of NDP4 has also marked a shift in the
authorities' efforts to tackle unemployment --with over
one-quarter of the labor force out of work.
• The government has indicated that it will seek to foster
the creation of more jobs in the private sector,
• partly by improving the business environment.
• However, this approach is unlikely to provide instant results.
• Seems to be relying on areas where country particularly weak 19

20. Future TFP I
20

21. Future TFP II
21

22. Future TFP III
22

23. Namibia: WEF II
23

24. Namibia: WEF III
24

25. Voice and Accountability
1996 2000 2003 2005 2007 2009 2011 2013
35
40
45
50
55
60
65
70
75
80
Percentile
:
Voice
and
Accounta
bility
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
Source: World Bank, Worldwide Governance Indicators, 2014
25

26. Political Stability/Absence of Violence
1996 2000 2003 2005 2007 2009 2011 2013
20
30
40
50
60
70
80
90
100
Percentile
:
Political
Stability/A
bsence
of
Violence
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
Source: World Bank, Worldwide Governance Indicators, 2014
26

27. Government Effectiveness
1996 2000 2003 2005 2007 2009 2011 2013
25
30
35
40
45
50
55
60
65
70
75
80
Percentile
:
Governme
nt
Effectiven
ess
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
Source: World Bank, Worldwide Governance Indicators, 2014
27

28. Regulatory Quality
1996 2000 2003 2005 2007 2009 2011 2013
20
30
40
50
60
70
80
Percentile
:
Regulatory
Quality
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
Source: World Bank, Worldwide Governance Indicators, 2014
28

29. Rule of Law
1996 2000 2003 2005 2007 2009 2011 2013
20
30
40
50
60
70
80
90
Percentile
:
Rule
of
Law
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
Source: World Bank, Worldwide Governance Indicators, 2014
29

30. Control of Corruption
1996 2000 2003 2005 2007 2009 2011 2013
25
30
35
40
45
50
55
60
65
70
75
80
Percentile
:
Control
of
Corruption
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
Source: World Bank, Worldwide Governance Indicators, 2014
30

31. Over-All Economic Freedom
31

32. Namibia Economic Freedom I
• Over past five years Namibia’s economic freedom has
been on a downward trend
• The third biggest drop in scores in SSA region
• Deterioration has been concentrated in the management
of government spending and trade freedom
• Now 93rd freest
• Overall progress in economic freedom has been patchy
• Open market policies advanced only marginally
• Tariff and non-tariff barriers and regulatory restrictions
undercut productivity growth and impede diversification
32

33. Namibia: Economic Freedom II
33

34. Namibia: Economic Freedom III
34

35. Namibia: Economic Freedom IV
35

36. Namibia: Economic Freedom V
36

37. Namibia: Economic Freedom VI
37

38. Namibia: Economic Freedom VII
38