• Economic growth recovered strongly in 2010 from the impact of the global economic crisis, but moderated in 2012. Despite the prevailing expansionary fiscal stance maintained by the government, the improvement in the fiscal deficit position in 2012 is mainly on account of large Southern African Customs Union (SACU) transfers.

  • Namibia’s growth prospects for the medium-term remain favourable, but downside risks stemming from global uncertainties are elevated.

  • Further efforts are required for Namibia to put in place stronger policies and strategies for managing its available mineral resources and promoting value addition of mining products in order to make growth more inclusive and increase the resilience of Namibia’s medium-term growth prospects.

Overview

Namibia’s real gross domestic product (GDP) growth is expected to remain moderate at around 4.7% in 2012, reflecting the strong performance in mining and construction activities and high government spending. The latter has been aimed at cushioning the domestic economy from the severe impact of the global economic downturn and  addressing persistently high rates of unemployment, poverty and inequality. The country’s growth prospects for the medium-term remain favourable. GDP growth is projected to remain moderate at about 4.2% per annum in 2013/14 due to the deteriorating prospects for the global economy.

After years of fiscal surpluses arising from prudent macroeconomic policies, the global economic crisis and expansionary policies to support growth have made the fiscal situation worse.  Nevertheless, Namibia’s fiscal deficit is projected to decrease from 9% of GDP in 2011/12 to 4.7% in 2012/13, and this despite the prevailing expansionary fiscal stance maintained by the government. The government authorities intend to maintain fiscal expansion during the 2013/14-2015/16 Medium Term Expenditure Framework (MTEF) period amid the challenging global economic environment. With this  in mind, the fiscal deficit is projected to average around 4.6% over this period. Namibia’s total public debt stock is expected to reach 26.3% of GDP by the end of the 2012/13 financial year and projected to reach 27.8% of GDP in 2013/14 and 30.7% in 2015/16. However, this is sustainable and below the 35.0% statutory debt-to-GDP threshold.

Downside risks to the positive medium-term outlook stemming from global uncertainties remain elevated. This includes lower SACU revenues due  to the crisis and weather-related shocks. (SACU includes Botswana, Lesotho, Namibia, South Africa and Swaziland.) Namibia’s growth prospects also continue to be negatively affected by the country’s massive   poverty, high unemployment and inequality, as well as infrastructure bottlenecks.

Namibia relies heavily on the extraction and utilisation of its abundant natural resources. This includes some of the world’s most unusual flora and fauna, as well as minerals. Diamonds and uranium account for the bulk of the country’s total exports. Namibia is also rich in a variety of other minerals, with over 30 different commodities  produced from about 40 formal mining operations. The structure of Namibia’s economy has changed over the past three decades. Although the mining sector has been the main engine of growth, its capital-intensive nature, weak linkages with other sectors and a lack of beneficiation have limited its impact on employment. As Namibia is not a member of the Extractive Industries Transparency Initiative (EITI), it must take further steps to put in place stronger policies and strategies for managing its available mineral resources and promoting value addition of mining products. This will make growth more inclusive and increase the resilience of the country’s medium-term growth prospects.

 

Figure 1: Real GDP growth 2013 (South)

Table 1: Macroeconomic indicators

 2011201220132014
Real GDP growth4.94.74.24.3
Real GDP per capita growth3.132.52.7
CPI inflation56.55.54.9
Budget balance % GDP-5.7-9-4.7-4.6
Current account % GDP-1.43.22.33

Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

 20072011
Agriculture, forestry & fishing--
Agriculture, hunting, forestry, fishing9.47.9
Construction43.9
Electricity, gas and water2.73.1
Electricity, water and sanitation--
Extractions--
Finance, insurance and social solidarity--
Finance, real estate and business services26.428.7
General government services--
Gross domestic product at basic prices / factor cost100100
Manufacturing1713.5
Mining11.910.6
Other services0.70.8
Public Administration & Personal Services--
Public Administration, Education, Health & Social Work, Community, Social & Personal Services911.3
Public administration, education, health & social work, community, social & personal services--
Social services--
Transport, storage and communication5.15.5
Transportation, communication & information--
Wholesale and retail trade, hotels and restaurants13.714.8
Wholesale, retail trade and real estate ownership--

After contracting by 1.1% in 2009 due to the impact of the global economic crisis, the Namibian economy recovered strongly, growing by 6.6% in 2010 and 4.9% in 2011. The strong growth was boosted by stimulus measures implemented by the government as of 2009 and the high commodity prices arising from improved global demand for mineral products. Real GDP growth, however, is expected to slow down to around 4.7% in 2012, reflecting the strong performance in mining and construction activities in spite of the downside risks created by the faltering global economy.

The agriculture and forestry sector (excluding fishing and hunting) contributed 4.2% to GDP in 2011. It performed poorly in 2012, growing by less than 1%, compared to 8.5% in 2011. Growth was held back by the slowdown in livestock production, which contributes over half of agricultural output. Cheaper meat substitution and competition from Botswanan beef caused cattle exports to South Africa to decline and was the main cause of the poor performance of the livestock sub-sector. On the other hand, improved rainfall and favourable harvest conditions led to strong crop yields in 2012. Access to land, however, continues to be a major challenge to boosting rural agricultural productivity.

Output in the mining and quarrying sector is estimated to have increased by almost 9% in 2012 after contracting by 8.5% in 2011. The growth in mineral production is attributed to a recovery in both diamond mining and uranium sub-sectors. Diamond mining activities registered strong growth due to increases in onshore mining production following the reopening of the Elizabeth Bay mine, while offshore activities benefited from the reinstatement of an offshore mining vessel that was discontinued in 2009. The expansion of uranium mines in 2012 (including the Langer Heinrich mine) led to a recovery in uranium production following a sharp fall in 2011. This provided a boost to other mining and quarrying activities. Uranium prices, however, remained depressed in the aftermath of the Japanese Fukushima I Nuclear Power Plant disaster, resulting in a third uranium mine being put on care and maintenance for about two years. Mining and quarrying contributed 9.5% to GDP in 2011 (diamond production accounted for 7.2% of GDP) and provided over half of Namibia’s exports in 2010.

The manufacturing sector is estimated to have expanded by almost 3.3% in 2012, compared with about 1% in 2011. Investment outlays for refurbishments and extensions of plants undertaken in 2011 led to an uptake in the production of beverages and dairy products. A growing export market, the resumption of cement exports to Angola and the commissioning of a new poultry farm – which  has applied for infant industry protection, in line with the 2002 SACU Agreement – have also bolstered the sector. It contributed 12.1% to GDP in 2011.

The construction sector was the main driver of domestic growth in 2012. It is estimated to have expanded by 8%, buoyed by increased government spending on public works through the Targeted Intervention Programme for Employment and Economic Growth (TIPEEG) and increased investments in real estate development (e.g., shopping, hotels and apartment complexes). TIPEEG, which was rolled out by the government in March 2011, seeks to address Namibia’s high unemployment rate by creating and retaining more than 100 000 job opportunities over a three-year period, starting in the 2011/12 financial year. It will cost NAD 14.6 billion (USD 1.6 billion), with the money spent on infrastructure and other public works programs targeting agriculture, tourism, transport, sanitation and housing. The construction sector’s contribution to GDP has risen from 2% in 2000 to nearly 4% in 2011.

The service sector registered a strong growth rate of 5.4% in 2012. The wholesale and retail trade sector is estimated to have grown by 4% in 2012, slightly higher than in 2011, mainly reflecting improved consumer spending. The transport and communications sectors also expanded by about 4%, consistent with the overall performance of the economy, especially mining and manufacturing. Against the backdrop of global economic uncertainties emanating from the euro area debt crisis, the hotel and restaurant industries recorded a growth rate of less than 2% in 2012. European tourists are the main source of growth for the sector. All in all the service sector contributed nearly 56.5% to GDP in 2011.

With regard to expenditures, credit extended to the private sector remained strong and grew by about 13.9% during 2012, up from 11.3% in 2011. The private sector took advantage of the prolonged low interest rates  that  prevailed in the country in 2012. The Bank of Namibia (BoN) expressed concerns about the sustained expansion in credit, particularly relating to non-productive instalment credit for  individuals, which may end up putting unnecessary pressure on the country’s international reserves. In spite of this, after keeping the Repo rate unchanged at 6% since December 2010, BoN decided to reduce the rate by 50 basis points to 5.5% in August 2012. The high rate of spillovers from weakening global economic conditions made this easing of monetary policy necessary to further shore up domestic economic growth.

Namibia’s growth prospects for the medium term remain favourable. GDP growth is projected to remain moderate at about 4.2% per annum in 2013/14 due to the deteriorating prospects of the global economy. Medium-term growth prospects depend crucially on the expansion in construction activities in the context of TIPEEG and increased diamond and uranium production, supported by additional investments in infrastructure. Reforms to further improve the business environment are also needed. Exploration activities currently underway for new mineral resources (including oil) should contribute to growth in the natural resource sector and strengthen the favourable outlook.

The faltering global economy and its impact on commodity demand and prices pose substantial downside risks to the positive medium-term outlook. If the global economy does not improve, the investment plans on which Namibia’s favourable growth prospects partly depend could be scaled back. Other risks to medium-term growth prospects include lower SACU revenues relative to the pre-crisis period, weather-related shocks and industrial action potentially spilling over from South Africa. Namibia’s growth prospects also continue to be negatively affected by the country’s massive  poverty, high unemployment and inequality, as well as by infrastructure bottlenecks.

 

Macroeconomic Policy

Fiscal Policy

After years of fiscal surpluses arising from prudent macroeconomic policies, the fiscal situation has deteriorated substantially in recent years, reflecting the global economic crisis and expansionary policies to support growth. To insulate the economy from the effects of the global economic downturn, the government adopted an expansionary fiscal policy stance in 2009/10, which has facilitated economic recovery. The budget for the 2012/13 financial year provides for the continuation of the expansionary stance to accommodate the rolling out of TIPEEG. With a total cost of over USD 1.6 billion, it is aimed at increasing growth and job creation to address persistently high rates of unemployment, poverty and inequality. Government spending is expected to increase to over 39% of GDP in 2012/13, with the fiscal deficit projected to be 4.7% of GDP, down from 9% in 2011/12. Despite the prevailing expansionary fiscal stance maintained by the government, the improvement in the fiscal deficit position is mainly on account of large SACU inflows since the beginning of the 2012/13 financial year, proceeds from Namibia’s debut Eurobond issuance of USD 500 million in November 2011 and some expenditure tightening. SACU revenues, which are known in advance, are expected to nearly double during the financial year to NAD 13.9 billion (about USD 1.5 billion), from NAD 7.1 billion  in 2010/11 (the estimate was  increased by NAD 2.5 billion [about USD 280 million] thanks to a surplus recorded in 2010/11). The government authorities intend to maintain a fairly expansionary fiscal policy during the MTEF period. Consequently, the fiscal deficit is projected to average around 4.6% of GDP over this period.

Total revenue is projected to increase to about 33.4 % of GDP in 2012/13. Taxes, the main source of government revenue, are expected to account for about 95% of total revenue in the 2012/13. Taxes on international trade, including SACU revenue, are projected to generate 38.9% of total revenue, followed by taxes on income and profits (32.7%) and domestic taxes on goods and services, including Value Added Tax (VAT) (22.2%). Namibia has one of the highest tax rates in the Southern African Development Community (SADC) region, with a top individual tax rate of 37%, a corporate tax rate of 35% and VAT set at 15%.

As of 2012/13, the government started pursuing tax policy reforms aimed at broadening and deepening the revenue base in an environment of increased trade liberalisation. They include: withholding tax on fees paid to non-residents, an increase in the non-resident shareholding tax and taxation on income from the alienation of mineral rights. Other taxes being contemplated include a revised corporate tax regime for the non-diamond mining companies and an environment tax on environmentally harmful products.

Table 3: Public Finances (percentage of GDP)

 200920102011201220132014
Total revenue and grants31.930.728.130.833.433.8
Tax revenue28.928.42830.633.233.7
Oil revenue------
Grants0.10.300.30.20.1
Total expenditure and net lending (a)30.132.833.839.838.138.4
Current expenditure23.325.726.630.830.931.3
Excluding interest21.423.925.328.726.725.5
Wages and salaries10.311.81314.714.814.7
Interest1.91.91.222.83
Primary balance3.7-0.2-4.5-7-1.9-1.6
Overall balance1.8-2.1-5.7-9-4.7-4.6

Monetary Policy

Namibia’s membership in the Common Monetary Area (CMA – Namibia, South Africa, Lesotho and Swaziland) makes any attempts at monetary policy futile. The circulation of the South African rand (ZAR) in the country alongside the Namibian dollar poses challenges as it limits Namibia’s discretion in monetary and exchange rate policies. Thus, South Africa’s policy regime is essentially Namibia’s de facto monetary and exchange rate policy framework. This makes it difficult for Namibia to adjust quickly to external shocks other than through co-ordinated decisions with its CMA neighbours, particularly South Africa. In spite of such limitations, Namibia’s membership in the CMA means it benefits from the policy credibility of the South African Reserve Bank, which includes unrestricted transfers of funds. It has also enabled Namibia to enjoy low and stable interest and inflation rates, contributing to the country’s financial stability. The overarching objective of monetary policy in Namibia is to maintain price stability. In achieving this broad objective, BoN can maintain the currency peg and, thus, a healthy balance of foreign exchange reserves.

Namibia’s inflation tracks that of South Africa, the source of about two-thirds of the country’s imports. The build-up in price pressure pushed the annual inflation rate to 7.2% in December 2011 from 3.1% in December 2010. Inflation eased to within the South African Reserve Bank (SARB) tolerable target of 3% to 6%, reaching 5.6% in June 2012, compared with 5.4% during the same period in 2011. It continued to rise to 7.6% in November 2012 (the highest rate since August 2009), before dropping to 6.3%, resulting in annual inflation of 6.5%. Key factors that have helped to drive inflation down in recent months include a fall in international prices of food and oil. The authorities expect inflation to remain within manageable levels in the medium term. That said, the resurgence in global food and fuel prices, combined with a weakening currency, is expected to exert inflationary pressure in the immediate future.

Credit extended to the private sector remained strong in 2012, growing by 13.9%,compared to 11.3% in 2011. Credit to individuals rose by 31.1% in 2012, implying that they responded positively to favourable conditions that prevailed during the year. On other hand, at 15.2% credit extended to the corporate sector remained much lower. Authorities were consequently concerned that bank funding for productive economic sectors might be crowded out. This would have put unwelcome pressure on the country’s international reserves. Against the backdrop of the slowing pace of economic recovery since 2011, the monetary authorities continued with the accommodative stance they began in December 2008. Taking advantage of prevailing low inflation, the central bank decided to reduce the Repo rate by 50 basis points to 5.5% in August 2012 (the first reduction in 20 months) to continue supporting the slow recovery of the domestic economy (BoN had kept the rate at 6% following a 75 basis-point cut in December 2010).

Economic Cooperation, Regional Integration & Trade

Namibia is a prominent advocate of regional economic integration, given its small domestic market, favourable location and a fairly good transport and communications infrastructure. Membership in the CMA, the pillar of Namibia’s monetary and exchange rate policies, has conferred macroeconomic stability and helped integrate the country into the South African money and capital markets. It has enabled the country to enjoy an unrestricted transfer of funds without any transaction costs, thereby facilitating cross-border trade among the member countries. Due to Namibia’s strategic geographical location, its ports and corridors have the potential to offer a gateway for SADC countries to and from markets in Europe and the Americas. Indeed, one of Namibia’s Fourth National Development Plan (NDP4) objectives is to capitalise on the country’s comparative advantage provided by its transport and communications infrastructure to develop Namibia as a logistics hub, offering services ranging from transport and storage solutions to customised integrated supply-chain management to countries in the region. Improving the business climate and further investment in infrastructure, including the expansion of Walvis Bay Port and the construction of the Trans-Kalahari Railway, are critical if Namibia is to achieve this objective.

The Namibian economy is very open, with the ratio of merchandise trade to GDP at 97% in 2011, easily surpassing the sub-Saharan African (SSA) (excluding South Africa) average of 79% in 2008. Namibia’s trade policy is largely governed by the Common External Tariff (CET) of the SACU, which has a common external tariff and guarantees the free movement of goods among  member countries. It represents an important source of fiscal revenue for Namibia. The average tariff has been declining due to ongoing tariff-reducing trade agreements between SACU and the European Free Trade Association (EFTA), as well as within SADC. About 80% of all Namibia’s exports benefit from free trade agreements. The country initialed the Interim Economic Partnership Agreement in November 2007, though negotiations for a full Economic Partnership Agreement (EPA) remain protracted. The European Parliament has proposed the extension of the deadline for Namibia to sign the EPA to January 2016, although this has not yet been approved by the European Commission. Failure to sign would result in the country risking losing its duty- and quota-free market access for beef, fish and grapes to 27 EU countries. Namibia wants outstanding issues to be resolved first before concluding the negotiations. These include rules of origin on fisheries, technical issues such as the Most-Favoured Nation clause (which obliges all EPA members to extend to each other better market access than they grant to other countries) and infant industry protection.

Table 4: Current Account (percentage of GDP)

 2004200920102011201220132014
Trade balance-3.6-9.7-9.1-9.4-8.9-8.5-7.2
Exports of goods (f.o.b.)32.64039.437.240.641.442.5
Imports of goods (f.o.b.)36.349.748.446.749.549.849.7
Services1.40.90.90.71.51.52.3
Factor income0.7-1.8-4.6-3.9-3.6-4.2-4.6
Current transfers10.61511.911.214.213.512.4
Current account balance9.14.4-0.9-1.43.22.33

Debt Policy

Namibia’s debt policy is guided by the Sovereign Debt Management Strategy, which its Cabinet approved in 2005. The overall objective of the strategy is to ensure that public debt remains affordable and at low risk to ensure fiscal sustainability. The government has a very prudent debt policy and has adequate debt recording systems. Against the backdrop of the global economic crisis, the authorities decided to raise the statutory public debt-to-GDP ratio from 25% to 35% in order to enable the government to implement countercyclical measures to shield the economy from the effects of the global economic downturn. As a result of the prevailing expansionary fiscal stance, Namibia’s total debt stock as a percentage of GDP increased by 10.9 percentage points from 15.9% of GDP in 2010 to 26.8% in 2011. Domestic debt increased by 5.7 percentage points to 17.9%, while external debt increased by 5.2 percentage points to 8.9% over the same period. The authorities continue to orientate government borrowing plans towards domestic sourcing so as to finance the fiscal deficit. They aim to reduce vulnerabilities stemming from external market volatility, financial shocks and foreign exchange risks and both broaden the opportunities for domestic investors and develop the local capital market, given that the banking system is cash flush (35% of all pension fund assets must be invested domestically). Nonetheless, the government issued a debut Eurobond totalling USD 500 million in November 2011. This was followed up by a 10-year bond issuance of ZAR 850 million (USD 95 million) in South Africa in November 2012 to help finance the fiscal deficit and diversify Namibia’s funding sources by establishing an international pricing benchmark and the country’s profile among the international investment community. The authorities project total debt stock to remain at about 26% of GDP in 2012. Namibia’s debt levels remain sustainable, despite the increased borrowing in recent years. The authorities are committed to keeping public debt in check in the near future. Total debt is projected at 27.8% of GDP in 2013/14 and at 30.7% in 2015/16.

Figure 2: Stock of total external debt and debt service 2013

Economic & Political Governance

Private Sector

Improving the business environment is accorded a high priority in Namibia. This is in line with the Foreign Investment Act of 1993, which is currently under review and set to be replaced with an Investment Act that covers both foreign and domestic investors. Namibia ranks among Africa’s best performers in the World Bank report Doing Business 2013, though the country has slipped in ranking to 87 out of 185 economies, from 78 in the previous year. It is the eighth best performer in Africa, below only Mauritius (19), South Africa (39), Botswana (59) and Seychelles (74) among SADC countries. However, the process of setting up a new business needs to be improved, as it takes 66 days and 10 procedures to do so in Namibia. Namibia is also ranked a low 169th in terms of registering property:  it takes 46 days and 8 procedures to do so. The government is currently taking further measures aimed at creating a highly attractive investment climate, coupled with removing unnecessary bureaucratic and regulatory obstacles to doing business. It has embarked on automating the property registration system to reduce time and red tape involved in the process. The high priority attached to improving the business climate is reflected in its inclusion in the NDP4, which was released in July 2012.

In paying taxes and trading across borders Namibia is ranked 112 and 140 respectively in the Doing Business 2013 report. It takes 37 payments and 350 hours per year to pay taxes. Although there is little state intervention in the goods market, trading across borders is more difficult than in other SACU countries. Dealing with construction permits involves 12 procedures and takes 59 days. On a positive note, according to the report Namibia has an efficient mechanism for dealing with insolvency and has managed to make getting electricity easier in the past year. However, some of this information needs to be taken with caution since it contradicts results of the Logistics Performance Index (LPI), also published by the World Bank. Based on these results, the country improved its LPI international ranking tremendously, from 152 in 2010 to 89 in 2012. Nevertheless, reform efforts aimed at further improving the business environment remain important if Namibia is to improve its competitiveness, attract more investment and achieve its NDP4 objective of becoming the logistics hub for the Southern Africa region.

Namibia’s labour law has become inflexible, making it difficult to fire employees. The Labor Amendment Act of 2012 (which was gazetted in April 2012) contains some regulations that stipulate that companies have to hire temporary workers on the same terms and conditions as permanent employees, effectively banning labour hire. The labour law is also inflexible in terms of working hours, which results in substantial loss of production time. Moreover, the administratively burdensome process of obtaining work permits for foreign employees is a hindrance to investment.

Financial Sector

Namibia has one of the most developed financial systems in SSA. The World Economic Forum’s 2012/13 Global Competitiveness Report ranked the country 55th out of 144 in availability of financial services (behind only South Africa, Mauritius and Rwanda among SSA countries). Commercial banks remain strong, well-capitalised, profitable and resilient to shocks. As of the end of December 2011, the risk-weighted capital ratio for the banking system had fallen to 14% from 15.3% in December 2010. Both the return on assets and return on equity declined from 2.5% and 21.6% to 2% and 20.9%, respectively. As of end-December 2011, the banking sector’s non-performing loans (NPLs) ratio had fallen to 1.5% from 2% in December 2010. The drop occurred in spite of the fact that total loans and advances grew by NAD 4.4 billion (about USD 500 million) to NAD 43.1 billion (USD 4.9 billion) in 2011. These figures may suggest the adequacy of the existing credit risk management processes in banking institutions. Namibia’s financial sector regulation seems broadly sound and the country has kept pace with emerging global standards. However, the commercial banks’ wide exposure to the property market, the high concentration of institutional investors in bank funding and growing household indebtedness underscore the need for the authorities to continue pursuing prudent measures in order to preserve the stability of the financial sector.

Following the licensing of a micro-finance bank in 2011, five banking institutions are licensed to undertake business in Namibia. Four of these are commercial banks, three of which are majority owned by their parent companies in South Africa. As of the end of December 2011, the banking sector’s loans-to-assets ratio fell by 3.1% to 71%, while its loans-to-deposit ratio decreased by 4.5% to 82.1%. In addition, the long-awaited SME (Small and Medium Enterprises) Bank opened its doors to the public in December 2012.

Namibia has been making progress in increasing access to financial services for its population. According to a survey conducted by FinScope in 2011, 31% of the Namibian population was excluded from financial services, compared to 51.7% in 2007. The survey concluded that the banking sector in Namibia is highly concentrated and exhibits some oligopolistic tendencies. It also noted banks did not consider transaction costs when setting their fees. As part of a series of measures aimed at promoting financial inclusion, the Bank of Namibia has set specific standards for the introduction of a basic bank account in the country, which targets individuals earning less than NAD 2 000 (USD 225) per month and does not require any proof of income for the account to be opened. In August 2012, BoN also launched the Namibia Financial Sector Strategy (NFSS) 2011-21, which was approved by Cabinet in June 2011. The NFSS aims to increase access to finance for small- and medium-sized enterprises (SMEs) and the general public, increase the resilience of the financial system, deepen the financial sector by introducing new instruments, including risk capital, and enhance consumer financial literacy. A notable milestone of the NFSS was the opening of the SME Bank in December 2012.

 

Public Sector Management, Institutions & Reform

Namibia has consistently ranked among the top SSA countries on good governance. It has well-functioning democratic institutions, press freedom and respect for the rule of law, which have all ensured peace and security. The judiciary is independent, and accountability and transparency norms are generally adhered to. Namibia has a well-organized civil service, which has benefited from a number of initiatives, including the introduction of a code of conduct. In general, hiring of civil servants is merit-based to ensure professionalism, and the government emphasises political neutrality and impartiality. The Namibian civil service is well remunerated compared to other SSA countries. However, public sector personnel costs have ballooned over the past years, increasing from 10% of GDP in 2008/09 to 14.7% of GDP in 2012/13.

An independent anti-corruption agency and an impartial judiciary contribute to the low level of corruption in the country. The 2012 Corruption Perception Index by Transparency International ranked Namibia 58th globally (out of 172 countries), a slip by one place from 2011, and the fourth and sixth least corrupt country in Southern Africa and African countries, respectively, after Botswana, Cape Verde, Mauritius, Rwanda, and Seychelles. The independence of the Auditor General’s office is being further strengthened through a new Audit Bill that has been finalised and is being legislated. A draft Public Procurement Bill aimed at modernising the procurement system is currently being reviewed. It is expected to be brought before Parliament in 2013. The Constitution was amended in 2010 to incorporate anti-corruption measures, which oblige the state to “put in place administrative and legislative measures necessary to prevent and combat corruption”.

Natural Resource Management & Environment

Namibia heavily relies on the extraction and utilisation of its massive natural resources, which include a wide diversity of  fauna, flora and minerals. Accordingly, the country accords high priority to environmental protection in order to take advantage of the opportunities presented by natural resources, thereby ensuring sustainable economic development. Environmental management is firmly anchored in the country’s laws and policies, whose roots are in the Namibian Constitution. Thus, Namibia has adopted a number of policies and strategies since 1990 to manage and preserve the environment. This has earned the country a good reputation internationally for proactive but prudent environmental management based on an innovative legislative framework. Namibia is party to a number of international environmental conventions, including the SADC Protocol on Shared Watercourses. These conventions and protocols are being implemented within the context of the Environmental Management Act, 2007. Its implementation and enforcement are being stepped up through, among other things, the use of strategic environment assessments to guide development decision making, the implementation of community-based natural resource management programmes and improved public access to environmental information. Following the adoption by Parliament of the Environmental Management and Assessment Act in 2008, the National Climate Change Policy was launched along with its accompanying Strategy and Action Plan in 2011. A Country Pilot Partnership for a Sustainable Land Management Programme to improve the management of environmental issues has also been introduced and is being implemented. The Designated National Authority for Climate Change, housed under the Ministry of Environment and Tourism, is now operational.

Political Context

Namibia gained independence from South Africa in 1990. It is a constitutional multi-party democracy, although the South-West Africa People’s Organization (SWAPO) has dominated politics since independence. SWAPO maintained its commanding majority, taking 74.3% of the parliamentary vote in November 2009. The 2012 SWAPO elective congress re-elected 71-year-old Hage Geingob as the party’s vice-president and, consequently, President Hifikepunye Pohamba’s heir apparent when he steps down after serving his two-term limit in 2015. A Geingob-led administration will likely be business friendly and will probably avoid more radical policy ideas on the state's economic role and land reform, with political stability expected to be maintained.

Social Context & Human Development

Building Human Resources

Namibia’s sustained good track record of economic growth and macroeconomic stabilisation has not been translated into appreciable reductions in poverty, unemployment and inequality. The country is an upper middle income country, with a per capita income of approximately USD 4 700 in 2011. Namibia’s Gini coefficient stood at 0.58 in 2009/10, depicting unacceptable levels of inequality that are among the highest in the world. According to the 2009/10 Namibia Household Income and Expenditure Survey, poverty levels have dropped, with 10.3% of all households classified as severely poor (or as living on less than USD 1.25 a day) in 2009, compared with 13.8% in 2004. However, Namibia is confronted with an official unemployment rate of 51.2% based on the Labor Force Survey 2008, while 83.6% of 15- to 19-year-olds are unemployed. A more recent nationwide survey puts the unemployment rate in the broad sense at 36.7%, which according to many experts is a more realistic figure. The newly created National Statistical Agency has conducted a new Labor Force Survey, whose results were to be released in March 2013.

Namibia has invested significantly in the education sector since independence in 1990. The sector remains the top priority and received the largest share of the national budget in 2012/13 (23.4%). Although past investments have resulted in some progress – the enrolment rate in primary education increased from 92.3% in 2007 to 98.3% in 2009 and the adult literacy rate reached 89% in 2011 – the quality of education across all segments is low and there is a mismatch between the demand for and supply of skills. Secondary schools and vocational and technical education also fail to produce students with the requisite skills for the job market. The MTEF provides for funds to construct and upgrade educational facilities, recruit qualified teachers and build accommodation for them in rural areas, offer continued teacher training, improve funding to the Students Financial Assistance Fund to enable more youths to access tertiary education and make increased vocational training available. Toward the end of 2012, the government announced free primary education for everyone, implying that the contributions to the School Development Funds will be abolished and that stationery will be provided by the government. While this will increase the budgetary allocation to the education sector, it will ease the financial burden of education on the poor in particular.  

Namibia’s sparsely distributed population makes it difficult and costly to provide health services. Healthcare remains a top government priority, receiving the third largest share of the national budget: 9.9% in 2012/13, up from 8.8% in the previous year. The MTEF allocates a total of NAD 11.1 billion to the health sector. This will support the delivery of quality health services, including helping to sustain critical programs previously funded by donors who are now phasing out their funding. It will also improve health facilities and the recruitment of professional staff. Progress on key health indicators has been encouraging in recent years, with malaria mortality falling to 2.4 per one hundred thousand people in 2010 from 42 in 2007 and the number of cases of TB per one hundred thousand people declining from 822 in 2004 to 565 in 2010. Namibia, however, has one of the highest HIV prevalence rates in the world, estimated for example at 18.8% of the country’s pregnant women in 2010.

Poverty Reduction, Social Protection & Labour

The government has been implementing the MTEF since 2001/02. This has helped in tracking expenditures targeting vulnerable groups and the poor, as well as in addressing issues of inequality. The authorities have consistently protected the budget for social services from cuts since independence and have implemented policies of education and health for all by allocating a large share of public expenditure to these and other social services. The education and health sectors received 23.4% and 9.9%, respectively, of the total budget in 2012/13, compared with 22% and 8.8% in 2011/12. The healthcare budget remains higher than that for the Ministry of Defence. Other priority areas include social grants, plus grants for senior citizens, orphans and vulnerable children (OVC), foster parents and veterans. As a tool for promoting transparency and accountability in the execution of the budget, the government has been publishing The Government's Accountability Report annually for the past five years. The report highlights the performance of each government agency, including progress on money spent and targets achieved.

Namibia has a generous social safety net programme for the country’s marginalised population. It also provides non-contributory social grants to some of its vulnerable citizens. The coverage of the old age grant for people over 60 has increased to 91% of eligible persons, while the number of individuals benefiting from the Maintenance Grant was in excess of 117 000 by 2011. The government targets coverage of 98% of OVC by 2013/14.

All labour legislation and practices are required to be in line with the constitution. Nevertheless, numerous strikes and demonstrations by workers have hit the country since 2011. This has forced the government to start assessing labour relations with a view to finding ways to avoid more industrial unrest in the future so as not to disrupt foreign direct investment.

There is a disparity in unemployment rates between those with and without higher education. Moreover, there is a mismatch between the types of skills imparted by the vocational training colleges and the skills that are demanded by the job market. To remedy this, the government is implementing the Education and Training Sector Improvement Programme (ETSIP) to develop relevant and in-demand skills through the vocational education system.

Gender Equality

Namibia has made significant progress in narrowing gender disparities. According to the 2012 Gender Equity Index by Social Watch, Namibia’s index is 0.77, making it second with Rwanda in Africa (South Africa is first). The Millennium Development Goal (MDG) of achieving gender parity in primary school was met in 2008, while that for secondary and tertiary education is unlikely to be met before 2015. Women and girls are not discriminated against in health, education and the job market. The literacy rate among females over 15 is 88%, while more girls are enrolled in secondary schools than boys. Almost 54% of adult women participate in the labour force.

To enhance gender equality issues, the revised National Gender Policy was launched in March 2012. Among other things, it aims to bring customary law in line with the Namibian Constitution, reforming the law on marriage and introducing a requirement to have customary marriages registered in order to provide better protection for women’s property rights. The government is placing emphasis on mainstreaming a gender perspective in the main strategies identified to achieve key NDP4 outcomes. It ratified the 2008 SADC Protocol on Gender in 2009 and has also developed the National Gender Action Plan. 

Thematic analysis: Structural transformation and natural resources

Namibia heavily relies on the extraction and utilisation of its abundant natural resources. These include some of the world’s most unusual flora and fauna, as well as minerals. Diamonds and uranium account for the bulk of the country’s total exports. Namibia is also rich in a variety of other minerals, with over 30 different commodities produced from about 40 formal mining operations. Aside from gold and silver, they include base metals such as copper, lead and zinc, as well as industrial minerals such as salt, graphite, marble, fluorspar and limestone. Other minerals found in the country include semi-precious stones, namely rose quartz, amethyst, agate and tourmaline, plus dimension stones such as granite and marble. Huge deposits of iron ore and uranium were recently discovered, and the development of a fourth uranium mine is currently under construction, with production expected to commence in 2015. Further investment in new large-scale uranium projects and the expansion of existing mines are also expected to be carried out in the medium term, subject to improvements in uranium prices. It is also suspected that Namibia has large deposits of oil, natural gas and coal. Offshore exploration for petroleum is therefore currently underway. Two wells have already been drilled, but they have not led to the discovery of economically viable deposits. Further drilling is planned to commence in the first quarter of 2013. Efforts are also being pursued for the mining of ore to commence by 2016.

The structure of Namibia’s economy has changed over the past three decades. The mining sector has been the main engine of growth and job creation for a long time. The sector’s contribution to GDP was more than 47% in 1978, but it shrunk to about 26% of GDP by the 1980s and 13% by 1991. Mining activities contracted severely due to the closure of numerous mines, reflecting the decline of mineral prices in the late 1970s and early 1980s. By 2011, the sector’s contribution to GDP had fallen to 9.5%, generating NAD 8.7 billion (USD 1 billion) of value added. In spite of the decline, mining remains the most important primary industry in Namibia, accounting for nearly 57% of primary industry’s 16.7% contribution to GDP in 2011. Manufacturing contributed 12.1% to GDP in 2011, up from 9.4% in 1991. Manufacturing activities are concentrated in the sub-sectors of food and beverages and the category of other manufacturing (which includes mineral beneficiation). These two activities accounted for 5.3% and 6.1% of GDP, respectively, in 2011. Mineral beneficiation mainly includes the smelting of copper and zinc ore, and the cutting and polishing of rough diamonds. Agriculture’s and the forestry sector’s contribution to GDP have been declining, from 9% in 1991 to nearly 4.2% in 2011. This is due to unpredictable climatic and soil conditions, which are less suitable for agricultural production. In spite of this, about 35%-40% of the population still depends on subsistence agriculture for its livelihood. The share of services in GDP rose significantly up to the period soon after independence in 1990, from an average of about 39% in the 1970s before stabilising at an average of about 56% in the 1990s. The increase can be attributed to the expansion of government services –  particularly education and health – during the period leading up to and after independence. Government services account for about 50% of the share of services in GDP.

In spite of the decline in the mining sector’s contribution to GDP, the sector has maintained its role as a major contributor to government revenue, mainly through royalties levied on the market value of minerals and the country’s exports. In 2011, ores and minerals accounted for nearly 33% of the total exports of goods and services, compared to 52.5% in 1991. Diamonds are Namibia’s most significant mineral resource, making up nearly 52% of total mineral exports in 2011, followed by uranium. Manufacturing products contributed 45.6% to Namibia’s total exports in 2011 compared to 29.2% in 1991, while agricultural products such as live animals, animal products and crops dropped to 3.9% of total exports from 6.5% during the same period.

Mining’s capital-intensive nature and weak linkages with other sectors, as well as its lack of beneficiation, has limited its impact on employment. According to the 2008 National Labor Force Survey, Namibia’s labour force amounted to 678 680 persons in 2008, of which less than 3% is employed in the mining sector. Agriculture, however, employs about half of Namibia’s labour force in spite of its small size relative to GDP. Furthermore, the Namibian economy still remains dependent upon commodity-driven growth due to its heavy reliance on the mining sector. As such, Namibia remains highly vulnerable to commodity price shocks. The country therefore needs to make further progress in developing stronger engines for growth in order to increase the resilience of its medium-term growth prospects.

Against this background, optimising mineral linkages needs to be a conscious policy in Namibia. The country has potential for large expansion – particularly in secondary industries – through further exploration of mineral beneficiation opportunities, including the identification and development of upstream activities. For instance, only 10% of diamonds mined in Namibia were kept for cutting and polishing by local industry in 2011. Moreover, currently very little value addition is carried out in Namibia with regard to both agricultural and fish products. The government is cognisant of the fact that manufacturing can contribute toward enhancing the Namibian economy’s resilience to external shocks and promoting inclusive growth. It has identified specific agents of expansion in the manufacturing sector, including upstream mining products (inputs for mining activity), mineral beneficiation (potentially in copper, diamonds, gold, uranium, zinc and small-scale mining output) and agro- and fish-processing. The government is aware that reaching a high level of growth in manufacturing is possible only if such initiatives are supported and an investment climate is cultivated to enable them to thrive. The government also recognises that the beneficiation of diamonds is restricted by inadequate skills and infrastructure bottlenecks. Initiatives aimed at addressing issues of capacity are being pursued through the ESTIP. The government also recently launched the Human Resource Development Council to address the skills mismatch in the labour market. 

Current initiatives to stimulate manufacturing activities include the launching of the Draft Industrial Policy Strategies, which is scheduled for the first half of 2013. The government also intends to undertake an extensive value chain analysis of the goods produced in Namibia. This includes examining the further beneficiation of copper, gold, uranium, zinc and small-scale mining products in order to determine areas where additional value addition can be viably undertaken. There are also plans to increase the supply of rough diamonds for local cutting and polishing factories to increase the current levels of mineral beneficiation. Through suitable support and incentives, the government feels that agro- and fish-processing could also serve as a strategic manufacturing industry for Namibia.

Namibia’s mining industry is regulated by the Minerals Policy of Namibia. It is also governed by the Diamond Act (1999), the Minerals (Prospecting and Mining) Act (1992) and the Minerals Development Fund of Namibia Act (1996). The Minerals Act was enacted in order to encourage environmentally acceptable mining. However, Namibia is not a member of the Extractive Industries Transparency Initiative (EITI). Further efforts are therefore required for the country to put in place stronger policies and strategies for managing its available mineral resources and promoting the value addition of mining products in order to make growth more inclusive and increase the resilience of the country’s medium-term growth prospects.

 

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