Namibia’s Growth Challenge

SINCE the achievement of Independence 17 years ago, the performance of the Namibian economy has been mixed.

It has been marked by positive but sluggish growth during this period. In terms of gross domestic product (GDP), which is the broadest measure of overall economic activity within the country’s borders, the growth rates of the Namibian economy have been hovering around 4 per cent a year.When looked at from the vantage point of various key macroeconomic indicators, such as the country’s terms of trade, its external debt and its rates of inflation, the Namibian economy appears robust.But upon closer examination, its performance is revealed to be marginal, characterised by low investment, high rates of unemployment, huge income inequality, and poverty among the majority of the population.Namibia’s economic growth has, as stated above, been sluggish for nearly two decades now.In 1996 – 2000, its average annual GDP growth was 4,0 per cent; and in 2001 – 2005, it rose slightly to 4,7 per cent.It was only in 2004 that the country’s annual GDP grew markedly high at 6,6 per cent.But it declined soon thereafter to 4,3 per cent and 4,0 per cent in 2005 and 2006 respectively.For the current year, the official projection is that GDP growth will be 4,1 per cent.These rates of growth have been flat.They could, however, underpin basic domestic incomes and whatever essential spending there has been.But they still fall well short of what is required to accelerate development and, therefore, to meet the country’s many and seemingly daunting socio-economic demands.From a glance at some of the country’s official policy documents, it is evident that poverty reduction is the nation’s top priority.This calls for rapid and significantly high rates of economic growth.Of course growth by itself is not sufficient for poverty reduction.But no country has achieved real improvement in the economic fortunes of its citizens without sustained and broadly based economic growth.Namibia can be no exception to this rule.In 1998, the Namibian Government announced that it had adopted Vision 2030 as its conceptual road map to a better and brighter future, or a promise to the nation of a preferred future.It envisions Namibia to be an industrial nation by 2030, an ambitious goal indeed.In 2000, Namibia also committed itself squarely to the UN Millennium Development Goals (MDGs) whose key plank is to halve poverty in the country by 2015.This MDGs, also referred to as the International Development Goals for the 21st Century, set global targets for poverty reduction with regard to education, health, gender equality and environmental sustainability.Halving poverty is defined as cutting down by half the proportion of people who live on less than the equivalent of one US dollar a day.halfway to 2030 Nearly a decade into Vision 2030 and just about at halfway point between the setting of the MDGs in 2000 and the reaching of their deadline in 2015, we need to ask the salient question: Will the Namibian economy, growing at a slow pace as it is, meet these seemingly daunting developmental commitments? This is no idle question.The answer to it matters.It will help us to determine whether Vision 2030 and MDGs are realisable goals or they are mere public relations charades.At the opening of this century, that is, in 2000, the World Bank, in collaboration with the African Development Bank, the African Economic Consortium, the Global Coalition for Africa and the United Nations Economic Commission for Africa, published quite a seminal book titled ‘Can Africa Claim The 21st Century?’.The theme of that provocatively titled publication is on Sub-Saharan Africa’s prospects for economic and social development in the 21st century.It asserts, amongst other things, that the new century provides unique opportunities for Africa to claim this as its century.In this regard the publication puts forth what it calls three emerging positive factors.The first of these is given as increasing political participation, which is said to open up the way to greater accountability and a new development discourse.The second factor is postulation that because the advent of the century has coincided with the end of the Cold War, this has helped Africa to change from being a strategic and ideological battleground to a new business address for trade and development.And the third is said to be globalisation, information and communication technology that offer enormous opportunities for Africa to leapfrog stages of development.The book then goes on to argue very forcefully that African countries, which seek to surmount the low level of development trap in which they have been caught for much of the 20th century, must raise their average annual GDP growth to more than 7 per cent.This same average GDP growth is also required, according to the book, to halve poverty by 2015 in line with the Millennium Development Goals, discussed above.As has been pointed out, Namibia’s economic growth is hovering around 4 per cent a year.The country’s investment rates averaged 26 per cent of GDP in 2001 – 2005.The World Bank publication stipulates that investment rates need to be at no less than 30 per cent and be sustained at that level for extended period, if growth is to make a major dent on poverty.current investments Currently Namibia’s new investments are largely flowing into the operations of the mining and public sector (parastatals).But their positive impact on the economy is constantly being diluted by the large and persistent capital outflows.These outflows take place through the activities of the country’s pension funds, insurance companies and unit trusts.In other words, the country’s asset management companies are continuously deploying Namibia’s capital into South African portfolio and offshore investments.This is obviously happening to the detriment of Namibia’s own investment needs.Thus, while helping to channel the nation’s household savings into financial assets and thereby contributing to the deepening of Namibia’s financial market, these financial institutions are continuing to nurture the paradox of keeping Namibia as a net exporter of capital, but one that is itself starved of the essential investment it needs to fast track the growth and development of the country’s economy.The outflows of capital are being justified on the grounds that Namibia lacks domestic investment opportunities.This argument reflects rightly the underdevelopment and smallness of the country’s entrepreneurial class.A significant number of those making up Namibia’s business community lack both the skills and practical experience necessary to be able to discern gaps in both the domestic and global markets.In other words, there is a severe shortage of people who can identify business opportunities and who have the requisite drive to undertake daring business activity.But, besides the unabated outflows of capital, and the technical and marginal inadequacy of Namibia’s entrepreneurial class, there is also an obvious lack of concerted and sustained drive for the promotion of direct foreign investment.Gone are the days when the country’s Investment Centre could aggressively sell Namibia as an attractive location for investment.One recalls, with nostalgia, the focus and professionalism with which people like Steve Galloway and David Nuyoma, when they were at the helm of that Centre, were able to forcefully and persuasively market the country as a welcoming business environment.Notwithstanding the misgivings some Namibians have that foreign investment tends to be footloose, the fact remains that such investment brings with it not only capital; but also managerial skills and experience and technology.To say that there is no drive and focus about the promotion of foreign investment today is not to deny the fact that the country has received notable investment over the last two years or so.But the current investor interest in Namibia is not a result of the country’s focused and aggressive promotion efforts.Rather, the new investment that has come into the country is spurred by a windfall of high prices in the world mineral markets.This is, of course, welcome.But we just have to keep in mind that this is a country where three-quarters of the total export revenues are derived from primary commodity markets (mainly minerals, meat and fish); and that such markets are highly exposed to volatility or rapid and recurring changes as to demand and fluctuation in prices.MINING REMAINS THE DRIVER But nearly all the new inflows of investment have gone into the same old extractive activities, i.e., mining of diamonds, uranium, copper, gold and zinc as well as in the search for petroleum.This means that the mining sector remains the driver for the Namibian economy, as was the case in the colonial days.Concentration on the production and export of primary commodities (traditional exports) will not now, as in the past, bring about lasting supply-side benefits to the wider economy.Namibia’s main growth priority is thus to achieve diversification.This calls a strategic focus on attracting investment in other sectors of the economy, such as irrigated agriculture, manufacturing and tourism.There has been talk recently about rural development as a way to fight poverty.But this seems to be a mere reference to things like extending rural water and electricity supply as well as the combating of livestock diseases.Yet, for the larger number of the Namibian people, who are concentrated in the country’s northern and north-eastern belt, life continues to centre around the subsistence production of millet, sorghum, maize, groundnuts, etc, as the main domestic food staples.Real improvement regarding the lives of the rural majority would mean large-scale (initially subsidised) application of fertiliser to agricultural production.The development of rural infrastructure like irrigation (where possible), feeder roads, grain silos and provision of small trading and milling networks, will represent real incentives for increased food crop and cash crop (cotton, tobacco etc.) production in the northern and north-eastern belt of the country.It will represent a measurable assault on rural poverty.They will, moreover, give substance to the empty talk about rural development.In parts of the south, large-scale production and export of grapes have already underlined the importance of irrigated agriculture.The failure to implement the “green scheme” more than half a decade since it was adopted by Cabinet as a top priority makes one seriously doubt our nation’s capacity to translate the dream called Vision 2030 into realisation.The stagnation of the country’s manufacturing sector, due largely to the decline of fish processing and virtual pulling-out of the country by Ramatex, represents an ominous prospect for the diversification and growth of the Namibian economy.THE DECLINE OF FISH The decline of the fish-processing industry is reported to be a result of aberrations at sea, which have affected the availability of fish resources along our coast.Therefore, there was not much that the country could do to prevent such a development.However, the loss of Ramatex, a fully integrated labour-intensive company with a capacity for spinning, knitting, dying and finishing, is truly regrettable.This was a manufacturing plant not based on local natural resources, and it was the only company in the country that has been accorded AGOA status, i.e., eligibility to export textile and garment products to the United States free of quotas and other import barriers.At full capacity, it was designed to train and employ 10 000 workers.The labour and environmental problems surrounding Ramatex operation were not insurmountable if there was will and firm resolve to negotiate a solution with all parties concerned; the company could have been rescued.Now the nation must confront the painful reality of several thousands of people who will join the already huge army of unemployed in the country.With its wide open spaces, clean air and spectacular wildlife, Namibia has tremendous potential to grow its tourism industry.With further development of new and improvement of the existing tourism facilities as well as the redoubling of its promotion efforts in Europe, North America and Asia, it can, indeed, be among the top tourism destinations in the world.The country needs to seriously address impediments to tourism, such as those concerned with security, infrastructure development, and efficient visa and immigration procedures.The promotion of the tourism industry is crucial for the diversification and growth of the economy.* Hidipo Hamutenya is a Member of Parliament for Swapo.In terms of gross domestic product (GDP), which is the broadest measure of overall economic activity within the country’s borders, the growth rates of the Namibian economy have been hovering around 4 per cent a year. When looked at from the vantage point of various key macroeconomic indicators, such as the country’s terms of trade, its external debt and its rates of inflation, the Namibian economy appears robust.But upon closer examination, its performance is revealed to be marginal, characterised by low investment, high rates of unemployment, huge income inequality, and poverty among the majority of the population.Namibia’s economic growth has, as stated above, been sluggish for nearly two decades now.In 1996 – 2000, its average annual GDP growth was 4,0 per cent; and in 2001 – 2005, it rose slightly to 4,7 per cent.It was only in 2004 that the country’s annual GDP grew markedly high at 6,6 per cent.But it declined soon thereafter to 4,3 per cent and 4,0 per cent in 2005 and 2006 respectively.For the current year, the official projection is that GDP growth will be 4,1 per cent.These rates of growth have been flat.They could, however, underpin basic domestic incomes and whatever essential spending there has been.But they still fall well short of what is required to accelerate development and, therefore, to meet the country’s many and seemingly daunting socio-economic demands.From a glance at some of the country’s official policy documents, it is evident that poverty reduction is the nation’s top priority.This calls for rapid and significantly high rates of economic growth.Of course growth by itself is not sufficient for poverty reduction.But no country has achieved real improvement in the economic fortunes of its citizens without sustained and broadly based economic growth.Namibia can be no exception to this rule.In 1998, the Namibian Government announced that it had adopted Vision 2030 as its conceptual road map to a better and brighter future, or a promise to the nation of a preferred future.It envisions Namibia to be an industrial nation by 2030, an ambitious goal indeed.In 2000, Namibia also committed itself squarely to the UN Millennium Development Goals (MDGs) whose key plank is to halve poverty in the country by 2015.This MDGs, also referred to as the International Development Goals for the 21st Century, set global targets for poverty reduction with regard to education, health, gender equality and environmental sustainability.Halving poverty is defined as cutting down by half the proportion of people who live on less than the equivalent of one US dollar a day.halfway to 2030 Nearly a decade into Vision 2030 and just about at halfway point between the setting of the MDGs in 2000 and the reaching of their deadline in 2015, we need to ask the salient question: Will the Namibian economy, growing at a slow pace as it is, meet these seemingly daunting developmental commitments? This is no idle question.The answer to it matters.It will help us to determine whether Vision 2030 and MDGs are realisable goals or they are mere public relations charades.At the opening of this century, that is, in 2000, the World Bank, in collaboration with the African Development Bank, the African Economic Consortium, the Global Coalition for Africa and the United Nations Economic Commission for Africa, published quite a seminal book titled ‘Can Africa Claim The 21st Century?’.The theme of that provocatively titled publication is on Sub-Saharan Africa’s prospects for economic and social development in the 21st century.It asserts, amongst other things, that the new century provides unique opportunities for Africa to claim this as its century.In this regard the publication puts forth what it calls three emerging positive factors.The first of these is given as increasing political participation, which is said to open up the way to greater accountability and a new development discourse.The second factor is postulation that because the advent of the century has coincided with the end of the Cold War, this has helped Africa to change from being a strategic and ideological battleground to a new business address for trade and development.And the third is said to be globalisation, information and communication technology that offer enormous opportunities for Africa to leapfrog stages of development.The book then goes on to argue very forcefully that African countries, which seek to surmount the low level of development trap in which they have been caught for much of the 20th century, must raise their average annual GDP growth to more than 7 per cent.This same average GDP growth is also required, according to the book, to halve poverty by 2015 in line with the Millennium Development Goals, discussed above.As has been pointed out, Namibia’s economic growth is hovering around 4 per cent a year.The country’s investment rates averaged 26 per cent of GDP in 2001 – 2005.The World Bank publication stipulates that investment rates need to be at no less than 30 per cent and be sustained at that level for extended period, if growth is to make a major dent on poverty.current investments Currently Namibia’s new investments are largely flowing into the operations of the mining and public sector (parastatals).But their positive impact on the economy is constantly being diluted by the large and persistent capital outflows.These outflows take place through the activities of the country’s pension funds, insurance companies and unit trusts.In other words, the country’s asset management companies are continuously deploying Namibia’s capital into South African portfolio and offshore investments.This is obviously happening to the detriment of Namibia’s own investment needs.Thus, while helping to channel the nation’s household savings into financial assets and thereby contributing to the deepening of Namibia’s financial market, these financial institutions are continuing to nurture the paradox of keeping Namibia as a net exporter of capital, but one that is itself starved of the essential investment it needs to fast track the growth and development of the country’s economy.The outflows of capital are being justified on the grounds that Namibia lacks domestic investment opportunities.This argument reflects rightly the underdevelopment and smallness of the country’s entrepreneurial class.A significant number of those making up Namibia’s business community lack both the skills and practical experience necessary to be able to discern gaps in both the domestic and global markets.In other words, there is a severe shortage of people who can identify business opportunities and who have the requisite drive to undertake daring business activity.But, besides the unabated outflows of capital, and the technical and marginal inadequacy of Namibia’s entrepreneurial class, there is also an obvious lack of concerted and sustained drive for the promotion of direct foreign investment.Gone are the days when the country’s Investment Centre could aggressively sell Namibia as an attractive location for investment.One recalls, with nostalgia, the focus and professionalism with which people like Steve Galloway and David Nuyoma, when they were at the helm of that Centre, were able to forcefully and persuasively market the country as a welcoming business environment.Notwithstanding the misgivings some Namibians have that foreign investment tends to be footloose, the fact remains that such investment brings with it not only capital; but also managerial skills and experience and technology.To say that there is no drive and focus about the promotion of foreign investment today is not to deny the fact that the country has received notable investment over the last two years or so.But the current investor interest in Namibia is not a result of the country’s focused and aggressive promotion efforts.Rather, the new investment that has come into the country is spurred by a windfall of high prices in the world mineral markets.This is, of course, welcome.But we just have to keep in mind that this is a country where three-quarters of the total export revenues are derived from primary commodity markets (mainly minerals, meat and fish); and that such markets are highly exposed to volatility or rapid and recurring changes as to demand and fluctuation in prices. MINING REMAINS THE DRIVER But nearly all the new inflows of investment have gone into the same old extractive activities, i.e., mining of diamonds, uranium, copper, gold and zinc as well as in the search for petroleum.This means that the mining sector remains the driver for the Namibian economy, as was the case in the colonial days.Concentration on the production and export of primary commodities (traditional exports) will not now, as in the past, bring about lasting supply-side benefits to the wider economy.Namibia’s main growth priority is thus to achieve diversification.This calls a strategic focus on attracting investment in other sectors of the economy, such as irrigated agriculture, manufacturing and tourism.There has been talk recently about rural development as a way to fight poverty.But this seems to be a mere reference to things like extending rural water and electricity supply as well as the combating of livestock diseases.Yet, for the larger number of the Namibian people, who are concentrated in the country’s northern and north-eastern belt, life continues to centre around the subsistence production of millet, sorghum, maize, groundnuts, etc, as the main domestic food staples.Real improvement regarding the lives of the rural majority would mean large-scale (initially subsidised) application of fertiliser to agricultural production. The development of rural infrastructure like irrigation (where possible), feeder roads, grain silos and provision of small trading and milling networks, will represent real incentives for increased food crop and cash crop (cotton, tobacco etc.) production in the northern and north-eastern belt of the country.It will represent a measurable assault on rural poverty.They will, moreover, give substance to the empty talk about rural development.In parts of the south, large-scale production and export of grapes have already underlined the importance of irrigated agriculture.The failure to implement the “green scheme” more than half a decade since it was adopted by Cabinet as a top priority makes one seriously doubt our nation’s capacity to translate the dream called Vision 2030 into realisation.The stagnation of the country’s manufacturing sector, due largely to the decline of fish processing and virtual pulling-out of the country by Ramatex, represents an ominous prospect for the diversification and growth of the Namibian economy. THE DECLINE OF FISH The decline of the fish-processing industry is reported to be a result of aberrations at sea, which have affected the availability of fish resources along our coast.Therefore, there was not much that the country could do to prevent such a development.However, the loss of Ramatex, a fully integrated labour-intensive company with a capacity for spinning, knitting, dying and finishing, is truly regrettable.This was a manufacturing plant not based on local natural resources, and it was the only company in the country that has been accorded AGOA status, i.e., eligibility to export textile and garment products to the United States free of quotas and other import barriers.At full capacity, it was designed to train and employ 10 000 workers.The labour and environmental problems surrounding Ramatex operation were not insurmountable if there was will and firm resolve to negotiate a solution with all parties concerned; the company could have been rescued.Now the nation must confront the painful reality of several thousands of people who will join the already huge army of unemployed in the country.With its wide open spaces, clean air and spectacular wildlife, Namibia has tremendous potential to grow its tourism industry.With further development of new and improvement of the existing tourism facilities as well as the redoubling of its promotion efforts in Europe, North America and Asia, it can, indeed, be among the top tourism destinations in the world.The country needs to seriously address impediments to tourism, such as those concerned with security, infrastructure development, and efficient visa and immigration procedures.The promotion of the tourism industry is crucial for the diversification and growth of the economy.* Hidipo Hamutenya is a Member of Parliament for Swapo.