Economy: Long-term optimism justified
Achieving higher real GDP growth over a sustained period is far from impossible for Namibia, even without the prospects of oil and gas, says Cirrus Capital. However, this will require honest scrutiny of policy.The growth forecasts for 2023 take Namibia’s real gross domestic product (GDP) to a new peak - above the 2018 level) - meaning this is the first year of organic growth.
Namibia’s outlook is improving, with many exciting developments.
Chief amongst these are in the extractives sector, where exploration activity remains elevated, various new mines are being proposed for development, and the recent offshore oil and gas discoveries that could transform Namibia entirely.
These provide justification for long-term optimism.
In the short and medium term, the outlook for sustained and stable growth is welcome change from the prior seven years.
However, these rates are insufficient to meet Vision 2030 targets and address the large substantial unemployment challenge.
Stronger growth, upwards of 4.5%, is necessary to ensure sustained job creation faster than there are new entrants to the job market, resulting in sustained net employment gains.
Achieving higher real GDP growth over a sustained period is far from impossible for Namibia, even without the prospects of oil and gas.
Furthermore, higher growth can be achieved without the need for fiscal stimulus. Rather, it needs a change in policy and materially faster implementation. These points are nothing new.
There have been some positive changes.
The change in tax policy should not be understated, shifting from introducing new taxes to promising tax cuts. This is undoubtedly a step in the right direction, but is indicative of some pro-growth efforts slowly starting to crystalise.
The importance of investment, whether domestic or foreign, has also gained a foothold.
This has taken the form not only of overt acknowledgement, but also efforts such as the establishment of the Namibia Investment Promotion and Development Board (NIPBD).
However, this has not been without its challenges. Given its mandate and role, there has been conflict between the NIBPD and other organs of state, including the ministry responsible for trade.
Concurrent jurisdiction and duplicating roles have seen some efforts largely lose steam, shifting from one entity to the other under different claims for jurisdiction.
One thing clear about much of Namibia’s economic policy efforts is that it far too often forgets to look at the bigger picture.
Policies and growth strategies are focused on microeconomic solutions, often very sector-specific, factoring in direct support from a cash-strapped government or making consumers carry the additional cost (as with protectionism), or looking to hoist additional responsibilities on a struggling private sector.
For instance, the agriculture sector is often favoured as the sector for driving (employment-led) growth. This ignores that Namibia has limited arable land, is a semi-arid country vulnerable to changes in weather patterns, and that Namibia’s agricultural employment is characterised mostly by subsistence farming (and average wages are low where there is remunerated employment for back-breaking work).
An ‘agrarian revolution’ is not the silver bullet, no more than are expensive and inefficient energy sources.
There are a host of challenges common to entrepreneurs, established businesses and potential investors. These ‘macro’ factors should be addressed in order to spur growth, entrepreneurship, and investment.
Namibia’s attractiveness and competitiveness as an investment destination (for local and foreign capital) must be addressed, before we spend taxpayers’ money jetting around the world and trying to market the country.
It must be asked: for all the public money and effort spent on various investment ‘initiatives’, plans, policies and strategies, what (successful) investment have they resulted in were such resources not deployed?
Additionally, the regular policy ‘own goals’ must be stopped as well.
The most recent includes the tabling late last year of a disastrous Namibia Investment Promotion and Facilitation Bill, which was hurriedly withdrawn. These mishaps cause damage; withdrawing such bad policy does not repair the damage they have caused.
Tax, red tape
Macro solutions to Namibia’s challenges are self-evident.
Addressing the tax burden is one of them, but requires a deeper look at the incentives (and disincentives) created by the current tax regime. Over and above this, Namibia’s corporate tax rate is high by regional standards, so a gradual reduction to 30% is welcome, but more can be done.
The bureaucratic nightmare of starting and running a business needs to be addressed, across its complexity, cost (in terms of time and money), and processes (simplify, digitise).
A dramatic reversal of the state’s intervention in the economy is needed.
This in its participation in sectors where there is no market failure to address (e.g. fuel stations) or where there are perverse incentives (failing state-run rail freight), but also in its micromanagement of private enterprise (e.g. the impact of being deemed a ‘designated employer’ or wanting to oversee investment decisions).
Lastly, the approach to immigration must be overhauled.
Skilled persons or entrepreneurs who wish to ply their trade in Namibia should be encouraged and embraced: skilled immigration is net positive for job creation.
While reforms such as these have obvious benefits that favour a particular sector of the economy, it is difficult to see them being introduced (let alone implemented) any time soon.
The changing political landscape means that passing legislation from 2025 onwards may be far more difficult than it ever has been, meaning there is little time to waste to ensure that good policy comes through.
The rise of economic populism (particularly economic nationalism) risks Namibia losing out on her substantial potential. This is worsened by the confluence between state and party (a regional challenge). – Cirrus Capital
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