Transcript Economy of Namibia

NS4301
Summer 2015
Economy of Namibia
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
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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 postindependence 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
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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
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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
Background VI
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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
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.
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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
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Namibia: WEF I
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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
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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.
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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.
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Real GDP Growth
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GDP by Sector
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External Debt Position
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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.
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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.
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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
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Future TFP I
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Future TFP II
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Future TFP III
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Namibia: WEF II
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Namibia: WEF III
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Voice and Accountability
Percentile: Voice and Accountability
80
75
70
65
60
55
50
45
40
35
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
25
Percentile: Political Stability/Absence of Violence
Political Stability/Absence of Violence
100
90
80
70
60
50
40
30
20
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
26
Percentile: Government Effectiveness
Government Effectiveness
80
75
70
65
60
55
50
45
40
35
30
25
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
M AURITIUS
M OZAMBIQUE
NAM IBIA
SOUTH AFRICA
Average
27
Regulatory Quality
Percentile: Regulatory Quality
80
70
60
50
40
30
20
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
M AURITIUS
M OZAM BIQUE
NAM IBIA
SOUTH AFRICA
Average
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Rule of Law
90
Percentile: Rule of Law
80
70
60
50
40
30
20
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
M AURITIUS
M OZAM BIQUE
NAMIBIA
SOUTH AFRICA
Average
29
Control of Corruption
Percentile: Control of Corruption
80
75
70
65
60
55
50
45
40
35
30
25
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
MAURITIUS
MOZAMBIQUE
NAMIBIA
SOUTH AFRICA
Average
30
Over-All Economic Freedom
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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
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Namibia: Economic Freedom II
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Namibia: Economic Freedom III
34
Namibia: Economic Freedom IV
35
Namibia: Economic Freedom V
36
Namibia: Economic Freedom VI
37
Namibia: Economic Freedom VII
38