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