Namibia - Economy Sectors

For historical and other reasons, the Namibian economy is dominated by South Africa, with (or through) which 80% of its trade is conducted. It is also unduly dependant on diamonds, uranium and zinc, which provide over half of the country's exports. Major economic challenges facing the government include reducing the public sector budget deficit, increasing efficiency and creating jobs (unemployment is estimated at between 35% and 55%). A relatively high per capita GDP conceals wide economic disparities, many of which were inherited from apartheid. There are good prospects for economic diversification in fields like tourism, fisheries and manufacturing, but none has the potential on its own to significantly reduce unemployment. The government is encouraging foreign investment in order to develop a diverse economy that alleviates both unemployment and chronic rural poverty.

Namibia has enjoyed steady financial sector developments. The banking system is well capitalized and profitable, with low levels of nonperforming loans (Table 6). Nonbank financial institutions (NBFIs) are also well capitalized, with the average solvency level exceeding the statutory requirement. Both the banking sector and NBFIs expanded rapidly, underpinning Namibia’s robust growth performance. Vigorous private credit growth (to both household and corporate sectors) has buoyed economic activity mainly through its contributions to construction and real estate.

Mining and Energy

There are large Chinese foreign investments in Namibia, particularly in the uranium mining sector. Australia and the United Kingdom (UK) are other important investors in uranium mining. South Africa has considerable investments in the diamond mining and banking sectors, while the U.K. has additional investment in zinc and copper mines. Foreign investors from Brazil, Spain, the U.K, Netherlands, the United States and other countries have expressed interest in oil exploration off the Namibian coast although the interest has dwindled with the worldwide drop in petroleum prices.

As was the case for many countries, Namibia’s extractive industries, particularly the diamond industry, experienced a significant decline due to the 2008 global economic downturn, although uranium was an exception. Mining contributed approximately 9% of GDP in 2010. While Namibia recovered over 2 million carats of diamonds in 2008, it mined only 929,000 carats in 2009, a 58% drop in production. As the world recession subsided, diamond mining rebounded in 2010, with close to 1.5 million carats recovered. Namibia is the world’s fourth-largest producer of uranium oxide, representing approximately 10% of global uranium production. Namibia has two operational uranium mines. Two or three new uranium mines may open over the next 5 years. Other important mineral resources are zinc, copper, lead, gold, fluorspar, and salt. The country also is a source of natural stones such as granite and marble. Semiprecious stones are mined on a smaller scale.

Namibia's Erongo region hosts a large number of easily-accessible, near surface, primary alaskite- and secondary calcrete-hosted uranium deposits. These deposits are mostly low-grade, but economically mineable at prices above $60 per pound projected. Uranium should surpass diamonds as the country's most valuable mineral export by 2010, according to the Chamber of Mines of Namibia. Namibia ranked fourth amongst the world's largest uranium oxide producers in 2008, behind Canada, Australia and Kazakhstan. In 2008, Namibia's total production reached 5,150 tons. Rio Tinto's Rossing Uranium mine produced 4,070 tons (reftel), while Paladin Resources' Langer Heinrich mine produced 1,080 tons. Planned expansions could increase the country's output to 13,000 tons of U3O8 (yellow-cake) per year by 2015. Uranium exports in 2008 amounted to $629 million, up 11 percent from 2007, and accounted for 37 percent of total raw mineral exports and 22 percent of Namibia's total exports.

During the pre-independence period, large areas of Namibia, including offshore, were leased for oil prospecting. Natural gas was discovered in 1974 in the Kudu Field off the mouth of the Orange River. The field is thought to contain reserves of over 1.3 trillion cubic feet. In 2009, the government announced changes to the ownership structure of the Kudu project. Tullow Oil Plc, which had owned 70% of the Kudu gas field, saw its stake drop to 31%. Japanese firm Itochu Corporation, which owned 20% in the project, now owns 15%. The Namibian Government through state petroleum firm NAMCOR has partnered with the Russian firm Gazprom to take a 54% stake in Kudu. NAMCOR had previously held a 10% interest. Plans are also underway to build the country's first combined cycle power station near Oranjemund. With power shortages facing the Southern African region, the government has stated its commitment to develop the Kudu gas field. However, supply of electricity in the short to medium term remains a challenge.

Namibia has a well-developed legislative framework governing the upstream and downstream oil business. Currently there are eight companies exploring for oil and gas.

Agriculture

Although Namibian agriculture--excluding fishing--contributed between 4% and 6% of Namibia's GDP for the past 5 years, a large percentage of the Namibian population depends on agricultural activities for livelihood, mostly in the subsistence sector. Animal products, live animals, and crop exports constituted roughly 4.7% of total Namibian goods exported in 2010. The government encourages local sourcing of agriculture products. Retailers of fruits, vegetables, and other crop products must purchase 27.5% of their stock from local farmers.

In the largely white-dominated commercial sector, agriculture consists primarily of livestock ranching. Cattle raising is predominant in the central and northern regions, while karakul sheep and goat farming are concentrated in the more arid southern regions. Subsistence farming is mainly confined to the "communal lands" of the country's populous north, where roaming cattle herds are prevalent and the main crops are millet, sorghum, corn, and peanuts. Table grapes, grown mostly along the Orange River in the country's arid south, are becoming an increasingly important commercial crop and a significant employer of seasonal labor.

The government's land reform policy is shaped by two key pieces of legislation: the Agricultural (Commercial) Land Reform Act 6 of 1995 and the Communal Land Reform Act 5 of 2002. The government remains committed to a "willing seller, willing buyer" approach to land reform and to providing just compensation as directed by the Namibian constitution. As the government addresses the vital land and range management questions, water use issues and availability are considered.

Fishing

The fishing grounds off the Namibian coast were considered to be among the richest in the world. During the 196Os, the fishing industry was a greater source of export revenue than agriculture, but heavy exploitation by foreign fishing boats has caused revenues to decline.

European and Chinese companies are investing in the fisheries sector. The clean, cold South Atlantic waters off the coast of Namibia are home to some of the richest fishing grounds in the world, with the potential for sustainable yields of up to 1.5 million metric tons per year. Commercial fishing and fish processing is one of the significant sectors of the Namibian economy in terms of employment, export earnings, and contribution to GDP. In 2010, fishing contributed almost 2.7% of GDP, while on-shore processing of fish products contributed another 1%. The Namibian Government has actively pursued value-addition policies aimed at increasing on-shore processing of fish products.

The main species found in abundance off Namibia are pilchards (sardines), anchovy, hake, and horse mackerel. There also are smaller but significant quantities of sole, squid, deep-sea crab, rock lobster, and tuna. However, at the time of independence, fish stocks had fallen to dangerously low levels due to the lack of protection and conservation of the fisheries and the overexploitation of these resources. This trend appears to have been halted and reversed since independence, as the Namibian Government is now pursuing a conservative resource management policy along with an aggressive fisheries enforcement campaign. Namibia is a signatory to the Convention on Conservation and Management of Fisheries Resources in the South-East Atlantic (Seafo Convention). The country is also part of the Benguela Current Large Marine Ecosystem (BCLME) program, which is designed to help the Governments of Namibia, Angola, and South Africa manage their shared marine resources in an integrated and sustainable way.

Manufacturing and Infrastructure

In 2010, Namibia's manufacturing sector (including meat and on-shore fish processing) contributed about 14.4% of GDP. Namibian manufacturing has historically been inhibited by a small domestic market, dependence on imported goods, limited supply of local capital, widely dispersed population, small skilled labor force and high relative wage rates, and subsidized competition from South Africa.

Walvis Bay has a well-developed, deepwater port, considered by many one of the best in Western Africa, and Namibia's fishing infrastructure is most heavily concentrated there. The Namibian Government expects Walvis Bay to become an important commercial gateway to the Southern African region. However, government officials acknowledge that many segments of Namibia's more than 2,300 kilometers of rail infrastructure require urgent rehabilitation. Upgrades to Namibia's rail infrastructure are considered a critical element in the government's plan to expand the port of Walvis Bay.

A creaking rail infrastructure, new Chinese locomotives out of service for over three years, and lack of planning could potentially derail one of the Namibian government's (GRN) major economic development plans. The GRN wants to transform the port of Walvis Bay into a major transshipment hub for all of southern Africa. However, as the port expands the current rail infrastructure will not be able to carry the load. The rail system and state-owned rail company TransNamib suffer from political interference, lack of expertise, and inadequate funding. The GRN is seeking experienced foreign railway planners to draw up the master plan required to turn Namibia's rickety rails into the modern rail infrastructure it needs to carry the region's cargo. Nevertheless, the GRN still prohibits foreign companies from investing in state-owned enterprises. Foreign experts shy away from trying to help TransNamib if the company remains hamstrung by investment restrictions and government interference.

Namibia also boasts modern civil aviation facilities and an extensive, well-maintained land transportation network. Construction continues to expand two major arteries--the Trans-Caprivi and Trans-Kalahari Highways--which will further open up the region's access to Walvis Bay.

Tourism

Tourism is a rapidly growing sector of the Namibian economy and a significant generator of employment. It is the third-largest source of foreign exchange after mining and fisheries. Although the majority of Namibia's international visitors originate in the region, other international travelers are increasingly attracted by the country's unique mix of political stability, cultural diversity, and geographic beauty. Tourism in Namibia has had a positive impact on resource conservation and rural development. As of 2007, there were 50 communal conservancies established across the country, resulting in enhanced land management while providing tens of thousands of rural Namibians with much needed income.

Labor

While most Namibians are economically active in one form or another, the bulk of this activity is in the informal sector, primarily subsistence agriculture. In the formal economy, the official estimate of unemployment is 51.2% of the work force. In March 2011, the government introduced a 3-year budget that contains significant (30%) additional spending over prior years with a focus on public works and infrastructure to stimulate economic growth and generate employment opportunities, primarily for Namibia's unskilled workers. A large number of Namibians seeking jobs in the formal sector are held back due to a lack of necessary skills or training. The government is aggressively pursuing education reform to address this problem.

There are two main trade union federations in Namibia representing workers: the National Union of Namibian Workers (NUNW), which is affiliated with the ruling SWAPO party, and the Trade Union Congress of Namibia (TUCNA), which is not affiliated with any party. A new labor law went into effect in November 2008. The new law prohibited employers from using “labor hire” (third-party hiring of temporary or contract workers); however, the Supreme Court declared this provision unconstitutional in December 2009.