Namibia - Economy
By 2018 a perfect storm of external events and domestic mismanagement brought Namibia to its knees. The government cannot even afford to feed its army and the president has stopped using his private jet. The president of Namibia, Hage Geingob, has tightened government spending by banning politicians and civil servants from foreign business travel. In December 2017, the president took a commercial flight to the African Union summit, rather than traveling with his private jet.
The 2018 economic crisis was a combination of unfortunate external factors, as well as domestic economic mismanagement. Namibia long had a reputation for being a stable, democratic and mineral-rich nation. But the drought across southern Africa, which was a result of the El Nino weather effect in the region, had been disastrous for the Namibian economy. The important fishing industry had suffered due to the severe decline in fish stocks. The pilchard species, for example, has been so depleted that it may never recover. The Namibian government set the pilchard quota from 2018–2020 at zero. Water shortages directly impacted local industry, creating a rise in employment. The mining industry also suffered with the consistently low price of minerals, particularly uranium, which Namibia relies on.
The economic decisions by the current Namibian government worsened the situation. Since 2015, under the new government of President Hage Geingob, there was a marked expansion of ministers and deputy ministers and special advisors in state house and other high echelons of government, which added quite some money to the current expenditure. The unsustainable public sector and civil servant wage bill amounted to more than 50 percent of the annual budget.
Namibia remains one of the most unequal societies in the world, despite an improvement in the Gini coefficient from 0.7 in 1993/94 to 0.6 in 2003/4. 10% of Namibia's population of 2.03 million receive 50% of the national income, while 28% of the population – mostly black – are considered poor. GRN post-independence policies were guided by a national reconciliation drive, land reform based on the “willing seller-willing buyer” principle, a strong effort in education, and job creation through affirmative action in the civil service and the parastatal sector.
However, there is now widespread disillusionment with the perceived slow pace of transfer of land-ownership, high unemployment and the persistence of inequalities. Cheap manufactured imports limit possibilities for job creation outside the civil service, farming, tourism and the capital-intensive mining sector (Namibia has sizeable mineral – gold, uranium and diamond – reserves). The civil service is 2.5 times larger than the sub-Saharan average, and eats 43% of government spending, making civil service reform an urgent requirement. Adding to these challenges is the poor quality of education outcomes – despite high enrolment rates – which fail to provide young Namibians with the skills and qualities required in a global economy. With a prevalence rate of 20%, HIV/AIDS is taking a heavy toll and has reduced life expectancy to now only 46 years.
At Namibia's independence in 1990, significantly less than five percent of the population (some 4200 white Namibian families) owned 95 percent of all commercial farms, which represented 52 percent of the total land available for agriculture. Meanwhile, 70 percent of Namibians (mostly black) lived on communal farms on the remaining 48 percent of agricultural land. Of the 6,292 commercial farms registered in 1990, black Namibians owned 181. Commercial farm owners hold titles to their land; and they can use their land as collateral and sell their land for profit. Most products from commercial farms are exported to South Africa and the EU. On the other hand, communal farmers have rights to use land, but do not have title to their land, and cannot sell or use their land for collateral. Products from these farms are mainly used for subsistence purposes, local markets, and South Africa.
With 37 percent unemployment (according to a 2005 study) many Namibians struggle to find any kind of job. Nevertheless, Namibia has long had an influential labor movement. Today the movement is comprised of over 30 unions most of which have allied themselves with one of two federations: the National Union of Namibian Workers (NUNW) or the Trade Union Congress of Namibia (TUCNA). NUNW, the older and larger of the federations, has had links to the ruling South West African People's Organization (SWAPO) party since both were active in the struggle against South Africa's apartheid regime. TUCNA, started in 2002, rejects any political party affiliations. As SWAPO dominates Namibian politics, TUCNA's decision not to collaborate with SWAPO is in fact a strong political statement. In some labor sectors, NUNW and TUCNA have parallel member unions. In such cases, the union that has registered a majority of a sector's workers is recognized as the sole entity to represent workers, interests in collective bargaining.
The Namibian economy has a modern market sector, which produces most of the country's wealth, and a traditional subsistence sector. Namibia's gross domestic product (GDP) per capita is relatively high among developing countries, but obscures one of the most unequal income distributions on the African continent. Although the majority of the population depends on subsistence agriculture and herding, Namibia has more than 200,000 skilled workers, as well as a small, well-trained professional and managerial class.
Namibia has a relatively small domestic market, high transport costs, high energy prices, and limited access to skilled labor. The country's sophisticated formal economy is based on capital-intensive industry and farming. However, Namibia's economy is heavily dependent on the earnings generated from primary commodity exports in a few vital sectors, including minerals, livestock, and fish. Furthermore, the Namibian economy remains integrated with the economy of South Africa, as the bulk of Namibia's imports originate there.
Namibia continues to face persistently high unemployment—particularly among the youth. The implementation of the Targeted Intervention Programme for Employment and Economic Growth in 2011/12-2013/14 led to significant job creation (including many temporary construction jobs). However, according to the 2014 labor force survey, youth unemployment rate remained particularly high (39.2 percent), suggesting significant underutilization of labor. Furthermore, this underscores Namibia’s key challenge of lack of skilled labor or marketable skills among the young.
Namibia has maintained robust Real Gross Domestic Product (GDP) growth since the global financial crisis, although in 2014 it was somewhat weaker. The GDP growth slightly moderated to 4½ percent in 2014, largely owing to lower global demand for Namibia’s main export commodities (e.g., diamond, uranium). Inflation remained contained, due to low international commodity prices (e.g., fuel). The government’s large scale fiscal program contributed to job creation, and unemployment declined somewhat (to 28 percent in 2014). Growth performance has been underpinned by a rapid increase in credit. Average annual growth of private sector credit has exceeded 15 percent since 2012, with strong demand from both households and corporates. This credit expansion has been boosted by historically low interest rates, following South Africa’s monetary policy. Net credit to the government has also risen to meet its large domestic financing needs.
Namibia’s fiscal policy stayed expansionary, to promote growth and employment. In 2014/15, though the Southern African Customs Union (SACU) revenues and domestic revenues increased, the government increased its recurrent and capital expenditures more, resulting in an overall fiscal deficit of 3¾ percent of GDP. For 2015/16, the budget envisages a larger deficit, with increased expenditures and lower SACU revenues (declined by 1¾ percent of GDP from 2014/15). In light of the financing needs, the government has been exploring the scope for tapping international capital markets.
Since independence, the Namibian Government has pursued free-market economic principles designed to promote commercial development and job creation to bring disadvantaged Namibians into the economic mainstream. To facilitate this goal, the government has actively courted donor assistance and foreign investment. The liberal Foreign Investment Act of 1990 provides for freedom from nationalization, freedom to remit capital and profits, currency convertibility, and a process for settling disputes equitably.
Namibia is part of the Common Monetary Area (CMA) comprising Lesotho, Swaziland, and South Africa. Both the South African rand and the Namibian dollar are legal tender in Namibia, but the Namibian dollar is not accepted in South Africa. As a result of the CMA agreement, the scope for independent monetary policy in Namibia is limited. The Bank of Namibia regularly follows actions taken by the South African central bank.
Given its small domestic market but favorable location and a superb transport and communications base, Namibia is a leading advocate of regional economic integration. In addition to its membership in the Southern African Development Community (SADC), Namibia presently belongs to the Southern African Customs Union (SACU) with South Africa, Botswana, Lesotho, and Swaziland. Within SACU, no tariffs exist on goods produced in and moving among the member states. In July 2008, SACU signed a Trade, Investment and Development Cooperation Agreement (TIDCA) with the United States. SACU also has plans to negotiate free trade agreements with China, India, Kenya, and Nigeria. The SACU Secretariat is located in Windhoek.
Nearly 70% of Namibia's imports originate in South Africa, and approximately one-third of Namibian exports are destined for the South African market, according to the World Trade Organization. Outside of South Africa, the EU (primarily the U.K.) is the chief market for Namibian exports. Namibia's exports consist mainly of diamonds and other minerals, fish products, beef and meat products, grapes, and light manufactures. China’s value as an export market is increasing, particularly for minerals.
Namibia is seeking to diversify its trading relationships away from its heavy dependence on South African goods and services. Europe has become a leading market for Namibian fish and meat, while mining concerns in Namibia have purchased heavy equipment and machinery from Germany, Italy, the United Kingdom, the United States, and Canada. Namibia is an eligible country under the African Growth and Opportunity Act (AGOA), but has had limited success with exports under this program.
In 1993, Namibia became a General Agreement on Tariffs and Trade (GATT) signatory, and the Minister of Trade and Industry represented Namibia at the Marrakech signing of the Uruguay Round Agreement in April 1994. Namibia has been a member of the World Trade Organization since its creation in 1995 and is a strong proponent of the Doha Development Agenda announced at the Fourth Ministerial Conference in Doha, Qatar, in November 2001. Namibia also is a member of the International Monetary Fund and the World Bank. In December 2007 Namibia initialed an interim Economic Partnership Agreement (EPA) with the European Union, but has not yet signed the interim agreement. The EPA provides duty- and limited quota-free access to European markets for Namibian exports, thereby continuing many of the expiring trade benefits from the Cotonou Agreement. Negotiations continue over the new EPA.
State-owned enterprises operate in many key sectors of the Namibian economy. The government has stakes (often 100% ownership) in companies in the following sectors: telecommunications (fixed and mobile voice and data services), energy, water, transport (air, rail, and road), postal services, fishing, mining, and tourism.
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