Namibia ranks as a middle income country, alongside fast growing economies such as Brazil and India. Its GDP per capita is strong for the Southern African region. The 30% overall increase in the budget announced in April of this year may thus come as a surprise to those unfamiliar with Namibia. Why does a country with a middle income ranking need to undertake such an expansion in development?
Namibia’s place in the rankings belies the problems dogging the young Southern African country. At 51.2%, unemployment is one of the most pressing issues. Just over half of the population survive on incomes that fall below the international poverty line and subsistence agriculture supports roughly two-thirds of rural dwellers. With so many in informal employment, a dual economy has developed. As is often the case in Southern Africa, no systematic transformation of economic structures accompanied independence. German speaking households enjoy standards of living comparable to Sweden and Canada, while Khoisan speakers are on a par with Eritrea and Rwanda. Wealth and land remain concentrated in the hands of a minority.
Life can be tough in this part of the world. Of the parts of Namibia which are not the Namib or Kalahari deserts, only 1% of the land is suitable for arable farming. Rural areas suffer from inadequate water provision. Livestock diseases such as foot and mouth have divided the country, leaving some areas in the north unable to export their stock. The formation of a thriving national market has consequently been inhibited. Confusion over property rights is disruptive and boundary disputes are common. Such obstacles compound the economic disparity resulting from years of South African imposed apartheid.
An ambitious plan
Vision 2030 is an ambitious development plan, set out in 2004, that aims to make Namibia a prosperous, harmonious industrialised state by the year 2030. The State of Nation Address given by President Pohamba made it clear that the government plans to meet the challenges outlined in order to achieve this target. The Targeted Intervention Programme for Employment and Economic Growth (TIPEEG) spearheads the campaign, introduced by Finance Minister Saara Kuugongelwa-Amadhila to target potential growth in agriculture, transport, tourism and housing and sanitation. With public works included, the budget set aside for job creation is N$14.6 billion ($2.1 billion). The result of such investment is expected to be at least 104,000 jobs. It would represent substantial progress if achieved, but with a population of just over 2 million, it still leaves a significant number of the population operating in the informal economy.
Other areas of the budget have been considerably expanded. The budget for the development of crop production has increased by 94% from N$385 million ($57 million) to N$746 million ($110 million) in 2011-2012. Such funding is predicted by the Finance Minister to increase the crop production area under irrigation by 12,000 hectares by 2013/14. The government is attempting to overhaul Namibia’s weak agricultural sector, hoping to increase overall horticultural production to 60% of Namibia’s annual consumption, leaving it less dependent upon imports. Such promises seem impressive, and the funds allocated appear convincing.
The response from economists has not been one of overwhelming enthusiasm however. Martin Mwinga, of First Capital Namibia, criticised TIPEEG for focusing on sectors that will not immediately alleviate the pressing unemployment problem. In a parliamentary review, he expressed unease that the budget focused upon value addition rather than production. Others are concerned that the expansion is simply too drastic. Rainer Ritter fears that the budget is laden with “overwhelming risks” and that the attempt to tackle unemployment will not be sustainable. Worse still, the government could crowd out private sector participation by its large stake in the economy, driving away investment and causing stagnation in the market. The budget would thus cause regression rather than development.
The need for intervention
The future may not be as grim as some forecast it to be however. The market, left largely to its own devices, has done little to alleviate unemployment. Increased government intervention may be the change needed and has been welcomed by the Namibia Chamber of Commerce and Industry. Since independence in 1990, the government has followed a policy of attempting to attract foreign investment through tax concessions and low expenditure. Inga Ramdemacher of the Friedrich Ebert Stiftung foundation (FES) believes that this approach has undoubtedly failed. The Namibian government must now focus upon creating a robust internal market, not only to attract foreign investment but for the sake of its own citizens. An increase in expenditures is thus the right decision. The composition of expenditure could be adjusted however.
Defence receives the second largest allocation of funds after education. Some of this funding could be diverted into education, water, electricity, telecommunications and social services. Improvements in Namibia’s infrastructure would not only heighten the standard of living, but attract investment. More progressive taxation could be introduced. High levels of indirect taxation, such as VAT, which allows corporations to pass the burden on to the consumer, severely affect the poor as they spend a greater proportion of their income on goods. Increases in property tax and corporation tax would yield greater revenues and aid those on lower incomes. Recent discoveries of potentially vast oil and gas reserves off the coast, along with its natural mineral wealth, make Namibia an attractive prospect. Corporations will not be frightened away by a few taxes.
The Basic Income Grant project, piloted in Otjivero by a coalition of churches, NGOs, youth organisations and labour unions, demonstrated the impact of extra income for those in the lower income bracket. All residents of Otjivero were given an unconditional N$100 ($15) for a period of 2 years. The results were encouraging, showing significant improvement in health, crime and social security. Lower drop out rates and non-attendance rates at schools were recorded and productive income increased, with small businesses involving brick making, baking bread and dress established. The number of residents under the international poverty line fell by 39% during the scheme. Although it is unclear whether such a scheme would translate successfully to a national scale, it indicates that local investment can reap substantial rewards.
Some of the 646 projects supported in the budget are already showing positive signs. Berfine Antindi of the Ministry of Agriculture, Water and Forestry reported that development at the Sikondo Irrigation Project is progressing well. Housing for nine small scale farmers, de-bushing of 830 hectares of land and the building of an irrigation infrastructure is currently being implemented. Completion of the project should see small scale farmer’s land expand from 6 to 30 hectares, and a water pump installed in the Kavango River allows produce to be grown all year round. The government buys the produce and stores it in the silos that Mwinga branded as ‘white elephants’, as a reserve for future natural disasters. With flooding occurring on an almost annual basis, this seems a sensible and practical solution.
There are reasons to be optimistic about the recent budget. It suggests that the government accepts the severity of the problems that it faces and is prepared to turn aside from its traditional fiscal policy. Political confidence translates into boldness; the SWAPO party is not searching for short term political gain at the polls. They can afford to look further than the next election. This is healthy for Namibia. Short term ‘quick fix’ schemes will not solve the structural weaknesses. The budget expansion suggests that the government is taking the wider perspective that’s needed. There’s no doubt that considerable risk accompanies expansion on this scale, and economists are right to voice their concern. It is by no means a comprehensive solution. Yet the government remains confident that its plans are sustainable, and that they will be effective. They will need to be if Vision 2030 is to be achieved.
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