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Balanced policies needed to improve Namibia’s rating

2018-08-17  Edgar Brandt

Balanced policies needed to improve Namibia’s rating

WINDHOEK - Namibia needs smart policies that balance the need to address the major social challenges of poverty, inequality and unemployment, coupled with having to remain attractive to domestic and foreign investors, analysts and economists said this week. Such policies require a continuation of the close cooperation between the public and private sectors, which if implemented effectively will eventually boost the country’s international credit rating.

Namibia’s latest Fitch Ratings assessment saw the country’s credit rating remain one notch below the investment grade of BBB- but the international agency revised the outlook on the economy from negative to stable. This is after Namibia was downgraded from an investment grade to non-investment grade in November 2017. Some other good news is that as at July 31, 2018, Namibia’s preliminary stock of international reserves stood at N$32.6 billion, which is an increase of almost 10 percent on a monthly basis. At this level, the stock of international reserves is estimated to cover 5.3 months of imports of goods and services, a significant improvement from 4.7 months a few months ago, according to the Bank of Namibia’s latest Money and Bank Statistics report.

While such ratings do bolster Namibia’s credibility in international markets by indicating the country is able to pay back loans extended, analysts and economists highlight that the real bread and butter challenges facing Namibian citizens need to be properly addressed. Attention needs to be given to the economic priority areas identified in the country’s fifth National Development Plan (NDP5) for job creation, poverty alleviation, narrowing inequality and boosting economic growth.

According to the research associate at the Economic Association of Namibia, Klaus Schade, while much emphasis is placed on regular economic statistics, such as quarterly GDP figures and quarterly trade statistics, these statistics have to be complemented by social statistics, such as regular labour force surveys that are currently not even conducted on an annual basis.

“Only then would we be in a position to evaluate whether economic growth translates into social gains such as employment creation and a reduction in income inequality and poverty. And only then would we know whether our National Development Plans, policies and strategies work and whether we achieve our objectives,” he said.

At the moment the re-bound of the agricultural sector from a debilitating drought has definitely reversed job losses suffered in 2016, specifically in the communal sector. However, the continuous contraction in the labour-intensive construction sector has resulted in job losses that will continue to negatively affect the performance of the wholesale and retail trade sector, commented Schade.

“Other priority sectors in NDP5 include fisheries that grew by just 1.3 percent and faces challenges with some fish species, as well as mining that showed strong growth. However, the decline in investment in mineral exploration indicates that growth in this sector might not be sustainable unless new mining deposits are explored and developed,” Schade noted.

Tourism, another priority sector in NDP5, has also struggled to meet targets during the last two years and Schade doubts an increase in tourist visa fees to N$500 will increase this sector’s competitiveness to support NDP5 objectives.

“Namibia could consider following the example of Rwanda and abolish visa requirements. This move would position the country well to become a preferred destination also for business and in particular conference tourism, which would require the construction of a convention centre in an urban setting such as Windhoek,” he said.

Another priority under NDP5, the Blue Economy, is fighting to derive more value out of the ocean. According to Schade, more concerted efforts are required to attract research into the use of the ocean for marine renewable energy such as wave power, and for pharmaceuticals, biotechnology and sea-based products. He believes that since these are renewable resources, if well managed, investment in this sector is more sustainable than investment in the extraction of finite resources.

“The declining share of labour compared to capital (profits), suggests that economic growth is not contributing to the reduction of income inequality. The right balance is needed between profits that are necessary for investment and hence future growth on the one hand, and remuneration of labour that determines the level of demand for domestically produced and imported goods and services, on the other,” said Schade.

Also, additional aspects of the economy that need to be dealt with include the high wage bill, infrastructure investment, public-private partnerships as well as the trade and current account deficits.

“The high wage bill prevents government from investing in necessary infrastructure, ranging from transport to water that can attract domestic and foreign private sector investment. Investment in infrastructure will create short-term jobs in the construction sector and afterwards jobs in the private sector owing to additional investment,” he said.

“Additional business activities will increase tax revenue from individual and corporate income tax and thus support the government’s efforts to reduce the budget deficit and public debts. A thorough review of all government structures, with the aim to develop a leaner, more efficient public sector should be a starting point,” said Schade.

He added that investment in infrastructure, however, has to ensure that government receives value for money and is not being overcharged for sub-standard work. “It is already promising that the government has reportedly rejected proposals for the finalisation of some road projects owing to exorbitant costs,” he noted.

2018-08-17  Edgar Brandt

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