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Country Brief

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Namibia: Country Brief

Namibia is a middle-income country whose considerable successes rest on sound economic management, good governance, basic civic freedoms, and respect for human rights. At independence in 1990, Namibia inherited a well-functioning physical infrastructure, a market economy, rich natural resources, and a relatively strong public administration. It also inherited extreme social and economic inequities, however, which have left Namibia with a highly dualistic society. In addition, the country is vulnerable to short- and long-term environmental shocks as all major sources of growth depend heavily on Namibia’s fragile ecosystem. These factors have made job creation difficult, and poverty and inequality remain high.

Namibia has made significant progress in addressing many development challenges; access to basic education, primary health care services, and safe water has improved. Sound public policies are helping to lay the foundation for gender equality. Since independence, Namibia has been a leader in the area of natural resource conservation. Namibia maintains a social safety net for the elderly, the disabled, orphans, vulnerable children, and war veterans, and has enacted a Social Security Act that provides for maternity leave, sick leave, and medical benefits to Namibians.

Nonetheless, daunting challenges persist. Although Namibia’s per capita income of US$4,700 (2011, Atlas method) places it in the World Bank’s upper-middle income grouping, average income paints a misleading picture since Namibia’s income distribution is among the most unequal in the world, with a Gini coefficient estimated at 0.5971 by the latest (2009/10) household survey. Poverty incidence is high, although it has declined somewhat during the past decade: 20% of households were under the national poverty line in the 2009/10 survey, versus 28% in 2003/2004.  

Unemployment remains very high. Namibia is ranked 120 out of 187 countries surveyed in the 2011 Human Development Report. Although Namibia is on track to meet the Millennium Development Goals on education, environment and gender, the severity of the HIV/AIDS epidemic is frustrating efforts to meet Millennium Development Goals to reduce child mortality, improve maternal health and combat HIV/AIDS, malaria and other diseases.

Macroeconomic overview

Namibia’s economy is closely linked to South Africa’s economy through trade, investment, and common monetary policies. The Namibian dollar is pegged to the South African rand, making economic trends including inflation closely follow those in South Africa. Prior to the 2009 global financial crisis, Namibia had experienced steady gross domestic product (GDP) growth, moderate inflation, limited public debt, and steady export earnings. From 1990 to 2008, economic growth averaged 4.3% per year (in constant prices), accelerating slightly to an average annual rate of 5.6% from 2000 to 2008.

GDP declined by 1.1% in 2009, primarily as a result of declining external demand for diamonds, gold, and agricultural exports. Countercyclical macroeconomic policies dampened these shocks to some extent. Output rebounded quickly in 2010, growing at 6.6%, and has since moderated, with growth estimated at 4.9% in 2011 and projected at 4.4% in 2012. Inflation fell after the onset of the crisis, bottoming out at 3.1% in February 2011. Since then the inflation rate has been rising, and during the first seven months of 2012 it has averaged 6.4%—slightly above the six percent ceiling in the South Africa Reserve Bank’s target range—with the inflation rate for food and non-alcoholic beverages averaging 8.5%.

The drop in government receipts from the mining sector and the Southern Africa Customs Union (SACU) revenue pool combined with countercyclical spending led to overall budget deficits of 1.2% in FY2009/10 and 4.8% in FY2009/11, after several years of surpluses. In response to stubbornly high unemployment, the budget presented in March 2011 launched an ambitious three-year, N$14.7 billion job creation and public works program that is expected to preserve or create 104,000 jobs. Total spending rose by 35%, and the budget tabled in February 2012 calls for an additional increase of eight percent in the coming year, after which spending will level off. The stimulus package has pushed deficits to 11% of GDP in FY2011/12. Deficits will decline gradually and approach balance by FY2014/15. Government debt has doubled since 2009 to almost 30% of GDP, increased in part by Namibia’s debut offshore bond issue in October 2011 of US$500 million in the Eurobond market.

Political Context

The presidential and National Assembly elections that took place in late November 2009 confirmed the continued dominance of the South West Africa People's Organization (SWAPO), which won over 75% of the vote. The Rally for Democracy and Progress Party, formed in 2006 and headed by the former SWAPO Party Minister of Trade and Industry, Mr. Hidipo Hamutenya, became the official opposition overtaking the Congress of Democrats party.

In the 2009 election manifesto, SWAPO ran on the commitment that it would work to “Consolidate monetary and fiscal policies geared towards promoting growth and employment creation, and to ensure forward and backward economic linkages of economic sectors and regions.” Furthermore, the party promised to “maintain prudent macroeconomic policies that are responsive to domestic, regional and international economic developments.”

President Hikikepunye Pohamba completes his constitutionally allowable two terms in March 2015. This year’s SWAPO congress will choose a new party leader, who by tradition will be SWAPO’s candidate for president in the November 2014 election.

Development Challenges

Although Namibia has enjoyed economic growth and prudent macroeconomic policies, these have not generated the jobs needed to overcome the inequitable distributions of income, assets (notably land), and raise living standards in rural areas and among the urban poor.

At the top of the government’s agenda is bringing down the very high unemployment rate. Total employment fell by around 54,000 jobs between 2004 and 2008, driven primarily by large exit of workers from traditional agriculture. Growth sectors (e.g., mining) generate few jobs. Unskilled-labor intensive manufacturing activities—which in many countries have created jobs for the rural poor—are conspicuous by their absence in Namibia. At the same time, there is a shortage and a correspondingly high salary premium for skilled labor, resulting from generally poor outcomes of the educational system and restrictive immigration policies.

Similarly, despite a decline in total HIV prevalence rates, which have fallen to 13.1% (of people ages 15­–49) in 2009 from 16.1% in 2000, new HIV infections remain a serious concern. Namibia also has one of the highest tuberculosis prevalence rates in the world at 603 per 100,000 people (2010).

The country is fast approaching a serious crisis in energy. Electricity demand has been growing rapidly, pushed by urbanization and the mining sector. Long-term agreements to purchase electricity at favorable rates are expiring in 2013. Meanwhile, the country has built no significant new generation capacity since independence. Wholesale electricity prices have risen by double-digit rates in each of the past several years.

All major growth sectors—mining, tourism, livestock and meat production, and fisheries—are vulnerable to external economic and ecological shocks. Foreign demand in each industry is cyclical, seasonal, or unpredictable, with downstream effects for employment, income, and government revenue. All face risks from climate change and/or other countries’ policies to address climate change. The country has suffered from severe flooding during the past three rainy seasons, following a period of annual droughts.

Finally, the government has expressed concerns that its fiscal position faces long-term risks that must be addressed in the coming years. In addition to the factors already listed, Namibia’s receipts from SACU revenue pool, which will make up almost 40 percent of GRN revenue and over 13% of Namibian GDP in FY2012/13, are expected to decline over time. The public sector wage bill is forecast to reach 14% of GDP in the coming year. Tax arrears have tripled in the past five years, reaching 11% of GDP in early 2011 (including interest and penalties). The Ministry of Finance is taking steps to contain the growth of total spending and increase revenue, notably by increasing taxes on the mining sector and closing various tax loopholes.

In uly 2012, the Government of the Republic of Namibia (GRN) launched the Fourth National Development Plan (NDP4), which will guide policies through 2017. Economic growth, job creation, and increased income equality are the three overarching objectives of NDP4. It proposes to achieve these objectives through industrial policies to stimulate growth in tourism, regional trade logistics, agriculture and manufacturing (primarily through greater processing of primary commodities). Reducing extreme poverty and improving education, health, infrastructure, and the business environment enter into NDP4 as “basic enablers” that support the economic priorities. NDP4 presents 10 “desired outcomes,” each accompanied by an indicator for measuring attainment of the outcome, broad strategies expected to achieve the outcome, and a ministry that will serve as the champion. This selectivity stands in stark contrast to previous NDPs, whose agendas spanned the entire public policy space.

World Bank Assistance

Namibia became a member of the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) in 1990. The Bank’s engagement with the country has been the most limited among SACU countries, with only one loan program and two large GEF-financed projects approved to date. A number of analytical and advisory activities were undertaken in the early years, some jointly with the government, but only three core economic diagnostics have been conducted since independence (one public expenditure review, one country economic report, and one investment climate assessment). The Bank recently has taken steps to broaden and deepen the dialogue with the government, including accrediting a Bank staff member in the country.

The Bank’s first-ever Interim Strategy Note (ISN) for Namibia was presented to the Bank’s Board of Executive Directors in May 2007. The ISN focuses on education and the environment within a flexible framework intended to allow the Bank program to respond to the government’s priorities. The Bank is in the process of preparing a full Country Partnership Strategy that is expected to be presented to the Bank’s Board of Executive Directors in 2013.

The first IBRD loan for Namibia – a US$7.5 million Education Development Policy Loan (DPL) – was approved in May 2007. A second DPL in the same amount was approved in November 2008, signed in September 2010. Both loans have been disbursed and were repaid in full by April 2011. The DPLs supported the Education and Training Sector Improvement Program (ETSIP), the government’s 15-year strategy to improve education sector outcomes. The Bank has served as the lead technical agency among the donors supporting ETSIP, including providing support for the 2011 mid-term review of the program. The Bank is working with the Ministry of Education to continue the engagement.

Namibia has benefited from two Global Environment Facility (GEF) grants, of which one is active. A US$4.9 million grant to support the government’s Namibian Coast Conservation and Management Project (NACOMA) was approved in 2005 and is scheduled to close in December 2012. The Ministry of Environment and Tourism is requesting funds from GEF5 for additional work under this project. A second GEF project—the US$7.1 million Integrated Community-based Ecosystem Management Project (ICEMA)was approved in 2004 and closed in April 2011.

External trust funds play an important role in financing Bank technical assistance and analysis in Namibia. The Bank has mobilized funds to support the government in addressing long-term strategic priorities (e.g., on energy investments and on climate change), responding to disasters (e.g., a post-flood disaster needs assessment), and building critical public sector capacities (e.g., in statistics, performance management monitoring and evaluation, and crisis management in the financial sector).

The grants from the Global Environment Facility (GEF) have achieved good results. The Integrated Community-based Ecosystem Management Project (ICEMA) helped to promote a new Tourism and Wildlife Concessions Policy in protected areas as well as strengthened Namibia’s system of communal conservancies, which have succeeded in increasing wildlife numbers while at the same time generating substantial economic benefits to communities from commercial use of wildlife. The Namibian Coast Conservation and Management Project (NACOMA) helped to both successfully consolidate previous and recently-proclaimed protected areas while providing support for the establishment of the Namib-Skeleton Coast National Park, which covers 107,540 square kilometers and is now the largest park in Africa, and the eighth largest protected area in the world. NACOMA also supported development of Namibia’s new coastal management policy, which was launched in September 2012.

Following consecutive years of massive, widespread flooding in the northern part of the country the World Bank responded to a request from the Namibia government to undertake a Post-Disaster Needs Assessment(PDNA) jointly with UNDP and other development partners. Overall damage to physical assets totaled US$130 million. Losses in production flows were estimated to be US$70 million and were also mainly incurred by the private sector. Long-term reconstruction and transformation costs were estimated at US$460 million, about five percent of Namibia’s 2009 GDP. The PDNA report has provided the Namibian government with a strong analytical base for developing a robust strategy for financing a climate-resilient infrastructure.

 

The International Finance Corporation (IFC) has been involved in small investments: a fisheries project (Pescanova), and an equity investment in the country’s first indigenous life insurance company (Namibia Life). On the technical assistance front, the International Finance Corporation (IFC) worked with the Namibian Agronomic Board to raise trust funds for a feasibility study for a cotton ginning industry. The IFC currently has a senior loan to TrustCo Finance Limited that provides educational loans to students enrolled at the Institute of Open Learning, the largest open and distance learning institution in Namibia.

The Multilateral Investment Guarantee Agency (MIGA) is not active in Namibia.

Last updated October 2012




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