Namibia: Poverty Alleviation with Sustainable Growth

Namibia is marked by an extremely uneven distribution of income as well as widespread absolute poverty. The wealthiest 5 percent of Namibians control 70 percent of GDP, while the poorest 55 percent control only 3 percent. While the data available in Namibia are not sufficient to prepare a rigorous poverty profile, estimates based on partial surveys, proxies, and qualitative information are suggestive. A conservative estimate of absolute poverty, based on an urban poverty line and rural vulnerability to food insecurity, suggests that at least two-thirds of the population are absolutely poor and that as many as three-quarters of all blacks are poor.

The incidence of poverty is more marked in rural areas; about three-quarters of Namibia's poor live in those rural areas that depend on subsistence agriculture, cash transfers, and wage employment on commercial farms for their income. The remaining one-quarter of Namibia's poor live in peri-urban households and depend on either wage earnings or self-employment in small businesses or are unemployed. The number of the urban poor seems to be growing, along with unemployment and under-employment.

Women also appear to be an especially vulnerable group. Women head 40 percent of households, and those households are among the poorest of the poor. In urban areas, the incomes of female-headed households are substantially below those of male-headed households, while in rural areas, the lack of access that women have to productive inputs and the absence of male labor places an additional burden on the time and health of women and children.

Incentive and Regulatory Framework

The government needs to improve the regulatory environment by, for example, removing the impediments to labor absorption. One of these impediment is the fact that, because the black population has been confined to homelands (many of which are not economically viable for subsistence agriculture), the supply price of labor has been kept artificially low. The subsistence base is very fragile because of the combination of lack of investment, population growth, overgrazing, and drought. One alternative is self-employment, but the regulatory structure and restrictions in access to necessary inputs and services have severely hampered the growth of this sector.

To ensure that the poor can participate in employment opportunities, small business regulations and labor market codes need to be reviewed. Competitive small and informal sector businesses offer prospects for generating employment, particularly among the black population. These businesses need access to input and product markets. First, overly restrictive regulations governing small businesses and services, such as vending and transport, need to be relaxed. These regulations tend to protect formal sector businesses against competition, and impose high employment and equity costs on the economy. Second, policies that distort relative prices, such as capital subsidies, targeted credit, and tax credits, need to be reviewed. Third, credit for small businesses should be available on market terms.

Within agriculture, there appears to be great potential for improving social welfare, as well as for creating more employment opportunities by encouraging the development of small-scale, labor-intensive farming systems. The increased utilization of labor would also shift income distribution in favor of communal area farmers. There are likely to be both efficiency and equity gains in encouraging a labor-capital mix that favors labor.

Public Expenditures

No review of public expenditures had been carried out at the time of the report. At present, the Bank and the government are engaged in a joint review of broad public finance issues.

Namibia's expenditures on health are about 4.5 percent of GDP, a reasonable proportion for a country of its income level. The composition of expenditures, however, could be improved further by placing more emphasis on prevention and less emphasis on curative treatment.

In the past, the government subsidized health services for all -- rich and poor. Structuring cost recovery so that the wealthy and insured pay more would lower subsidies, increase equity, and release scarce resources.

Education expenditures make up more than 8.5 percent of GDP and, in recent years, at least 22 percent of the national budget. These proportions are among the highest for middle-income countries in Africa with similar population pyramids, but they mask sizable disparities between expenditures in the white and black administrations.

Inefficiency is inherent in the multi-tier system (with general administration absorbing 14.6 percent of the overall education budget), and salaries are the biggest item within the context of formal education. Increasing the emphasis put on access to lower secondary education by judiciously expanding strategically-located primary schools, upgrading the skills of all teachers, and improving facilities is recommended. Given the constraints that the country faces in raising additional revenue, it will also be necessary to streamline and reduce the administrative apparatus to release money.

Safety Nets

While Namibia is ahead of other African countries in the sense that it already has system of safety nets in place, the existing system needs to be improved. It currently consists of state transfers (social pensions and other targeted assistance schemes) and church, NGO, and donor-based programs.

1. The most important public sector program is the social pension (all Namibians over 60 are eligible).
2. The other main public sector safety net is the Remission of Rent scheme whereby residents of municipal housing in townships may qualify for rent exemptions. Eligibility for the scheme is subject to a strict means test, which also determines the amount of the subsidy. By limiting eligibility to households renting municipal housing for at least two months, the scheme is not reaching the poorest of township residents (such as squatters and single residents). In any event, it would appear that the means test is too strict as only 3,348 people benefitted from the scheme in 1991 and as the average subsidy per household is only half the allowable amount.

In both cases, the possibility of restructuring the transfers must be explored. For social pensions (which account for nearly a third of the Ministry of Health budget), the government should consider scaling pension benefits to favor the poor. While the Remission of Rent scheme is small, it appears to be mistargeted, and, with nearly 50 percent of the budget going to administrative expenses, it is also inefficient. The same resources could be better used as direct transfers or to upgrade housing for the poorest of the urban poor.

Poverty Strategy

The alleviation of poverty will depend critically on revived and sustained economic growth. However, the nature of that growth will also be important. For example, it will be important to emphasize the efficient use of labor, the most important asset of the poor, and to eliminate subsidies that are largely enjoyed by the rich (such as below market interest rates). Regulatory controls that limit factor and product market competition also need to be eliminated.

Public action is also needed to provide public goods, services, and infrastructure to the poor, as well as to overcome market failures that hurt or exclude the poor. Examples of such actions include pricing social services (for example, medicine), that are now offered basically at the same price to rich and poor alike, according to income levels. It is also important to provide more and better health, education, housing, transport, and agricultural services to the poor. Finally, some system of safety nets for the poorest is necessary to stabilize their welfare.

Efforts to include women should be a particular part of this strategy as they are at a particular disadvantage in economic activity. While they are primarily responsible for family maintenance and welfare, they have the least amount of discretionary time to avail themselves of social services and supports. Urban and rural women should be among the primary target groups for credit, skills training, and social services.

Statistical Systems

The statistical system is not adequate for the task of preparing a rigorous analysis of the poor. The next step in the development of the poverty strategy will be to strengthen the statistical capacity of the Central Statistical Services (CSS) and the relevant ministries. The situation is worse with respect to rural areas where very little is known about income levels.