Namibia African Markets

African MarketsManaging natural resourcesA report from The Economist Intelligence Unit

www.eiu.com

Commissioned by: African Capacity Building Foundation

Namibia

April 2013

African MarketsManaging natural resources

© The Economist Intelligence Unit Limited 2013 1

Country profile: Namibia

Politics and institutionsNamibia is a unitary republic with a multiparty democracy, under which executive power is vested in a president, who is elected by universal suffrage every five years, restricted by the constitution to a maximum of two consecutive terms in office. The National Assembly (lower house) and National Council (upper house) are also elected every five years, with the former taking place concurrently with the presidential election. The legacy of apartheid left Namibia with major socio-economic challenges, including highly skewed income distribution in favour of the small white minority, widespread rural and urban poverty, and a very unequal pattern of land ownership. However, partly because the population is very much smaller (2.1m as of 2011) than South Africa’s, Namibia does not suffer from similar mass urban poverty. Helped by the entrenched guarantees of personal freedoms under the constitution adopted by consensus at independence in 1990, inter-ethnic violence has been virtually absent. Apart from a quickly suppressed armed attack on government facilities in Katima Mulilo, Caprivi region, by a small secessionist group in 1999, Namibia has faced no internal security threats. There has also been no external security threat since the end of the Angolan civil war, a decade ago.

The official results of the 2009 lower-house election were contested by eight opposition parties, on the grounds of alleged widespread polling irregularities. But their protracted legal suit was finally rejected by the Supreme Court in October 2012, although the competence of the Electoral Commission of Namibia (ECN), which runs all elections, was strongly criticised. The vice-president of the ruling South West Africa People’s Organization (SWAPO), Hage Geingob, was confirmed as the party’s presidential candidate for the 2014 elections at a December 2012 special congress, easily beating off a challenge from party radicals. The president, Hifekepunye Pohamba, will step down at the end of his second term in March 2015 and Mr Geingob, who was appointed prime minister (for the second time) immediately after the congress, is now in line to become Namibia’s next head of state. In office, Mr Geingob will maintain the broadly pragmatic economic policies of Mr Pohamba.

2009 Election results

(% of vote)

Presidential election

Candidate Party share

Hifikepunye Pohamba SWAPO 75.2

Hidipo Hamutenya RDP 11

Katuutire Kaura DTA 3

Kuaima Riruako NUDO 3

Justus Garoeb DF 2.3

Others Various 5.5

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© The Economist Intelligence Unit Limited 20132

Political partiesSWAPO has held power continuously; the party increased its representation in the lower house in successive elections until 2009, when it dropped one seat, but retained a two-thirds majority. There is scant prospect of SWAPO’s entrenched political dominance being overturned in the short- to medium-term, mainly because it continues to enjoy bedrock support among the northern Oshivambo and Kavango communities, numbering just over half the population (many Oshivambo also live and work in the main towns to the south). Although SWAPO is nominally a left-wing party (it enjoys fraternal relations with the ruling communist parties in China, Cuba and North Korea), it has eschewed radical policies and has promoted a foreign investor-friendly fiscal regime, along with poverty-reduction policies. However, a long-delayed black economic empowerment (BEE) law has yet to be enacted.

Not only does SWAPO dominate Namibian politics, but two of the three largest opposition parties—the Rally for Democracy and Progress (RDP) and the Congress of Democrats (CoD)—were formed as breakaways from SWAPO and are led, respectively, by-ex SWAPO leaders, Hidipo Hamutenya and Ben Ulenga. Despite this, neither party has yet managed to make any significant inroads into SWAPO’s northern heartland. Both parties are broadly social democratic, although, in Namibia’s intimate political environment, personalities count for more than ideology. The Democratic Turnhalle Alliance (DTA), a coalition of ethnically based parties with a conservative stance, has steadily lost ground since 1990, when it was the largest opposition party. Efforts to form an opposition alliance between these three parties have foundered as they have no pretensions to national appeal. The Damara-based United Democratic Front (UDF) is strong in Kunene, the only one of Namibia’s 13 regions that SWAPO does not control.

InstitutionsThe cabinet is appointed by the president and does not need approval by the legislature, although its members must be MPs. Although the prime minister is titular head of the government, the president has the more powerful role and usually chairs cabinet meetings, which has contributed

2009 Election results (continued)

(% of vote)

Parliamentary election

Party Number of seats

SWAPO 54

RDP 8

DTA 2

NUDO 2

UDF 2

AAP 1

CoD 1

RP 1

SWANU 1

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to an expanded executive role at the expense of the legislative. Lower-house elections take place under the part-proportional party-list system, although regional and local councillors are directly elected by constituencies. This means the choice of MPs is in the hands of the party hierarchies and candidates cannot stand as independents, which has constrained the effectiveness of the lower house, particularly as over two-thirds of SWAPO’s 54 MPs are on the government payroll as ministers or deputy ministers.

The constitution explicitly prohibits members of the cabinet or parliament from interfering in the work of the judiciary, which comprises two upper and lower courts. The chief justice (Supreme Court), judge president (High Court) and other senior judges are appointed by the president on the recommendation of an independent judicial services commission. approved by parliament. The courts are used for a wide range of civil and criminal cases and businesses are able to obtain rulings on contract disputes fairly speedily, although there are often long delays with more complex cases and at the lower-court (magistrate) level. Enforcing intellectual property rights is more straightforward than in most African countries.

The government’s decision-making process remains slow and service delivery patchy, although most foreign investors report that dealings with officials in Windhoek for specific projects are easier than elsewhere in Africa and delays can often be resolved by recourse to a senior minister. Mr Pohamba has personally crusaded against official corruption, but, despite the establishment of an independent Anti-Corruption Agency, with investigative (although not prosecutory) powers, lower-level corruption has not been significantly reduced, particularly in the allocation of state-funded tenders. A more transparent tendering system is provided for under a new public procurement bill, although this has been criticised on the grounds that it will cause bottlenecks as procurement is to be centralised, with no provision for decisions at the regional and local levels. Nevertheless, by most measures, such as the Transparency International corruption perception index, corruption is less of a problem in Namibia than in most African countries; in 2012 it was ranked 58th least corrupt (out of 174 countries).

Natural resourcesNamibia is well endowed with natural resources, including a variety of minerals (gem diamonds, gold, semi-precious stones, uranium, copper, lead, zinc, fluorspar, manganese, iron ore, rare earth elements [REEs] and marine phosphates), sea fish, offshore natural gas and— potentially—oil. The Ruacana hydropower plant, which produces half Namibia’s electricity supply, is located on the Kunene, a perennial river along the northern border with Angola, with a second planned at Baynes. The Benguela Current-fed, cold, nutrient-rich south-east Atlantic Ocean contains commercially fishable quantities of edible pelagic and white fish, crustaceans and other species, which, like minerals, are mostly exported (Spain, Japan and South Africa are the main markets), despite sporadic government efforts to promote fish consumption in Namibia. Despite its mainly semi-arid climate, except during times of drought, Namibia is normally self-sufficient in staple food crops (maize and millet), which are grown in the wetter north, but also under irrigation in central areas and along the Orange river.

Alluvial diamonds are predominantly found along the southern coastline between Oranjemund and Luderitz, both onshore and at sea; marine recoveries now account for over half of total output and

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only a small proportion of the estimated 1.5bn-carat seabed resource has yet been mined. Uranium deposits are concentrated in the largely uninhabited central Namib desert, inland from Swakopmund, Erongo region; gold and base metal deposits are mainly in central areas and the north-eastern Otavi highlands; and REEs and iron ore in Kunene province, north-west Namibia.

AgricultureAgriculture accounts for only 5% of GDP, but almost a third (173,000, 27.4%) of the 630,100 employed population and 20% of the 868,300 economically-active labour force (2012 figures). Most (99,500, 58%) work as subsistence crop farmers and herders in the north and the rest on commercial farms and ranches. A majority (59.3%) of subsistence farmers are female, reflecting the absence of a large proportion of the male population who work in the main towns and mines for most of the year. Rural household food security is fragile, but, in drought-free years, most grow enough for their requirements and crop prices have not been driven down by food-aid imports. During droughts, local milling firms procure maize and wheat imports on commercial terms. Livestock farming contributes the greater share of agricultural output; large cattle and sheep ranches supply local abattoirs exporting beef mainly to the EU, although most sheep are still exported live to South Africa. Government marketing schemes have made it easier for subsistence farmers to sell their animals, but a pledge to remove the red line, a veterinary fence that keeps northern subsistence and commercial cattle herds separate, has not been met. Diseases such as foot-and-mouth are difficult to control in the north owing to the free flow of cattle across the border from Angola.

At independence, around 4,000 white farmers owned most commercial land (often two or three farms each), but this ownership pattern has been substantially altered by the government’s land redistribution programme, based on a willing buyer/willing seller model and individual purchases by black Namibians. All farms for sale must first be offered to the state, with valuations (subject to appeal) set by land boards. Although land redistribution has frequently been criticised as slow and expensive, the latest data show that, as of October 2012, historically disadvantaged Namibians (HDNs), effectively the bulk of the indigenous population, owned over 9m hectares of commercial farmland, nearly two-thirds of the government’s 15m–ha 2020 resettlement target. HDNs now own 28% (2,600) of the 9,200 registered commercial farms, although most—17% of the total—have been acquired by Namibians purchasing land through the affirmative action loan scheme (AALS) of the Agricultural Bank. Just under 2,000 farms covering 6m ha were acquired by this means; resettled Namibians held almost 400 farms, covering 2.1m ha, with a further 210 farms, covering 1.1m ha, owned by the government pending allocation to resettlers. This has lessened pressure by SWAPO radicals to speed up land redistribution by compulsory acquisitions and Mr Pohamba has regularly reiterated (most recently in April 2013) that expropriation would be against the constitution and the government would end up on the losing side in court. However, the government has yet to grasp the nettle of communal land reform; most land in the populous north is allocated by traditional chiefs and farmers do not have leasehold rights that would allow them to borrow to make improvements. The Bank of Namibia (the central bank) has floated the idea of a progressive introduction of leasehold rights, with safeguards to protect small farmers, but this has yet to become policy.

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MiningGem diamonds, uranium and other minerals (including refined zinc and smelted copper, which are classified as manufactured products) contribute the largest share of exports, accounting for 45-50% of the total by value, with diamonds alone composing around half of this. Mining accounts for 11-12% of GDP and a major share of government revenue, but current employment is only 7,000. Owing to expanding offshore recoveries, output by the 50:50 government/De Beers-owned Namdeb Diamond Corp, the sole current producer, increased from 1.3m carats in 2002, to 2.1m carats in 2008, and, after dipping sharply in 2009 owing to the global recession, recovered to 1.7m carats in 2012. As output is +97% gem quality, average per-carat value is higher than any other major producer, at US$695 per carat in 2011, according to Kimberley Process data. Rough stones were marketed exclusively by De Beers until 2007, since when 10-15% of Namdeb output by value has been sold to local cutting and polishing firms. Namdeb is investing N$2.3bn (US$300,000) during 2012-16 in projects to prolong the life of onshore mining (which employs the bulk of its workforce), involving innovative technology to mine shallow-water deposits for processing on land. The Vedanta-owned Skorpion zinc mine and refinery in the south-west, producing 150,000 tonnes per year of high-grade metal, is the only one in Southern Africa, while capacity of the Tsumeb copper smelter is being expanded to 200,000 tonnes per year.

Uranium is set to become the largest mineral export by value from 2015, when two large new mines are expected to be in production, mainly to supply China, which is pressing ahead with large-scale construction of new nuclear power plants. Current capacity (of the Rossing and Langer Heinrich mines) is around 6,000 tonnes per year, which would be more than doubled by the Husab mine, just south of Rossing, which state-owned China Guangdong Nuclear Power Co. (CGNPC) has started building at an estimated cost of US$1.5bn. Planned production is 6,800 tonnes per year from the relatively high-grade deposit. France’s AREVA in 2012 delayed completion of its low-grade Trekkopje mine, north of Rossing, owing to the weak uranium price in the aftermath of the tsunami disaster at Japan’s Fukushima nuclear power plant in March 2011. When in commercial operation (likely to be in 2015) Trekkopje will produce around 3,000 tonnes per year. China is set to expand its involvement in the resource sector with another state-owned firm proposing to develop a large iron-ore mine and associated industrial park in Kunene region.

Commodity exports

(US$ m)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Diamonds 824 848 1,084 910 791 537 826 880 983

Uranium 117 145 231 557 625 552 690 686 560

Manufactured goods a 426 490 628 890 865 735 891 973 794

Total (incl others) 1,821 2,067 2,651 2,918 3,191 3,102 4,011 4,400 4,028

Note. a Includes refined zinc, smelted copper, cut diamonds, processed fish and meat, and beverages. A second uranium mine opened at the end

of 2006; a commodity breakdown is not available for years prior to 2004.Sources: Bank of Namibia; The Economist Intelligence Unit.

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Oil and gasNamibia is not yet an oil producer, although there are high hopes of a commercial discovery based on geological similarities between the Namibian and Brazilian South Atlantic deepwater salt basins. A large number of oil exploration firms have taken up acreage in the past five years, as well as farm-ins by three oil majors, BP (UK), Petrobras (Brazil) and Spain’s Repsol. A large amount of accumulated seismic data have identified highly promising prospects in Namibia’s four offshore basins: Namibe, Walvis, Luderitz and Orange. However, fewer than ten wells have been drilled since exploration began in the early 1990s. One large licence holder, Chariot Oil & Gas (listed on London’s Alternative Investment Market or AIM) drilled two dry exploration wells last year and has postponed further drilling until 2014. However, Brazil’s HRT has moved a drill rig to Namibian waters and several other firms plan to drill wells in 2013. Two firms are also exploring the onshore Ovambo basin in northern Namibia. The state-owned National Oil Corporation of Namibia (NAMCOR) usually holds a 10% free-carried interest in each licence. NAMCOR shifted from a licensing-round system to open tendering at the end of the 1990s, which, coupled with the increase in crude prices and scarcity of new petroleum provinces, boosted interest in Namibian acreage. In the process, a small group of Namibian entrepreneurs, many with political ties to SWAPO, was allocated shares in licence consortia by NAMCOR, which some have cashed in, creating oil millionaires before a drop of crude has been produced. NAMCOR has defended this as a means of widening participation in the oil sector in line with BEE aims.

The offshore Kudu gas field in the southern Orange Basin has proven resources of 1.4trn cu ft, but its development has been bedevilled by successive project changes and partner disagreements. An early scheme to pipe gas to South Africa had to be abandoned as a sales contract could not be agreed and the current focus is a gas to domestic power project, involving supply from an offshore production platform. Ireland’s Tullow is the operator for the Kudu licence, although NAMCOR holds a majority interest following the withdrawal of Russia’s Gazprom two years ago. After years of delay, NAMCOR and electricity utility, Nampower, announced the signature of a project development and gas sales agreement in April 2013; pre-qualification tenders have been issued for subsea facilities and a floating production system, as well as an 800-mw combined-cycle gas plant near Oranjemund. The current project completion date is 2017 and the plant would provide an exportable surplus for sale to neighbouring countries.

TourismNamibia has worked hard to promote the country, with its unrivalled unspoilt landscapes and abundant wildlife, as a quality tourist destination. There is a strong conservationist ethic within the local tourism sector, which is of growing appeal to visitors who support responsible tourism. Around 40% of Namibia is designated national parkland, including Etosha and the Namib-Naukluft, while most of the mainly pristine desert diamond area in the south-west no longer used for mining is also being opened up to tourism. The current tourism strategy aims to increase holiday visitors to around 500,000, rather than make Namibia into a mass tourism destination. Instead, the focus is on attracting higher-spending overseas tourists (traditionally mainly from Western Europe, but increasingly from China and other Asian countries), coupled with the greater participation of rural communities, especially in

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animal and nature conservancies, to expand informal job opportunities.

Tourism is one of four priority sectors in the current five-year National Development Plan (NDP4), which targets the need for skills training, more investment in visitor facilities, especially at state-run national parks, and an improvement in often low service standards (hotels can be variable, although most private lodges and guest houses are of a high standard). In 2010 (the latest data available), there were 984,000 international tourist arrivals—up 18% on 2006 owing to successive annual increases—according to the UNWTO. Although 30% were from Angola and 28% from South Africa, Western Europe’s 21% share (Germany 9%) composed just over half of the 417,000 visiting on holiday, rather than for other personal reasons or business.

Policy, economy and the business environmentThe government has pursued fiscal expansionary policies in recent years, designed to offset the impact of the global recession on economic output and to reduce Namibia’s high unemployment rate. This has led to a substantial increase in public debt; around two-thirds is normally borrowed on the domestic market, although external debt was doubled with the issue of a US$500m Eurobond at the end of 2011, Namibia’s first such recourse to global bond markets. A three-year job-creation programme was introduced in the 2011/12 (April-March) fiscal year, with the aim of creating around 100,000, mainly public-sector, jobs, but so far less than one-third of this target has been met. The programme was based on the 51% unemployment rate estimated by a 2008 labour force survey, although the methodology used for this was widely criticised and revised down to 37% after a World Bank review. The latest estimate, based on a 2012 labour force survey, is that 27% of the 868,300 workforce is unemployed.

PolicyTotal spending has consistently exceeded the targets set in the government’s three-year medium-term expenditure frameworks; it has never been cut in nominal, let alone real, terms. But revenue has also usually come in above target, mainly because inflows from Namibia’s share of Southern African Customs Union (SACU) receipts has exceeded projections, owing to strong import growth in recent years. In the 2012/13 budget, the finance minister, Saara Kuugongelwa-Amadhila, implemented a measure of fiscal consolidation, in line with IMF concern that Namibia required greater fiscal buffers to withstand exogenous shocks. Total spending growth was moderated to 8% and the budget deficit was

N A M I B I ABOTSWANA

ANGOLAZAMBIA

SOUTHAFRICA

Windhoek

Namibia national parks

0 km 400

National parksMajor mountain

ATLANTICOCEAN Brukkaros (1,586m)

Naukluft Mountains (1,973m)

Burnt Mountain

The CapriviEtoshaNational Park

Skeleton Coast Park

National West CoastRecreation Area

Namib-NaukluftPark

KhaudomGame Reserve

Fish River CanyonNational Park

WaterbergPlateau park

BwabwataNational Park

Lüderitz

SwakopmundWalvis Bay

Keetmanshoop

Tsumeb



reduced to 2.8% of GDP, from 7.2% in the preceding year. In 2013/14, spending was increased again, by 19%, to N$48bn, 41% of GDP, more than doubling the budget deficit to a projected 6.4% of GDP. Most of the increase was in development (capital) spending, which rose by 21%, to N$8.1bn, to an extent bearing out Ms Kuugongelwa-Amadhila’s claim that the budget was focused on economic growth and (more realistically) job creation.

Under the current forecast, the budget deficit is due to fall to 4.1% of GDP in 2014/15 and 3.4% in 2015/16, although it is probable that total spending will continue to exceed targets, despite which continued growth in SACU receipts (around 35% of total revenue) is likely to prevent the deficit ballooning again. Total debt, currently N$28bn (US$3.4bn) or 26% of GDP, is projected to rise to N$45bn in 2015/16 or 31% of GDP, of which N$12bn would be external debt (with the Eurobond accounting for one-third). However, external debt servicing should remain affordable; owing to decreased principal and interest repayments, debt service (on public and private debt) fell to N$2.8bn (US$300,000) at the end of 2012, from N$3.7bn a year earlier.

NDP4 is more tightly focused than its predecessors; it was largely drafted by the former central bank governor, Tom Alweendo. It prioritises investment in four sectors: agriculture, infrastructure, manufacturing and tourism, and also sets out a number of policy reforms to achieve “desired outcomes”, which Mr Alweendo stressed should not become “wish lists”. Total investment is projected at N$187bn, more than the government can finance, with the funding gap to be met by public-private partnerships (PPPs) as, unlike previous NDPs, there is no specific donor-aid target. Achieving this level of investment is likely to prove challenging.

The central bank follows the lead of the South African Reserve Bank (SARB) in primarily targeting inflation, although it also considers the impact of monetary policy on economic growth. The repurchase (repo) rate has been steadily reduced over the past four years, from 10.5% to a current 5.5%, and is expected to be held at this level, despite inflation having risen to above 6%.

Inward foreign direct investment(US$ m)

Source: UNCTAD.

0

100

200

300

400

500

600

700

800

900

1,000

0

100

200

300

400

500

600

700

800

900

1,000

2011201020092008200720062005200420032002

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Management of natural resourcesThe minerals industry is regulated by the Minerals (Prospecting and Mining) Act of 1992, which provides for exploration and mineral licensing on standard terms, with responsibility for these functions exercised by a mining commissioner. There have been allegations that some licence allocations have been made corruptly (although no fraud charges have ever been brought to court), especially those favouring BEE entities with inadequate financial resources to conduct work programmes. These are routinely sold on to third parties, usually foreign investors, but, although the government has acknowledged that this is a problem, it has yet to introduce measures to curb the practice. Environmental and social impact assessments (ESIAs) are required for all mining projects, with the granting of a mining licence conditional on prior approval by the Ministry of Environment and Tourism.

A new minerals act has been drafted, but has not yet been tabled in parliament, with changes mainly to accommodate the subsequent introduction of royalties on non-diamond-mining production. The fiscal regime is determined by the Ministry of Finance, usually in consultation with the Chamber of Mines of Namibia (CMN). The CMN managed to obtain the revocation of a mid-2011 proposal to raise the non-diamond-mining income tax rate to 44% (a 17% increase), but, although the rate has been kept at 37.5%, provision has been made for a profit-based surcharge (in effect, a windfall tax) in good economic times. The increase would have made Namibia even more uncompetitive with Botswana, which has reduced its 25% rate to 22%. But the CMN has not been successful in persuading the government to rescind the declaration of six “strategic minerals”, in which exploration rights are reserved in the first instance for the state-owned Epangelo Mining Co. (see box). Despite an initial adverse impact on investor confidence in Namibia’s mining policies, this has not so far deterred foreign firms from investing in new mining developments.

Licensing and fiscal provision for the oil and gas sector are set out by the Petroleum (Exploration and Production) Act and Petroleum (Taxation) Act, both of 1991. Unlike in many African countries, there is no requirement for the payment of signature bonuses on the allocation of licences, although NAMCOR is reported to have collected these in some recent awards. There is provision for an additional profits tax in relation to certain accrued income at specified rates, starting at 35%; as there is currently no oil production in Namibia, no tax has yet been raised from the sector.

Economic growthMining in particular, but also manufacturing (which includes refined zinc, smelted copper, cut

Namibia came near to losing the confidence of global mining investors in 2011 when, without advance billing, it announced that the state-owned mining firm, Epangelo, which only receives N$50m (US$5.5m) a year from the government, would

have the exclusive right to explore and mine for six minerals declared to be strategic: diamonds, gold, copper, uranium, rare earth elements (REEs) and zinc. The policy was subsequently clarified several times to make it clear that existing exploration

Epangelo and strategic minerals



diamonds, processed fish and meat, and, latterly, cement), and services are the main growth generators. Owing to the predominance of mining and manufacturing (both mainly export sectors), the economy remains strongly export-orientated (exports accounted for 43% of GDP in 2012, down slightly from 46% in 2002) and highly susceptible to global commodity-price fluctuations. Even so, exports are more diversified than those of Namibia’s peers, such as Botswana and Zambia, with non-mineral exports—processed beef and fish, grapes and beverages (beer)—accounting for around one-third of the total. Real GDP growth averaged 4.8% annually in 2000 to 2009 (GDP contracted in 2009 owing to the global recession), accelerating to 5.3% in 2010-12 on the back of stronger commodity prices. Annual average mining output growth was 5.6% and 12%, respectively, in these two periods.

Government efforts to diversify sources of economic growth have focused successively on promoting the fishing, tourism and now manufacturing sectors. While tourism has expanded, fishing has declined; current diversification hopes are pinned on potential downstream beneficiation of minerals and associated industrial developments (such as local acid plants to supply new uranium mines). An industrial strategy has been unveiled and the long-term Vision 2030 development plan aims to turn Namibia into an industrialised society by then. A substantial (in excess of US$2bn) private-sector project pipeline for new mines and delayed development of the offshore Kudu gas field should lift annual average growth to above 6% in 2014-16.

The business environment

and mining rights for these minerals were not affected, while existing exploration-rights holders would have the right to apply for mining licences. However, Epangelo was given a remit to negotiate equity participation agreements, and a number have been signed in the past ten years, providing it with a 10% free-carried interest to be paid for out of future dividends. Foreign investors have generally accepted this, although some have insisted that Epangelo must purchase an equity stake on commercial terms. However, there remains the danger that, by reserving future exploration

rights to Epangelo for the strategic minerals, the rapid growth in exploration activity during the past five years will slow sharply. Epangelo lacks the funds and expertise to carry out exploration on its own, and, even if it received more government funding, since exploration is inherently a risky business, the mining sector believes this should not be a function of a state-owned entity. The government has yet to address these very real concerns; in practice, the problem may be overcome by Epangelo signing joint-venture deals for the exploration licences it receives.

Real GDP growth and sectors of the economy(% change, year on year)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP 4.2 12.3 2.5 7.1 5.4 3.4 -1.1 6.0 4.9 5.0

Mining -8.2 45.0 -10.9 27.6 0.5 -2.9 -42.2 32.7 -7.9 11.2

Manufacturinga 13.9 0.4 7.5 2.7 8.5 2.1 5.9 7.3 -0.6 4.3

Services 6.9 10.4 2.1 5.5 7.4 5.6 4.8 4.2 4.5 6.9a Includes refined zinc, smelted copper, cut diamonds, meat and onshore fish processing, beverages.

Source: Namibia Statistics Agency.

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The business environment remains reasonably attractive, although by a decreasing margin compared to some other African countries. In the World Economic Forum’s Global Competitiveness Index 2012-

13, its score fell to 3.9 (where 0.0 represents the least competitive and 7.0 the most competitive), from 4.0 previously, although still just behind Botswana’s score of 4.1. But its global ranking fell nine places, to 92nd, having fallen by the same margin in 2011-12. Similarly, Namibia ranked 78th (out of 183 countries) in the World Bank’s Doing Business 2012 report, down four places on 2011. It continued to do comparatively well for ease of obtaining credit (ranked 24th), enforcing contracts (40th) and obtaining construction permits (52nd). The worst scores were for trading across borders

(142nd), registering property (145th) and starting a business (125th). A key problem identified by these reports is the difficulty in obtaining urban land. This is often subject to long delays, dependent on the efficiency of the local authority controlling access. For instance, it took South African Breweries (SAB) over two years to obtain the land it required to build a local brewery at Okahandja, just north of Windhoek. There are no current proposals to overhaul the process, although this has been targeted as a necessary reform by NDP4.

Credit risk is low, as both the central government and private-sector borrowers have good repayment profiles, while Namibia’s foreign currency sovereign debt has an investment grade BBB- rating. The small, well-regulated commercial banking sector is able to meet most short-term funding requirements by businesses; three of the four banks (one is locally owned) are partly/wholly owned by South African banking groups and can access their parent companies’ resources. Banks had minimal exposure to the global debt crisis and maintain a cautious lending policy; the proportion of non-performing loans (NPLs) has steadily fallen in recent years. However, there is little competition and only pressure from the central bank in 2010 led to banks reducing the differential between their (substantially higher) prime lending rates and the former’s repo rate. The differential has decreased from around 7% to no more than 3.75%.

The government’s financial inclusion policy aims to boost the currently low proportion of Namibians with bank accounts, while over half of informal businesses claim to have difficulty obtaining credit. Local market capitalisation on the Namibian Stock Exchange (NSX), founded in 1992, is small, with only seven locally listed firms; over 95% of the value consists of dual-listings of South African blue chip stocks and London Stock Exchange-listed Anglo American and Old Mutual. Share transactions have remained modest, peaking at 343,000 in 2009, but falling to only 83,000 in 2012. However, one foreign uranium-mining firm, eight uranium and other mineral explorers, along with one oil-exploration firm, have listed in the past five years. The two largest local listings, banking firm, FNB Holdings, and Namibia Breweries, accounted for almost two-thirds of the N$10.5bn in local-market capitalisation at end-December 2012.

Namibia has a relatively low personal tax burden and tax thresholds were raised above inflation and rates reduced in the 2013 budget. The tax-exemption threshold was lifted, from N$40,000 to $50,000, and the starting tax band raised to N$50,000-N$100,000 (from N$40,000-N$50,000) and the rate reduced from 27% to 18%, while the maximum rate tax (37%) threshold was raised from N$750,000 to N$1.5m. However, corporate tax rates have become increasingly uncompetitive; they

Real GDP growth and sectors of the economy(% change, year on year)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP 4.2 12.3 2.5 7.1 5.4 3.4 -1.1 6.0 4.9 5.0

Mining -8.2 45.0 -10.9 27.6 0.5 -2.9 -42.2 32.7 -7.9 11.2

Manufacturinga 13.9 0.4 7.5 2.7 8.5 2.1 5.9 7.3 -0.6 4.3

Services 6.9 10.4 2.1 5.5 7.4 5.6 4.8 4.2 4.5 6.9a Includes refined zinc, smelted copper, cut diamonds, meat and onshore fish processing, beverages.

Source: Namibia Statistics Agency.



are to be reduced from the present 34%, to 33% in fiscal year (March-February) 2013/14 and to 32% in 2014/15. However, the non-diamond income tax rate has been held at 37.5% and, additionally, the government intends to introduce a variable levy of 1-2% on raw material exports, which is expected to hit the mining sector the hardest. The non-resident shareholders’ tax (NRST, deducted from dividends received by overseas shareholders not directly conducting business in Namibia) was doubled, to 20% from end-2011 for non-residents owning less than 25% of the dividend-paying Namibian firm.

A variety of tax incentives reduce the tax many firms pay in practice, while they can also offset 100% of the cost of equipment and plant over several years. Firms with manufacturing status pay 18% corporate tax, while those accorded export processing zone (EPZ) status, who must export 80% of their production outside the SACU, pay zero income tax in perpetuity and are exempted from VAT, customs duties on capital and intermediate imports. The government has recognised that the multiplicity of incentives is costly to administer and open to abuse (for example, by transfer pricing) and NDP4 states that the current incentive system will be reviewed in order to streamline it. In particular, it notes that the reliance on discretionary criteria to qualify for manufacturing incentives works against market efficiency and complicates tax administration.

The constitution guarantees freedom of association and the right to strike; under the Labour Act of 2007, based on ILO provisions, industrial disputes are resolved by a labour court. To be lawful, stipulated dispute procedures must be followed. Labour productivity is generally low, and the main labour-market issue faced by investors is the shortage of skilled employees, especially skilled manual workers. Chinese firms are regularly accused of employing Chinese instead of Namibians, not adhering to affirmative action provisions, and paying low wages in often poor conditions. The prevalence of HIV/AIDS remains high, but has fallen quite sharply in recent years, owing to the roll-out of anti-retroviral therapy (ART) by state healthcare facilities, with most private-sector workers provided with ART free of charge by their employers.

There is no provision for a statutory minimum wage in Namibia and the government has resisted pressure by a Church-led civil society campaign for the introduction of a N$100 per month basic income grant (BIG). The best-paid jobs are in the public, financial services and mining sectors. The public-sector wage bill accounts for a high share of total government spending (35% in the 2013/14 fiscal year). Public-sector unions have regularly obtained above-inflation annual salary increases and the government has been slow to implement IMF recommendations to downsize the civil service, which currently employs 93,000 people.

Namibia does not borrow from the IMF, so its views (expressed in annual Chapter-IV consultations) are advisory and not prescriptive. At independence the civil service was mainly white and the government faced difficult challenges in restructuring it to initially accommodate returned diaspora Namibians with differing levels of educational attainment, and subsequently the recruitment of some 5,000 former People’s Liberation Army of Namibia (Plan) combatants into the public service to reduce widespread unemployment among veterans in the latter 1990s. Tensions between these three groups appear to have lessened but have hampered efforts to build an effective civil service and introduce IMF-recommended reforms. However, a major overhaul of the civil service pay structure was announced in

Namibia



Namibia

March 2013, including the long-delayed introduction of a performance-management appraisal system and a reduction in the number of job grades by one-third, to 184. It is not clear if this will reduce the overall cost of the civil service; the new system is to run until 2018, with annual pay increases to be inflation-linked. A spate of strikes in the non-civil-service public sector and at some mines during 2012 raised fears that large-scale labour unrest might be spreading from South Africa. But most strikes were wage-related and resolved by negotiated pay rises; unions generally support SWAPO (the NUNW trade union federation is affiliated to the party) and there is little prospect of politically motivated strikes.

Namibia’s infrastructure is superior to that of most African countries, with a generally well-maintained tarred road network connecting most population/industrial centres and an efficient harbour at Walvis Bay. Container handling-capacity is being steadily expanded to establish Walvis Bay as a regional cargo hub, made possible by the port’s tarred road links to neighbouring states (the trans-Kalahari highway to Botswana/South Africa and the trans-Caprivi to Zambia). Promoting regional integration is an important component of government policies to diversify Namibia’s economic and trade links, especially with neighbouring Southern African Development Community (SADC) member countries. Three transport corridors have been established, the Caprivi, the Cunene (to Lobito in Angola) and the Kalahari, by the Walvis Bay Corridor Group (WBCG), a public/private partnership between the Namibia Ports Authority, TransNamib transport utility and freight operating firms. In addition, the national airline, Air Namibia, has expanded its regional flight network to SADC capitals, with regular flights now operated to Harare, Gaborone, Luanda, and Lusaka, as well as the longer-established services to Cape Town and Johannesburg. To improve connections with West African markets, a Windhoek-Accra flight has also been introduced.

The telecommunications network is of developed country standard; although the majority of households do not have a landline, mobile telephony has expanded to 90% coverage. Faster and higher-capacity real time Internet data transmission capacity has been provided by Namibia’s connection to the 14,000-km underwater cable, known as the West Africa Cable System (WACS), which became fully operative in mid-2012. Despite Namibia’s largely arid climate and lack of perennial interior rivers, a network of dams underpin a comprehensive bulk water supply system. The government has expanded water supply and sewerage facilities in rural areas, mainly to the benefit of the populous north. Because of increasing pressure on local aquifers at the coast (which remains unconnected to the bulk supply system), the government has ruled that new uranium mines and associated industries must supply their needs from seawater desalination plants. France’s Areva opened the first near Swakopmund in 2010 and a second is planned by the NamWater utility.



Namibia

Economic data Demographic and social data

2011a 2004-11 (av) latest available

Real GDP (PPP US$ bn at 2005 prices) 14.0b 12.2 Population (m) 2.3

Nominal GDP (US$ bn at PPP) 15.8 13.0 Area (sq km) 824,268

GDP (% real change pa) 4.9 5.1 Under 5 mortality rate (per 1,000 live births) 41.5

GDP per head (US$ at PPP) 7,030.0b 6,114.9 HIV/AIDS (% of people aged 15-49) 13.4

Budget balance (% of GDP) -9.7b -1.0 Human Development Index ranking (out of 186) 128

Public debt (% of GDP) 26.8 23.3

Money market interest rate (%) 5.6b 7.2

Consumer prices (% change pa; av) 5.0 5.9

Current-account balance (% of GDP) 0.9b 3.4

Foreign-exchange reserves (US$ bn) 1.8 1.1

Exchange rate LCU:US$ (av) 7.3 7.2a Actual. b Economist Intelligence Unit estimates.

Sources: The Economist Intelligence Unit; UN Statistics Division; UNDP; World Bank.

Namibia

Cover image - © BrunoRosa/Shutterstock

While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.

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