26 March, 2015

Namibia: On the Road to Economic Ruin?

by Hussein Solomon

At face value, it would seem that Namibia has a lot going for it. Its relatively sparse population of 2.2 million inhabitants occupies a vast country. It has immense natural resources and is classified as a higher middle-income country with an estimated GDP per capita of US $5,828. Yet this figure conceals tremendous income inequalities. Indeed, Namibia is one of the most unequal societies in the world with a gini-co-efficient of 0.591. To put it differently, whilst a few are enjoying the economic largesse, 55.8 percent of the population survives on less than $2 per day. Furthermore, consider the fate of the hapless 52 percent of the population who are unemployed.

Windhoek (Photo: Brian McMorrow)

In such a situation of extreme inequality, social unrest beckons. The Namibian government clearly understands this and in 2010 launched an ambitious fiscal expansion programme aimed at job creation. Unfortunately, this failed spectacularly making little impact on unemployment whilst at the same time resulting in a situation where government debt has grown exponentially. That this is taking place at a time when Namibian GDP growth is slowing – from 5 percent in 2012 to 4,2 percent in 2013 with further contraction predicted in 2015 is particularly worrisome.

Three reasons account for Namibia’s economic vulnerabilities. First, the economy is too dependent upon South Africa. 90 percent of the country’s imports originate in South Africa and much of its exports find their way to the regional hegemon’s markets. Moreover, the Namibian dollar is pegged to the South African rand. Given the poor health of the South African economy, the Namibian economy is bound to suffer from any setback in the economic performance of the hegemon. Difficult, as it is to do, the need to become less dependent on the South African economy is an imperative for Windhoek’s policy makers.

Second, the Namibian economy suffers too from its lack of economic diversification. Consider here a country, which is prone to droughts yet 47 percent of its labour force is located in the agricultural sector. Consider too that much of its exports emanate from its minerals yet given the perilous state of the global economy, demand for such minerals is declining. In both these cases diversification of the economy would make the country less vulnerable but such economic diversification is held back by the poor education system – made worse by a restrictive immigration policy that effectively prevents highly skilled immigrants from entering the work force.

Third, and a perennial problem across the continent, is the fact that Namibian policy-makers are sending the wrong signals to international investors. Corruption is endemic and pervasive. This coupled with fact that government is placing pressure on white and foreign owners to sell property hardly builds confidence in the international community to invest in Namibia. Without such investment, economic diversification and lessening dependence on South Africa is all but impossible.

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