Building a strong economy

Staff Reporter - Food and fuel price increases could lead to a substantial increase in poverty rates in Namibia. The impact of the food price increases on poverty could be particularly significant in Namibia, given that many households spend about half of their income on food.The fuel price increases are likely to have a smaller direct impact on poverty, however, because fuel is an intermediate input into most other goods and into transport services, the impact could still be great.To curb the increases of fuel prices, the mines and energy ministry in 2022, reduced levies on all petroleum products. While these measures provide temporary relief to consumers, they may not be sufficient, especially to the most vulnerable members of the society. However, more long-term measures are needed to protect the most vulnerable people in society, such as increasing grants to the elderly and those living with disabilities.The Namibian government can consider zero-rating consumer goods that are particularly consumed by the most vulnerable. A host of the consumer goods, which are presumably affected by the current global supply disruptions and increasing price caused by the Russia-Ukraine war, are already zero-rated. However, other goods that could be considered for zero-rating may include all wheat and all grain products and substitutes.Increase incomeNamibia should also look at longer-term policies designed to raise income levels and hence to reduce the vulnerability of the people who are currently prone to all shocks, and particularly to shocks involving changes in the price of food. Raising the income of the poor is the most effective long-term mechanism for reducing their vulnerability—and especially the vulnerability associated with higher prices of staple foods. This is a huge challenge that involves all fields of economic policy. For this, Namibia will need to improve the technology of agricultural production.Investments in agricultural research and the adoption of modern technology can have particularly high rates of return.This can be done by scaling up climate-smart agricultural practices, strengthening climate-smart agricultural research and seed systems, and supporting market, climate, and advisory services.It can also contribute to fairer competition, increased government revenues, national economic growth, and social cohesion. Formalise businessDuring the Covid-19 pandemic, informal activities picked up and became an alternative source of income to many. However, due to the informality of these businesses, Covid-19 regulations did not permit them to operate as they did not meet health standards. The various authorities can assist by supporting and enabling the informal trades to achieve formal status.Namibia should also invest in rural infrastructure.Improvements in rural infrastructure raise the prices received for output from a region and lower the cost of consumption goods brought into the region and can be very effective in lowering poverty. Investments in infrastructure frequently have high benefit/cost ratios. A sound strategy is to rigorously screen potential infrastructure projects so that high benefit/ cost ratio projects are identified and carried out.There is a need to support the small and medium enterprises through the formalisation of informal businesses.Formalisation is the process of acquiring formal legal status through complying with business regulations. Formalisation can help small informal businesses grow and provide greater security for workers.DiversifyThe Namibian economy is largely undiversified due mainly to an overreliance on mining and related exports. The performance of the economy has been highly reliant on mining commodity exports which tend to be volatile as they are dependent on commodity prices set at an international level. For Namibia, diversifying the economy would mean moving away from relying only on one or two main drivers of growth.This would require expanding investments in the non-mining, non-government sector and orienting these investments to be weighted towards exports rather than consumption.Shielding the economy from external shocks through economic diversification can be achieved, either by diversifying the economic structure or by increasing export markets. Economic diversification can be defined as the shift towards a more varied structure of domestic production and trade with a view to increase productivity, creating jobs and providing the base for sustained poverty reducing growth. Growth also tends to be unbalanced in the case of mineral dependent countries or slow and difficult to sustain in agrarian ones. Poverty-reducing, trade-driven, growth has been particularly difficult to achieve in countries whose economies are heavily dependent upon primary commodities. However, the development and expansion for instance of diamond cutting and polishing, fish processing, beer and soft drink production, and tourism in Namibia is proof that diversification can succeed in practice. Export marketsAnother way the country can build resilience to shocks is by broadening the export markets, thereby reducing the overreliance on only a handful of countries for revenue.The recent discovery of oil and gas, including the green hydrogen project emerge as potential avenues of economic opportunity in Namibia. These discoveries could place Namibia as a potential economic player within the region and on international markets soon, as it has a comparative advantage to fully explore the arena of green energy. The tendency of commodity price booms to be more pronounced than price slumps, as witnessed over the past 50 years, underscores the importance for Namibia to save windfall revenues, through the newly established sovereign wealth fund, during good times to respond to future shocks.Namibia, which is prone to droughts, will need to look at avenues of rainwater harvesting during flood seasons to ensure sufficient water is available for agricultural products. Self-sustainableTo cushion the economy against adverse food price increases will require that the country find ways to be food self-sustainable.Increasing irrigation is one of the inevitable ways to ensure continuous food production throughout the year. This will require rainwater harvesting during rainy season, ensuring water supply throughout the year. This will increase crop production of basic items to substitute some imports for local production.Moreover, the country may wish to look at drought resistance crops to adapt to climate change.Similarly, the global energy crisis also remains a significant risk that must be monitored and countered. The global energy crisis, especially in Europe and Southern Africa, shows the need for the country to increase energy supply in the country, while also exploiting the diversification opportunities created by the energy situation in the Southern African Development Community (SADC) region.Fiscal policy buffersCreating fiscal space and enhancing government revenue is important for buffering the economy against shocks. Increasing tax revenues, rationalising spending, increasing spending efficiency, and addressing medium-term fiscal risks are necessary to increase development, social, and climate spending, while maintaining fiscal sustainability. To mitigate against potential future crises, the Namibian government will need to think of bolder and stronger transformative policies to build fiscal buffers. This will mean saving during times of economic booms and reducing non-essential spending through targeted spending efforts. To this end the Namibian authorities have created a mechanism through a sovereign wealth fund as one of the important avenues to facilitate such saving.Productive spendingTo support the stronger pro-growth fiscal policies, Namibia will need to double efforts to enhance revenue mobilisation and increase productive spending and its efficiency. Higher tax revenues, through enhanced collection methods instead of increased tax rates would support consolidation while allowing higher pro-growth expenditures. The increase in revenues should be accompanied by efforts to enhance fairness by reducing regressive and distortive exemptions and closing loopholes. On the spending side, better prioritisation and streamlining of current expenditure and increased efficiency of capital and social spending would be crucial for increasing productivity and growth. Similarly, improved controls over public sector procurement and transparency over the procurement decisions will save cost and reinforce credibility. It would also improve the business environment while reducing income inequality and fighting poverty. Increased revenues should be saved under the sovereign wealth fund to increase long-term fiscal buffers. – Bank of Namibia

Building a strong economy

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Namibian Sun 2025-07-15

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Building a strong economy

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Namibian Sun 2025-07-15

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