A legacy in doubt

Jo-Mare Duddy - With elections on the horizon, president Hage Geingob and his cabinet must decide what their legacy is going to be: will they reform and reverse the decline of the past five years or go down in history as the people who crashed the Namibian economy?

This is the conclusion of the Institute of Public Policy Research (IPPR) in a recent hard-hitting analysis of the country’s economic policy and performance since 2015, when the current Geingob era started.

When new finance minister Calle Schlettwein tabled his first budget on 31 March 2015, government’s expenditure was 41.6% of gross domestic product (GDP). In the main budget Schlettwein submitted in March this year, the figure was 33.8%. Equally impressing, at first sight, was the reduction in the deficit: from 6.2% of GDP in March 2015 to 4.1% in March this year.

Debt, however, ballooned from 25.5% to 48.9% of GDP, while interest payments shot up from 4.1% to 11% of GDP. Guarantees increased from 4.5% to 7.9% in the revised budget of 2018/19, before dropping to an estimate of 5.6% in the main budget of 2019/20.

Revenue and grants, meanwhile, fell from 35.4% in March 2015 to 29.7% in 2019/20.

Setting the scene

“President Geingob’s term of office commenced six years after the global economic crisis that did so much to damage growth in key global economies,” the IPPR says.

“Growth in many high-income countries had resumed and the public debt that had accumulated as a result of the crisis had started to level off and even decline. However, the eurozone continued to suffer from low growth.

“China, which has steadily become one of Namibia’s key export markets continued to grow strongly but growth started to level off as the country progressed through middle-income status. Importantly, Namibia’s neighbours South Africa and Angola have performed especially poorly over the period 2015-2019 and this was bound to impact Namibia,” the IPPR says.

Namibia is highly dependent on mining and the commodity price landscape during the term under review needs to be taken into account.

Uranium prices have remained low following the Fukushima disaster in 2011. Gold prices at first dropped, but rose significantly in recent months. Copper zigzagged, and is current on a downward curve. So are zinc and lead. Tin, however, has stayed stable.

“The overall picture is mixed but uranium, one of Namibia’s key minerals, has certainly not performed well. There has not been a minerals boom of the kind seen in the noughties from which a country like Namibia stands to benefit greatly,” the IPPR says.

“In summary, the global economic environment has been reasonably supportive of growth in Namibia. There has been no second global crisis but also no growth strong enough to give rise to a minerals boom from which Namibia could benefit,” the think tank says.

Red lights

On coming into office Geingob and his cabinet appeared to believe that the economy, which had been growing strongly since the global financial crisis thanks partly to significant monetary and fiscal stimulus, was set to continue to grow, the IPPR says.

“Perhaps the underlying weaknesses of the economy had been masked temporarily by the monetary and fiscal stimulus combined with two exceptionally large investments in the mining industry – Husab and Otjikoto mines – and some large public sector projects such as the construction of the Neckartal Dam and the expansion of the Walvis Bay container port.”

However, “sight was lost of the fact that non-mining private investment was lacklustre and this was then compounded by significant policy uncertainty”, the IPPR says.

Policy

The IPPR refers to the draft New Equitable Economic Empowerment Framework (NEEEF) Bill, the Namibia Investment Promotion Act (NIPA) and the Public Private Partnership (PPP) Act in particular.

Although the compulsory 25% equity in NEEEF has been removed, all other pillars will remain and will be taken into account for enterprises doing business with government and applying for natural resources licensing.

“One effect this will have is that if Namibian equity partners fail to bring capital to the table (and natural resources tend to involve capital intensive industries) this will simply lead to investors requiring a higher hurdle rate of return rendering more projects unviable,” the IPPR says.

According to the Institute, NIPA “promotes the politicisation of investment projects by providing for open-ended ministerial discretion and ties investors down to impossible conditions that they cannot hope to fulfil”.

Although the Act was put on hold to allow for consultation, Geingob at the recent Economic Growth Summit said revisions have been finalised and will go through the motions to proceed to parliament.

While PPPs in principle “may encourage private capital to finance and manage public projects, in practice the taxpayer must avoid being fleeced by private investors better able to negotiate complex deals than government not to mention the scope for corruption when public and private interests collaborate”, the IPPR says.

“To date no formal PPPs have been announced although disappointingly the 2019/20 Budget Speech included mention of a new ministry of justice office complex in Windhoek as the first project.

“Yet more new government offices are not what is needed. Rather the PPP policy should be focused on productive infrastructure that has clear benefits for the economy,” the IPPR says.

Despite being firmly in power, government continues to exhibit three key characteristics that have marked economic policy-making since Independence, the Institute says. One of them is “a tendency to float half-baked policy ideas which then hang over the investment landscape like a cloud of uncertainty”.

SOEs

“A survey of policies and legislation introduced since March 2015 suggests little in the way of radical reform and more of a steady-as-she-goes approach to policy very much in line with Swapo’s track record since 1990,” the IPPR says.

The Public Enterprises Governance Act was approved in April this year, giving the ministry of public enterprises more formal powers to identify, monitor and manage public enterprises.

“The Act doubles down on previous initiatives which seemed to believe that the fundamental problem was not enough government control rather than too much.

“It is hard to understand why it took four years to pass this legislation, but there is no shortage of troubled public enterprises which can test whether the new legislation will help improve their performance. There can be no excuse for inaction now,” the IPPR says.

This is another key characteristic that have marked economic policy-making since Independence, according to the IPPR: “An extreme reluctance to take difficult decisions which are clearly in the long-term interests of the economy (for example the bloated public sector and loss-making SOEs which have featured in almost every budget statement since the 1990s).”

Responsibility

The third characteristic marking economic policy-making since 1990 is government’s “knee-jerk propensity to blame economic problems on external factors (“world markets”) and acts of God (“drought”) and a refusal to take responsibility”, the IPPR says.

“Although persistent drought conditions have been used by government as a principal explanation for poor performance, it is hard to give much credit to this argument given agriculture’s relative importance to the country’s GDP,” the think tank says.

The standard measure of economic success is growth in GDP, it says. A growing GDP is a sign that the income of the population is growing.

Namibia’s economy stopped growing abruptly in the second quarter of 2016 and has since experienced the longest period of economic contraction since 1990.

“The timing coincides with the completion of two major mines which appear to have masked what was going on in the broader economy where private investment was in significant decline.

“Private fixed investment in 2016 and 2017 reached record lows since 2007 and it is hard not to conclude that the major uncertainties in Namibia’s policy environment highlighted above did not have something to do with this lacklustre performance,” the IPPR says.

In 2014, Namibia’s official unemployment figure was 27.9%. Youth unemployment stood at 39%. The Namibia Statistics Agency’s (NSA) overall unemployment figure for 2018 is 33.4%. Youth unemployment reached 46.1%.

Shortcomings

The IPPR says government policy indicates “serious shortcomings which show no sign of changing any time soon, with the path of least resistance invariably being the preferred way forward”.

“Furthermore, it remains unclear exactly who is in overall charge of economic policy and who, if anyone vets economic initiatives before being made public: the president and his advisors? The minister of finance? The director general of the National Planning Commission? The High Level Panel on Economy?”

There have undoubtedly been some positive developments, the IPPR says.

“Government has reconsidered pushing through the most damaging new policies (but why consistently float new policies that have not been properly considered?) and some new foreign investment has materialised (although from the little that is known, the Peugeot car plant in Walvis Bay seems to be a case of government taking most of the financial risk).

“It is to be hoped that the large new investments in public infrastructure will pay off but, in the absence of publicly available cost-benefit studies, it is hard to be optimistic given government’s past propensity to spend on white elephants,” the IPPR says.