Corruption - A social disease (Part 169): Namibia at the cross roads

04 March 2021 | Columns

Johan Coetzee

Given ongoing media articles about governance, manifested in contraction of investment and increasing unemployment, it is appropriate to reflect on several trends covering several decades.

Trend analysis can enable the reader to perceive long-term developments and events from a more balanced perspective compared to short term studies that focus on the here and now, e.g. the interest rate and/or incidents of corruption at a given time. A longer-term perspective, especially if related trends can be analysed simultaneously, can provide some general direction when reflecting on the sustainability of decision making.

THE BASICS

Governance is at its most basic about accountability (the buck stops with whom?), transparency (information about decisions shared to minimise abuse of power) and sustainability (to withstand the long-term test of wisdom).

It should be made clear that the word ‘governance’ includes decisions by government, business and individuals. Several questions can be relevant.

• What decisions have been made?

• How were these decisions (processes and due diligence) made?

• Who made these decisions?

• What checks and balances were put in place to enable implementation?

• How were the implementation of these decisions monitored?

• Why were some decisions not implemented?

• What can be done to enable increased implementation of decisions?

The focus of this and articles to follow will be on decisions (governance) in terms of the following trends: (dis)investment; corruption and deterioration of public service delivery; increasing unemployment; and increasing state control and state intervention.

Given Namibia’s dire need for economic growth and development, as probably any equity trader will verify, decisions that the Government has made have contributed to an outflow of money and deteriorated Namibia’s ability to attract investment.

(DIS)INVESTMENT

A Namibian dollar today is worth more than a dollar tomorrow, because of the time value of money and the risk attached to what will happen with such a dollar tomorrow. To attract a dollar today for growing the economy, Namibia needs investment.

The reaction to the increasingly investor-unfriendly policy environment, especially since 2014, that has also seen Government increase its direct control of the economy, is evident.

Gross fixed capital formation, which is a leading indicator of economic growth and development, is at an all-time low as a percentage of Gross Domestic Product (GDP). This shows that investment, whether local or foreign, in productive, fixed capital has reduced notably.

Investors simply do not feel safe to commit and would rather wait out the uncertainty or deploy their capital elsewhere (Bartsch, Coetzee, Smith & De Klerk, 2020).

Graphical data supports this contention. The outflow of capital is evident, especially since 2014/15 when the New Equitable Economic Empowerment Framework (NEEEF) was formulated.

In similar fashion, net direct investment has begun to dry up as well.

Traditionally, Namibia has enjoyed relatively large inflows of foreign direct investment. However, this has also changed. The gap between GDP and net direct investment is decreasing, especially since 2016/2017.

With the introduction of anti-business and investor policy, local capital has slowly started to leave the country, and very limited foreign capital has entered. Namibia has avoided dramatic capital flight, however much capital is waiting on the side lines to see what happens with policy. For example, the New Equitable Economic Empowerment Bill (NEEEB) that is currently under review (again) and open for input - however, quite unknown by the public.

Given a globalised world, NEEEB in its current form presents a major risk to Namibia. Unsustainable policy, such as this proposed law, can cause much more capital to leave compared to the outflow, potentially resulting in more aggressive capital controls, (Bartsch, Coetzee, Smith & De Klerk).

Should this happen – money will simply not come into Namibia if it cannot leave again, which could lead to a situation similar to what happened in Zimbabwe and Venezuela recently.

*The rest of this article will be published in subsequent editions of Market Watch.

References:

Bartsch, A., Coetzee, J.J., Smith, J. & De Klerk, E. (2020). Economic Policy Research Association: Analysis of the Latest Version of the New Equitable Economic Empowerment Bill, Windhoek.

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