Corruption - A social disease (Part 170): Namibia at the cross roads

09 March 2021 | Columns

Johan Coetzee

Governments are supposed to create an attractive environment for investors and oversee sustainable investment, not the African trend where 70% and more of shares belong to foreign investors.

This could be a result of the greed of foreign investors and the ignorance of locals to apply the free cash flow method and a fixed period (e.g. 15 years with exceptions) in quantifying risks when negotiating for a reduced discount rate. The free cash flow method is a much more accurate quantification of risk compared to the standard quantification of cash flow.

The author is aware of only one Namibian company using the free cash flow method, and this company is not an equity trading company.

A Namibian private company owns only 10% of a prominent gold mine, probably the most environmental-sustainable mining company in Namibia and one of the gold mines in the world with the least risk for shareholders (open pit and high quality of gold ore per ton, meaning higher profit). A much more favourable (lower, to reflect less risk) discount rate and larger shareholding for Namibians could have been negotiated.

Planned drilling for oil and fracking in the Kavango without a Strategic Environmental Impact Assessment and a moratorium on all drilling, may leave long-term socio-economic and environmental liabilities to future generations such as contaminated water, reduced wildlife and an enabling of further wood mining and export, to mention only a few unquantified costs.

RED TAPE

Not only is sustainable investment a challenge, but a much bigger challenge could be bureaucracy, through creating red tape and delays.

It currently takes six months and more to perform all registrations required for a new business in Namibia, with the Registrar of Companies, the Business and Intellectual Property Authority (BIPA) and the Receiver of Revenue, some of only a few actors (De Klerk, 2020). It takes 24 hours to set up a business in New Zealand.

Why can Namibia not emulate New Zealand and Mauritius in reducing the number of days it takes for investors to start a business?

Will the latest State-Owned Enterprise (SOE), number 102, the Namibia Investment Promotion Agency, be able to change this reality? What has fundamentally changed with reference to the previous Namibia Investment Promotion Bill that has hampered investment? Why has the public not been widely consulted on the latter Bill (amended twice)? What will be the impact of the revised Bill that is due to be table in parliament?

GOVERNMENT'S ROLE

The role of Government should be paramount in sustainable public and private investment and delivering of public services efficiently and effectively without strings attached. The more that governments centralise, regulate and deliver public services directly (bureaucracy and red tape) without adequate checks and balances to reduce waste, the more negative perceptions and incidents of corruption tend to be.

If an investor thinks that a country is corrupt, such an investor will not invest in a country, unless the risks attached to an investment opportunity are less than the rate of return.

The second trend that is appropriate to be analysed is Namibians’ perceptions about corruption and governance by Transparency International (TI). It needs to be considered that the release of TI ratings tends to be accompanied by a time delay of approximately 10 months from date of a survey executed until recording, compilation and publication.

Transparency International in February 2021 released its ratings for Namibians’ perceptions about corruption and governance. The Corruption Perception Index of TI is one of the most popular indices used by investors to provide an indication of the level of corruption in a country as a decision-making indicator for investment purposes (Coetzee, 2012).

The index is compiled annually in 180 countries. Countries are classified as open, Western-style economies or closed economies, and rated out of 10, with 10 being a perfect score, indicating no corruption and perfect good governance.

In 2020, the least corrupt countries, Denmark and New Zealand scored 8.8 followed by Finland, Singapore, Sweden and Switzerland with scores of 8.5 each. The lowest rated countries were South Sudan and Somalia with 1.2, followed by Syria, 1.4.

In Africa, Seychelles scored 6.6, followed by Botswana with 6, Cabo Verde 5.8, Rwanda 5.4, and Mauritius 5.3. Namibia scored 5.1 and has been ranked 6th in Africa and 57th out of 180 countries.

It is positive that Namibia has been ranked globally as one of the top 33.3% of least corrupt countries. The average score in sub-Sahara is 3.2, the lowest performing region on the global index.

Although Namibia has not earned a medal in Africa, it is a star in sub-Sahara. However, is the rating of 5.1 (51%) competitive enough to qualify for the Olympics and/or the gold standard of attracting investment?

LIMITATIONS OF INDICES

One challenge with international indices is that they are simplistic and do not perceive and tackle corruption from a holistic or systemic perspective.

By providing a trend analysis of corruption ratings of Namibia by TI, it is possible to make some deductions over the period of more than two decades. Even if this research method is not systemic, at least it is not a once-off analysis of a specific year.

This does not imply that corruption is not systemic to Namibia. To pay a bribe to get access to a public and/or private service, are only two topics out of a much larger number as reported by the Afrobarometer Survey published on 26 January 2021.

Trend analysis is a research method that can be useful to provide an overview of historical incidents/events in context of long-term developments.

PERCEPTION: PROS AND CONS

Perceptions are not necessarily reality and/or facts. This point was raised by the President in responding to the Afrobarometer.

However, if perception studies are complying to a 95% confidence level and an error margin of about 3%, e.g. TI and Afrobarometer, are perceptions studies valid and reliable? Statistically such studies are valid and reliable.

Because perceptions are not necessarily reality, what value can it have?

Perceptions of people should not be ignored, because one cannot say that the perception of a person is right or wrong. It is his or her perception. People can differ about the interpretation of facts, how to interpret reality and from perspective, but not about a person’s right to have an alternative perception.

For example, irrespective of perceptions and its validity and reliability, voters vote based on their perceptions. A losing party must accept the outcome.

Leaders should not argue about the validity and reliability of perceptions. They should do their utmost to change perceptions of voters and Namibians about corruption. The impact of negative perceptions is that it reduces the trust in leaders and in public institutions.

If people think that a government is corrupt, people attempt to justify their immoral behaviour by evading to pay tax and to offer bribes to receive public service.

If a government and/or a leader cannot provide evidence to proof beyond reasonable doubt that negative perceptions are not valid, such negative perceptions tend to increase. Such increase is beyond control of the so-called affected person.

If a leader is accused of corruption, the longer he or she takes to provide undisputed evidence to clear such perceptions, the more the negative impact will be. A substantial impact of corruption is the impact of negative perceptions that reduce the trust of people in government and reduce the trust between citizens to do business. Because of distrust, it takes longer to conclude business deals, more professionals need to be employed (e.g. lawyers) to control and mitigate the risk of abuse of trust in the form of contracts and increasing checks and balances as well as increasing the cost of doing business and delivering public and private services.

References

Coetzee, J.J. (2012). Systemic corruption and corrective change management strategies: A study of the co-producers of systemic corruption and its negative impact on socio-economic development. Unpublished PhD dissertation. Stellenbosch: University of Stellenbosch.

De Klerk, E. (2020). Unpublished Masters thesis: for the degree of Master of Philosophy, Futures Studies. Qua Vadis Namibia? The development of scenarios to provide more insight into where Namibia may find itself by 2040. University of Stellenbosch, Stellenbosch Printers.



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