Driving investment (away)

Only investment can kick-start ­Namibia's economy again; yet the country is everything but investor-friendly at the moment.

09 October 2019 | Economics

A simple 'watering down' of NEEEF and NIPA will not cut it. Not even at the margin. - Rowland Brown, Co-founder: Cirrus Capital

Jo-Maré Duddy



To rekindle economic growth and drag Namibia out of its prolonged recession, the country needs “a dramatic change of policy, away from inward looking, nationalistic and redistributive measures, towards investment attracting measures”.

Elaborating on his quote, independent economist and co-founder of Cirrus Capital, Rowland Brown, says these measures include reducing red-tape, work permit reform and a more hospitable business environment.

It also entails less demands on the private sector to fix public sector issues. “We need the opposite of 'more taxes',” Brown says.

Pivotal in Namibia's economic resurrection is removing policy uncertainty.

Downgrading Namibia to two levels below investment grading recently, Fitch Ratings cited the country's mutually-reinforcing deterioration in economic growth and fiscal metrics.

“The macroeconomic environment has worsened further and Fitch has lowered its assessment of Namibia's growth potential,” the international rating agency said.

“Subdued economic prospects amid exceptionally elevated inequality and high unemployment will raise significant challenges for the government's plan to stabilise its debt by cutting back spending, particularly on high payroll costs,” Fitch continued.



'Malaise'

Like Brown, other local experts maintain policy uncertainty is one of the major contributors to Namibia's economic predicament.

Analysts at IJG Securities, Dylan van Wyk, says the current recession and poor growth outlook is “a symptom of the status quo being maintained for far too long”.

Namibia is “only starting to make the tough decisions now”, he says. This includes providing “clarity on policy that has been hurting investor confidence”.

Head of research at PSG Namibia, Eloise du Plessis, says Namibia's debt-to-GDP ratio – a major concern for Fitch - will only improve if either government debt decreases or the gross domestic product grows.

“Policy makers have been dragging their feet on giving certainty to local and foreign investors which has kept us in this malaise,” Du Plessis says.

Fitch also alludes to this in the expression of “persistent structural bottlenecks”, she says.

In its rating announcement earlier this month, Fitch said: “Recent policy initiatives aiming at spurring investment, including an investment summit held in August, will have only a muted impact on economic activity amid persistent structural bottlenecks.”



'Silver bullet'

According to Brown there are only four components to GDP: Household consumption, government spending, net exports and investment.

Although a major contributor to the economy, the over-indebted consumer can't drive the economy. The Namibia Statistics Agency's latest data on the wholesale and retail sector is but one example of this. The sector has recorded negative growth for 11 consecutive quarters.

Government's fiscal consolidation stance it adopted in 2016 to try and curb debt and restore macro-economic stability, leaves it no room for increased spending.

As Namibia imports more than it exports, this component of the economy can't drive growth either.

“This just leaves investment, and investment is without a doubt the silver bullet to our current situation,” Brown says.

Without investment, employment and ­household incomes won't recover. Thus no material recovery in personal income tax, ­value-added tax (VAT) and corporate taxes will be possible.

“This will keep government under revenue pressure, particularly from domestic sources. Thus government spending will likely remain under pressure until we see investment recovery,” Brown says.

Investment is also crucial to suitably increase exports and decrease imports, while improving living standards, he says.

“We are not going to produce more goods to sell to the rest of the world without investment. And we are not going to reduce our dependencies on imported goods from the rest of the world by producing locally more of the goods we consume locally, without investment.”



'Critical catalyst'

Brown says there appears to be an “increased understanding” that “investment is without a doubt the critical catalyst to bring about ­recovery in the Namibian economy”.

However, “we have yet to see material action, and it appears that the extent of the action ­required is not well understood”.

According to Brown, Namibia needs “a radical deregulation of the investment ­environment - from labour laws to taxes to general ­bureaucratic hurdles for investment, to visas to foreign exchange control regulation”.

“A simple 'watering down' of NEEEF and NIPA will not cut it. Not even at the margin,” he says.



NIPA

The Namibia Investment Promotion Act (NIPA) was enacted in August 2016 but is ­currently under review. It replaces the Foreign Investment Act of 1990.

The 1990 law provided for a free investment regime backed by institutional support. The Economic Policy Research Association (EPRA), a voluntary association of nearly 600 Namibian businesses, says NIPA provides for an investment approval regime that gives the minister in charge of investments sweeping discretionary powers in the regulation and decision-making on investment matters.

“Despite a drastic decline in foreign investment, Namibia increased its protectionist policies by promulgating the Investment Promotion Act, substantially increasing bureaucracy and the potential for corruption,” independent analyst and member of EPRA's managing committee, Eben de Klerk, says.

“The Act expressly states that the government may expropriate investors' property when it sees fit. It also limits transferability of profits,” De Klerk says.

The destruction of investor confidence in 2016 reduced investments to the lowest post-independence levels, he adds.

At the economic growth summit in August, president Hage Geingob said government had sought to revise NIPA, with a view toward mobilising and attracting domestic and foreign investment for economic development.

“Subsequent to promulgation, the Act was put on hold to accommodate broader inputs by the private sector.

“Substantive amendments were effected to address concerns raised, such as that the Act was cumbersome and too bureaucratic and defeating its intended purpose instruments to promote investments,” he added.



NEEEF

The New Equitable Economic Empowerment Framework (NEEEF) will return this year “after causing a major scare when first introduced in February 2016, just before Namibia went into a depression”, De Klerk says.

Although Geingob at the economic growth summit said the 25% BEE ownership requirement would be removed, “nothing was said of the council to be established with unlimited powers to set economic transformation standards, non-compliance with which would result in criminal prosecution”, De Klerk says.

“The compulsory 25% equity stake has been removed; however, all pillars will remain and be taken into account for enterprises doing business with government and applying for natural resources licensing,” Geingob said at the summit.

He added that the finalisation of the New Equitable Economic Empowerment Bill (NEEEB) is one of government's key priorities. The Bill will be tabled in Parliament within six months.

Brown says Namibia needs a business climate that is better than that which existed before NEEEF and NIPA were thrust into the spotlight in 2015, not a meagre improvement of the 2018 business environment.



Taxes

According to Brown, government has been “largely unsuccessful” to fix the country's issues like high equality and poverty through the fiscus. Alternatively, government's efforts have been “too slow for a now-frustrated populous”.

“As a result, new approaches have been sought, such as requiring investors to fix the aforementioned issues,” he says.

“Recent policy and tax noises suggest that government will still try and fix their ­expenditure issues by increasing the tax on companies, despite widespread company ­lay-offs of staff, reduced profits and company closures across the country.

“That this is bad for investment is self-­evident, however it appears that government will continue to push through additional taxes, such as a dividend tax on businesses, ­regardless,” Brown says.

Namibia already has the third highest tax-to-GDP ratio in the world, he points out.

Brown maintains that a “mentality change” is needed, but says “we do not see as forthcoming”.

“There is a pernicious mentality around ­investment that needs to be reconsidered – investors cannot be held responsible for ­addressing the various challenges the country faces directly.

“Investors invest for return. We should require that they are conscientious and do not exploit our country and take advantage of market failures, however we should also not have unreasonable expectations of them.

“Investors create employment and pay tax, two of the most critical factors for the ­development of the country's people. This is true whether the investor is large or small, ­Namibian or foreign,” Brown says.



Action

De Klerk refers to Namibia's poor performance on, and fall down the rankings, of the Global Index on Ease of Doing Business.

“These economic and global ranking ­indicators paint a bleak picture of Namibia currently. It is becoming evident that governance, and more specifically policy making, is affecting Namibia's investment environment more than external factors such as droughts and commodity prices,” he says.

A legal and economic study must be ­conducted on the laws that influence investor choice and confidence, De Klerk says.

“Thousands of people lost their jobs as a result of unfriendly investor legislation. The victims and the culprits should both be ­informed of the nexus between bad policy and ­increased poverty and human suffering,” he says.

De Klerk says all attempts should be made to engage policymakers to join a process of ­scenario planning, to increase the rationality of goal setting and decision making.

“Namibia is small enough to do so. The ruling party still has sufficient power to enforce pragmatic policies, and abandon those that threaten our investment future,” he says.

Brown says “it is vital that Namibia turns away from populist propaganda-style policies, towards positive investment policies for growth”.

“It is only through measures such as this that household spending can grow sustainably once again, that government revenue can do the same, and that exports can be increased and/or imports reduced.”

Similar News

 

Kunene commits on service delivery

22 hours ago | Economics

The most fundamental reason for the existence of any government is to ensure the provision of housing and land to its people.This was said by...

Kunene commits on service delivery

22 hours ago | Economics

The most fundamental reason for the existence of any government is to ensure the provision of housing and land to its people.This was said by...

Residents demand speed humps

3 days ago - 31 July 2020 | Economics

A concerned group of young residents at Rundu called for the erection of speed humps along the Maria Mwengere road, especially in front of a...

Kunene regional budget increases

3 days ago - 31 July 2020 | Economics

The Kunene regional health department reported that the novel coronavirus has instilled fear in the community and also increased the regional budget expenses.Kunene governor, Marius...

CoW complied with requirements

4 days ago - 30 July 2020 | Economics

The City of Windhoek complied with all requirements to be granted a Telecommunications Service Licence, Communications Regulatory Authority (CRAN) board chairperson Mihe Gaomab said.Gaomab in...

IMF loan option welcomed with a pinch of salt

4 days ago - 30 July 2020 | Economics

OGONE TLHAGEWINDHOEKWhile the reputation of the International Monetary Fund has not been seen as favourable, local economic commentators have welcomed the government's intention to borrow...

Spain worries neighbours

4 days ago - 30 July 2020 | Economics

After Britain's quarantine move and a travel warning from France, Germany became the latest country to advise Tuesday against holidays in parts of Spain with...

Sustainable development crucial

5 days ago - 29 July 2020 | Economics

Kavango east regional governor Bonifasius Wakudumo has called on the residents of the region to embrace the spirit of hard work and unity and optimise...

Govt U-turns to apply for N$4.5bn IMF loan

5 days ago - 29 July 2020 | Economics

JO-MARÉ DUDDYWINDHOEKAfter stating to Namibian Sun in April that it would avoid the International Monetary Fund (IMF) for financial aid, government yesterday confirmed it has...

Construction at RVTC progress

5 days ago - 29 July 2020 | Economics

Kavango east regional governor, Bonny Wakudumo, said the construction of the agricultural campus for agrivet programmes at the Rundu Vocational Training Centre (RVTC) is nearing...

Latest News

Two more CPCs for NSX

22 hours ago | Business

Two capital pool companies (CPC) listed on the Development Board (DevX) of the Namibian Stock Exchange (NSX) on Friday: Mcube Investments One Ltd and Omajowa...

Another tough year for Nictus

22 hours ago | Business

Jo-Maré Duddy – Locally-listed Nictus Holdings’ results for the 12 months ended 31 March 2020 reflect the impact of the ongoing recession in Namibia with...

Familiar faces surface at IPC

22 hours ago | Politics

OGONE TLHAGEWINDHOEKFamiliar faces have surfaced in the newly launched Independent Patriots for Change (IPC), which held its founding national convention in Windhoek over the weekend.The...

Seven Covid-19 cases in Windhoek...

22 hours ago | Health

JANA-MARI SMITHWINDHOEKWith nearly 100 Covid-19 cases confirmed in Windhoek, there is growing fear about how informal settlements – which so far have seven confirmed cases...

Journalist lands in trouble for...

22 hours ago | Government

OGONE TLHAGEWINDHOEKNamibia Press Agency (Nampa) journalist Edward Mumbuu has found himself in hot water with his employer after he asked President Hage Geingob a Fishrot-related...

De Beers likely to cut...

22 hours ago | Business

LONDON/GABORONE - Diamond mining giant De Beers is likely to have to cut jobs, its chief executive said on Thursday, as it outlined plans for...

Overview of VAT in Namibia

22 hours ago | Business

The Value-added Tax Act in Namibia imposes a liability to pay VAT on (a) every taxable supply of goods and services and (b) every import...

Journalism increasingly under threat in...

22 hours ago | Opinion

“I disapprove of what you say, but I will defend to the death your right to say it.” This quote, often attributed to French philosopher...

Kunene commits on service delivery...

22 hours ago | Economics

The most fundamental reason for the existence of any government is to ensure the provision of housing and land to its people.This was said by...

Load More