Economy needs policy vaccine
Local and foreign investment are the only remedies which will ensure Namibia’s economic survival. But unless government stops dragging its feet with controversial policy proposals, the country will remain starved of jobs and growth.
Jo-Maré Duddy – There a reason why this article claimed the first spot in this publication: investment policy uncertainty as the main hindrance to private sector willingness to kick-start the economy runs like a rusted thread through interviews conducted with industry leaders in Working Nation.
Gross fixed capital formation (GFCF), or investment, has plummeted from about N$47.4 billion in 2014 to around N$28.9 billion in 2019. Excluding general government, GFCF has fallen by some 45% from N$41.1 billion in 2014 to about N$22.6 billion in 2019.
Among investors’ concerns are Namibia’s tax regime, land reform and its procurement system, but the biggest culprits are the New Equitable Economic Empowerment Bill (NEEEB) and the Namibia Investment Promotion Act (NIPA).
Several independent think tanks, economists and analysts this year released studies pleading with government to realise that Namibia’s only currency is policy certainty.
Here’s a recap of their major viewpoints:
With the uncertainty caused by NEEEB and NIPA, Namibia has effectively hung out a sign to foreign investors saying: “No entry: please come back in five years.”
This is the opinion of the Institute of Public Policy Research Institute (IPPR) in its latest quarterly economic review.
“It seems no one in government is keeping an eye on the whole investment picture and how it compares to other countries in the region and elsewhere, the most successful of which are moving towards greater simplicity and less discretion," the IPPR said.
“To many outside observers, it is almost as if Namibia has stopped caring about how it is perceived as an investment destination,” the institute continued.
Cirrus Securities said the current version of NEEEB, “coupled with the claim that no further consultation will take place, has seen a number of businesses gear up to move capital into other jurisdictions, and to focus investment and growth efforts outside of the country”.
FDI at record low
With Namibia cemented in recessions for three of the past four years and the impact of Covid-19 and the extended lockdown expected to plunge the economy into a record contraction, foreign direct investment (FDI) will be the country’s life support.
“What is going to pull Namibia’s economy out of the longest slump it has experienced since Independence? The answer must lie in attracting FDI,” the IPPR said.
Namibia’s success in attracting FDI has declined to historically low levels, the think tank said.
Namibia is experiencing a “policy-induced investment revolt”, Cirrus said.
“As a result, the forward-looking indicators of net foreign investment, as well as fixed capital formation, look poor – suggesting that the mid-term outlook will remain weak.
“Without this investment, there are limited prospects for sustained material recovery of household incomes, as well as material recovery in government revenues. Thus, the best-case scenario for the near term is low growth,” Cirrus said.
A survey of decision-makers in the corporate sector by Simonis Storm (SS) found that 81% of respondents expected Namibia to attract “the same level of FDI or for it to deteriorate even further in 2020”.
“This can possibly be attributable to uncertainty around policies within certain sectors of the economy and Namibia not being competitive relative to other countries in the region,” SS said.
Namibia was supposed to be rated the most competitive economy in Africa as measured by the World Economic Forum (WEF) in 2020, SS pointed out. In reality, Namibia is now the fifth most competitive economy in Sub-Saharan Africa behind Mauritius, South Africa, Seychelles and Botswana.
One of the top five solutions to Namibia’s economic woes, according to the SS survey, is “pro-business policies”.
“The highest priority should be to make the country more attractive for potential investors and avoid unrealistic laws and regulations,” SS said.
NEEEB
Cirrus Securities said “far from removing uncertainty, the current version of the [NEEEB] bill adds additional uncertainty and is no less draconian than its predecessor”.
The latest version of NEEEB is “equally unlikely to have any positive benefits on the economy and the objects of reduced inequality, improved growth and job creation”, Cirrus said.
“This legislation can be expected to remain a material drag on growth going forward,” Cirrus continued.
“Moreover, and more importantly, NEEEB can be expected to continue to put pressure on the currency peg, with individuals and corporates unlikely to invest surplus capital in Namibia until clarity is seen in regulation (at best), while FDI flows are likely to remain non-existent to negative for the same reason,” Cirrus said.
The Namibian Employers’ Federation (NEF), the largest employers’ organisation in the country, has urged government to further consult with the private sector on the latest version of NEEEB.
“The NEF advocates and proposes that measures be put in place to ensure that the risk of corruption, nepotism, and empowering and enriching those who are no longer disadvantaged is totally eliminated and mitigated against,” the federation said.
Government’s latest attempt at NEEEB introduces “vague and draconian legislation where virtually unfettered power and discretion rests in the hands of a yet unnamed minister and commissioner to set standards and criteria for private sector participation in the economy,” the Economic Policy Research Association (EPRA) said.
In its current form, NEEEB is not just “grossly unconstitutional”, but it will also add “significant uncertainty and discourages much needed foreign and domestic investment,” EPRA maintained.
NIPA
NIPA was promulgated in 2016 but never enacted, but, according to EPRA, the mere possibility of its enactment has repelled – rather than attracted – foreign investment because it is “riddled” with provisions that dis-incentivise any form of substantial foreign investment.
EPRA proposed that any new legislation governing foreign investment should deal with the “major flaws” in the original Act.
The body said these major flaws include the promotion of protectionism at the expense of foreign investment, an increase in bureaucracy and unnecessary red tape, unfettered and arbitrary discretion by the relevant minister, and restriction on the repatriation of profits.
EPRA proposed that the legislation should not contain a threat of expropriation on an arbitrary and nefarious basis, and that it should promote increased and transparent oversight over centralised decision-making on foreign investment.
Gross fixed capital formation (GFCF), or investment, has plummeted from about N$47.4 billion in 2014 to around N$28.9 billion in 2019. Excluding general government, GFCF has fallen by some 45% from N$41.1 billion in 2014 to about N$22.6 billion in 2019.
Among investors’ concerns are Namibia’s tax regime, land reform and its procurement system, but the biggest culprits are the New Equitable Economic Empowerment Bill (NEEEB) and the Namibia Investment Promotion Act (NIPA).
Several independent think tanks, economists and analysts this year released studies pleading with government to realise that Namibia’s only currency is policy certainty.
Here’s a recap of their major viewpoints:
With the uncertainty caused by NEEEB and NIPA, Namibia has effectively hung out a sign to foreign investors saying: “No entry: please come back in five years.”
This is the opinion of the Institute of Public Policy Research Institute (IPPR) in its latest quarterly economic review.
“It seems no one in government is keeping an eye on the whole investment picture and how it compares to other countries in the region and elsewhere, the most successful of which are moving towards greater simplicity and less discretion," the IPPR said.
“To many outside observers, it is almost as if Namibia has stopped caring about how it is perceived as an investment destination,” the institute continued.
Cirrus Securities said the current version of NEEEB, “coupled with the claim that no further consultation will take place, has seen a number of businesses gear up to move capital into other jurisdictions, and to focus investment and growth efforts outside of the country”.
FDI at record low
With Namibia cemented in recessions for three of the past four years and the impact of Covid-19 and the extended lockdown expected to plunge the economy into a record contraction, foreign direct investment (FDI) will be the country’s life support.
“What is going to pull Namibia’s economy out of the longest slump it has experienced since Independence? The answer must lie in attracting FDI,” the IPPR said.
Namibia’s success in attracting FDI has declined to historically low levels, the think tank said.
Namibia is experiencing a “policy-induced investment revolt”, Cirrus said.
“As a result, the forward-looking indicators of net foreign investment, as well as fixed capital formation, look poor – suggesting that the mid-term outlook will remain weak.
“Without this investment, there are limited prospects for sustained material recovery of household incomes, as well as material recovery in government revenues. Thus, the best-case scenario for the near term is low growth,” Cirrus said.
A survey of decision-makers in the corporate sector by Simonis Storm (SS) found that 81% of respondents expected Namibia to attract “the same level of FDI or for it to deteriorate even further in 2020”.
“This can possibly be attributable to uncertainty around policies within certain sectors of the economy and Namibia not being competitive relative to other countries in the region,” SS said.
Namibia was supposed to be rated the most competitive economy in Africa as measured by the World Economic Forum (WEF) in 2020, SS pointed out. In reality, Namibia is now the fifth most competitive economy in Sub-Saharan Africa behind Mauritius, South Africa, Seychelles and Botswana.
One of the top five solutions to Namibia’s economic woes, according to the SS survey, is “pro-business policies”.
“The highest priority should be to make the country more attractive for potential investors and avoid unrealistic laws and regulations,” SS said.
NEEEB
Cirrus Securities said “far from removing uncertainty, the current version of the [NEEEB] bill adds additional uncertainty and is no less draconian than its predecessor”.
The latest version of NEEEB is “equally unlikely to have any positive benefits on the economy and the objects of reduced inequality, improved growth and job creation”, Cirrus said.
“This legislation can be expected to remain a material drag on growth going forward,” Cirrus continued.
“Moreover, and more importantly, NEEEB can be expected to continue to put pressure on the currency peg, with individuals and corporates unlikely to invest surplus capital in Namibia until clarity is seen in regulation (at best), while FDI flows are likely to remain non-existent to negative for the same reason,” Cirrus said.
The Namibian Employers’ Federation (NEF), the largest employers’ organisation in the country, has urged government to further consult with the private sector on the latest version of NEEEB.
“The NEF advocates and proposes that measures be put in place to ensure that the risk of corruption, nepotism, and empowering and enriching those who are no longer disadvantaged is totally eliminated and mitigated against,” the federation said.
Government’s latest attempt at NEEEB introduces “vague and draconian legislation where virtually unfettered power and discretion rests in the hands of a yet unnamed minister and commissioner to set standards and criteria for private sector participation in the economy,” the Economic Policy Research Association (EPRA) said.
In its current form, NEEEB is not just “grossly unconstitutional”, but it will also add “significant uncertainty and discourages much needed foreign and domestic investment,” EPRA maintained.
NIPA
NIPA was promulgated in 2016 but never enacted, but, according to EPRA, the mere possibility of its enactment has repelled – rather than attracted – foreign investment because it is “riddled” with provisions that dis-incentivise any form of substantial foreign investment.
EPRA proposed that any new legislation governing foreign investment should deal with the “major flaws” in the original Act.
The body said these major flaws include the promotion of protectionism at the expense of foreign investment, an increase in bureaucracy and unnecessary red tape, unfettered and arbitrary discretion by the relevant minister, and restriction on the repatriation of profits.
EPRA proposed that the legislation should not contain a threat of expropriation on an arbitrary and nefarious basis, and that it should promote increased and transparent oversight over centralised decision-making on foreign investment.
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