Trapped in the middle
Namibia needs to improve its human capital, export structure, total factor productivity, innovation and infrastructure if it wants to realise its dream of an industrialised economy.
Jo-Maré Duddy – Experts at the Bank of Namibia’s annual symposium recently differed on whether Namibia has fallen into a middle-income trap, but they agreed that the economy will have to grow by 3.27% per annum for the next 15 years to become a high-income country.
Namibia successfully transitioned from low- to upper middle-income status in 2008.
A middle-income trap (MIT) is a development stage that characterises countries that are squeezed between low-wage producers, particularly China, and highly skilled, fast-moving innovators, the symposium was told.
“However, there is growing concern that Namibia might be in a ‘middle-income trap’ and unable to move to higher levels of economic growth and further economic transformation,” Bernie Zaaruka and Charlotte Tjekiro of the BoN’s research and financial stability department said in a paper delivered at the symposium.
Despite the “huge improvements” in poverty levels, Namibia’s total factor productivity has been falling and the country relied “substantially” on foreign direct investment in the mining sector for technological transfer, Zaaruka and Tjekiro say.
“Therefore, adequate technology creation and diffusion did not occur, and industry linkages and clustering are not widespread to break through a potential middle-income trap,” they say.
The authors point out that there is no universal definition of an MIT. The relative income definition, however, is the preferred approach. (For definitions, see page 2.)
Zaaruka and Tjekiro conclude that the relative approach to an MIT definition indicates that Namibia is stuck in a trap.
“With an average GDP per capita growth rate of about 3.8%, Namibia has moved from 16% to 18% of the US income per capita during the 1990-2018 period, far below from the high-income threshold. Namibia has been stuck in the ‘middle-income trap’ for the past 2 and half decades, and at that speed, it may take a long time to escape it,” Zaaruka and Tjekiro say.
Triggers
The authors focused on five economic factors most often identified as triggers of a MIT – human capital, export structure, total factor productivity, innovation and infrastructure.
They compared Namibia to five other countries to track its progress: Botswana, Malaysia, Estonia, Mauritius and Poland.
Namibia recorded the lowest indicator level on human capital index compared to all the other countries, the authors say. “Also, an inadequately educated workforce is listed in The Global Competitiveness Report as among the most problematic factors for Namibia,” they add.
A skilled labour force is key in improving productivity levels in any economy, Zaaruka and Tjeriko stress. “Knowledge in the economy has clearly become an increasingly important factor in wealth creation than often surpasses the natural resources endowment.”
Although acknowledging government’s efforts to improve the quality of Namibia’s education through the budget allocation to the education sector, more is needed, they say.
“Further efforts, especially in improving the quality of education, are necessary in Namibia to create a well-educated workforce and thus avoid a potential MIT.”
Export structure
An important challenge for middle-income countries seeking to maintain their customary high growth rates is to move up the technological ladder, Zaaruka and Tjekiro say.
Countries that are unable to upgrade and diversify their exports may become caught in an MIT, they say.
Namibia’s exports have averaged 44% of GDP from the period after independence, which is a decline from the average of 52% from the period pre-independence, the authors’ research shows. High-tech exports as a share of manufacturing exports for Namibia surged up between 2004 and 2007 to reach 11% and then levelled off at below 5%.
“Namibia performed poorly in both the exports of goods and services as well as the high-tech exports as a percentage of manufacturing exports,” the authors say.
“… under the current globalised environment, MIT countries are unable to compete with low-income, low-wage economies in manufacturing exports and are unable to compete with advanced economies in high skill innovation.”
According to the authors, this indicates that the export structure indicator could potentially hold back Namibia in its quest to become an industrialised nation by 2030. “The export structure indicator is therefore a trigger for MIT in Namibia.”
Productivity
Total factor productivity (TFP) indicates how efficiently the available production factors are transformed into final output, the authors quote research. Countries that managed to successfully to move out of the MIT trap had a relatively high TFP growth, they say.
According to them, “the potential causes of the MIT are evident in TFP patterns for Namibia”.
The data shows that the average growth rate of TFP for Namibia between 1990 to 2017 is -0.1% and highly volatile, Zaaruka and Tjeriko say. Comparing the period between 1990 to 2004 and 2005 to 2017, the data shows that the TFP growth rate for Namibia declined from an average of 1.8% to an average of -2.2% respectively.
The average TFP growth rate for Namibia is the lowest amongst all the examined countries, they say.
“The data indicates that Namibia experienced a sharp decline in TFP growth, implying that the country has been slow in adopting new and improved technologies, which is a characteristic of MITs. Thus, we can postulate that TFP could be a potential MIT triggering factor in Namibia,” Zaaruka and Tjekiro conclude.
Innovation, infrastructure
Research shows that a country’s innovative capacity is the most cited factor associated with escaping an MIT, they say.
“At the heart of the middle-income trap is the insufficient development of domestic innovation capabilities, which translates into low productivity growth.”
Namibia’s level of innovation is among the lowest, Zaaruka and Tjeriko say.
“In Namibia, policies aiming at boosting productivity, the absorption of technology and innovation in a broad sense should be prioritised. The priority should be to facilitate technology adoption, as well as the promotion of new economic activities (such as new exports) with high potential spill-overs for the rest of the economy,” they say.
The quality of infrastructure plays a major role in escaping an MIT, Zaaruka and Tjekiro emphasise. Particularly important are high-speed communications networks, they say.
In terms of the infrastructure pillar, Namibia is the third lowest among the examined countries.
Policy
Namibia’s education system needs to be linked with industrial targets, Zaaruka and Tjeriko say.
“To ensure that education contributes substantially to economic growth in Namibia, educational policy must be tailored to support the national development strategy, rather than simply increasing literacy rates, average years of schooling or even gross tertiary enrolment.”
The country should prioritise niche manufacturing that is employment-intensive and geared to global markets, they recommend.
Namibia should leverage on the well-developed private sector health provisions to increase exports of goods and services, they say. “Namibia should consider exporting of modern services to the regional market by leveraging on the well-developed private sector health care facilities.”
The authors say focus should be placed on “acquiring foreign technology that build domestic firms technological and business capabilities, to improve productivity gains”.
In addition, “government in consultation with the private sector should identify growth-enhancing infrastructure projects for collaboration as well as making public procurement deliver value for money by increasing efficiency”.
The authors further say policy-makers need to reassess the regulatory framework, as well as all business-related policies to improve Namibia’s productivity and competitiveness ranking.
Namibia successfully transitioned from low- to upper middle-income status in 2008.
A middle-income trap (MIT) is a development stage that characterises countries that are squeezed between low-wage producers, particularly China, and highly skilled, fast-moving innovators, the symposium was told.
“However, there is growing concern that Namibia might be in a ‘middle-income trap’ and unable to move to higher levels of economic growth and further economic transformation,” Bernie Zaaruka and Charlotte Tjekiro of the BoN’s research and financial stability department said in a paper delivered at the symposium.
Despite the “huge improvements” in poverty levels, Namibia’s total factor productivity has been falling and the country relied “substantially” on foreign direct investment in the mining sector for technological transfer, Zaaruka and Tjekiro say.
“Therefore, adequate technology creation and diffusion did not occur, and industry linkages and clustering are not widespread to break through a potential middle-income trap,” they say.
The authors point out that there is no universal definition of an MIT. The relative income definition, however, is the preferred approach. (For definitions, see page 2.)
Zaaruka and Tjekiro conclude that the relative approach to an MIT definition indicates that Namibia is stuck in a trap.
“With an average GDP per capita growth rate of about 3.8%, Namibia has moved from 16% to 18% of the US income per capita during the 1990-2018 period, far below from the high-income threshold. Namibia has been stuck in the ‘middle-income trap’ for the past 2 and half decades, and at that speed, it may take a long time to escape it,” Zaaruka and Tjekiro say.
Triggers
The authors focused on five economic factors most often identified as triggers of a MIT – human capital, export structure, total factor productivity, innovation and infrastructure.
They compared Namibia to five other countries to track its progress: Botswana, Malaysia, Estonia, Mauritius and Poland.
Namibia recorded the lowest indicator level on human capital index compared to all the other countries, the authors say. “Also, an inadequately educated workforce is listed in The Global Competitiveness Report as among the most problematic factors for Namibia,” they add.
A skilled labour force is key in improving productivity levels in any economy, Zaaruka and Tjeriko stress. “Knowledge in the economy has clearly become an increasingly important factor in wealth creation than often surpasses the natural resources endowment.”
Although acknowledging government’s efforts to improve the quality of Namibia’s education through the budget allocation to the education sector, more is needed, they say.
“Further efforts, especially in improving the quality of education, are necessary in Namibia to create a well-educated workforce and thus avoid a potential MIT.”
Export structure
An important challenge for middle-income countries seeking to maintain their customary high growth rates is to move up the technological ladder, Zaaruka and Tjekiro say.
Countries that are unable to upgrade and diversify their exports may become caught in an MIT, they say.
Namibia’s exports have averaged 44% of GDP from the period after independence, which is a decline from the average of 52% from the period pre-independence, the authors’ research shows. High-tech exports as a share of manufacturing exports for Namibia surged up between 2004 and 2007 to reach 11% and then levelled off at below 5%.
“Namibia performed poorly in both the exports of goods and services as well as the high-tech exports as a percentage of manufacturing exports,” the authors say.
“… under the current globalised environment, MIT countries are unable to compete with low-income, low-wage economies in manufacturing exports and are unable to compete with advanced economies in high skill innovation.”
According to the authors, this indicates that the export structure indicator could potentially hold back Namibia in its quest to become an industrialised nation by 2030. “The export structure indicator is therefore a trigger for MIT in Namibia.”
Productivity
Total factor productivity (TFP) indicates how efficiently the available production factors are transformed into final output, the authors quote research. Countries that managed to successfully to move out of the MIT trap had a relatively high TFP growth, they say.
According to them, “the potential causes of the MIT are evident in TFP patterns for Namibia”.
The data shows that the average growth rate of TFP for Namibia between 1990 to 2017 is -0.1% and highly volatile, Zaaruka and Tjeriko say. Comparing the period between 1990 to 2004 and 2005 to 2017, the data shows that the TFP growth rate for Namibia declined from an average of 1.8% to an average of -2.2% respectively.
The average TFP growth rate for Namibia is the lowest amongst all the examined countries, they say.
“The data indicates that Namibia experienced a sharp decline in TFP growth, implying that the country has been slow in adopting new and improved technologies, which is a characteristic of MITs. Thus, we can postulate that TFP could be a potential MIT triggering factor in Namibia,” Zaaruka and Tjekiro conclude.
Innovation, infrastructure
Research shows that a country’s innovative capacity is the most cited factor associated with escaping an MIT, they say.
“At the heart of the middle-income trap is the insufficient development of domestic innovation capabilities, which translates into low productivity growth.”
Namibia’s level of innovation is among the lowest, Zaaruka and Tjeriko say.
“In Namibia, policies aiming at boosting productivity, the absorption of technology and innovation in a broad sense should be prioritised. The priority should be to facilitate technology adoption, as well as the promotion of new economic activities (such as new exports) with high potential spill-overs for the rest of the economy,” they say.
The quality of infrastructure plays a major role in escaping an MIT, Zaaruka and Tjekiro emphasise. Particularly important are high-speed communications networks, they say.
In terms of the infrastructure pillar, Namibia is the third lowest among the examined countries.
Policy
Namibia’s education system needs to be linked with industrial targets, Zaaruka and Tjeriko say.
“To ensure that education contributes substantially to economic growth in Namibia, educational policy must be tailored to support the national development strategy, rather than simply increasing literacy rates, average years of schooling or even gross tertiary enrolment.”
The country should prioritise niche manufacturing that is employment-intensive and geared to global markets, they recommend.
Namibia should leverage on the well-developed private sector health provisions to increase exports of goods and services, they say. “Namibia should consider exporting of modern services to the regional market by leveraging on the well-developed private sector health care facilities.”
The authors say focus should be placed on “acquiring foreign technology that build domestic firms technological and business capabilities, to improve productivity gains”.
In addition, “government in consultation with the private sector should identify growth-enhancing infrastructure projects for collaboration as well as making public procurement deliver value for money by increasing efficiency”.
The authors further say policy-makers need to reassess the regulatory framework, as well as all business-related policies to improve Namibia’s productivity and competitiveness ranking.
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