Namibia at a crossroads as donor money dries up

By Timo Shihepo

WINDHOEK–FROM outside, Namibia is regarded by many as a shining light among Southern Africa Development Community (SADC) countries, but a closer look indicates that things are not as they seem.

The country has good infrastructure, including good roads and world-class port facilities, reinforced by financial stability as well as admirable peace and stability. Due to economic stability, Namibia has been elevated to a middle income country.

This was simply decided based on the country’s impressive Gross Domestic Product per capita (which is the measure of average income per person) of US$9,800 in 2015.

The approach was developed by international financial institutions like the World Bank and the International Monetary Fund (IMF) and has since been adopted by the UN to classify economies based solely on GDP.

However, this does not reflect the reality on the ground. Although, an impressive sum, the reality on the ground is different. The country’s wealth is not trickling down to the common man on the street. The country is still dogged by social challenges, including extreme poverty exacerbated by high level of unemployment, housing crisis, water scarcity and corruption.

Since the country was given the middle income tag, from low income status, financial foreign assistance has been hard to come by, which has not only affected the government but also local non-governmental organisations (NGOs).

One severe example is the R610 million grants from donors towards combating HIV/AIDS, which donors stopped giving Namibia since last year.

The amount represents 51 percent of what is spent on combating the pandemic annually. The reason given is that Namibia can now afford to spend that money from its coffers because it is no longer a low-income country.

President Hage Geingob last year protested at the UN that “Namibia has been one of the casualties of this approach, as it has been wrongly classified as a so-called upper middle-income country” without taking into account of the country’s colonial past that has disadvantaged the majority of the population.

“Instead of the international community assisting us in fighting the second phase of the struggle, we feel as if we have been left to fend for ourselves since the abovementioned classification effectively denies Namibia access to grants and concessional loans to support our development agenda,” Geingob told the UN General Assembly in September 2015.

This classification has left a huge burden on the government.

The government has created a ministry of poverty eradication, which President Geingob noted is part of his grand plan to eradicate poverty in Namibia.

The expansion of social programmes, including the monthly old age grant that was increased to R1,000; the implementation of free education and food handouts to the poor are part of President Geingob’s strategy to fight poverty.

Analysts have expressed deep concern that these types of interventions are draining the government coffers, at a time when donor money is no longer available.

Yet the Economic Planning Minister Tom Alweendo has said such interventions are necessary and are aimed at reducing poverty and do not see how they are draining the state coffers.

Alweendo has stressed that these social interventions are equally priority areas where government funds are allocated, “because they address objectives as spelled out in the country’s development plans”.

Namibia is currently battling fiscal indiscipline. Public officials have tried to downplay the severity of the problem. But the treasury has since been forced to take drastic measures to arrest the situation that includes recalling 10 percent of the 2015-16 national budget.

And more budget cuts are expected.

“Money from donors has completely dried up. We are no longer rated as a low-income country. Government has now to fund projects, which otherwise could have been funded by donor money,” Finance Minister Calle Schlettwein, told The Southern Times.

Other containment measures against the public expenditure include the freezing of vacancies in government for the remainder of 2016. Major public works have also been halted, which threatens the plight of thousands in the construction sector.

Coincidently, the government is battling to stave off starvation – both human and animals (livestock and wildlife) – due to the ongoing severe drought across the country.

With a small population of just 2.2 million people, Namibia’s small open economy is as fragile as water in a plastic bag, especially when a country like Angola, which has no huge direct economic ties with Namibia, can actually affect the domestic economy by at least 2 percent.

One can imagine the effect caused by the global factors. At the moment, effects of the slowdown in the country’s major trading partners and global commodity prices are being felt in the home economy through a considerable slowdown in revenue growth and activity in some sectors of the economy.

Schlettwein earlier remarked that Namibia does not exist in a vacuum – the current challenging global growth outlook, depressed commodity prices, and in particular the weak economic performance of the neighbours in the region have most certainly led to lower growth in Namibia than was previously envisaged.

He said Government revenue growth has also been constrained by persistently low global commodity prices (particularly in the diamond and uranium industries) and spill overs from the slowing Angolan economy, which curtailed consumer demand in Namibia.

Even the country’s President Geingob has admitted that the ‘upper middle income’ tag for Namibia has partly contributed to the current crisis the country is going through.

Credit rating agencies have also taken notice of the dire situation. Fitch Ratings, the New York-based credit rating agency painted a bleak picture of the local economy and downgraded the country’s economic outlook from stable to negative in September 2016.

Revival process

In order to change the fortunes of the country, President Geingob has devised an economic blueprint, with which he aims to lead Namibia to prosperity in the next five years.

With the Harambee Prosperity Plan 2016-2020, the Head of State calls for unity and encourages Namibians to work towards a common purpose. It is an action plan towards prosperity for all and aimed at eradicating poverty by 2025.

The Invest in Namibia Conference held in Windhoek a fortnight ago was earmarked as a step in the right direction to rope in international investors.

Some foreign investors have pledged to set up shop in Namibia. For example, the South Korean company, MK International Inc. has agreed to enter into a public partnership agreement with Otavi Rebar Manufacturing to set up a reinforcing steel manufacturing plant at the small town.

The plant, with envisaged investment of US$250 million is expected to produce rebars and steel products in a variety of profiles that would allow Namibia to reduce its dependence on imported construction material.

In the meantime, Minister Schlettwein said government will reinforce its time-tested approach to responsible public finance management, pro-growth fiscal sustainability and macroeconomic stability as stipulated in the Mid-Year Budget Review for 2016 and for the next Medium Term Expenditure Framework.

November 2016
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