Investment Climate blns countries
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- General economic environment
- 1.1 Infrastructure
- 1.3 Corporate Social Responsibility
- Political context
- Business climate
- Sectors with potential/ opportunities
- Contact details Namibia
| Investment Climate BLNS Countries
Embassy of the Kingdom of the Netherlands, Pretoria Mei 2011
Namibia
Namibia has a population of about 2.2 million people. The population density in the country is low. Namibia became independent in 1990 and has historically been largely dependent on South Africa. The country has experienced a decade of moderate growth, averaging 4.2 per cent per year, thanks mainly to strong performance in diamond production and sound macroeconomic policies. Unfortunately, it is also characterized by one of the most unequal income distributions on the African continent and persistent poverty. The country is facing major challenges, which include ensuring employment-creating growth, strengthening competitiveness and a smooth process of land reform. Namibia belongs to the Southern African Customs Union (SACU), comprised of Botswana, Lesotho, Namibia, Swaziland and South Africa. Namibia is highly dependent on SACU revenues (to which South Africa is the greatest contributor), since they contribute over 1/3 to Namibia’s GDP.1 However, there are big political pressures on the South African Treasury to revise the revenue formula, which could significantly affect Namibia’s economy. In addition to this membership, the country also belongs to the Southern African Development Community (SADC)2 and the Common Monetary Area (CMA)3. Furthermore, Namibia was a party to the SADC-EPA negotiations with the EU. EPA negotiations aim to replace the non-reciprocal (unilateral) preferential trade arrangements between the EU and the ACP countries4 with WTO acceptable reciprocal free trade agreements. However, the EPA process is not merely a neutral market access exercise; the economic development of the ACP participants an imperative to be negotiated. Although no actual agreement has been signed, Namibia signed an Interim EPA that allows duty-free and quota-free access of all Namibian products to any of the 27 EU member states from January 2008.
Walvis Bay has a well-developed, deep water port, considered by many one of the best in Western Africa, and Namibia's fishing infrastructure is most heavily concentrated there. The Namibian Government expects Walvis Bay to become an important commercial gateway to the Southern African region. The plan is to construct a new container terminal and dry dock facility for oil rigs at Walvis Bay in a move to become the west coast’s alternative for congested ports in the southern and eastern parts of Africa. The first phase of port expansion (dredging and land reclamation to create a new container terminal) will be finished by 2014/15 and will increase capacity from 350.000 TEU to 900.000. Namibia has an immense network of 64,800 kilometers of roads but only 7,800 kilometers are tarred. A 4,600 kilometer tarred highway network links most of the economically-significant areas (such as Windhoek, Walvis Bay and the Oshakati area) and neighboring countries, Angola, Botswana and South Africa (distance to both Johannesburg and Cape Town is 1500 km). The Trans Caprivi Highway and the Trans Kalahari Highway were 2 long-haul road projects completed in the late 1990s, the former aiming to run to Zambia and Zimbabwe and the latter through Botswana. These arteries enable Namibia to provide land-locked central African countries with an outlet to the sea, as well as significantly reducing journey times to commercial important Gauteng area in South Africa. Government officials acknowledge that many segments of Namibia’s more than 2,300 kilometres of rail infrastructure require urgent rehabilitation. The railway net is being extended to the Oshikango, at the border with Angola. Furthermore, air transport is important because of Namibia's size. There are more than 135 airports (mainly airfields near lodges and farms), 22 of which have tarred runways, including the international airport outside Windhoek. Walvis Bay is also a significant export airport for fish and fish products, with direct connections to Europe (Frankfurt and Munich) and to regional destinations such as Luanda and Lubango (Angola), Lusaka (Zambia), Maun (Botswana), and Johannesburg and Cape Town. Most other destinations can be reached via Johannesburg and/or Cape Town.
Energy should not form an immediate obstacle for companies to invest in Namibia, it may however well be an obstacle in the near future. Growth in the mining sector, which is the largest consumer of electricity and water, depends on ample supply of electricity and water. A second water desalination plant at the coast is planned. Mining is a heavy energy consumer but many rural households still have no access to the electricity network. All petroleum products have to be imported as Namibia does not have oil fields. The expansion of the electricity generation sufficient for the growth in the uranium sector is however more complicated. A gas field, discovered in 1974, may be developed in the not too distant future, in principle to generate electricity. Coal is imported from South Africa to generate electricity in the very old Von Eck power station since the supply from South Africa has virtually dried up. Nampower (the Namibian Power Corporation) has embarked on a number of projects to increase electricity generating capacity in the country. NamPower is involved in the Kudu Gas to Power project. This project entails the development of the Kudu gas field and a power station powered by the Kudu gas field. First electricity is currently expected late 2014/early 2015. Nampower has also embarked on the planning of other projects, such as hydropower stations in the Kunene River at the border with Angolo, the lower Orange River at the border with South Africa and at the Popa Falls near the border with Botswana. Although it appears that these have dropped in the list of priorities. Telecom Namibia’s telecommunications infrastructure is currently undergoing transformation. The state owned Telecom Namibia is the fixed line telecom provider and is currently embarking on an ambitious programme to update Namibia’s telecommunications infrastructure. They wish to achieve direct benefits such as affordable bandwidth costs, and access to the rest of the world (connectivity). The indirect benefits would be foreign direct investment, business opportunities for online offerings, hosting services and access to the global labour market. Of equal importance, the initiative will drive down the cost of international bandwidth in Namibia and present regional business opportunities. At the moment, only around 5 per cent of the population has access to internet and the cell phone penetration rate is only 50 per cent8, which is considerably lower compared to South Africa (97.2 per cent). However, this market is developing rapidly. All in all, primary infrastructure (roads, rail, air, energy and telecommunications) is relatively well developed and modern in Namibia. Nevertheless, development of infrastructure, especially in the rural areas, is required for economic growth. 1.2Labour While most Namibians are economically active in one form or another, the bulk of this activity is in the informal sector, primarily subsistence agriculture. In the formal economy, official estimates of unemployment are around 51 %. Despite high unemployment there is a critical shortage of skilled labour. The government is pursuing education reform with financial help from a.o. the European Union and other European countries (ETSIP) to address this problem. Although the country has allocated more resources as a proportion of GDP to education than most other African countries, the outcome is not good. Drop-out and repetition rates remain high and Namibian school students perform poorly in subjects such as English and mathematics compared to other countries in the region. . The Namibian constitution allows for the formation of independent trade unions to protect workers’ rights and to promote sound labour relations and fair employment practises. There are two main trade union federations in Namibia representing workers: the National Union of Namibian Workers (NUNW), which is affiliated with the ruling SWAPO party, and the Trade Union Congress of Namibia (TUCNA), which is not affiliated with any party. About 35% of the workers belong to a Union. The Unions carry considerable authority and even had labour brokers abolished in 2009. This ruling had a considerable amount of impact on the neighbouring economies as well, especially on South Africa (as the unions got inspired by this ruling). In the end of 2009 the decision on banning was reversed by the Namibian Supreme Court. Nevertheless, matters like this show the level of power of Unions in the Namibian economy, which companies should take into account. As well as the unofficial strikes that occur quite regularly. 1.3 Corporate Social Responsibility There is a general awareness of Corporate Social Responsibility (CSR) in Namibia amongst the business community, although there is little research to show that Namibian consumers choose to trade with firms based on their CSR programs. Most large firms including State Owned Enterprises (SOEs) have well defined (and publicised) social responsibility programs that provide assistance in areas such as education, health, environmental management, sports and Small Medium Enterprise (SME) development. Many firms include their Black Economic Empowerment (BEE) programs within their larger CSR programs. At the moment, there is no formal Black Economic Empowerment Policy- or a Transformation of Economic and Social Empowerment Framework (TESEF)-, as it is officially called in Namibia. In addition, there is no uniform and written definition of BEE which is acceptable to all in Namibia. Therefore, firms operating in Namibia’s most important industry, the mining sector generally have visible CSR programs that focus on education, community resource management and environmental sustainability, health and BEE/TESEF. TESEF outlines company ownership of up to 50 per cent to be achieved over several years for Historically Deprived Namibians (HDNs), 50 per cent of HDNs in management cadres, 50 per cent of board members, 50 per cent of deprived women in top, middle and junior management and 80 per cent of previously deprived individuals (DIs) in all permanent staff. The various BEE components will translate into points for an eventual scorecard to be scrutinised by a TESEF Measurement Secretariat, which will be overseen by a TESEF Governing Board. Companies have to register there for TESEF compliance and to obtain their scores. White women also fall under DIs but their ownership is limited to 30 per cent. However, with the delay caused by the SWAPO headquarters, no law for TESEF is in sight yet and economic analysts doubt that it will happen this year. The financial sector recently adopted a voluntary BEE policy along similar lines as the proposed TESEF, and it was given the green light by Finance Minister Saara Kuugongelwa-Amadhila.9
Namibia enjoys a relatively stable political system under a multi-party democratic constitution, thus political risk in the country is low. Due to the great size of SWAPO, Namibia is in fact an one party state with an ineffective opposition. The situation seems however more complicated than at first sight. The founding president Nujoma, for instance, retired in 2005, but is said to be still ruling from behind the scenes. State-owned enterprises operate in many key sectors of the Namibian economy. The government has stakes (often 100% ownership) in companies in the following sectors: telecommunications (fixed and mobile voice and data services: Telecom, MTC), energy (NamPower), water (Namwater, transport (air, rail, and road: Transnamib), postal services (Nampost), fishing (just one or two state companies), mining10 and tourism (Namibian Wildlife Resorts). Nonetheless it is still the Government’s position that the private sector is and should be the main creator of new jobs. The government is therefore actively seeking foreign investment as a way to develop the economy, generate employment and boost foreign exchange earnings. The Foreign Investment Act for example guarantees foreign investors’ treatment equal to that given to Namibian firms, fair compensation in the event of expropriation, international arbitration of disputes between the investors and the government, the right to remit profits and access to foreign exchange.11 For the manufacturing sector there are also investment incentives and special tax incentives available.12
Up to now, the government has pursued the policy of ‘willing seller-willing buyer’ in order to redistribute land. This policy basically reflects the working of the market principle, but requires that farms have to be offered to the government first. However, because of the low process of redistributing farm ownership, the government has embarked on expropriation of farms which are not commercially exploited, mainly owned by foreigners for private hunting purposes, with compensation (likewise, constitutionally provided for), whereby the amount of compensation can finally be settled by the Namibian Court. Corruption The World Bank’s Worldwide Governance Indicators reflect that corruption is a problem. Transparency International ranked Namibia 56 out of 178 countries in its 2010 corruption perceptions index, which measures the perceptions of businesses and country analysts about the degree of corruption in a country; Namibia scored 4.4. The government has shown improvement in addressing the problem. There exists an Anti-Corruption Commission13. The Director of the Commission must refer matters concerning committed offences and all relevant information and evidence to the Prosecutor-General. The independent media are very instrumental in uncovering corruption, however insufficient cases are followed through in court to conclusion.
Namibia is ranked 69 out of 183 economies in the doing business survey 2011.14 The economy does not get good credits for the ease of setting up a business. The cost of starting a business is high and it is very time consuming. The main bottleneck in the system appears to be at the registrar of companies. Companies also face costly import and export procedures, with significant delays. In addition, Namibia ranks as one of the worst for procedures and cost as far as transfer of land is concerned. Firms who want to acquire land therefore face considerable barriers unless they have already accumulated capital assets. A notable aspect involves the exception related to agricultural land. Due to Namibia’s ongoing land reform and resettlement process, legislation restricts non-resident foreigners from purchasing agricultural farmland.15
Objective evidence from the Enterprises Survey on losses due to crime and the cost of crime and security in the countries suggest that the direct costs associated with crime are high in Namibia.17 The median firms reports that the combined cost of crime and security is about $132 per worker per year or 0.6 per cent of sales. This is lower than in SA but is quite high compared to most of the comparator countries.18 Other than crime, managers in Namibia were more likely to say that tax rates were a serious obstacle than any of the other areas. The basic rate for the corporate income tax is 35 per cent (for certain mining activities even higher), which is relatively high. However, qualified manufacturers can apply for an incentive rate of 18 per cent.19 In Botswana for instance, the base rate for manufacturers is only 15 per cent. As mentioned before, Namibia is also faced with a high rate of unemployment. Despite the high unemployment rate, there is a critical shortage of skilled labour. Manufacturing companies in particular mention inadequate worker education and skills as a serious obstacle, but also the retail and service sectors complain about this. Importing working skills from abroad is very difficult, since the process of obtaining work permits for foreign nationals is perceived as the most challenging regulation to deal with.20 Due to the high rate of unemployment, the informal sector has remained an important alternative for employment. Formal enterprises that have to compete with these informal firms sometimes find themselves at a competitive disadvantage since their informal competitors can avoid costs associated with regulation and taxation. Although companies in Namibia use bank credit less than in the non-SACU economies, it is important to note that in other ways financial markets in Namibia display a reasonable level of development. The country has a stock exchange, the Namibia Stock Exchange and the banking sector is well capitalised and profitable. Government and the Bank of Namibia are highly critical regarding the high banking fees and reluctant lending to SME’s and for start-ups. Non-banking financial institutions, i.e. insurance companies, also have sound balance sheets. Most banks Standard Bank Namibia, First National Bank of Namibia and Nedbank, with the exception of Bank Windhoek, and non-bank financial institutions, i.e. insurance companies including Old Mutual and Sanlam are branches of and/or have significant equity participation from South African firms, a factor that facilitates access to South African capital markets. The disadvantage of this could be that these South African mother companies don’t tend to have Namibia as their first focus area. Average and median interest rates are about 12 per cent, which is comparable to the other comparator countries.21 Of the funds collected in Namibia by companies, 30 per cent must be re-invested in the country. Access to finance tends to be a serious obstacle, especially for SME’s. Starting capital for new businesses is difficult to come by. One notable aspect however is that commercial farmers, still mainly white, are less likely to say that access to finance is a serious obstacle to their enterprises’ operations and growth. Access to finance for microenterprises remains a very serious concern. Furthermore, employers must consider and plan for the impact of HIV/AIDS on their workforce. UNAIDS estimated the adult prevalence rate to be between 11% and 15.5% for 2009 based on HIV prevalence studies in pregnant women.22 The crude death rate was estimated around 8 % in 2009.23
Namibia imports almost all of its consumer goods and most of its primary resources are exported, largely unprocessed. Opportunities exist to introduce new consumer goods and manufacturing investment for both local and international markets. However, while the Government continues to mention that the manufacturing sector is the key to achieving higher growth and employment, and despite a host of lavish tax incentives, Namibia has not succeeded in boosting manufacturing to any significant extent, as productivity in the country remains considerably low. A potential investment area however is the energy sector. Namibia has great potential for renewable energy forms such as solar and wind power. The government is committed to promoting the use of renewable sources of energy to complement conventional electricity supplies. One of the measures Namibia has taken is the Solar Revolving Fund which has been in existence since 1996 and which aims to address financing barriers by subsidising loans for solar home systems, solar water heating technologies and photovoltaic water pumping. Another is the Namibia Renewable Energy Program (NAMREP). A non-profit organization dedicated to Renewable Energy in Namibia is REINNAM.24 Moreover, there should be opportunities for companies that provide equipment and services to mining operators, since Namibia has a wealth of natural resources including diamonds, zinc, copper and uranium. According to the World Nuclear Association, Namibia is the world’s fourth largest producer of uranium oxide, with two operation uranium mines and several more mines planned to become operational by 2013. The government also actively encourages processing of agricultural products. The main commercial agriculture activities include livestock farming and production of table grapes. However there is potential for extensive horticulture products such as olive oil and dates. Beside agriculture, mariculture is a sector with high potential. Primarily oyster farming has the potential to grow rapidly. Namibian oysters grow to market size in nine to 15 months compared to about three years in other areas. In 2006 there were eight companies involved in farming oysters in Namibia, which until 2006 were selling 70% of their production to South Africa. Total production increased from 247 tonnes in 2004 to 302 tonnes in 2005 when new markets where discovered in Asia.25 Tourism is a sector with possibilities as well; e.g. Namibia’s sanddunes, wildlife, etc. However, exponential growth in this sector is not likely to occur.
Most of the countries in the region –particularly Botswana and South Africa- have relatively attractive investment climates and Namibia shares many of its strengths with these countries (e.g., relatively good infrastructure, relatively clean government, and relatively modest regulatory burden). As a result, firms from Namibia have to compete with relatively efficient firms from these other countries in both national and regional markets and Namibia has to compete with these same countries to attract foreign investment. Unfortunately, as well as their strengths, Namibia also shares many of their weaknesses, such as high losses due to crime, high unemployment, especially among workers with little education. The domestic market is small, competition is relatively low and the country is relatively remote. An important area of concern is that worker skills and education appear to be a greater problem in Namibia than in other countries in the region. Namibian students score worse with respect to reading and writing than students not just in Botswana, Lesotho, South Africa and Swaziland, but also worse than students in several low income economies in the region. The lack of skilled people combined with a poor work ethic and restrictive labour regulations have been identified by the Global Competitiveness Report 2007 as the main impediments to competitiveness in Namibia. All in all, despite the weaknesses, Namibia remains a good country to invest in, especially when comparing the country with other countries in the region. It can also be used as a gateway to Africa. Companies established in Namibia could be used to serve the South African market in particular, since both countries are member of SACU and CMA, competition is much lower in Namibia than in South Africa and the Rand is pegged 1:1 to the Namibian dollar. There are considerable investment opportunities in several markets as has been shown previous in this report. Nevertheless, in order to do business effectively in Namibia, it is important as in all other countries in the region and worldwide to have a local presence or a local partner. It is worthwhile to establish business relationships before tender opportunities are announced. Contact details Namibia
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