23/11/17

Infrastructure challenges and needs

Infrastructure challenges and needs

In collaboration with Nedbank: Nedbank Namibia CIB Newsletter – August 2017

Much of Namibian core service infrastructure was installed in the 60s and 70s and 80s. This is true of water, it is true of energy, and it is true of roads. Much of the railway infrastructure in the country was installed even earlier than this, with more than 90% of the current railway track in Namibia laid down by 1930, with only minor additions, maintenance and upgrades seen since. The same is true of the Namibian ports, both of which were established well over half a decade ago, despite subsequent and notable upgrades.

In the first 20 years after independence, the focus turned away from the provision of bulk service infrastructure, towards improved equity in the distribution and availability of services, allowing for greater access for the people of Namibia, particularly those previously excluded. At the time this was unquestionably the right thing to do, and metrics around access to clean drinking water, electricity and similar, improved remarkably.

Going forward, Namibia has a number of visible, imminent and impending infrastructure challenges, which if not actively addressed, may derail the country’s further social and economic development. This is no longer an issue for those who deal in foresight, but a current day challenge, experienced by individuals and organizations alike. In 2015, the concern was energy, and a crisis only narrowly averted. In 2016, the crisis was water. And for many years, the rail sector has been in crisis.

The challenge that exists at the moment is that bulk service infrastructure is not only critical for retail distribution of services critical for the maintenance and further development of the social fabric of the country, but this infrastructure is critical for further economic development and growth. In this regard, the lack of service infrastructure is likely to create a large growth drag on the economy, both reducing new investment, particularly into the manufacturing space, and potentially incentivizing other investors to look for greener pastures elsewhere in the region.

As far back as 2014, the Bank of Namibia suggested that Namibia had infrastructure needs of upward of N$200 billion, at the time, almost double the country’s GDP. And this is hardly surprising, as the country’s stock of fixed capital, relative to GDP, has fallen from over 300% in 1993, to under 200% in 2015. In essence, this means that Namibia’s value addition activities have been conducted off an ever lower fixed capital base. While problematic in general, a very specific problem can be seen in the energy and water space, where the stock of fixed capital has fallen from 20% of GDP, to under 10% in the 23-year period. For obvious reasons, this cannot continue in perpetuity, and an inevitable breaking point is, and arguably has been, reached.

These problems are not unknown, and a number of efforts are afoot to address such. However, the recent economic storm has introduced a new raft of challenges. The recent downturn, following years of expansive government spending, has left public coffers decidedly less well-padded than was the case five years ago, while large budget deficits, particularly over the past two years, have resulted in an all-but disappearance of the country’s surplus debt capacity. As a result, alternative solutions to government funding of core infrastructure development are now required. A number of recent initiatives can be seen in this space, with the likes of the introduction of independent power producers on the energy front, to the recently enacted Public Private Partnership Act. However, the magnitude of the public infrastructure deficit has grown remarkably over the past decade or more, and an extremely strategic approach to the management and allocation of capital will be required, both from the public and the private sector, if these challenges are to be addressed.

Source: Namibia Statistics Agency

Source: NamWater

Source: Namibia National Archives

Source: NamPower