Investment in Namibia
In association with Nedbank.
The sustained slowdown in the Namibian economy has become an everyday topic, and while not everyone may be aware of the specific intricacies driving it, most (if not all) Namibians are feeling it. When GDP reports are released, many of us are used to reading or hearing how each of the different economic sectors performed (such as Mining and quarrying, or Construction, or Manufacturing). This is known as GDP from the expenditure approach. However, GDP can also be calculated from the consumption approach, which is made of up of household consumption (C), investment (I), government spending (G), and net exports (X-M). This gives us the familiar formula GDP = C + I + G + (X-M).
There is limited scope for growth from both household and government expenditure. Households are faced with high unemployment, low wage growth, and relatively high levels of debt, meaning it is unlikely that they will be able to increase expenditure significantly (in real terms) to spark growth. Similarly, Government has embarked on a path of fiscal consolidation which has seen expenditure levels kept relatively flat in nominal terms, and therefore negative in real terms (i.e. adjusted for inflation). Namibia has historically been a net importer of goods, meaning that the export component (X-M) is typically a drag on growth and due to the nature of our trade balance this will remain the case.
The remaining component is investment, typically captured in the system of national accounts as gross fixed capital formation. There is potential here to spark growth if we are able to attract investment, both local and foreign, which could lead to job creation and an increase in real value addition. This explains the emphasis placed on investment in recent times, such as the recently concluded Namibia Economic Growth Summit.
Gross fixed capital formation (GFCF) is essentially the increase in fixed capital within the economy, such as land improvements, plant and machinery purchases, and the construction of mines, factories and other buildings. This is measured over a single period (in this case a year). In short, it is a measure of the value added in fixed assets within the Namibian economy. This fixed capital can take many forms, but is usually largely driven by physical infrastructure investment, both productive and unproductive.
The 2018 Preliminary National Accounts show that GFCF at constant prices (i.e. adjusted for inflation) totalled N$19.971 billion in 2018, the lowest value since 2008. Similarly, GFCF was just 18.3% of GDP in 2019, the lowest since 2005 (compared to the historical high of 39.5% in 2015). However, this decrease in overall GFCF was to be expected, with the completion of three major mining projects in 2016: Weatherly International’s Tschudi copper mine, the B2Gold’s Otjikoto gold mine, and Swakop Uranium’s Husab uranium mine (the largest open-pit mine on the continent). In the same year, Government began its fiscal consolidation strategy which also led to delays or halting of various infrastructure projects. With no new major infrastructure projects of the same scales and volume since then, there has been a notable drop in GFCF. Similarly, data from the World Bank indicates that there has also been a significant reduction in net inflows of foreign direct investment (FDI). This totaled US$219.2 million in 2018, the lowest since 2005.
The Namibia Economic Growth Summit sought to attract investment, remove policy impediments, create employment opportunities, and promote Namibia for tourism and investment. The Summit succeeded in attracting more than N$20 billion in committed investments, with an additional pledge of about N$30 billion. Core infrastructure appeared to be the focus for investors, highlighting funds to be directed towards projects in the areas of electricity, water, and logistics. Several policy issues were also addressed. NIPA and NEEEF were singled out, with plans to have them operational in coming months after revisions were made, in order to quell uncertainty. Additionally, visa reform has promised the introduction of e-Visa, ease of access to work visas for highly-skilled professionals, and a residence visa for foreign pensioners.
The announcement of these levels of investment and some reforms are welcome. However, this is only the starting point for Namibia’s economic recovery. There is a need to actively improve the business environment in Namibia, ensuring that it is a competitive investment destination not only for foreign finance, but also encourages Namibians to reinvest or embrace entrepreneurship and start their own businesses.