THE NAMIBIAN ECONOMY No.

21/September 1999
ISSN 1027-1805
Published and distributed free of charge by:

NEPRU
The Namibian Economic Policy Research Unit (NEPRU)
P.O. Box 40710, Windhoek, Namibia
A VIEWPOINT Phone: +264-61-228284; Fax: +264-61-231496
Email: [email protected]; Web Site: www.nepru.org.na

QUARTERLY ECONOMIC REVIEW

This viewpoint highlights issues concerning the Namibian economy of the past three months. It is
published as the “Quarterly Economic Review”, and forms part of the occasional series “NEPRU
Viewpoint”.
PRICES AND FINANCE
Declining interest rates The South African repo trend, the average annual inflation would be 8.6%
rate has been on a downward trend since October for 1999. Inflation primarily affects those whose
1998, declining from 21.9% to 12.9% (21 Sep. wages are not adjusted, assumingly people
99). This has resulted in substantial cuts in prime working in the informal sector, the unemployed
and home loan rates by Namibian banks. The and the poor in general. It is hoped that a lower
nominal prime lending rate declined to 17.5% in inflation rate will be achieved in the near future, as
August, leading to a real prime rate (that is, the South African Reserve Bank intends to pursue
adjusted according to the inflation rate) for July of an inflation target policy, which would have spill-
below 10%. A further decline to 16.5% is over effects for Namibia.
expected for end of September. A decline in
interest rates will stimulate growth in some Annual Inflation rate, %
9.4
sectors (e.g. the construction industry and retail
9.2
sector) through increasing investment and
9
consumption expenditure. Combined with the
8.8
effects of the demutualisation of Sanlam and Old 8.6
Mutual, this bodes well for the Namibian 8.4
economy. 8.2
8
Nominal and real prime rates, % 7.8
25
7.6
Jan Feb Mar Apr May June July
20
Source: Central Bureau of Statistics
15

Stable exchange rates Speculation that the

10
Rand would depreciate with the falling gold price
5
Nominal proved to be wrong. While the South African
Real Rand depreciated by less than 5% within a year to
0 N$6.10, the gold price dropped by almost 14%, to
Jan Feb Mar Apr May June July Aug Sept some US$255.00 per ounce, over the same
Source: Bank of Namibia, NEPRU estimates: July-Sept. period (mid-September). This indicates that the
South African economy has diversified assets in
Slightly increasing inflation rate Consumer such a way that falling gold prices do not trigger
inflation, measured as the rate of change in the the capital outflow that would result in a
Consumer Price Index, has fluctuated since the depreciation of the exchange rate. Since the
beginning of this year. The average inflation rate Namibian dollar is pegged to the Rand, its stability
of the first six months of the year was 9%, creates a conducive environment for investors
compared to 5% for the same period last year, and enhances investors’ confidence in the
and higher than NEPRU’s earlier annual forecast economy.
of 7% for this year. For July an inflation rate of
8.4% was recorded, mainly driven by increasing
prices for imported products (10.6%). The three
item groups mainly responsible for the higher
inflation rate are: transport and communication
(15.0%), beverages and tobacco (12.0%), and
recreation (9.2%). For example, the increase in
fuel prices in Namibia resulted in an increase of
taxi fares by 14.3%. If inflation follows the current
 Exchange rate and gold price trend, May 98 - Sep 99 85,000 Namibian policy holders were allocated
US$ / oz
6.3
N$
300 free shares, which they could either keep or sell at
6.1
295 the time of listing. It was estimated that the
290
5.9 285 scheme injected an amount of N$300 million into
5.7 280 the Namibian economy. Those who sold their
275
5.5 270
shares solved their current liquidity crisis, while
5.3
Exchange rate 265 those who kept them can hope for a further rise in
Gold price 260
5.1
255
share prices. The demutualisation process had
4.9 250 some benefits for the Namibian economy in terms
May 98 Jul 98 Sep 98 Nov 98 Jan 99 Mar 99 May 99 Jul 99 Sep 99
of cash flow. Business in the retail sector
Source: IJG (months’ end prices) benefited from this process. However, at this
point in time it is too early to quantify the multiplier
Demutualisation of insurance companies After effect - that is, the additional impact on the
Sanlam’s demutualisation, the listing of Old economy at large.
Mutual came into effect in July 1999. About
PRODUCTION AND INVESTMENT
Unclear future of Navachab The falling gold local market. 8,290 tons of a total quota granted
price places the future of Navachab in question. under the Lomé agreement of 13,000 tons were
The mine has been in operation for about nine sold to the EU during the financial year 1998. The
years and is said to produce about 2,000 kg of reason for fulfilling only 64% of the total quota is
gold per year. Gold contributed 1.6% to export said to be due to livestock supply shortages in
earnings. About 300 Namibians are employed by Namibia. The United Kingdom constitutes the
the mine. There were plans - ready for highest EU market share of about 76%, followed
implementation - to expand the life-span of the by the Netherlands with 9%. Norway recently
mine, which expires in the year 2003, by twelve resumed meat imports from Namibia following a
years. The current low gold price of around brief suspension, the main reason for which was
US$255 per ounce (mid-September) is, however, the issue of hygiene. The lesson to be drawn
below production costs, so that an expansion from this report is that matters of hygiene and
seems unrealistic. Although Namibia does not quality in the meat industry need to be of the
depend on gold production as do some highest priority in order to remain competitive and
developing countries, the gold price turmoil develop new markets. Strengthening veterinary
stresses again the need for economic services in the North and control of the borders, in
diversification. Over-reliance on one product - in particular with Angola, is essential to ensure that
the case of Namibia, diamonds - creates the meat is accepted by the EU. Subsequently, it
considerable vulnerability in the economy. would help in exploiting a higher share of the EU
quota.
Meatco’s annual report Meatco recorded a
Markets in Europe by value, in %
turnover of N$500.3 million for 1998, compared to
80
N$362.3 million in 1997, showing an increase of 70
38%. The higher turnover is attributed to higher 60
selling prices in South Africa, increased export 50
earnings owing to the weaker N$, and a higher 40
throughput. Despite the drought, which caused 30
an increase in cattle supply in the commercial 20
sector of some 38% and in the communal sector 10

of 26%, the average slaughter weight rose slightly 0

to 224 kg. The net income after interest and United

Kingdom
Netherlands Denmark Germany Belgium France Greece

taxation went up from N$11.0 million (1997) to

Source: Meatco, 1999
N$32.9 million in 1998. The main markets for
Meatco’s products remained South Africa (over
50% of exports), the European Union, and the
GOVERNMENT ACTIVITY
Community Conservancies The Nature their own wildlife resources, is becoming a reality,
Conservation Amendment Act, 1996 (Act 5 of as illustrated by the recent project in Tsumkwe
1996) makes provision for the establishment of where a number of wild animals were transferred
Conservancies and Wildlife Councils in from a national park to a Nyae-Nyae community
Communal areas. The Act deploys the concept of conservancy. The project re-endows the area
Conservancies as the means for giving some with natural resources and benefits the
limited rights to groups living in communal areas, community in the form of meat and revenues.
to manage and benefit from wildlife and tourism. Thus, the project diversifies the income sources of
The decentralisation of natural resource the communities and reduces their vulnerability to
management, by allowing communities to manage shocks caused by drought. The Ministry
concerned and other stakeholders in resource parties. In the case of default, the scheme is
management and conservation should provide the supposed to cover 80% of the principal, while
necessary training to all the various communities banks contribute the rest and the interest rates.
involved in these conservancies to make them a The scheme is based on economic principles.
success. Applicants have to prove the viability of their
business plan and contribute at least 10% of the
Small Business Credit Guarantee Trust total investment. Interest rates are based on
launched This Trust was established in June in markets rates (prime rates +...). It is hoped that in
order to help small scale enterprises (SSE) to get addition to NDC, all five commercial banks will
access to finance. Most SSEs cannot get loans join. This new scheme is an important step in
from banks because of the high risk factor and moving towards economic principles of SSE
lack of collateral. The function of the Credit promotion. Provided that all banks will join, it will
Guarantee Scheme (fund of N$13 million) is to close a gap in the provision of financial services to
minimise default by spreading the risk between all those who have previously been left out.

EMPLOYMENT AND SOCIAL CONDITIONS

Annual report of the Namibian College of Open and meals, and that they will not be employed by
Learning (NAMCOL) NAMCOL released its first the government when they complete their four-
annual report for the year 1998. The College was year course. The first part of the decision was
created by an act of Parliament to provide withdrawn following consultations between the
learning opportunities for adults and out-of-school parties concerned. Such drastic changes in the
youths. Over the last four years, enrolments have conditions of learning should not be made after
grown more than four-fold, from 4,780 learners in students have embarked on a course, since they
1994 to a total of 20,167 in 1998, while based their decision to take it on the conditions
enrolments of learners for secondary schools prevailing at the time. However, students should
country-wide decreased marginally from 48,043 to not take for granted that they will automatically be
47,169 over the same period. Most of the employed by the government after completion of
learners are young people in the age group 20 - their studies, but rather, understand that they will
24 years, and 69% of the learners are women. compete on the labour market for vacant posts in
The national pass rate for the Junior Secondary the private and public sector. To support school-
Certificate (JSC, Grade 10) of NAMCOL’s leavers in their deliberations about their
candidates improved from 59% (1997) to 76% in professional future, information is needed about
1998. Similar improvements are recorded for the developments and trends in the labour market.
IGCSE examination. This improvement in the
performance of the candidates could be attributed Amicable versus confrontational labour
to the effective decentralisation of learning relations The strike at the Navachab Gold mine
centres and the timely distribution of subject which lasted for six days resulted in a production
materials. The high proportion of school-leavers standstill and an estimated loss of N$2.8 million.
enrolled with NAMCOL indicates that drastic The strike was a result of allegedly worrying
measures must be taken to improve the situation health standards in the ore mill. Despite the five-
in formal schools. Finally, the high share of star grading in safety, an achievement that places
enrolments for JSC in the North indicates that it among the safest mines in Namibia, the
students in that region in particular struggle to management promised to invest in further
complete Grade 10, which could be related to the improvements. Another dispute concerning
qualification levels of teachers and schools’ wages at the Namibia Breweries was solved
facilities in general. amicably following protracted negotiations
between the workers’ union and the company.
JSC and IGCSE enrolments in the four educational regions, in % The parties agreed on an 8% increase, and also
30%
on an improvement of the housing allowance.
25% JSC
IGCSE
These two examples illustrate two ways of dealing
20% with labour disputes. To resolve differences
15% through negotiations is conducive to the business
10% and investment climate in Namibia. Support from
5%
third parties in form of training in negotiation skills
0%
to resolve conflicts in a non-confrontational
North North-East Central South manner could further improve the climate. Above
Source: Namcol, 1999 all, improvement in workers’ health and living
conditions would have positive implications for
Uncertainty over study future of nurse their productivity.
students Fifty student nurses started their
course in Windhoek and Oshakati in January Tariff increases of utilities This quarter of the
1999. In July, the government announced that year has been characterised by huge increases in
they would have to pay for their accommodation prices for basic utilities. The Windhoek
municipality increased its tariffs for water and Namibia has the third highest per capita mean
electricity by 10%, following an increase in the monthly expenditure of all SADC countries. To
suppliers' tariffs (Namwater and NamPower) by make the expenditure comparable within a group
8%. However, Windhoek residents pay only 50% of countries, the concept of purchasing power
of the cost price of water supply. Therefore, this parity (PPP) dollars is used. It measures the
increase is just a step towards full cost-recovery, amount of dollars necessary to purchase the
which is planned for the year 2005. The price same consumption basket that can be bought for
increases by the Municipality can only partly be US$ in the USA. Namibia scored quite well
justified by the rising prices of its suppliers, since (monthly expenditure of US$139) ranking third
it exceeds the increase percentage-wise, and after South Africa (US$183) and Botswana
even more so in absolute amounts. This indicates (US$159). However, the purchasing power in
that the municipality, which relies considerably on particular for these three countries is significantly
the income from electricity, uses this income lower than the high GDP per capita. This
source to subsidise other services or cover indicates that the cost of living in these countries
inefficiency. Cost-reflecting prices are necessary is much higher than it is in other countries. This
to save scarce resources. For this reason, puts a special burden on the poor in particular.
restructuring the income patterns is also a
PPP and GDP per capita for SADC countries (in US$, annual basis)
necessary task for the Municipality. Moreover, to 5,000
PPP

minimise the effect on the poor, tariff-free

4,500
GDP per capita
4,000

minimum consumption, financed by progressive 3,500

tariffs beyond a minimum, should be considered. 3,000

2,500

Essential services must also to be affordable for 2,000

the poor. 1,500

1,000

500

Purchasing Power in Namibia The 1999 0

Angola Botswana Lesotho Malawi Mozambique Namibia S. Africa Zambia Zimbabwe

economic report on Africa released by the Sources: ECA-Report, 1999; SADC Human Development
Economic Commission for Africa shows that Report 1998

TRADE AND AID

Slow progress with the SADC trade protocol producers more competitive. Furthermore, new
The trade protocol, signed in Lesotho in 1996, export markets in the region can be developed by
faces a slow ratification process from member Namibian producers to diversify their export
states. Of 15 countries, only 7 have ratified the destinations. Finally, it is advisable to keep the
protocol to date. South Africa, the most powerful rules as simple as possible: for instance, the rules
economy in Southern Africa, has not yet ratified of origin.
the pact. The protocol requires the ratification by
2
/3 of its members before it can be implemented. Tanzanian withdrawal from COMESA Like
The Trade Protocol aims to establish tariff-free Namibia, Tanzania is a member of both regional
intra-regional trade by the end of 2006. The organisations, SADC and COMESA, which have
benefits of the Free Trade Area are not clear-cut. similar aims and objectives. Tanzania felt that it
It depends on the extent of trade creation was too costly and inefficient to maintain both
(replacement of expensive domestic goods by memberships. Furthermore, the COMESA Free
cheaper imported goods) and trade diversion. Trade Area is due to come into effect late next
The latter is the negative result of establishing a year (2000) and will have some negative
Free Trade Area, since more competitive consequences on the country's revenues. This
suppliers from outside the Area are now bears some lessons for Namibia. To be a
hampered by external tariffs, making way for less member of two regional, overlapping groupings
competitive producers within the Area. The delay with similar, but not the same aims, is
is apparently caused by the special interests of questionable in the light of scarce resources and
powerful groups in certain countries to protect policy uncertainty. Furthermore, the concern
their industry. These interests need to be about decreasing revenues is indicative of the
overruled to benefit the whole economy. Namibia significant reliance of developing countries on this
is more likely to win, since additional trade income resource, which implies that a genuine
diversion effects are not expected owing to trade policy is scarcely likely, and is rather
already high trade barriers due to SACU. determined by fiscal policy. There is a need to re-
Consumers and producers will benefit from examine fiscal policies to counteract drops in
cheaper import prices, which make export certain revenues.

RECENT NEPRU PUBLICATIONS

 Recent NEPRU publications include:
• Namibia Economic Review & Prospects 1998/1999
• Small enterprise support institutions in Namibia
• Banking and less formal forms of finance in Namibia: The challenges of microfinance
• Co-operation and networking among SME service providers in Southern Africa

Compiled by: Ebson Uanguta, Dirk Hansohm, Namene Kalili, Klaus Schade and Rowlan Simpson. Overall
responsibility: Dirk Hansohm and Klaus Schade. Technical assistance: Aldenia Chaka.
Produced with the financial support of the African Capacity Building Foundation (ACBF)
© NEPRU 1999