Regional Integration in Southern Africa Vol. 4 Deepening Integration in SADC Namibia on Track to Meet SADC Targets Klaus Schade, NEPRU Moureen Matomola, NEPRU N EPRU A study conducted for the Friedrich Ebert Foundation

Regional Integration in Southern Africa Vol 4 Deepening Integration in SADC Namibia on Track to Meet SADC Targets A study conducted for the Friedrich Ebert Foundation Authors: Klaus Schade, NEPRU Moureen Matomola, NEPRU October 2006 1

Impressum Published by Friedrich Ebert Foundation Botswana Office ISBN 99912-564-5-8 October 2006 © Friedrich Ebert Foundation All rights reserved The material in this publication may not be reproduced, stored or transmitted without the prior permission of the copyright holder. Short extract may be quoted, provided the source is fully acknowledged. The views expressed in this publication are not necessarily the ones of the Friedrich Ebert Foundation or of the organization for which the author works. 2

Preface Regional integration can be a key force for sustainable development. It can promote economic growth, reduce poverty, foster social development or protect the environment. But, it can also have negative economic and social impacts, notably when the domestic regulatory framework is inadequate or not implemented effectively. The Southern African Development Community, SADC is committed to deepening the integration processes amongst its members and has adopted the Regional Indicative Strategic Development Plan(RISDP) in order to provide strategic direction in the design and formulation of SADC programmes, projects and activities in order to achieve development and economic growth, alleviate poverty, enhance the standard and quality of life of the people of Southern Africa and support the socially disadvantaged, through regional integration. Amongst the various measures governments can implement to further such integration, ensuring sound macroeconomic management is vital. Given the commitment to deepening SADC integration through macroeconomic policies, it is important that policy makers in SADC and its Member States assess the impacts that such measures will have on the social well-being of its people, both in the short term and the long term. In view of the above, the Friedrich Ebert Foundation through its office in Botswana and in close consultation with the Planning Unit of the SADC Secretariat initiated a regional research programme on “Deepening Integration in SADC – Macroeconomic Policies and their Impact”. From the very beginning the programme was designed as a collective effort of the leading economic research institutions of the region. A total of 14 institutes from 11 SADC member countries followed the call to join the programme. In two workshops held in December 2004 in Gaborone, Botswana and in April 2005 in Stellenbosch, South Africa the team developed detailed terms of reference for the research programme. Phase 1 was to begin at the country level with a comprehensive study on the present status of the economies, their congruence with SADC convergence targets, the respective policy frameworks as well as a social impact analysis. This more theoretical desk study was complemented by an empirical survey of the perceptions of businesses and non-state actors vis a vis SADC. A study on 3

South Africa’s international trade diplomacy and its implications for regional integration was to give a contextual perspective. All members of the research team have spent a lot of time and energy and produced excellent reports. The ideas and recommendations contained therein have induced some lively as well as controversial discussion among the participating institutions as well as with other experts. The content of each study reflects of course solely the views of the authors. I commend all of them for their great commitment as well as their great team spirit in this endeavour. I also wish to acknowledge the substantial input we received from the SADC Secretariat, especially the Head of the Strategic Planning Unit, Dr. Angelo E. Mondlane, the then Technical Advisor on Finance, Dr. Moeketsi Senaoana as well as other SADC experts. Other external experts have also contributed to the final documents as part of the various reference group meetings in all the participating countries. I wish to extend my greatest thanks to all them. In order to make the results of this research programme known to a broader public, especially among the relevant policy and decision makers of the SADC region, the Friedrich Ebert Foundation then decided to publish a series of volumes entitled “Regional Integration in Southern Africa”. The 4 th volume, presented here, contains the findings of the Country Study and Survey from Namibia by the Namibian Economic Policy Research Unit , NEPRU in Namibia. My special thanks go to the authors, to Klaus Schade and Maureen Matomola for writing and revising the document, to Dr. Patrick Ebewo for editing as well as to Peter Maina Kamiti and MacDonald Gotora and for the design and layout. Gaborone, October 2006 Dr. Marc Meinardus Resident Representative Friedrich Ebert Foundation Botswana Office 4

Acknowledgements T he authors are sincerely grateful to the people and institutions that provided information during the compilation of the study. The assistance of Mr. Petrus Haufiku and Ms. Julia Mbai in data entry and presentation is gratefully acknowledged. Without the financial support from the Friedrich Ebert Foundation the study would not have been possible. 5

Table of Contents Preface.......................................................................................... 3 Acknowledgements..................................................................... 5 Part 1: Macroeconomic Policies and Their Impact in Namibia List of Tables.................................................................................... 10 List of Tables in the Appendix........................................................... 10 List of Figures................................................................................... 10 Abbreviations................................................................................... 12 Executive Summary....................................................................... 15 1 Introduction........................................................................... 21 2 Macroeconomic Policy Framework....................................... 23 3 Monetary Policy..................................................................... 31 4 Fiscal Policy............................................................................. 37 5 Trade Policy Framework........................................................ 45 5.1 SADC Trade Protocol...................................................... 47 5.2 Trade Facilitation Initiatives............................................. 48 5.3 Namibia’s Trade Patterns.................................................51 5.4 Conclusion.................................................................... 55 6 Labour Market Policy Framework........................................ 57 6.1 Legislation Regulating the Labour Market...................... 57 6.2 Labour Market Trends.................................................... 59 6.3 Causes of Unemployment.............................................. 62 7 Social Development.............................................................. 65 8 Environmental Challenges.................................................... 69 9 Namibia’s Deeper Integration: Problem and Prospects?..... 73 9.1 Strengths....................................................................... 73 9.2 Weaknesses................................................................... 74 9.3 Opportunities................................................................ 76 9.4 Threats.......................................................................... 77 9.5 Conclusions................................................................... 79 10 Recommendations................................................................. 81 References....................................................................................... 83 Appendix......................................................................................... 87 7

Part 2: Perceptions of Business and Non-State Actors in Namibia List of Tables................................................................................... 102 List of Figures.................................................................................. 103 Abbreviations................................................................................. 104 Executive Summary...................................................................... 105 1 Introduction.......................................................................... 109 2 Methodology........................................................................ 110 3 Characteristics of Respondents............................................ 111 4 Perceived Impact of Regional Integration within SADC.... 117 4.1 Perceptions of Regional Integration................................ 117 4.2 Impact on Domestic Businesses...................................... 118 4.3 Rating of Trade Barriers................................................. 123 5 Perceived Business Climate in the Region and Beyond...... 127 6 Political Debate about Regional Integration....................... 129 7 Conclusions and Recommendations..................................... 133 Appendix........................................................................................ 135 8

Deepening Integration in SADC Namibia on Track to Meet SADC Target Part: 1 Macroeconomic Policies and their Impact in Namibia 9

List of Tables Table 1: Labour Force, Employment and Unemployment, Various Years...................................................................... 60 Table 2: Progress Towards Achieving the MDG Environmental Targets............................................................................... 72 List of Tables in the Appendix Table A1: GDP Growth, 1995 to 2008.................................................. 87 Table A2: Interest Rates, 1999 to 2005..................................................87 Table A3: Inflation Rates, 1980 to 2005................................................ 87 Table A4: Exchange Rate, Namibia Dollar per 1 USD, 1995 to 2005......87 Table A5: Gross National Savings Rates, 2000 to 2003.......................... 87 Table A6: Gross Fixed Capital Formation, 1995 to 2004........................ 88 Table A7: Investment by Economic Sector, 1995 and 2004................... 88 Table A8: Budget Deficit in%, 1999 to 2008....................................... 88 Table A9: External Debts as% of GDP 2001 to 2008........................... 88 Table A10: GDP, GNI, per capita GDP and GNI, 1995 to 2004................ 89 Table A11: Namibia’s Exports to SADC Countries in NAD, 1998 to 2004.... 90 Table A12: Export Share of SADC Countries, 1998 to 2004 in%........... 91 Table A13: Export Growth of SADC Countries, 1999 to 2004 in%.... 92 Table A14: Namibia’s Imports from SADC Countries in NAD, 1998 to 2004.... 93 Table A15: Import Share by SADC Countries in%, 1998 to 2004.......... 94 Table A16: Import Growth by SADC Countries in%, 1999 to 2004....... 95 Table A17: Import Cover in Weeks, 1999 to 2004.................................. 96 Table A18: Employment by Economic Sector in%, 1997 and 2000....... 96 Table A19: Employment and GDP Growth in Comparison, 1997 and 2000.............................................................................. 96 Table A20: Human Development Indicators, Selected Years from 1990 to 2003............................................................................ 97 Table A21: Namibia’s Progress Towards Achieving the MDGs................. 98 Table A22: Namibia’s Progress Towards Achieving the SADC Targets...... 99 10

List of Figures Figure 1 Namibia’s Growth Rates 1995 to 2008 Compared to the SADC Target................................................................. 30 Figure 2 Namibia’s Inflation Rate 1996 to 2005 Compared to the SADC Target in%........................................................ 33 Figure 3 Namibia’s Gross National Saving Rates from 2000 to 2003 Compared to the SADC Targets.......................................... 34 Figure 4 Namibia’s Budget Deficit 1999 to 2008 Compared to SADC Targets..................................................................... 42 Figure 5 Namibia’s Foreign Debt as% of GDP from 2001 to 2008 Compared to the SADC Target........................................... 43 Figure 6 Namibia’s Current Account Balance Compared to the SADC Target................................................................................ 54 Figure 7 Namibia’s Foreign Reserves in Months from 1999 to 2004 Compared to the SADC Targets.......................................... 54 11

List of Abbreviations ACP African, Caribbean, Pacific countries AGOA African Growth and Opportunity Act ASL Additional Sales Levy ASYCUDA Automated System for Customs Data BLNS Botswana, Lesotho, Namibia and Swaziland BoN Bank of Namibia CET Common External Tariff CMA Common Monetary Area COMESA Common Market for Eastern and Southern Africa CRP Common Revenue Pool DRC Democratic Republic of Congo EFTA European Free Trade Association EPZ Export Processing Zone EU European Union Euro European Currency FTA Free Trade Area GDP Gross Domestic Product GST General Sales Tax HDI Human Development Index HIV/AIDS Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome IMF International Monetary Fund LNS Lesotho, Namibia, Swaziland MDG Millennium Development Goals MoU Memorandum of Understanding MTEF Medium-Term Expenditure Framework MTP Medium-Term Plans NAD Namibia Dollar NDP National Development Plan NTB Non Tariff Barrier PEMP Performance Effectiveness and Management Programme RISDP Regional Indicative Strategic Development Plan SACU Southern African Customs Union SADC Southern African Development Community SADCC Southern African Development Co-operation Conference 12

SARS SIDA SME SPS TB TDCA UNDP USA USD VAT WTO South Africa Revenue Services Swedish International Development Cooperation Agency Small and Medium-sized Enterprise Sanitary and Phyto-Sanitary Tuberculosis Trade and Development Cooperation Agreement United Nations Development Programme United States of America US Dollar Value Added Tax World Trade Organisation 13

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Executive Summary R egional integration is often regarded as a key for accelerated and sustainable economic growth. Southern Africa is home to the oldest existing customs union, SACU, as well as a larger economic grouping that has its origins in the anti apartheid struggle, SADC. Both organisations have seen substantial changes over the past 15 years. SACU eventually agreed upon a new agreement that allowed for more influence for the smaller economies in the customs union. Since the demise of apartheid, SADC has strengthened its focus on economic development, and adopted a Regional Indicative Strategic Development Plan(RISDP) to outline its social and economic policies and priorities. Sound macroeconomic policies are a key requirement in achieving the objectives and deepening regional integration. A Memorandum of Understanding(MoU) on Macroeconomic Convergence was adopted in 2001. The Ministers of Finance and Investment also agreed at the time on a set of indicators to monitor macroeconomic convergence, although the usefulness of some of the indicators remains in dispute. Timeframes were set for the achievement of these targets. Namibia’s macroeconomic framework is guided by medium and long-term plans. The Third National Development Plan(NDP3) is currently designed, to cover the next five-year period. These mediumterm plans are established to support Namibia’s long-term development objectives as outlined in VISION 2030. The medium as well as the long-term development plan, is a reflection of Namibia’s major challenges resulting from her past history of colonial oppression and racial segregation. The four main objectives in all the development plans since independence in 1990 remain unchanged, namely: reduction of poverty, reduction of income inequality, creation of employment, and sustainable economic growth. However, other regional and international initiatives have not yet been fully incorporated into Namibia’s development plans, such as the Millennium Development Goals, NEPAD and SADC’s Regional Indicative Strategic Development Plan. The challenge for the design of NDP3 lies in preparing the groundwork for achieving VISION 2030 and in incorporating regional initiatives. 15

Overall, the Namibian government has created a conducive environment for the private sector to strive. Thus, the private sector is regarded as the main player while government will intervene in sectors that the private sector hesitates to invest in. Various incentive schemes have been implemented to attract investment. However, no analysis of the costs and benefits of these schemes has yet been undertaken. The framework has resulted in the growing diversification of the Namibian economy, although it is still reliant on the mining and agricultural sectors for inputs into the manufacturing sector. New economic developments have contributed to stronger growth. However, Namibia has still some way to go in achieving the SADC target of an annual growth rate of 7%. Monetary policy Namibia’s monetary policy is determined by her membership of the Common Monetary Area. This arrangement has benefited Namibia in at least two ways: There are no exchange rate fluctuations between Namibia and South Africa, Namibia’s main trading partner. Secondly, since South Africa’s economy is larger and more diversified, any event affecting a particular sector has less impact on the economy as a whole, and hence on the exchange rate, than it would be in a small and less diversified economy such as Namibia’s. As a result, it provides a higher degree of credibility and predictability to foreign investors. However, the arrangement limits Namibia’s sovereignty in setting its own monetary policy. Hence, interest rates are set in line with decisions made by the South African Reserve Bank, which pursues an inflationtargeting monetary policy. This policy stance contributed to a substantial drop in inflation — below 5% over the past two years. In this respect, Namibia is well within SADC targets for 2008 and 2012. Namibia is an exception to most developing countries in that it is a net exporter of capital. The gross saving rate is above the targets set for 2008 and 2012, because of contractual savings. Significant funds in the form of institutional pension funds, life insurance funds, and so on are invested in South Africa, and this has given rise to concerns in Government about circles the capital outflow. In order to reduce the outflow, Government has introduced a requirement for pension funds 16

and insurance companies to invest 35% of their portfolio in the domestic market. However, since the absorption capacity of the local market is limited, there is a risk that this may result in dubious investments that could turn sour. Fiscal policy Fiscal policy remains the major domestic tool with which to influence macroeconomic developments. Namibia’s membership of the CMA and of SACU restricts its monetary and trade policy design. Government aims to sustain macroeconomic stability, and to contribute to economic growth and employment creation through its fiscal policy stance. It has set ambitious targets for its deficit, debt and expenditure ratios. A Medium-Term Expenditure Framework(MTEF) was implemented in 2000 in order to provide a realistic resource framework. The MTEF is complemented by the Performance Effectiveness and Management Programme and most recently by Medium-Term Plans. The MediumTerm Plans reflect the shift of focus from inputs – resource allocation to ministries – to outputs. Each ministry has identified indicators to monitor the achievement of specific targets that would justify the allocation of funds. Though Namibia’s public debts have increased consistently since independence, they are still well below critical benchmarks. Government is attempting to reduce public debt to below 30% of GDP, and is aiming for 25% in the medium term. The budget deficit is expected to be below the SADC targets for 2008 and 2012. A slight budget surplus is anticipated for the fiscal year 2006/07 mainly because of higher-than-expected revenue from the SACU pool. Foreign debts account for less than 5% of GDP and are therefore well below the SADC target. Finally, government sustains a surplus with the Central Bank, which is only allowed in specific circumstances to provide a credit line to government. However, there are some risks that could jeopardise the achievement of the SADC targets. Namibia’s HIV/AIDS programmes are mainly financed by foreign development partners. If this support is terminated, a substantial re-allocation of resources will be needed to continue with the programmes or to increase the deficit in the short term to stretch the necessary adjustments over a longer period. 17

Trade policy Namibia is a member of the oldest existing customs union – the Southern Africa Customs Union(SACU). It receives about 30% of its revenue from the Common Revenue Pool. Its membership reduces the use of trade policy, particularly of customs tariffs, to support its industrialisation. However, with the ratification of the new SACU agreement, more democratic structures are in place that could increase the influence of the smaller member countries in setting tariffs. Through SACU, Namibia is involved in a number of Free Trade Agreements and negotiations with other economic groupings or individual countries, such as the USA. Namibia sources most of its imports from and through South Africa, and sells most of its exports in Europe and South Africa. SADC member countries play a negligible role in Namibia’s trade statistics, with the exception of Angola in recent years. Despite the strong export orientation of the Namibian economy, the three months import cover of foreign reserves is well below the SADC target for 2008. This is indicative of its import dependency on most consumer and producer products. On the other hand, its current account balance is in positive territory because of transfers from the SACU pool. Overall, Namibia is well on track to achieve most of the SADC targets. However it is most likely that it will miss the targets for economic growth and foreign reserves. Despite the low economic growth compared to domestic and regional targets, preliminary data from the 2003/4. HIES has indicated that incidences of income poverty and income inequality have dropped, though unemployment has increased. Impact analysis The government has placed high priority on the social sectors, education and health, and has achieved substantial improvements in the output of these sectors since independence. However, key challenges remain, particularly in the education sector concerning dropout rates, repetition and pass rates, as well as general levels of knowledge gained in school. Despite tight fiscal targets that are homegrown rather than necessitated by SADC convergence criteria – allocations to social sectors have not been cut. Quite on the contrary, 18

Namibia has just launched an Education and Training Sector Improvement Programme in order to address the shortcomings. As highlighted, Namibia is set to achieve most of the SADC targets and hence, is not under pressure to adjust its macroeconomic policy framework. However, stronger employment-creation growth is needed to address the prevailing societal imbalances. As the SWOT analysis in this study reveals, Namibia could benefit from stronger regional integration because of her strengths which include political stability and a well-developed infrastructure. However, weaknesses in the form of skills’ gaps that impact negatively on the capacity of institutions to operate efficiently do need to be addressed. If ignored, this could become a threat to further development, particularly when reinforced by the impacts of the HIV/AIDS endemic. 19

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1 Introduction R egional integration is often regarded as a key for accelerated and sustainable economic growth. Southern Africa is home to the oldest existing customs union, SACU, and a larger economic grouping that has its origins in the anti-apartheid struggle, SADC. Despite much criticism based on the distribution of benefits derived from the customs union, SACU continues to exist and has recently adopted a new, more democratic agreement, following the demise of apartheid. The end of the apartheid era also heralded changes for SADC. It has developed from the previous SADCC of political slogans to that and now focused to that on economic development. SADC adopted a Regional Indicative Strategic Development Plan(RISDP) in order to outline the social and economic policies and priorities. Sound macroeconomic policies are a key requirement in achieving the objectives and deepening regional integration. A Memorandum of Understanding(MoU) on Macroeconomic Convergence was adopted in 2001. The Ministers of Finance and Investment also agreed at the time on a set of indicators to monitor macroeconomic convergence(see Table A 22), although the usefulness of some of the indicators remains in dispute. Timeframes were set for the achievement of these targets. The Friedrich Ebert Foundation in Botswana, in close consultation with the SADC Secretariat, has initiated country studies for almost all SADC member countries, including Madagascar which joined SADC in August 2005. The aim is to take stock of the status of the policy frameworks in each of the participating countries. The Terms of Reference cover the following broad areas:(a) the basic macroeconomic policy framework, especially fiscal and monetary policies;(b) the trade policy framework;(c) the labour market policy framework; and(d) the social impacts of the various policy frameworks that aim to achieve macroeconomic convergence and deepening SADC integration. This study forms part of the project and aims to highlight the country-specific policy issues and their impacts. The study is based on available data from domestic sources, such as the Central Bureau of Statistics, the Ministry of Finance, and the Bank of Namibia. In general, domestic data is regarded as fairly reliable, although survey results are 21

often released after a considerable period of time has elapsed. The statistics are also in line with international standards such as the System of National Accounts 1993, and thus comply with RISDP recommendations. The study also makes use of relevant local literature. In addition, key stakeholders have been interviewed in an attempt to gain clarification on specific policy issues(see list in the appendix). The report is structured in the following manner. The next chapter describes the macroeconomic policy framework and refers to the main development plans that outline Namibia’s development objectives. A brief description of macroeconomic developments since independence in 1990 is provided. Chapters 3 and 4 focus on monetary and fiscal policies and analyse the trends of specific indicators in each chapter. The following two chapters provide insight into trade and labour market policies and highlight recent trends. Chapter 7 examines social development, while chapter 8 focuses on the environmental constraints Namibia is facing. The report concludes with an analysis of strengths, weaknesses, opportunities and threats. The report refers to major developments and tries to keep data to a minimum. Tables with extensive data are provided in the Appendix. Primarily, publicly-available data from domestic sources are used rather than data from international organisations. The degree of reliability of national data justifies this approach. 22

2 Macroeconomic Policy Framework N amibia is the youngest of the SADC nations, that gained independence from South African rule in 1990. The Namibian economy was highly integrated into the South African economy during the decades-long occupation, which inhibited autonomous, authentic economic development. With the exception of a few manufacturing companies, the economy was based on the extraction of natural resources. Mining activities(especially diamond), extensive, almost exclusively white-owned livestock farming in the commercial areas and widely uncontrolled fishing activities characterised the economy at independence. The Apartheid policy of racial segregation compounded the dual nature of the economy and society. The vast majority of the population was confined to the so-called homelands, particularly in the north and northeast of the country, and to a subsistence economy. Education was limited to the transfer of basic knowledge and skills. This resulted in a society characterised by a relatively wealthy minority living in well-developed towns and cities with functioning social services and involved in the formal economy, and a majority living in rural areas, lacking basic services and making a living in the informal and subsistence economy. Namibia’s rich endowment with natural resources has resulted in a per capita income that classifies it as a lower middle-income country. But the per capita income covers a highly skewed income distribution that is reflected in a Gini-coefficient of 0.6 1 . Although dropping from 0.7(based on the 1993/94 household survey) to 0.6(2003/04), it indicates one of the most skewed societies in the world. The high Gini-coefficient implies that not only relative but absolute poverty exists amidst wealth in Namibia. Subsequently, the incoming government of the newly independent country faced the daunting task of redressing these imbalances. The Transitional National Development Plan for the period 1991/92 to 1993/ 94 identified the following four main national development objectives:  To reduce poverty;  To create employment; 1 The Gini-coefficient measures the income distribution in a given region and ranges from 0(totally equal society) to 1(absolutely unequal society). 23

 To stimulate and sustain economic growth; and  To reduce inequalities in income distribution. The transitional development plan was followed by the First and Second National Development Plans(NDP1 and 2), but the main objectives have not changed. However, additional development objectives were added in NDP2 addressing new challenges:  To promote economic empowerment;  To reduce regional development inequalities;  To promote gender equality and equity;  To enhance environmental and ecological sustainability; and  To combat the further spread of HIV/AIDS 2 . NDP2 ends in 2006 and will be replaced by NDP3. The National Development Plans are medium-term plans covering five-year periods. They outline general development objectives as well as sector-specific goals. Towards the end of the first decade of independence, government identified the need for a long-term development strategy to guide the medium-term plans and eventually budget allocations. Vision 2030 was designed with the overall objective of elevating Namibia to a prosperous and industrialised nation by 2030 3 . Namibia’s per capita income would be comparable to that of high-income countries. Its economic structure would have changed from being dependent on primary products and the public sector to an economy that produces manufactured goods and services and exports mainly manufactured products rather than raw materials. Regional integration - and in particular the implementation of the SADC Protocols- is one of the strategies to achieve the vision. The vision anticipates the transfer of several accruements of national sovereignty and state power to SADC institutions during the period 2010 to 2015. This statement is a clear indication for Namibia’s strong commitment towards integration within SADC. Furthermore, Vision 2030 envisages the creation of a single currency and a regional central bank for SADC 4 . While the vision clearly states objectives for the period, it is rather weak on putting together strategies and policies necessary to achieve these objectives. 2 Government of the Republic of Namibia, 2002:50. 3 Office of the President, 2004:38. 4 Ibid., p.195. 24

For this reason, government is currently identifying strategies to implement the vision. The next medium-term development plan NDP3- will be crucial for laying the foundation to boost significantly economic growth, which has not yet been sufficiently achieved to make major strides towards a higher standard of living. Overall, government sees its role in providing an enabling environment in which the private sector will take the lead in economic development. Government, however, will intervene in those sectors where the private sector does not invest. Government has introduced several incentive schemes in order to attract investment, particularly in the manufacturing sector. It was expected that the schemes would support the diversification of the economy and the export pattern, and create jobs. Most notable are the Export Processing Zone(EPZ) scheme and the incentive scheme for manufacturing companies. EPZ status is granted to companies that export 100% of their production to markets outside SACU. These companies are exempt from paying company taxes and import duties on imported inputs. The export requirement can be lowered to 70% but companies would need to pay taxes and import duties on the products that are sold on the local – or SACU market. In addition, manufacturers can apply for the manufacturing status that will be granted for ten years. Out of the 200 companies that have received the status to date, of which 102 still retain it, while it expired for 49. Another 49 have lost the status because of change in rules 5 . The New SACU Agreement of 2004 provides for infant industry protection for a maximum period of eight years. Two industries have been granted infant industry protection so far – pasta and Ultra High Temperature milk – while two other applications are under consideration. The main aim is to expand the value chain of locally-available natural resources, and hence, diversify the industry and create employment. These schemes have not yet had the impact on the economy as was expected. Only investment in the textile industry has contributed significantly to job creation – about 7,000 – though the remuneration is reportedly low. However, the sustainability of the industry is uncertain after the Multi Fibre Agreement expired at the end of 2004. Recent events suggest that the textile industry in Namibia could follow the 5 Insight Namibia, September 2005:14 25

same path as in other southern African countries, by closing down some of its operations. A review of the incentive schemes with a view to establishing the benefits and costs – in the form of foregone revenue – would be necessary. Furthermore, government aims to diversify the primary sector through the green scheme and the promotion of inland aquaculture. Both initiatives are expected to result in the diversification of the agricultural and fisheries sectors and lead to the downstream investment in processing activities. These various incentive schemes and policies have to be brought in line with the overarching Vision 2030. The same applies to the Millennium Development Goals and SADC’s RISDP that are not yet fully integrated. Namibia has received technical assistance from the SADC Secretariat to compile its first report on the Macroeconomic Convergence Programme. It is expected that the draft report will be completed by the end of April 2006. Since Namibia has achieved most of the convergence criteria, the report is regarded as a formality rather than an undertaking that involves serious policy debates and decisions. The SADC National Committee and the sub-committees are in place. However, the committees are regarded as being reactive towards upcoming SADC meetings rather than pro-active drivers of the process. Namibia has implemented a number of projects. These were not primarily in the agricultural and transport sectors, but included the establishment of SME parks with financial support from RISDP. However, the country has encountered problems in the approval of project proposals because of the lack of qualified staff at the SADC Secretariat scrutinise and approve proposals in time. Domestic constraints have also hampered the development and promotion of SADC in Namibia. For instance, a clear mandate for officials responsible for SADC issues is apparently lacking, resulting in a lack of continuity in the participation in SADC issues. Thus, SADC activities happen on an ad hoc basis prompted by upcoming events. Furthermore, the private sector is barely involved at all. National awareness workshops were held in 2002 and 2004 but the participation of the public was rather poor. More needs to be done to bring SADC and the RISDP onto the national agenda and to integrate them into national policies. 26

The following sections attempt to describe the main economic developments in detail and to highlight in particular domestic initiatives that are in line with RISDP. Composition of the Economy Economic growth received a boost after independence. Gross Domestic Product(GDP) grew by 3.8% on average during the period 1990 to 1995. This compares quite favourably to a growth of 1.1% for the decade before independence. However, growth slowed down to 3.6% (1995-99), but picked up again within the next five years to 4.4% (2000-04)(Table A 1). The increase in GDP shortly after independence can be closely linked to a surge in government activities that accounted for about 20% of GDP in 1989, but 26% in 1991. During the same period, primary industries’ contribution dropped from almost 32% to 25%, while the share of manufacturing activities stayed more or less constant. Currently, the primary sector accounts for 19.4%, manufacturing for 18.4%, and the service sector for 54.2%. Mining continues to be the backbone of the economy. It contributed about 13.9% to GDP(2002), which slumped to 8.8% during the following year because of the strong and persistent appreciation of the Namibia dollar against, among others, the Euro and USD. In 2004, mining accounted for 10.4% of GDP, and contributed significantly to government revenue in the form of company, and diamond royalties and foreign exchange earnings. However, because of its capital-intensive nature, the sector only employs about 6,000 people. The sector is dominated by large international enterprises. The Ministry of Mines and Energy established a Small Miners Assistance Centre in 1997 with financial support granted by the EU. This is in line with the SADC recommendation to increase the participation of small-scale operators in the sector, particularly women. However, the impact of this initiative has remained low in Namibia. Fisheries has played a major role in the economy, but has been experiencing a downward trend for the last three years for various reasons. Fish stocks were recovered during the 1990s as a result of strong fish stock management based on a system of fishing rights and fishing quotas. Fishing quotas are determined by the availability of 27

biomass and the size of the fish. With the adoption of the aquaculture policy in 2001 it is expected that inland aquaculture, as well as mariculture will gain in importance. Both initiatives, a strong stock management system and the promotion of aquaculture, are supported by recommendations in the RISDP. Despite efforts by government to diversify the economy, the macroeconomic data do not indicate much change. However, changes are visible on a micro level. Grapes have emerged as a major foreign currency earner since the second half of the 1990s. Fish processing has also gained in importance over the years, and a textile industry was established at the beginning of the new millennium benefiting from the USA’s African Growth and Opportunity Act(AGOA). In addition, locally-produced milk and pasta products have entered the Namibian market, protected by the Infant Industry clause in the SACU agreement. Furthermore, horticultural production has increased significantly over the past few years. However, manufacturing activities continue to rely on processing agricultural and fishing products, and are thus, quite vulnerable to climatic conditions. This explains to a large extent, the fluctuations in their contribution to GDP. The newlyestablished textile industry is about to change this pattern, but it remains to be seen how sustainable it is, after the expiration of the Multi-Fibre Agreement at the end of 2004. Recently established and expanded processing activities of minerals – a copper smelter, zinc refinery and various diamond cutting and polishing plants – add to the value chain and are expected to induce further ‘downstream’ developments. Textile and mineral processing industries were started during 2002 and 2003 and have contributed significantly to higher growth rates in recent years. But again, there are clear signs that domestic mineral processing companies are often too small in international terms to go it on their own. Foreign investors are needed to provide the necessary international expertise and access to financial resources. Tourism is another important pillar of the economy. According to the traditional National Accounts, it contributes less than two percent to GDP. However, its real contribution is significantly higher, since it has strong linkages to other sectors such as transport and manufacturing sectors. Namibia started the construction of Tourism 28

Satellite Accounts at the beginning of 2006 to measure the direct and indirect impacts tourism has on the economy. In this regard, Namibia follows the recommendations of the RISDP, although it can be reasonably assumed that the initiative has been spurred more by domestic needs of comprehensive information on the tourism sector than by the RISDP. Early results of the Tourism Satellite Accounts suggest that the total contribution of the tourism industry to GDP could be in the range of 14%. Despite these developments, economic growth has not been strong enough to significantly raise the standard of living in Namibia it falls short of the SADC growth target of 7% and of the growth rates necessary to achieve the domestic Vision 2030. The population grew by about 2.6% per annum between 1991 and 2001. This growth rate that stood at 3.1% during the previous decade, is expected to decline mainly because of the impact of the HIV/AIDS pandemic. The positive per capita growth since Independence eventually resulted in a decline of income poverty and income inequality. However, economic growth has not been employment-creating growth(Table A 19). The mining and fisheries sectors are capital-intensive sectors and output growth does not necessarily result in increased direct employment, but could result in additional jobs through forward linkages. However, despite economic growth, unemployment remained at high levels 33.8%(2000) compared to 34.5% in 1997 6 . Therefore, there is a need for designing policies that support employment-creating growth rather than focusing narrowly on a specific growth figure alone. 6 The figures refer to the unemployment rate in the broad sense, which includes persons who are not actively seeking work. It is argued that this definition fits the Namibian situation better than the strict definition, which includes only persons who are actively seeking work. 29

Figure 1: Namibia’s Growth Rates 1995 to 2008 Compared to the SADC Target Source: Republic of Namibia et al., 2005. Forecast for 2006 to 2008 based on Ministry of Finance, 2006. 30

3 Monetary Policy N amibia is a member of the Common Monetary Area(CMA), consisting of Lesotho, Namibia, South Africa and Swaziland. The currencies of Lesotho, Namibia and Swaziland are pegged one-to-one to the South African rand. The South African rand is legal tender in the whole CMA, but the currencies of the three smaller economies are not convertible, though they are sometimes accepted on transit routes. Foreign assets, such as the South African rand, need to back the value of the domestic currency in circulation to the same value 7 . Capital can move freely between the CMA member countries. This arrangement has benefited Namibia in at least two ways: firstly, there are no exchange rate fluctuations between Namibia and South Africa, its main trading partner. Secondly, since South Africa’s economy is larger and more diversified, any event affecting a particular sector has less impact on the economy as a whole(and hence on the exchange rate) than it would in a smaller and less diversified economy such as Namibia’s. It therefore provides a higher degree of credibility and predictability to foreign investors. However, the arrangement doesn’t come without costs. Namibia has actually ceded its discretionary monetary and exchange rate power to South Africa and can thus not pursue its own monetary, exchange rate and exchange control policy. Namibia is compensated- to a certain extent at least- for its loss of sovereignty over the domestic money supply through annual payments (seignorage) by South Africa. The free flow of capital reaches beyond the CMA. Namibia has liberalised exchange controls in tandem with South Africa on an annual basis. Thus, the CMA supports the RISDP recommendation of exchange control liberalisation. Because of her membership in the CMA and because of the influence of the dominant South African economy, Namibia follows South Africa’s monetary policy. The Bank of Namibia(BoN) sets its bank rate in line with the South African Reserve Bank’s repo rate. For a number of years, Namibia’s bank rate was between 25 and 125 basic points higher than the repo rate. However, the bank realised that this was not effective, and therefore the bank rate has been kept at the same level as the repo rate since August 2004. One of the reasons for the decision 7 Bank of Namibia, 2004. 31

to follow the repo rate was also the limited financial instruments available in Namibia, which in turn is caused by the lack of capacity to manage more sophisticated financial instruments. South Africa’s monetary policy has been anchored to inflation targeting since 2002. It aims to keep inflation within the range of 3% to 6%. However, the strong South African rand putting pressure on export industries has reportedly led to exchange rate considerations influencing interest rate decisions since the second quarter of 2005. This stance is often criticised for not using monetary policy more strongly to support economic growth and employment creation. Since the CMA countries have reached the macroeconomic convergence targets, the MoU on Macroeconomic Convergence is seen as a very important declaration, though it does not have a real impact on monetary policy decisions. Subsequently, the drafting of a National Convergence Programme is not necessitated by the need to address macroeconomic imbalances. Namibia will therefore see a continuation of the current macroeconomic policies. Monetary developments Interest rates surged in the aftermath of the South East Asian financial crisis in 1997, but dropped since 2003 to unprecedented low levels. The bank rate increased steadily in 1998 from 16% to a high of 20.25%, but dropped in 1999 to 13.25%. From the beginning of 2003 it declined by more than six percentage points, to 7% in the second quarter of 2005. The bank rate has remained at this low level since then. The prime lending rate and other interest rates followed accordingly 8 (Table A 2). The inflation rate fluctuated around 9% between 1995 and 2001; peaked at the end of 2002 at almost 14%, and has declined since then to an annual inflation of 2.2% in 2005. This is the result of both a monetary policy focusing on the inflation rate and a strong Namibia dollar reducing the costs of imports – in particular levelling out rising oil prices in recent months(Table A 3). 8 Bank of Namibia, Quarterly Bulletin, June 2005. 32

Figure 2: Namibia’s Inflation Rate 1996 to 2005 Compared to the SADC Targets, in% Source: Republic of Namibia et al., 2006 The financial crisis in South East Asia supported emerging market sentiments, and also affected South Africa and hence Namibia, since the Namibia dollar is pegged one-to-one to the South African rand. The strong US currency contributed to the downturn of the Namibia dollar, particularly during 2001. Since then the currency has recovered steadily, reaching a position of strength last seen at the end of the 1990s. While the South African Reserve Bank has tried in the past to influence the exchange rate through its bank rate, it later switched to inflation targeting and has left the exchange rate to market forces. This stance has apparently changed since the beginning of 2005 however, because the strong currency significantly affected the performance of the export sector. Statements of the Monetary Policy Committee indicate that the performance of the export sector is taken into consideration when decisions concerning the bank rate are made(Table A 4). Though the Namibian dollar itself is not convertible, it can at all times be converted to South African rand, which is legal tender in the whole CMA area. Gross National Savings stood at 31.5% of GDP in 2003(Table A 5). The high savings ratio over GDP is primarily attributed to contractual savings. Contrary to other developing countries, Namibia is a netexporter of capital. Large sums in the form of pension funds, for instance, 33

are invested in South Africa. In order to reduce capital outflow, Government has introduced the requirement for pension funds and insurance companies to invest 35% of their portfolio in the domestic market. However, since the absorption capacity of the local market is limited, this requirement could result in dubious investments that might turn sour. The skewed distribution of income as well as limited access to banking facilities in rural areas – even though access is increasing and banks are covering larger areas – constrains private savings. Based on historical data, it can be assumed that Namibia will meet the 2008(and probably 2012) SADC target concerning the savings ratio. Figure 3: Namibia’s Gross National Saving Rates from 2000 to 2003 Compared to the SADC Targets Source: World Bank, various years. Gross fixed capital formation fluctuated around 23% during the period 1995 to 2004, with no clear trend in either direction(Table A 6). It was driven by infrastructure projects(transport, communication. electricity and water), the mining sector and government. Government’s share declined from 25%(1995) to 13% in 2004, while the contribution of the mining sector almost doubled during the same period – from 10.7% to 19.8%. However, except for the agricultural and fishing sectors, as well as to some degree the public sector, investment fluctuated significantly during the period. This is indicative 34

of the influence of major projects on total investment, rather than continuous investments in the economy. Major infrastructure projects, such as the Trans Kalahari Highway(linking Walvis Bay through Botswana with the Gauteng province), the Trans Caprivi Highway (linking Walvis Bay with Zambia, Zimbabwe and the DRC), upgrading of the harbours and the power line to South Africa, as well as the development of a new mine, and subsequently a zinc refinery have all had major impacts on the overall level of investment. Investment in the primary sector – 18.3% and 27.8% respectively – is driven by the availability of natural resources and the viability of its exploitation, which in turn depends on external factors such as world market prices. It can be argued that between 50% and 70% of total investment – government, parastatals and the mining sector – is influenced by factors other than the macroeconomic framework(Table A 7). It is expected that Namibia will not achieve the SADC target of an investment rate of 30%, which would imply an increase of about 50%. Since government has set ambitious fiscal targets, capital expenditure is often the item that can be more easily adjusted downward in times of financial, rather than other expenditure items. There is also no major private investment expected that would provide the necessary boost of gross fixed capital formation, although the operation of the Namibia Development Bank will ease access to finance medium sized companies in particular. It remains to be seen whether the development bank will also benefit small-scale enterprises. Various financing schemes have been developed focusing on the SME sector, though with little discernible impact. Overall, Namibia is doing well with regard to most of the indicators. However, it lags behind in terms of investment. Despite the favourable macroeconomic framework and its well-developed infrastructure, Namibia has not benefited substantially from foreign and domestic investment. The recently-released competitiveness report reveals some of Namibia’s weaknesses that need to be addressed in order to reap any benefits that a deeper regional integration could hold for the country. On the other hand, the positive rating(BBB-) Namibia received in December 2005 by Fitch Ratings could increase her attractiveness to foreign investors, and similarly could reduce borrowing costs for domestic investors. 35

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4 Fiscal Policy A ccording to the Second National Development Plan, the main objective of fiscal policy is “.to conduct prudent fiscal management with the emphasis on prioritised resource allocation and effective resource utilisation 9 .” NDP2 further states that external borrowing should be restricted and limited to specific sectors(ibid.). Overall, fiscal policy is regarded as the key instrument for macroeconomic management, since Namibia’s membership in SACU and the CMA limits its scope for an independent monetary policy. Through its fiscal policy, government aims to sustain macroeconomic stability, and to contribute to economic growth and employment creation. Hence, current expenditure needs to be limited to increase capital expenditure, which in turn complements private sector investment. Moreover, restricting current expenditure provides government with a higher degree of fiscal flexibility in the event that revenue forecasts were too optimistic. Government has introduced several instruments to enhance the management of state finances and to increase its efficiency and effectiveness. A Medium-Term Expenditure Framework(MTEF) was implemented in 2000 to provide a realistic resource framework. The MTEF covers a three-year period and contains ceilings for each ministry, office and agency for each year in current prices. Thus, ministries know what resources to expect over the medium term, and can plan their activities accordingly. The MTEF is complemented by the Performance Effectiveness and Management Programme(PEMP). The introduction of PEMP marks a shift from a focus on inputs to one on outputs. This is further supported by the implementation of Medium-Term Plans(MTP) in 2005 that outline what each ministry plans to achieve with the resources allocated to them. The MTPs include indicators that will be monitored and evaluated. Future budget allocation to ministries will depend on achieving the envisaged outcome. It is expected that these tools will enhance the capacity within the public sector to efficiently control and monitor the use of public resources. Increased efficiency in resource allocation will prepare government well for times of less revenue caused by, for instance, a 9 Government of the Republic of Namibia, 2002:87 37

decline in taxes on international trade. However, the effectiveness of these tools depends on the training provided to the accounting officers in applying the tools. Government’s fiscal targets are a budget deficit of not more than 3% of GDP, a debt ratio of not more than 25%, and an expenditure ratio of not more than 30%. These targets are below the SADC convergence criteria and hence, do not influence government’s fiscal policy stance. While government is close to its deficit targets, total debts and expenditure exceed the targets. However, a too-narrow focus on these fiscal targets would contradict government’s stated objective of using fiscal policy for macro-economic management. Namibia has only limited influence on monetary and trade policies since it has ceded the sovereignty to the CMA and SACU respectively – in actual fact to South Africa, the dominant economic power in both groupings. Therefore, fiscal policy is the only significant remaining tool with which to influence the economy. Expenditure Patterns Namibia’s development objectives are reflected in expenditure priorities. The education sector consistently receives the largest share, though its share is slightly declining – from about 27%(1997/98) to 22% in 2005/06. The Ministry of Health and Social Services has received the second-largest share(about 14%) for almost a decade, though it dropped to a third place because of increasing statutory expenditure (9% in 2005/06) of the Ministry of Finance(18% in 2005/06). However, about 30% of the Ministry of Health’s budget is allocated to social pensions and other welfare grants, and can therefore, not be counted as health expenditure. It is expected that health expenditure will increase in the near future because of the HIV/AIDS pandemic. Namibia receives funds from the Global Fund for HIV/AIDS, TB and malaria that are channelled through the State Revenue Fund. Personnel expenditure has been dominating expenditure, followed by spending on goods and services. However, personnel expenditure is on a slightly downward trend- 47% in 1999/2000 to 43% in(2005/ 06). This is not because of the declining size of the civil service, but 38

quite the opposite. Government is by far the largest single employer, with more than 90,000 funded posts. Given the high rate of unemployment – 33.8%- and the limited absorption capacity of labour of the private sector, government will find it very difficult to downsize its public service. However, it will be necessary to ‘right-size’ the public service in order to increase the efficiency of its operations. Statutory expenditure has increased steadily from 3.6%(1997/98) to 9%(2005/06). Although government borrowing is not expected to crowd out private investment expenditure could crowd out other development expenditure, statutory because of Namibia’s membership in the CMA. Statutory expenditure also increased over the past two years despite the significant drop in interest rates, and declined during the current financial year 2005/06 by only 0.3 percentage points. Revenue Patterns All customs and excise duties collected by SACU countries are transferred into the Common Revenue Pool. Each member country receives a share of this pool according to a revenue-sharing formula that consists of three components. Receipts from this pool have constituted the largest income for Namibia since independence. It accounted for 31% on average between 1997/98 and 2005/06, with as high a share as 37%. However, it would be misleading to interpret this as a high dependence on taxes on international trade. The trade component has contributed less than 50% to the revenue pool 10 . Excise duties, as indirect taxes, have been more relevant. Hence, trade liberalisation will have a less severe impact on revenue than the transfers from the SACU pool would suggest at first glance. Namibia sources only a small share of all imports from SADC countries, which would suggest that a SADC Free Trade Area would not have a major impact on Namibia’s revenue. However, transfers from the SACU CRP depend on the total size of the pool that is determined by total SACU imports. Hence, any impact analysis needs to take account of the volume of imports into SACU by all its member countries, particularlyt by South Africa. Imports from SADC countries excluding SACU countries accounted for 0.8% of Namibia’s total imports in 2003, but 1.6% of South Africa’s imports. South Africa imported goods to the value of 10 Based on Bank of Namibia, 2003:34. 39

USD550 million, and Namibia of less than USD 12 million 11 . These figures indicate that imports from SADC countries do not contribute significantly to the CRP. In addition, imports from SADC countries already receive preferential or free access to the SACU market. It is therefore not expected that the SADC Free Trade Area will result in a significant drop in Namibia’s revenue from the SACU CRP. As a result, the Ministry of Finance does not intend to raise any other taxes in order to mitigate possible losses in taxes on international trade. Namibia employs a progressive income tax system. The first 24,000 Namibia dollars(N$) earned per annum are tax free, which provides a substantial relief for low-income earners. The marginal tax rate for income earned above this tax threshold increases from 17.5% to 35%. Income taxes on individuals as well as company taxes have increased in importance from 26%(1997/98) to 39% in 2003/04. The vulnerability of company taxes to external events became apparent during the financial year 2004/05. The strong appreciation of the Namibia dollar against major currencies such as the US dollar and the Euro, resulted in a downward revision of revenue estimates from company taxes by more than one billion Namibia dollars. Subsequently, the contribution of company taxes dropped from 16% to 8% of total revenue, and the budget deficit soared to an all-time high of 7.5%. The introduction of Value Added Tax(VAT) at the end of November 2000 replaced General Sales Taxes(GST) and Additional Sales Levies (ASL). Two tax rates exist: 0% for exempted products such as maize and Mahangu flour, and 15% for all other products. Government is currently considering re-introducing Luxury VAT, which was scrapped in 2002. Revenue from VAT has contributed on average 22% since its implementation, compared to an average of 19% that GST and ASL contributed. This result, once more proves the notion that VAT is a more effective and efficient tax instrument than sales taxes. The closing of some tax loopholes and an improved system of tax collection have levelled out the impact of a strong local currency on the profits of export industries and subsequently, revenue from company taxes. Stronger regional integration often raises the concern of a ‘race to the bottom’ regarding taxation in order to attract investment. The RISDP has taken note of these fears and calls for tax harmonisation 11 www.trademap.net accessed on 13 September 2005. 40

and cooperation among member countries regarding tax incentives, direct and indirect taxation and treaties on double taxation. However, it appears that no initiatives followed these recommendations. Tax rates differ widely even among SACU member countries, and there seems to be no coordination within the CMA when member countries decide on tax rate adjustments. Grants channelled through the State Revenue Fund do not play a significant role. With the exception of 1997/98(1.2%), grants contributed less than 1% to the revenue. However, grants are often transferred outside the State Revenue Fund to programmes and are not reflected in the national budget. Efforts by government to receive budget support have borne fruit with major donors(the EU and SIDA) that are now channelling at least part of their assistance through the SRF. This certainly improves transparency, accountability and the planning process. The low amount of grants also explains why there is seldom a difference between the deficits, including and excluding grants. Overall, it can be expected that trade liberalisation, in particular the impacts of the TDCA between the EU and South Africa, will result in declining income from the SACU pool. This decline could be levelled out by an increase in the efficiency of tax collection, which has already been happening over the past year, and increased economic activities that result in broadening the tax base. However, because of the low level of trade taking place between SACU and the rest of SADC, the reduction of tariffs on SADC goods is not expected to have a significant impact on the Common Revenue Pool. Whether or not trade liberalisation within SADC results in trade diversion(and hence in a loss of income) would warrant further research. Debts The budget deficit has stayed within manageable levels, ranging between 1.4% and 7.5% for the period 1996/97 to 2003/04. The average for this period was 3.6%; however, excluding the high deficit of 7.5% for the year 2003/04 which was caused by a strong and persistent appreciation of the Namibia dollar that was not foreseen, the average stood at 3%. However, this external shock also revealed limitations in government’s response to declining revenue. Expenditure was not adjusted in time to keep the deficit within the self-set range of 3%(Table A 8). 41

Figure 4: Namibia’s Budget Deficit 1999 to 2008 Compared to SADC Targets Source: Bank of Namibia, 2004 and Ministry of Finance, 2006 Furthermore, revenue has always been sufficient to cover recurrent expenditure, so that the deficit has only been used to finance capital expenditure. The deficit could therefore be justified if capital expenditure resulted in returns in the medium- to long term. This is the case with investment in the productive sectors and infrastructure. Total government debts stood at about 33.5% in 2004/05. 15% of these debts are foreign debt stocks representing between 4% and 6% of GDP(Table A 9). However, Namibia has not borrowed any money from the IMF or World Bank. Treasury bills and bonds are used for borrowing on the domestic market. The Central Bank Act provides for an overdraft for government. Government could request credit only in specific instances. None of these has happened yet. Government has always maintained savings on its account with the Bank of Namibia(Table A 22). 42

Figure 5: Namibia’s Foreign Debt as% of GDP from 2001 to 2008 Compared to the SADC Target Source: Ministry of Finance 2005 and 2006 As with the deficit and debt ratio, the ratio of foreign debt over GDP is far below alarming international benchmarks. However, as the financial year 2003/04 illustrated, developments in the global economy can cause the fiscal balance to deteriorate rapidly. A slowdown of the global economy will affect revenue of the mining industry and its tax bills. Interest rate increases will impact on statutory expenditure, and without adjustments on other expenditure items, will increase the deficit. In addition, government has guaranteed loans to parastatals and some private sector companies, mainly as part of its Affirmative Action Loan programme. Total guarantees amounted to almost N$2.5 billion during the 2004/05 financial year, bringing total public and publiclyguaranteed loans to about 40% of GDP. Domestic guarantees account for 55%, and foreign guarantees for the remaining share 12 . Experience has shown that these guarantees carry risks, and government has had to honour its guarantees in cases where the beneficiary of the loan defaulted on the repayment. While there are good reasons for guarantees, decisions need to be based on a profound economic analysis of the business plan and its viability. Government has realised shortcomings in the current system and implemented new regulations 12 Ministry of Finance, 2005:12. 43

that raise the hurdle to be granted government guarantees, such as a fee to be paid annually on the guaranteed amount. Thus, continuing strong fiscal discipline is needed to keep control over public finances. The government has ambitious plans over the current medium-term expenditure period, not only to keeping the deficit below 3%, but turning it into a budget surplus. Achieving these targets would result in declining total government debts, but it will take several years to reach the fiscal target of 25% 13 . Similarly important is to keep the flexibility in using fiscal policy to stimulate the economy if needed, and to pursue the national development objectives. Since Namibia is well within the SADC targets, it is not expected that macroeconomic convergence will put pressure on government to change its fiscal policy. However, a risk looms on the horizon. The government adopted an ambitious Medium Term Plan to fight the spread and impact of HIV/AIDS. The plan is supported by donor funds, notably the Global Fund and PEPFAR. This requires significant Namibian resources for implementation. The estimated cumulative costs of the programme over the five-year period 2006 to 2009 amount to N$4,923 millions, of which Namibia has to raise some N$2,959 millions from its own resources. This would require a reorientation of resource allocation. Furthermore, should donor assistance dwindle after 2009, additional domestic resources would be needed to continue with the programmes, such as treatment and care services and orphan grants 14 . This could have repercussions on the budget deficit and eventually on achieving the convergence criteria. 13 Ministry of Finance, 2005:11 and 21. 14 IMF 2005:13. 44

5 Trade Policy Framework R egional integration arrangements are seen as vital in addressing the demand side of constraints faced by Namibia due to its small domestic market. It is believed that Namibia can overcome such constraints in the context of a larger regional market. Regional integration is also viewed as an enabling stepping-stone to the country’s integration into the world economy. Namibia has consequently entered into a number of trading agreements. Namibia belongs to the South African Customs Union(SACU). In 1994, a formal decision was made to renegotiate the 1969 SACU agreement, with a view to making it a more democratic institution. The renegotiation process lasted for eight years and led to the signing of the new SACU Agreement in 2002, which came into force in 2004. The new agreement introduces a system of managing and sharing the common revenue pool. The new SACU agreement requires countries to develop common industrial policies and to have cooperation in agriculture, competitive and fair trade practices. The key challenges facing the BLNS countries are the setting up of independent trade policies that will be in line with their own development priorities, and the decline in revenue from the common revenue pool as a result of changes in the way it was previously shared. Furthermore, Namibia is a member of the Southern Africa Development Community(SADC). SADC has evolved from its initial objectives of focusing on food security and creating political stability in the region to regional integration and cooperation among member states. This has led SADC to extend its agenda on regional integration and trade liberalisation. Although Namibia belongs to both SACU and SADC, its membership to SADC does not pose problems at present, because it is not yet a customs union. By 2010 when SADC is supposed to become a customs union, the external tariffs of SADC and SACU will be harmonised. SACU’s rules of origin are also different from those of SADC, which currently poses obstacles to trade. Namibia is also part of the Cotonou Agreement between the ACP countries and the EU. As such, it is currently negotiating an Economic Partnership Agreement with the EU as part of a group of SADC member countries 15 . The main objective of these negotiations is to foster the smooth 15 The group includes Angola, Botswana, Lesotho, Mozambique, Namibia, Swaziland, and Tanzania. 45

and gradual integration of the countries into the global economy. These agreements should be seen as the continuous process of strengthening regional integration in SADC, rather than undermining it. The negotiations are undertaken on specific issues according to a set timetable. During 2005 negotiations are focusing on market access and non-market access issues in the areas of agriculture and fisheries. The negotiations are to continue until 2008 when the EPA will enter into force. Namibia did belong to COMESA, but pulled out in 2003 because it was already a member of a customs union with a common external tariff, namely SACU. The withdrawal has not resulted in major problems in trading with COMESA member states. Lastly, Namibia is a member of the World Trade Organization(WTO). Regional integration initiatives are supposed to result in increased benefits to Namibia owing to access to larger markets, and increased efficiency due to competition and economies of scale. However, overlapping memberships can lead to high administration costs related to the different rules of origin and huge amounts of government funds spent on official participation in the negotiations. Furthermore, since human capacity is limited, participation in the various regional bodies and trade negotiations is also constrained. Namibia does not have a written national trade policy. Its trade policy and strategies are guided by the country’s national development objectives, which include the promotion of economic growth, creation of employment, and reduction of poverty. In addition, it is determined by its membership of both the international and regional trading bodies. Its trade policy strategy is mainly driven by that of SACU, and most of the country’s trade policy decisions are undertaken jointly under SACU. Trade has always been viewed as an engine of growth for Namibia, and it is one of the most important pillars of integration in the SADC region. For this reason, Namibia’s trade policy objectives are to diversify the economy from the export of primary and traditional goods to expansion of the country’s manufacturing base through increased exports of value-added products and attraction of foreign investment. This strategy is aimed at promoting high economic growth through increased foreign exchange earnings and the attraction of sufficient foreign direct investment for the ultimate realisation of increased employment opportunities, poverty alleviation and of addressing socio 46

economic imbalances inherited from colonial times. To date, the impact of trade agreements on industrialisation has been somewhat marginal. The manufacturing sector is slowly diversifying, but this is caused by its natural resources rather than the result of trade negotiations, with the exception of the textile industry that has benefited from AGOA. Policies are needed in support of balanced and mutually-beneficial industrialisation in the region, such as a competition policy and a policy targeting unfair trade practices. As a member of the World Trade Organization, Namibia has committed itself to the gradual reduction of tariffs, with the aim of liberalising trade. Trade liberalisation is currently being undertaken at multilateral level under the WTO as well as at regional level under SADC and SACU. Under the new SACU agreement, member countries are not allowed to enter into a trade agreement without notifying and seeking the approval of the other SACU members. 5.1 SADC Trade Protocol N amibia joined the Southern African Development Co-operation Conference in 1990 after gaining its independence from South Africa, and was a founding member of SADC in 1992. It signed the SADC Trade Protocol in 1996 and became one of the first SADC countries to ratify the SADC Trade Protocol in 2001. By ratifying the protocol, countries bind themselves to the requirement of the protocol, which is mainly the gradual reduction of tariffs to make way for the free trade area in 2008. Through the Trade Protocol, SADC intends to establish a free trade area in 2008, and the Customs Union in 2010. Namibia has since deposited the instruments of implementation of the Trade Protocol with the SADC Secretariat, which is a tariff ‘phasedown’ schedule over the implementation period. The trade protocol is seen as the most important legal instrument in the region’s quest for economic integration. The gradual reduction of tariffs commenced in 2000 and the process is expected to take up to eight years. The BLNS and South Africa, being members of the Southern African Customs Union(SACU), have undertaken to implement the SADC trade protocol as a group, and they have been the main countries that have moved quickly in tariff liberalisation(fast liberalisers). Over 50% of products are now traded 47

duty free. Although Namibia does apply the tariff amendments as issued by South Africa Revenue Services(SARS) on a regular basis, the 2004 amendments to the SACU CET have not been gazetted. The delay with gazetting is due to internal capacity constraints given the bulkiness of the tariff book and the frequency of SACU’s tariff amendments. Namibian customs authorities are currently addressing this issue in cooperation with SARS 16 . However, a number of implementation issues still remain unresolved. According to the Ministry of Trade and Industry, outstanding issues remain in technical areas, such as the implementation issues relating to the rules of origins in terms of the local content of manufactured products. The key obstacle encountered in the process of implementing SADC regional economic integration is the definition of the Rules of Origin and the establishment of enforcement mechanisms for countries that are not adhering to the commitments they made. The mid-term review of the protocol conducted in 2004 indicates that tremendous progress has been made towards regional cooperation and integration among SADC countries, except for a few countries that are still struggling to implement the protocol, and that there has been an increase in intra-SADC trade in goods. 5.2 Trade Facilitation Initiatives D uring the negotiations and initial period of implementation of the SADC Trade Protocol, much of the focus was on reductions in tariffs. However, as the implementation proceeds, member states are becoming increasingly aware that Non-Tariff Measures are a substantial and growing barrier to intra-SADC trade and hence, to integration. Trade barriers can be classified into tariffs which are duties on goods entering and leaving the country, and non tariff barriers(NTBs) which are often rules, regulations, and standards that distort and limit trade. Although the rationale behind most trade arrangements is to reduce trade barriers with a view to promoting increased flow of trade between countries with the ultimate objective of achieving economic development, countries still devise barriers to protect local markets, mainly from competition by foreign firms. Non-tariff barriers are more serious obstacles to trade than tariffs because they are not transparent. 16 The Service Group, 2004 48

For the business community, it is difficult to factor them into their business plans. Like other countries in the region, Namibia continues to use tariffs and NTBs to restrict imports into the country with the aim of protecting domestic industries from competition and promoting import substitution industrialisation. Import duties work only as a trade barrier against competition from outside SACU. Therefore, non-tariff barriers are used to restrict imports also from SACU member countries, mainly South Africa. Non-tariff barriers come in various forms, ranging from quantitative restrictions on imports and exports such as licences and permits standards to customs documentation and related procedures, all of which often add substantial costs to cross-border trade. Namibia has imposed import and export restrictions on various agricultural products in accordance with Article 25 of the New SACU Agreement 17 . Maize may only be imported into Namibia once the Namibian harvest is milled, while wheat can always be imported. Maize and wheat flour are not allowed in the country, in order to protect Namibia’s milling industry. It is anticipated that the staple diet for the majority of people, namely millet, will be declared a controlled product in due course and be subject to the same regulations as maize. Since customs duty rebates are applied on wheat imports, it is not permitted to export wheat or wheat flour. An import permit is required for horticultural products and is only issued once proof is provided that 7.5% of the import quantity has been purchased from local Namibian producers. The import restrictions have benefited Namibian producers and processors of domestic crops and extended the value chain of agricultural products. However, consumers are to some extent paying the price in the form of higher costs for maize meal and other related products. The New SACU Agreement also allows for infant industry protection for a limited period of eight years. Namibia has made use of this clause twice to date, protecting its Ultra-High Temperature milk production (implemented in 2001) and pasta production(implemented in 2002). Additional duties are levied on the imports of these products and are due to SACU’s Common Revenue Pool. Despite these additional levies, the industries face tough competition from South African companies. 17 The following section draws on Schade, Klaus, Rehabeam Shilimela, 2005. 49

Export restrictions are in place for sheep exports on-the-hoof. Export permits require that for one sheep to be exported, two have to be slaughtered locally. Since domestic sheep prices are lower than South African prices, farmers are left with a lower income. At a recent meeting, farmers and the abattoirs agreed on a price that satisfied both parties. In addition, the export of unprocessed hides and skins is restricted and a levy is imposed to protect the domestic processing industry. Apart from these regulations, trade in livestock and meat products is virtually free. Other technical barriers to trade, such as standards, are many but appear to be reasonably well managed, not adding much to the costs of doing business 18 . Furthermore, in a survey conducted by NEPRU in 2005 as part of this project, businesses indicated that time-consuming customs procedures, high transport costs, risk of non-payment, and other bureaucratic procedures are the most relevant barriers to trade. The IMANI study identified further bureaucratic obstacles such as visa requirements imposed on professional staff. Business people are still required to obtain a business visa when travelling within the region. This can take several weeks to obtain by which time the business opportunity could be lost. Other barriers such as bans are posing a major problem for strategic imports of inputs into Namibia’s manufacturing sector. This underlines the point that the gradual removal of non-tariff barriers within SADC could have the potential to add impetus to the regional integration process by reducing the high costs associated with trade transactions. Therefore, trade facilitation plays a considerable role in deepening SADC integration. Namibia has taken some steps in this regard. Namibian customs authorities have introduced measures to minimise delays at border posts. The Ministry of Finance has introduced the ASYCUDA system at head office, and has also installed computers at customs border posts across the country. These measures are all aimed at increasing efficiency in the system in order to facilitate cross-border clearance procedures. Namibia has invested substantially in its infrastructure to attract investment and to strengthen trade with its neighbours. Becoming a transport hub for the region is one of the strategies developed within 18 IMANI, 2004. 50

the Poverty Reduction Strategy. The infrastructure of its two ports was improved and its main port – Walvis Bay – is linked through highways to neighbouring, landlocked countries. The Trans-Caprivi highway connects Namibia with Botswana, Zimbabwe, Zambia, and the DR Congo. The Trans-Kalahari highway provides an important route from Walvis Bay to the Gauteng Province via Botswana. To accelerate customs formalities at the Botswana border, authorities have agreed to implement fast-track customs procedures for registered haulage operators on a trial basis. Namibia and other SACU countries currently have a common document and appropriate supportive legislation handling transit procedures. 5.3 Namibia’s Trade Patterns T he country’s main trading partners are South Africa, the EU and the USA. The Namibian economy is very trade-dependent and the customs revenue from the SACU pool accounts for about a third of its tax revenue. Ores and minerals as dominant exports accounted for some 39% in 2004. Processed copper and refined zinc contributed an additional 3.5% to exports. Manufactured products, accounted for 33% in 2004, consisting mainly of processed fish(16%). Other important manufactured products are beverages and other food items (7%), as well as meat and meat products(4%). The advent of new, export-oriented manufacturing industries during 2003(textiles and garments, refined zinc), which resulted in a slight diversification of exports, could however not offset the decline in processed fish that is dominating manufactured exports. Finally, the importance of tourism for the domestic economy is reflected in the relatively high share of service exports – 17.8%. It can furthermore be reasonably assumed that with the emergence of new industries and hence new products being exported, the relevance of export destinations has changed, though slightly. Textiles are exported almost exclusively to the USA, benefiting from the preferential treatments under AGOA. Cut and polished diamonds are also exported to other destinations than raw diamonds. Raw diamonds produced by the De Beers group are distributed through its subsidiary Diamond Trading Company based in London. Thus, Great Britain 51

topped the list of export destinations. This has not changed as yet, since the diamonds that are cut and polished in Namibia are to a large extent bought in London and imported to Namibia. However, the intention is that diamonds mined in Namibia will be processed directly here, without the detour via London. Overall, the EU was the main export destination in 2002(48%) because of the exports of diamonds, fish, grapes and beef. South Africa followed with a share of 25%- mainly live animals(cattle, sheep and goats), beverages and other food products. These percentages changed significantly from 2002 onwards however, on account of the peace accord in Angola that led to substantial growth in exports, and the strong appreciation of the Namibia dollar against the Euro and USD in the following year. Subsequently the value in local currency of exports to Europe and the USA declined. Exports to SADC countries excluding SACU accounted for 6% in 2001 but rose to 23% two years later before they dropped to 16% in 2004. Though the figures look impressive, these exports are almost exclusively destined for Angola and are to a large extent re-exports from South Africa. The following factors have most probably contributed to the decline in the share of exports to Angola in 2004: more goods are imported through Angola’s ports from original sources resulting in a decline of Namibian exports; customs duties are now enforced at border posts in Angola, and manufacturing activities in Angola are gathering pace. Exports are hence highly concentrated on a few export destinations. SACU and SADC countries – with the exception of South Africa and Angola – have not featured prominently as export destinations. However, some Namibian exporters use distribution centres in South Africa from where goods are distributed across South Africa but could also be further forwarded to other countries, in particular Lesotho, Mozambique and Swaziland. Hence, actual trade with other SADC countries might be higher than the trade figures indicate. Exports to the rest of Africa and the rest of the world accounted for less than 10% during 2002 and 2003. Exports to SADC, excluding SACU countries grew by 53% on average between 1998 and 2004, substantially stronger than total exports(10.6%). However, this is exclusively attributed to a strong growth of exports to Angola for a short period of time(Table A 13). 52

Similar patterns are found on the import side. South Africa has always accounted for about 80% of all imports, followed by imports from the EU(between 8% and 10%). However, goods imported from South Africa are not necessarily produced there but can be sourced through South African wholesalers and importers from elsewhere. Imports from SADC countries, excluding South Africa account for about 1% of total imports. This can be attributed to the product range imported. Transport equipment(20%), machinery and equipment (16%), and chemicals(13%) are the main import items and are rarely produced within SADC except for South Africa. The trade data clearly indicates that SADC with the exception of South Africa is not yet a relevant trading partner for Namibia. However, some of the goods sourced from South Africa could in fact, originate from SADC countries. It is unlikely that this happens to a large extent, because of similar production patterns within SADC, and a lack of economic diversification. Imports from SADC countries grew by 10.7% between 1998 and 2004 and hence faster than total imports(9.0%), but imports from SADC countries picked up from a low level. Since SACU is a fast mover concerning tariff reductions within SADC, stronger growth of imports from SADC outside SACU could have been anticipated if SADC were characterised by a complementary production structure. However, there is no indication that tariff reductions have played a role. Imports from these countries appear to be rather sporadic and display considerable fluctuations. Secondly, imports are substantially influenced by two countries, namely Angola and Zambia. The surge of imports from Zambia could be related to copper imports that are further processed at the copper smelter in Namibia. Hence there is not yet evidence that tariff reductions within SADC have led to a shift in imports towards producers in SADC outside SACU. Namibia has incurred a trade deficit in many years, which however turned into a trade surplus during the first quarter of 2005. Because of the SACU transfers, Namibia recorded a current account surplus (Table A 22). 53

Figure 6: Namibia’s Current Account Balance Compared to the SADC Target Source: BoN Quarterly Bulletin 2003 June and Sept 2005 Foreign reserves covered the value of imports for an average of 9.5 weeks between 1999 and 2004. However, the import cover fell significantly from above 10 weeks to around 7 weeks during 2003 and 2004(Table A 17). Figure 7: Namibia’s Foreign Reserves in Months from 1999 to 2004 Compared to the SADC Targets Source: Bank of Namibia, 2004 54

5.4 Conclusion N amibia gives a picture of an open economy, in terms of import and export ratios over GDP. Over the period 1995 to 2003, the ratio stood at 60% and 46% for imports and exports, respectively. This is not surprising since it is a small, natural resource-rich country. Namibia exports commodities in raw or processed form and a few manufactured products for niche markets, but imports most of its consumer and producer products. The openness to trade, new trade agreements, as well as preferential access to some markets have not yet resulted in a rapidly diversifying economy. On the other hand, Namibia has not experienced significant external shocks from trade liberalisation. Namibian industries face the main threat not from trade liberalisation within SADC, but from established South African companies hence, from within the customs union. In particular, the Namibian dairy industry is under considerable pressure. This can in part be explained by the Trade and Development Cooperation Agreement between South Africa and the EU. Although the BLNS countries were not part of the negotiations, they are de-facto part of the agreement because of their membership of SACU. Customs duties on products from the EU are gradually reduced and increase the competitiveness of these imports. South African companies that experience stronger competition try not to lose market shares in neighbouring countries to newly-established industries. They reportedly sell their products at the same price or at even lower prices than in their own country, despite transport costs and additional levies on certain products. This indicates that trade liberalisation needs to be accompanied by the necessary legal framework to level the playing field between local and foreign producers and to curb unfair trade practices. A competition policy is required and the capacity to enforce it. Otherwise, trade liberalisation could result in a gradually less diversified economy – quite the opposite of what trade liberalisation is hoping to achieve. 55

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6 Labour Market Policy Framework A s stated earlier, Namibia inherited a highly unequal society at independence as a result of almost a century of colonial and apartheid rule. During this era, the majority of the population received only a very basic education. Subsequently, the workforce has been characterised by low levels of skills, which in turn resulted in a racially unequal distribution of employment opportunities, income and wealth. Low levels of skills go hand-in-hand with low wages and with unemployment. Furthermore, the dualistic society and economy has resulted in a formal sector with highly regulated working conditions and an informal sector with no labour regulations, leaving the workers unprotected and vulnerable to exploitation 19 . 6.1 Legislation regulating the labour market V arious pieces of legislation regulate the labour market in Namibia. The Government promulgated the Labour Act, 1992, amended in 2004, in order to improve the labour market conditions and protect the workers. The Act covers labour-related issues such as freedom of association, conditions of employment, collective bargaining, occupational health and safety, social security and other labour issues. The Namibian constitution prohibits discrimination on the basis of colour, sex, race or ethnic origin. However, this has not been sufficient to redress the situation on the labour market. Therefore, the Affirmative Action(Employment) Act of 1998 was implemented, specifically to target the inequity of employment opportunities and to promote the development and advancement of the previously disadvantaged in society. All companies with more than 50 employees are required to supply the Equity Employment Commission with annual affirmative action reports that outline the company’s plan to provide equal employment opportunities to the previously disadvantaged. Training programmes need to be designed to promote those previously disadvantaged into higher positions. The term ‘previously disadvantaged’ includes racially disadvantaged persons, women and people living with disabilities. 19 Ministry of Labour, 1997 57

Reports for 2004/05 indicate that about 31% of executive directors’ positions and 44% of management positions are occupied by the racially disadvantaged, although they account for the majority of the population. The figures for women stood at 13% and 25%, respectively. These figures indicate that much has remained unchanged in ensuring a representative workforce 20 . The National Vocational Training Act, No. 18 of 1994 regulates the training system in the country. It aims to develop a mass skills’ training programme in the country. The Act makes provision for the regulation of the training of apprentices and vocational trainees and provides for the establishment, powers and functions of a Vocational Training Board and trade advisory committees. It also provides for the establishment and approval of vocational standards, the designation of trades and the establishment and approval of training schemes in respect of such trades. The Act provides for the establishment of a National Trade Testing and Certification Centre, trade testing and certification of apprentices and provides for the registration of vocational training centres and for the imposition of training levies and the establishment of a Vocational Training Fund. The Social Security Act No. 34 of 1994 established the Social Security Commission that collects contributions from employers and employees to cover employees in the case of maternity leave, sick leave and injury at work, and pays death benefits to employees’ families. Namibia does not have a national minimum wage policy per se , but the Labour Act of 1992 which was amended in 2004 makes provision for the establishment of a wage commission that has not yet been established. It is on the basis of this provision that parties are negotiating minimum wages for workers in certain sectors. So far, unions and employers have signed minimum wage agreements in three sectors, namely construction, agriculture(farm workers) and security services(security guards). The new Labour Act of 2004 further suggests that the wage commission looks into issues of income policy. The low levels of skills in the country and subsequently the lack of skilled and qualified personnel have resulted in foreigners being employed in the country. The procedure of getting a work permit, however, is cumbersome. Applications with the necessary documentation are screened by the Ministry of Home Affairs, and the 20 The Namibian, 30 Sep. 2005:5. 58

Immigration Selection Board finally decides on the application. The procedure takes at least six months, and often more than a year. The employment of non-citizens and the migration of labour are addressed under the Immigration Act of 1994. The government is currently working on the Employment Service Bill that will address the employment of foreign nationals. Overall, labour market legislation is regarded as too rigid. The recent amendments to the Labour Act include an increase in annual leave days to 24, additional compassionate leave of five days each for the death of defined family members, changes in payments during maternity leave and severance pay. These regulations are regarded as unfavourable for creating employment opportunities. Combined with the impact of HIV/ AIDS that results in lower productivity and hence, higher labour costs, the legislation may support capital-intensive production methods rather than attract labour-intensive industries. Minimum wages have been determined for a few industries such as construction and agriculture, but are once again on the agenda. Experience with minimum wage issues is generally mixed, and the chief challenge is to get them right. If set too low, they won’t have an impact, and if set too high they will result in high production costs, leading to increased capital-intensive production techniques. Thus, increased unemployment could be the result, and micro- and small-sized companies could be pushed into the informal sector to avoid the regulatory framework. A SADC-wide labour market policy framework could avoid the temptation of lowering labour standards in individual countries in order to attract much-needed investment. However, the RISDP acknowledges at the same time that any framework needs to support a competitive market. It furthermore needs to take cognisance of the specific situation of each country’s labour market. 6.2 Labour Market Trends 21 E conomic growth rose substantially after independence but then slowed down towards the end of the first decade. On the other 21 The analysis is primarily based on the Labour Force Surveys of 1997 and 2000. Data from the most recent Labour Force Survey(2004) is not yet available. 59

hand, population growth declined from 3.1% in 1991 to 2.6% in 2001, according to the respective Population and Housing Censuses 22 . These should have been favourable conditions for a reduction of unemployment in the country. However, unemployment remained at a high level of about 31% in 2001, although it had shown some decline compared to previous years. Developments have been rather mixed. New industries such as the zinc refinery and the textile industry have created roughly 8,000 jobs. Additional jobs are created in the service industries owing to increased demand, for instance, for transport services. On the other hand, the agricultural, and more recently the fisheries sectors have laid off workers. Workers in the fisheries sector have been retrenched because of strong competition, resulting in part from a strong local currency and increased oil prices. While there was cautious optimism that the unemployment rate had dropped, preliminary results from the 2004 Labour Force Survey indicate a considerable increase again – to 36.7%. This was unexpected, and a thorough analysis of the Labour Force Survey data is needed in order to establish the causes for this rise. Furthermore, preliminary results from the National Household Income and Expenditure Survey 2003/04 suggest a substantial drop in income inequality and income poverty. These results contrast with the rising trend of unemployment. Table 1: Labour Force, Employment and Unemployment, Various Years Year 1991 1 1993/94 2 1997 3 2000 4 2001 5 2004 6 Employed 388,014 350,280 401,203 431,949 409,591 Unemployed 91,765 84,398 97,121 109,598 185,258 Labour Force 479,779 434,678 498,324 541,547 594,849 Unemployment rate(Broad) N/A N/A 34.5% 33.8% 31.1% 36.7% Sources: 1 Republic of Namibia. 1992/93; 2 National Planning Commission. 1996; 3 Ministry of Labour, 2001, 4 Ministry of Labour, 2002; 5 Republic of Namibia, 2003, 6 The Namibian 24 May 2006 22 Government of the Republic of Namibia, 1992 and 2003. 60

The agricultural sector is the major employer in Namibia, accounting for 29.3% of all employees(Table A 19). Most of these jobs are provided by the traditional agricultural sector, while the commercial agricultural sector contributes only about 30,000 jobs. The agricultural sector is followed by the public sector and the wholesale and retail trade sector. The mining sector that contributes significantly to foreign exchange earnings and government revenue employs less than 1%. Government is the single largest employer with some 90,000 funded posts for the 2005/06 financial year. It is followed by the textile company with about 7,000 jobs, which are however currently under threat. Women are more affected by unemployment than men(39% compared to 28% in 2000). Most striking is the impact of educational attainment on employment status. 36% of the labour force with only primary education is unemployed, compared to 42% with junior secondary(Grade 8 to 10) and 34% with senior secondary education. Persons with no formal education are less affected – only 23% are unemployed. A possible explanation is that these are older persons staying on farms, and are thus employed or self-employed in the traditional agricultural sector, while people with some degree of formal education migrate to towns and industrial centres in search for work and a better standard of living. A good education almost guarantees a job. The youth is hardest hit by unemployment. Almost half of the age group 15-19 years is unemployed. The rate drops dramatically the older the people are. From the mid-thirties, the unemployment rate falls to 10% and below. Youth unemployment is thus a major challenge to the country. A report on the informal economy 23 revealed that there are some 85,000 informal businesses in the country employing some 132,000 people. Most of these businesses are run by women(53%) and by people with relatively low educational attainments. Employees in this sector share the same characteristics – they are mainly women(54%) with less than secondary education(63%). This is indicative of the informal sector being a ‘push’ sector rather than a ‘pull’ sector. The informal sector is apparently not a sector of choice but a sector people are pushed into because they can not find employment in the formal sector. 23 Republic of Namibia, 2004 61

6.3 Causes of Unemployment T here are a few factors that could explain the high rate of unemployment in the country. The economy is characterised by natural resource extraction that is highly capital intensive(mining, fisheries). The commercial agricultural sector is laying off workers in order to stay competitive, while the subsistence agricultural sector remains an employer of last resort. The introduction of a minimum wage for farm workers has reportedly contributed to retrenchments on commercial farms. Furthermore, cattle farms have been turned into game farms and hunting lodges, often requiring fewer employees than before. Moreover, they become part of the tourism sector if they stop livestock farming at all. Relatively new manufacturing activities such as textiles, diamond cutting and polishing, have had a positive impact on the labour market. However, the value chain of Namibia’s raw materials needs to be extended in order to add further value and create employment. One of the main challenges facing the manufacturing sector is the small and dispersed population coupled with a highly skewed income distribution that limits demand. In particular, newly established companies face stiff competition from well-established and capitalised South African companies, not only on the domestic market but also abroad. Because of its limited size and range of products, the manufacturing sector contributes just 5% to employment. So far, investment – both domestic and foreign – has not been sufficient to significantly alter the situation on the labour market. In a similar vein, Namibia’s economic growth has not been particularly employment creative 24 . GDP in constant prices grew by 11% between 1997 and 2000, while employment increased by 8%(Table A 19). One of government’s priorities is to strengthen the SME sector in the country. Various initiatives have been started, such as credit schemes for instance. However, no systematic survey has been carried out to evaluate the impact of these initiatives and the extent of the sector. Poor access to finance is still cited as one of the major obstacles to growth in the economy and consequently to employment creation. Most new businesses are SMEs and do not have sufficient track records or collateral to secure loans from local banks. The establishment of 24 Bank of Namibia, 2004 62

the Development Bank of Namibia in 2004 is expected to ease access to finance, at least for medium-sized companies. One major hindrance for employment creation is the low skills’ level in the country. Government has prioritised education in general, but has also identified investment in skills’ development and training as a major task for NDP2 25 . The lack of skills results in relatively low productivity and premium pay for skilled and qualified personnel. Finally, it affects competitiveness, and hence limits further employment creation. Furthermore, the labour market is characterised by a high degree of regulation. The Labour Law 2004 includes provisions, for instance, for extended annual leave, compassionate leave, maternity leave, severance pay and payment of outstanding leave on termination. While it is necessary to protect workers’ rights, rigid labour laws prevent job creation, because they increase the cost of labour relative to capital. High labour costs act also as a barrier for SMEs to enter the formal sector. A strongly regulated formal sector can thus result in a growing informal sector with negligible protection for employees. Finally, scarcity of skills and low productivity are further worsened by the impact of HIV/AIDS. The prevalence rate was calculated at 19.2% for 2004. Absenteeism is increasing because of illness, as well as caring for infected family members and attendance at funerals. Investment in training often fails to produce the anticipated returns, since productive life is much shorter than anticipated. In order to gain from additional investment as a result of regional integration, weaknesses the Namibian labour market displays, such as low levels of skills and a high degree of regulation, need to be addressed in a balanced manner that takes account of workers’ rights and the competitiveness of companies. If the labour market is not competitive within the region, Namibia will lose out to other more competitive countries. 25 Government of the Republic of Namibia, 2002 63

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7 Social Development W ith independence in 1990, the government inherited a dualistic society that deprived the majority of the population of access to basic needs. As a result, the largest shares of the national budget have been allocated to the health and education sectors to redress these imbalances that have reduced the potential for economic growth. Primary education and primary health care have been prioritised. Clinics (rather than hospitals) and schools have been built in rural areas. Progress is reflected in some education and health indicators. Net enrolment rates and literacy rates have improved, as have mortality and immunisation rates. However, the scourge of the HIV/AIDS pandemic has resulted in a significant drop in life expectancy, wiping out progress made during the early years of independence. Life expectancy stood at 48.3 years in 2003, down from 57.5 years in 1990 26 . The decline explains the lower Human Development Index (HDI) for Namibia in 2003(0.627 compared to 0.644 in 1998) and the drop in its worldwide ranking from place 107(1998) to 125(Table A 20). However, the well-being in international comparison improved slightly in 2003 compared to 2002, mainly because of an increase in life expectancy from 45 years(2002). The roll-out of anti-retroviral treatment for persons living with AIDS is expected to increase life expectancy further, and eventually raise the HDI. Regional discrepancies reflect the legacy of the past that continues to exist. The HDI ranged between 0.52(Caprivi region) and 0.71 (Erongo region) in 2000. Life expectancy varied between 32.6 years and 47.2 years respectively, while the adult literacy rate was lowest for the Omaheke region(64%) and highest for the Khomas region (94%). Although the government has invested substantially to build new schools and clinics in rural areas and to improve the infrastructure, these areas are often still less well equipped than urban areas, and as the data illustrate, some regions are still much better off than others. It remains a challenge for government to address these discrepancies. HIV/AIDS poses the biggest threat to the social progress of Namibian society. The HIV prevalence rate dropped from 22%(2002) to 19.8%, in 2004 but it is too early to say whether this marks a reversal of the trend. Part of the decline can be explained by the inclusion of three 26 UNDP, 1993 and 2004 65

additional testing sites, of which two revealed a below-average prevalence rate. Excluding these three additional sites, the rate would have dropped to 20.3%. However, since the prevalence rate expresses the proportion of HIV + persons over the total population, the treatment programmes should actually result in an increase in the prevalence rate over the next years as HIV + persons live longer. Only when the incidence rate drops will the prevalence rate eventually fall as well. Therefore, current trends of the prevalence rate need to be analysed with caution. After introducing a pilot programme in two hospitals, the government has recently spread the programme to prevent the transmission of HIV from mother to child to all thirteen regions. Data on the impact the programme has on the infection of infants is missing since the programme started only recently. In addition, about 16,000 persons receive anti-retroviral treatment in public health facilities out of an estimated 40,000 people in need. Increased cross-border traffic and migration as a result of stronger regional integration could further contribute to the spread of the pandemic. SADC-wide efforts will therefore be urgently needed to contain the spread, if the population is to benefit from regional integration. Overall, there is a good chance that Namibia will achieve most of the MDG indicators for 2006(Table A 21). The exception is the fight against HIV/AIDS that has not yet been won. It remains to be seen whether the downward trend of the prevalence rate as described above is continuing. Expenditure priorities have not changed over the years. Namibia does not have to undertake Structural Adjustment Programmes, nor change its monetary and fiscal policies in order to achieve the SADC Convergence targets, through more robust growth is required. Therefore, changes in social indicators are the result of factors other than macroeconomic policies. There are indications that efficiency in both sectors could be increased, such that a decline in revenue and allocations will not necessarily result in a decline in the quality of service delivery. Tools are put in place, such as output indicators, to monitor the efficient and effective use of public resources. 66

Income Distribution As indicated earlier, Namibian society is characterised by a highly skewed income distribution, reflected in a Gini-coefficient of 0.6 based on the 2003/04 household survey. A progressive tax system including a tax threshold for the first N$24,000 earned per annum and a zero VAT rate for the staple foodstuffs, millet and maize, are two tax measures employed to address this imbalance. Poor households in particular, benefit from various social transfer schemes, such as non-contributory social pensions, pensions for ex-combatants that are paid in addition to the social pensions, and foster parent grants. Social pensions, in particular, contribute greatly to the income of households in rural, communal areas. Although pensions are meant to improve the standard of living of the elderly, in actual fact they benefit the whole extended family living with them. Furthermore, employees in the formal sector benefit from a social security system that includes sick leave benefit, maternity leave benefit, and death benefit. The social security scheme does not reduce poverty directly, but it prevents households from falling straight into poverty in any of the events covered by the system. Contributions to this system are shared equally between the employer and employee. The system is therefore not dependent on the income of government and payouts will not be affected by the fiscal policy. Initial results from the latest National Household Income and Expenditure Survey conducted during a twelve-month period in 2003 and 2004 indicate a decline in income inequality and poverty. The Gini coefficient dropped from 0.7(1993/94) to 0.6(2003/04), while the incidence of poor and severely poor households declined from 29.1% and 8.7% to 24.0% and 3.9%, respectively over the same period 27 . A thorough analysis is needed to identify the factors that have contributed to the positive trends, since economic growth has not been strong enough to increase employment in the formal sector significantly. Little is known about the informal sector. A decline of revenue could reduce allocations to social sectors. So far, they have been spared from cuts resulting from the unforeseen drop in revenue. However, the government has cited financial 27 Republic of Namibia, 2006:32 67

constraints at various times as the reason for not increasing social transfers. If social transfers were bound to the inflation rate, recipients would not face a decline in the standard of living in times of revenue constraints and/ or high inflation rates. Overall, since Namibia is performing relatively well concerning the convergence criteria, and since therefore, there is no need for strong adjustments of monetary and fiscal policies, it is anticipated that government could continue pursuing its social priorities. It is particularly important to address income inequality to stimulate and strengthen the domestic economy. 68

8 Environmental Challenges N amibia is an arid country, dominated by the Kalahari Desert in the East and the Namib Desert in the west. There are no perennial rivers within its borders. Mean annual rainfall varies between 600mm in the north east of the country and less than 100mm in the south and west. 25% of the country’s surface is classified as desert and receives less than 25mm rainfall per annum. The average figures cover highly variable rainfalls within regions and between years. But even if the country receives average rainfalls, crop production can be severely affected by longer drought spells. Since the rainfall season – except for the south – is concentrated during summer and hence the hottest months, immediate losses through evaporation amount to 83% 28 . Government is aware of this fragile environment and has therefore included protection of the environment in the Constitution. Sustainable development is furthermore one of the cornerstones of Namibia’s longterm Vision 2030 and is part of many national policies, such as Namibia’s Green Plan. An Environmental Management and Assessment Bill as well as the Integrated Pollution Control and Waste Management Bill, among others, are being currently drafted 29 . With the policies in place, capacity needs to be built to monitor adherence to the policies. Government has declared approximately 17% of Namibia’s land area as protected areas that are used as National Parks. Not all of these areas are accessible to visitors. Its wetland areas in the south at the mouth of the Orange River have received international recognition as a Ramsar site. However, despite these protections, indications of a loss of biodiversity exist in both communal and commercial agricultural areas. Wildlife numbers have declined because of population pressure in communal areas, while certain predators are nearing extinction in commercial areas, such as lions, wild dogs, white-headed vulture, bateleur and the Cape vulture 30 . However, the implementation of conservancies, particularly in communal areas increases the awareness of the value of wildlife among the population and the benefits they reap from it through tourism. Conservancies are managed by communities, and they receive income from hunting licenses or other 28 UNDP, 1998:37. 29 Office of the President, National Planning Commission, 2004, Namibia 2004 Millennium Development Goals. 30 UNDP, 1998:53. 69

tourist expenditure. The area covered by conservancies increased from zero(1990) to 4.9% in 2001. It is probably ambitious to achieve the target of 10.9% in 2006. More commercial farmers have also discovered the value of wildlife in order to attract tourists. Thus, it can be seen that tourism can contribute to sustainable wildlife management and biodiversity. Tourism also has its drawbacks, however. It puts further pressure on scarce water resources in arid areas that tourists visit to enjoy unique landscapes. Off-road driving causes severe damage to flora and fauna, and in particular to the populations of certain birds that breed on the ground. Finally, many tourists at the same spot and at the same time, reduce the value of the pristine landscape and wildlife and can result in long-lasting negative impacts. Tourist arrivals have increased more than sevenfold since independence, from fewer than 100,000 to more than 750.000 in 2002 31 . However, the number is based on the internationally agreed definition of a tourist; namely a person who spends at least one night in a foreign country. A significant number of people from neighbouring countries, notably Angola, come to Namibia for business and not for leisure and do not therefore increase the pressure on a unique and fragile landscape. But even when they are excluding them from the total number of arrivals, the number of actual visitors coming for leisure has substantially increased. Since the tourism industry is an important contributor to foreign exchange earning and to direct and indirect employment, it needs to be managed carefully to make it sustainable. Water is seen as one of the most limiting factors for further economic development. As stated, rainfall is highly variable and unpredictable; underground aquifers are feeling the pressure of increased water consumption, and perennial rivers are far away from industrial centres and major towns. The intensification of agriculture is limited by low soil fertility, low water retention capacity and a low content of humus 32 . In the communal areas in the north and northeast, soils are usually of a better quality than in the commercial areas. However, there is a lack of proper land management since no land title exists. The community also uses the land for grazing. This system supports the over-use of land, especially 31 Republic of Namibia, Ministry of Environment and Tourism, 2005, Statistical Report 2004, p.12 32 UNDP, 1998:49 70

around water points. The growing population in communal areas results in more land being used for farming, leading subsequently to deforestation. Wood is not only used as building material for homesteads, but also for cooking, and grows more slowly than it is cut. Eventually, this contributes to soil degradation and a loss of biodiversity. Wide tracts of the commercial areas are characterised by bush encroachment, which limits soil fertility and hence the carrying capacity of the land. Efforts are underway to combat bush encroachment, in particular invader bushes. Given the soil and climatic conditions, livestock and traditional crop farming(of maize and millet) can seldom be extended. There is probably the potential for high-value crop production(such as table grapes and dates) under irrigation along perennial rivers or close to dams and for horticultural production. If there are no competing water consumers, irrigation schemes for traditional low-value crops(maize, wheat) could be considered since it would induce downstream activities such as milling which adds to the value chain. Increasing traditional agricultural production would increase the pressure on the environment and result in soil degradation in the medium term. New crops need to be identified where Namibia has a comparative advantage. Before Independence, Namibia’s fish stocks were subject to overexploitation. After independence, a strict management system was introduced based on scientific evidence on the biomass available. Fishing quotas are then allocated to fishing rights’ holders and controlled by ministry officials deployed on fishing trawlers. Adverse oceanic conditions, however, affect the biomass and fish stocks. Among them are phyto-plankton blooms, sulphur eruptions and regional and global climate change 33 . While water pollution from industrial activities are not yet pronounced, the impact of increasing offshore diamond mining activities on the food chain needs to be monitored. Because of the vulnerability of marine fish stocks, aquaculture farms are regarded as means to create employment and diversify the economy. Several projects have started, but here as well, the ecological impact needs to be monitored. Water evaporation and pollution from the fodder and chemicals used are two of the environmental challenges the new industry could face. 33 UNDP, 1998:65 71

Mining activities often cause considerable environmental damage if not managed and rehabilitated properly. After independence, proper mechanisms were put in place to minimise the impacts of mining activities on the environment. These rules and regulations were generally adhered to. However, about 240 mining sites from earlier times exist that were abandoned without rehabilitation or removal of equipment 34 . With the right tools in place, and skilled mining inspectors monitoring the mines, the potential environmental impact of mining activities could be minimised. The capacity to monitor offshore activities needs to be increased since this is a new area. So far, it is limited to offshore diamond mining activities, but there is a high probability that offshore gas reserves will soon be exploited to fuel a power plant. Namibia has put policies in place that support the sustainable use of its natural resources. Environmental challenges are created by a growing population and its demand for land for survival, and by additional economic activities that result in pressure on scarce resources such as water, rather than through monetary or fiscal policy decisions of the government. Since Namibia’s economy is based on a fragile environment and scarce water resources, any strategies aimed at increasing economic growth to achieve the SADC target of 7%- and Namibia’s own ambitious Vision 2030 – need to take cognisance of the limiting environmental factors. For instance, water-intensive industries are only an option at perennial rivers that mark the borders in the north and south to Namibia’s neighbours, or if water recycling production techniques are applied. Table 2: Progress Towards Achieving the MDG Environmental Targets 1990 Protected Areas 13.6 Registered Conservancies 0.0 Freehold Land 5.0 2001 2006 MDG target 6.8 15.1% 4.9 10.9% 6.1 8.5% Source: Office of the President, 2004:31 34 UNDP,1998:58-61 72

9 Namibia’s Deeper Integration: Problem and Prospects R egional integration, and trade liberalisation in general, offer both opportunities and challenges. Whether the costs or the benefits of integration dominate depends on the strength and weaknesses of an economy, and thus its ability to react to new challenges. The following chapter attempts to highlight the strengths, weaknesses, opportunities and threats. 9.1 Strengths Political framework A major strength that augur well for economic growth is Namibia’s political stability. Namibia is a multi-party democracy based on general elections conducted every five years at regional and national levels. The founding president handed over power to his successor after three terms, since the Constitution does not allow for serving more. The transition was smooth and without any disruptions. Elections in Namibia are generally seen as free and fair, though the results of the last elections in November 2004 were contested in court. The court ruling, which ordered a recount, once more underpinned the independence of the judiciary. Namibia is a member of various regional groupings and international organisations. These memberships increase the predictability and credibility of its policies, in particular its monetary policy and exchange rate regime. Namibia’s membership of the CMA for instance, cushions the impacts that external shocks can have on macroeconomic indicators. Despite recent reports about mismanagement and corruption, Namibia continues to rank favourably in the worldwide Corruption Perception Index. An Anti-Corruption Commission has been established and it commenced work early in 2006. The lack of such a commission was often cited as a reason for corruption not being dealt with appropriately, although it had been one of the mandates of the Office of the Ombudsman. The office, however, lacked the necessary resources to effectively fulfil its mandates. 73

Adequate policies are designed and put in place to address the major challenges of the country, although mechanisms of monitoring and evaluation of policies are often lacking. Economic framework A further factor in Namibia’s favour is its good and reliable infrastructure. Roads, including gravel roads, railway lines, airports, and seaports are in good condition and provide access to every corner of the country. The water, electricity and telecommunication networks work reliably and cover an increasing proportion of the country. Namibia enjoys increasing, often preferential, market access owing to its membership of various groupings of countries, such as SACU, SADC, and the ACP countries. It benefits from preferential access to the EU and USA, through the Cotonou Agreement and AGOA, respectively. Further trade negotiations with Mercosur, EFTA, Nigeria, India and China could open up more markets. However, the capacity to exploit these opportunities, in the private as well as public sector, is often limited. Namibia has recently received a positive independent credit rating of BBB- that is expected to support the positive view of Namibia as an investment destination. On the other hand, the latest Competitiveness Report 2005 revealed several weaknesses that have resulted in Namibia being ranked less favourably then in previous years. These weaknesses need to be addressed in order to attract investment. 9.2 Weaknesses A s indicated, some of the strengths are undermined by weaknesses. Although some policies are designed and put in place, the capacity to implement, monitor and evaluate them is often limited. In addition, policy design is not always well co-ordinated amongst ministries. The multitude of institutions, with partly overlapping responsibilities, contributes to efficiency losses. Furthermore, unnecessary bureaucracy, favouritism by government officials and an increase in corruption, are all cited as reasons for Namibia’s plunge in its competitiveness ranking, from 52 position(2004) to 63 out of 117 countries in 2005 35 . 35 The Namibian, 3 October 2005:3 74

The weak capacity of implementing policies mirrors a general lack of skills and qualifications in the country, which can in part be explained by its legacy. Capacity building is therefore a priority in order to increase labour productivity and eventually the competitiveness of Namibian industries on the increasingly globalised market. The limited capacity also infringes on Namibia’s capability to safeguard its industries against unfair trade practices. The necessary institutions need to be established and capacity within these institutions needs to be built to mitigate the negative impacts of trade liberalisation. National statistics need to be up to date, released in good time and reliable. Reliable statistics are vital in proving unfair trade practices: for instance, the surge in imports of a specific product that could be used to invoke quantitative import restrictions. The small market size is a challenge businesses face. Namibia has a population of 2 million, and a significant proportion lacks the purchasing power to stimulate domestic demand. Furthermore, the population is dispersed over a vast area with an average population density of about 2 persons per square kilometre. Hence, businesses have to be outward-oriented to exploit economies of scale. To penetrate foreign markets successfully, supply-side constraints need to be addressed. Despite preferential access to the EU market, for instance, Namibia was not always able to exploit its beef quota or increase its overall market share in the EU. Namibia benefits from a well-developed telecommunication infrastructure that covers a large part of the country and allows access to worldwide information. However, the costs are reportedly high compared to other countries. This reduces the competitiveness of businesses and limits the access, in particular of micro, small and medium-sized enterprises to market information. Finally, Namibia’s manufacturing base is not strongly diversified, although more goods are produced locally than was the case a decade ago. Government’s procurement system, as well as focused and simplified incentive schemes, could support the broadening of the manufacturing base. 75

9.3 Opportunities S tronger regional integration provides several opportunities for Namibia. For a small country, the membership of regional groupings increases its negotiation power and the chance of its voice being heard in the international arena. The interest of Namibia will therefore be better served in international forums than if it were doing it alone, as issues are taken up at the regional level. Because of Namibia’s small market size, domestic and foreign investors have to look across the borders. Duty free access to larger markets in the region, coupled with a well-developed and reliable infrastructure could attract investment country; and this will contribute to the diversification of the economy and creation of employment opportunities. The harbour of Walvis Bay could stimulate further investment in development corridors along the routes to neighbouring countries such as Botswana, Angola, and Zambia and further on to the DR Congo. Increasing cross-border trade with neighbouring countries could further open opportunities for value adding industries. Access to additional sources of raw material could spur the processing activities of agricultural and mining products and lead to further forward linkages. For instance, the Namibian copper smelter sources copper from Zambia and the DRC. New downstream developments could emerge from an increased output, such as the production of wire and other related material. More of these business ventures could be explored. A suitable policy framework needs to be in place to support such developments. Currently, the South African Reserve Bank determines monetary policy within CMA with little influence from the LNS countries. A higher degree of integration within SADC resulting in a common central bank, which could start with a common central bank for the CMA, would increase the influence of smaller economies on regional monetary policy. A common monetary policy would further enhance monetary and fiscal discipline within the region and could improve the ratings of the region and individual member countries by investors. 76

9.4 Threats A major threat arising from deepening regional integration and trade liberalisation is linked to institutional and capacity constraints in Namibia. If policies and institutions are not in place to monitor impacts, and if capacity is not built to implement and enforce these policies, Namibian industries could face increased pressure from unfair trade practices, such as predatory pricing. Since the Namibian market accounts for only 4% of the South African market, there is a risk, for instance, that well-capitalised South African companies could try to capture a larger market share in Namibia by squeezing out local companies. Furthermore, the capacity at border posts to control the influx of goods effectively and to categorise the goods correctly according to the Harmonised System needs to be increased. Infant industry protection within the SACU agreement and the application of import restrictions due to a surge in imports of a specific product or product group is hindered by the lack of correct customs data. If the capacity to effectively control cross-border traffic and enforce trade rules and regulations does not exist, certain Namibian industries, such as the dairy or beverage industries, might be threatened. These threats go beyond the specific industry and would have impacts on the whole value chain. Entering into too many trade negotiations at the same time, without a thorough assessment of the impact on the domestic economy and without a profound analysis of potential gains could result in negative rather than positive impacts on the domestic economy. Closely linked to the aforementioned threat is the lack of skills in the country. Without increasing the skills’ level of the workforce and attracting skilled labour, income will not increase and hence, the standard of living would not rise. Eventually, the domestic demand would then stagnate. Furthermore, the country would not increase its attractiveness to foreign investors and its competitiveness. In this way, Namibian industries would be vulnerable towards growing foreign competition. There is not only a scarcity of skills in Namibia, but there are too few forward- and outward-looking entrepreneurs, who grab the new opportunities that trade liberalisation and regional integration offer. The intention of the Ministry of Education to replace Business 77

Administration with Entrepreneurship Education in schools, is a step in the right direction towards promoting entrepreneurship. The spread of HIV/AIDS poses various threats to Namibia’s development objectives and to macroeconomic developments. The pandemic affects efforts to build an educated and skilled workforce. Investment in human resources results in lower returns than anticipated and could lead to lower investment, especially by the private sector. In addition, the cost of labour is increasing because of a decline in labour productivity and could support capital- rather than labourintensive production techniques, despite the abundance of labour available in the country. Subsequently, economic growth would not result in an increase in employment and a reduction of poverty. Finally, demand for consumer goods is expected to decline because of increased expenditure for health-related goods and services. Government’s finances can be affected on both sides: a decline in revenue from taxes on individuals, and an increasing demand to finance health expenditure. This could crowd out other essential expenditure on education, social transfers or infrastructure. Increasing the deficit to finance additional expenditure is not an option, since it would result in growing statutory expenditure and reduce government’s fiscal flexibility. Therefore, concerted efforts are needed to contain and ultimately slow the spread of the disease. Unemployment rates and income inequality continue at a high level in Namibia. Both need to be addressed not only because these factors subdue domestic demand, but also because they could lead to rising social tensions and subsequently disturb the business climate 36 . The relatively new textile industry, a major employer in the country, is in limbo due to the termination of the Multi Fibre Agreement, and also because of the strong currency. Despite the reportedly low wages paid, income from employment in the textile industry induces further economic activities. The industry also contributes to export earnings since all of its produce is exported. A collapse of the industry would have an impact on the employment situation in the country and on government revenue. Taxes on the income of individuals and on companies’ profits not be directly affected since the workers earn less than the tax threshold and the textile companies are granted EPZ status and hence do not pay taxes, but income from VAT and from taxes on 36 Hansohm, D., 2005. 78

the profits of other companies that would feel a reduction in demand, will be affected. Finally, it would diminish hopes in further backward and forward investment. The low degree of diversification of Namibia’s economy makes it vulnerable to external shocks, such as currency fluctuations or demandside shocks. As experienced during the financial year 2003/04, these shocks have significant implications for government revenue and the deficit. Furthermore, although the sector is slowly diversifying, the manufacturing sector is dependent on inputs from the agricultural and fisheries sectors. Any adverse climatic conditions will negatively affect processing activities in the country, employment, and ultimately government revenue. Improved forecasting skills that take cognisance of the vulnerability of these sectors are needed to estimate revenue. Otherwise, Namibia risks exceeding the respective SADC convergence criteria. Finally, closer integration in the region implies that Namibia will to a greater extent be affected by events within the region. Economic and political instability in other member countries will have greater impact on the domestic economy and a stronger impact on investment decisions. It is therefore in Namibia’s best interests to ensure that other member countries adhere to the principles of good governance and prudent macroeconomic policy to contain any threats that instability in other countries could present for Namibia. 9.5 Conclusions A s a small economy, Namibia depends on export markets to expand its economic activities. Further regional integration can play a significant role. Namibia is already closely integrated within the region through its membership of SACU and the CMA and has surrendered some of its autonomy to these groupings. These memberships have contributed to Namibia’s achievement of most of the crucial SADC target indicators, namely inflation rate, budget deficit, external debt and savings ratio(Table A 22). Macroeconomic adjustments are rarely needed and negative impacts on social development and the environment caused by any adjustments are not thus far anticipated. Namibian industries are already exposed to stiff competition from South African companies. It is therefore assumed that opening the borders 79

to further competitors from the region would not pose insurmountable challenges. However, in order to actually gain(and not simply to avoid losing) from regional integration, Namibia has to strengthen its foundations. The weaknesses need to be addressed. In particular, institutional capacity needs to be enhanced to identify opportunities from regional integration as well as to control and effectively the influx of goods, in order to protect domestic industries from unfair trade practices. National competition policies need to be harmonised and institutions be created to enforce them effectively and efficiently. A major obstacle to increased trade within the region is the lack of information about business opportunities. By and large, little is known about industries in other member countries, about their products and the inputs needed. The SADC secretariat could initiate a web-based database containing information about suppliers of goods in the region. It could furthermore, consider supporting companies to participate in trade fairs in the region or even establish SADC trade fairs. These would be good opportunities for companies to get in touch with potential customers in the region or to join forces. Increased public relations’ efforts are needed to inform the SADC population about member countries in general, and businesses in particular. This would help shift the focus from existing traditional business links to new opportunities. The SADC National Committee could play a vital role in disseminating information, in cooperation with the Namibian Chamber of Commerce and Industry. Exploring new markets abroad always entails risk for companies. New partners are unknown, particularly their reliability in fulfilling contractual obligations. Non-payment by new customers could pose a serious threat, especially for small and medium-sized enterprises. National governments or the SADC secretariat could consider establishing an export insurance to cover some of the risks inherent in venturing into new markets. If these issues are addressed, Namibia could benefit more from regional integration and achieve higher growth rates through access to new markets. Higher growth rates are necessary, not only for compliance with SADC targets, but in order to achieve its own Vision 2030, and to successfully address the challenges of poverty reduction and reduction in income inequality. 80

10 Recommendations N amibia has achieved most of the SADC targets except the growth and foreign reserve targets that appear to be out of reach for Namibia at present. Namibia’s monetary policy and trade policy are largely determined at regional level – by CMA and SACU, respectively. The degree of influence of regional decisions varies between the two settings. through its new structures, SACU provides a higher degree of influence of the smaller member countries than the CMA. A review of the CMA structure could therefore be considered to broaden and deepen the consultative process, with the ultimate aim of establishing a regional central bank. A CMA central bank could become the anchor for SADC monetary integration. However, a thorough study is required to weigh the pros and cons of such a regional bank and to assess whether it would change the current decision-making structure. There would probably be a need to build capacity in the LNS countries in order to enable them play a role within the bank. Employment-creating economic growth, is key to achieving SADC’s macroeconomic targets and domestic policy objectives. Regional integration can result in stronger, as well as weaker economic growth, depending on the strengths and weaknesses of the economy. An analysis of capacity within the private and public sectors to exploit the opportunities provided by regional integration is essential. Such an analysis would ideally identify bottlenecks, and suggest a strategy for overcoming them. Namibia belongs to various regional groupings and international bodies. There is a risk that their aims and objectives are not always consistent. In addition, there are a number of domestic sectoral policies in place. A review of the process of designing policies and of consistency within the policies would result in an increased effectiveness of those policies. At the same time, there is a need to review the process of monitoring and evaluating the impacts of policies with the aim of adjusting them when the need arises. Regional integration is not simply about achieving certain economic indicators. It will only be meaningful if the people are involved and supportive of the process. A strategy needs to be developed to involve the public more extensively in the process, and to inform them regularly 81

on progress. Such an inclusive process would ensure that regional integration addresses the needs of the people, and ultimately benefits them. It would at the same time contribute to strengthening cooperation between the various institutions involved in, and affected by regional integration. 82

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World Bank, various years, World Development Indicators World Trade Organisation, 2003a, Southern African Customs Union Trade Policy Review. World Trade Organisation, 2003b, World Trade Report 2003 85

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Appendix 87 Table A1: GDP Growth, 1995 to 2008 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1995-99 2000-04 1995-04 4.1 3.2 4.2 3.3 3.4 3.5 2.4 6.7 3.5 5.9 3.2% 3.9% 4.0% 3.3% 3.64 4.40 4.02 Source: Republic of Namibia, Central Bureau of Statistics, National Planning Commission, 2005, Ministry of Finance, 2006 (Forecast for 2006 to 2008) Table A2: Interest Rates, 1999 to 2005 1999 2000 2001 2002 2003 2004 2005 11.50 11.25 9.25 12.75 7.75 7.50 7.00 Source: Bank of Namibia, 2005 Note: The interest rates refer to the rate at the end of the calendar year. Table A3: Inflation Rates, 1980 to 2005 1980-89 3 13.0 1990-95 3 11.8 1996 2 8 1997 2 8.8 1998 2 6.2 2000 1 9.3 2001 1 9.3 2002 4 11.3 2003 4 7.3 2004 4 4.2 2005 4 2.2 Sources: 1 Bank of Namibia, 2005, 2 Republic of Namibia et al., 1998; 3 Republic of Namibia et al., 1996; 4 Republic of Namibia et al., 2006 Table A4: Exchange Rate, Namibia Dollar per 1 USD, 1995 to 2005 1995 2 1996 2 1997 2 1998 2 1999 1 2000 1 2001 1 2002 1 2003 1 2004 1 3.63 4.3 4.61 5.33 6.11 6.8 11.5 8.9 6.5 5.7 Source: 1 Bank of Namibia, 2005; 2 Bank of Namibia, 1999; and 3 Bank of Namibia, Quarterly Bulletin September 2005 2005-Q3 3 6.5 Table A5: Gross National Savings Rates, 2000 to 2003 2000 2001 Gross National Savings Rate,% 27.50% 27.80% Source: World Bank, various years 2002 39.60% 2003 31.5%

Table A6: Gross Fixed Capital Formation, GFCF 1995 to 2004 1995 1996 1997 1998 1999 2000 2001 2002 GDP(N$ million) 12,706 15,011 16,751 18,789 GFCF 2,817 3,535 3,288 4,321 GFCF Ratio 22.2% 23.5% 19.6% 23.0% 20,684 23,690 4,760 4,460 23.0% 18.8% 27,686 32,908 6,073 6,964 21.9% 21.2% Source: Republic of Namibia et al., 2005 2003 33,840 9,867 29.1% 2004 36,901 9,286 25.2% Table A7: Investment by Economic Sector, 1995 and 2004 N$ Million Share in% 1995 2004 1995 2004 Agriculture 135 259 4.8% 4.8% Fishing 79 174 2.8% 3.2% Mining and Quarrying 302 Manufacturing 232 1068 10.7% 19.8% 1058 8.2% 19.6% Electricity and Water 64 398 2.3% 7.4% Construction 118 177 4.2% 3.3% Wholes 316 200 11.2% 3.7% Transport 207 643 7.3% 11.9% Finance, Real Estate 642 696 22.8% 12.9% Community Social Services 26 21 0.9% 0.4% Government Services 694 704 24.6% 13.0% 2,817 5397 100.0% 100.0% Source: Republic of Namibia et al., 2005 Table A8: Budget Deficit in%, 1999 to 2008 1999 1 2000 1 2001 1 2002 2 2003 2 2004 2 2005 2 2006 2 -3.3-1.5-4.5-2.5-7.2-3.6-1.1 0.3 Source: 1 Bank of Namibia, 2004; 2 Ministry of Finance, 2006 2007 2 -1.7 2008 2 -2.3 Table A9: External Debts as% of GDP, 2001 to 2008 Total Debts GDP 2001 2002 2003 2004 2005 2006 2007 2008 20.7 15.3 15.7 16.5 15.2 18.8 19.1 18.9 3.7 4.6 5.6 4.9 6.3 6.4 6.1 Source: Ministry of Finance, 2005 and 2006 88

Table A10: GDP, GNI, per capita GDP and GNI, 1995 to 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 GDP N$ Million 12,706 13,112 13,665 14,115 14,591 15,100 15,462 15,849 16,441 18,084 GDP Growth% 4.1 3.2 4.2 3.3 3.4 3.5 2.4 2.5 3.7 5.9 GNI N$ Million 13,275 13,997 14,627 15,475 15,486 16,606 17,541 16,955 17,843 19,686 GNI Growth,% 3.8 5.4 4.5 5.8 0.1 7.2 5.6-3.3 5.2 3.9 GDP per capita, N$ 8,145 8,176 8,297 8,345 8,400 8,464 8,447 8,439 8,533 9,148 GDP per capita Growth,% GNI per 0.38 1.48 0.58 0.65 0.77-0.20-0.09 1.11 3.27 capita, N$ 8,510 8,728 8,881 9,149 8,915 9,308 9,583 9,028 9,260 9,958 GNI per capita Growth,% 2.6 1.8 3.0-2.6 4.4 3.0-5.8 2.6 1.3 Population (Million) 1.56 1.60 1.65 1.69 1.74 1.78 1.83 1.88 1.93 1.98 Assumed Population Growth,% 2.8 2.8 2.7 2.7 2.7 2.7 2.6 2.6 2.6 2.6 Source: Central Bureau of Statistics, 2005, Population growth based on Republic of Namibia, 2003. Per capita growth: Authors own calculation. 89

90 Table A11: Namibia’s Exports to SADC Countries in NAD, 1998 to 2004 Angola Botswana 1998 260,590,249 7,664,596 1999 295,896,288 24,508,511 2000 633,452,814 52,640,052 2001 601,898,237 52,173,663 D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 4,829 7,782,234 899,638 18,420,138 200 1,908,696,547 338,678,824 1,461,672 9,179,470 37,035,468 0 1,038,281 1,093,009 19,184,478 309,338 2,247,671,210 3,004,053 1,891,202 6,609,156 27,701,614 106,176 817,371 1,528,654 9,196,998 109,846 2,264,029,943 173,300 1,473,725 8,484,702 27,709,470 150,041 482,769 2,154,340 13,585,642 57,220 2,357,533,242 3,297,638 1,978,367 7,621,173 36,306,637 SADC 2,590,413,865 2,628,907,140 2,999,723,051 3,077,238,969 SACU 2,255,044,796 2,275,183,774 2,316,949,471 2,413,154,584 SADC exc. SACU 335,369,069 353,723,366 682,773,580 664,084,385 Total 6,407,320,409 7,922,029,561 9,081,054,544 10,322,641,889 Madagascar 0 35,347 0 282,908 Source: Data provided by Central Bureau of Statistics 2002 1,998,367,723 63,521,745 15,400 156,300 6,611,674 13,989,727 1,188,144 3,304,600,403 638,427 3,713,799 24,854,568 9,125,268 5,426,783,178 3,368,775,975 2,058,007,203 13,370,952,276 45,010 2003 3,152,221,193 107,470,644 47,212,587 30,000 676,288 5,442,794 22,792,690 2,977,916 3,202,821,020 10,275,728 5,719,460 44,917,344 27,570,655 6,630,128,319 3,320,597,392 3,309,530,927 14,301,884,845 96,592 2004 1,523,352,687 78,790,715 65,960,742 519,929 698,451 3,172,206 57,407,846 472,027 3,079,318,286 2,455,996 4,128,929 58,779,990 22,803,858 4,897,861,662 3,161,084,926 Total 8,465,779,191 386,769,926 113,173,329 826,375 11,651,694 20,902,315 154,577,519 5,114,691 18,364,670,651 358,523,966 20,367,154 160,446,403 188,252,970 28,251,056,184 19,110,790,918 1,736,776,736 9,140,265,266 10,763,312,335 72,169,195,859 96,592 556,449

Table A12: Export Share of SADC Countries, 1998 to 2004 in% 1998 1999 2000 2001 2002 2003 2004 On Average Angola 4.07% 3.74% 6.98% 5.83% 14.95% 22.04% 14.15% 11.73% Botswana 0.12% 0.31% 0.58% 0.51% 0.48% 0.75% 0.73% 0.54% D.R.C 0.00% 0.00% 0.00% 0.00% 0.00% 0.33% 0.61% 0.16% Lesotho 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Malawi 0.12% 0.01% 0.01% 0.00% 0.00% 0.00% 0.01% 0.02% Mauritius 0.01% 0.01% 0.02% 0.02% 0.05% 0.04% 0.03% 0.03% Mozambique 0.29% 0.24% 0.10% 0.13% 0.10% 0.16% 0.53% 0.21% Seychelles 0.00% 0.00% 0.00% 0.00% 0.01% 0.02% 0.00% 0.01% SouthAfrica 29.79% 28.37% 24.93% 22.84% 24.71% 22.39% 28.61% 25.45% Swaziland 5.29% 0.04% 0.00% 0.03% 0.00% 0.07% 0.02% 0.50% Tanzania 0.02% 0.02% 0.02% 0.02% 0.03% 0.04% 0.04% 0.03% Zambia 0.14% 0.08% 0.09% 0.07% 0.19% 0.31% 0.55% 0.22% Zimbabwe 0.58% 0.35% 0.31% 0.35% 0.07% 0.19% 0.21% 0.26% SADC 40.43% 33.18% 33.03% 29.81% 40.59% 46.36% 45.51% 39.15% SACU 35.19% 28.72% 25.51% 23.38% 25.19% 23.22% 29.37% 26.48% SADC exc. SACU 5.23% 4.47% 7.52% 6.43% 15.39% 23.14% 16.14% 12.67% Madagascar 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Source: Data provided by Central Bureau of Statistics 91

Table A13: Export Growth of SADC Countries, 1999 to 2004 in% Angola Botswana D.R.C Lesotho Malawi Mauritius 1999 13.55% 219.76% -100.00% -86.66% 21.49% 2000 114.08% 114.78% -21.28% 39.86% 2001 -4.98% -0.89% 41.31% -40.94% 40.93% 2002 232.01% 21.75% -89.74% -67.62% 206.90% 2003 2004 On average 57.74%-51.67% 60.12% 69.19%-26.69% 66.32% - 39.71% 6.62% 94.81% 1633.10% 263.25% 332.69% 3.28% 19.91% -17.68%-41.72% 41.63% Mozambique 4.15%-52.06% 47.72% 2.97% 62.92% 151.87% 36.26% Seychelles 154569.00%-64.49%-47.91% 1976.45% 150.64%-84.15% 26083.26% SouthAfrica Swaziland Tanzania Zambia Zimbabwe SADC 17.76% -99.11% 29.39% -28.00% -25.20% 1.49% 0.73% 4.13% -94.23%1802.85% -22.07% 34.24% 28.38%-10.18% 0.03% 31.03% 14.11% 2.58% 40.17%-3.08% -80.64% 1509.54% 87.72% 54.01% 226.13% 80.72% -74.87% 202.14% 76.35% 22.17% -3.86% -76.10% -27.81% 30.86% -17.29% -26.13% 9.31% 493.72% 25.91% 54.65% 19.31% 15.10% Total Exports 23.64% 14.63% 13.67% 29.53% 6.96%-24.74% 10.62% SACU 0.89% 1.84% 4.15% 39.60%-1.43%-4.80% 6.71% SADC exc. SACU 5.49% 93.31%-2.74% 210.58% 61.01%-47.60% 53.34% Madagascar --1--84.09% 114.60% 0%-12% Source: Data provided by Central Bureau of Statistics 92

93 Table A14: Namibia’s Imports from SADC Countries in NAD, 1998 to 2004 Angola Botswana D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 1998 28,923,179 24,147,056 0 2,000 1,482,316 83,010 424,056 28,618,877 7,415,454,469 2,272,238 314,805 6,814,508 103,110,210 1999 11,687,758 21,977,905 0 21,500 53,680 19,622 151,993 22,288 7,595,459,557 431,987 221,461 7,445,753 40,997,938 2000 14,199,187 25,740,254 0 0 51,992 17,291 183,042 23,669 8,460,436,112 3,626,519 1,096,066 14,097,312 22,880,712 2001 2002 11,689,698 58,956,427 18,871,354 20,866,497 0 0 11,500 0 234,427 1,069,532 594,628 237,145 621,943 238,125 183,874 35,095 10,445,500,944 11,314,625,389 254,914 245,887 418,082 756,249 740,846 6,158,725 45,925,637 85,549,175 SADC 7,611,646,724 7,678,491,442 8,542,352,156 10,525,047,847 11,488,738,246 SACU 7,441,875,763 7,617,890,949 8,489,802,885 10,464,638,712 11,335,737,773 SADC exc. SACU 169,770,961 60,600,493 52,549,271 60,409,135 153,000,473 Total 9,612,530,499 9,243,471,776 9,755,641,223 Madagascar 0 0 2,000 Source: Data provided by Central Bureau of Statistics 12,227,307,771 14,699,977,038 600 0 2003 26,693,256 26,032,390 4,871,678 147,078 352,187 5,643,383 636,975 3,286,401 14,573,378,235 13,053,832 519,524 20,628,685 235,135,763 14,910,379,387 14,612,611,535 2004 20,537,014 34,985,789 106,033 140,500 157,498 1,003,817 2,621,225 93,989 13,132,727,987 73,367,828 770,195 8,357,563 120,922,286 13,395,791,724 13,241,222,104 297,767,852 154,569,620 17,657,354,029 15,323,237,822 163,869 427,085 Total 172,686,519 172,621,245 4,977,711 322,578 3,401,632 7,598,896 4,877,359 32,264,193 72,937,582,693 93,253,205 4,096,382 64,243,392 654,521,721 74,152,447,526 73,203,779,721 948,667,805 88,519,520,158 593,554

94 Table A15: Import Share by SADC Countries in %, 1998 to 2004 Angola Botswana D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 1998 0.30% 0.25% 0.00% 0.00% 0.02% 0.00% 0.00% 0.30% 77.14% 0.02% 0.00% 0.07% 1.07% 1999 0.13% 0.24% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 82.17% 0.00% 0.00% 0.08% 0.44% 2000 0.15% 0.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 86.72% 0.04% 0.01% 0.14% 0.23% 2001 0.10% 0.15% 0.00% 0.00% 0.00% 0.00% 0.01% 0.00% 85.43% 0.00% 0.00% 0.0061% 0.38% SADC 79.18% 83.07% 87.56% 86.08% SACU 77.42% 82.41% 87.02% 85.58% SADC exc. SACU 1.77% 0.66% 0.54% Madagascar 0.00% 0.00% 0.00% Source: Data provided by Central Bureau of Statistics 0.49% 0.00% 2002 0.40% 0.14% 0.00% 0.00% 0.01% 0.00% 0.00% 0.00% 76.97% 0.00% 0.01% 0.0419% 0.58% 78.15% 77.11% 1.04% 0.00% 2003 0.15% 0.15% 0.03% 0.00% 0.00% 0.03% 0.00% 0.02% 82.53% 0.07% 0.00% 0.12% 1.33% 84.44% 82.76% 1.69% 0.00% 2004 0.13% 0.23% 0.00% 0.00% 0.00% 0.01% 0.02% 0.00% 85.70% 0.48% 0.01% 0.05% 0.79% 87.42% 86.41% 1.01% 0.00% On Average 0.195% 0.195% 0.01% 0.00% 0.00% 0.01% 0.01% 0.04% 82.40% 0.11% 0.00% 0.07% 0.74% 83.77% 82.70% 1.07% 0.00%

95 Table A16: Import Growth by SADC Countries in %, 1999 to 2004 Angola Botswana D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe SADC 1999 -59.59% -8.98% 975.00% -96.38%-76.36%-64.16%-99.92% 2.43% -80.99%-29.65% 9.26% -60.24% 0.88% 2000 21.49% 17.12% -100.00% -3.14% -11.88% 20.43% 6.20% 11.39% 739.50% 394.93% 89.33% -44.19% 11.25% 2001 -17.67% -26.69% 350.89% 3,338.95% 239.78% 676.86% 23.46% -92.97% -61.86% -94.74% 100.72% 23.21% SACU 2.37% 11.45% 23.26% SADC exc. SACU -64.30% -13.29% 14.96% Total -3.84% 5.54% Madagascar Source: Data provided by Central Bureau of Statistics 25.34% -70.00% 2002 404.35% 10.57% -100.00% 356.23% -60.12% -61.71% -80.91% 8.32% -3.54% 80.89% 731.31% 86.28% 9.16% 8.32% 153.27% 20.22% -100.00% 2003 -54.72% 24.76% -67.07% 2,279.72% 167.50% 9,264.30% 28.80% 5,208.87% -31.30% 234.95% 174.85% 29.78% 28.91% 94.62% 20.12% 2004 -23.06% 34.39% -97.82% -4.47% -55.28% -82.21% 311.51% -97.14% -9.89% 462.04% 48.25% -59.49% -48.57% -10.16% -9.38% -48.09% -13.22% 160.63% On Average 45.13% 8.53% -16.30% 128.42% 80.87% 898.02% 102.22% 1,611.56% 10.75% 1,038.82% 66.88% 151.77% 34.81% 10.69% 10.82% 22.86% 9.03% -96.70%

Table A17: Import Cover in Weeks, 1999 to 2004 1999 2000 2001 2002 2003 2004 10.85 10.48 11.74 10.30 6.55 7.25 Source: Calculation based on Bank of Namibia, 2004 Table A18: Employment by Economic Sector in%, 1997 and 2000 Sectors Agriculture Manufacturing Mining Fishing 1997 2000 36.6 29.3 6.5 5.3 1.6 0.9 1.7 1.8 Wholesale/ Retail trade and repair of motor vehicles 8.4 9.0 Others 45.2 53.7 Source: Ministry of Labour, 2001; Ministry of Labour, 2002 Table A19: Employment and GDP Growth in Comparison, 1997 and 2000 Employment GDP in Constant1995 Employment Growth GDP Growth Prices, N$ million 1997 401,203 13,665 2000 431,949 15,100 7.7% 10.5% Sources: Republic of Namibia, 2004; Ministry of Labour, 2001 and 2002. 96

Table A20: Human Development Indicators, Selected Years from 1990 to 2003 HDI Ranking 1990 1996 1998 2000 2002 2003 135 107 115 122 126 125 Life expectancy at birth -in years 57.5 55.8 50.1 44.7 45.3 48.3 % Population without sustainable access to improved water source 17 20 % Population on <US$1 per day % One year olds fully immunized against measles 61 34.9 34.9 68 70 % Births attended by skilled health personnel 71 68 % Population with sustainable access to improved sanitation 51 78 78 41 30 % Children< 5 years under weight for age 26 12 24 24 HIV prevalence %ages 15 – 49 years 15 20 21.3 Tuberculosis per 100,000 people 100.3 478 477 Under-five mortality rate per 1,000 live births 167 77 74 105.8 67 65 Adult literacy rate (%ages 15 and above) 40 81 80.8 82 83.3 85 Youth literacy rate (% ages 15 – 24) 87.4 91 91.6 92.3 92.3 % Net primary enrolment ratio 83 94.1 93.4 91.5 78 78 % Net secondary enrolment ratio 34.3 37.8 45.5 38 44 Sources: UNDP, various years 97

Table A21: Namibia’s Progress Towards Achieving the MDGs 1992 2003 2006 target 1. Eradicate extreme poverty and hunger Proportion of households living in relative poverty* 38% 28% 1 28% Proportion of households living in extreme poverty* 2. Achieve universal primary education Net primary school enrolment 9% 89% 4% 1 92% 4% 95% Survival rate for grade 5 75% 94% 95% Literacy rate, 15-24 years 89% 3. Promote gender equality and empower women Primary education(girls per 100 boys) 102 89% 100 94% 100 Secondary education(girls per 100 boys) 124 113 100 Tertiary education(girls per 100 boys) 162 111 100 Proportion of seats held by women in National Assembly 4. Reduce child mortality Infant mortality(per 1, 000 live birth) 9% 67 19% 52 30% 36 Under- five mortality rate per 1,000 live births) 87 71 54 Proportion of one-year- old children immunised against measles 63% 72% 80% Underweight among children under five 5. Improve maternal health Proportion of births attended by 26% 24% 17% trained health personnel 68% 75% 88% Contraceptive prevalence rate 21% 37% 50% 6. Combat HIV/AIDS, Malaria and other diseases HIV prevalence among 13-19 year old women 6% 11% 9% HIV prevalence among 20-24 year old women 11% 22% 15% TB treatment success rate 58% 69% 7. Ensure environmental sustainability Proportion of rural households with 75% access to safe drinking water 45% 80% 80% Proportion of rural households with access to basic sanitation 15% 21% 50% Freehold Land 5% 6% 8.50% Registered conservancies 0% 5% 8. Develop a global partnership for development Per capita overseas development 10.90% assistance to Namibia(in US$) 130 60 90 Progress toward target Good 2 Good 2 Good Good Slow Good Good Good Slow Slow Slow Good Slow Good Good Worsening Worsening Good Good Slow Slow Slow Worsening Note: The table provides a quick overview of progress on selected targets for each of the eight MDGs. The data is grouped to represent the closest year to 1992, 2003 and the medium- term targets for 2006. The last column assesses progress against the medium-term target. ‘Good’ means that if the rate of progress seen since the early 1990s continues, then the target will be met. ‘Slow’ means that progress since the early 1990s has been positive, but is not strong enough to reach the 2006 target. ‘Worsening’ means that the situation has deteriorated since the early 1990s.*A new Household Income and Expenditure Survey will be finalised in 2004, which will update the income poverty figures. See Note 1 and 2 . Source: Office of the President, National Planning Commission, 2004 1 Figures included from Republic of Namibia, 2006:32 2 Authors’ own assessment 98

Table A22: Namibia’s Progress Towards Achieving the SADC Targets Target Indicators 2002 2003 2004 2005 2008 2012 2018 Core Inflation 5 Budget Deficit as a Percentage of GDP 1 External Debt as a Percentage of GDP 1 11.3% 7.3% 4.2% 2.2% 9% 5% 3% 2.5% 7.2% 3.6% 1.1% 5% 3% 1% 3.7% 4.6% 5.6% 4.9% 60% 60% 60% Current Account Balance as a percentage of GDP 2 3.8% 8.9% 10.9%-9%-9%-3% Growth rate 3 6.7% 3.5% 5.9% 3.2% 7% 7% 7% External Reserves (Import Cover in months) 2 2.2 1.7 1.7 Central Bank credit to Government in% of taxes 2 -11.9%-4.9%-8.3% Domestic savings rates 3 39.6% 31.5% 366 10 % 5% 5% 25% 30% 35% Sources: 1 MoF, MTEF for 2006/07-2008/09; 2 BoN Quarterly Bulletin 2003 June and Sept 2005; 3 World Bank, various years; 4 Republic of Namibia, National Planning Commission Secretariat, Central Bureau of Statistics, Namibia Consumer Price Index, January 2006 99

100

Regional Integration in Southern Africa Vol 4 Deepening Integration in SADC Namibia on Track to Meet SADC Targets A study conducted for the Friedrich Ebert Foundation Authors: Klaus Schade, NEPRU Moureen Matomola, NEPRU October 2006 1

Impressum Published by Friedrich Ebert Foundation Botswana Office ISBN 99912-564-5-8 October 2006 © Friedrich Ebert Foundation All rights reserved The material in this publication may not be reproduced, stored or transmitted without the prior permission of the copyright holder. Short extract may be quoted, provided the source is fully acknowledged. The views expressed in this publication are not necessarily the ones of the Friedrich Ebert Foundation or of the organization for which the author works. 2

Preface Regional integration can be a key force for sustainable development. It can promote economic growth, reduce poverty, foster social development or protect the environment. But, it can also have negative economic and social impacts, notably when the domestic regulatory framework is inadequate or not implemented effectively. The Southern African Development Community, SADC is committed to deepening the integration processes amongst its members and has adopted the Regional Indicative Strategic Development Plan(RISDP) in order to provide strategic direction in the design and formulation of SADC programmes, projects and activities in order to achieve development and economic growth, alleviate poverty, enhance the standard and quality of life of the people of Southern Africa and support the socially disadvantaged, through regional integration. Amongst the various measures governments can implement to further such integration, ensuring sound macroeconomic management is vital. Given the commitment to deepening SADC integration through macroeconomic policies, it is important that policy makers in SADC and its Member States assess the impacts that such measures will have on the social well-being of its people, both in the short term and the long term. In view of the above, the Friedrich Ebert Foundation through its office in Botswana and in close consultation with the Planning Unit of the SADC Secretariat initiated a regional research programme on “Deepening Integration in SADC – Macroeconomic Policies and their Impact”. From the very beginning the programme was designed as a collective effort of the leading economic research institutions of the region. A total of 14 institutes from 11 SADC member countries followed the call to join the programme. In two workshops held in December 2004 in Gaborone, Botswana and in April 2005 in Stellenbosch, South Africa the team developed detailed terms of reference for the research programme. Phase 1 was to begin at the country level with a comprehensive study on the present status of the economies, their congruence with SADC convergence targets, the respective policy frameworks as well as a social impact analysis. This more theoretical desk study was complemented by an empirical survey of the perceptions of businesses and non-state actors vis a vis SADC. A study on 3

South Africa’s international trade diplomacy and its implications for regional integration was to give a contextual perspective. All members of the research team have spent a lot of time and energy and produced excellent reports. The ideas and recommendations contained therein have induced some lively as well as controversial discussion among the participating institutions as well as with other experts. The content of each study reflects of course solely the views of the authors. I commend all of them for their great commitment as well as their great team spirit in this endeavour. I also wish to acknowledge the substantial input we received from the SADC Secretariat, especially the Head of the Strategic Planning Unit, Dr. Angelo E. Mondlane, the then Technical Advisor on Finance, Dr. Moeketsi Senaoana as well as other SADC experts. Other external experts have also contributed to the final documents as part of the various reference group meetings in all the participating countries. I wish to extend my greatest thanks to all them. In order to make the results of this research programme known to a broader public, especially among the relevant policy and decision makers of the SADC region, the Friedrich Ebert Foundation then decided to publish a series of volumes entitled “Regional Integration in Southern Africa”. The 4 th volume, presented here, contains the findings of the Country Study and Survey from Namibia by the Namibian Economic Policy Research Unit , NEPRU in Namibia. My special thanks go to the authors, to Klaus Schade and Maureen Matomola for writing and revising the document, to Dr. Patrick Ebewo for editing as well as to Peter Maina Kamiti and MacDonald Gotora and for the design and layout. Gaborone, October 2006 Dr. Marc Meinardus Resident Representative Friedrich Ebert Foundation Botswana Office 4

Acknowledgements T he authors are sincerely grateful to the people and institutions that provided information during the compilation of the study. The assistance of Mr. Petrus Haufiku and Ms. Julia Mbai in data entry and presentation is gratefully acknowledged. Without the financial support from the Friedrich Ebert Foundation the study would not have been possible. 5

Table of Contents Preface.......................................................................................... 3 Acknowledgements..................................................................... 5 Part 1: Macroeconomic Policies and Their Impact in Namibia List of Tables.................................................................................... 10 List of Tables in the Appendix........................................................... 10 List of Figures................................................................................... 10 Abbreviations................................................................................... 12 Executive Summary....................................................................... 15 1 Introduction........................................................................... 21 2 Macroeconomic Policy Framework....................................... 23 3 Monetary Policy..................................................................... 31 4 Fiscal Policy............................................................................. 37 5 Trade Policy Framework........................................................ 45 5.1 SADC Trade Protocol...................................................... 47 5.2 Trade Facilitation Initiatives............................................. 48 5.3 Namibia’s Trade Patterns.................................................51 5.4 Conclusion.................................................................... 55 6 Labour Market Policy Framework........................................ 57 6.1 Legislation Regulating the Labour Market...................... 57 6.2 Labour Market Trends.................................................... 59 6.3 Causes of Unemployment.............................................. 62 7 Social Development.............................................................. 65 8 Environmental Challenges.................................................... 69 9 Namibia’s Deeper Integration: Problem and Prospects?..... 73 9.1 Strengths....................................................................... 73 9.2 Weaknesses................................................................... 74 9.3 Opportunities................................................................ 76 9.4 Threats.......................................................................... 77 9.5 Conclusions................................................................... 79 10 Recommendations................................................................. 81 References....................................................................................... 83 Appendix......................................................................................... 87 7

Part 2: Perceptions of Business and Non-State Actors in Namibia List of Tables................................................................................... 102 List of Figures.................................................................................. 103 Abbreviations................................................................................. 104 Executive Summary...................................................................... 105 1 Introduction.......................................................................... 109 2 Methodology........................................................................ 110 3 Characteristics of Respondents............................................ 111 4 Perceived Impact of Regional Integration within SADC.... 117 4.1 Perceptions of Regional Integration................................ 117 4.2 Impact on Domestic Businesses...................................... 118 4.3 Rating of Trade Barriers................................................. 123 5 Perceived Business Climate in the Region and Beyond...... 127 6 Political Debate about Regional Integration....................... 129 7 Conclusions and Recommendations..................................... 133 Appendix........................................................................................ 135 8

Deepening Integration in SADC Namibia on Track to Meet SADC Target Part: 1 Macroeconomic Policies and their Impact in Namibia 9

List of Tables Table 1: Labour Force, Employment and Unemployment, Various Years...................................................................... 60 Table 2: Progress Towards Achieving the MDG Environmental Targets............................................................................... 72 List of Tables in the Appendix Table A1: GDP Growth, 1995 to 2008.................................................. 87 Table A2: Interest Rates, 1999 to 2005..................................................87 Table A3: Inflation Rates, 1980 to 2005................................................ 87 Table A4: Exchange Rate, Namibia Dollar per 1 USD, 1995 to 2005......87 Table A5: Gross National Savings Rates, 2000 to 2003.......................... 87 Table A6: Gross Fixed Capital Formation, 1995 to 2004........................ 88 Table A7: Investment by Economic Sector, 1995 and 2004................... 88 Table A8: Budget Deficit in%, 1999 to 2008....................................... 88 Table A9: External Debts as% of GDP 2001 to 2008........................... 88 Table A10: GDP, GNI, per capita GDP and GNI, 1995 to 2004................ 89 Table A11: Namibia’s Exports to SADC Countries in NAD, 1998 to 2004.... 90 Table A12: Export Share of SADC Countries, 1998 to 2004 in%........... 91 Table A13: Export Growth of SADC Countries, 1999 to 2004 in%.... 92 Table A14: Namibia’s Imports from SADC Countries in NAD, 1998 to 2004.... 93 Table A15: Import Share by SADC Countries in%, 1998 to 2004.......... 94 Table A16: Import Growth by SADC Countries in%, 1999 to 2004....... 95 Table A17: Import Cover in Weeks, 1999 to 2004.................................. 96 Table A18: Employment by Economic Sector in%, 1997 and 2000....... 96 Table A19: Employment and GDP Growth in Comparison, 1997 and 2000.............................................................................. 96 Table A20: Human Development Indicators, Selected Years from 1990 to 2003............................................................................ 97 Table A21: Namibia’s Progress Towards Achieving the MDGs................. 98 Table A22: Namibia’s Progress Towards Achieving the SADC Targets...... 99 10

List of Figures Figure 1 Namibia’s Growth Rates 1995 to 2008 Compared to the SADC Target................................................................. 30 Figure 2 Namibia’s Inflation Rate 1996 to 2005 Compared to the SADC Target in%........................................................ 33 Figure 3 Namibia’s Gross National Saving Rates from 2000 to 2003 Compared to the SADC Targets.......................................... 34 Figure 4 Namibia’s Budget Deficit 1999 to 2008 Compared to SADC Targets..................................................................... 42 Figure 5 Namibia’s Foreign Debt as% of GDP from 2001 to 2008 Compared to the SADC Target........................................... 43 Figure 6 Namibia’s Current Account Balance Compared to the SADC Target................................................................................ 54 Figure 7 Namibia’s Foreign Reserves in Months from 1999 to 2004 Compared to the SADC Targets.......................................... 54 11

List of Abbreviations ACP African, Caribbean, Pacific countries AGOA African Growth and Opportunity Act ASL Additional Sales Levy ASYCUDA Automated System for Customs Data BLNS Botswana, Lesotho, Namibia and Swaziland BoN Bank of Namibia CET Common External Tariff CMA Common Monetary Area COMESA Common Market for Eastern and Southern Africa CRP Common Revenue Pool DRC Democratic Republic of Congo EFTA European Free Trade Association EPZ Export Processing Zone EU European Union Euro European Currency FTA Free Trade Area GDP Gross Domestic Product GST General Sales Tax HDI Human Development Index HIV/AIDS Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome IMF International Monetary Fund LNS Lesotho, Namibia, Swaziland MDG Millennium Development Goals MoU Memorandum of Understanding MTEF Medium-Term Expenditure Framework MTP Medium-Term Plans NAD Namibia Dollar NDP National Development Plan NTB Non Tariff Barrier PEMP Performance Effectiveness and Management Programme RISDP Regional Indicative Strategic Development Plan SACU Southern African Customs Union SADC Southern African Development Community SADCC Southern African Development Co-operation Conference 12

SARS SIDA SME SPS TB TDCA UNDP USA USD VAT WTO South Africa Revenue Services Swedish International Development Cooperation Agency Small and Medium-sized Enterprise Sanitary and Phyto-Sanitary Tuberculosis Trade and Development Cooperation Agreement United Nations Development Programme United States of America US Dollar Value Added Tax World Trade Organisation 13

14

Executive Summary R egional integration is often regarded as a key for accelerated and sustainable economic growth. Southern Africa is home to the oldest existing customs union, SACU, as well as a larger economic grouping that has its origins in the anti apartheid struggle, SADC. Both organisations have seen substantial changes over the past 15 years. SACU eventually agreed upon a new agreement that allowed for more influence for the smaller economies in the customs union. Since the demise of apartheid, SADC has strengthened its focus on economic development, and adopted a Regional Indicative Strategic Development Plan(RISDP) to outline its social and economic policies and priorities. Sound macroeconomic policies are a key requirement in achieving the objectives and deepening regional integration. A Memorandum of Understanding(MoU) on Macroeconomic Convergence was adopted in 2001. The Ministers of Finance and Investment also agreed at the time on a set of indicators to monitor macroeconomic convergence, although the usefulness of some of the indicators remains in dispute. Timeframes were set for the achievement of these targets. Namibia’s macroeconomic framework is guided by medium and long-term plans. The Third National Development Plan(NDP3) is currently designed, to cover the next five-year period. These mediumterm plans are established to support Namibia’s long-term development objectives as outlined in VISION 2030. The medium as well as the long-term development plan, is a reflection of Namibia’s major challenges resulting from her past history of colonial oppression and racial segregation. The four main objectives in all the development plans since independence in 1990 remain unchanged, namely: reduction of poverty, reduction of income inequality, creation of employment, and sustainable economic growth. However, other regional and international initiatives have not yet been fully incorporated into Namibia’s development plans, such as the Millennium Development Goals, NEPAD and SADC’s Regional Indicative Strategic Development Plan. The challenge for the design of NDP3 lies in preparing the groundwork for achieving VISION 2030 and in incorporating regional initiatives. 15

Overall, the Namibian government has created a conducive environment for the private sector to strive. Thus, the private sector is regarded as the main player while government will intervene in sectors that the private sector hesitates to invest in. Various incentive schemes have been implemented to attract investment. However, no analysis of the costs and benefits of these schemes has yet been undertaken. The framework has resulted in the growing diversification of the Namibian economy, although it is still reliant on the mining and agricultural sectors for inputs into the manufacturing sector. New economic developments have contributed to stronger growth. However, Namibia has still some way to go in achieving the SADC target of an annual growth rate of 7%. Monetary policy Namibia’s monetary policy is determined by her membership of the Common Monetary Area. This arrangement has benefited Namibia in at least two ways: There are no exchange rate fluctuations between Namibia and South Africa, Namibia’s main trading partner. Secondly, since South Africa’s economy is larger and more diversified, any event affecting a particular sector has less impact on the economy as a whole, and hence on the exchange rate, than it would be in a small and less diversified economy such as Namibia’s. As a result, it provides a higher degree of credibility and predictability to foreign investors. However, the arrangement limits Namibia’s sovereignty in setting its own monetary policy. Hence, interest rates are set in line with decisions made by the South African Reserve Bank, which pursues an inflationtargeting monetary policy. This policy stance contributed to a substantial drop in inflation — below 5% over the past two years. In this respect, Namibia is well within SADC targets for 2008 and 2012. Namibia is an exception to most developing countries in that it is a net exporter of capital. The gross saving rate is above the targets set for 2008 and 2012, because of contractual savings. Significant funds in the form of institutional pension funds, life insurance funds, and so on are invested in South Africa, and this has given rise to concerns in Government about circles the capital outflow. In order to reduce the outflow, Government has introduced a requirement for pension funds 16

and insurance companies to invest 35% of their portfolio in the domestic market. However, since the absorption capacity of the local market is limited, there is a risk that this may result in dubious investments that could turn sour. Fiscal policy Fiscal policy remains the major domestic tool with which to influence macroeconomic developments. Namibia’s membership of the CMA and of SACU restricts its monetary and trade policy design. Government aims to sustain macroeconomic stability, and to contribute to economic growth and employment creation through its fiscal policy stance. It has set ambitious targets for its deficit, debt and expenditure ratios. A Medium-Term Expenditure Framework(MTEF) was implemented in 2000 in order to provide a realistic resource framework. The MTEF is complemented by the Performance Effectiveness and Management Programme and most recently by Medium-Term Plans. The MediumTerm Plans reflect the shift of focus from inputs – resource allocation to ministries – to outputs. Each ministry has identified indicators to monitor the achievement of specific targets that would justify the allocation of funds. Though Namibia’s public debts have increased consistently since independence, they are still well below critical benchmarks. Government is attempting to reduce public debt to below 30% of GDP, and is aiming for 25% in the medium term. The budget deficit is expected to be below the SADC targets for 2008 and 2012. A slight budget surplus is anticipated for the fiscal year 2006/07 mainly because of higher-than-expected revenue from the SACU pool. Foreign debts account for less than 5% of GDP and are therefore well below the SADC target. Finally, government sustains a surplus with the Central Bank, which is only allowed in specific circumstances to provide a credit line to government. However, there are some risks that could jeopardise the achievement of the SADC targets. Namibia’s HIV/AIDS programmes are mainly financed by foreign development partners. If this support is terminated, a substantial re-allocation of resources will be needed to continue with the programmes or to increase the deficit in the short term to stretch the necessary adjustments over a longer period. 17

Trade policy Namibia is a member of the oldest existing customs union – the Southern Africa Customs Union(SACU). It receives about 30% of its revenue from the Common Revenue Pool. Its membership reduces the use of trade policy, particularly of customs tariffs, to support its industrialisation. However, with the ratification of the new SACU agreement, more democratic structures are in place that could increase the influence of the smaller member countries in setting tariffs. Through SACU, Namibia is involved in a number of Free Trade Agreements and negotiations with other economic groupings or individual countries, such as the USA. Namibia sources most of its imports from and through South Africa, and sells most of its exports in Europe and South Africa. SADC member countries play a negligible role in Namibia’s trade statistics, with the exception of Angola in recent years. Despite the strong export orientation of the Namibian economy, the three months import cover of foreign reserves is well below the SADC target for 2008. This is indicative of its import dependency on most consumer and producer products. On the other hand, its current account balance is in positive territory because of transfers from the SACU pool. Overall, Namibia is well on track to achieve most of the SADC targets. However it is most likely that it will miss the targets for economic growth and foreign reserves. Despite the low economic growth compared to domestic and regional targets, preliminary data from the 2003/4. HIES has indicated that incidences of income poverty and income inequality have dropped, though unemployment has increased. Impact analysis The government has placed high priority on the social sectors, education and health, and has achieved substantial improvements in the output of these sectors since independence. However, key challenges remain, particularly in the education sector concerning dropout rates, repetition and pass rates, as well as general levels of knowledge gained in school. Despite tight fiscal targets that are homegrown rather than necessitated by SADC convergence criteria – allocations to social sectors have not been cut. Quite on the contrary, 18

Namibia has just launched an Education and Training Sector Improvement Programme in order to address the shortcomings. As highlighted, Namibia is set to achieve most of the SADC targets and hence, is not under pressure to adjust its macroeconomic policy framework. However, stronger employment-creation growth is needed to address the prevailing societal imbalances. As the SWOT analysis in this study reveals, Namibia could benefit from stronger regional integration because of her strengths which include political stability and a well-developed infrastructure. However, weaknesses in the form of skills’ gaps that impact negatively on the capacity of institutions to operate efficiently do need to be addressed. If ignored, this could become a threat to further development, particularly when reinforced by the impacts of the HIV/AIDS endemic. 19

20

1 Introduction R egional integration is often regarded as a key for accelerated and sustainable economic growth. Southern Africa is home to the oldest existing customs union, SACU, and a larger economic grouping that has its origins in the anti-apartheid struggle, SADC. Despite much criticism based on the distribution of benefits derived from the customs union, SACU continues to exist and has recently adopted a new, more democratic agreement, following the demise of apartheid. The end of the apartheid era also heralded changes for SADC. It has developed from the previous SADCC of political slogans to that and now focused to that on economic development. SADC adopted a Regional Indicative Strategic Development Plan(RISDP) in order to outline the social and economic policies and priorities. Sound macroeconomic policies are a key requirement in achieving the objectives and deepening regional integration. A Memorandum of Understanding(MoU) on Macroeconomic Convergence was adopted in 2001. The Ministers of Finance and Investment also agreed at the time on a set of indicators to monitor macroeconomic convergence(see Table A 22), although the usefulness of some of the indicators remains in dispute. Timeframes were set for the achievement of these targets. The Friedrich Ebert Foundation in Botswana, in close consultation with the SADC Secretariat, has initiated country studies for almost all SADC member countries, including Madagascar which joined SADC in August 2005. The aim is to take stock of the status of the policy frameworks in each of the participating countries. The Terms of Reference cover the following broad areas:(a) the basic macroeconomic policy framework, especially fiscal and monetary policies;(b) the trade policy framework;(c) the labour market policy framework; and(d) the social impacts of the various policy frameworks that aim to achieve macroeconomic convergence and deepening SADC integration. This study forms part of the project and aims to highlight the country-specific policy issues and their impacts. The study is based on available data from domestic sources, such as the Central Bureau of Statistics, the Ministry of Finance, and the Bank of Namibia. In general, domestic data is regarded as fairly reliable, although survey results are 21

often released after a considerable period of time has elapsed. The statistics are also in line with international standards such as the System of National Accounts 1993, and thus comply with RISDP recommendations. The study also makes use of relevant local literature. In addition, key stakeholders have been interviewed in an attempt to gain clarification on specific policy issues(see list in the appendix). The report is structured in the following manner. The next chapter describes the macroeconomic policy framework and refers to the main development plans that outline Namibia’s development objectives. A brief description of macroeconomic developments since independence in 1990 is provided. Chapters 3 and 4 focus on monetary and fiscal policies and analyse the trends of specific indicators in each chapter. The following two chapters provide insight into trade and labour market policies and highlight recent trends. Chapter 7 examines social development, while chapter 8 focuses on the environmental constraints Namibia is facing. The report concludes with an analysis of strengths, weaknesses, opportunities and threats. The report refers to major developments and tries to keep data to a minimum. Tables with extensive data are provided in the Appendix. Primarily, publicly-available data from domestic sources are used rather than data from international organisations. The degree of reliability of national data justifies this approach. 22

2 Macroeconomic Policy Framework N amibia is the youngest of the SADC nations, that gained independence from South African rule in 1990. The Namibian economy was highly integrated into the South African economy during the decades-long occupation, which inhibited autonomous, authentic economic development. With the exception of a few manufacturing companies, the economy was based on the extraction of natural resources. Mining activities(especially diamond), extensive, almost exclusively white-owned livestock farming in the commercial areas and widely uncontrolled fishing activities characterised the economy at independence. The Apartheid policy of racial segregation compounded the dual nature of the economy and society. The vast majority of the population was confined to the so-called homelands, particularly in the north and northeast of the country, and to a subsistence economy. Education was limited to the transfer of basic knowledge and skills. This resulted in a society characterised by a relatively wealthy minority living in well-developed towns and cities with functioning social services and involved in the formal economy, and a majority living in rural areas, lacking basic services and making a living in the informal and subsistence economy. Namibia’s rich endowment with natural resources has resulted in a per capita income that classifies it as a lower middle-income country. But the per capita income covers a highly skewed income distribution that is reflected in a Gini-coefficient of 0.6 1 . Although dropping from 0.7(based on the 1993/94 household survey) to 0.6(2003/04), it indicates one of the most skewed societies in the world. The high Gini-coefficient implies that not only relative but absolute poverty exists amidst wealth in Namibia. Subsequently, the incoming government of the newly independent country faced the daunting task of redressing these imbalances. The Transitional National Development Plan for the period 1991/92 to 1993/ 94 identified the following four main national development objectives:  To reduce poverty;  To create employment; 1 The Gini-coefficient measures the income distribution in a given region and ranges from 0(totally equal society) to 1(absolutely unequal society). 23

 To stimulate and sustain economic growth; and  To reduce inequalities in income distribution. The transitional development plan was followed by the First and Second National Development Plans(NDP1 and 2), but the main objectives have not changed. However, additional development objectives were added in NDP2 addressing new challenges:  To promote economic empowerment;  To reduce regional development inequalities;  To promote gender equality and equity;  To enhance environmental and ecological sustainability; and  To combat the further spread of HIV/AIDS 2 . NDP2 ends in 2006 and will be replaced by NDP3. The National Development Plans are medium-term plans covering five-year periods. They outline general development objectives as well as sector-specific goals. Towards the end of the first decade of independence, government identified the need for a long-term development strategy to guide the medium-term plans and eventually budget allocations. Vision 2030 was designed with the overall objective of elevating Namibia to a prosperous and industrialised nation by 2030 3 . Namibia’s per capita income would be comparable to that of high-income countries. Its economic structure would have changed from being dependent on primary products and the public sector to an economy that produces manufactured goods and services and exports mainly manufactured products rather than raw materials. Regional integration - and in particular the implementation of the SADC Protocols- is one of the strategies to achieve the vision. The vision anticipates the transfer of several accruements of national sovereignty and state power to SADC institutions during the period 2010 to 2015. This statement is a clear indication for Namibia’s strong commitment towards integration within SADC. Furthermore, Vision 2030 envisages the creation of a single currency and a regional central bank for SADC 4 . While the vision clearly states objectives for the period, it is rather weak on putting together strategies and policies necessary to achieve these objectives. 2 Government of the Republic of Namibia, 2002:50. 3 Office of the President, 2004:38. 4 Ibid., p.195. 24

For this reason, government is currently identifying strategies to implement the vision. The next medium-term development plan NDP3- will be crucial for laying the foundation to boost significantly economic growth, which has not yet been sufficiently achieved to make major strides towards a higher standard of living. Overall, government sees its role in providing an enabling environment in which the private sector will take the lead in economic development. Government, however, will intervene in those sectors where the private sector does not invest. Government has introduced several incentive schemes in order to attract investment, particularly in the manufacturing sector. It was expected that the schemes would support the diversification of the economy and the export pattern, and create jobs. Most notable are the Export Processing Zone(EPZ) scheme and the incentive scheme for manufacturing companies. EPZ status is granted to companies that export 100% of their production to markets outside SACU. These companies are exempt from paying company taxes and import duties on imported inputs. The export requirement can be lowered to 70% but companies would need to pay taxes and import duties on the products that are sold on the local – or SACU market. In addition, manufacturers can apply for the manufacturing status that will be granted for ten years. Out of the 200 companies that have received the status to date, of which 102 still retain it, while it expired for 49. Another 49 have lost the status because of change in rules 5 . The New SACU Agreement of 2004 provides for infant industry protection for a maximum period of eight years. Two industries have been granted infant industry protection so far – pasta and Ultra High Temperature milk – while two other applications are under consideration. The main aim is to expand the value chain of locally-available natural resources, and hence, diversify the industry and create employment. These schemes have not yet had the impact on the economy as was expected. Only investment in the textile industry has contributed significantly to job creation – about 7,000 – though the remuneration is reportedly low. However, the sustainability of the industry is uncertain after the Multi Fibre Agreement expired at the end of 2004. Recent events suggest that the textile industry in Namibia could follow the 5 Insight Namibia, September 2005:14 25

same path as in other southern African countries, by closing down some of its operations. A review of the incentive schemes with a view to establishing the benefits and costs – in the form of foregone revenue – would be necessary. Furthermore, government aims to diversify the primary sector through the green scheme and the promotion of inland aquaculture. Both initiatives are expected to result in the diversification of the agricultural and fisheries sectors and lead to the downstream investment in processing activities. These various incentive schemes and policies have to be brought in line with the overarching Vision 2030. The same applies to the Millennium Development Goals and SADC’s RISDP that are not yet fully integrated. Namibia has received technical assistance from the SADC Secretariat to compile its first report on the Macroeconomic Convergence Programme. It is expected that the draft report will be completed by the end of April 2006. Since Namibia has achieved most of the convergence criteria, the report is regarded as a formality rather than an undertaking that involves serious policy debates and decisions. The SADC National Committee and the sub-committees are in place. However, the committees are regarded as being reactive towards upcoming SADC meetings rather than pro-active drivers of the process. Namibia has implemented a number of projects. These were not primarily in the agricultural and transport sectors, but included the establishment of SME parks with financial support from RISDP. However, the country has encountered problems in the approval of project proposals because of the lack of qualified staff at the SADC Secretariat scrutinise and approve proposals in time. Domestic constraints have also hampered the development and promotion of SADC in Namibia. For instance, a clear mandate for officials responsible for SADC issues is apparently lacking, resulting in a lack of continuity in the participation in SADC issues. Thus, SADC activities happen on an ad hoc basis prompted by upcoming events. Furthermore, the private sector is barely involved at all. National awareness workshops were held in 2002 and 2004 but the participation of the public was rather poor. More needs to be done to bring SADC and the RISDP onto the national agenda and to integrate them into national policies. 26

The following sections attempt to describe the main economic developments in detail and to highlight in particular domestic initiatives that are in line with RISDP. Composition of the Economy Economic growth received a boost after independence. Gross Domestic Product(GDP) grew by 3.8% on average during the period 1990 to 1995. This compares quite favourably to a growth of 1.1% for the decade before independence. However, growth slowed down to 3.6% (1995-99), but picked up again within the next five years to 4.4% (2000-04)(Table A 1). The increase in GDP shortly after independence can be closely linked to a surge in government activities that accounted for about 20% of GDP in 1989, but 26% in 1991. During the same period, primary industries’ contribution dropped from almost 32% to 25%, while the share of manufacturing activities stayed more or less constant. Currently, the primary sector accounts for 19.4%, manufacturing for 18.4%, and the service sector for 54.2%. Mining continues to be the backbone of the economy. It contributed about 13.9% to GDP(2002), which slumped to 8.8% during the following year because of the strong and persistent appreciation of the Namibia dollar against, among others, the Euro and USD. In 2004, mining accounted for 10.4% of GDP, and contributed significantly to government revenue in the form of company, and diamond royalties and foreign exchange earnings. However, because of its capital-intensive nature, the sector only employs about 6,000 people. The sector is dominated by large international enterprises. The Ministry of Mines and Energy established a Small Miners Assistance Centre in 1997 with financial support granted by the EU. This is in line with the SADC recommendation to increase the participation of small-scale operators in the sector, particularly women. However, the impact of this initiative has remained low in Namibia. Fisheries has played a major role in the economy, but has been experiencing a downward trend for the last three years for various reasons. Fish stocks were recovered during the 1990s as a result of strong fish stock management based on a system of fishing rights and fishing quotas. Fishing quotas are determined by the availability of 27

biomass and the size of the fish. With the adoption of the aquaculture policy in 2001 it is expected that inland aquaculture, as well as mariculture will gain in importance. Both initiatives, a strong stock management system and the promotion of aquaculture, are supported by recommendations in the RISDP. Despite efforts by government to diversify the economy, the macroeconomic data do not indicate much change. However, changes are visible on a micro level. Grapes have emerged as a major foreign currency earner since the second half of the 1990s. Fish processing has also gained in importance over the years, and a textile industry was established at the beginning of the new millennium benefiting from the USA’s African Growth and Opportunity Act(AGOA). In addition, locally-produced milk and pasta products have entered the Namibian market, protected by the Infant Industry clause in the SACU agreement. Furthermore, horticultural production has increased significantly over the past few years. However, manufacturing activities continue to rely on processing agricultural and fishing products, and are thus, quite vulnerable to climatic conditions. This explains to a large extent, the fluctuations in their contribution to GDP. The newlyestablished textile industry is about to change this pattern, but it remains to be seen how sustainable it is, after the expiration of the Multi-Fibre Agreement at the end of 2004. Recently established and expanded processing activities of minerals – a copper smelter, zinc refinery and various diamond cutting and polishing plants – add to the value chain and are expected to induce further ‘downstream’ developments. Textile and mineral processing industries were started during 2002 and 2003 and have contributed significantly to higher growth rates in recent years. But again, there are clear signs that domestic mineral processing companies are often too small in international terms to go it on their own. Foreign investors are needed to provide the necessary international expertise and access to financial resources. Tourism is another important pillar of the economy. According to the traditional National Accounts, it contributes less than two percent to GDP. However, its real contribution is significantly higher, since it has strong linkages to other sectors such as transport and manufacturing sectors. Namibia started the construction of Tourism 28

Satellite Accounts at the beginning of 2006 to measure the direct and indirect impacts tourism has on the economy. In this regard, Namibia follows the recommendations of the RISDP, although it can be reasonably assumed that the initiative has been spurred more by domestic needs of comprehensive information on the tourism sector than by the RISDP. Early results of the Tourism Satellite Accounts suggest that the total contribution of the tourism industry to GDP could be in the range of 14%. Despite these developments, economic growth has not been strong enough to significantly raise the standard of living in Namibia it falls short of the SADC growth target of 7% and of the growth rates necessary to achieve the domestic Vision 2030. The population grew by about 2.6% per annum between 1991 and 2001. This growth rate that stood at 3.1% during the previous decade, is expected to decline mainly because of the impact of the HIV/AIDS pandemic. The positive per capita growth since Independence eventually resulted in a decline of income poverty and income inequality. However, economic growth has not been employment-creating growth(Table A 19). The mining and fisheries sectors are capital-intensive sectors and output growth does not necessarily result in increased direct employment, but could result in additional jobs through forward linkages. However, despite economic growth, unemployment remained at high levels 33.8%(2000) compared to 34.5% in 1997 6 . Therefore, there is a need for designing policies that support employment-creating growth rather than focusing narrowly on a specific growth figure alone. 6 The figures refer to the unemployment rate in the broad sense, which includes persons who are not actively seeking work. It is argued that this definition fits the Namibian situation better than the strict definition, which includes only persons who are actively seeking work. 29

Figure 1: Namibia’s Growth Rates 1995 to 2008 Compared to the SADC Target Source: Republic of Namibia et al., 2005. Forecast for 2006 to 2008 based on Ministry of Finance, 2006. 30

3 Monetary Policy N amibia is a member of the Common Monetary Area(CMA), consisting of Lesotho, Namibia, South Africa and Swaziland. The currencies of Lesotho, Namibia and Swaziland are pegged one-to-one to the South African rand. The South African rand is legal tender in the whole CMA, but the currencies of the three smaller economies are not convertible, though they are sometimes accepted on transit routes. Foreign assets, such as the South African rand, need to back the value of the domestic currency in circulation to the same value 7 . Capital can move freely between the CMA member countries. This arrangement has benefited Namibia in at least two ways: firstly, there are no exchange rate fluctuations between Namibia and South Africa, its main trading partner. Secondly, since South Africa’s economy is larger and more diversified, any event affecting a particular sector has less impact on the economy as a whole(and hence on the exchange rate) than it would in a smaller and less diversified economy such as Namibia’s. It therefore provides a higher degree of credibility and predictability to foreign investors. However, the arrangement doesn’t come without costs. Namibia has actually ceded its discretionary monetary and exchange rate power to South Africa and can thus not pursue its own monetary, exchange rate and exchange control policy. Namibia is compensated- to a certain extent at least- for its loss of sovereignty over the domestic money supply through annual payments (seignorage) by South Africa. The free flow of capital reaches beyond the CMA. Namibia has liberalised exchange controls in tandem with South Africa on an annual basis. Thus, the CMA supports the RISDP recommendation of exchange control liberalisation. Because of her membership in the CMA and because of the influence of the dominant South African economy, Namibia follows South Africa’s monetary policy. The Bank of Namibia(BoN) sets its bank rate in line with the South African Reserve Bank’s repo rate. For a number of years, Namibia’s bank rate was between 25 and 125 basic points higher than the repo rate. However, the bank realised that this was not effective, and therefore the bank rate has been kept at the same level as the repo rate since August 2004. One of the reasons for the decision 7 Bank of Namibia, 2004. 31

to follow the repo rate was also the limited financial instruments available in Namibia, which in turn is caused by the lack of capacity to manage more sophisticated financial instruments. South Africa’s monetary policy has been anchored to inflation targeting since 2002. It aims to keep inflation within the range of 3% to 6%. However, the strong South African rand putting pressure on export industries has reportedly led to exchange rate considerations influencing interest rate decisions since the second quarter of 2005. This stance is often criticised for not using monetary policy more strongly to support economic growth and employment creation. Since the CMA countries have reached the macroeconomic convergence targets, the MoU on Macroeconomic Convergence is seen as a very important declaration, though it does not have a real impact on monetary policy decisions. Subsequently, the drafting of a National Convergence Programme is not necessitated by the need to address macroeconomic imbalances. Namibia will therefore see a continuation of the current macroeconomic policies. Monetary developments Interest rates surged in the aftermath of the South East Asian financial crisis in 1997, but dropped since 2003 to unprecedented low levels. The bank rate increased steadily in 1998 from 16% to a high of 20.25%, but dropped in 1999 to 13.25%. From the beginning of 2003 it declined by more than six percentage points, to 7% in the second quarter of 2005. The bank rate has remained at this low level since then. The prime lending rate and other interest rates followed accordingly 8 (Table A 2). The inflation rate fluctuated around 9% between 1995 and 2001; peaked at the end of 2002 at almost 14%, and has declined since then to an annual inflation of 2.2% in 2005. This is the result of both a monetary policy focusing on the inflation rate and a strong Namibia dollar reducing the costs of imports – in particular levelling out rising oil prices in recent months(Table A 3). 8 Bank of Namibia, Quarterly Bulletin, June 2005. 32

Figure 2: Namibia’s Inflation Rate 1996 to 2005 Compared to the SADC Targets, in% Source: Republic of Namibia et al., 2006 The financial crisis in South East Asia supported emerging market sentiments, and also affected South Africa and hence Namibia, since the Namibia dollar is pegged one-to-one to the South African rand. The strong US currency contributed to the downturn of the Namibia dollar, particularly during 2001. Since then the currency has recovered steadily, reaching a position of strength last seen at the end of the 1990s. While the South African Reserve Bank has tried in the past to influence the exchange rate through its bank rate, it later switched to inflation targeting and has left the exchange rate to market forces. This stance has apparently changed since the beginning of 2005 however, because the strong currency significantly affected the performance of the export sector. Statements of the Monetary Policy Committee indicate that the performance of the export sector is taken into consideration when decisions concerning the bank rate are made(Table A 4). Though the Namibian dollar itself is not convertible, it can at all times be converted to South African rand, which is legal tender in the whole CMA area. Gross National Savings stood at 31.5% of GDP in 2003(Table A 5). The high savings ratio over GDP is primarily attributed to contractual savings. Contrary to other developing countries, Namibia is a netexporter of capital. Large sums in the form of pension funds, for instance, 33

are invested in South Africa. In order to reduce capital outflow, Government has introduced the requirement for pension funds and insurance companies to invest 35% of their portfolio in the domestic market. However, since the absorption capacity of the local market is limited, this requirement could result in dubious investments that might turn sour. The skewed distribution of income as well as limited access to banking facilities in rural areas – even though access is increasing and banks are covering larger areas – constrains private savings. Based on historical data, it can be assumed that Namibia will meet the 2008(and probably 2012) SADC target concerning the savings ratio. Figure 3: Namibia’s Gross National Saving Rates from 2000 to 2003 Compared to the SADC Targets Source: World Bank, various years. Gross fixed capital formation fluctuated around 23% during the period 1995 to 2004, with no clear trend in either direction(Table A 6). It was driven by infrastructure projects(transport, communication. electricity and water), the mining sector and government. Government’s share declined from 25%(1995) to 13% in 2004, while the contribution of the mining sector almost doubled during the same period – from 10.7% to 19.8%. However, except for the agricultural and fishing sectors, as well as to some degree the public sector, investment fluctuated significantly during the period. This is indicative 34

of the influence of major projects on total investment, rather than continuous investments in the economy. Major infrastructure projects, such as the Trans Kalahari Highway(linking Walvis Bay through Botswana with the Gauteng province), the Trans Caprivi Highway (linking Walvis Bay with Zambia, Zimbabwe and the DRC), upgrading of the harbours and the power line to South Africa, as well as the development of a new mine, and subsequently a zinc refinery have all had major impacts on the overall level of investment. Investment in the primary sector – 18.3% and 27.8% respectively – is driven by the availability of natural resources and the viability of its exploitation, which in turn depends on external factors such as world market prices. It can be argued that between 50% and 70% of total investment – government, parastatals and the mining sector – is influenced by factors other than the macroeconomic framework(Table A 7). It is expected that Namibia will not achieve the SADC target of an investment rate of 30%, which would imply an increase of about 50%. Since government has set ambitious fiscal targets, capital expenditure is often the item that can be more easily adjusted downward in times of financial, rather than other expenditure items. There is also no major private investment expected that would provide the necessary boost of gross fixed capital formation, although the operation of the Namibia Development Bank will ease access to finance medium sized companies in particular. It remains to be seen whether the development bank will also benefit small-scale enterprises. Various financing schemes have been developed focusing on the SME sector, though with little discernible impact. Overall, Namibia is doing well with regard to most of the indicators. However, it lags behind in terms of investment. Despite the favourable macroeconomic framework and its well-developed infrastructure, Namibia has not benefited substantially from foreign and domestic investment. The recently-released competitiveness report reveals some of Namibia’s weaknesses that need to be addressed in order to reap any benefits that a deeper regional integration could hold for the country. On the other hand, the positive rating(BBB-) Namibia received in December 2005 by Fitch Ratings could increase her attractiveness to foreign investors, and similarly could reduce borrowing costs for domestic investors. 35

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4 Fiscal Policy A ccording to the Second National Development Plan, the main objective of fiscal policy is “.to conduct prudent fiscal management with the emphasis on prioritised resource allocation and effective resource utilisation 9 .” NDP2 further states that external borrowing should be restricted and limited to specific sectors(ibid.). Overall, fiscal policy is regarded as the key instrument for macroeconomic management, since Namibia’s membership in SACU and the CMA limits its scope for an independent monetary policy. Through its fiscal policy, government aims to sustain macroeconomic stability, and to contribute to economic growth and employment creation. Hence, current expenditure needs to be limited to increase capital expenditure, which in turn complements private sector investment. Moreover, restricting current expenditure provides government with a higher degree of fiscal flexibility in the event that revenue forecasts were too optimistic. Government has introduced several instruments to enhance the management of state finances and to increase its efficiency and effectiveness. A Medium-Term Expenditure Framework(MTEF) was implemented in 2000 to provide a realistic resource framework. The MTEF covers a three-year period and contains ceilings for each ministry, office and agency for each year in current prices. Thus, ministries know what resources to expect over the medium term, and can plan their activities accordingly. The MTEF is complemented by the Performance Effectiveness and Management Programme(PEMP). The introduction of PEMP marks a shift from a focus on inputs to one on outputs. This is further supported by the implementation of Medium-Term Plans(MTP) in 2005 that outline what each ministry plans to achieve with the resources allocated to them. The MTPs include indicators that will be monitored and evaluated. Future budget allocation to ministries will depend on achieving the envisaged outcome. It is expected that these tools will enhance the capacity within the public sector to efficiently control and monitor the use of public resources. Increased efficiency in resource allocation will prepare government well for times of less revenue caused by, for instance, a 9 Government of the Republic of Namibia, 2002:87 37

decline in taxes on international trade. However, the effectiveness of these tools depends on the training provided to the accounting officers in applying the tools. Government’s fiscal targets are a budget deficit of not more than 3% of GDP, a debt ratio of not more than 25%, and an expenditure ratio of not more than 30%. These targets are below the SADC convergence criteria and hence, do not influence government’s fiscal policy stance. While government is close to its deficit targets, total debts and expenditure exceed the targets. However, a too-narrow focus on these fiscal targets would contradict government’s stated objective of using fiscal policy for macro-economic management. Namibia has only limited influence on monetary and trade policies since it has ceded the sovereignty to the CMA and SACU respectively – in actual fact to South Africa, the dominant economic power in both groupings. Therefore, fiscal policy is the only significant remaining tool with which to influence the economy. Expenditure Patterns Namibia’s development objectives are reflected in expenditure priorities. The education sector consistently receives the largest share, though its share is slightly declining – from about 27%(1997/98) to 22% in 2005/06. The Ministry of Health and Social Services has received the second-largest share(about 14%) for almost a decade, though it dropped to a third place because of increasing statutory expenditure (9% in 2005/06) of the Ministry of Finance(18% in 2005/06). However, about 30% of the Ministry of Health’s budget is allocated to social pensions and other welfare grants, and can therefore, not be counted as health expenditure. It is expected that health expenditure will increase in the near future because of the HIV/AIDS pandemic. Namibia receives funds from the Global Fund for HIV/AIDS, TB and malaria that are channelled through the State Revenue Fund. Personnel expenditure has been dominating expenditure, followed by spending on goods and services. However, personnel expenditure is on a slightly downward trend- 47% in 1999/2000 to 43% in(2005/ 06). This is not because of the declining size of the civil service, but 38

quite the opposite. Government is by far the largest single employer, with more than 90,000 funded posts. Given the high rate of unemployment – 33.8%- and the limited absorption capacity of labour of the private sector, government will find it very difficult to downsize its public service. However, it will be necessary to ‘right-size’ the public service in order to increase the efficiency of its operations. Statutory expenditure has increased steadily from 3.6%(1997/98) to 9%(2005/06). Although government borrowing is not expected to crowd out private investment expenditure could crowd out other development expenditure, statutory because of Namibia’s membership in the CMA. Statutory expenditure also increased over the past two years despite the significant drop in interest rates, and declined during the current financial year 2005/06 by only 0.3 percentage points. Revenue Patterns All customs and excise duties collected by SACU countries are transferred into the Common Revenue Pool. Each member country receives a share of this pool according to a revenue-sharing formula that consists of three components. Receipts from this pool have constituted the largest income for Namibia since independence. It accounted for 31% on average between 1997/98 and 2005/06, with as high a share as 37%. However, it would be misleading to interpret this as a high dependence on taxes on international trade. The trade component has contributed less than 50% to the revenue pool 10 . Excise duties, as indirect taxes, have been more relevant. Hence, trade liberalisation will have a less severe impact on revenue than the transfers from the SACU pool would suggest at first glance. Namibia sources only a small share of all imports from SADC countries, which would suggest that a SADC Free Trade Area would not have a major impact on Namibia’s revenue. However, transfers from the SACU CRP depend on the total size of the pool that is determined by total SACU imports. Hence, any impact analysis needs to take account of the volume of imports into SACU by all its member countries, particularlyt by South Africa. Imports from SADC countries excluding SACU countries accounted for 0.8% of Namibia’s total imports in 2003, but 1.6% of South Africa’s imports. South Africa imported goods to the value of 10 Based on Bank of Namibia, 2003:34. 39

USD550 million, and Namibia of less than USD 12 million 11 . These figures indicate that imports from SADC countries do not contribute significantly to the CRP. In addition, imports from SADC countries already receive preferential or free access to the SACU market. It is therefore not expected that the SADC Free Trade Area will result in a significant drop in Namibia’s revenue from the SACU CRP. As a result, the Ministry of Finance does not intend to raise any other taxes in order to mitigate possible losses in taxes on international trade. Namibia employs a progressive income tax system. The first 24,000 Namibia dollars(N$) earned per annum are tax free, which provides a substantial relief for low-income earners. The marginal tax rate for income earned above this tax threshold increases from 17.5% to 35%. Income taxes on individuals as well as company taxes have increased in importance from 26%(1997/98) to 39% in 2003/04. The vulnerability of company taxes to external events became apparent during the financial year 2004/05. The strong appreciation of the Namibia dollar against major currencies such as the US dollar and the Euro, resulted in a downward revision of revenue estimates from company taxes by more than one billion Namibia dollars. Subsequently, the contribution of company taxes dropped from 16% to 8% of total revenue, and the budget deficit soared to an all-time high of 7.5%. The introduction of Value Added Tax(VAT) at the end of November 2000 replaced General Sales Taxes(GST) and Additional Sales Levies (ASL). Two tax rates exist: 0% for exempted products such as maize and Mahangu flour, and 15% for all other products. Government is currently considering re-introducing Luxury VAT, which was scrapped in 2002. Revenue from VAT has contributed on average 22% since its implementation, compared to an average of 19% that GST and ASL contributed. This result, once more proves the notion that VAT is a more effective and efficient tax instrument than sales taxes. The closing of some tax loopholes and an improved system of tax collection have levelled out the impact of a strong local currency on the profits of export industries and subsequently, revenue from company taxes. Stronger regional integration often raises the concern of a ‘race to the bottom’ regarding taxation in order to attract investment. The RISDP has taken note of these fears and calls for tax harmonisation 11 www.trademap.net accessed on 13 September 2005. 40

and cooperation among member countries regarding tax incentives, direct and indirect taxation and treaties on double taxation. However, it appears that no initiatives followed these recommendations. Tax rates differ widely even among SACU member countries, and there seems to be no coordination within the CMA when member countries decide on tax rate adjustments. Grants channelled through the State Revenue Fund do not play a significant role. With the exception of 1997/98(1.2%), grants contributed less than 1% to the revenue. However, grants are often transferred outside the State Revenue Fund to programmes and are not reflected in the national budget. Efforts by government to receive budget support have borne fruit with major donors(the EU and SIDA) that are now channelling at least part of their assistance through the SRF. This certainly improves transparency, accountability and the planning process. The low amount of grants also explains why there is seldom a difference between the deficits, including and excluding grants. Overall, it can be expected that trade liberalisation, in particular the impacts of the TDCA between the EU and South Africa, will result in declining income from the SACU pool. This decline could be levelled out by an increase in the efficiency of tax collection, which has already been happening over the past year, and increased economic activities that result in broadening the tax base. However, because of the low level of trade taking place between SACU and the rest of SADC, the reduction of tariffs on SADC goods is not expected to have a significant impact on the Common Revenue Pool. Whether or not trade liberalisation within SADC results in trade diversion(and hence in a loss of income) would warrant further research. Debts The budget deficit has stayed within manageable levels, ranging between 1.4% and 7.5% for the period 1996/97 to 2003/04. The average for this period was 3.6%; however, excluding the high deficit of 7.5% for the year 2003/04 which was caused by a strong and persistent appreciation of the Namibia dollar that was not foreseen, the average stood at 3%. However, this external shock also revealed limitations in government’s response to declining revenue. Expenditure was not adjusted in time to keep the deficit within the self-set range of 3%(Table A 8). 41

Figure 4: Namibia’s Budget Deficit 1999 to 2008 Compared to SADC Targets Source: Bank of Namibia, 2004 and Ministry of Finance, 2006 Furthermore, revenue has always been sufficient to cover recurrent expenditure, so that the deficit has only been used to finance capital expenditure. The deficit could therefore be justified if capital expenditure resulted in returns in the medium- to long term. This is the case with investment in the productive sectors and infrastructure. Total government debts stood at about 33.5% in 2004/05. 15% of these debts are foreign debt stocks representing between 4% and 6% of GDP(Table A 9). However, Namibia has not borrowed any money from the IMF or World Bank. Treasury bills and bonds are used for borrowing on the domestic market. The Central Bank Act provides for an overdraft for government. Government could request credit only in specific instances. None of these has happened yet. Government has always maintained savings on its account with the Bank of Namibia(Table A 22). 42

Figure 5: Namibia’s Foreign Debt as% of GDP from 2001 to 2008 Compared to the SADC Target Source: Ministry of Finance 2005 and 2006 As with the deficit and debt ratio, the ratio of foreign debt over GDP is far below alarming international benchmarks. However, as the financial year 2003/04 illustrated, developments in the global economy can cause the fiscal balance to deteriorate rapidly. A slowdown of the global economy will affect revenue of the mining industry and its tax bills. Interest rate increases will impact on statutory expenditure, and without adjustments on other expenditure items, will increase the deficit. In addition, government has guaranteed loans to parastatals and some private sector companies, mainly as part of its Affirmative Action Loan programme. Total guarantees amounted to almost N$2.5 billion during the 2004/05 financial year, bringing total public and publiclyguaranteed loans to about 40% of GDP. Domestic guarantees account for 55%, and foreign guarantees for the remaining share 12 . Experience has shown that these guarantees carry risks, and government has had to honour its guarantees in cases where the beneficiary of the loan defaulted on the repayment. While there are good reasons for guarantees, decisions need to be based on a profound economic analysis of the business plan and its viability. Government has realised shortcomings in the current system and implemented new regulations 12 Ministry of Finance, 2005:12. 43

that raise the hurdle to be granted government guarantees, such as a fee to be paid annually on the guaranteed amount. Thus, continuing strong fiscal discipline is needed to keep control over public finances. The government has ambitious plans over the current medium-term expenditure period, not only to keeping the deficit below 3%, but turning it into a budget surplus. Achieving these targets would result in declining total government debts, but it will take several years to reach the fiscal target of 25% 13 . Similarly important is to keep the flexibility in using fiscal policy to stimulate the economy if needed, and to pursue the national development objectives. Since Namibia is well within the SADC targets, it is not expected that macroeconomic convergence will put pressure on government to change its fiscal policy. However, a risk looms on the horizon. The government adopted an ambitious Medium Term Plan to fight the spread and impact of HIV/AIDS. The plan is supported by donor funds, notably the Global Fund and PEPFAR. This requires significant Namibian resources for implementation. The estimated cumulative costs of the programme over the five-year period 2006 to 2009 amount to N$4,923 millions, of which Namibia has to raise some N$2,959 millions from its own resources. This would require a reorientation of resource allocation. Furthermore, should donor assistance dwindle after 2009, additional domestic resources would be needed to continue with the programmes, such as treatment and care services and orphan grants 14 . This could have repercussions on the budget deficit and eventually on achieving the convergence criteria. 13 Ministry of Finance, 2005:11 and 21. 14 IMF 2005:13. 44

5 Trade Policy Framework R egional integration arrangements are seen as vital in addressing the demand side of constraints faced by Namibia due to its small domestic market. It is believed that Namibia can overcome such constraints in the context of a larger regional market. Regional integration is also viewed as an enabling stepping-stone to the country’s integration into the world economy. Namibia has consequently entered into a number of trading agreements. Namibia belongs to the South African Customs Union(SACU). In 1994, a formal decision was made to renegotiate the 1969 SACU agreement, with a view to making it a more democratic institution. The renegotiation process lasted for eight years and led to the signing of the new SACU Agreement in 2002, which came into force in 2004. The new agreement introduces a system of managing and sharing the common revenue pool. The new SACU agreement requires countries to develop common industrial policies and to have cooperation in agriculture, competitive and fair trade practices. The key challenges facing the BLNS countries are the setting up of independent trade policies that will be in line with their own development priorities, and the decline in revenue from the common revenue pool as a result of changes in the way it was previously shared. Furthermore, Namibia is a member of the Southern Africa Development Community(SADC). SADC has evolved from its initial objectives of focusing on food security and creating political stability in the region to regional integration and cooperation among member states. This has led SADC to extend its agenda on regional integration and trade liberalisation. Although Namibia belongs to both SACU and SADC, its membership to SADC does not pose problems at present, because it is not yet a customs union. By 2010 when SADC is supposed to become a customs union, the external tariffs of SADC and SACU will be harmonised. SACU’s rules of origin are also different from those of SADC, which currently poses obstacles to trade. Namibia is also part of the Cotonou Agreement between the ACP countries and the EU. As such, it is currently negotiating an Economic Partnership Agreement with the EU as part of a group of SADC member countries 15 . The main objective of these negotiations is to foster the smooth 15 The group includes Angola, Botswana, Lesotho, Mozambique, Namibia, Swaziland, and Tanzania. 45

and gradual integration of the countries into the global economy. These agreements should be seen as the continuous process of strengthening regional integration in SADC, rather than undermining it. The negotiations are undertaken on specific issues according to a set timetable. During 2005 negotiations are focusing on market access and non-market access issues in the areas of agriculture and fisheries. The negotiations are to continue until 2008 when the EPA will enter into force. Namibia did belong to COMESA, but pulled out in 2003 because it was already a member of a customs union with a common external tariff, namely SACU. The withdrawal has not resulted in major problems in trading with COMESA member states. Lastly, Namibia is a member of the World Trade Organization(WTO). Regional integration initiatives are supposed to result in increased benefits to Namibia owing to access to larger markets, and increased efficiency due to competition and economies of scale. However, overlapping memberships can lead to high administration costs related to the different rules of origin and huge amounts of government funds spent on official participation in the negotiations. Furthermore, since human capacity is limited, participation in the various regional bodies and trade negotiations is also constrained. Namibia does not have a written national trade policy. Its trade policy and strategies are guided by the country’s national development objectives, which include the promotion of economic growth, creation of employment, and reduction of poverty. In addition, it is determined by its membership of both the international and regional trading bodies. Its trade policy strategy is mainly driven by that of SACU, and most of the country’s trade policy decisions are undertaken jointly under SACU. Trade has always been viewed as an engine of growth for Namibia, and it is one of the most important pillars of integration in the SADC region. For this reason, Namibia’s trade policy objectives are to diversify the economy from the export of primary and traditional goods to expansion of the country’s manufacturing base through increased exports of value-added products and attraction of foreign investment. This strategy is aimed at promoting high economic growth through increased foreign exchange earnings and the attraction of sufficient foreign direct investment for the ultimate realisation of increased employment opportunities, poverty alleviation and of addressing socio 46

economic imbalances inherited from colonial times. To date, the impact of trade agreements on industrialisation has been somewhat marginal. The manufacturing sector is slowly diversifying, but this is caused by its natural resources rather than the result of trade negotiations, with the exception of the textile industry that has benefited from AGOA. Policies are needed in support of balanced and mutually-beneficial industrialisation in the region, such as a competition policy and a policy targeting unfair trade practices. As a member of the World Trade Organization, Namibia has committed itself to the gradual reduction of tariffs, with the aim of liberalising trade. Trade liberalisation is currently being undertaken at multilateral level under the WTO as well as at regional level under SADC and SACU. Under the new SACU agreement, member countries are not allowed to enter into a trade agreement without notifying and seeking the approval of the other SACU members. 5.1 SADC Trade Protocol N amibia joined the Southern African Development Co-operation Conference in 1990 after gaining its independence from South Africa, and was a founding member of SADC in 1992. It signed the SADC Trade Protocol in 1996 and became one of the first SADC countries to ratify the SADC Trade Protocol in 2001. By ratifying the protocol, countries bind themselves to the requirement of the protocol, which is mainly the gradual reduction of tariffs to make way for the free trade area in 2008. Through the Trade Protocol, SADC intends to establish a free trade area in 2008, and the Customs Union in 2010. Namibia has since deposited the instruments of implementation of the Trade Protocol with the SADC Secretariat, which is a tariff ‘phasedown’ schedule over the implementation period. The trade protocol is seen as the most important legal instrument in the region’s quest for economic integration. The gradual reduction of tariffs commenced in 2000 and the process is expected to take up to eight years. The BLNS and South Africa, being members of the Southern African Customs Union(SACU), have undertaken to implement the SADC trade protocol as a group, and they have been the main countries that have moved quickly in tariff liberalisation(fast liberalisers). Over 50% of products are now traded 47

duty free. Although Namibia does apply the tariff amendments as issued by South Africa Revenue Services(SARS) on a regular basis, the 2004 amendments to the SACU CET have not been gazetted. The delay with gazetting is due to internal capacity constraints given the bulkiness of the tariff book and the frequency of SACU’s tariff amendments. Namibian customs authorities are currently addressing this issue in cooperation with SARS 16 . However, a number of implementation issues still remain unresolved. According to the Ministry of Trade and Industry, outstanding issues remain in technical areas, such as the implementation issues relating to the rules of origins in terms of the local content of manufactured products. The key obstacle encountered in the process of implementing SADC regional economic integration is the definition of the Rules of Origin and the establishment of enforcement mechanisms for countries that are not adhering to the commitments they made. The mid-term review of the protocol conducted in 2004 indicates that tremendous progress has been made towards regional cooperation and integration among SADC countries, except for a few countries that are still struggling to implement the protocol, and that there has been an increase in intra-SADC trade in goods. 5.2 Trade Facilitation Initiatives D uring the negotiations and initial period of implementation of the SADC Trade Protocol, much of the focus was on reductions in tariffs. However, as the implementation proceeds, member states are becoming increasingly aware that Non-Tariff Measures are a substantial and growing barrier to intra-SADC trade and hence, to integration. Trade barriers can be classified into tariffs which are duties on goods entering and leaving the country, and non tariff barriers(NTBs) which are often rules, regulations, and standards that distort and limit trade. Although the rationale behind most trade arrangements is to reduce trade barriers with a view to promoting increased flow of trade between countries with the ultimate objective of achieving economic development, countries still devise barriers to protect local markets, mainly from competition by foreign firms. Non-tariff barriers are more serious obstacles to trade than tariffs because they are not transparent. 16 The Service Group, 2004 48

For the business community, it is difficult to factor them into their business plans. Like other countries in the region, Namibia continues to use tariffs and NTBs to restrict imports into the country with the aim of protecting domestic industries from competition and promoting import substitution industrialisation. Import duties work only as a trade barrier against competition from outside SACU. Therefore, non-tariff barriers are used to restrict imports also from SACU member countries, mainly South Africa. Non-tariff barriers come in various forms, ranging from quantitative restrictions on imports and exports such as licences and permits standards to customs documentation and related procedures, all of which often add substantial costs to cross-border trade. Namibia has imposed import and export restrictions on various agricultural products in accordance with Article 25 of the New SACU Agreement 17 . Maize may only be imported into Namibia once the Namibian harvest is milled, while wheat can always be imported. Maize and wheat flour are not allowed in the country, in order to protect Namibia’s milling industry. It is anticipated that the staple diet for the majority of people, namely millet, will be declared a controlled product in due course and be subject to the same regulations as maize. Since customs duty rebates are applied on wheat imports, it is not permitted to export wheat or wheat flour. An import permit is required for horticultural products and is only issued once proof is provided that 7.5% of the import quantity has been purchased from local Namibian producers. The import restrictions have benefited Namibian producers and processors of domestic crops and extended the value chain of agricultural products. However, consumers are to some extent paying the price in the form of higher costs for maize meal and other related products. The New SACU Agreement also allows for infant industry protection for a limited period of eight years. Namibia has made use of this clause twice to date, protecting its Ultra-High Temperature milk production (implemented in 2001) and pasta production(implemented in 2002). Additional duties are levied on the imports of these products and are due to SACU’s Common Revenue Pool. Despite these additional levies, the industries face tough competition from South African companies. 17 The following section draws on Schade, Klaus, Rehabeam Shilimela, 2005. 49

Export restrictions are in place for sheep exports on-the-hoof. Export permits require that for one sheep to be exported, two have to be slaughtered locally. Since domestic sheep prices are lower than South African prices, farmers are left with a lower income. At a recent meeting, farmers and the abattoirs agreed on a price that satisfied both parties. In addition, the export of unprocessed hides and skins is restricted and a levy is imposed to protect the domestic processing industry. Apart from these regulations, trade in livestock and meat products is virtually free. Other technical barriers to trade, such as standards, are many but appear to be reasonably well managed, not adding much to the costs of doing business 18 . Furthermore, in a survey conducted by NEPRU in 2005 as part of this project, businesses indicated that time-consuming customs procedures, high transport costs, risk of non-payment, and other bureaucratic procedures are the most relevant barriers to trade. The IMANI study identified further bureaucratic obstacles such as visa requirements imposed on professional staff. Business people are still required to obtain a business visa when travelling within the region. This can take several weeks to obtain by which time the business opportunity could be lost. Other barriers such as bans are posing a major problem for strategic imports of inputs into Namibia’s manufacturing sector. This underlines the point that the gradual removal of non-tariff barriers within SADC could have the potential to add impetus to the regional integration process by reducing the high costs associated with trade transactions. Therefore, trade facilitation plays a considerable role in deepening SADC integration. Namibia has taken some steps in this regard. Namibian customs authorities have introduced measures to minimise delays at border posts. The Ministry of Finance has introduced the ASYCUDA system at head office, and has also installed computers at customs border posts across the country. These measures are all aimed at increasing efficiency in the system in order to facilitate cross-border clearance procedures. Namibia has invested substantially in its infrastructure to attract investment and to strengthen trade with its neighbours. Becoming a transport hub for the region is one of the strategies developed within 18 IMANI, 2004. 50

the Poverty Reduction Strategy. The infrastructure of its two ports was improved and its main port – Walvis Bay – is linked through highways to neighbouring, landlocked countries. The Trans-Caprivi highway connects Namibia with Botswana, Zimbabwe, Zambia, and the DR Congo. The Trans-Kalahari highway provides an important route from Walvis Bay to the Gauteng Province via Botswana. To accelerate customs formalities at the Botswana border, authorities have agreed to implement fast-track customs procedures for registered haulage operators on a trial basis. Namibia and other SACU countries currently have a common document and appropriate supportive legislation handling transit procedures. 5.3 Namibia’s Trade Patterns T he country’s main trading partners are South Africa, the EU and the USA. The Namibian economy is very trade-dependent and the customs revenue from the SACU pool accounts for about a third of its tax revenue. Ores and minerals as dominant exports accounted for some 39% in 2004. Processed copper and refined zinc contributed an additional 3.5% to exports. Manufactured products, accounted for 33% in 2004, consisting mainly of processed fish(16%). Other important manufactured products are beverages and other food items (7%), as well as meat and meat products(4%). The advent of new, export-oriented manufacturing industries during 2003(textiles and garments, refined zinc), which resulted in a slight diversification of exports, could however not offset the decline in processed fish that is dominating manufactured exports. Finally, the importance of tourism for the domestic economy is reflected in the relatively high share of service exports – 17.8%. It can furthermore be reasonably assumed that with the emergence of new industries and hence new products being exported, the relevance of export destinations has changed, though slightly. Textiles are exported almost exclusively to the USA, benefiting from the preferential treatments under AGOA. Cut and polished diamonds are also exported to other destinations than raw diamonds. Raw diamonds produced by the De Beers group are distributed through its subsidiary Diamond Trading Company based in London. Thus, Great Britain 51

topped the list of export destinations. This has not changed as yet, since the diamonds that are cut and polished in Namibia are to a large extent bought in London and imported to Namibia. However, the intention is that diamonds mined in Namibia will be processed directly here, without the detour via London. Overall, the EU was the main export destination in 2002(48%) because of the exports of diamonds, fish, grapes and beef. South Africa followed with a share of 25%- mainly live animals(cattle, sheep and goats), beverages and other food products. These percentages changed significantly from 2002 onwards however, on account of the peace accord in Angola that led to substantial growth in exports, and the strong appreciation of the Namibia dollar against the Euro and USD in the following year. Subsequently the value in local currency of exports to Europe and the USA declined. Exports to SADC countries excluding SACU accounted for 6% in 2001 but rose to 23% two years later before they dropped to 16% in 2004. Though the figures look impressive, these exports are almost exclusively destined for Angola and are to a large extent re-exports from South Africa. The following factors have most probably contributed to the decline in the share of exports to Angola in 2004: more goods are imported through Angola’s ports from original sources resulting in a decline of Namibian exports; customs duties are now enforced at border posts in Angola, and manufacturing activities in Angola are gathering pace. Exports are hence highly concentrated on a few export destinations. SACU and SADC countries – with the exception of South Africa and Angola – have not featured prominently as export destinations. However, some Namibian exporters use distribution centres in South Africa from where goods are distributed across South Africa but could also be further forwarded to other countries, in particular Lesotho, Mozambique and Swaziland. Hence, actual trade with other SADC countries might be higher than the trade figures indicate. Exports to the rest of Africa and the rest of the world accounted for less than 10% during 2002 and 2003. Exports to SADC, excluding SACU countries grew by 53% on average between 1998 and 2004, substantially stronger than total exports(10.6%). However, this is exclusively attributed to a strong growth of exports to Angola for a short period of time(Table A 13). 52

Similar patterns are found on the import side. South Africa has always accounted for about 80% of all imports, followed by imports from the EU(between 8% and 10%). However, goods imported from South Africa are not necessarily produced there but can be sourced through South African wholesalers and importers from elsewhere. Imports from SADC countries, excluding South Africa account for about 1% of total imports. This can be attributed to the product range imported. Transport equipment(20%), machinery and equipment (16%), and chemicals(13%) are the main import items and are rarely produced within SADC except for South Africa. The trade data clearly indicates that SADC with the exception of South Africa is not yet a relevant trading partner for Namibia. However, some of the goods sourced from South Africa could in fact, originate from SADC countries. It is unlikely that this happens to a large extent, because of similar production patterns within SADC, and a lack of economic diversification. Imports from SADC countries grew by 10.7% between 1998 and 2004 and hence faster than total imports(9.0%), but imports from SADC countries picked up from a low level. Since SACU is a fast mover concerning tariff reductions within SADC, stronger growth of imports from SADC outside SACU could have been anticipated if SADC were characterised by a complementary production structure. However, there is no indication that tariff reductions have played a role. Imports from these countries appear to be rather sporadic and display considerable fluctuations. Secondly, imports are substantially influenced by two countries, namely Angola and Zambia. The surge of imports from Zambia could be related to copper imports that are further processed at the copper smelter in Namibia. Hence there is not yet evidence that tariff reductions within SADC have led to a shift in imports towards producers in SADC outside SACU. Namibia has incurred a trade deficit in many years, which however turned into a trade surplus during the first quarter of 2005. Because of the SACU transfers, Namibia recorded a current account surplus (Table A 22). 53

Figure 6: Namibia’s Current Account Balance Compared to the SADC Target Source: BoN Quarterly Bulletin 2003 June and Sept 2005 Foreign reserves covered the value of imports for an average of 9.5 weeks between 1999 and 2004. However, the import cover fell significantly from above 10 weeks to around 7 weeks during 2003 and 2004(Table A 17). Figure 7: Namibia’s Foreign Reserves in Months from 1999 to 2004 Compared to the SADC Targets Source: Bank of Namibia, 2004 54

5.4 Conclusion N amibia gives a picture of an open economy, in terms of import and export ratios over GDP. Over the period 1995 to 2003, the ratio stood at 60% and 46% for imports and exports, respectively. This is not surprising since it is a small, natural resource-rich country. Namibia exports commodities in raw or processed form and a few manufactured products for niche markets, but imports most of its consumer and producer products. The openness to trade, new trade agreements, as well as preferential access to some markets have not yet resulted in a rapidly diversifying economy. On the other hand, Namibia has not experienced significant external shocks from trade liberalisation. Namibian industries face the main threat not from trade liberalisation within SADC, but from established South African companies hence, from within the customs union. In particular, the Namibian dairy industry is under considerable pressure. This can in part be explained by the Trade and Development Cooperation Agreement between South Africa and the EU. Although the BLNS countries were not part of the negotiations, they are de-facto part of the agreement because of their membership of SACU. Customs duties on products from the EU are gradually reduced and increase the competitiveness of these imports. South African companies that experience stronger competition try not to lose market shares in neighbouring countries to newly-established industries. They reportedly sell their products at the same price or at even lower prices than in their own country, despite transport costs and additional levies on certain products. This indicates that trade liberalisation needs to be accompanied by the necessary legal framework to level the playing field between local and foreign producers and to curb unfair trade practices. A competition policy is required and the capacity to enforce it. Otherwise, trade liberalisation could result in a gradually less diversified economy – quite the opposite of what trade liberalisation is hoping to achieve. 55

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6 Labour Market Policy Framework A s stated earlier, Namibia inherited a highly unequal society at independence as a result of almost a century of colonial and apartheid rule. During this era, the majority of the population received only a very basic education. Subsequently, the workforce has been characterised by low levels of skills, which in turn resulted in a racially unequal distribution of employment opportunities, income and wealth. Low levels of skills go hand-in-hand with low wages and with unemployment. Furthermore, the dualistic society and economy has resulted in a formal sector with highly regulated working conditions and an informal sector with no labour regulations, leaving the workers unprotected and vulnerable to exploitation 19 . 6.1 Legislation regulating the labour market V arious pieces of legislation regulate the labour market in Namibia. The Government promulgated the Labour Act, 1992, amended in 2004, in order to improve the labour market conditions and protect the workers. The Act covers labour-related issues such as freedom of association, conditions of employment, collective bargaining, occupational health and safety, social security and other labour issues. The Namibian constitution prohibits discrimination on the basis of colour, sex, race or ethnic origin. However, this has not been sufficient to redress the situation on the labour market. Therefore, the Affirmative Action(Employment) Act of 1998 was implemented, specifically to target the inequity of employment opportunities and to promote the development and advancement of the previously disadvantaged in society. All companies with more than 50 employees are required to supply the Equity Employment Commission with annual affirmative action reports that outline the company’s plan to provide equal employment opportunities to the previously disadvantaged. Training programmes need to be designed to promote those previously disadvantaged into higher positions. The term ‘previously disadvantaged’ includes racially disadvantaged persons, women and people living with disabilities. 19 Ministry of Labour, 1997 57

Reports for 2004/05 indicate that about 31% of executive directors’ positions and 44% of management positions are occupied by the racially disadvantaged, although they account for the majority of the population. The figures for women stood at 13% and 25%, respectively. These figures indicate that much has remained unchanged in ensuring a representative workforce 20 . The National Vocational Training Act, No. 18 of 1994 regulates the training system in the country. It aims to develop a mass skills’ training programme in the country. The Act makes provision for the regulation of the training of apprentices and vocational trainees and provides for the establishment, powers and functions of a Vocational Training Board and trade advisory committees. It also provides for the establishment and approval of vocational standards, the designation of trades and the establishment and approval of training schemes in respect of such trades. The Act provides for the establishment of a National Trade Testing and Certification Centre, trade testing and certification of apprentices and provides for the registration of vocational training centres and for the imposition of training levies and the establishment of a Vocational Training Fund. The Social Security Act No. 34 of 1994 established the Social Security Commission that collects contributions from employers and employees to cover employees in the case of maternity leave, sick leave and injury at work, and pays death benefits to employees’ families. Namibia does not have a national minimum wage policy per se , but the Labour Act of 1992 which was amended in 2004 makes provision for the establishment of a wage commission that has not yet been established. It is on the basis of this provision that parties are negotiating minimum wages for workers in certain sectors. So far, unions and employers have signed minimum wage agreements in three sectors, namely construction, agriculture(farm workers) and security services(security guards). The new Labour Act of 2004 further suggests that the wage commission looks into issues of income policy. The low levels of skills in the country and subsequently the lack of skilled and qualified personnel have resulted in foreigners being employed in the country. The procedure of getting a work permit, however, is cumbersome. Applications with the necessary documentation are screened by the Ministry of Home Affairs, and the 20 The Namibian, 30 Sep. 2005:5. 58

Immigration Selection Board finally decides on the application. The procedure takes at least six months, and often more than a year. The employment of non-citizens and the migration of labour are addressed under the Immigration Act of 1994. The government is currently working on the Employment Service Bill that will address the employment of foreign nationals. Overall, labour market legislation is regarded as too rigid. The recent amendments to the Labour Act include an increase in annual leave days to 24, additional compassionate leave of five days each for the death of defined family members, changes in payments during maternity leave and severance pay. These regulations are regarded as unfavourable for creating employment opportunities. Combined with the impact of HIV/ AIDS that results in lower productivity and hence, higher labour costs, the legislation may support capital-intensive production methods rather than attract labour-intensive industries. Minimum wages have been determined for a few industries such as construction and agriculture, but are once again on the agenda. Experience with minimum wage issues is generally mixed, and the chief challenge is to get them right. If set too low, they won’t have an impact, and if set too high they will result in high production costs, leading to increased capital-intensive production techniques. Thus, increased unemployment could be the result, and micro- and small-sized companies could be pushed into the informal sector to avoid the regulatory framework. A SADC-wide labour market policy framework could avoid the temptation of lowering labour standards in individual countries in order to attract much-needed investment. However, the RISDP acknowledges at the same time that any framework needs to support a competitive market. It furthermore needs to take cognisance of the specific situation of each country’s labour market. 6.2 Labour Market Trends 21 E conomic growth rose substantially after independence but then slowed down towards the end of the first decade. On the other 21 The analysis is primarily based on the Labour Force Surveys of 1997 and 2000. Data from the most recent Labour Force Survey(2004) is not yet available. 59

hand, population growth declined from 3.1% in 1991 to 2.6% in 2001, according to the respective Population and Housing Censuses 22 . These should have been favourable conditions for a reduction of unemployment in the country. However, unemployment remained at a high level of about 31% in 2001, although it had shown some decline compared to previous years. Developments have been rather mixed. New industries such as the zinc refinery and the textile industry have created roughly 8,000 jobs. Additional jobs are created in the service industries owing to increased demand, for instance, for transport services. On the other hand, the agricultural, and more recently the fisheries sectors have laid off workers. Workers in the fisheries sector have been retrenched because of strong competition, resulting in part from a strong local currency and increased oil prices. While there was cautious optimism that the unemployment rate had dropped, preliminary results from the 2004 Labour Force Survey indicate a considerable increase again – to 36.7%. This was unexpected, and a thorough analysis of the Labour Force Survey data is needed in order to establish the causes for this rise. Furthermore, preliminary results from the National Household Income and Expenditure Survey 2003/04 suggest a substantial drop in income inequality and income poverty. These results contrast with the rising trend of unemployment. Table 1: Labour Force, Employment and Unemployment, Various Years Year 1991 1 1993/94 2 1997 3 2000 4 2001 5 2004 6 Employed 388,014 350,280 401,203 431,949 409,591 Unemployed 91,765 84,398 97,121 109,598 185,258 Labour Force 479,779 434,678 498,324 541,547 594,849 Unemployment rate(Broad) N/A N/A 34.5% 33.8% 31.1% 36.7% Sources: 1 Republic of Namibia. 1992/93; 2 National Planning Commission. 1996; 3 Ministry of Labour, 2001, 4 Ministry of Labour, 2002; 5 Republic of Namibia, 2003, 6 The Namibian 24 May 2006 22 Government of the Republic of Namibia, 1992 and 2003. 60

The agricultural sector is the major employer in Namibia, accounting for 29.3% of all employees(Table A 19). Most of these jobs are provided by the traditional agricultural sector, while the commercial agricultural sector contributes only about 30,000 jobs. The agricultural sector is followed by the public sector and the wholesale and retail trade sector. The mining sector that contributes significantly to foreign exchange earnings and government revenue employs less than 1%. Government is the single largest employer with some 90,000 funded posts for the 2005/06 financial year. It is followed by the textile company with about 7,000 jobs, which are however currently under threat. Women are more affected by unemployment than men(39% compared to 28% in 2000). Most striking is the impact of educational attainment on employment status. 36% of the labour force with only primary education is unemployed, compared to 42% with junior secondary(Grade 8 to 10) and 34% with senior secondary education. Persons with no formal education are less affected – only 23% are unemployed. A possible explanation is that these are older persons staying on farms, and are thus employed or self-employed in the traditional agricultural sector, while people with some degree of formal education migrate to towns and industrial centres in search for work and a better standard of living. A good education almost guarantees a job. The youth is hardest hit by unemployment. Almost half of the age group 15-19 years is unemployed. The rate drops dramatically the older the people are. From the mid-thirties, the unemployment rate falls to 10% and below. Youth unemployment is thus a major challenge to the country. A report on the informal economy 23 revealed that there are some 85,000 informal businesses in the country employing some 132,000 people. Most of these businesses are run by women(53%) and by people with relatively low educational attainments. Employees in this sector share the same characteristics – they are mainly women(54%) with less than secondary education(63%). This is indicative of the informal sector being a ‘push’ sector rather than a ‘pull’ sector. The informal sector is apparently not a sector of choice but a sector people are pushed into because they can not find employment in the formal sector. 23 Republic of Namibia, 2004 61

6.3 Causes of Unemployment T here are a few factors that could explain the high rate of unemployment in the country. The economy is characterised by natural resource extraction that is highly capital intensive(mining, fisheries). The commercial agricultural sector is laying off workers in order to stay competitive, while the subsistence agricultural sector remains an employer of last resort. The introduction of a minimum wage for farm workers has reportedly contributed to retrenchments on commercial farms. Furthermore, cattle farms have been turned into game farms and hunting lodges, often requiring fewer employees than before. Moreover, they become part of the tourism sector if they stop livestock farming at all. Relatively new manufacturing activities such as textiles, diamond cutting and polishing, have had a positive impact on the labour market. However, the value chain of Namibia’s raw materials needs to be extended in order to add further value and create employment. One of the main challenges facing the manufacturing sector is the small and dispersed population coupled with a highly skewed income distribution that limits demand. In particular, newly established companies face stiff competition from well-established and capitalised South African companies, not only on the domestic market but also abroad. Because of its limited size and range of products, the manufacturing sector contributes just 5% to employment. So far, investment – both domestic and foreign – has not been sufficient to significantly alter the situation on the labour market. In a similar vein, Namibia’s economic growth has not been particularly employment creative 24 . GDP in constant prices grew by 11% between 1997 and 2000, while employment increased by 8%(Table A 19). One of government’s priorities is to strengthen the SME sector in the country. Various initiatives have been started, such as credit schemes for instance. However, no systematic survey has been carried out to evaluate the impact of these initiatives and the extent of the sector. Poor access to finance is still cited as one of the major obstacles to growth in the economy and consequently to employment creation. Most new businesses are SMEs and do not have sufficient track records or collateral to secure loans from local banks. The establishment of 24 Bank of Namibia, 2004 62

the Development Bank of Namibia in 2004 is expected to ease access to finance, at least for medium-sized companies. One major hindrance for employment creation is the low skills’ level in the country. Government has prioritised education in general, but has also identified investment in skills’ development and training as a major task for NDP2 25 . The lack of skills results in relatively low productivity and premium pay for skilled and qualified personnel. Finally, it affects competitiveness, and hence limits further employment creation. Furthermore, the labour market is characterised by a high degree of regulation. The Labour Law 2004 includes provisions, for instance, for extended annual leave, compassionate leave, maternity leave, severance pay and payment of outstanding leave on termination. While it is necessary to protect workers’ rights, rigid labour laws prevent job creation, because they increase the cost of labour relative to capital. High labour costs act also as a barrier for SMEs to enter the formal sector. A strongly regulated formal sector can thus result in a growing informal sector with negligible protection for employees. Finally, scarcity of skills and low productivity are further worsened by the impact of HIV/AIDS. The prevalence rate was calculated at 19.2% for 2004. Absenteeism is increasing because of illness, as well as caring for infected family members and attendance at funerals. Investment in training often fails to produce the anticipated returns, since productive life is much shorter than anticipated. In order to gain from additional investment as a result of regional integration, weaknesses the Namibian labour market displays, such as low levels of skills and a high degree of regulation, need to be addressed in a balanced manner that takes account of workers’ rights and the competitiveness of companies. If the labour market is not competitive within the region, Namibia will lose out to other more competitive countries. 25 Government of the Republic of Namibia, 2002 63

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7 Social Development W ith independence in 1990, the government inherited a dualistic society that deprived the majority of the population of access to basic needs. As a result, the largest shares of the national budget have been allocated to the health and education sectors to redress these imbalances that have reduced the potential for economic growth. Primary education and primary health care have been prioritised. Clinics (rather than hospitals) and schools have been built in rural areas. Progress is reflected in some education and health indicators. Net enrolment rates and literacy rates have improved, as have mortality and immunisation rates. However, the scourge of the HIV/AIDS pandemic has resulted in a significant drop in life expectancy, wiping out progress made during the early years of independence. Life expectancy stood at 48.3 years in 2003, down from 57.5 years in 1990 26 . The decline explains the lower Human Development Index (HDI) for Namibia in 2003(0.627 compared to 0.644 in 1998) and the drop in its worldwide ranking from place 107(1998) to 125(Table A 20). However, the well-being in international comparison improved slightly in 2003 compared to 2002, mainly because of an increase in life expectancy from 45 years(2002). The roll-out of anti-retroviral treatment for persons living with AIDS is expected to increase life expectancy further, and eventually raise the HDI. Regional discrepancies reflect the legacy of the past that continues to exist. The HDI ranged between 0.52(Caprivi region) and 0.71 (Erongo region) in 2000. Life expectancy varied between 32.6 years and 47.2 years respectively, while the adult literacy rate was lowest for the Omaheke region(64%) and highest for the Khomas region (94%). Although the government has invested substantially to build new schools and clinics in rural areas and to improve the infrastructure, these areas are often still less well equipped than urban areas, and as the data illustrate, some regions are still much better off than others. It remains a challenge for government to address these discrepancies. HIV/AIDS poses the biggest threat to the social progress of Namibian society. The HIV prevalence rate dropped from 22%(2002) to 19.8%, in 2004 but it is too early to say whether this marks a reversal of the trend. Part of the decline can be explained by the inclusion of three 26 UNDP, 1993 and 2004 65

additional testing sites, of which two revealed a below-average prevalence rate. Excluding these three additional sites, the rate would have dropped to 20.3%. However, since the prevalence rate expresses the proportion of HIV + persons over the total population, the treatment programmes should actually result in an increase in the prevalence rate over the next years as HIV + persons live longer. Only when the incidence rate drops will the prevalence rate eventually fall as well. Therefore, current trends of the prevalence rate need to be analysed with caution. After introducing a pilot programme in two hospitals, the government has recently spread the programme to prevent the transmission of HIV from mother to child to all thirteen regions. Data on the impact the programme has on the infection of infants is missing since the programme started only recently. In addition, about 16,000 persons receive anti-retroviral treatment in public health facilities out of an estimated 40,000 people in need. Increased cross-border traffic and migration as a result of stronger regional integration could further contribute to the spread of the pandemic. SADC-wide efforts will therefore be urgently needed to contain the spread, if the population is to benefit from regional integration. Overall, there is a good chance that Namibia will achieve most of the MDG indicators for 2006(Table A 21). The exception is the fight against HIV/AIDS that has not yet been won. It remains to be seen whether the downward trend of the prevalence rate as described above is continuing. Expenditure priorities have not changed over the years. Namibia does not have to undertake Structural Adjustment Programmes, nor change its monetary and fiscal policies in order to achieve the SADC Convergence targets, through more robust growth is required. Therefore, changes in social indicators are the result of factors other than macroeconomic policies. There are indications that efficiency in both sectors could be increased, such that a decline in revenue and allocations will not necessarily result in a decline in the quality of service delivery. Tools are put in place, such as output indicators, to monitor the efficient and effective use of public resources. 66

Income Distribution As indicated earlier, Namibian society is characterised by a highly skewed income distribution, reflected in a Gini-coefficient of 0.6 based on the 2003/04 household survey. A progressive tax system including a tax threshold for the first N$24,000 earned per annum and a zero VAT rate for the staple foodstuffs, millet and maize, are two tax measures employed to address this imbalance. Poor households in particular, benefit from various social transfer schemes, such as non-contributory social pensions, pensions for ex-combatants that are paid in addition to the social pensions, and foster parent grants. Social pensions, in particular, contribute greatly to the income of households in rural, communal areas. Although pensions are meant to improve the standard of living of the elderly, in actual fact they benefit the whole extended family living with them. Furthermore, employees in the formal sector benefit from a social security system that includes sick leave benefit, maternity leave benefit, and death benefit. The social security scheme does not reduce poverty directly, but it prevents households from falling straight into poverty in any of the events covered by the system. Contributions to this system are shared equally between the employer and employee. The system is therefore not dependent on the income of government and payouts will not be affected by the fiscal policy. Initial results from the latest National Household Income and Expenditure Survey conducted during a twelve-month period in 2003 and 2004 indicate a decline in income inequality and poverty. The Gini coefficient dropped from 0.7(1993/94) to 0.6(2003/04), while the incidence of poor and severely poor households declined from 29.1% and 8.7% to 24.0% and 3.9%, respectively over the same period 27 . A thorough analysis is needed to identify the factors that have contributed to the positive trends, since economic growth has not been strong enough to increase employment in the formal sector significantly. Little is known about the informal sector. A decline of revenue could reduce allocations to social sectors. So far, they have been spared from cuts resulting from the unforeseen drop in revenue. However, the government has cited financial 27 Republic of Namibia, 2006:32 67

constraints at various times as the reason for not increasing social transfers. If social transfers were bound to the inflation rate, recipients would not face a decline in the standard of living in times of revenue constraints and/ or high inflation rates. Overall, since Namibia is performing relatively well concerning the convergence criteria, and since therefore, there is no need for strong adjustments of monetary and fiscal policies, it is anticipated that government could continue pursuing its social priorities. It is particularly important to address income inequality to stimulate and strengthen the domestic economy. 68

8 Environmental Challenges N amibia is an arid country, dominated by the Kalahari Desert in the East and the Namib Desert in the west. There are no perennial rivers within its borders. Mean annual rainfall varies between 600mm in the north east of the country and less than 100mm in the south and west. 25% of the country’s surface is classified as desert and receives less than 25mm rainfall per annum. The average figures cover highly variable rainfalls within regions and between years. But even if the country receives average rainfalls, crop production can be severely affected by longer drought spells. Since the rainfall season – except for the south – is concentrated during summer and hence the hottest months, immediate losses through evaporation amount to 83% 28 . Government is aware of this fragile environment and has therefore included protection of the environment in the Constitution. Sustainable development is furthermore one of the cornerstones of Namibia’s longterm Vision 2030 and is part of many national policies, such as Namibia’s Green Plan. An Environmental Management and Assessment Bill as well as the Integrated Pollution Control and Waste Management Bill, among others, are being currently drafted 29 . With the policies in place, capacity needs to be built to monitor adherence to the policies. Government has declared approximately 17% of Namibia’s land area as protected areas that are used as National Parks. Not all of these areas are accessible to visitors. Its wetland areas in the south at the mouth of the Orange River have received international recognition as a Ramsar site. However, despite these protections, indications of a loss of biodiversity exist in both communal and commercial agricultural areas. Wildlife numbers have declined because of population pressure in communal areas, while certain predators are nearing extinction in commercial areas, such as lions, wild dogs, white-headed vulture, bateleur and the Cape vulture 30 . However, the implementation of conservancies, particularly in communal areas increases the awareness of the value of wildlife among the population and the benefits they reap from it through tourism. Conservancies are managed by communities, and they receive income from hunting licenses or other 28 UNDP, 1998:37. 29 Office of the President, National Planning Commission, 2004, Namibia 2004 Millennium Development Goals. 30 UNDP, 1998:53. 69

tourist expenditure. The area covered by conservancies increased from zero(1990) to 4.9% in 2001. It is probably ambitious to achieve the target of 10.9% in 2006. More commercial farmers have also discovered the value of wildlife in order to attract tourists. Thus, it can be seen that tourism can contribute to sustainable wildlife management and biodiversity. Tourism also has its drawbacks, however. It puts further pressure on scarce water resources in arid areas that tourists visit to enjoy unique landscapes. Off-road driving causes severe damage to flora and fauna, and in particular to the populations of certain birds that breed on the ground. Finally, many tourists at the same spot and at the same time, reduce the value of the pristine landscape and wildlife and can result in long-lasting negative impacts. Tourist arrivals have increased more than sevenfold since independence, from fewer than 100,000 to more than 750.000 in 2002 31 . However, the number is based on the internationally agreed definition of a tourist; namely a person who spends at least one night in a foreign country. A significant number of people from neighbouring countries, notably Angola, come to Namibia for business and not for leisure and do not therefore increase the pressure on a unique and fragile landscape. But even when they are excluding them from the total number of arrivals, the number of actual visitors coming for leisure has substantially increased. Since the tourism industry is an important contributor to foreign exchange earning and to direct and indirect employment, it needs to be managed carefully to make it sustainable. Water is seen as one of the most limiting factors for further economic development. As stated, rainfall is highly variable and unpredictable; underground aquifers are feeling the pressure of increased water consumption, and perennial rivers are far away from industrial centres and major towns. The intensification of agriculture is limited by low soil fertility, low water retention capacity and a low content of humus 32 . In the communal areas in the north and northeast, soils are usually of a better quality than in the commercial areas. However, there is a lack of proper land management since no land title exists. The community also uses the land for grazing. This system supports the over-use of land, especially 31 Republic of Namibia, Ministry of Environment and Tourism, 2005, Statistical Report 2004, p.12 32 UNDP, 1998:49 70

around water points. The growing population in communal areas results in more land being used for farming, leading subsequently to deforestation. Wood is not only used as building material for homesteads, but also for cooking, and grows more slowly than it is cut. Eventually, this contributes to soil degradation and a loss of biodiversity. Wide tracts of the commercial areas are characterised by bush encroachment, which limits soil fertility and hence the carrying capacity of the land. Efforts are underway to combat bush encroachment, in particular invader bushes. Given the soil and climatic conditions, livestock and traditional crop farming(of maize and millet) can seldom be extended. There is probably the potential for high-value crop production(such as table grapes and dates) under irrigation along perennial rivers or close to dams and for horticultural production. If there are no competing water consumers, irrigation schemes for traditional low-value crops(maize, wheat) could be considered since it would induce downstream activities such as milling which adds to the value chain. Increasing traditional agricultural production would increase the pressure on the environment and result in soil degradation in the medium term. New crops need to be identified where Namibia has a comparative advantage. Before Independence, Namibia’s fish stocks were subject to overexploitation. After independence, a strict management system was introduced based on scientific evidence on the biomass available. Fishing quotas are then allocated to fishing rights’ holders and controlled by ministry officials deployed on fishing trawlers. Adverse oceanic conditions, however, affect the biomass and fish stocks. Among them are phyto-plankton blooms, sulphur eruptions and regional and global climate change 33 . While water pollution from industrial activities are not yet pronounced, the impact of increasing offshore diamond mining activities on the food chain needs to be monitored. Because of the vulnerability of marine fish stocks, aquaculture farms are regarded as means to create employment and diversify the economy. Several projects have started, but here as well, the ecological impact needs to be monitored. Water evaporation and pollution from the fodder and chemicals used are two of the environmental challenges the new industry could face. 33 UNDP, 1998:65 71

Mining activities often cause considerable environmental damage if not managed and rehabilitated properly. After independence, proper mechanisms were put in place to minimise the impacts of mining activities on the environment. These rules and regulations were generally adhered to. However, about 240 mining sites from earlier times exist that were abandoned without rehabilitation or removal of equipment 34 . With the right tools in place, and skilled mining inspectors monitoring the mines, the potential environmental impact of mining activities could be minimised. The capacity to monitor offshore activities needs to be increased since this is a new area. So far, it is limited to offshore diamond mining activities, but there is a high probability that offshore gas reserves will soon be exploited to fuel a power plant. Namibia has put policies in place that support the sustainable use of its natural resources. Environmental challenges are created by a growing population and its demand for land for survival, and by additional economic activities that result in pressure on scarce resources such as water, rather than through monetary or fiscal policy decisions of the government. Since Namibia’s economy is based on a fragile environment and scarce water resources, any strategies aimed at increasing economic growth to achieve the SADC target of 7%- and Namibia’s own ambitious Vision 2030 – need to take cognisance of the limiting environmental factors. For instance, water-intensive industries are only an option at perennial rivers that mark the borders in the north and south to Namibia’s neighbours, or if water recycling production techniques are applied. Table 2: Progress Towards Achieving the MDG Environmental Targets 1990 Protected Areas 13.6 Registered Conservancies 0.0 Freehold Land 5.0 2001 2006 MDG target 6.8 15.1% 4.9 10.9% 6.1 8.5% Source: Office of the President, 2004:31 34 UNDP,1998:58-61 72

9 Namibia’s Deeper Integration: Problem and Prospects R egional integration, and trade liberalisation in general, offer both opportunities and challenges. Whether the costs or the benefits of integration dominate depends on the strength and weaknesses of an economy, and thus its ability to react to new challenges. The following chapter attempts to highlight the strengths, weaknesses, opportunities and threats. 9.1 Strengths Political framework A major strength that augur well for economic growth is Namibia’s political stability. Namibia is a multi-party democracy based on general elections conducted every five years at regional and national levels. The founding president handed over power to his successor after three terms, since the Constitution does not allow for serving more. The transition was smooth and without any disruptions. Elections in Namibia are generally seen as free and fair, though the results of the last elections in November 2004 were contested in court. The court ruling, which ordered a recount, once more underpinned the independence of the judiciary. Namibia is a member of various regional groupings and international organisations. These memberships increase the predictability and credibility of its policies, in particular its monetary policy and exchange rate regime. Namibia’s membership of the CMA for instance, cushions the impacts that external shocks can have on macroeconomic indicators. Despite recent reports about mismanagement and corruption, Namibia continues to rank favourably in the worldwide Corruption Perception Index. An Anti-Corruption Commission has been established and it commenced work early in 2006. The lack of such a commission was often cited as a reason for corruption not being dealt with appropriately, although it had been one of the mandates of the Office of the Ombudsman. The office, however, lacked the necessary resources to effectively fulfil its mandates. 73

Adequate policies are designed and put in place to address the major challenges of the country, although mechanisms of monitoring and evaluation of policies are often lacking. Economic framework A further factor in Namibia’s favour is its good and reliable infrastructure. Roads, including gravel roads, railway lines, airports, and seaports are in good condition and provide access to every corner of the country. The water, electricity and telecommunication networks work reliably and cover an increasing proportion of the country. Namibia enjoys increasing, often preferential, market access owing to its membership of various groupings of countries, such as SACU, SADC, and the ACP countries. It benefits from preferential access to the EU and USA, through the Cotonou Agreement and AGOA, respectively. Further trade negotiations with Mercosur, EFTA, Nigeria, India and China could open up more markets. However, the capacity to exploit these opportunities, in the private as well as public sector, is often limited. Namibia has recently received a positive independent credit rating of BBB- that is expected to support the positive view of Namibia as an investment destination. On the other hand, the latest Competitiveness Report 2005 revealed several weaknesses that have resulted in Namibia being ranked less favourably then in previous years. These weaknesses need to be addressed in order to attract investment. 9.2 Weaknesses A s indicated, some of the strengths are undermined by weaknesses. Although some policies are designed and put in place, the capacity to implement, monitor and evaluate them is often limited. In addition, policy design is not always well co-ordinated amongst ministries. The multitude of institutions, with partly overlapping responsibilities, contributes to efficiency losses. Furthermore, unnecessary bureaucracy, favouritism by government officials and an increase in corruption, are all cited as reasons for Namibia’s plunge in its competitiveness ranking, from 52 position(2004) to 63 out of 117 countries in 2005 35 . 35 The Namibian, 3 October 2005:3 74

The weak capacity of implementing policies mirrors a general lack of skills and qualifications in the country, which can in part be explained by its legacy. Capacity building is therefore a priority in order to increase labour productivity and eventually the competitiveness of Namibian industries on the increasingly globalised market. The limited capacity also infringes on Namibia’s capability to safeguard its industries against unfair trade practices. The necessary institutions need to be established and capacity within these institutions needs to be built to mitigate the negative impacts of trade liberalisation. National statistics need to be up to date, released in good time and reliable. Reliable statistics are vital in proving unfair trade practices: for instance, the surge in imports of a specific product that could be used to invoke quantitative import restrictions. The small market size is a challenge businesses face. Namibia has a population of 2 million, and a significant proportion lacks the purchasing power to stimulate domestic demand. Furthermore, the population is dispersed over a vast area with an average population density of about 2 persons per square kilometre. Hence, businesses have to be outward-oriented to exploit economies of scale. To penetrate foreign markets successfully, supply-side constraints need to be addressed. Despite preferential access to the EU market, for instance, Namibia was not always able to exploit its beef quota or increase its overall market share in the EU. Namibia benefits from a well-developed telecommunication infrastructure that covers a large part of the country and allows access to worldwide information. However, the costs are reportedly high compared to other countries. This reduces the competitiveness of businesses and limits the access, in particular of micro, small and medium-sized enterprises to market information. Finally, Namibia’s manufacturing base is not strongly diversified, although more goods are produced locally than was the case a decade ago. Government’s procurement system, as well as focused and simplified incentive schemes, could support the broadening of the manufacturing base. 75

9.3 Opportunities S tronger regional integration provides several opportunities for Namibia. For a small country, the membership of regional groupings increases its negotiation power and the chance of its voice being heard in the international arena. The interest of Namibia will therefore be better served in international forums than if it were doing it alone, as issues are taken up at the regional level. Because of Namibia’s small market size, domestic and foreign investors have to look across the borders. Duty free access to larger markets in the region, coupled with a well-developed and reliable infrastructure could attract investment country; and this will contribute to the diversification of the economy and creation of employment opportunities. The harbour of Walvis Bay could stimulate further investment in development corridors along the routes to neighbouring countries such as Botswana, Angola, and Zambia and further on to the DR Congo. Increasing cross-border trade with neighbouring countries could further open opportunities for value adding industries. Access to additional sources of raw material could spur the processing activities of agricultural and mining products and lead to further forward linkages. For instance, the Namibian copper smelter sources copper from Zambia and the DRC. New downstream developments could emerge from an increased output, such as the production of wire and other related material. More of these business ventures could be explored. A suitable policy framework needs to be in place to support such developments. Currently, the South African Reserve Bank determines monetary policy within CMA with little influence from the LNS countries. A higher degree of integration within SADC resulting in a common central bank, which could start with a common central bank for the CMA, would increase the influence of smaller economies on regional monetary policy. A common monetary policy would further enhance monetary and fiscal discipline within the region and could improve the ratings of the region and individual member countries by investors. 76

9.4 Threats A major threat arising from deepening regional integration and trade liberalisation is linked to institutional and capacity constraints in Namibia. If policies and institutions are not in place to monitor impacts, and if capacity is not built to implement and enforce these policies, Namibian industries could face increased pressure from unfair trade practices, such as predatory pricing. Since the Namibian market accounts for only 4% of the South African market, there is a risk, for instance, that well-capitalised South African companies could try to capture a larger market share in Namibia by squeezing out local companies. Furthermore, the capacity at border posts to control the influx of goods effectively and to categorise the goods correctly according to the Harmonised System needs to be increased. Infant industry protection within the SACU agreement and the application of import restrictions due to a surge in imports of a specific product or product group is hindered by the lack of correct customs data. If the capacity to effectively control cross-border traffic and enforce trade rules and regulations does not exist, certain Namibian industries, such as the dairy or beverage industries, might be threatened. These threats go beyond the specific industry and would have impacts on the whole value chain. Entering into too many trade negotiations at the same time, without a thorough assessment of the impact on the domestic economy and without a profound analysis of potential gains could result in negative rather than positive impacts on the domestic economy. Closely linked to the aforementioned threat is the lack of skills in the country. Without increasing the skills’ level of the workforce and attracting skilled labour, income will not increase and hence, the standard of living would not rise. Eventually, the domestic demand would then stagnate. Furthermore, the country would not increase its attractiveness to foreign investors and its competitiveness. In this way, Namibian industries would be vulnerable towards growing foreign competition. There is not only a scarcity of skills in Namibia, but there are too few forward- and outward-looking entrepreneurs, who grab the new opportunities that trade liberalisation and regional integration offer. The intention of the Ministry of Education to replace Business 77

Administration with Entrepreneurship Education in schools, is a step in the right direction towards promoting entrepreneurship. The spread of HIV/AIDS poses various threats to Namibia’s development objectives and to macroeconomic developments. The pandemic affects efforts to build an educated and skilled workforce. Investment in human resources results in lower returns than anticipated and could lead to lower investment, especially by the private sector. In addition, the cost of labour is increasing because of a decline in labour productivity and could support capital- rather than labourintensive production techniques, despite the abundance of labour available in the country. Subsequently, economic growth would not result in an increase in employment and a reduction of poverty. Finally, demand for consumer goods is expected to decline because of increased expenditure for health-related goods and services. Government’s finances can be affected on both sides: a decline in revenue from taxes on individuals, and an increasing demand to finance health expenditure. This could crowd out other essential expenditure on education, social transfers or infrastructure. Increasing the deficit to finance additional expenditure is not an option, since it would result in growing statutory expenditure and reduce government’s fiscal flexibility. Therefore, concerted efforts are needed to contain and ultimately slow the spread of the disease. Unemployment rates and income inequality continue at a high level in Namibia. Both need to be addressed not only because these factors subdue domestic demand, but also because they could lead to rising social tensions and subsequently disturb the business climate 36 . The relatively new textile industry, a major employer in the country, is in limbo due to the termination of the Multi Fibre Agreement, and also because of the strong currency. Despite the reportedly low wages paid, income from employment in the textile industry induces further economic activities. The industry also contributes to export earnings since all of its produce is exported. A collapse of the industry would have an impact on the employment situation in the country and on government revenue. Taxes on the income of individuals and on companies’ profits not be directly affected since the workers earn less than the tax threshold and the textile companies are granted EPZ status and hence do not pay taxes, but income from VAT and from taxes on 36 Hansohm, D., 2005. 78

the profits of other companies that would feel a reduction in demand, will be affected. Finally, it would diminish hopes in further backward and forward investment. The low degree of diversification of Namibia’s economy makes it vulnerable to external shocks, such as currency fluctuations or demandside shocks. As experienced during the financial year 2003/04, these shocks have significant implications for government revenue and the deficit. Furthermore, although the sector is slowly diversifying, the manufacturing sector is dependent on inputs from the agricultural and fisheries sectors. Any adverse climatic conditions will negatively affect processing activities in the country, employment, and ultimately government revenue. Improved forecasting skills that take cognisance of the vulnerability of these sectors are needed to estimate revenue. Otherwise, Namibia risks exceeding the respective SADC convergence criteria. Finally, closer integration in the region implies that Namibia will to a greater extent be affected by events within the region. Economic and political instability in other member countries will have greater impact on the domestic economy and a stronger impact on investment decisions. It is therefore in Namibia’s best interests to ensure that other member countries adhere to the principles of good governance and prudent macroeconomic policy to contain any threats that instability in other countries could present for Namibia. 9.5 Conclusions A s a small economy, Namibia depends on export markets to expand its economic activities. Further regional integration can play a significant role. Namibia is already closely integrated within the region through its membership of SACU and the CMA and has surrendered some of its autonomy to these groupings. These memberships have contributed to Namibia’s achievement of most of the crucial SADC target indicators, namely inflation rate, budget deficit, external debt and savings ratio(Table A 22). Macroeconomic adjustments are rarely needed and negative impacts on social development and the environment caused by any adjustments are not thus far anticipated. Namibian industries are already exposed to stiff competition from South African companies. It is therefore assumed that opening the borders 79

to further competitors from the region would not pose insurmountable challenges. However, in order to actually gain(and not simply to avoid losing) from regional integration, Namibia has to strengthen its foundations. The weaknesses need to be addressed. In particular, institutional capacity needs to be enhanced to identify opportunities from regional integration as well as to control and effectively the influx of goods, in order to protect domestic industries from unfair trade practices. National competition policies need to be harmonised and institutions be created to enforce them effectively and efficiently. A major obstacle to increased trade within the region is the lack of information about business opportunities. By and large, little is known about industries in other member countries, about their products and the inputs needed. The SADC secretariat could initiate a web-based database containing information about suppliers of goods in the region. It could furthermore, consider supporting companies to participate in trade fairs in the region or even establish SADC trade fairs. These would be good opportunities for companies to get in touch with potential customers in the region or to join forces. Increased public relations’ efforts are needed to inform the SADC population about member countries in general, and businesses in particular. This would help shift the focus from existing traditional business links to new opportunities. The SADC National Committee could play a vital role in disseminating information, in cooperation with the Namibian Chamber of Commerce and Industry. Exploring new markets abroad always entails risk for companies. New partners are unknown, particularly their reliability in fulfilling contractual obligations. Non-payment by new customers could pose a serious threat, especially for small and medium-sized enterprises. National governments or the SADC secretariat could consider establishing an export insurance to cover some of the risks inherent in venturing into new markets. If these issues are addressed, Namibia could benefit more from regional integration and achieve higher growth rates through access to new markets. Higher growth rates are necessary, not only for compliance with SADC targets, but in order to achieve its own Vision 2030, and to successfully address the challenges of poverty reduction and reduction in income inequality. 80

10 Recommendations N amibia has achieved most of the SADC targets except the growth and foreign reserve targets that appear to be out of reach for Namibia at present. Namibia’s monetary policy and trade policy are largely determined at regional level – by CMA and SACU, respectively. The degree of influence of regional decisions varies between the two settings. through its new structures, SACU provides a higher degree of influence of the smaller member countries than the CMA. A review of the CMA structure could therefore be considered to broaden and deepen the consultative process, with the ultimate aim of establishing a regional central bank. A CMA central bank could become the anchor for SADC monetary integration. However, a thorough study is required to weigh the pros and cons of such a regional bank and to assess whether it would change the current decision-making structure. There would probably be a need to build capacity in the LNS countries in order to enable them play a role within the bank. Employment-creating economic growth, is key to achieving SADC’s macroeconomic targets and domestic policy objectives. Regional integration can result in stronger, as well as weaker economic growth, depending on the strengths and weaknesses of the economy. An analysis of capacity within the private and public sectors to exploit the opportunities provided by regional integration is essential. Such an analysis would ideally identify bottlenecks, and suggest a strategy for overcoming them. Namibia belongs to various regional groupings and international bodies. There is a risk that their aims and objectives are not always consistent. In addition, there are a number of domestic sectoral policies in place. A review of the process of designing policies and of consistency within the policies would result in an increased effectiveness of those policies. At the same time, there is a need to review the process of monitoring and evaluating the impacts of policies with the aim of adjusting them when the need arises. Regional integration is not simply about achieving certain economic indicators. It will only be meaningful if the people are involved and supportive of the process. A strategy needs to be developed to involve the public more extensively in the process, and to inform them regularly 81

on progress. Such an inclusive process would ensure that regional integration addresses the needs of the people, and ultimately benefits them. It would at the same time contribute to strengthening cooperation between the various institutions involved in, and affected by regional integration. 82

References Bardan, B, 1998, A comprehensive Export Promotion Strategy for Namibia. Bank of Namibia, 1999, Annual Report 1998. Bank of Namibia, 2003, Challenges and Implications of the 2002 SACU Agreement. Bank of Namibia, 2005, Annual Report 2004. Bank of Namibia, various years, Quarterly Bulletins ESRF, 2002, Trade Policies and Agricultural Trade in the SADC Region, Challenges and Implications, Regional Synthesis Report Government of the Republic of Namibia, 2002, Second National Development Plan(NDP2) 2001/02 – 2005/06, Volume 1, Macroeconomic, Sectoral and Cross-Sectional Policies. Hansohm, Dirk, 2005, Namibia at 15 years of Independence: Economic Performance and the Way forward, unpublished, April. IMANI, 2004, Inventory of Regional Non Tariff Barriers Insight Namibia, 2005, Globalisation hits home, September. International Monetary Fund, 2005, Namibia: Selected Issues and Statistical Appendix – IMF Country Report No. 05/96, March. Kalenga, Paul, and Matomola, M, 2004, Institutional Review of the Trade Policy Making Process in Namibia Kalenga, Paul, 2005, Challenges and Opportunities of Regional Integration for Developing Economies: Namibia’s perspectives Mathews, A, 2003, External Trade Policy Minister of Finance, 2005, Statement for the 2005/2006 Budget, May. Ministry of Finance, 2006, Medium Term Expenditure Framework, for 2006/07-2008/09 and Revenue, Income and Expenditure Estimates for the Financial Year 2006/07. Ministry of Finance, 2005, Medium Term Expenditure Framework, for 2005/06-2007/08 and Revenue, Income and Expenditure Estimates for the Financial Year 2005/06. Ministry of Labour, 1997, National Employment Policies. Ministry of Labour, 2001, The Namibia Labour Force Survey 1997, Final Report of Analysis. Ministry of Labour, 2002, The Namibia Labour Force Survey 2000, Final Report of Analysis. 83

Office of the President, 2004, Vision 2030, Prosperity, Harmony, Peace and Political Stability Office of the President, National Planning Commission, 2004, Namibia 2004 Millennium Development Goals Republic of Namibia, 1992, 1991 Population and Housing Census: National Report: Basic Analysis with Highlights Republic, of Namibia, 2003, 2001 Population and Housing Census: National Report Basic Analysis with Highlights. Republic of Namibia, 2004, The Namibia Informal Economy Survey 2001, Report of Analysis. Republic of Namibia, 2006, Preliminary Report: Namibia Household Income& Expenditure Survey 2003/04, March. Republic of Namibia, Ministry of Environment and Tourism, 2005, Statistical Report 2004. Republic of Namibia, National Planning Commission, Central Bureau of Statistics, 1996, National Accounts 1980- 1995 Republic of Namibia, National Planning Commission, Central Bureau of Statistics, 1996, Living Conditions in Namibia, Basic Descriptions with Highlights, The 1993/1994 Namibia Household Income and Expenditure Survey, Main report. Republic of Namibia, National Planning Commission, Central Bureau of Statistics, 1998, National Accounts 1983- 1998 Republic of Namibia, National Planning Commission, Central Bureau of Statistics, 2005, National Accounts 1995 – 2004. Republic of Namibia, National Planning Commission, Central Bureau of Statistics, 2006, Namibia Consumer Price Index(NCPI), 15 February 2006 Schade, Klaus, Rehabeam Shilimela, 2005, Cost and benefit of belonging to SACU, Issue Paper prepared for the Ministry of Finance, September, unpublished The Namibian, 30 September 2005 and 3 October 2005 The Service Group, 2004, Mid-term Review of the SADC Trade Protocol, Final draft report UNDP, various years, Human Development Report UNDP, 1998, Namibia Human Development Report World Bank, 2002, World Development Report 2002: Building Institutions for Markets 84

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Appendix 87 Table A1: GDP Growth, 1995 to 2008 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1995-99 2000-04 1995-04 4.1 3.2 4.2 3.3 3.4 3.5 2.4 6.7 3.5 5.9 3.2% 3.9% 4.0% 3.3% 3.64 4.40 4.02 Source: Republic of Namibia, Central Bureau of Statistics, National Planning Commission, 2005, Ministry of Finance, 2006 (Forecast for 2006 to 2008) Table A2: Interest Rates, 1999 to 2005 1999 2000 2001 2002 2003 2004 2005 11.50 11.25 9.25 12.75 7.75 7.50 7.00 Source: Bank of Namibia, 2005 Note: The interest rates refer to the rate at the end of the calendar year. Table A3: Inflation Rates, 1980 to 2005 1980-89 3 13.0 1990-95 3 11.8 1996 2 8 1997 2 8.8 1998 2 6.2 2000 1 9.3 2001 1 9.3 2002 4 11.3 2003 4 7.3 2004 4 4.2 2005 4 2.2 Sources: 1 Bank of Namibia, 2005, 2 Republic of Namibia et al., 1998; 3 Republic of Namibia et al., 1996; 4 Republic of Namibia et al., 2006 Table A4: Exchange Rate, Namibia Dollar per 1 USD, 1995 to 2005 1995 2 1996 2 1997 2 1998 2 1999 1 2000 1 2001 1 2002 1 2003 1 2004 1 3.63 4.3 4.61 5.33 6.11 6.8 11.5 8.9 6.5 5.7 Source: 1 Bank of Namibia, 2005; 2 Bank of Namibia, 1999; and 3 Bank of Namibia, Quarterly Bulletin September 2005 2005-Q3 3 6.5 Table A5: Gross National Savings Rates, 2000 to 2003 2000 2001 Gross National Savings Rate,% 27.50% 27.80% Source: World Bank, various years 2002 39.60% 2003 31.5%

Table A6: Gross Fixed Capital Formation, GFCF 1995 to 2004 1995 1996 1997 1998 1999 2000 2001 2002 GDP(N$ million) 12,706 15,011 16,751 18,789 GFCF 2,817 3,535 3,288 4,321 GFCF Ratio 22.2% 23.5% 19.6% 23.0% 20,684 23,690 4,760 4,460 23.0% 18.8% 27,686 32,908 6,073 6,964 21.9% 21.2% Source: Republic of Namibia et al., 2005 2003 33,840 9,867 29.1% 2004 36,901 9,286 25.2% Table A7: Investment by Economic Sector, 1995 and 2004 N$ Million Share in% 1995 2004 1995 2004 Agriculture 135 259 4.8% 4.8% Fishing 79 174 2.8% 3.2% Mining and Quarrying 302 Manufacturing 232 1068 10.7% 19.8% 1058 8.2% 19.6% Electricity and Water 64 398 2.3% 7.4% Construction 118 177 4.2% 3.3% Wholes 316 200 11.2% 3.7% Transport 207 643 7.3% 11.9% Finance, Real Estate 642 696 22.8% 12.9% Community Social Services 26 21 0.9% 0.4% Government Services 694 704 24.6% 13.0% 2,817 5397 100.0% 100.0% Source: Republic of Namibia et al., 2005 Table A8: Budget Deficit in%, 1999 to 2008 1999 1 2000 1 2001 1 2002 2 2003 2 2004 2 2005 2 2006 2 -3.3-1.5-4.5-2.5-7.2-3.6-1.1 0.3 Source: 1 Bank of Namibia, 2004; 2 Ministry of Finance, 2006 2007 2 -1.7 2008 2 -2.3 Table A9: External Debts as% of GDP, 2001 to 2008 Total Debts GDP 2001 2002 2003 2004 2005 2006 2007 2008 20.7 15.3 15.7 16.5 15.2 18.8 19.1 18.9 3.7 4.6 5.6 4.9 6.3 6.4 6.1 Source: Ministry of Finance, 2005 and 2006 88

Table A10: GDP, GNI, per capita GDP and GNI, 1995 to 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 GDP N$ Million 12,706 13,112 13,665 14,115 14,591 15,100 15,462 15,849 16,441 18,084 GDP Growth% 4.1 3.2 4.2 3.3 3.4 3.5 2.4 2.5 3.7 5.9 GNI N$ Million 13,275 13,997 14,627 15,475 15,486 16,606 17,541 16,955 17,843 19,686 GNI Growth,% 3.8 5.4 4.5 5.8 0.1 7.2 5.6-3.3 5.2 3.9 GDP per capita, N$ 8,145 8,176 8,297 8,345 8,400 8,464 8,447 8,439 8,533 9,148 GDP per capita Growth,% GNI per 0.38 1.48 0.58 0.65 0.77-0.20-0.09 1.11 3.27 capita, N$ 8,510 8,728 8,881 9,149 8,915 9,308 9,583 9,028 9,260 9,958 GNI per capita Growth,% 2.6 1.8 3.0-2.6 4.4 3.0-5.8 2.6 1.3 Population (Million) 1.56 1.60 1.65 1.69 1.74 1.78 1.83 1.88 1.93 1.98 Assumed Population Growth,% 2.8 2.8 2.7 2.7 2.7 2.7 2.6 2.6 2.6 2.6 Source: Central Bureau of Statistics, 2005, Population growth based on Republic of Namibia, 2003. Per capita growth: Authors own calculation. 89

90 Table A11: Namibia’s Exports to SADC Countries in NAD, 1998 to 2004 Angola Botswana 1998 260,590,249 7,664,596 1999 295,896,288 24,508,511 2000 633,452,814 52,640,052 2001 601,898,237 52,173,663 D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 4,829 7,782,234 899,638 18,420,138 200 1,908,696,547 338,678,824 1,461,672 9,179,470 37,035,468 0 1,038,281 1,093,009 19,184,478 309,338 2,247,671,210 3,004,053 1,891,202 6,609,156 27,701,614 106,176 817,371 1,528,654 9,196,998 109,846 2,264,029,943 173,300 1,473,725 8,484,702 27,709,470 150,041 482,769 2,154,340 13,585,642 57,220 2,357,533,242 3,297,638 1,978,367 7,621,173 36,306,637 SADC 2,590,413,865 2,628,907,140 2,999,723,051 3,077,238,969 SACU 2,255,044,796 2,275,183,774 2,316,949,471 2,413,154,584 SADC exc. SACU 335,369,069 353,723,366 682,773,580 664,084,385 Total 6,407,320,409 7,922,029,561 9,081,054,544 10,322,641,889 Madagascar 0 35,347 0 282,908 Source: Data provided by Central Bureau of Statistics 2002 1,998,367,723 63,521,745 15,400 156,300 6,611,674 13,989,727 1,188,144 3,304,600,403 638,427 3,713,799 24,854,568 9,125,268 5,426,783,178 3,368,775,975 2,058,007,203 13,370,952,276 45,010 2003 3,152,221,193 107,470,644 47,212,587 30,000 676,288 5,442,794 22,792,690 2,977,916 3,202,821,020 10,275,728 5,719,460 44,917,344 27,570,655 6,630,128,319 3,320,597,392 3,309,530,927 14,301,884,845 96,592 2004 1,523,352,687 78,790,715 65,960,742 519,929 698,451 3,172,206 57,407,846 472,027 3,079,318,286 2,455,996 4,128,929 58,779,990 22,803,858 4,897,861,662 3,161,084,926 Total 8,465,779,191 386,769,926 113,173,329 826,375 11,651,694 20,902,315 154,577,519 5,114,691 18,364,670,651 358,523,966 20,367,154 160,446,403 188,252,970 28,251,056,184 19,110,790,918 1,736,776,736 9,140,265,266 10,763,312,335 72,169,195,859 96,592 556,449

Table A12: Export Share of SADC Countries, 1998 to 2004 in% 1998 1999 2000 2001 2002 2003 2004 On Average Angola 4.07% 3.74% 6.98% 5.83% 14.95% 22.04% 14.15% 11.73% Botswana 0.12% 0.31% 0.58% 0.51% 0.48% 0.75% 0.73% 0.54% D.R.C 0.00% 0.00% 0.00% 0.00% 0.00% 0.33% 0.61% 0.16% Lesotho 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Malawi 0.12% 0.01% 0.01% 0.00% 0.00% 0.00% 0.01% 0.02% Mauritius 0.01% 0.01% 0.02% 0.02% 0.05% 0.04% 0.03% 0.03% Mozambique 0.29% 0.24% 0.10% 0.13% 0.10% 0.16% 0.53% 0.21% Seychelles 0.00% 0.00% 0.00% 0.00% 0.01% 0.02% 0.00% 0.01% SouthAfrica 29.79% 28.37% 24.93% 22.84% 24.71% 22.39% 28.61% 25.45% Swaziland 5.29% 0.04% 0.00% 0.03% 0.00% 0.07% 0.02% 0.50% Tanzania 0.02% 0.02% 0.02% 0.02% 0.03% 0.04% 0.04% 0.03% Zambia 0.14% 0.08% 0.09% 0.07% 0.19% 0.31% 0.55% 0.22% Zimbabwe 0.58% 0.35% 0.31% 0.35% 0.07% 0.19% 0.21% 0.26% SADC 40.43% 33.18% 33.03% 29.81% 40.59% 46.36% 45.51% 39.15% SACU 35.19% 28.72% 25.51% 23.38% 25.19% 23.22% 29.37% 26.48% SADC exc. SACU 5.23% 4.47% 7.52% 6.43% 15.39% 23.14% 16.14% 12.67% Madagascar 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Source: Data provided by Central Bureau of Statistics 91

Table A13: Export Growth of SADC Countries, 1999 to 2004 in% Angola Botswana D.R.C Lesotho Malawi Mauritius 1999 13.55% 219.76% -100.00% -86.66% 21.49% 2000 114.08% 114.78% -21.28% 39.86% 2001 -4.98% -0.89% 41.31% -40.94% 40.93% 2002 232.01% 21.75% -89.74% -67.62% 206.90% 2003 2004 On average 57.74%-51.67% 60.12% 69.19%-26.69% 66.32% - 39.71% 6.62% 94.81% 1633.10% 263.25% 332.69% 3.28% 19.91% -17.68%-41.72% 41.63% Mozambique 4.15%-52.06% 47.72% 2.97% 62.92% 151.87% 36.26% Seychelles 154569.00%-64.49%-47.91% 1976.45% 150.64%-84.15% 26083.26% SouthAfrica Swaziland Tanzania Zambia Zimbabwe SADC 17.76% -99.11% 29.39% -28.00% -25.20% 1.49% 0.73% 4.13% -94.23%1802.85% -22.07% 34.24% 28.38%-10.18% 0.03% 31.03% 14.11% 2.58% 40.17%-3.08% -80.64% 1509.54% 87.72% 54.01% 226.13% 80.72% -74.87% 202.14% 76.35% 22.17% -3.86% -76.10% -27.81% 30.86% -17.29% -26.13% 9.31% 493.72% 25.91% 54.65% 19.31% 15.10% Total Exports 23.64% 14.63% 13.67% 29.53% 6.96%-24.74% 10.62% SACU 0.89% 1.84% 4.15% 39.60%-1.43%-4.80% 6.71% SADC exc. SACU 5.49% 93.31%-2.74% 210.58% 61.01%-47.60% 53.34% Madagascar --1--84.09% 114.60% 0%-12% Source: Data provided by Central Bureau of Statistics 92

93 Table A14: Namibia’s Imports from SADC Countries in NAD, 1998 to 2004 Angola Botswana D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 1998 28,923,179 24,147,056 0 2,000 1,482,316 83,010 424,056 28,618,877 7,415,454,469 2,272,238 314,805 6,814,508 103,110,210 1999 11,687,758 21,977,905 0 21,500 53,680 19,622 151,993 22,288 7,595,459,557 431,987 221,461 7,445,753 40,997,938 2000 14,199,187 25,740,254 0 0 51,992 17,291 183,042 23,669 8,460,436,112 3,626,519 1,096,066 14,097,312 22,880,712 2001 2002 11,689,698 58,956,427 18,871,354 20,866,497 0 0 11,500 0 234,427 1,069,532 594,628 237,145 621,943 238,125 183,874 35,095 10,445,500,944 11,314,625,389 254,914 245,887 418,082 756,249 740,846 6,158,725 45,925,637 85,549,175 SADC 7,611,646,724 7,678,491,442 8,542,352,156 10,525,047,847 11,488,738,246 SACU 7,441,875,763 7,617,890,949 8,489,802,885 10,464,638,712 11,335,737,773 SADC exc. SACU 169,770,961 60,600,493 52,549,271 60,409,135 153,000,473 Total 9,612,530,499 9,243,471,776 9,755,641,223 Madagascar 0 0 2,000 Source: Data provided by Central Bureau of Statistics 12,227,307,771 14,699,977,038 600 0 2003 26,693,256 26,032,390 4,871,678 147,078 352,187 5,643,383 636,975 3,286,401 14,573,378,235 13,053,832 519,524 20,628,685 235,135,763 14,910,379,387 14,612,611,535 2004 20,537,014 34,985,789 106,033 140,500 157,498 1,003,817 2,621,225 93,989 13,132,727,987 73,367,828 770,195 8,357,563 120,922,286 13,395,791,724 13,241,222,104 297,767,852 154,569,620 17,657,354,029 15,323,237,822 163,869 427,085 Total 172,686,519 172,621,245 4,977,711 322,578 3,401,632 7,598,896 4,877,359 32,264,193 72,937,582,693 93,253,205 4,096,382 64,243,392 654,521,721 74,152,447,526 73,203,779,721 948,667,805 88,519,520,158 593,554

94 Table A15: Import Share by SADC Countries in %, 1998 to 2004 Angola Botswana D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 1998 0.30% 0.25% 0.00% 0.00% 0.02% 0.00% 0.00% 0.30% 77.14% 0.02% 0.00% 0.07% 1.07% 1999 0.13% 0.24% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 82.17% 0.00% 0.00% 0.08% 0.44% 2000 0.15% 0.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 86.72% 0.04% 0.01% 0.14% 0.23% 2001 0.10% 0.15% 0.00% 0.00% 0.00% 0.00% 0.01% 0.00% 85.43% 0.00% 0.00% 0.0061% 0.38% SADC 79.18% 83.07% 87.56% 86.08% SACU 77.42% 82.41% 87.02% 85.58% SADC exc. SACU 1.77% 0.66% 0.54% Madagascar 0.00% 0.00% 0.00% Source: Data provided by Central Bureau of Statistics 0.49% 0.00% 2002 0.40% 0.14% 0.00% 0.00% 0.01% 0.00% 0.00% 0.00% 76.97% 0.00% 0.01% 0.0419% 0.58% 78.15% 77.11% 1.04% 0.00% 2003 0.15% 0.15% 0.03% 0.00% 0.00% 0.03% 0.00% 0.02% 82.53% 0.07% 0.00% 0.12% 1.33% 84.44% 82.76% 1.69% 0.00% 2004 0.13% 0.23% 0.00% 0.00% 0.00% 0.01% 0.02% 0.00% 85.70% 0.48% 0.01% 0.05% 0.79% 87.42% 86.41% 1.01% 0.00% On Average 0.195% 0.195% 0.01% 0.00% 0.00% 0.01% 0.01% 0.04% 82.40% 0.11% 0.00% 0.07% 0.74% 83.77% 82.70% 1.07% 0.00%

95 Table A16: Import Growth by SADC Countries in %, 1999 to 2004 Angola Botswana D.R.C Lesotho Malawi Mauritius Mozambique Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe SADC 1999 -59.59% -8.98% 975.00% -96.38%-76.36%-64.16%-99.92% 2.43% -80.99%-29.65% 9.26% -60.24% 0.88% 2000 21.49% 17.12% -100.00% -3.14% -11.88% 20.43% 6.20% 11.39% 739.50% 394.93% 89.33% -44.19% 11.25% 2001 -17.67% -26.69% 350.89% 3,338.95% 239.78% 676.86% 23.46% -92.97% -61.86% -94.74% 100.72% 23.21% SACU 2.37% 11.45% 23.26% SADC exc. SACU -64.30% -13.29% 14.96% Total -3.84% 5.54% Madagascar Source: Data provided by Central Bureau of Statistics 25.34% -70.00% 2002 404.35% 10.57% -100.00% 356.23% -60.12% -61.71% -80.91% 8.32% -3.54% 80.89% 731.31% 86.28% 9.16% 8.32% 153.27% 20.22% -100.00% 2003 -54.72% 24.76% -67.07% 2,279.72% 167.50% 9,264.30% 28.80% 5,208.87% -31.30% 234.95% 174.85% 29.78% 28.91% 94.62% 20.12% 2004 -23.06% 34.39% -97.82% -4.47% -55.28% -82.21% 311.51% -97.14% -9.89% 462.04% 48.25% -59.49% -48.57% -10.16% -9.38% -48.09% -13.22% 160.63% On Average 45.13% 8.53% -16.30% 128.42% 80.87% 898.02% 102.22% 1,611.56% 10.75% 1,038.82% 66.88% 151.77% 34.81% 10.69% 10.82% 22.86% 9.03% -96.70%

Table A17: Import Cover in Weeks, 1999 to 2004 1999 2000 2001 2002 2003 2004 10.85 10.48 11.74 10.30 6.55 7.25 Source: Calculation based on Bank of Namibia, 2004 Table A18: Employment by Economic Sector in%, 1997 and 2000 Sectors Agriculture Manufacturing Mining Fishing 1997 2000 36.6 29.3 6.5 5.3 1.6 0.9 1.7 1.8 Wholesale/ Retail trade and repair of motor vehicles 8.4 9.0 Others 45.2 53.7 Source: Ministry of Labour, 2001; Ministry of Labour, 2002 Table A19: Employment and GDP Growth in Comparison, 1997 and 2000 Employment GDP in Constant1995 Employment Growth GDP Growth Prices, N$ million 1997 401,203 13,665 2000 431,949 15,100 7.7% 10.5% Sources: Republic of Namibia, 2004; Ministry of Labour, 2001 and 2002. 96

Table A20: Human Development Indicators, Selected Years from 1990 to 2003 HDI Ranking 1990 1996 1998 2000 2002 2003 135 107 115 122 126 125 Life expectancy at birth -in years 57.5 55.8 50.1 44.7 45.3 48.3 % Population without sustainable access to improved water source 17 20 % Population on <US$1 per day % One year olds fully immunized against measles 61 34.9 34.9 68 70 % Births attended by skilled health personnel 71 68 % Population with sustainable access to improved sanitation 51 78 78 41 30 % Children< 5 years under weight for age 26 12 24 24 HIV prevalence %ages 15 – 49 years 15 20 21.3 Tuberculosis per 100,000 people 100.3 478 477 Under-five mortality rate per 1,000 live births 167 77 74 105.8 67 65 Adult literacy rate (%ages 15 and above) 40 81 80.8 82 83.3 85 Youth literacy rate (% ages 15 – 24) 87.4 91 91.6 92.3 92.3 % Net primary enrolment ratio 83 94.1 93.4 91.5 78 78 % Net secondary enrolment ratio 34.3 37.8 45.5 38 44 Sources: UNDP, various years 97

Table A21: Namibia’s Progress Towards Achieving the MDGs 1992 2003 2006 target 1. Eradicate extreme poverty and hunger Proportion of households living in relative poverty* 38% 28% 1 28% Proportion of households living in extreme poverty* 2. Achieve universal primary education Net primary school enrolment 9% 89% 4% 1 92% 4% 95% Survival rate for grade 5 75% 94% 95% Literacy rate, 15-24 years 89% 3. Promote gender equality and empower women Primary education(girls per 100 boys) 102 89% 100 94% 100 Secondary education(girls per 100 boys) 124 113 100 Tertiary education(girls per 100 boys) 162 111 100 Proportion of seats held by women in National Assembly 4. Reduce child mortality Infant mortality(per 1, 000 live birth) 9% 67 19% 52 30% 36 Under- five mortality rate per 1,000 live births) 87 71 54 Proportion of one-year- old children immunised against measles 63% 72% 80% Underweight among children under five 5. Improve maternal health Proportion of births attended by 26% 24% 17% trained health personnel 68% 75% 88% Contraceptive prevalence rate 21% 37% 50% 6. Combat HIV/AIDS, Malaria and other diseases HIV prevalence among 13-19 year old women 6% 11% 9% HIV prevalence among 20-24 year old women 11% 22% 15% TB treatment success rate 58% 69% 7. Ensure environmental sustainability Proportion of rural households with 75% access to safe drinking water 45% 80% 80% Proportion of rural households with access to basic sanitation 15% 21% 50% Freehold Land 5% 6% 8.50% Registered conservancies 0% 5% 8. Develop a global partnership for development Per capita overseas development 10.90% assistance to Namibia(in US$) 130 60 90 Progress toward target Good 2 Good 2 Good Good Slow Good Good Good Slow Slow Slow Good Slow Good Good Worsening Worsening Good Good Slow Slow Slow Worsening Note: The table provides a quick overview of progress on selected targets for each of the eight MDGs. The data is grouped to represent the closest year to 1992, 2003 and the medium- term targets for 2006. The last column assesses progress against the medium-term target. ‘Good’ means that if the rate of progress seen since the early 1990s continues, then the target will be met. ‘Slow’ means that progress since the early 1990s has been positive, but is not strong enough to reach the 2006 target. ‘Worsening’ means that the situation has deteriorated since the early 1990s.*A new Household Income and Expenditure Survey will be finalised in 2004, which will update the income poverty figures. See Note 1 and 2 . Source: Office of the President, National Planning Commission, 2004 1 Figures included from Republic of Namibia, 2006:32 2 Authors’ own assessment 98

Table A22: Namibia’s Progress Towards Achieving the SADC Targets Target Indicators 2002 2003 2004 2005 2008 2012 2018 Core Inflation 5 Budget Deficit as a Percentage of GDP 1 External Debt as a Percentage of GDP 1 11.3% 7.3% 4.2% 2.2% 9% 5% 3% 2.5% 7.2% 3.6% 1.1% 5% 3% 1% 3.7% 4.6% 5.6% 4.9% 60% 60% 60% Current Account Balance as a percentage of GDP 2 3.8% 8.9% 10.9%-9%-9%-3% Growth rate 3 6.7% 3.5% 5.9% 3.2% 7% 7% 7% External Reserves (Import Cover in months) 2 2.2 1.7 1.7 Central Bank credit to Government in% of taxes 2 -11.9%-4.9%-8.3% Domestic savings rates 3 39.6% 31.5% 366 10 % 5% 5% 25% 30% 35% Sources: 1 MoF, MTEF for 2006/07-2008/09; 2 BoN Quarterly Bulletin 2003 June and Sept 2005; 3 World Bank, various years; 4 Republic of Namibia, National Planning Commission Secretariat, Central Bureau of Statistics, Namibia Consumer Price Index, January 2006 99

100

Deepening Integration in SADC Namibia on Track to Meet SADC Targets Part: 2 Perception of Business and Non-State Actors in Namibia 101

List of Tables Table A1: Main Activity of Company................................................. 135 Table A2: Number of Employees....................................................... 135 Table A3: Years of Operation of Company........................................ 135 Table A4: Reponses by Industry and Number of Employees............... 136 Table A5: Responses by Industry and Years in Operation................... 136 Table A6: Distribution of Companies by Turnover and Value of Imports and Exports of Companies, in%...................... 136 Table A7: Most Important Export Destinations.................................. 137 Table A8: Main Export Destinations and Share of Total Exports......... 137 Table A9: Share of Companies that Face Competition from........... 138 Table A10: Type of NSA..................................................................... 138 Table A11: Years in Operation of NSA................................................ 138 Table A12: NSA Member of........................................................... 138 Table A13: Impact of Regional Integration on Involvement in Policy Design............................................................. 139 Table A14: Comparison between Business and NSA Responses to Expected Changes, in%.............................. 139 Table A15: Expected Changes – Responses from Manufacturing Sector....................................................... 139 Table A16: Expected Changes – Responses from Wholesale Sector............................................................................... 140 Table A17: Expected Losses and Gains from Integration by Industry, N$...................................................................... 140 Table A18: Gains and Losses by Size of Company, N$........................ 140 Table A19: Gains and Losses by Years in Operation, N$...................... 141 Table A20:Share of Companies that Experienced Trade Barriers, by Sector............................................................. 141 Table A21:Expectations Concerning Exports to and Imports from SADC by Type of Civil Society Organisation............. 141 Table A22: Comparison of Perceptions of Regional Integration between Businesses and NSAS.......................................... 142 Table A23: Impact of Regional Integration on Domestic Businesses – a Comparison on Responses by Companies and NSAS....................................................... 143 102

Table A24: Relevance of Trade Barriers – Responses by Businesses and NSAS, in%................................................ 144 Table A25: Most Relevant Trade Barriers, Responses by Businesses and NSAS........................................................ 146 Table A26: Rating of the Business Climate in Various Countries and Regions by Businesses................................ 147 Table A27: Public Debate on Regional Integration, Responses by Businesses and NSAS, in%.......................... 148 Table A28: Attendance at Workshops on Regional Integration in General by Industry, in%.............................................. 148 Table A29: Attendance at Workshops on SADC Integration by Sector, in%................................................................. 149 Table A30: Rating of the Business Climate by Industrial Sector, in%...................................................................... 149 Table A31: Attendance at Workshops and Seminars by Business People and NSAS, in%.................................................... 150 Table A32: Various Activities of NSAS Concerning Regional Integration, in%.............................................................. 150 Table A33: Support for Deeper SADC Integration by Sector................ 151 Table A34: In Favour of Regional Integration – Comparison of Businesses and NSAS.................................151 Table A35: Degree of Regional Integration – a Comparison between Businesses and NSA Responses........................... 152 Table A36: Correlation between being in Favour of SADC Integration and............................................................ 153 List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Distribution of Respondents by Economic Activity.............. 111 Turnover, Value of Imports and Exports of Responding Businesses, in% of Respondents (Value in USD).................................................................. 112 Distribution of Respondents by Type of Civil Society Organisation......................................................... 114 Impact of Regional Integration on Involvement of NSAS in Domestic Policy Design, in% of Respondents.................................................................... 119 103

Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Impact of Regional Integration on Various Variables, Expectations of Businesses in% of Responding Companies.................................................... 119 Impact on Employment, Production and Other Variables: Expectations of Businesses and NSA in Comparison, in%.............................................................121 Proportion of Business People Who Did Not Know About the Business Climate in Specific Regions, in%........ 127 Support for Regional Integration by Businesses and NSAS, in% of Responses........................................... 131 Business and NSA Expectations Regarding the Way Ahead of Regional Integration, in% of Respondents..................................................................... 132 List of Abbreviations BLNS BLS COMESA EAC EU N NSA N$ SACU SADC USD Botswana, Lesotho, Namibia, Swaziland Botswana, Lesotho, Swaziland Common Market for Eastern and Southern Africa East African Community European Union Number of Cases Non-State Actor Namibia Dollar Southern African Customs Union Southern African Development Community United States Dollar 104

Executive Summary T he Friedrich Ebert Foundation in Botswana, in close consultation with the SADC Secretariat, initiated a project focusing on deepening regional integration within SADC. Country studies for eleven SADC member countries, including Madagascar which joined in August 2005, aim to analyse the impacts of macro-economic policies on the countries in the region. The country studies form one part of the whole project. In addition, a survey of the business sector as well as non-state actors (NSAs), was conducted to capture perceptions on regional integration within SADC and other regional groupings. Some 100 companies and 35 non-state actors were contacted and informed about the survey before questionnaires were sent out in July 2005. We received 30 responses from the business sector and 11 from non-state actors. The low number of responses meant that a disaggregated analysis based on certain characteristics of businesses and NSAs was not possible. However, we analysed responses from the business community based on their main activities. We received ten responses each from the manufacturing as well as wholesale and retail trade sectors. Overall, it was the large and more established companies that returned the questionnaires, responding to the items dealing with the number of employees and years in operation respectively. Industry associations formed the majority of responses from the civil society sector. Only one of these respondents was a member of the SADC National Committee and had been invited to meetings. Apparently, civil society(as represented by the respondents) is frequently involved in the design of domestic policies, but not of regional policies. NSAs and business people shared similar views on the impact of regional integration. They tended to agree or disagree with statements in a similar degree. In general, they perceived regional integration within SADC as something positive for the economy in general, for efficiency and investment opportunities. However, regional integration is apparently not seen as a way of reducing unemployment in the country. The majority of business people do not foresee an increase in their labour force, though they do not expect to retrench workers either. However, they expect better access to cheaper foreign labour. 105

There is apparently also an opportunity for more joint ventures in the region, while on the other hand, the majority of companies do not foresee rising imports from and exports to SADC countries. Respondents were asked to quantify the impact of regional integration on a number of variables. Overall, respondents expected investment, imports and exports to grow between 10% and 23%, and expected a decline in input costs of between 5% and 8%. However, the Standard Deviation for the responses was high, which indicated a broad spread of expectations. This could be explained by the low number of responses, but could also result from a lack of understanding of the concrete impact. Manufacturing companies emerged as more cautious about the outcome of regional integration than other companies. However, overall, businesses expected to be net winners, since losses are expected to be offset by gains resulting in a net gain of NAD38 million. Again, the caveat of representativeness holds. Trade barriers continue to exist. The most relevant barriers include the payment of import duties and taxes in cash, the level of customs tariffs, bureaucracy, lack of transparency and high transport costs. Telecommunication costs and the absence of export insurance are on the other hand an insignificant issue for business people and civil society. The respondents were quite familiar with the performance of the South African economy, but the proportion of respondents that could not rate the business climate in other regions ranged between 20% and 40%, even for traditional export markets such as the EU. This clearly indicates a lack of information about other markets, and could impede business opportunities. A more systematic collection of relevant business information is required to open new markets and exploit opportunities from deeper integration. Regional integration is an issue in Namibia. This was confirmed by the majority of respondents from civil society as well as from the business community. However, only about 30% of responding business people attended workshops and seminars dealing with regional integration, while almost all NSAs participating in the survey did. Most of the respondents were somewhat passive in the sense that they did not organise such events. The absence of business people from these 106

workshops could explain some inconsistencies in responses to the impact of regional integration, because of a lack of awareness. Overall, the business sector and civil society support regional integration within SADC. They favoured the reduction of customs tariffs and the implementation of a Common External Tariff. However, more advanced stages of integration such as free movement of labour, a single currency or a political union received less enthusiastic support, although the majority was still behind these integration schemes. The responses indicate that there is need for more information about integration within SADC and its potential impact on the economy and the people. Expectations were very diverse, and a few more responses could have had a strong influence on the analysis of a number of questions. Therefore, the results should not be seen as a representative reflection of the two categories of respondents. The results are a 'snapshot' of society; and the survey attempted to achieve just that. 107

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1 Introduction T he Friedrich Ebert Foundation in Botswana, in close consultation with the SADC Secretariat, initiated a project focusing on deepening regional integration within SADC. Country studies for almost all SADC member countries, including Madagascar which joined in August 2005, aim to analyse the impacts of macroeconomic policies on the countries in the region. The country studies form one part of the whole project. In addition, a survey of the business sector as well as non-state actors (NSAs) was conducted to capture perceptions on regional integration within SADC and other regional groupings. The aim of this survey is to identify areas that need to be addressed to make regional integration a success. The results of the survey are published in country studies as well as in a comparative study that includes all countries participating in this project. The two questionnaires consist of three sections: The first section covers general information about the respondents. The second section focuses on the perceptions of respondents concerning the possible impact regional integration within SADC could have on the domestic economy and on their own businesses. It includes questions relating to the expected gains and losses associated with regional integration. The last section focuses on the extent of public debate on regional integration in the country, as well as the involvement of respondents in this debate. This report analyses the responses, and compares the perceptions of the business community with those of civil society. It further attempts to establish whether certain characteristics of responding companies, such as type of economic activity, company size or years in operation, influence perceptions. However, this was not always possible owing to the relatively small number of respondents. The report is structured in the following way: The next section briefly describes the methodology of the survey. Section 3 outlines the main characteristics of the respondents. The next two sections analyse perceptions regarding regional integration and the business climate within, as well as outside the region. Section 6 describes the extent of public debate on regional integration in the country, and the last section attempts to draw some conclusions. All relevant tables are presented in the Appendix. 109

2 Methodology T he aim of the survey is to provide a snapshot of perceptions within the two categories, rather than a countrywide representative picture for all economic sectors and the whole spectrum of civil society. The Terms of Reference required a sample of 30 businesses and 10 nonstate actors(NSA). The Namibia Chamber of Commerce and Industry and its branches in Walvis Bay, Ondangwa(north central of Namibia), and Katima Mulilo(far north east of Namibia) provided contact details for companies. More than 100 companies were contacted and informed about the survey. They all agreed to participate and questionnaires were then forwarded by either email or fax. A few days later, follow-up phone calls were made to verify whether they had received the questionnaires. The responses came in slowly. We contacted companies a number of times to reach the minimum number of responses(30) for the business sector. We compiled a list of non-state actors based on our knowledge and information from the Namibia Trade Directory and the telephone directory. The list included business associations, civil society organisations, church organisations, the labour movement, the employers' federation and research institutes. We followed the same approach as for the business sector and sent out 35 questionnaires. We finally received 12 responses. The list of companies and non-state actors that formed part of the survey were discussed with the Namibian office of the Friedrich Ebert Foundation. The relatively small sample size has not allowed for a disaggregated analysis by economic sector, type of NSA organisation or other characteristics of the respondents. Furthermore, expected gains and losses from regional integration as well as expected changes in some economic variables should therefore, be seen as an indication of the direction of the changes rather than as reliable forecasts of the impacts regional integration will have on Namibian companies. We conducted the survey between July and early September 2005. 110

3 Characteristics of respondents T his section describes the characteristics of the respondents from the business sector and civil society. Businesses 29 out of 30 responding companies are private companies; one company is a public-private partnership. Ten of these companies are involved in manufacturing activities, a further ten in the wholesale and retail trade sector; and the remaining businesses in the agricultural, fisheries, construction, transport and communication, tourism, and other non-specified sectors(Table A 1 and Figure 1). Almost three quarters of the enterprises employ more than 50 people and are hence classified as large businesses. 20% of the companies employ fewer than 25 workers, but more than five(Table A 2). Established businesses constitute the majority of respondents since they have been in business for more than ten years. Only one of the companies had started its business less than five years(Table A 3). Figure 1: Distribution of Respondents by Economic Activity Overall, the large and more established companies from the manufacturing and the wholesale and retail trade sectors responded to the survey(Table A 4 and Table A 5). It is therefore, not surprising that 89% of the responding businesses exceed an annual turnover of USD100,000. The turnover of two companies ranges between 111

USD50,001 and USD100,000, while one company has a turnover of less than USD25,000. 22 responding businesses import goods from SADC countries and 17 from outside SADC. In addition to a larger number of companies importing from within SADC, the value of imports from SADC countries apparently exceeds the value of imports from outside SADC. 68% of the companies importing from SADC countries purchase goods and services of more than USD100,000 from abroad, while this is the case for 41% of the businesses that import from outside SADC. Export patterns reveal slightly different results. 19 companies export goods and services to countries outside the SADC region, while 18 export to SADC partners. However, the export value to SADC countries exceeds USD100,000 for a larger number of companies than for companies exporting beyond SADC borders. This is further corroborated by the findings that Angola and South Africa constitute the first and second most important export destinations for more than 50% of all companies(Table A 7). Countries outside SADC only dominate the category of third most important export destination, but are not relevant as most or second most important export destination. Figure 2: Turnover, Value of Imports and Exports of Responding Businesses, in % of Respondents(Value in USD) South Africa is more significant as the main export destination than Angola in terms of the share of total production that is exported to 112

this destination. The same applies to the EU, which is more relevant as second most important export destination than South Africa since it absorbs a larger share of the total production(Table A 8). The relevance of export destinations varies between industrial sectors. Most of the output of the fisheries sector is exported to the EU, while Angola, South Africa and Asia are the most important export markets for manufacturing companies. Angola and South Africa are also the main export destinations for the wholesale sector. However, the domestic market accounts on average, for about 76% of total sales and is thus the most important market. The high value for the Standard Deviation (35) indicates that there is a relatively equal distribution of companies between the extreme values of 5% and 100% of sales on the domestic market. This is not surprising given the small sample size and the distribution of companies across sectors. Because of the high Standard Deviation, absolute figures have to be treated with caution. The majority of businesses sell goods and services of less than USD25,000 outside Namibia(Table A 6). This can be explained by the economic activities of the responding businesses. Traditional export sectors such as mining, fishing, tourism, and agro-processing, are not strongly featured in the sample. On the other hand, the import and export patterns reflect Namibia's trade patterns in general. About 80% of all imports are sourced from or through South Africa- hence from within SADC- while only 40% of Namibia's exports are destined for SADC countries. Diamonds account for almost 30% of total exports and are exported to the De Beers subsidiary Diamond Trading Company in London/ United Kingdom. Fish, the second most important export item, is mainly exported to Europe as well. Thus, export destinations are more diversified than sources of imports. Furthermore, 50% of the respondents indicated that they face strong competition form South African companies, with another 21% facing moderate competition. Enterprises in other SACU countries are not seen as strong competitors for most businesses. Only 20% indicated that they experience strong or moderate competition. European and Asian companies play a lesser role as competitors, while competition from companies elsewhere in Africa and the rest of the world is negligible(Table A 9). 113

Responses from businesses in Namibia mirror the international setup in which Namibia is embedded. South Africa, the dominant economic power in the region and former colonial power, is the main trading partner followed by another potentially strong neighbour namely Angola- and the BLS countries. Other SADC countries do not yet play a significant role for Namibian businesses, either as export markets or as sources of inputs, or as competitors on the domestic market. Non-State Actors(NSAs) Five out of 11 responding NSAs were industry associations, while another three were civil society organisations(Table A 10). Two-thirds of these have been in operation for more than ten years, and only one for less than five years. One of the respondents is part of the SADC National Committee, while seven out of twelve are members of regional umbrella organisations, indicating the strong links of organisations within the region(Table A 12). Although only one organisation is a member of the SADC national committee, two indicated that they have occasionally received invitations to meetings, and have participated in the meetings. Figure 3: Distribution of Respondents by Type of Civil Society Organisation 114

All but one NSA had been involved in the design of domestic policies in one way or another. Only three have been involved in policy design on a regional level, although more than half of the respondents are members of regional umbrella organisations. Overall, NSAs are confident that regional integration will strengthen their influence in terms of policy design. 70% expect the influence of NSAs in general on domestic policies to increase, and 75% expect their own organisation's impact to be strengthened(Table A 13). Hence, SADC integration could strengthen the influence of civil society on policy issues, and could subsequently enhance the transparency of policy design. Figure 4: Impact of Regional Integration on Involvement of NSAs in Domestic Policy Design, in% of respondents 115

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4 Perceived impact of regional integration within SADC T his section analyses the perceptions of businesses and non-state actors concerning various aspects of regional integration as well as the impact of strengthening integration. The section also compares the perceptions of the business community and NSAs. 4.1 Perceptions of Regional Integration T he responses from businesses and NSAs concerning the possible impact of deeper regional integration within SADC are similar; though when they agree they tend not to agree strongly with the various statements. The extent to which they agree with the statements is broadly within a similar magnitude. This could possibly be explained by the proportion of industry associations within the responding NSAs. Industry associations might reflect the views of individual businesses. There appears to be overall consensus among businesses that regional integration will benefit the economy in general, and provide new investment opportunities. Regional integration is also expected to increase the company's efficiency in order to compete successfully on a larger more open market. These views are shared widely by NSAs. Improved efficiency of domestic companies would be necessary to counter the growing competition on the domestic market that both groups of respondents anticipate. Although the respondents expect an overall positive impact on the domestic economy, a significant proportion of respondents within each category does not expect the unemployment rate(45% of businesses and 60% of NSAs) or the costs of labour to decline(Table A 22). While the expectation that more immigrants will seek their fortune in Namibia would support the view that the unemployment rate would probably not fall, it could, on the other hand, put pressure on the cost of labour. Apparently, the respondents do not share this point of view. Interestingly, more businesses anticipate a positive impact of regional integration on other companies and the economy as a whole(61% and 80%, respectively) than on their own business(48%). According to companies surveyed as well as NSAs, input and consumer prices are 117

likely to come down. While all but one NSA are confident that the industry will benefit from lower input costs, 40% are sceptical regarding a decline in consumer prices. Business people agree to almost the same extent(about 60%) on possible price cuts for both inputs and consumer goods. While both groups were quite confident in answering questions related to economic issues, almost two-thirds of NSAs, and more than a third of business people, were not sure how the human rights situation in the country could be affected by regional integration. The NSAs were split between agreement and disagreement about an expected improvement in the situation, while companies expect an improvement. The large proportion of respondents who had no opinion on this statement could indicate that human rights issues are not a topical issue in Namibia. The impact of regional integration on the country's sovereignty is the only area where the business community takes a different stand from civil society. Almost 50% of companies anticipate a lower degree of sovereignty, while almost three-quarters of the respondents from civil society disagree with this view(Table A 22). Overall, there was no indication that the type of NSA organisation determines perception. The responses by type of organisation were scattered across the whole spectrum. Perceptions on the impact of regional integration are apparently not unique to integration within SADC. Most respondents(50% of NSAs and 47% of business people) indicated that they would have answered the question in the same way if it had referred to Comesa or the East African Community(EAC). Another 25% and 37%, respectively would have responded differently to some of the questions, while a few were not sure whether or not they have other perceptions concerning Comesa and EAC. 4.2.Impact on Domestic Businesses B usinesses were asked how regional integration could impact on their own operations. Their responses suggest that the labour market will hardly be affected. 62% of the respondents do not expect to retrench employees, but more than 50% will probably not employ more workers either. In addition, the majority does not view access to 118

cheaper labour as a possibility. NSAs differ on these expectations. More than 50% foresee retrenchments, but they are also more hopeful that regional integration could result in additional employment- 42% regard this as likely, compared to a third who consider it unlikely. Contrary to the business community, almost two-thirds of NSAs anticipate access to cheaper foreign labour. Businesses view a positive impact on domestic production more cautiously- 48% indicate that regional integration is unlikely to result in increased domestic production- than do NSAs(36%). Both groups are united though, when it comes to negative impacts on domestic production. The majority does not expect companies to close down their operations. To the contrary, most of the respondents look forward to venturing into new business opportunities as a result of regional integration. The majority of business people anticipate access to cheaper inputs, which could explain the expectation that imports from SADC countries will increase. Respondents from companies also expect exports to SADC countries to grow. Since most business people do not expect a higher level of domestic production, the perceived increase in exports to, and imports from SADC countries, could be indicative of a shift of exports and imports from traditional markets to new markets (Figure 5). Figure 5: Impact of Regional Integration on Various Variables, Expectations of Businesses in% of Responding Companies 119

Civil society also views the increase in trade within SADC as a realistic scenario; in fact the respondents are actually more convinced of the potential than business people. Interestingly, the few sceptical voices on the prospects for increased trade represent industry associations. However, due to the low number of respondents, these results are not necessarily representative(Table A 21). Businesses and NSAs alike, see a real opportunity for joint ventures between Namibian companies and businesses from other SADC countries. The findings regarding the potential of increased trade within SADC as well as more joint ventures certainly bode well for deeper regional integration(Table A 23). Quantifying the Impact When asked in general about the impact of regional integration on the labour market, respondents indicated that they do not expect to employ additional workers or retrench workers. However, the picture changes when respondents are asked to quantify the impact on the labour market. Overall, businesses expect a decline in employment by 10%. Even when excluding the extreme case of a company that will retrench all workers, a decline of on average 5% is anticipated. Nonstate actors are more positive about the employment impact, and expect a growth of 2% on average. However, the result has to be treated with some caution. Firstly, only 50% of the surveyed NSAs responded to this question. Secondly, the expectations range from 60% to-30% without any clear trend. The divergent expectations, combined with the low response rate, could suggest that civil society does not really know what to expect. The same observations pertain to the impact on other variables, such as production. The business community is not optimistic about the prospects. Even if we exclude the extreme case of a company that expects a decline by 100%(i.e. closing down the business), expectations still remain slightly in the negative territory(-0.4%). NSAs on the other hand, are again more optimistic and expect a growth in production of 7.5% on average, spreading from-50% to+50%. However, civil society and the business sector share common views concerning the impact on investment, exports and imports. They expect 120

positive growth rates of similar magnitudes(Table A 14). Furthermore, both groups of respondents predict a decline in input prices by almost the same percentage: 8.3% according to businesses, compared to 5.3% by NSAs(Figure 6). As cautioned earlier, the figures should not be taken too literally, but should rather be viewed as an indicator of the direction of expectations. The Standard Deviation for the business sector ranges between 15 and 48, which is indicative of a very flat distribution curve with extreme values rather than a normal distribution of responses. Figure 6: Impact on Employment, Production and Other Variables: Expectations of Businesses and NSA in Comparison, in% Businesses Responses by Economic Sector, Size and Years in Operation A more disaggregated analysis by sector, size of the company and years in operation reveals some interesting results. Regional integration appears to be a challenge to the manufacturing sector. The eight manufacturing companies that responded anticipate a decline in employment, production and investment by 30%, 21% and 16%, respectively. However, the expectations among manufacturing companies differ dramatically, ranging from minus 100% to plus 10% or even plus 100% in the case of enhanced import prospects from 121

other SADC countries(Table A 15). The wholesale sector on the other hand, is more optimistic and expects a positive impact on all indicators, as do companies from all other economic sectors. Although the variation of expectations is not as extreme as with the manufacturing sector, the Standard Deviation is still very high(Table A 16). The low number of responses is certainly one reason; the diversity of companies could be another. An analysis by size of companies in terms of number of employees and by years in operation, is hindered by the low number of responses in most categories. Therefore, the expectations of the more established companies cannot be compared with those of recently established companies, or the findings of large enterprises with those of small enterprises. In addition to estimating the changes in a number of variables, business people were asked to quantify the gains and losses for their company from regional integration. Overall, substantially higher gains (N$179 million) were reported than losses(N$41 million). This would result in a net benefit of some N$138 million. Excluding the extreme case of one company that expects gains to the tune of more than N$100 million, there would still be a net gain, although much smaller (N$38 million). Six of the nine companies that anticipate both gains and losses from regional integration could be net winners, while three could be net losers. Although the manufacturing industry expects a decline in employment, production and investment, this sector as well as all other sectors stands to benefit overall from regional integration. Gains amount to N$40 million compared to losses of N$27 million (Table A 17). The same qualification as before holds here as well. The Standard Deviation is huge, implying widely-dispersed perceptions concerning gains and losses. An analysis of gains and losses by size of company in terms of number of employees is hampered by the low number of responses- only one response from each of the three categories(Table A 18). Similarly, it was not possible to establish whether the number of years in operation influenced the perceived gains and losses. 75% of the respondents have operated for more than ten years. Hence, responses in the other categories are too low to allow for a meaningful analysis. The analysis would be further distorted by the expected gain of one company of 122

N$100 million(Table A 19), which appears to be overly optimistic. Therefore, this data is not analysed, though the tables are provided in the appendix for illustration purposes. What is more important than the perceived magnitude of gains or losses, is the direction. The results described above could support a cautiously optimistic view about the prospects of Namibian businesses to gain from regional integration. However, businesses need to prepare in advance for open markets to mitigate losses, and they need to identify areas for support to improve their performance. While it is expected that the manufacturing sector would raise issues of concern, it is somewhat surprising, that manufacturing companies are already competing on the domestic market with companies from South Africa that have free access to the Namibian market because of the customs union. Only two industries in Namibia gain from infant industry protection, while some other manufacturing companies benefit from incentive schemes that aim to promote value added activities in the country. Since the continuation of these schemes is not related to the implementation of the SADC Free Trade Agreement, other factors are behind these perceptions, and these are yet to be identified. 4.3 Rating of Trade Barriers 2 0 out of 28 responding businesses have experienced trade barriers when importing from or exporting to SADC countries. At least 50% of companies from all sectors that are involved in trade have experienced trade barriers in one form or another(Table A 20). Businesses face trade barriers on the export as well as import side. This could explain why the wholesale and retail trade sectors are also affected, despite importing most items from or through South Africa, which is part of the customs union with Namibia. However, wholesale companies also export to other countries outside the customs union (primarily to Angola) and have to cope with paperwork at the borders. Most of the trade barriers identified are at least relevant, if not very relevant, to the business community and the civil society alike. Only a few trade barriers are rated'hardly' or'not relevant at all'. For the majority of companies,(though only 30% of NSAs), telecommunication 123

costs in the region are not too high. Similarly, unavailability of export insurance to cover payment risks abroad is not of particular concern to business people. This is surprising, because 82% of companies cite non-payment by customers abroad as a relevant or very relevant trade barrier. Furthermore, only about 60% of respondents regard weak law enforcement abroad and corrupt officials as a relevant or very relevant obstacle to trade. This receives a relatively low rating compared to other factors, and could be explained by their export destinations. Most exports are destined for South Africa, Angola and the EU, while other SADC countries rarely feature as an export destination. Law enforcement is certainly stronger in South Africa and the EU than in other countries in the region. Other factors impeding trade are regarded as much more relevant. All businesses and 90% of NSAs view high transport costs as an obstacle to trade. Time-consuming customs procedures, substantial bureaucracy and the cash payment of import duties and taxes are seen as further factors ranking almost as high as transport costs. Lack of transparency of rules and regulations, import and export licenses, visa requirements and rules of origin are considered by about 75% of companies as a concern. Overall, the assessment of trade barriers by businesses is more or less in line with NSAs(Table A 24). Most Relevant Trade Barriers Business people consider the fact that they often have to pay import duties and taxes in cash as the most relevant trade barrier, followed by the level of customs tariffs. Bureaucracy, import and export licenses as well as high transport costs and risk of non-payments are regarded as significant obstacles. Non-state actors view sanitary and phytosanitary regulations as the most important trade barrier, and agree on the relevance of cash payments for import duties with the business community. Time-consuming customs procedures, high transport costs and once again, import duties that have to be paid in cash- top the list of the second most relevant trade barriers for the business sector. Civil society almost concurs with this ranking, but views rules of origin as similarly relevant. The list of third most important barriers is almost a 124

reflection of the previous list. High transport costs, risk of non-payment and time-consuming customs procedures are frequently mentioned by companies, while NSAs regard the requirement of licenses and permits as well as lack of information about foreign markets as severe obstacles(for details see Table A 25). Some of the concerns raised by the business sector and NSAs such as high customs tariffs and- at least in part- payment of customs duties in cash, will diminish with the establishment of the SADC Free Trade Area, However, other fees and taxes, such as Value Added Tax or road user charges, will still be collected at border posts. Therefore, the introduction of secure electronic payment systems at border posts could be explored. Paperwork and licenses and permits will not automatically disappear within a Free Trade Area and hence, the SADC Secretariat could consider designing standard customs forms in cooperation with member states to improve the efficiency of bureaucracy and speed up procedures at border posts. Botswana, Namibia and South Africa have moved ahead with the design and implementation of standard customs forms used on the Trans Kalahari Corridor from Walvis Bay/Namibia through Botswana to the Gauteng Province of South Africa. The countries are in consultation about rolling-out this initiative to include more border posts and countries, hence addressing concerns about time-consuming border procedures and paperwork. Responses from the survey suggest that this would be a significant step forward. 125

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5 Perceived Business Climate in the Region and Beyond T he removal of trade barriers alone will not spur trade within the region. A conducive business climate is required for this. More ground work needs to be done, as indicated by the ratings of the business climate in various countries and regions by business people. According to the responses, the business climate in South Africa is currently viewed as quite favourable. 78% of respondents rated it as either very favourable or favourable. The BLNS countries, the domestic market and Asia are also regarded as doing quite well, but display a lower rate of approval (about 58%). Asia received the second-highest score in the category 'very favourable' business climate after South Africa, while respondents perceive the business climate in the BLNS and on the domestic market mainly as favourable. Only roughly, a third of the businesses consider the situation in SADC as favourable, and even less so in the rest of Africa. Interestingly, companies are also very cautious about the economic performance of the EU and the USA, with less than 40% giving a positive rating(Table A 26). Apparently, a lack of knowledge exists about the economic performance of countries beyond South Africa. This could point to a deficit of available information. Between 21%(for BLS countries) and 37% of respondents indicated that they do not know about the business climate in these regions(Figure 7). Figure 7: Proportion of Business People Who Did Not Know About the Business Climate in Specific Regions, in% 127

Again, a breakdown by economic sector suggests that the rating is influenced by economic activity. Manufacturing companies rate the business climate in all countries and regions less favourably than the average of all companies. Moreover, they indicate that they do not know about other regions more often than the average of all businesses. On the other hand, wholesale and retail trade businesses rate the business climate consistently better than the average of all companies and are apparently better informed about other regions and countries(Table A 30). There is a need to fill the information deficit about markets beyond the domestic and traditional markets such as South Africa, in order to reap the benefits from regional integration. Although the lack of information could certainly have an influence on the rating, countries in the region need to improve their economic performance and reputation as well in orderto become attractive markets and investment destinations. Efforts by countries to achieve the SADC macroeconomic targets, will without doubt, enhance the business climate. 128

6 Political Debate About Regional Integration T he last section of the survey attempted to evaluate the degree of political debate on regional integration in the country and the involvement of the respondents in this debate. The respondents overwhelmingly confirmed that regional integration in general and integration within SADC is a relevant topic in the political debate in Namibia(Table A 27). The debate appears to focus more on SADC integration than on the topic in general. Not surprisingly, integration within Comesa, from which Namibia withdrew in 2004, and the EAC is not an issue. As responses to other questions have already indicated, the EAC is a regional grouping not widely known in this part of Southern Africa. Almost 50% of the responding business people indicated that they have not heard anything about integration within EAC, while another 39% confirmed that it is not an issue. NSAs responded in a similar way. Workshops and seminars have been held to discuss regional integration in general and within SADC. Almost all respondents from civil society have attended such events, and roughly a third of the business community. The majority of business people who did not attend confirmed that workshops had been offered(Table A 31). Since Namibia is neither part of Comesa nor of EAC there were apparently no workshops held, despite affirmative responses by a few respondents. Half of the respondents from the manufacturing sector have either regularly or occasionally attended workshops on regional integration in general and on SADC integration in particular, while representatives from the wholesale sector were mainly interested in workshops relating to SADC integration(Table A 28, Table A 29). Only a minority of non-state actors has organised workshops or published press releases on regional integration issues, though most have had internal discussions on these topics(Table A 32). Once more, these activities were focusing on regional integration in general and within SADC, and not on Comesa or EAC. One industry association had occasionally organised workshops on SADC issues, and two had issued press releases regularly or sometimes. NSAs were rather passive in this respect. This could be indicative, either of a lack of demand for 129

such information by their members, or that sufficient information is provided by other organisations. Way Forward Regional integration within SADC has strong support in Namibia. More than 50% of the business community is strongly in favour of it, and an additional 24% slightly in favour, although there are costs involved as responses to earlier questions have indicated. Only one in five businesses is sceptical about the whole idea. Businesses involved in manufacturing activities are less enthusiastic about deeper SADC integration than businesses in other sectors- 38% of them are not in favour(Table A 33). These responses mirror earlier sentiments of manufacturing companies with regard to regional integration. Civil society supports SADC integration to the same extent as the business community. Regional integration in general receives almost the same degree of backing from both groups, with NSAs being slightly more in support than companies(Table A 34 and Figure 8). Integration within Comesa has no support from NSAs and only some support from business people, indicating that it was the right decision to continue with SADC as opposed to Comesa. Although respondents overwhelmingly support integration within SADC, there are interesting nuances concerning the extent of regional integration that respondents would support. The more far-reaching the integration scheme, the less the support it receives from respondents. However, all integration schemes are backed by the majority of business people, though not all by members of the civil society. 130

Figure 8: Support for Regional Integration by Businesses and NSAs, in% of Responses Tariff reduction within SADC gets the go ahead from 82% and 91% from businesses and NSAs, respectively, while a customs union with a common external tariff, but no tariffs between SADC member countries, receives a slightly lower rate of approval- 73% and 70%, respectively. The removal of all trade restrictions within SADC is still supported by two-thirds of companies, but is rejected by NSAs(57%). Manufacturing companies disapproved overwhelmingly(67%) of the removal of all trade restrictions, underlining once more their cautious approach towards trade liberalisation. They accounted for 75% of all 'No' votes. The free movement of capital and services is widely supported, in contrast to the free movement of labour. Only a small majority of businesses is in favour of it, while the majority of NSAs rejects the idea. Businesses and NSAs would like to see the same level of taxes introduced throughout the region, and are strongly in favour of common competition and trade policies. A single currency, and finally a political union still had the backing of business people, though to a smaller extent, but politicians would need to convince civil society of the benefits of such a far-reaching integration scheme. 50% of responding NSAs did not approve of integration at such a level, and another 10% and 20%, respectively was undecided(Table A 35). 131

Businesses that are in favour of deeper integration within SADC tend to be more in favour of removing all trade restrictions and of liberalising the movement of labour, capital and services than companies that do not support regional integration. However, there is not much difference between these groups concerning a possible political union, a single currency or the implementation of the same level of taxes throughout SADC. The interpretation of the results is qualified by the small number of respondents that are not in favour of SADC integration - five cases(Table A 36). Manufacturing companies and wholesale businesses approved regional integration to a lesser degree than other industries. However, the findings are again qualified by the low number of responses from other sectors. The scepticism of the wholesale sector is a little surprising, since one would have assumed that this sector would benefit from access to a broader range of sources and stronger competition among suppliers(Table A 33). Finally, members of a regional umbrella organisation did not differ in the degree of support for the various stages of regional integration from other civil society organisations. Again, the lack of correlation could be a result of the small number of responses received. Figure 9: Business and NSA Expectations Regarding the Way Ahead of Regional Integration, in% of Respondents 132

7 Conclusions and Recommendations T he survey revealed overall support for regional integration within SADC. Even though businesses expect to incur costs, they support regional integration. However, more the degree of support dwindles, the more advanced the integration scheme is. A free trade area with some sort of trade regulation and a common competition and trade policy within SADC is favoured. An economic or even political union still receives support by the majority of respondents from the business community but does not have the backing of non-state actors. There is a role for the SADC Secretariat to be more pro-active, and embark on an information campaign targeting the next steps of regional integration beyond a Free Trade Area and a customs union. Information should not only target the business sector but the population at large in order to explain potential benefits and costs. Most businesses expect to gain from deeper regional integration, though they also expect to incur costs. However, the manufacturing sector will need some attention. Responses from manufacturing companies are generally less positive about the impact of regional integration. They anticipate losses. Although they are already competing against companies from the strongest economy in the region- South Africa- they are concerned about a negative impact on the labour market,(production and investment). The perceptions of the manufacturing sector would warrant a separate, in-depth study to identify the specific challenges the sector could face, and to identify possible support programmes to prepare the companies for an ever more open market. The highly dispersed anticipations concerning gains and losses or the impact of regional integration on certain economic variables can be explained by the low number of cases, but could also indicate that actually business people do not really know what to expect from regional integration. There is certainly need for further research regarding business opportunities, as well as the presentation and dissemination of results. The Namibia Chamber of Commerce and Industry, as well as industry associations, could be the driving forces for such undertakings. 133

Regional integration is a topic in the public debate in Namibia and workshops had been attended by most of the respondents. However, specific information about markets beyond the domestic and traditional markets, such as South Africa, is needed, since it appears that relatively little is known about other destinations. This is even true of the smaller SACU economies in the neighbourhood, and even more so for other SADC countries. Comesa and EAC are in general not well known in Namibia. Since the lack of country as well as sector-specific information limits the exploitation of existing business opportunities, the SADC national committee, in cooperation with the Namibia Chamber of Commerce and Industry could consider collecting and distributing relevant economic information about other SADC countries. Furthermore, businesses experience barriers to trade. These barriers, such as bureaucratic procedures at border posts, need to be tackled seriously. Experience has shown that it is most efficient to tackle bureaucratic inefficiencies in a step-by-step approach, starting with a few countries before rolling out programmes to all member countries. This approach ensures that lessons learned from pilot projects will improve the implementation later on. Moreover, broad consultations in advance with all stakeholders will contribute to a smooth implementation. Another area that needs attention is that of corrupt officials, as the responses reveal. This is supported by findings of the latest Corruption Perception Index 2005. Only one SADC country scored more than five out of ten points(Botswana), while eight scored less than 3 points, indicating severe problems with corruption. Namibia launched an AntiCorruption Commission at the beginning of 2006, that could potentially improve the perception of Namibia, if it is provided with the necessary resources. Since the majority of both the business community and civil society in Namibia support regional integration, a strong foundation has already been laid for the further stages of economic integration beyond a Free Trade Area and customs union. 134

Appendix Table A1: Main Activity of Company Agriculture Fisheries Manufacturing Construction Wholesale Frequency 1 3 10 1 10 Transport and communication 2 Tourism 1 Others 2 Total 30 Percent 3 10 33 3 33 7 3 7 100 Table A2: Number of Employees < 5 6-10 11-24 25-49 50-99 100+ Frequency 0 3 3 2 6 16 Total 30 Percent 0.0 10.0 10.0 6.7 20.0 53.0 100.0 Table A3: Years of Operation of Company Frequency < 2 years 0 2 to 5 years 1 6 to 10 ten years 7 > 10 years 22 Valid Percent 0 3 23 73 135

Table A4: Reponses by Industry and Number of Employees 6-10 N 3 Agriculture 0% Fisheries 0% Manufacturing 33% Construction 0% Wholesale 67% 11-24 3 0% 0% 33% 0% 67% 25-49 2 0% 0% 0% 0% 0% 50-99 6 0% 17% 33% 0% 50% Transport and communication 0% 0% 50% 0% Tourism 0% 0% 0% 0% Others 0% 0% 50% 0% Total 100% 100% 100% 100% 100+ 16 6% 13% 38% 6% 19% 6% 6% 6% 100% Table A5: Responses by Industry and Years in Operation N Agriculture Fisheries Manufacturing Construction Wholesale Transport and communication Tourism Others 2-5 years 1 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6-10 years 7 14.3% 14.3% 0.0% 0.0% 42.9% 0.0% 0.0% 28.6% > 10 years 22 0.0% 9.1% 40.9% 4.5% 31.8% 9.1% 4.5% 0.0% Total 100.0% 100.0% 100.0% Table A6: Distribution of Companies by Turnover and Value of Imports and Exports of Companies, in% <25,000 25,000 to 50,001 to>100,000 N USD 50,000 USD 100,000 USD USD Turnover 28 4 0 7 89 Imports from within SADC 22 18 5 9 68 Imports from outside SADC 17 29 12 18 41 Exports to other SADC countries 18 56 6 0 39 Exports to countries outside SADC 19 58 11 5 26 136

Table A7: Most Important Export Destinations N Angola Botswana Most important export destination Second-most important export destination Third-most important export destination 16 43.75 12 25.00 8.33 7 28.57 South Africa ROA Kenya 31.25 25.00 14.29 14.29 DRC Asia United Republic of Tanzania 6.25 6.25 8.33 14.29 Zambia EU Others 12.50 8.33 16.67 8.33 28.57 Table A8: Main Export Destinations and Share of Total Exports First main export market Second main export market N % of respondents Exports on average in % N % of respondents Exports on average i n % Angola 6 46.2 6.0 Angola 1 12.5 4.5 Democratic Republic of Congo (DRC) 1 7.7 75.0 Botswana 1 12.5 1.0 South Africa 4 30.8 34.1 South Africa 2 25.0 17.5 EU 1 7.7 70.0 United Republic of Tanzania 1 12.5 7.0 Asia 1 7.7 2.0 Zambia 1 12.5 2.0 EU 2 25.0 19.9 Note: Since there is only one response each for the EU and DRC as main export market, the average share of exports cannot be compared with the average share of exports to South Africa and Angola, which are markets for more businesses. 137

Table A9: Share of Companies that Face Competition from... N Yes Yes, Yes, No strong moderate weak Republic of South Africa 28 50 21 11 7 Botswana, Lesotho, Namibia, Swaziland 25 20 20 20 36 Other SADC excluding above mentioned 20 5 10 10 60 Rest of Africa 20 5 5 10 65 EU 20 10 5 25 45 Asia 21 14 10 19 43 USA 20 10 5 10 60 Rest of the World 19 5 11 16 47 Don't know country of origin of competitor 9 11 44 Does not apply 11 4 15 15 15 14 15 21 44 Table A10: Type of NSA Organised employer Industry association Other civil society organisation Others, please state Total Frequency 1 5 3 2 11 Percent 9.09 45.45 27.27 18.18 100.00 Table A11: Years in Operation of NSA Frequency 2-5 years 1 6-10 years 3 More than 10 years 8 Total 12 Percent 8.33 25.00 66.67 100.00 Table A 12: NSA Member of SADC National Committee Frequency Percent Yes 1 8.3 No 11 91.7 Total 12 100.0 Regional Umbrella Organisation Frequency 7 5 Percent 58.33 41.67 12 100.00 138

Table A13: Impact of Regional Integration on Involvement in Policy Design In General Own Organisation Strengthen strongly Strengthen slightly Weaken strongly No changes expected Don't know Does not apply Frequency 2 5 1 2 2 Percent 16.7 41.7 8.3 16.7 16.7 Frequency 2 4 1 1 3 1 Percent 16.7 33.3 8.3 8.3 25.0 8.3 Total 12 100.0 12 100.0 Table A14: Comparison Between Business and NSA Responses to Expected Changes, in% Business Business NSA Response Response Response excluding Extreme Case Change in employment-10.2-4.6 2.0 Change in production-8.1-0.4 7.5 Change in investment 2.7 10.1 18.3 Change in exports to SADC 16.1 16.1 22.6 Change in imports from SADC 11.7 21.8 16.4 Change in input prices-8.3-8.3-5.3 Note: The second column for business responses excludes the case of one company that expects a decline in employment, production and investment by 100%, since this extreme case distorts the analysis. Table A15: Expected Changes-Responses from Manufacturing Sector N Minimum Maximum Mean In employment 8 In production 8 In investment 8 In exports to SADC countries 8 In imports from SADC countries 7 In import prices 6 -100 10-30.0 -100 10-21.3 -100 10-16.1 0 25 8.1 -100 100 11.4 -20 10-6.7 Standard Deviation 41.06 43.90 37.84 8.43 65.43 10.33 139

Table A16: Expected Changes- Responses from Wholesale Sector N Minimum Maximum Mean In employment 7 In production 4 In investment 4 In exports to SADC countries 4 In imports from SADC countries 5 In import prices 3 -10 20 6.0 -30 30 13.8 10 50 22.5 10 40 25.0 10 20 12.0 -20-5-11.7 Standard Deviation 9.8 29.3 18.9 12.9 4.5 7.6 Table A17: Expected Losses and Gains from Integration by Industry, N$ Losses Gains N Agriculture 1 Fisheries 0 Manufacturing 4 Construction 1 Wholesale 2 Mean 5,000,000 . 6,675,000 500,000 250,000 Sum 5,000,000 . 26,700,000 500,000 500,000 N Mean 1 10,000,000 1 100,000,000 6 6,666,667 1 1,000,000 4 875,000 Sum 10,000,000 100,000,000 40,000,000 1,000,000 3,500,000 Transport and communication 1 Tourism 0 Others 1 0 . 8,000,000 0 . 8,000,000 2 7,000,000 0. 1 10,000,000 14,000,000 . 10,000,000 Table A18: Gains and Losses by Size of Company, N$ Number of employees Gains Losses 6-10 11-24 25-49 50-99 N Mean Sum N Mean Sum 1 0 0 1 100,000 100,000 1 500,000 500,000 1 500,000 500,000 1 10,000,000 10,000,000 0 4 25,500,000 102,000,000 3 533,333 1,600,000 100+ 9 7,333,333 66,000,000 5 7,700,000 38,500,000 Note: The huge gain in the category of 50-99 employees is based on one company expecting a gain of N$100 million. 140

Table A19: Gains and Losses by Years in Operation, N$ Years in operation Gains Losses 2-5 years 6-10 years N Mean Sum N Mean Sum 1 0 00 3 6,833,333 20,500,000 3 4,500,000 13,500,000 More than 10 years 12 13,166,667 158,000,000 7 3,885,714 27,200,000 Note: The huge gain in the category of more than ten years in operation is based on one company expecting a gain of N$100 million. Table A20: Share of Companies that Experienced Trade Barriers, by Sector N Yes No Does not apply since I do not trade in SADC Agriculture 1 Fisheries 3 Manufacturing 10 Construction 1 Wholesale 10 0.0% 66.7% 80.0% 100.0% 70.0% 0.0% 33.3% 10.0% 0.0% 30.0% 100.0% 0.0% 10.0% 0.0% 0.0% Transport and communication 2 50.0% 0.0% 50.0% Others 1 100.0% 0.0% 0.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Table A21: Expectations Concerning Exports to and Imports from SADC by Type of Civil Society Organisation Organised employer Industry association Other civil society organisation Others, please state Total More exports N1 5 3 to SADC Likely 100% 60% 100% Unlikely 0% 20% 0% Don't know 0% 20% 0% 2 11 100% 82% 0% 9% 0% 9% More imports N1 5 3 from SADC Likely 100% 60% 100% Unlikely 0% 40% 0% 2 11 50% 73% 50% 27% 141

Table A22: Comparison of Perceptions of Regional Integration Between businesses and NSAs 142 Business response NSA responses N Agree Agree Disagree Disagree Don't N Agree Agree Disagree Disagree Don't …increase competition strongly onthedomesticmarket 30 23 53 …reducepricesofinputs 28 4 54 …reduce prices of consumer goods 29 3 59 …result in increased efficiency of own company in order to stay competitive 30 23 57 …have positive impacts on my company's turnover 29 10 38 …have positive impacts on other domestic producers 28 7 54 benefit the economy in general 20 15 65 …provide new export opportunities 29 14 59 …provide new investment opportunities 29 10 72 reduce unemployment rate 29 10 31 …lowercostsoflabour 29 3 17 …result in influx of immigrants 29 10 45 …enhance human rights situationinthecountry 29 31 28 …reduce political sovereigntyofmycountry 29 3 45 strongly know strongly 20 3 10 10.0 50.0 29 7 7 11 36.4 54.5 31 3 3 10 20.0 40.0 10 7 3 11 27.3 45.5 21 17 14 11 9.1 36.4 14 14 11 10 5 5 10 10.0 50.0 7 3 17 11 9.1 90.9 7 10 10 100.0 24 21 14 10 20.0 48 17 14 10 30.0 28 17 11 9.1 72.7 7 35 11 18.2 31 7 14 11 18.2 strongly know 30.0 10.0 9.1 40.0 27.3 45.5 9.1 20.0 20.0 40.0 20.0 20.0 60.0 10.0 9.1 9.1 9.1 9.1 63.6 54.5 18.2 9.1

143 Table A23: Impact of Regional Integration on Domestic Businesses a Comparison on Responses by Companies and NSAs Business responses NSA responses N Likely Unlikely Don't Does not N Likely Unlikely know …retrenching employees 29 20.7 62.1 6.9 …employing more workers 29 34.5 51.7 10.3 …increasing domestic production 29 31.0 48.3 6.9 …investing abroad 29 44.8 34.5 6.9 …closing down production in the country 28 21.4 53.6 10.7 …seeking joint-venture with companies in other SADC countries 29 82.8 10.3 …venturing into new business activities 29 58.6 34.5 …importing more from other SADC countries 29 41.4 34.5 10.3 …exporting more to other SADC countries 28 42.9 28.6 7.1 …having access to cheaper inputs 29 62.1 34.5 …having access to cheaper foreign labour 28 25.0 53.6 7.1 apply know 10.3 11 54.5 45.5 3.4 12 41.7 33.3 13.8 11 45.5 36.4 13.8 12 41.7 33.3 14.3 11 36.4 63.6 6.9 12 75.0 16.7 6.9 11 72.7 18.2 13.8 12 75.0 25 21.4 12 83.3 8.3 3.4 12 50.0 41.7 14.3 11 63.6 27.3 Don't 25.0 18.2 25.0 8.3 9.1 8.3 8.3 9.1

Table A24: Relevance of Trade Barriers – Responses by Businesses and NSAs, in% 144 Business responses NSA responses High transport costs N Very Relevant Hardly Not at all Does not N Very 22 59 41 10 50 Import duties and taxes have to be paid in cash 23 52 44 4 10 40 Time consuming customs procedures 23 61 35 4 10 40 Substantial paper works, bureaucracy 22 55 41 5 10 40 Customs tariffs currently employed 23 44 44 13 11 54.5 Risk of non-payment of customers abroad 22 59 23 5 5 9 10 30 Lack of transparency of rules and regulations abroad 21 43 38 5 14 10 30 Export/import licenses and permits required 24 42 38 4 8 8 11 54.5 Visa requirements for travelling abroad 24 21 50 17 4 8 11 27.3 Rules of origin 23 13 57 9 13 9 11 27.3 Sanitary and phyto-sanitary regulations 21 24 43 19 14 10 40 Exchange rate uncertainty 23 22 44 22 9 4 10 40 Poor regional communication infrastructure 23 22 44 17 13 4 11 9.1 Weak regional transport infrastructure 23 26 39 22 9 4 10 20 Lack of information about foreign markets 22 32 32 18 14 5 11 54.5 Weak law enforcement in export destination 23 17 44 13 22 4 10 40 Corruption of officials 23 30 30 30 4 4 10 30 No export insurance available to cover payment risks of exports 23 9 39 22 22 9 9 22.2 High regional communication costs 23 44 48 4 4 10 30 Others 5 60 40 1 100 Relevant Hardly 40 10 30 10 50 10 60 27.3 30 20 40 20 45.5 45.5 9.1 54.5 20 30 30 45.5 36.4 60 20 18.2 27.3 20 10 30 20 44.4 40 20 Not at all Don’t 10 10 9.1 9.1 10 10 10 9.1 9.1 18.2 40 9.1 20 10 20 22.2 11.1 10

Table A 25: Most Relevant Trade Barriers, Responses by Businesses and NSAs Business responses NSA responses Most relevant trade barrier N 24 N 11 Import duties and taxes 20.8 Sanitary and phyto sanitary regulations 45.45 Customs tariffs 12.5 Import duties and taxes have to be paid in cash 27.27 Others(please specify) 12.5 Lack of transparency of rules and regulations abroad 9.09 Export/import licenses and permits 8.3 Weak law enforcement 9.09 Substantial paper works, bureaucracy 8.3 Others 9.09 Risk of non-payment of customers abroad 8.3 High transport costs 8.3 Lack of transparency of rules and regulations abroad 4.2 Corruption of officials 4.2 Lack of information about foreign markets 4.2 Exchange rate uncertainty 4.2 Poor regional communication infrastructure 4.2 Table Continues Page 146 145

Table A 25: Most Relevant Trade Barriers, Responses by Businesses and NSAs Second most relevant trade barrier N Time consuming Corruption of officials High transport costs Import duties and taxes High regional communication Exchange rate uncertainty Customs tariffs 24 N 11 16.7 Rules of origin 18.18 12.5 Corruption of officials 18.18 12.5 High transport costs 18.18 8.3 Import duties and taxes have to be paid in cash 9.09 8.3 Export/import licenses and permits required 9.09 8.3 Lack of information about foreign markets 9.09 4.2 High regional communication costs 9.09 Export/import licenses and permits 4.2 Others 9.09 Lack of transparency of rules and regulations abroad 4.2 SPS regulations 4.2 Weak law enforcement 4.2 Risk of non-payment of customers abroad 4.2 Weak regional transport infrastructure 4.2 Others 4.2 Third most relevant trade barrier N 23 N 10 High transport costs 26.1 Export/import licenses and permits required 20 Risk of non-payment of customers abroad 13.0 Lack of information about foreign markets 20 Time consuming 13.0 Import duties and taxes have to be paid in cash 10 Poor regional communication 8.7 Substantial paper works, infrastructure bureaucracy 10 Customs tariffs 4.3 Exchange rate uncertainty 10 Export/import licenses and permits 4.3 No export insurance 10 Lack of transparency of rules and regulations abroad 4.3 High transport costs 10 Substantial paper works, bureaucracy 4.3 Others 10 Weak regional transport infrastructure 4.3 Visa requirement 4.3 Lack of information about foreign markets 4.3 Exchange rate uncertainty 4.3 Others 4.3 146

Table A 26: Rating of the Business Climate in Various Countries and Regions by Businesses Market N Domestic market 27 South Africa 22 Botswana, Lesotho, Namibia,Swaziland 19 Very favourable 13.8% 37.0% 13.6% Favourable 44.8% 40.7% 45.48% Less favourable 27.6% 18.5% 27.3% Unsatisfactory 13.8% 3.7% 13.6% Other SADC excluding above mentioned 18 5.2% 26.3% 63.3% 5.2% Rest of Africa 18 EU 18 USA 19 Asia 16 Rest of the world 27 27.7% 11.1% 5.5% 31.6% 6.2% 0.0% 27.7% 33.4% 26.3% 18.7% 33.4% 50.0% 55.6% 21.1% 62.6% 38.9% 11.1% 5.5% 21.1% 12.5% Note: The table excludes all cases that answered the question with'don't know'. 147

148 Table A 27: Public Debate on Regional Integration, Responses by Businesses and NSAs, in% Business responses NSA responses N Yes, very Yes, but not No Don’t N Yes, very Yes, but No much Integration in general 18 22.2 SADC integration 22 68.2 Comesa integration 12 EAC integration 13 very 61.1 16.7 22.7 4.5 25 50 15.4 38.5 know 9 4.5 10 25 7 46.2 6 much not very 11.1 66.7 22.2 10 70 10 14.3 85.7 16.7 66.7 Don’t know 10 16.7 Table A 28: Attendance at Workshops on Regional Integration in General by Industry, in % N Yes, Yes, No, because no regularly sometimes workshops Fisheries 1 0% 0% Manufacturing 10 40% 10% Construction 1 0% 0% Wholesale 6 0% 17% Transport and communication 1 0% 100% Others 1 0% 0% offered 0% 10% 0% 33% 0% 100% No, but workshops offered 100% 30% 100% 50% 0% 0% Does not apply 0% 10% 0% 0% 0% 0%

Table A29: Attendance at Workshops on SADC Integration by Sector, in% N Agriculture 1 Fisheries 2 Manufacturing 7 Construction 1 Wholesale 7 Transport and communication 1 Others 2 Yes, regularly 0% 0% 43% 0% 0% 0% 0% Yes, sometimes 0% 0% 14% 0% 43% 100% 0% No, because workshops offered 0% 50% 0% 0% 29% 0% 50% No, but workshops offered 100% 50% 29% 100% 29% 0% 50% Does not apply 0% 0% 14% 0% 0% 0% 0% Table A30: Rating of the Business Climate by Industrial Sector, in% Domestic market Manufacturing Wholesale All businesses N Very Favourable Less Unsatisfactory Don’t 10 20% 30% 40% 10% 0% 10 20% 60% 10% 10% 0% 29 14% 45% 28% 14% 0% RSA Manufacturing Wholesale All businesses 10 30% 9 67% 28 36% 40% 30% 22% 11% 39% 18% 0% 0% 0% 0% 4% 4% BLNS Manufacturing Wholesale All businesses 10 0% 9 33% 28 11% 40% 30% 44% 11% 36% 21% 10% 20% 11% 0% 11% 21% Other SADC Manufacturing Wholesale All businesses 10 10% 7 0% 26 4% 10% 50% 29% 43% 19% 46% 0% 30% 14% 14% 4% 27% Rest of Africa Manufacturing Wholesale All businesses 10 30% 7 29% 26 19% 0% 40% 29% 29% 23% 27% 30% 0% 14% 0% 31% 0% EU Manufacturing Wholesale All businesses 10 10% 7 14% 26 8% 10% 30% 43% 29% 19% 35% 10% 40% 0% 14% 8% 31% USA Manufacturing Wholesale All businesses 10 0% 7 14% 26 4% 10% 40% 43% 29% 23% 38% 10% 40% 0% 14% 4% 31% Asia Manufacturing Wholesale All businesses 10 10% 7 43% 26 23% 30% 10% 14% 14% 19% 15% 20% 30% 14% 14% 15% 27% Rest of World Manufacturing Wholesale All businesses 10 0% 7 14% 26 4% 0% 40% 43% 14% 12% 38% 10% 50% 0% 29% 8% 38% 149

150 T able A31: Attendance at Workshops and Seminars by Business People and NSAs, in % Business responses N Yes, Yes, No, No,but Does regularly somebecause workshop not times no In general 20 20 15 20 SADC integration 21 14.3 23.8 19 Comesa integration 13 7.7 30.8 EAC integration 13 7.7 30.8 were apply 40 5 38.1 4.8 23.1 38.5 23.1 38.5 NSA responses N Yes, Yes, No, No, but regularly somebecause workshop times no were 8 37.5 50 12.5 8 12.5 50 25 12.5 5 60 20 5 60 20 Don’t know Does not apply 20 20 Table A32: Various Activities of NSAs Concerning Regional Integration, in % Discussion in your organisation about... Organisation of workshops on Publication of press releases on N Yes, Yes, No Don’t N Yes, Yes, No N Yes, Yes, No regularly someknow Integration in general 9 22.2 56.6 22.2 9 11.1 11.1 77.8 10 10 30 60 SADC integration 10 60 30 10 9 22.2 77.8 8 12.5 12.5 75 Comesa integration 6 100 6 100 6 100 EAC integration 5 100 6 100 6 100

Table A33: Support for Deeper SADC Integration by Sector N Yes, Yes, No Don’t Agriculture 1 100% 0% 0% 0% Fisheries 3 33% 67% 0% 0% Manufacturing 8 38% 25% 38% 0% Construction 1 100% 0% 0% 0% Wholesale 8 50% 25% 25% 0% Transport and communication 1 100% 0% 0% 0% Tourism Others 1 100% 0% 0% 0% 2 50% 0% 0% 50% Total 25 52% 24% 20% 4% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% Table A34: In Favour of Regional Integration- Comparison of Businesses and NSAs Business responses NSA responses N Yes, Yes, No Don’t N Yes, Yes, No Don’t strongly slightly know strongly slightly In general 17 35.3 35.3 23.5 5.9 8 75.0 25.0 know SADC integration 25 52.0 24.0 20.0 4.0 9 44.4 33.3 22.2 Comesa integration 13 23.1 38.5 38.5 5 60.0 40.0 EAC integration 14 7.1 21.4 28.6 42.9 5 40.0 60.0 151

Table A35: Degree of Regional Integration- a Comparison Between Businesses and NSA Responses Business responses NSA responses N Yes No Reduce tariffs within SADC 27 81.5 11.1 Remove tariffs within SADC, establish Common External Tariff to all other countries 30 73.3 16.7 Don't know 7.4 10 N Yes No 11 90.9 10 70.0 10.0 Don't know 9.1 20.0 Remove all trade restrictions within SADC 28 67.9 28.6 Remove restrictions on the free movement of capital within SADC 27 81.5 14.8 3.6 7 14.3 57.1 28.6 3.7 10 70.0 20.0 10.0 Remove restrictions on the free movement of labour within SADC 28 53.6 42.9 3.6 10 20.0 60.0 20.0 Remove restrictions to the free movement of services within SADC 28 71.4 25 3.6 9 88.9 11.1 Implement same level of taxes within SADC 28 82.1 14.3 3.6 10 50.0 20.0 30.0 Design competition and trade policies for SADC as a whole 28 89.3 10.7 10 90.0 10.0 Create single currency within SADC 28 57.1 35.7 7.1 10 40.0 50.0 10.0 Create political union with parliament and executive 28 53.6 32.1 14.3 10 30.0 50.0 20.0 152

Table A36: Correlation between being in Favour of SADC Integration Yes, Yes, No Don't Total strongly know slightly Reduce tariffs within SADC Yes 91.7% 80.0% 60.0% 100.0% 82.6% No 0.0% 20.0% 40.0% 0.0% 13.0% Don't know 8.3% 0.0% 0.0% 0.0% 4.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% Remove tariffs within SADC, establish CET to all other countries Yes 76.9% 66.7% 60.0% 100.0% 72.0% No 15.4% 16.7% 40.0% 0.0% 20.0% Don't know 7.7% 16.7% 0.0% 0.0% 8.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% Remove all trade restrictions within SADC Yes 92.3% 60.0% 20.0% 100.0% 70.8% No 7.7% 20.0% 80.0% 0.0% 25.0% Don't know 0.0% 20.0% 0.0% 0.0% 4.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% Free movement of capital within SADC Yes 92.3% 100.0% 80.0% 100.0% 91.3% No 7.7% 0.0% 20.0% 0.0% 8.7% Don't know 0.0% 0.0% 0.0% 0.0% 0.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% Free movement of labour within SADC Yes 61.5% 80.0% 20.0% 100.0% 58.3% No 30.8% 20.0% 80.0% 0.0% 37.5% Don't know 7.7% 0.0% 0.0% 0.0% 4.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% Free movement of services within SADC Yes 92.3% 80.0% 40.0% 100.0% 79.2% No 7.7% 0.0% 60.0% 0.0% 16.7% Don't know 0.0% 20.0% 0.0% 0.0% 4.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% Implement same level of taxes within SADC Yes 92.3% 80.0% 60.0% 100.0% 83.3% No 7.7% 20.0% 20.0% 0.0% 12.5% Don't know 0.0% 0.0% 20.0% 0.0% 4.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% Competition and trade policies for SADC Yes 100.0% 100.0% 60.0% 100.0% 91.7% No 0.0% 0.0% 40.0% 0.0% 8.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% Create single currency within SADC Yes 53.8% 60.0% 60.0% 100.0% 58.3% No 30.8% 40.0% 40.0% 0.0% 33.3% Don't know 15.4% 0.0% 0.0% 0.0% 8.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% Create political union with parliament and executive Yes 61.5% 20.0% 40.0% 100.0% 50.0% No 30.8% 40.0% 40.0% 0.0% 33.3% Don't know 7.7% 40.0% 20.0% 0.0% 16.7% Total 100.0% 100.0% 100.0% 100.0% 100.0% 153

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About the Authors: K laus Schade , is Acting Director at the Namibian Economic Policy Research Unit in Windhoek. He has specialised on macroeconomic and fiscal issues, but has also published on regional integration and trade as well as poverty and HIV/AIDS. He is currently leading the construction of a Social Accounting Matrix for Namibia, which would eventually result in the application of various domestic and regional policy issues. He is furthermore responsible for the chapter on poverty and HIV/AIDS for the World Bank’s Country Economic Report. Major recently completed projects include a Public Expenditure Tracking Survey for the health and education sectors in Namibia and a study on domestic revenue mobilisation in the context of regional integration. Finally, he was responsible for NEPRU’s Quarterly and Annual reports. His publications are available on NEPRU’s web site(www.nepru.org.na). M oureen Matomola is currently the Deputy Director for the Macroeconomic, Research and Policy Analysis Division at the National Planning Commission and responsible for the preparation of the Macroeconomic Framework for Namibia and the third National Development Plan(NDP3). She is also involved in the coordination and preparation of the Vision 2030 Implementation Strategy. Before the current position she was a Researcher at NEPRU specialising in Trade and Poverty issues and served as the National Coordinator for the Namibia Trade and Poverty Programme(NTPP), funded by DFID. 155

Copies of this publication can be obtained from: Friedrich Ebert Foundation – Botswana P.O. Box 18 Gaborone, Botswana Tel.:+267-3952441 Fax:+267-3930821 e-Mail: fes@fes.org.bw NEPRU – Namibian Economic Policy Research Unit P. O. Box 40710 Windhoek, Namibia Phone:+264 61 277500 Fax:+264 61 277501 e-Mail: Klaus@nepru.org.na 156

“Regional Integration in Southern Africa” is edited and published by the Friedrich Ebert Foundation Botswana Office www.fes.org.bw