Namibia: Recent Economic Developments and Selected Economic Issues

This Recent Economic Developments and Selected Economic Issues paper provides a broad overview of the structure of Namibia’s economy. It provides a detailed discussion of the structure and evolution of the productive base, recent trends in investment and savings performance, fiscal policies, monetary issues and policies, and external sector developments. The paper provides an assessment of Namibia’s export performance and prospects for the future. The paper highlights that since independence in 1990, Namibia’s real GDP has expanded at an annual compound rate of 3.8 percent, or 0.9 percent in per capita terms.

Abstract

This Recent Economic Developments and Selected Economic Issues paper provides a broad overview of the structure of Namibia’s economy. It provides a detailed discussion of the structure and evolution of the productive base, recent trends in investment and savings performance, fiscal policies, monetary issues and policies, and external sector developments. The paper provides an assessment of Namibia’s export performance and prospects for the future. The paper highlights that since independence in 1990, Namibia’s real GDP has expanded at an annual compound rate of 3.8 percent, or 0.9 percent in per capita terms.

II. The Domestic Economic

1. The structure of the economy 1/

Namibia is one of the most sparsely populated countries in Africa, with an average population density of only 1.5 people per square kilometer. The 1991 census puts the total population (excluding Walvis Bay) at around 1.4 million, with an annual growth rate of 3 percent. About a third of the population live in urban areas, and the remaining two-thirds in rural areas, largely in the far north. At independence in 1990, Namibia inherited an economy that was closely integrated with that of South Africa in terms of external trade, capital flows, ownership of productive investments, and economic policy management, as well as a society that was characterized by inequalities in income and access to social services along racial lines. Namibia is classified as a middle income country with an estimated per capita GNP of about US$1,660 in 1993 (World Bank Atlas 1995). This classification, however, masks the existing extremely skewed income distribution: about 5 percent of the population earn 70 percent of GDP, while an estimated two-thirds of the population receive an annual per capita income of less than US$100. Equally wide social disparities exist, as a very small minority of Namibia’s inhabitants in the modern urban sector have access to public social services at standards comparable to that of industrial countries, while more than two-thirds of the population live in poverty, mostly in the rural areas, where access to social services has only recently been improving. While access to basic primary health care has improved measurably, considerable progress remains to be accomplished in other areas, including education.

The economy is not well diversified, although the country is well endowed with natural resources. At independence in 1990, Namibia was heavily dependent on a limited range of primary export commodities--minerals, fish, and agriculture. In 1980, the earliest year for which revised economy-wide national account data are available, the direct contribution of these three sectors (including related processing activities) to GDP was 46 percent. In addition to the direct contribution, a host of additional activities in the services sector, including retail and wholesale trade, transport, and finance, were supported by these three sectors. Both minerals (notably diamonds, uranium, and other base minerals) and fish are produced, mainly for export, with little or no domestic processing. The fishing sector (encompassing processed and unprocessed fish) has taken on a growing importance since 1990 as Namibian nationals took over much of the activity in its coastal waters. The agricultural sector, which employs the bulk of the rural population, is rain-fed and oriented toward either production of food for consumption (mainly millet, maize, and sorghum), or livestock (notably cattle, sheep, goats, and other small stock), primarily for export. Tourism, as represented by hotels and restaurants, is also growing in importance, both in terms of value added and foreign exchange earnings.

2. Macroeconomic developments

a. Background

The Namibian economy experienced strong growth in the 1960s, averaging almost 9 percent a year, fueled largely by expansion of agricultural and mining activity. However, the economy stagnated in the 1970s, recording negative growth in five years of the decade. This stagnation continued into the 1980s with real GDP declining in the first half of the decade, owing to a combination of adverse factors, including a severe drought in 1981-84 and a drop in world diamond prices. GDP growth has been irregular and on occasion less than population growth, itself 3 percent per annum. In the 1980s, growth was greatest during 1986-87, which may be attributed to the rebound of the agricultural output from the severe drought of the 1981-84 period, higher mining output, as well as the related expansion in the fishing, and hotel and restaurant sectors. A second major influence was the increase in investment, particularly nongeneral government investment, to 15.2 percent of GDP in 1987, after a sharp fall in the preceding two years. The expansion in aggregate real output slowed appreciably in the subsequent two years; by 1989, aggregate real output was only slightly higher than the level at the beginning of the decade. Between 1980 and 1989, Namibia’s real GDP increased at an annual compound rate of 1 percent in absolute terms, but declined by about 2 percent in per capita terms. This growth was far from smooth. The deterioration during the 1980s resulted from a number of factors: severe drought; declining mineral prices and an attendant drop in exploration and investment; sanctions against South Africa; and the uncertainty preceding independence.

Since independence in 1990, Namibia’s real GDP has expanded at an annual compound rate of 3.8 percent, or 0.9 percent in per capita terms. Economic stagnation continued during 1990, with real GDP growing by a mere 0.2 percent, despite the higher rate of investment relative to the preceding eight years. The poor performance reflected a sharp fall in the output from the fishing, mining, construction, and hotel and restaurant sectors. Following the end of the deep recession in 1990, the economy expanded by about 7.5 percent a year during 1991-92. Among the factors that contributed to this expansion were the opening of two new diamond mines in 1991, the extension of the limits of Namibia’s national waters, and the rapid growth in government services. In 1993, however, the impressive performance of the preceding two years was partially reversed as real GDP contracted by 2 percent, owing to the sharp drop in mining output, and the effect of the drought on agriculture. Mining activity was affected by two factors: workers in the diamond subsector embarked upon a strike to press for wage increases, and conditions weakened in the world diamond market. 1/

Namibia’s overall economic activity rebounded during 1994, with real GDP (at basic prices) estimated to have grown by 6.6 percent. Underlying the remarkable growth was the recovery of the major sectors of the economy from the recession of the preceding year, complemented by continued expansion of output in the others. The mining sector expanded, owing in part to improvements in world market conditions for diamonds, 2/ while uranium output also recovered. Good rainfall during the second quarter of the 1993/94 season led to a significant improvement in agricultural output and the subsistence agricultural subsector appears to have finally recovered from the devastating drought of 1991-92. Notable increases in tourism traffic during 1994 had a favorable impact on the performance of the hotels and restaurants sector, whose real value added improved by a substantial 25 percent. Another sector that experienced strong growth in 1994 was electricity and water, largely on account of the improved rainfall. The growth of output of the fishing sector and fish processing subsector (both of which constituted the largest growing sectors in the preceding two years) slowed significantly in 1994, after the vigorous expansions recorded during 1991-93, owing to adverse climatic and oceanic conditions toward the latter half of the year.

An analysis of growth rates by sector provides some useful insights into the economy’s overall growth. First, the mining, fishing, and agricultural sectors exhibited a tendency to large inter-annual variations in growth performance. Second, the tertiary sector in general and the government subsector in particular recorded the highest averages as well as the least variance in growth rates. Table II.1 shows the composition of GDP by sector for the 1980-94 period. Very few structural changes have occurred in the production side of the Namibian economy in the period before and after independence. The primary sector, comprising mining, fishing, and agriculture, which in 1980 was the major contributor to total production, has witnessed a declining trend since. Its share declined from an average of 37.3 percent of GDP during 1980-85, to 36.1 percent and 33.4 percent, respectively, during 1986-89 and 1990-94, mirroring the trend in the mining share, as fishing and agriculture showed remarkable stability in their contribution to overall economic activity. The share of the mining sector in GDP decreased from an average of 25.7 percent during 1980-89 to 21.6 percent during 1990-94, reflecting the volatility of the individual industries in the sector. A major reason for the reduced mining contribution to the Namibian economy is the significant fall in uranium output since 1991, reflecting among other things, unfavorable world market conditions and a low level of exploration and investment throughout the 1980s. The depletion of high yield diamond mines also contributed to the contraction of the sector.

Table II.1.

Namibia: Sectoral Contribution to Real GDP, 1980–94

(In percent of real GDP, at costant basic prices)

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Source: Central Statistics Office.

In contrast to the trend in the primary sector, the contribution of the secondary sector remained unchanged at about 11 percent throughout the 15-year period. The relative stability in the share of this sector reflects the considerable progress made in the fish processing industry, which more than offset the fall in the share of construction. The shares of the other industries in this group--meat processing, other manufacturing, and electricity and water--have remained largely unchanged since 1980. The share of the tertiary sector, which includes the General Government, expanded on average from 51.9 percent in the decade before independence to 55.3 percent in the post-independence period, mirroring the rapid growth in the General Government’s efforts to improve on the availability of, and access to, basic social services soon after independence. The General Government’s share rose from 22 percent to 26 percent during the review period, thus making it the largest single contributor to the country’s GDP.

b. Use of resources

Since 1980, the allocation of domestic expenditure has shifted, with more resources being devoted to consumption and fewer to investment--a trend that contributed to the economic stagnation during the 1980s. Gross fixed capital formation declined continuously, from about 33 percent of GDP in 1980 to about 15 percent during 1986-87, before rising gradually to about 20 percent in 1990. Following the uncertainty that accompanied Namibia’s political independence in 1990, the gross fixed capital formation/GDP ratio fell sharply in 1991, before picking up in the subsequent years, to average around 18 percent of GDP per annum during 1992-94. Both the public and private sectors contributed to the lower fixed investment ratio during the preceding 15 years, reflecting in part Namibia’s inability to attract a large volume of foreign investment, coupled with the rapid expansion of the public sector and reduced private sector confidence. The consumption/GDP ratio increased from 68 percent in 1980 to 87 percent in 1989, while the investment/GDP ratio was almost halved. The aggregate consumption/GDP ratio declined slightly from an average of 87 percent per annum during the 1980s to 83 percent in the post-independence period, largely as a result of the decrease in the private consumption ratio. In contrast, the government consumption ratio trended steadily upward, particularly in the post-independence era, as health, education, and social service expenditures rose markedly. Although the Namibian economy remains highly open, in terms of the share of external trade in GDP, the share of exports has fluctuated with the fortunes of the world mineral markets, notably diamonds and uranium, and has averaged about 58 percent of GDP since 1980. The share of imports, however, has declined from 68 percent a year during 1980-85 to 62 percent during 1986-89, and averaged 61 percent during 1990-94. Reflecting the increase in aggregate consumption, gross domestic savings declined sharply as a share of GDP, in some cases below the level of investment, while the foreign ownership of productive investments led to larger factor payments (Appendix IV, Table 7). The savings rate fell from almost 39 percent of GDP in 1980 to less than 10 percent in 1981-84. Despite subsequent increases, it remained below 20 percent (except for 1985) ever since. Consequently, the financing of investment has tended to rely increasingly on SACU transfers from South Africa and net factor inflows. 1/

Government policy since independence has sought to emphasize the urgent need to redirect public expenditure toward productive investment, and to promote private domestic and foreign investment as a vehicle for long-term growth. To improve the competitiveness of Namibia’s investment climate, and facilitate private sector investment, the authorities have, in addition to setting up an investment center to facilitate the administrative and procedural work of investors, passed a foreign investment act, which provides for safeguards and guarantees to private foreign investors, while various fiscal incentives to manufacturers and exporters have been put in place. 2/

3. Sectoral developments 3/

a. Mining and quarrying

The mining industry remains the most important sector of the Namibian economy, despite its declining trend in the share of exports and GDP. Mining contributed 75 percent of total value of merchandise exports on the eve of Namibia’s independence in 1989 and, although this had fallen to an average of 57 percent in 1990-94, it remains by far the country’s major source of foreign exchange earnings. It is the largest source of corporate tax revenue and the biggest private sector employer. In spite of the heavy reliance on the production of diamonds and uranium, other aspects of the country’s mineral base remain largely unexplored. There are about 30 different minerals, of which the most valuable are diamonds, uranium, and precious metals such as gold and silver, as well as base metals and concentrates--copper, lead, and zinc. 4/ Namibia’s minerals are almost all exported in raw or semiprocessed form, leaving the mining industry especially vulnerable to demand and price fluctuations in its main Western European and East Asian markets. Generally speaking, the sector is an enclave with relatively few forward and backward linkages with the rest of the economy. Real mining value added fell during 1993 by 22 percent, reflecting a 27 contraction in the value of diamond value added--the outcome of the reduced diamond quota, and the resulting cut in production. In 1994, the share of mining in real GDP increased marginally in response to the surge in the sector’s output, motivated by the improved mineral markets, particularly diamonds and uranium.

Uranium mining declined progressively during 1988-93, except in 1990. The long-term decline in production resulted primarily from a reduced ability to secure new long-term contracts to replace those expiring. In the two years 1992-93, output was 47 percent lower than the level in 1988 but it recovered somewhat in 1994, rising by 14 percent in response to the new eight-year contract secured with Electricité de France (EdF), and the more stable world uranium market. The short-term prospects for a full recovery of this sector are not promising, however, in the face of the persistent depression in the world uranium market.

The performance of the rest of mining industry over the period has been affected by adverse commodity price shocks as well as by changing domestic supply conditions, and is still not showing noticeable signs of improvement, with the possible exception of zinc and gold. The output of most of the base metals has been either declining or stagnant for most of the 1980s, and except for zinc to some extent, the declining trend continued into the 1990s. The production of zinc fell during 1990-91 and 1993, but the 1994 output was almost double that of 1993. In the precious metal category, the production of gold increased fivefold in 1990, following the opening of a new mine, and grew modestly during 1991-92, but declined slightly in 1993, before recovering significantly in 1994.

The outlook for the mining sector will to a large extent continue to depend upon world market conditions--notably prices, which are not expected to recover dramatically in the near term. Another potentially important factor is the renewed investment in exploration, although the high transportation costs remain a critical issue in the development of the sector, because of the long distance between the mines and the export outlets at Walvis Bay (for the bulk minerals) and in South Africa. Small-scale mining in Namibia is considered to have development potential and it is the policy of the Government to support it. The subsector is capable of creating many new jobs if the policy is successful, although the overall impact on GDP growth will be limited. In an effort to encourage the private sector to play a more dynamic role in mining, the Government introduced in December 1992 a new Minerals Act. The Act established the legal framework for the sector and a new fiscal incentive regime designed to create a tax climate conducive to the rapid expansion of mining operations, and to improve Namibia’s competitiveness vis-à-vis other mineral exporting countries. Accordingly, mining companies are now subject to a performance-related graduated income tax, with rates ranging from 25 percent to 55 percent; the applicable rate rises with company profitability. Exploration costs are fully deductible in the current tax year, and may be used to offset income from any company-owned producing mine in Namibia.

b. Agriculture

Namibia’s agricultural sector is dualistic, with a small subsistence sector characterized by communal land tenure arrangements, and a commercial sector with freehold title deed land. Subsistence farming is concentrated in the northern region of the country, which is more fertile and well suited to arable farming and crop cultivation--mainly millet, maize, and sorghum; commercial farming, on the other hand, is characteristic of the more arid southern and central regions, which are best suited for extensive ranching of livestock. Institutional constraints, together with the apartheid system, reduced access by the subsistence sector to resources, services, and markets as attention was almost exclusively focused on commercial farming. The majority of subsistence and small farmers were thus denied access to the network of institutions and resources that supported the commercial farming sector, such as marketing, financial resources, input supply, research, and training services. In addition, many subsistence farming areas also suffered from a poorly developed transportation infrastructure, compared with that available to commercial farmers.

The agricultural sector is the second most important sector (after mining), contributing about 8 percent to overall economic activity, a figure which has changed very little since 1980. However, the sector’s contribution to rural livelihood, particularly in the subsistence farming sector, is much more significant than this figure might suggest. According to the 1991 census, about 73 percent of Namibian nationals live in the rural areas and are engaged in subsistence agriculture and other traditional activities. As a result, the agricultural sector constitutes the principal source of employment in Namibia, and over 42 percent of the labor force is engaged in either wage or nonwage agricultural production (see Appendix IV, Table 16). The provisional results of the 1993/94 household income and expenditure survey indicate that subsistence farming constitutes the principal source of income for 41 percent of all household income in Namibia.

In the light of the low growth projections for the other sectors of the economy, the bulk of the population will continue to rely upon the agricultural sector for their livelihood. However, Namibia’s agricultural production faces formidable constraints, given the fragility and low production potential of the environment. Productive land is scarce, and water resources are quite limited. Rainfall is generally low and erratic, and subject to considerable inter- and intra-seasonal variability, coupled with a high incidence of evaporation and recurring drought in the whole Southern African region. Rainfed crop production is possible only in the areas with annual rainfall of 400-700 mm, which covers only 34 percent of the country, located primarily in the far north. Within these areas, crop production is also limited by a scarcity of productive soil, since most of the soils lack the clay content required for meaningful crop production. The implication is that roughly 1 percent of Namibia’s land, or 820,000 hectares, can be considered as medium- to high-potential arable land.

Water for irrigation purposes is scarce; the only perennial water sources are located along the borders to the north and the south. The high evaporation rate makes irrigation an expensive venture. Underground water is scarce and considered to be a highly vulnerable resource; sources are already showing signs of depletion, and in many cases, the saline content and salt crust threaten the future of these sources. The potential for expanding the irrigated area beyond the current 6,500 hectares is therefore limited. While the recurring droughts explain the large variations in agricultural output, the small increase in the sector’s contribution to the GDP reflects the limitations on the expansion of the commercial sector, owing to poor land quality and scarce water resources. The lack of growth in the subsistence sector reflects, in part, the historically low allocation of resources, the inaccessibility of markets and services, and limitations stemming from poor quality and water shortages.

The vastness of the country means that the distances between the input suppliers and the producing areas, and between the producing areas and the market, both local and export, add significantly to the cost of production. This is further aggravated by the poor transport infrastructure serving farmers in the subsistence sector. Pressures on the land have grown progressively, owing to the rapid increase in the population, while average levels of productivity are significantly below potential, owing in part to low input-low output production systems, which result from a combination of environmental, historical, technical, social, and economic factors.

The current policy of the authorities is aimed at increasing the productivity of existing commercial ranching areas and at encouraging the sustainable utilization of the subsistence grazing areas in accordance with environmental and socioeconomic factors. The Government has indicated that farmers’ efforts to obtain higher yields will be supported by pricing and marketing policies, credit facilities, and research, extension, and training services. Improving transport infrastructure in the subsistence farming areas for input and output marketing and improving access to agricultural service, and diversification of crops planted are also being emphasized.

c. Fishing

At independence, Namibia inherited coastal waters that were potentially rich, but were depleted owing to overexploitation by international fishing fleets. Consequently, after independence the Namibian Government declared a 200-nautical mile exclusive economic zone (EEZ) and temporarily suspended the fishing activities of foreign fleets. The monitoring and control of the EEZ has been enhanced, while notable progress has been recorded in enforcing Namibian fishing regulations, particularly in Walvis Bay. In addition, the Government introduced various conservation measures, including minimum fish size regulations and prohibitions of fishing in certain shallow waters, and established a quota system based on an annual total allowable catch (TAC) for most species. 1/

Arising from these measures and enlarged private sector investment, fish stocks have recovered, and fish catches continued to increase, until the onset of recent adverse oceanic conditions (Appendix IV, Table 12). The TACs for the main controlled species have been raised substantially and in 1994 stood at 150,000 tons for hake, 125,000 tons for pilchard, and 500,000 tons for horse mackerel. Most of the catches are exported, although increased domestic processing has been witnessed in recent years, as part of the effort to improve the local valued added. In response to some of the post-independence policy measures, the real value added of the fishing sector has made considerable progress since 1990, with the growth rate increasing from -21.8 percent to 89 percent in 1992, thanks to the improved catches of both pelagic and demersal fish species, whose respective volumes were significantly above the levels of the previous year. During 1993-94, real value added increased by 43.7 percent and 6.1 percent, respectively. The modest rate of growth in 1994 reflected the impact of the adverse oceanic conditions on fish catches during the year--the low oxygen levels affected pelagic fishing, as most shoals moved north of the normal fishing grounds and into Angolan waters. In addition to the growing fish catch, the local ownership of fishing fleet has continued to expand, which also significantly enhances the value added of the sector. Employment offered by the sector has correspondingly increased from about 6,000 in 1990 to 9,000 in 1993, and is estimated to rise each year by about 1,000-1,500 for the remainder of the decade, and to eventually reach the level of 14,000-15,000 workers by the end of the decade. In terms of sectoral contribution to aggregate output, the share of fishing remains quite low, with an average annual share of 3.2 percent during 1990-94, compared with 2.2 percent in the decade 1980-89. Consequently, the total effects of the high growth rate in recent years should not be overemphasized. Although growth potentials remain favorable, overall performance will continue to depend on exogenous factors, and indications point to a flattening out of growth by the end of the current decade, when the ecological limits of the sector will have been attained.

d. Manufacturing

Industrial development in Namibia is still in its early stages; food processing is the dominant activity, with the largest contributors being the fish processing and meat processing industries. Most manufactured products, including consumer goods, are imported from South Africa. Development of manufacturing has been constrained by, among other factors, the limited size of the domestic market and the low purchasing power of the majority of the population. Other factors contributing to the low level of industrial development include the long distance between producing areas and marketing areas and high transport costs, shortage of skilled and semiskilled personnel, and the very close integration with industrialized South Africa, which provides a wide range of incentives to its exporters. Government efforts are currently focused on encouraging local processing and creating employment, primarily among small-scale, labor-intensive, resource-based enterprises.

The manufacturing sector is small, and contributed on the average 7 percent of total GDP during 1990-94. The very modest expansion, compared with the share of 5.8 percent in the 1980s, reflects mainly the strong growth of fish processing after independence. According to the 1991 Namibian Population and Housing Census, manufacturing employment totaled about 23,000, or 6 percent of the labor force in formal employment in 1991. During 1990-94, real value added of the manufacturing sector expanded by 8.9 percent per annum on average, compared with 5.1 percent per annum during 1980-89, reflecting the substantial increase in fish processing activity after independence. The growth of meat processing and other manufacturing remained roughly constant, at about 3 percent per annum between 1980 and 1994. In terms of share of real GDP, the shares of meat processing and other manufacturing similarly remained unchanged at about 1 percent and 3 percent per annum, respectively, during 1980-94, while that of fish processing rose from an average of 1.6 percent in 1980-89 to 2.7 percent in 1990-94.

e. Construction

Construction has traditionally depended on high levels of government spending on road construction and the public works program. The real decline in government construction outlays after independence was offset by the recovery of private construction activity and real output of construction, which increased by 37 percent during 1992. Its growth rate fell sharply to 5.5 percent in 1993, however, reflecting a cut in the Government’s capital program and dampened momentum in private sector building activity, as well as the downturn in the general economic climate. Although there were indications that construction activity picked up in 1994, owing mainly to a large number of hotel and office developments in Windhoek and the coast (Appendix IV, Table 13), published data indicated growth of less than 1 percent. The contribution of the construction sector to real GDP fell continuously, from 7 percent in 1980 to 2.8 percent during 1994. The potential for higher growth exists within the current policy stance of the Government to improve access to land. While this would contribute to continued growth in this sector, a critical issue exists regarding the lack of an easily available water supply.

f. Energy and water

At present, Namibia is a net importer of energy and depends on South Africa for imports of coal, oil, and gas. The potential exists, however, for it to become a significant exporter of energy products, if the hydroelectric power along the Kunene River is expanded and/or the large Kudu gasfields near the Orange River are developed. The Government recently awarded a contract for a feasibility study on the economic and financial viability of the proposed Epupa Dam.

Electricity and water supply constitute binding constraints on Namibia’s development efforts. The performance of the sector depends on adequate rainfall, as is reflected in the climate-induced variations in value added. In addition to the low rainfall, the high rate of evaporation and depletion of underground water sources also hinder the sector’s overall contribution. Electricity is supplied by a public enterprise, the South West Africa Water and Electricity Corporation (SWAWEK), which has an installed capacity of about 600 MW, including 240 MW from the Ruacana hydroelectric station on the Kunene River on the Namibian-Angolan border, and 200 MW from an interconnector with ESKOM, the South African electric utility. Demand for electricity has witnessed a phenomenal growth since independence, as economic activity has expanded and access to these utilities has widened. The current priorities of the Government are to manage the country’s water resources and explore alternative water sources, while emphasizing a sustainable water development plan, first by improving the availability and quality of water for domestic use, followed by industrial use, and lastly agricultural use.

g. Tertiary sector

The tertiary sector has shown some steady growth over the past decade, owing largely to increases in the value added from tourism, transport and communications, and general government. 1/ Since 1986, value added by tourism--as reflected in growth rates of the hotels and restaurants sector--has grown continuously, except for declines in 1990 and 1993. The sharp fall in 1990 reflected the uncertainty that accompanied the country’s political independence. However, the sector has maintained its share in aggregate output. The sector has generated considerable foreign exchange and employment. It is projected that tourism currently provides direct employment for an estimated 10,000 people. The transport and communications sector has expanded consistently since 1989, averaging about 6 percent per annum between 1989 and 1994. Its share in total output rose modestly from 4.8 percent during 1980-89 to 5.4 percent per annum during 1990-94. The ongoing road construction projects--the Trans-Caprivi and Trans-Kalahari highways--have been the major underlying factors for the sustained growth in the transport and communications sector, complemented by continuing improvements in telecommunications facilities. The growth in general government sector’s value added has remained relatively unchanged throughout the last 15 years, averaging 7 percent a year before and after independence. As a share of real GDP, the sector’s contribution rose from an average of 22.1 percent during 1980-89 to 26.1 percent in 1990-94, reflecting the expansion of government services after independence.

4. Prices, wages, and employment

a. Prices

Namibia does not yet have a broad-based national consumer price index (CPI), although the Central Statistical Office carried out a National Income and Expenditure Survey during 1993-94 with a view to developing a representative base. The Windhoek’ CPI is the only available measure of general price levels and inflation in Namibia. During 1993, the series was revised to reflect 1985 weights, and was re-based to December 1992. The basket in the interim index was also enlarged somewhat to include items not previously captured by the old series.

Most prices in Namibia are market determined, although prices follow developments in South Africa, owing to the large proportion of imported consumer goods in the consumption basket and to the close link between the two countries’ monetary systems (see Table II.2, and Chart II.1). Price controls apply to only a few commodities, particularly petroleum products, including gasoline, diesel fuel, and paraffin. These prices are, however, adjusted periodically in line with market conditions, and are free of government subsidy.

Table II.2.

Namibia: Consumer Price Index (CPI) and Inflation Rate, 1980–94 1/

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Sources: Central Statistics Office; and IMF, International Financial Statistics.

For the consumer price index, 1980 is the base year, the inflation rate is in percent.

CHART II.1
CHART II.1

NAMIBIA CONSUMER PRICE INDICES, 1980–94

(1980=100)

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Source: Data provided by the Namibian authorities; and staff estimates.1/ Windhoek CPI.

The annual inflation rate as measured by the Windhoek CPI averaged 13 percent during 1980-89, with the highest rates of about 16 percent recorded in 1982 and 1989, reflecting movements in the South African rates. After declining to an average of about 12 percent a year in 1990-91, prices rose sharply in 1992 and the annual inflation rate climbed to an all-time high of 18 percent, while the average inflation rate in South Africa declined from 15 percent in 1991 to 14 percent. The upward pressure on Namibian prices reflected the drought-related increase in food prices, and imports of cereals from outside the region; the comparatively large weight of food in Namibia’s consumption basket; and the impact of the 12 percent increase in petroleum prices. Inflationary pressures eased significantly in 1993 and the overall inflation rate fell to 8.5 percent, with food prices rising more slowly than in the preceding year. During 1994, inflation accelerated in line with regional trends to post an average of 11 percent, reflecting the effect of climatic conditions on food prices throughout the region, higher inflation in South Africa, and the pass-through of the depreciation of the rand during the year. The corresponding inflation rate for South Africa was about 2 percentage points lower, reflecting the difference in the composition of the basket, and the narrow sample base in Namibia.

b. Employment and wages

Data on employment in Namibia are scanty and are not collected on a regular basis. The only available information on employment was provided after a detailed analysis of the 1991 Namibian Population and Housing Census data. Based on the census, the Ministry of Labor and Human Resources Development has provided a table of employment by sector, broken down into wage and nonwage, and public and private sector employment (see Appendix IV, Table 16). Based on the 1.4 million Namibian inhabitants counted in the census, the labor force is officially estimated to be 479,779 (or 58.4 percent of the total population in 1991), comprising 388,014 employed and 91,765 unemployed persons. Those categorized as employed included those in formal paid employment, the self-employed, and those working in the informal sector. The public sector accounted for 18.7 percent of total employment and 33 percent of those in paid employment, while the private sector accounted for 37.8 percent of total employment and 67 percent of wage employment. Nonwage employment accounted for 43.5 percent of the total labor force. The analysis showed that 47.5 percent of the total employment are employed in agriculture, hunting, forestry, and fishing; followed by community, social, and personal services with 23 percent. The remaining sectors each employed far less than 10 percent of the total employment with the exception of trade, hotels, and motor repairs, whose share is 9.7 percent.

Unemployment remains high; according to the 1991 census, it is estimated at 20 percent of the labor force, with urban and rural unemployment rates being 26 percent and 15.4 percent, respectively. Many of the unemployed persons in Namibia have no skills and/or are without basic education, making the issue of adequate training the country’s most compelling human resource priority. About 16,500 new entrants are estimated to enter the labor market each year, and there are no indications that the unemployment pressure will moderate in the medium term, with the rapid growth in population and the labor force. 1/ Namibia also faces an acute shortage of professional and technical skills. The new Labor Act recently enacted by the authorities sets out procedures for addressing this problem. The authorities recognize the limitations of efforts to estimate unemployment rates in a country like Namibia, which has a large rural sector. Existing labor force statistics are merely indicative and therefore need to be interpreted carefully. Pending the availability of improved data, the authorities currently estimate the unemployment rate in Namibia to be in the region of 30-40 percent. A national labor force survey is planned for 1997/98, while an agricultural survey is planned for 1995/96 to cover, inter alia, employment statistics.

As with unemployment, data on wages remain scanty. The only existing information on wages was provided by the 1992 Establishment Survey (see Appendix IV, Table 17). Information available from other sources indicates that wage patterns in Namibia mirror closely those in South Africa, and formal sectors wages are generally higher than those in other countries in the region. This level of wages seem generally inconsistent with the massive pool of unskilled labor in Namibia, and average real wages for most sectors appear high relative to labor productivity. The present high wage has been attributed to the rigid wage structure inherited at independence, and lack of skilled manpower, reinforced by the activities of the various labor unions during the post-independence period. Although, the Government has recognized the near- and medium-term implications of maintaining the existing structure of wages, with respect to attracting investment and increasing employment, the complexity of the issues has precluded the Government from expeditiously addressing the problem. 2/ Nevertheless, the Government has indicated that the planned export processing zones (EPZs)--free of labor union activities--would provide a viable option for confronting the twin problems of unemployment and high wages.

ANNEX I Revised System for the National Accounts

The National Planning Commission (NPC), through the Central Statistics Office (CSO), assumed responsibility for the compilation of the national income accounts statistics in Namibia during 1994. 1/ Since assuming responsibility, the CSO has revised the entire national accounts data, going as far back as 1980 in some cases. This revision has produced a new set of key aggregates and ratios, which differ from the latest estimates published, 2/ and the data contained in various Fund publications. 3/ The CSO noted that the estimates reflect several key factors: (a) the adoption of the revised system of national accounts recommended by the UN and other international organizations (the 1993 SNA), which has resulted in some adjustments to basic concepts; (b) a shift in the base year from 1985 to 1990, which has affected the constant price estimates; and (c) the review of sources and methods by the CSO; the availability of more firm basic data; and additional details in the estimates of GDP by activity.

These factors necessitated the revision of some time series back to 1980. The implementation of the 1993 SNA also affected the general framework for the national accounts: gross national income (GNI) has replaced gross national product (GNP), underlining the fact that GNI is a concept of income rather than of production; (ii) the value added by industry is valued at basic prices, instead of at factor cost, when calculating GDP by activity; 4/ and GDP at factor cost is now calculated at current prices only.

While in many cases the source data are similar to those used in the past, the revisions take advantage of previously omitted information. In addition, new preliminary data from the Household Income and Expenditure Survey (1991) have resulted in substantial revisions to the estimated value added from subsistence agriculture, owner-occupied dwellings, and household final consumption. In addition: (a) the estimates of crop production and changes in livestock inventories reflect previously unused information about quantities and prices, and incorporate revisions to the quantity and prices for cattle and small stock; (b) fishing is now defined to include fish catching and all processing on board the vessels, while fish processing (manufacturing) now comprises only processing on shore, and the time series on quantities and prices have been revised by the Ministry of Fisheries; (c) a separate series for meat processing has been developed; (d) separate estimates for hotels and restaurants are now available; (e) estimates of the financial intermediation industry (banks and insurance companies) are available as from 1990; (f) the value added of general government has increased owing to a revised method of estimating consumption of fixed capital (provision for depreciation in the Economic Review); and (g) gross fixed capital formation has been revised upward, and substantially so for the years 1991-93, owing to the gross underestimation in the previous estimates, particularly gross fixed capital formation in fishing and fish processing; additional firm data for other industries are available, notably for the mining sector.

The differences between the old and revised series for the period 1980-93 for some key variables and ratios have been summarized in Tables II.3 to II.9 and Charts II.2 to II.9.

Table II.3.

Namibia: Comparison of GDP Growth Rates, 1980–93

(In percent)

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Sources: Ministry of Finance, and Central Statistics Office; and staff calculations.

GDP at 1985 constant factor cost.

GDP at 1985 constant market prices.

GDP at 1990 constant basic prices.

GDP at 1990 constant market prices.

Table II.4.

Namibia: Composition of Real GDP, 1980–93

(In percent)

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Sources: Ministry of Finance, and Central Statistics Office; and staff calculations.Note: Primary industries comprise agriculture, fishing, and mining and quarrying; secondary industries comprise manufacturing, electricity and water, and construction; tertiary comprise the remaining sectors.
Table II.5.

Namibia: Growth of Main Sectors of Real GDP, 1980–93

(In percent)

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Sources: Ministry of Finance, and Central Statistics Office; and staff calculations.
Table II.6.

Namibia: Government Value Added and Final Consumption, 1980–93

(In percent of GDP)

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Sources: Ministry of Finance, and Central Statistics Office; and staff estimates.

At current market prices.

At current factor cost.

At current basic prices.

Table II.7.

Namibia: Savings, Investment, and Net Exports of Goods and Services, 1980–93

(In percent of GDP)

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Sources: Ministry of Finance, and Central Statistics Office; and staff calculations.
Table II.8.

Namibia: Savings and Fixed Investment by Sector, 1980–93

(In percent of GDP)

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Sources: Ministry of Finance, and Central Statistics Office; and staff calculations.
Table II.9.

Namibia: Domestic and Foreign Savings, 1980–93

(In percent of GDP)

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Sources: Ministry of Finance, and Central Statistics Office; and staff calculations.
CHART II.2
CHART II.2

NAMIBIA GDP GROWTH RATES, 1980–93

(In percent)

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Source: Data provided by the Namibian authorities; end staff estimates.
CHART II.3
CHART II.3

NAMIBIA COMPOSITION OF REAL GDP, 1980–93

(In percent)

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Sources: Data provided by the Namibian authorities; and staff estimates.
CHART II.4
CHART II.4

NAMIBIA GROWTH OF MAIN SECTORS OF REAL GDP, 1980–93

(In percent)

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Sources: Data provided by the Namibian authorities; and staff estimates.
CHART II.5
CHART II.5

NAMIBIA GOVERNMENT VALUE ADDED AND FINAL CONSUMPTION, 1980–93 1/

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Sources: Data provided by the Namibian authorities; and staff estimates.1/ In percent of GDP
CHART II.6
CHART II.6

NAMIBIA SAVINGS, INVESTMENT, AND NET EXPORTS OF, GOODS AND SERVICES, 1980–93 1/

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Sources: Data provided by the Namibian authorities and staff estimates.1/ In percent of GDP.
CHART II.7
CHART II.7

NAMIBIA PRIVATE SECTOR SAVINGS AND FIXED INVESTMENT, 1980–93

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Sources: Data provided by the Namibian authorities; end staff estimates.1/ In percent of GDP.
CHART II.8
CHART II.8

NAMIBIA GENERAL GOVERNMENT SAVINGS AND FIXED INVESTMENT, 1980–93 1/

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Source: Data provided by the Namibian authorities; and staff estimates.1/ In percent of GDP.
CHART II.9
CHART II.9

NAMIBIA DOMESTIC AND FOREIGN SAVINGS, 1980–93

(In percent of GDP)

Citation: IMF Staff Country Reports 1995, 091; 10.5089/9781451828344.002.A002

Source: Data provided by the Namibian authorities; and staff estimates.
1/

The discussion below is based on the revised official national accounts statistics. See Annex I for a discussion of the revisions carried out.

1/

About 80 percent of all diamond production is marketed through the Central Selling Organization (CSO), a subsidiary of De Beers. Owing to a combination of supply-side disruptions and slack demand, purchases from producers were reduced by 25 percent of productive capacity in September 1992, in an attempt to avoid price reductions in the world market.

2/

The limit of purchases from diamond producers to 75 percent of productive capacity, imposed by the CS0 in 1992, was later relaxed in stages to the 85 percent level, effective since July 1993.

1/

A more detailed analysis of developments in savings and investment in Namibia during the pre- and post-independence period is undertaken in Chapter III.

2/

These incentives are described in Chapter VII.

3/

Because of the very close correspondence between production in key sectors and exports, a much more detailed analysis of sectoral developments in respect of these key sectors is taken up in Chapter VII.

4/

In addition, there exist substantial deposits of other base metals and concentrates (tin, cadmium, and arsenic, and antimony concentrates); industrial minerals (such as salt, flouspar, lithium minerals, etc.); dimension stones (including marble and granite); and semi precious stones (such as amethyst, rose quartz, agate, tourmaline).

1/

The quota is a one-year quantity connected to a fishing right that is granted for at least seven years, and is not transferable, although the quota holder has the right to subcontract.

1/

A detailed discussion of the performance of the tourism sector is taken up in Chapter VII.

1/

The gravity of the unemployment situation is exacerbated by the fact that about 50 percent of the population is young: 15 years and below.

2/

The issues encompass a wide range of economic, structural, political, social, and ethnic issues, related to Namibia’s pre - independence legacy.

1/

Prior to this change, the Ministry of Finance used to compile and maintain the national income accounts through its Economic Policy Advisory Services Division.

2/

See Ministry of Finance, Economic Review, May, 1994.

3/

For example, SM/91/83 (5/2/91) and SM/91/105 (5/22/91); SM/92/99 (5/13/92) and Sup. 1 (5/27/92); SM/93/116 (5/27/93), Sup. 1 (6/17/93); SM/93/127 (6/16/93); SM/94/109 (5/3/94); and SM/94/113 (5/16/94).

4/

The basic price is defined as the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable, and plus any subsidy receivable, on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer (See System of National Accounts, 1993, p. 151, 6.205).

Namibia: Recent Economic Developments and Selected Economic Issues
Author: International Monetary Fund