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.


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.

VII. Production Trends and Contribution of Exports of Goods and Nonfactor Services to Economic Growth in Namibia, 1987-94

1. Introduction

This section reviews the production trends and contribution of exports of goods and nonfactor services (henceforth referred to as exports) to Namibian economic growth over 1987-94. The dominance of primary commodities in Namibia’s production base and the limited size of the domestic market (owing to the relatively small population size and the limited purchasing power of the majority of the population) have resulted in a high ratio of exports to GDP in Namibia, which averaged 55.4 percent over the review period. However, the export share in GDP also declined marginally over 1987-94, from 56.2 percent to 53.1 percent (Table VII.1). This performance stemmed from the juxtaposition of two opposing trends: the contraction of two traditionally important export sectors--namely, minerals and ores and live animals and animal products--on the one hand; and favorable growth performance by traditionally small export sectors--such as unprocessed and processed fish and tourism. Collectively, these trends resulted in a diversification of Namibia’s export base.

Table VII.1

Namibia: Exports of Goods and Nonfactor Services, 1987–94

(In percent of exports of goods and nonfactor services)

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Source: Central Statistics Office.

The decline in the share of mineral and ore exports, which occurred at an average annual rate of 5.1 percent over the review period, was primarily induced by the poor export performance of important base metals (such as copper and lead) and uranium. Furthermore, although adverse export market conditions were a common determinant of unfavorable uranium and base metals trends, in the case of base metals, domestic supply constraints were an additional contributing factor. By contrast, the diamond export share grew at an average rate of 2.9 percent over 1988-94, despite considerable annual variation due to adverse international market conditions and deteriorating domestic supply conditions in the late 1980s. The decline in live animals and animal products was precipitated largely by the decline in cattle exports, owing to periodic drought conditions, and by the contraction of output of karakul wool and pelts over much of the review period. However, weak performance by these industries helped mask strong growth trends exhibited by exports of small stock (sheep and goats) and other hides and skins, as well as by game, ostriches, and their products (Table VII.2).

Table VII.2.

Namibia: Exports of Goods and Nonfactor Services, 1988–94

{Percentage change in share of exports of goods and nonfactor services)

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Source: Central Statistics Office.

2. Ores and minerals

Namibia’s mineral base is extensive and diverse, and currently comprises about 40 different mineral commodities in the following groups: diamonds; precious metals (gold and silver); base metals and concentrates (including copper, lead, cadmium, and arsenic, zinc, and antimony concentrates); industrial minerals (salt, fluorite, lithium minerals, etc.); dimension stones (including marble and granite); nuclear fuel minerals (namely uranium); and semi-precious stones (amethyst, rose quartz, agate, tourmaline, etc.). Thus, although the export shares of both diamonds and uranium are dominant, new discoveries continue to expand Namibia’s mineral and ore base as a result of active prospecting. This research has been financed in part by a “Sysmin” grant of Ecu 40 million (approximately N$160 million) from the European Union awarded through the Lomé Convention, designated for prospecting and drilling, value-adding mineral processing, regional geophysical surveys, small-scale mining, and overall development of the mineral industry. Mining activity was further stimulated in the post-independence period by the implementation of the Mineral (Prospecting and Mining) Act on April 1, 1994, 1/ which prevented land from being held for long periods without active exploration. 2/

a. Diamonds

Diamond exports (98 percent gemstones) were the principal source of foreign exchange earnings during the entire review period, accounting for an average of 29.3 percent of export revenue and 10.7 percent of value added over 1987-94. Onshore production is undertaken almost exclusively by Consolidated Diamond Mines (CDM), 3/ now NAMDEB, and the more recent and growing offshore effort is being spearheaded by De Beers Marine (DBM), a subsidiary of De Beers Consolidated Mines. In September 1992, the Central Selling Organization (CSO) imposed a 75 percent quota on diamond sales based on productive capacity owing both to weak demand, stemming from a world recession which reduced the demand for gemstones in important markets such as the United States and Japan, as well as to excess supply conditions, which were due to growing illegal sales by Russia and Angola. This quota was subsequently relaxed in July 1993 to the prevailing level of 85 percent.

The variability of domestic supply conditions also affected diamond export performance. Diamond production declined owing to diminishing onshore recovery grades toward the latter part of the 1980s; however, subsequent technological advances and higher diamond prices enhanced the viability of mining lower grade ore, which in turn helped to prolong the expected life of alluvial deposits. Domestic supply conditions were further eased during 1991-92 after the opening of new mines in the Auchas diamond area (on the north bank of the Orange River) and the Elizabeth Bay development to the south of Luderitz, which collectively added approximately 300,000 carats per annum to the volume of production. More recently, however, the composition of domestic diamond production has been shifting from onshore to offshore, as average onshore recovery grades decline and older onshore mines are not replaced, while substantial offshore deposits are identified and the techniques for mining these deposits are further developed.

Declining interest in onshore exploration has reportedly stemmed from employer disenchantment with growing union wage demands. This trend has affected a cross-section of mining activity over the review period, as manifested in a two-week strike at the CDM in November 1993, which affected onshore mining at Oranjemund, Elizabeth Bay, and Auchas, costing the CDM approximately N$3 million a day, and a narrowly escaped strike at the TCL base metals mines in September 1994, which would have cost the company approximately N$2 million a day in revenue. Productive capacity is expected to increase to roughly 2 million carats over the next seven years, following the establishment of three new offshore companies--namely, NAMCO, Canada’s Diamond Field Resources, and South Africa’s Ocean Diamond Mining (ODM). However, since offshore mining is not only labor efficient but tends to be more enclave in nature, a sizable net reduction in diamond mining employment is expected to result. 1/ Moreover, with each ocean-going vessel serving as a self-contained diamond mine, the potential for linkages with the rest of the Namibian economy is limited to the use of port facilities and maintenance infrastructure.

Thus, the viability of proposals to forge additional forward linkages in the diamond industry, through the establishment of a local diamond cutting and polishing facility, will depend on overcoming some rather significant obstacles. For instance, although NAMDEB is committed to investigating the possibility of augmenting the value added of diamonds purchased from the CS0, this market is believed to be very difficult to penetrate, as it is highly specialized 2/ and skill-intensive, with profit margins that are narrowly based on precision craftsmanship. Moreover, the absence of a precedent for successful market penetration by any producer country to date is noteworthy. In addition to the present shortage of skills in Namibia, the prevailing misalignment of wages and worker productivity renders the country relatively uncompetitive compared with other more established areas (such as India) with lower labor costs. Another factor militating against Namibia’s possible success in this venture is its remoteness from any sizable retail market, which makes it difficult to keep abreast of ever-changing market trends.

b. Uranium

Uranium is produced by Rössing Uranium Ltd and is marketed mainly to Europe, Japan, and Taiwan. Over the review period, uranium production--which includes the processing of uranium oxide--was constrained by a host of factors, including economic sanctions imposed under the Comprehensive Anti-Apartheid Act of 1986, which was lifted by President Bush effective March 21, 1990. In addition, an excess world supply of uranium, owing initially to the opening of new mines in Canada and Australia during the 1980s and to an increased supply from Russia and China after 1989, dampened prices. Further aggravating this declining trend were a waning of demand arising from growing environmental concerns over the use of uranium, and the end of the Cold War. As uranium’s output is price inelastic in the short run, production levels were initially maintained in the wake of falling prices and reduced profitability because of the medium- and long-term contractual nature of market transactions. Thus, the long-term decline in exports, and hence production, observed over the review period 1/ resulted from a reduced ability to secure new long-term contracts to replace those expiring.

More recently, however, Rössing won an eight-year contract to supply Électricité de France with 5,200 tons of uranium oxide, which raised output levels by more than 15 percent during 1994 and was expected to restore the company to profitability by end-1994. Although the passage of legislation barring the release of information pertaining to uranium pre-empts a precise account of industry developments beyond 1992, Rössing is reputed to have reserves of around 120,000 tons, which should permit mining through the end of the second decade of the next century. The Rössing realtor is believed to be currently operating at less than 50 percent of its capacity. However, capacity utilization is expected to improve in the near term, owing to growing uncertainty over the supply of reactor-grade uranium from Russia and an estimated decline in world stockpiles. It is therefore anticipated that the Rössing mine could be operating at full capacity (5,000 short tons a year of uranium-oxide) within three to four years. In addition, the proposed new port at Möwe Bay to the north of Swakopmund should help to reduce transportation costs and enhance company profitability because of its relative proximity to Rössing.

c. Base metals: copper, lead, and zinc

The performance of base metals over the review period has also been affected by adverse commodity price shocks as well as by changing domestic supply conditions. Base metals constitute one of the few primary commodity groups that are processed in Namibia. The largest producer of base metals in Namibia is the Tsumeb Corporation Ltd. (TCL), which produces more than 70 percent of Namibian base metal output and owns the only Namibian smelting complex (processing mainly copper, lead, and cadmium). TCL owns and operates mines at Tsumeb, Kombat, and Otjihase (it owns 70 percent of the latter mine). In addition, the Iron and Steel Corporation (Iscor) owns and operates a base metal mine at Rosh Pinah.

Copper prices, after declining in 1980 and generally remaining low during the first half of the 1980s, rebounded in 1987 and reached a peak in 1989. In response to the surge in demand, stockpiles were reduced and world production increased. With the rise in world competition, copper prices again dropped and continued to decline after 1991, before rising again in 1994; moreover, international copper prices are projected to peak in 1995 and decline over the medium term. Lead usage in all major industrialized countries declined over 1980-88, reflecting growing environmental concern over lead use in paints and petroleum, which was only partly offset by growing utilization in developing countries. World lead prices declined over 1980-85 and gradually rose thereafter until 1990, before falling again during the early 1990s, owing to increasing output from Eastern Europe. By 1994, lead prices were 39 percent lower than at the start of the review period. Zinc prices, which oscillated considerably over the review period, were at their lowest during the mid-1980s, owing to weak industrial country demand caused by conservationist efforts and increasing substitution into zinc alternatives. However, interruptions in the Peruvian zinc supply and growing demand among industrializing countries caused prices to rise sharply in 1988; prices then exhibited a downward trend through the end of the review period in response to the world recession and reduced industrial country demand. Nevertheless, there was a net increase in international zinc prices by end-1994 relative to 1987, and prices are projected to rise further over the medium term.

In addition to adverse world supply and demand conditions, Namibian copper and lead production also declined because of depleted deposits and lower ore grades at the Tsumeb Mine, which is expected to close down by 1996. Copper blister production declined by 36.4 percent to 30,193 tons over 1986-94, and is expected to decline further to 25,000 tons annually within the next three years. However, the possible start-up of production at Tschudi, financed in part with funding from the Sysmin grant, and another smaller mine at Khusib Spring could increase copper production to 35-40,000 tons annually over the next seven years. Sysmin funding has also been provided to extend the Otjihase copper mine, where copper production could increase from 14,000 tons to 20,000 tons and--in combination with the Tschudi and Khusib Spring output--could fully compensate for the Tsumeb mine closure over a seven-year horizon. In addition, a feasibility analysis of another copper deposit site, the Haib copper-porphyry deposit, is planned for 1995/96. On the other hand, there are no known additional minable lead deposits expected to replace the lead output from Tsumeb. In other industry developments, the Tsumeb smelter complex is being equipped with a new lead smelter (at a cost of N$20 million), which has the capacity to process varying quantities of lead as well as a wide range of other minerals, and which should become operational in 1996. 1/ This is an important development, particularly given the depletion of Namibian lead deposits and the growing reliance on imported raw materials, particularly as the existing lead smelter is characterized by high fixed costs and requires operation at full capacity for 24 hours a day for economic viability. Continued exportation of refined lead should enable Namibia to benefit from the projected restoration of lead prices to 1980 levels over the medium term.

Regarding other important base metals, the production of zinc concentrate, which has fluctuated between 56,300 tons and 79,800 tons a year since 1986, is expected to remain the same over the next seven years, unless treatment of the Tsumeb mine and Namib Lead mine slime dams occurs, as this would allow zinc production to increase by an additional 10,000 tons annually over the next four or five years. A new manganese mine (Otjosondu) came into production at the end of 1994, and an annual production of 120,000 tons is planned for the next three years, while prospecting continues for additional deposits. Finally, tantalite production, which ceased with the closure of the Uis tin mine in 1991/92, may resume in 1995/96 at a rate of 22-25 tons (of 40 percent concentrate) a year. The prospective producer has requested that the Government install a 7-km pipeline to transport water from the Orange River to the site, 2/ and a fund-raising drive is currently under way. Sysmin funding has also been requested, the availability of which will depend on the amount of Sysmin funding provided to TCL.

d. Other developments in the mining sector

In other sectoral developments, there was a surge in Namibia’s dimension stone industry after 1986, with the introduction of new quarrying techniques that facilitated the exportation of large blocks of marble and granite to international export markets. In addition, although the majority of Namibia’s dimension stones are still exported as large blocks, there is now local production of finished natural stone products. 3/ Local facilities include modern equipment for cutting and polishing large rock slabs as well as a complete tiling factory. Moreover, with large production increases recorded over 1993-94, dimension stones are believed to be a promising area for expansion, given Namibia’s large reserves of high quality granite and marble, and the commencement of production of blue sodalite (a rare dimension stone unique to Namibia) in 1994, which commands a high market premium. In addition, there are plans under way to establish a local cutting and tiling facility expressly for blue sodalite. Continued growth of the dimension stone industry will depend primarily on two factors: (1) the extent to which present resistance from suppliers in traditional export markets can be overcome, and (2) success in establishing regular and direct shipping services to key markets in Europe, North Africa, and the Middle East. Exports are presently constrained by shipping delays and high freight charges, which are compounded by circuitous routes around South Africa that require expensive off-loading and reloading at Cape Town before shipment to final export destinations. Ongoing infrastructure investments, such as the Trans-Caprivi and Trans-Kalahari highways, as well as planned investments, such as the Möwe Bay Port, should also help reduce domestic transportation costs and thereby ease domestic supply constraints currently faced by some mineral producers.

Ongoing research into the economic feasibility of an underground gold mining operation at Navachab mine could increase gold bullion production by 39 percent, to 3,000 kg within the next seven years. Moreover, augmented copper blister production at the Otjihase copper mine could raise the gold content of copper blister by 24 percent and maintain production at 300 kg for the next seven years. In addition, there is unrealized export potential embodied in the proven gas reserves at the Kudu gas field (with its utilization awaiting the determination of cost-effective export markets) and unproven offshore oil reserves--the exploration for which is now in its second licensing round.

The export revenue and employment potential of small-scale mineral producers has reportedly not been realized, owing in part to an unwillingness on the part of either the National Development Corporation (NDC) or the commercial banking sector to provide much needed venture capital. The EU’s Sysmin loan facility has offered small producers some reprieve, however, as it has been used to assist some small-scale mineral producers since 1993. Moreover, in light of the revealed risk aversion of banks and the NDC, it remains unlikely that the small-scale mining companies could benefit from a large injection of capital into the economy, such as that expected to result from the augmented domestic asset requirement.

3. Agricultural exports

Namibia’s agricultural sector is traditionally dualistic, with a smaller subsistence sector characterized by communal land tenure arrangements and a commercial sector with freehold land. Subsistence farming is concentrated in the northern region of the country, which is more fertile and better suited to arable farming and crop cultivation. 1/ Commercial farming, on the other hand, is characteristic of the more arid southern and central regions of Namibia, which are best suited to extensive ranching of livestock. The agricultural sector constitutes the principal source of employment in Namibia, with over 42 percent of the labor force engaged in either wage or nonwage agricultural production. 2/ Namibia is self-sufficient in beef, mutton, and goat production, and because the domestic market is limited, a large proportion of agricultural output is exported, with large markets in South Africa (which accounted for 96 percent of livestock and 51 percent of meat exports in 1993) and the European Union (which in 1993 accounted for 48 percent of meat exports). In addition, there is a small but growing market for high-quality beef exports to Angola. South Africa is also an important market for calves exported on the hoof, which command a premium in South Africa, and Namibian sheep and goat exports. Access to the South African market is determined on the basis of quotas negotiated annually between the Namibian Meat Board and the South African Meat Board. In practice, however, the enforcement of South African quotas has been liberal, except when drought conditions have afflicted both South Africa and Namibia and generated the need to increase animal offtake in both countries.

A veterinary cordon fence (VCF) separates cattle raised according to South African and EU regulations from livestock in communal areas targeted for domestic consumption. A second fence was constructed during 1993-94 along the Angola-Namibia border so as to prevent the spread of livestock diseases from Angola. The Government aims to shift the VCF as far north as possible by raising the quality of products to international veterinary standards, which should increase communal meat exports. Thus, the Government has sought to upgrade and expand the number of “quarantine areas” or disease-free ranches in the north, where cattle are held separately for treatment to maintain veterinary standards. The existence of quarantine areas permits fresh meat from the north to be marketed to South Africa. In this regard, the National Marketing Scheme, recently launched by the Meat Corporation (Namibia’s meat marketing board (Meatco)), is expected to raise the export potential of livestock and beef exports from the northern communal-tenure areas. 1/

Namibia is just one of six countries with access to the EU beef markets, as administered through the beef and veal protocol of the Lomé Convention. Under this arrangement, import duties other than customs duties applicable to beef and veal originating in the approved African Caribbean and Pacific (ACP) countries are reduced by 90 percent, and in the case of Namibia the reduction in import duties currently applies to 13,000 tons 2/ of boneless meat per calendar year.

Preferential access to key export markets has allowed Namibia to continue as a relatively high-cost producer of meat and meat-products, although a market premium is to be expected due to the fact that Namibian meat is free of additives, as livestock are pasture-fed with only occasional supplements of yellow maize. Nevertheless, Table VII.3 provides some indication of the extent of the inefficiency by comparing Namibian beef prices with those of South Africa, the EU, and a representative large world producer, Argentina. 1/ This table reveals that the representative Namibian beef price was 19 percent higher than that of Argentina, and was only comparatively more efficient than prices in South Africa and the EU. Namibian mutton, exported almost exclusively to South Africa, is also not internationally competitive, primarily because of a world excess supply of mutton reportedly resulting from dumping by Australia and New Zealand, which have aggressively sought new markets for their mutton following the sharp decline in wool prices.

Table VII.3.

Namibia: Beef Prices In Relation to Selected Prices Elsewhere, 1990

(Namibia = 100)

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Source: “Namibian Agriculture, Policies and Prospects,” OECD Development Centre, Technical Papers, No. 73, July 1992.

In addition to preferential access to highly protected markets, Namibian meat exporters also benefited, before independence, from a host of incentives designed to help promote the industry. However, most of the incentives offered to the commercial subsector have ceased following a reorientation of Agricultural Policy toward small-scale communal producers in the post-independence period. This shift in policy was recently formalized in a draft White Paper on Agricultural Policy. Land reform features prominently in the new agricultural policy, as the Ministry of Lands and Resettlement will soon begin to acquire land on a willing seller/willing buyer basis. Land reform will involve the resettlement of communal farmers to commercial land and aim to preserve the commercial status of resettled land. In addition, pending reforms of the Government’s agricultural extension services would remove its administrative functions to a separate body and concentrate on the actual provision of services. The Government’s goal is to better tailor the extension services it provides to the needs of farmers by increasing the number of field staff and strengthening the interactive links between services and applied “farmer-centered” research. It also proposes to provide the colleges with extension officers to enhance the relationship between teachers and students.

The elimination of any remaining inefficiencies in the Namibian commercial subsector will require urgent addressing, particularly in the aftermath of the implementation of the Uruguay Round (UR) of the General Agreement on Tariffs and Trade (GATT) by the World Trade Organization (WTO). For instance, the impact of world trade liberalization could be initially manifested through the outcome of the 1995 midterm review of the Lomé Convention, with proposed changes to take effect in 1996. 2/ In addition, the nature of Namibia’s trading relationship with South Africa is likely to be changed in the wake of a possible increase in regional competition for the South African market if preferential access to the EU through the Lomé Convention is reduced, and as South Africa implements trade reforms in conformity with the requirements of the UR. Thus, in the absence of key protected markets, Namibian beef producers and exporters will be compelled to increase their efficiency if they are to preserve their world market shares. The final outcome, with concomitant implications for agricultural employment, will therefore depend on the extent to which Namibia is able to achieve competitiveness in as diversified an export market as possible. The expansion of regional markets should be facilitated by the Trans-Caprivi highway, connecting Walvis Bay with other countries in the region, namely northern Botswana, Zambia, Zaire and Zimbabwe; and the Trans-Kalahari highway, which will reduce the distance between Windhoek and Johannesburg by over 300 km and facilitate access to the Witwatersrand industrial area of South Africa.

a. Export diversification

There are ongoing efforts to diversify the agricultural export base, which has recently been expanded to include: horticultural products (particularly melons and grapes); flowers (destined for the European market), grown particularly around the Orange River; and live ostriches, ostrich meat, and other products. Ostrich meat (which is low in cholesterol) is covered by the Lomé Convention and can enter the EU on an open import license. Horticultural products and flowers also qualify for preferential EU access, 1/ and for assistance with start-up, production and marketing costs from the EU through the Lomé Convention. Moreover, an additional advantage is that Namibia’s fruit and vegetables ripen during the European winter and thus command a higher price while facing less competition. 2/

In addition to increasing the number of nontraditional agricultural exports, forward linkages have been forged between cattle production and the tanning of cattle hides. Meatco opened the Okapuka Tannery on April 7, 1993--supplementing the capacity of the older Namibia Tannery--which has the daily capacity to produce nearly 1,000 wet blue raw hides, which possess up to 50 percent more value added than dried and salted hides. Moreover, marketing arrangements for exporting the hides to Italy are already well established. The facility also includes a modern effluent-treatment plant and a fleet of trucks. The total investment cost was estimated at Ecu 4.6 million, with Ecu 2.5 million in the form of a loan from the European Investment Bank. There are also long-term plans to expand the tannery’s operations to include the processing of sheepskins and final leather finishing, with a view to ultimately developing a labor-intensive leather industry engaged in the production of goods such as handbags, shoes, and jackets.

b. Revitalization of the karakul sector

Finally, there are ongoing efforts to revitalize the karakul pelt, meat, and wool industries, which once accounted for a significant share of agricultural exports. The industries reached their peak during the 1970s and entered the 1980s with sharply declining prices, owing to a number of international market developments, namely: (1) milder European winters; (2) a worldwide campaign against furs; (3) increasing competition for shrinking international markets from the former Soviet Union, the leading international supplier; and (4) aggressive marketing by the mink industry, which competes with karakul. Domestically, the supply of karakul sheep was sizably reduced by recurrent droughts, which in combination with falling international prices, induced farmers to replace their karakul flocks with other higher meat-yielding breeds, suitable only for meat production. Karakul production is now being encouraged, in view of current awareness of the adaptation of karakul sheep to the semiarid environment in the south-central and southern regions of the country and the need to prevent overgrazing. Moreover, in view of the potential loss of competitiveness in the South African market following the implementation of the Uruguay Round, the welfare of Namibian shepherds could be enhanced by the flexibility embodied in the range of products offered by karakul farming. As a result, the Namibian Karakul Board has arranged technical workshops to educate and assist farmers; undertaken research into the uses and applications of karakul pelts and wool; established a private marketing company in a joint venture with NAKARA Manufacturing Furriers, with a view to developing a market for processed pelts and garments; and launched an advertising campaign to stimulate interest in the products. In addition, an agreement was reached with Afghanistan and Kazakhstan, whose pelts are heavier, to market the pelts jointly so as to further stimulate sales. 1/ Over the medium term, however, the success of the effort to revitalize the karakul industries (taking place against the backdrop of rising karakul pelt and wool prices) will depend to a large extent on relative prices of mutton and lamb, which represent the opportunity cost of karakul production.

4. Unprocessed and processed fish

Namibia’s marine ecosystem is characterized by a large biomass of relatively few species that are commercially viable and can be harvested efficiently. The main fish resources are pilchard, hake, pelagic and demersal horse mackerel, crab, tuna, and rock lobster. Prior to independence, however, this fish resource was overexploited, resulting in an erosion of fish stocks, owing to the absence of an effective 200-mile zone off the country’s coastline. Thus, following the creation, and successful enforcement, of the 200-mile Exclusive Economic Zone (EEZ) on July 10, 1990, and the adoption of strict conservationist practices, the fish biomass has been largely restored. Accordingly, a White Paper on Fisheries Policy, adopted by the National Assembly in 1991, outlined as objectives for fisheries policy a sustainable utilization of fish resources (through appropriate conservation policy in the form of enforceable “total allowable catches (TACs)” for each species) and enhancing the participation of Namibian nationals at all levels of the industry. This paper later formed the basis for the Sea Fisheries Act, which was passed and implemented in late 1992.

Financial incentives in the form of reduced quota fees were then established for achieving the stated objectives, and Namibian fishing underwent a period of “Namibianization” during which joint ventures were established between Namibian citizens and foreign fishing vessels, and onshore processing of fish expanded. The reintegration of Walvis Bay on March 1, 1994, contributed to the growth of fisheries, as Walvis Bay is the only deep-sea port in Namibia and accounts for more than half of the Namibian fishing industries and most fisheries supporting companies, infrastructure, and services. Accordingly, the export share of unprocessed fish grew by an astounding 449.8 percent in 1990 and again by 196.1 percent in 1991, albeit from the very low base of 0.2 percent in 1989. This growth in fish exports, and the underlying production trends, was largely a result of increased local ownership of fishing vessels, as value added on foreign-owned vessels was measured net of charter boat fees and had ranged as high as 85 percent of fish catches.

On the manufacturing side, the reduction in quota fees offered to fishing companies as an incentive for expanding onshore fish processing is based on the degree of Namibianization of the fishing enterprise. Thus, the average export share of fish processing expanded by an average of 21.4 percent in the post-independence period, and was sustained through the end of the review period. Employment in the fish and processing sector also rose from 6,000 in 1990 to 9,000 in 1993, including 2,500 seasonal workers in the canning industry at Walvis Bay and 2,000 at Luderitz, and is projected to rise to 15,000 by the end of the decade. However, although the incentives for onshore processing have stimulated employment growth, they have also reportedly proven costly to administer. Moreover, the 50 percent qualifying criterion is currently difficult to achieve, given the limited base of indigenous skilled manpower. Furthermore, the present scope for processing beyond present levels into areas such as gourmet food preparation is thought to be limited because of the distance from key export markets, which, given present freight charges, renders the shipping of final goods far more costly than the wholesale transport of intermediate products.

In order to help redress the current shortage of skilled labor, the Government reached an agreement with the Norwegian Government in 1991 to help train sea going officers for patrol vessels and fisheries inspectors. In addition, the Luderitz-based Rössing vocational training school has been converted into a maritime training center, and a maritime training center was established at Walvis Bay with the cooperation of private industry. A Vocational Training Act is also pending.

The fish biomass declined in 1994 because of adverse oceanic conditions, which affected mostly pelagic fish (such as pilchards), while the demersal and mid-water fish (such as hake and horse mackerel) have been less affected. A rise in ocean temperatures and the resulting oxygen deficiency at the bottom of the ocean has induced a migration of fish stocks from Namibian waters. Nevertheless, the outlook for the fishing sector remains favorable over the medium term in the event of a restoration of normal oceanic conditions. A favorable outlook remains a possibility even in the event of a loss of ACP advantages since the fish sector is commercialized and because exports to the EU as a whole, with the exception of Spain, are not dependent on preferential access through the Lomé Convention. Although Spain is an important market for hake exports, it is presently the only EU country with import duties on fish imports. Import duties (of 15 percent levied on non-Spanish flag vessels) are reduced by 90 percent under the terms of the Lomé Convention.

5. Other manufacturing exports

The manufacturing sector accounted for 8.1 percent of GDP in 1994 and for 28.8 percent of export revenues. However, Table VII.1 shows that Namibian manufacturing exports are dominated by food exports of processed fish and meat, which accounted for an average of 12.9 percent and 5.8 percent of exports, respectively, or 83 percent of manufactured exports over the period 1987-94. By contrast, other manufactured exports only accounted for an average of 4 percent of exports over the same period. In addition, the growth of the export share of the manufacturing sector as a whole, averaging 9.0 percent over 1988-94, exceeded that of other manufacturing, which grew by 4.4 percent. Moreover, the growth of manufacturing’s export share increased from an average decline of 1.5 percent during the pre-independence period shown, to 14 percent after independence (Table VII.2). The opposite was true of other manufacturing’s export share, the growth of which declined from an average of 10.1 percent before independence to 1.7 percent after independence. There is also a shortage of internal production linkages in many of these industries, as the import content of manufacturing industries ranges from 20 percent to 50 percent. Moreover, an Input-Output table constructed by the Southern African Development Bank in 1989 reveals that out of 800 transactions there were only 4 cases where more than 10 percent of inputs were obtained from Namibian companies.

In an effort to stimulate the sector, the Government introduced a range of special tax and nontax incentives for manufacturing enterprises other than meat and fish producers that register with the Ministry of Trade and Industry, effective April 1993. These measures, which include a 50 percent tax abatement on taxable income and various tax deductions, are described in detail in the Annex to this chapter. Nevertheless, despite the provision of sector-specific incentives, nonfish and nonmeat manufacturing exports have yet to gain momentum in Namibia, in spite of an urgent need for local manufacturers of export-oriented products in support of the country’s growing food processing export industries (such as containers, packaging and bottling material, and shipping labels). There is also additional scope for ship repair facilities. However, remaining constraints to potential investors in these and other areas include the following:

  • A shortage of skilled and semiskilled labor--45 percent of establishments surveyed during the 1993 Manufacturing Survey reported experiencing difficulty in recruiting skilled and semiskilled labor.

  • Wages that are high relative to productivity. This is believed to be reinforced by the geographical proximity to, and historical ties with, South Africa formalized through SACU. SACU’s high tariffs on consumer goods (which exert upward pressure on wages) and imported inputs help to raise Namibian firms’ production costs, which in turn render manufactured exports internationally uncompetitive. This is further compounded by a lack of knowledge of alternative regional and international input supply sources.

  • Limited access to credit facilities, particularly in the case of small-scale producers. However, some assistance is now being provided to the small-scale and informal sector industries by a number of governmental and nongovernmental organizations, including the Ministry of Trade and Industries’ Small Scale and Informal Sector Division.

  • A lack of implementation capacity on the part of the Investment Center, established in the Ministry of Trade and Industry in 1991 to serve as a one-stop investment promotion and facilitation agency, owing to a shortage of skilled and experienced staff.

  • Distance from export markets and costly freight charges.

In addition to these constraints, it is arguable that remaining ambiguities surround the incentive package, which might pose an additional hindrance to investment. A lack of transparency arises because of the extent of the overlap between measures available through different provisions, and because of the degree of discretion still remaining in the system. Such provisions may not only serve to undermine the credibility of the tax system, but from an investment point of view may reduce transparency and encourage individual firms to seek discretionary arrangements. Moreover, the greater the difficulty in evaluating and comparing investment climates, the greater the perception of risk.

As a further stimulus to export-oriented investment, the Government established a pilot-study Export Processing Zone (EPZ) at Arandis in 1992. A new EPZ is planned at Walvis Bay, designed to enable Namibia to serve as a gateway to the Southern African region, and is based on the combined advantages of port facilities; an expansive and well-maintained road network; good cultural and trading linkages with Europe; a stable political and industrial environment; and a favorable investment climate, including a low tax liability, low wages, and government subsidies to help defray training costs (see Annex III). However, an essential component of the incentive structure will consist of the availability of a low, internationally competitive wage structure that remains in line with worker productivity. Although the bill was approved by the National Assembly in fiscal year 1994/95, it was reportedly held up in the National Council owing to effective labor union oppositidn to the decision that EPZs would be union-free.

6. Tourism

Namibia’s tourist trade expanded rapidly after independence, given the country’s well-developed infrastructure, strong cultural and trading ties with Europe, and extensive and diverse natural resource endowment. Over 1990-94, tourism’s export share grew at an average rate of 12.6 percent--rising from 8.5 percent in 1990 to 13.3 percent in 1994--establishing tourism as the third most important source of foreign exchange (Table VII.1). Although tourism statistics have been limited until very recently, the data show that the number of tourist arrivals rose from 213,000 in 1991 to roughly 300,000 in 1993, and is projected to rise to 540,000 by 2000, with employment in the industry rising concomitantly from under 10,000 to 19,000. Given the fragility of Namibia’s ecosystem, the Government’s policy is to emphasize the lower volume, higher-yielding tourist trade, which tends to forge greater domestic linkages with hotel and catering services, as well as other retail and financial services. Tourist accommodation capacity is being expanded by ongoing and planned investments in hotels and resorts; however, significant capacity constraints still exist in important support services such as the water and electric utility industries.

The country’s future tourism development will be shaped by the Namibia Tourism Development Programme, which is expected to begin in 1995 and have a three-year duration. This plan is the result of a White Paper on Tourism, approved by the Cabinet in March 1994, which outlines an implementation framework for the development plan. Five working committees have been formed, which are organized accordingly: accommodation, registration, classification and grading; financial incentives; spatial development; establishment of the Namibia Wildlife Resorts (NWR); and creation of the Namibia Tourism Board, The NWR, of which the Government will be a majority shareholder, is to take over the management of government resorts and rest camps, so as to help ensure that the Government’s environmental and conservationist objectives are maintained. 1/ This corporation would also invest in joint ventures with the Government and support community-based tourism, wherever possible. Finally, the committee on the creation of the Namibia Tourism Board will prepare guidelines and the necessary legislation for the establishment and operation of the tourism board, which will be charged with tourism promotion and with the development of a national system for training and human resources development in the tourism sector. 2/

7. Conclusion

The foregoing discussion has illustrated that over the review period, Namibia’s export base was transformed from dependence on two commodity groups--namely, mineral and agricultural commodities--to a much broader base that includes growing export shares for the processed and unprocessed fish subsector and for tourism. Moreover, the emergence of these sectors as important engines of growth in the absence of industry-specific taxation incentives is instructive and contrasts with the growth performance of “other manufacturing” industries, which have benefited from substantial export promotion incentives. The provision of extensive incentives to enterprises other than fish and meat manufacturers effectively constitutes an implicit tax on the excluded parties, and could serve as an inducement to the excluded firms to evade current restrictions. In addition, although the negative effect of tax holidays and other concessions on fiscal revenues can be sizable over the medium term, the experience of other countries suggests that the benefits of these measures are at best questionable. Since emerging firms generally earn limited profits, the companies that are most likely to benefit from such tax concessions are those that would have found the environment profitable without the incentives. Moreover, tax holidays and abatements are prone to abuse by the beneficiaries, as an incentive is created for firms nearing the end of a holiday period to reconstitute their businesses so as perpetuate their access to concessional provisions.

The discussion has also shown that production linkages have been successfully established in agriculture (tanneries), mining (base metals processing and dimension stone cutting and tiling), fisheries, and tourism, which has helped to raise the value added of Namibia’s exports. However, further expansion of these and other sectors is predicated on the implementation of effective solutions to the remaining constraints enumerated above, which include the internationally uncompetitive wage structure, a shortage of skilled manpower, a shortage of venture capital for small-scale enterprises, and high utility and transportation costs (particularly given the present structure of freight charges and the distances to key export markets). Formal steps have already been taken to develop human capital and raise labor productivity, particularly in fisheries and tourism.

It has also been noted that the growth of agricultural exports has stemmed largely from preferential access to protected markets, which is not sustainable in the current environment of global trade liberalization. In addition, the uncertain effect of the current land reform measures on commercial farm productivity has added implications for agricultural exports. Thus, in the aftermath of the conclusion of the Uruguay Round, the future performance of agricultural exports will depend on the adoption of efficient agricultural production practices and land tenure arrangements.

Future successful export promotion will also depend on the maintenance of Namibia’s strengths, which include political and economic stability, the preservation of its extensive natural resources, a substantial and well-maintained infrastructure (including growing telecommunications and road networks), and strong cultural and trading linkages with Europe. In addition, an essential element of Namibia’s economic stability thus far has been the predictability of its currency, which currently circulates at par with the South African rand. Under these circumstances, the enhancement of Namibia’s competitiveness will depend greatly on the evolution of real wages.

ANNEX III The Manufacturing Incentive Structure

The general incentive framework

Since independence, the Government has progressively lowered the top marginal corporate tax rate for nonmining companies (from 40 percent in 1992 to 35 percent effective fiscal year 1995/96). In addition, the authorities have made important changes in the overall tax incentive structure, including: (a) a reduction of the nonresident shareholders’ tax rate to 10 percent; (b) a reduction of personal tax rates, the maximum marginal rate now being 35 percent; (c) the provision of tax exemptions on dividends accruing to companies and dividends paid to residential shareholders of companies; (d) an allowance for plant, machinery and equipment to be fully written-off over a period of three years; (e) a guarantee that infrastructure may be written-off 20 percent in the first year and the balance at 4 percent per year for 20 years; and (f) an amendment for the Sales Tax Act to provide for the tax-free importation or acquisition of manufacturing machinery and equipment.

Manufactured products

In addition to the overall incentive framework, a range of special incentives for manufacturing enterprises that had registered with the Ministry of Finance and the Ministry of Trade and Industry were announced effective April 1993. The tax incentives were as follows:

  • A 50 percent abatement on taxable income derived from manufacturing for a period of five years, to be phased out over a subsequent period of ten years;

  • An accelerated building allowance for buildings used in the manufacturing process, as follows: 20 percent in the first year and 8 percent a year of the balance over ten years;

  • An additional deduction of 25 percent in respect of training and production wage expenditure with prior approval from the Ministry of Trade and Industry and the Ministry of Labor and Manpower Development, and upon notification of the Ministry of Finance;

  • A deduction for export expenditure related to marketing research, advertising, and soliciting orders in a foreign country, ranging from 25 percent to 75 percent, depending on export turnover;

  • A discretionary measure empowering the Minister of Finance with the authority to negotiate with the appropriate Minister, negotiated through the Ministry of Trade and Industry, the applicable tax rate and the duration of tax concessions extended to any new qualifying manufacturing ventures in Namibia.

In addition, nontaxation incentives include the following: (a) concessional loans for the establishment, expansion, or diversification of a manufacturing enterprise, available from the Namibia Development Corporation on terms to be decided by the Board of Directors and in agreement with the Ministry of Trade and Industry; (b) cash grants/loans for exporters of up to 100 percent on concessional terms for the purpose of funding international marketing efforts; 1/ and (c) permission to purchase government studies at 50 percent of the real cost by companies wishing to develop investment opportunities.

In addition to these measures, the budget for 1994/95 announced an export promotion package that exempted 80 percent of all gross profits derived from exports or re-exports of manufactured goods, with the exclusion of processed fish and meat products. Moreover, this exemption is applicable regardless of the extent of the domestic input content and of whether or not the goods are manufactured locally.

Export processing zones

As a further stimulus to investment, the Government established a pilot-study Export Processing Zone (EPZ) at Arandis in 1992. Incentives for investors electing to locate in Arandis included (a) exemption from corporate tax for a negotiable time period, and a reduced tax rate upon expiration of the tax holiday; (b) reduction of withholding tax on dividends paid after tax profits and the elimination of taxes on reinvested profits; (c) exemption from general sales tax on imported capital goods; (d) exemption from all import duties if operations are geared for 100 percent export; and (d) reimbursement of 75 percent of the technical training costs incurred in training Namibian citizens.

An EPZ Bill, awaiting passage by Parliament, would formalize the EPZ incentive framework, and is likely to include: exemption from customs, import and export duties, and any tax on equipment and goods; exemption from income, profit and sales taxes; and no tax on corporate profit. 2/ However, an essential component of the incentive structure will consist of the availability of a low, internationally competitive wage structure that remains in line with worker productivity.

APPENDIX I Regional Arrangements

I. The Southern African Customs Union (SACU)

1. Background

The Southern African Customs Union (SACU) was established in 1910 between the newly established Union of South Africa and the separate protectorates of Botswana, Lesotho, and Swaziland. 1/ The arrangement provided for the free movement of goods and the right of transit among members, as well as a common external tariff determined by South Africa.

The Agreement was renegotiated in 1968 to reflect increases in the partner country shares of regional imports. 2/ Moreover, the Republic of South Africa agreed to compensate the partner countries for several effects of the customs union: (1) the price-increasing effect of the customs union for the BLNS countries and the implicit protection for South African industry; (2) the industrial polarization resulting in part from South Africa’s role in determining the tariff structure and the implications for South African industries; (3) the loss of fiscal discretion experienced by the BLNS partners because South Africa retained tariff-setting power for the region; and (4) the reduction in the revenue pool that resulted from the use of nontariff barriers by South Africa. The compensation agreed upon at the time was equivalent to 42 percent of the respective share of customs revenue.

In 1977, a stabilization factor was introduced to counteract variations in payments resulting from changes in South African petroleum tariff and excise policies. The stabilization factor was centered on a mean of 20 percent of imports, with a lower bound of 17 percent and an upper bound of 23 percent of the tax base. 3/

Any member of SACU may leave the arrangement with 12 months’ notice. The consequences of an abrupt termination of the SACU agreement would, however, be serious for all of the BLNS countries. In addition to the role of SACU receipts as a share of total revenue, the partner countries generally lack the institutional capacity to fully administer domestic tariffs. The potential gains from cheaper imports would also be at least partially offset in the near term by the extensive use of South African importers--and the attendant possibilities for economies of scale.

2. Current status of the arrangement

While the SACU agreement has been under renegotiation since the early 1980s, no resolution has achieved a consensus, and the arrangement described above remains in effect. More recently, it was decided in November 1994 that a new agreement would be reached by March 1995; the discussions, however, are ongoing. The agreement provides for any individual member to leave the arrangement at will, subject to a one-year notification period. A range of issues are under consideration, including the role of South Africa in determining tariff levels. 1/ A second longstanding issue pertains to the fact that payments in any given year--which are negotiated prior to the beginning of the fiscal year--are based on import data from two years earlier, with subsequent revisions. 2/ So long as imports are increasing, this tends to understate the revenues due to the BLNS countries in any particular year. In addition, the scope for the BLNS countries to protect their own infant industries has been regarded as unduly limited, and has become an increasingly important issue as the partner countries have undertaken efforts to widen the base of their respective economies. It has been argued that any provisions encouraging the development of infant industries are effectively negated by other articles in the agreement which require consultation with the other members and/or protect vested interests of South Africa. 3/

2. Timing and calculation of SACU payments 4/

Actual payment for any fiscal year is comprised of four parts: (1) a “first estimate” of payments for the fiscal year, based on a formula including the compensation element; (2) a stabilization component to bring the amount actually received by the BLNS countries closer to 20 percent of their dutiable base; (c) an adjustment to compensate for the lag between collection and payment; and (d) an adjustment to account for revisions of the data used in the formulas.

The 1969 formula determining the share for the member countries other than South Africa is:

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The ratio in brackets in (1) thus defines a variable percentage accruing to the BLNS countries, to which a surcharge of 42 percent is added. The expression in brackets in (la) shows the first estimate as the members dutiable base (A+B+C), multiplied by the “all-duty rate,” defined as the average rate on all customs and excise collections in the union, adjusted by the compensation factor. South Africa’s share is thus a residual The average revenue rate declined steadily for a number of years, and recently stabilized at about 9 percent. Initially, customs duties accounted for about 30 percent of SACU’s revenues, while they now account for about 60 percent. 1/

The revenue actually accruing to a BLNS country in a given year however, depends on import and excise tax data from two fiscal years earlier, owing to the time lag in data availability. The first estimate is thus effectively paid two fiscal years in arrears. Some argue that with a rising rate of trade and inflation, this amounts to a two-year interest-free loan to South Africa. The process leading to the first estimate payments is as follows:

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where TM denotes a technical meeting of SACU members for the purpose of exchanging data, MM denotes a ministerial meeting at which payments to commence in period t are agreed on, and P denotes the first of four quarterly payments.

When the SACU Agreement was revised in 1968, an “all-duty” rate of 20 percent of dutiable imports and excisable goods production was envisaged, after the adjustment factor, while in practice, compensation had varied between 14 percent and 24 percent. In 1976, a stabilization factor was introduced to keep the post-compensation rate within 3 percentage points of 20 percent of the member’s dutiable base. The post-compensation payment is calculated according to the formula. Half of the difference between this rate and 20 percent is added to the original post-compensation payment rate, and is termed the “stabilized revenue rate (SP(t)).” The stabilized revenue rate has a lower bound of 17 percent of the member’s base, and an upper bound of 23 percent. The actual payment made in year t is thus the stabilization rate or 17 percent, whichever is higher, subject to the upper bound of 23 percent. This rate is then multiplied by the country’s dutiable base in year t-2 to determine actual payments in year t.

The “first adjustment” is designed to compensate SACU members for the two-year lag. This payment is based on the assumption that trade is growing steadily and is equal to the difference between the first estimate after stabilization for the current year (FE(t) and SP(t) based on data from (t-2)) and the first estimate of two years earlier (FE and SP for (t-2), based on (t-4) data).

The “final adjustment” in any given year adjusts for the data revisions made since the calculation of the first estimate and the stabilization factor, and adjusts the shares of members in the pool. These shares are calculated with the actual data, and additional payments are adjusted for under- and over-payments.

II. The Common Monetary Area (CMA)

The Common Monetary Area (CMA) includes South Africa, Lesotho, Namibia, and Swaziland. The initial arrangement, entitled the Rand Monetary Agreement, was signed by Botswana, Swaziland, Lesotho, and South Africa in 1974. Under the agreement, the rand would circulate as legal tender throughout the monetary area. While Swaziland and Lesotho retained the freedom to issue their own currencies, these currencies would circulate only within the boundaries of the issuing country. The agreement also provided for access to South African financial markets by Lesotho and Swaziland, as well as for some compensation for the continued use of the rand as legal tender. Shortly thereafter, Botswana withdrew from the arrangement to pursue a more independent path of monetary policy. Swaziland established an independent monetary authority in 1974, which was converted to the Central Bank of Swaziland in 1979, and issued its own currency, the lilangeni (plural: emalengeni), pegged at par to the South African rand. The Monetary Authority of Lesotho was established in 1979, which became the Central Bank of Lesotho in 1982, and introduced the loti (plural: maloti) during 1980, fixed at par with the South African rand.

In 1986 the Trilateral Monetary Agreement (TMA) supplanted the Rand Monetary Agreement, and established the Common Monetary Area (CMA). The new agreement provided for the signing of bilateral agreements between South Africa and the two partner countries. Swaziland suspended the use of the rand as legal tender, and Lesotho took over the management of its own international reserves.

The South African rand has circulated as legal tender in Namibia since independence, based on an agreement with South Africa that also provided for Namibia’s participation on a transitional basis in the CMA, and for the establishment of Namibia’s central bank, the Bank of Namibia. On March 27, 1992, Namibia became an official member of the CMA, and began to receive compensatory payments from South Africa for using the rand, with retrospective effect from the date of independence. In accord with its constitution, Namibia began to issue its own currency (the Namibian dollar), to circulate at par with the rand, in September 1993. Current plans call for both currencies to circulate together at least through 1995, and Namibia is to continue to receive compensatory payments from South Africa, based on the estimated rand in circulation. As a result, Namibia’s ability to pursue an independent monetary policy will remain limited so long as the Namibian dollar can be exchanged at par with the rand, and a free flow of funds with South Africa is maintained.

Owing to both the tight economic linkages and the pegged exchange rates, the BLNS countries have experienced patterns of inflation broadly in line with those in South Africa. As a consequence, real effective exchange rates have moved directly in line with that of South Africa. For the partner countries, the costs of the arrangement have been largely associated with the use of the rand, and the attendant limitations on monetary policy, especially given the constraints on fiscal policy deriving from membership in SACU. Namibia, Swaziland and Lesotho have tried to address their concerns in the context of the arrangement, through steps that have included some compensation for the loss of seigniorage and interest income on international reserves. Other steps include measured access to financial markets in South Africa, the availability of conditional credit from the Reserve Bank of South Africa, the limited latitude to pursue independent exchange rate policies, greater discretion in the management of international reserves, and strengthened consultative machinery under the CMA committee.

APPENDIX II Namibia: Summary of the Tax System, April 1995

(All amounts in Namlblen dollars)
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Source: Ministry of Finance.

APPENDIX III NAMIBIA - Exchange and Trade System

(As of March 31, 1995)

1. Exchange arrangement

The currency of Namibia is the Namibian dollar. The Namibian dollar is pegged at par with the South African rand, which is also legal tender in Namibia. The exchange rates of the Namibian dollar vis-à-vis other currencies are determined on the basis of cross rates of the South African rand against the currencies concerned in the international market. The representative rate of the Namibian dollar is determined on the basis of the fixed relationship between the Namibian dollar and the South African rand, and the middle rate between the buying and selling rates for the U.S. dollar in terms of the South African rand as reported by the Bank of Namibia. On March 31, 1995, the exchange rate of the Namibian dollar against the U.S. dollar was N$1=US$0.2796. The exchange market in Namibia has developed as an extension of the exchange market in South Africa.

Spot and forward exchange operations are regulated by the exchange control and banking regulations of South Africa. Authorized dealers are permitted to conduct forward exchange operations, including cover, for transactions by residents in any foreign currency in respect of authorized trade and nontrade transactions. Forward exchange contracts may cover the entire period of the outstanding commitments/accruals. Forward exchange cover may also be provided to nonresidents subject to certain limitations. Forward cover is provided in U.S. dollars only; such cover is given to authorized dealers for maturities not exceeding 12 months at a time, in the form of rand-U.S. dollar swap transactions, with a margin based on an interest rate differential between the U.S. dollar and the rand. Special rand forward cover at preferential rates is provided in respect of import financing offered to, and accepted by, Namibian importers. Such special forward cover must coincide with the redemption date of relevant financing and may not be canceled before maturity. Gold mining companies/houses may sell forward anticipated receipts of their future gold sales. There are no taxes or subsidies on purchases or sales of foreign exchange.

With effect from March 13, 1995, the South African authorities abolished the financial rand system, which subsequently paved the way for unitary currency to float against the basket. All financial rand balances were redesignated as either “Nonresident” account, where account holders are living outside the Common Monetary. Area (CMA), while all balances belonging to immigrants were designated as “Resident” accounts. These “Nonresident” accounts will be freely transferable from the CMA.

2. Exchange control territory and administration of control

Namibia is part of the CMA. No restrictions are applied to payments within the CMA. In its relations with countries outside the CMA, Namibia applies exchange controls that are almost identical to those of other CMA members.

The Bank of Namibia, on behalf of the Ministry of Finance, controls all external currency transactions. Import and export permits, where required, are issued by the Ministry of Trade and Industry. The authorized dealers automatically provide foreign exchange for imports from outside the Southern African Customs Union (SACU) 1/ upon presentation of necessary documents. Advance payments for imports require the approval of the Bank of Namibia. All countries outside the CMA constitute the nonresident area. The rand is legal tender in Namibia and Lesotho but not in Swaziland. The rand accounts of nonresidents 2/ are divided into nonresident accounts and emigrant blocked accounts. The regulations that apply to these accounts in South Africa apply in Namibia.

3. Imports and import payments

There are no restrictions on imports originating in any country of the SACU. Imports from countries outside the SACU are usually licensed in conformity with South Africa’s import regulations. For purposes of import permit issuance, Schedule IA of the Import Control Regulations of South Africa is currently enforced. These permits are valid for one year, are expressed in value terms, and are valid for imports from any country outside the SACU. At present, about 90 percent of imports require a permit. Namibia has the right to restrict certain imports (through customs duties or quantitative restrictions) from countries outside the SACU and from countries of the SACU under certain conditions. A wide range of imports from countries outside the SACU is subject to a general sales tax of 11 percent (as are locally produced goods) and to surcharges ranging from 7.5 percent on certain foodstuffs to 40 percent on nonessential luxury goods.

4. Payments for invisibles

Authorized dealers are empowered to approve trade-related invisible payments without limitation and other invisible payments up to established limits, as follows: (1) annual allowances for tourist travel of N$23,000 for an adult and N$1l,500 for a child under 12 years (basic annual allowances for travel to the neighboring countries--Angola, Botswana, Malawi, Mozambique, Zaire, Zambia, and Zimbabwe--are N$7,000 for an adult and N$3,500 for a child under 12 years); (2) business travel allowances at a rate not exceeding N$1,800 a day, with a maximum of N$34,000 in a calendar year (allowances for business travel to the neighboring countries mentioned above are at a rate not exceeding N$900 a day, with a maximum of N$12,000 a year). Residents leaving Namibia for destinations outside the CMA may be provided no more than the equivalent of one third of the foreign exchange made available per applicant. A larger amount may be granted on presentation of documented proof of need. There are no prescribed limits on remittances for education and family maintenance, and reasonable amounts are granted on a case-by-case basis.

5. Exports and export proceeds

Most exports are permitted without a license and are shipped through South Africa. Permits are required for the exportation of goods in short supply to the non-SACU area. All export proceeds are normally required to be remitted to Namibia and surrendered within six months of shipment or within seven days of the date of accrual. In order to enforce the repatriation requirement, exporters are required to cover forward their export proceeds within seven days of shipment.

Proceeds from invisibles must be surrendered within seven days of the date of accrual, unless exemption is obtained. Upon entry from countries outside the GMA, residents and nonresidents may bring in N$500 in South African Reserve Bank notes. There are no limitations on the importation of domestic currency from Lesotho and Swaziland.

6. Capital and gold

All capital transfers to and from destinations outside the CMA in the form of loans are subject to specific approval from the Bank of Namibia. under the exchange control arrangements. Approval is generally given for borrowing abroad with a maturity of at least six months by domestic entrepreneurs, except for speculation or consumer credit. Authorized dealers are generally permitted to raise funds abroad in their own names for the financing of Namibia’s foreign trade and for other approved purposes. Inward transfers of capital from non-CMA countries for equity investment are freely permitted, whereas applications by residents to retain in, or transfer to, countries outside the CMA funds for bona fide long-term investments in specific development projects or for the expansion of existing projects owned or controlled by residents are considered on their own merits.

Proceeds from the sale of quoted or unquoted South African securities, real estate, and other equity investments by nonresidents are freely transferable. Families emigrating to destinations outside the CMA are granted the normal travel (tourist) allowance and are permitted to remit up to N$200,000 (N$100,000 for single persons). Any balance exceeding this limit must be credited to an emigrant blocked account; the balance, including earned income, can be transferred under prescribed conditions. Immigrants are required to furnish the exchange control authorities with a complete return of their foreign assets and liabilities at the time of their arrival. Any foreign assets they transfer to South Africa may, through the same channel, be retransferred abroad within the first two years of their arrival.

Residents are permitted to purchase, hold, and sell gold coins in Namibia for numismatic and investment purposes only. All exports and imports of gold require the prior approval of the monetary authorities.

7. change during 1994

Exchange arrangement:

September 5. Limits of the invisibles under point 4 have been changed with effect from September 5, 1994.

8. Changes during 1995

March 13. Abolition of financial rand system by the South African authorities with effect from March 13, 1995.


Table 1.

Namibia: Gross Domestic and National Product at Current Prices, 1987–94

(In millions of Namibian dollars)

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Sources: Central Statistics Office; and staff estimates.

Provision for depreciation.

GNI = gross national income.

Table 2.

Namibia: Gross Domestic Product by Industrial Origin, at Constant 1990 Prices, 1987–94

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Source: Central Statistics Office (CSO).
Table 3.

Namibia: Gross Domestic Product by industry Origin, at Current Prices, 1987–94

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Source: Central Statistics Office (CSO).