Income and Inequality

27. There is currently no agreed definition of poverty in Namibia (Table II.4). The 1993/94 household survey saw one-third of the population living on less than one US dollar per day and the UNDP only ranks Namibia as 125 of 177 countries on the Human Development Index. The National Planning Commission (NPC) uses a classification under which a household is considered extremely poor if it devotes more than 80 percent of its expenditures to food, and relatively poor if the share is at least 60 percent. The 1999 Levels of Living Survey denotes the national mean expenditure as the poverty line (Government of the Republic of Namibia, 1999).

View Full Size

• Download Figure
• Download figure as PowerPoint slide

28. Despite the many indications of poverty, with an average per capita gross national income of US$2,370, Namibia is classified as a lower middle-income country.⁹ Owing to an abundance of natural resources, it ranks 95 out of 208 economies on the global income scale.¹⁰ However, the country’s income distribution is highly skewed, with the highest Gini coefficient in the world, at 0.70.¹¹ This extreme inequality is mainly a consequence of the economic and social structures inherited from the apartheid period (including the unequal distribution of land), along with the country’s dependence on the capital-intensive diamond industry.

HIV/AIDS and Other Diseases

29. HIV, poor nutrition, and alcohol abuse are the fundamental causes of exposure to disease in Namibia. Life expectancy has declined from 57 years in 1990 to 40 in 2003, and more than two-fifths of the population is below 15 years old. According to the International Labor Organization, Namibia will have lost one quarter of its workforce to HIV/AIDS by 2015 (ILO, 2004). The HIV/AIDS prevalence rate is the fifth highest in the world and the country ranks fourth among the SACU countries (Table II.5). The infection rate of the adult population is 21.3 percent and the estimated number of HIV-infected people is 250,000 (PEPFAR, 2005). The most recent estimate of the infection rate among pregnant women—a key indicator on the incidence of HIV/AIDS—indicates a slight decline from 22.0 in 2002 to 19.7 percent, but the rate is still much higher than the SSA average of 6.7 percent.¹²

View Full Size

• Download Figure
• Download figure as PowerPoint slide

30. The HIV/AIDS epidemic is the country’s greatest challenge to human development. Not only is the epidemic a source of poverty resulting from loss of income earners and reduced productivity; it also leads to a reallocation of resources to care and away from investment. In addition, the cost of the disease relative to household income is higher for the poor, who are less able to cope with sudden and considerable expenditure increases and income reduction (Steinberg, Johnson, Schierhout, and Ndegwa, 2002). The NPC estimates that the direct and indirect medical care costs of HIV/AIDS to the national economy will amount to N$8.5 billion, or 15 percent of GDP, by 2010. Notwithstanding the increasing costs associated with the epidemic, the health sector share of budget expenditure has declined continuously since 1999/00.

31. The government’s effective response to the HIV/AIDS epidemic has important implications for the impact on poverty. Besides reducing morbidity and mortality among HIV-infected individuals, antiretroviral (ARV) therapy can lead to a large and relatively immediate increase in adult patients’ ability to work.¹³ It may also affect labor supply of other family members; young boys and women have been shown to work less when the patient receives treatment. This negative effect on child labor suggests potential benefits on school attendance.

32. The government’s HIV/AIDS strategy, the Third Medium-Term Plan (MTP III), has so far been successful in terms of treatment. 15,000 people are currently given ARV therapy and the objective to treat 25,000 by 2009 has been revised upward to above 50,000. However, there is a shortage of skilled staff (nurses, pharmacists, and doctors) and inadequate space in the health facilities, which leads to bottlenecks in treatment. Moreover, the treatment strategy must be complemented by substantive prevention measures to ensure that the downward infection trend continues. Currently, efforts to combat malaria and TB as well as to improve physical infrastructure in the sector are lagging.

33. Namibia has over 97,000 orphans—largely a consequence of the high HIV/AIDS infection rate. Only one-fourth of Namibian children live with both parents and an equal share are not living with either parent although both are alive (United Nations, 2004). UNICEF is projecting that the number of orphans and vulnerable children (OVC) will make up 10 percent of the country’s projected population of 2.5 million in 2021.¹⁴ The extended families often rely on these children for income (from the orphan grant and child labor) and as primary caregivers for sick family members. Moreover, inadequate protection of unregistered orphans deprives them of family support and has led to exploitation, contributing to their exclusion from society.¹⁵

Employment Opportunities

34. The lack of wage employment opportunities is a key contributor to poverty. Unemployment in Namibia is primarily an unskilled phenomenon, as unemployment among those with post secondary education is almost non-existent.¹⁶ According to the 2002 labor survey, the unemployment rate has remained relatively stable for the past decade at around 20 percent. Rural unemployment is estimated at 17 percent, while urban unemployment is somewhat higher, at 24 percent. Labor force participation among 20-24 year olds is very low, at less than 50 percent, compared to over 70 percent among 25-55 year olds. A new labor survey is expected to be released in 2006.

35. A large part of the Namibian population depends on small-scale agriculture for employment. About 85 percent of the poor live in rural areas and 29 percent of the labor force make their living from agriculture. More than one third of Namibian households rely on subsistence farming as their only source of income. Almost half of Namibian households depend on subsistence farming as their primary source of income and in these households, average consumption is about half the national average (United Nations, 2004).

Food Insecurity

36. Being the most arid country in SSA, Namibia commonly experiences food deficits and recurring droughts. The lack of adequate natural fresh water resources, low and erratic rainfall, and poor soil quality limits food production and increases vulnerability.¹⁷ The country is a net food importer, relying on maize imports for about 50 percent of its cereal requirements. The self-sufficiency ratio for the past ten years is only 34 percent (United Nations, 2004).

37. Food shortages in rural areas during periods of drought are a major concern. Low, variable, and uncertain levels of food production deepen food insecurity, which represents a fundamental challenge to the development process in Namibia (United Nations, 2004). As almost half the rural households derive income from selling surpluses from subsistence production, many households are extremely vulnerable to weather-related shocks. The rural population relies on wild plants and animals for a majority of their nutrition. According to the 2002 Afrobarometer survey, 45 percent of Namibians had sometimes gone without food, and 11 percent had often gone without food, during the past 12 months. Namibia also has a high rate of malnutrition among its population, particularly among children where about one in four children is underweight (Table II.1).

Education

38. The MDG target to achieve universal primary education is not on track, although other indicators are showing improvement. Since 1990, the net primary enrollment ratio has declined from 83 to 78 percent, although it is still quite high compared to the SSA average of 64 percent. The primary school completion rate, the proportion of pupils starting first grade and reaching fifth grade, and the youth literacy rate have all improved since the 1990s. About 80 percent of the population is literate.

39. According to the Namibian Constitution, primary education is compulsory and the state must provide reasonable facilities to all Namibians. Furthermore, children are not allowed to leave school until they have completed primary education or have reached the age of 16. However, according to the 1999 Levels of Living Survey, 12 percent of the population had never attended school and among 6-18 year olds, the figure was 6 percent. Many children who do not attend school are unregistered OVC.

40. There is a widespread view that schools have malfunctioned, producing students with mostly low quality skills. Despite relatively high spending on education, the allocation of resources has been inefficient and outcomes are disappointing. Since independence, demand for skilled labor has been high, and many qualified teachers have left for the private sector. Moreover, monitoring of the educational system is poor. The World Bank recently completed a study of the education sector, which concluded that the current system is too weak to play its expected role. The key limitations relate to poor quality and ineffectiveness, low efficiency, inequalities, low economic relevance, and low capacity for knowledge creation and innovation (World Bank, 2005a). One of the specific issues identified is that while the government does not charge school fees, many individual schools do. Accounting for about 8 percent of household income, these fees are a major obstacle for the poor. Inadequate facilities were also identified as a major problem; schools lack sufficient classroom space, benches, chalkboards, as well as dormitories for teachers and students.

Basic Income Grant (BIG)

45. In an attempt to address the acute problems of poverty and income inequality, a coalition of non-governmental organizations has put forward a proposal to introduce a universal income grant in Namibia. The coalition recommends distributing a monthly cash grant of N$100 (US$15) to all Namibians less than 60 years old, regardless of income. The coalition’s main arguments for their proposal are:

• The cash grant would reach 93 percent of the population and transfer approximately N$900 million, or 2 percent of GDP, to rural areas. The cost of the proposed distribution system (smart cards, bank accounts, and fixed payout points in rural areas) would be less than 10 percent.²¹ The net resource inflow would benefit the economy through increased consumption, which would serve as an engine of growth for local economic development.

• The net cost of the proposal would be 2¼ to 3¾ percent of GDP and could be recuperated through taxes. This would include an increase in the value added tax (VAT) by 7 percentage points, to 22 percent, as well as an increase in the income tax. The financing would be redistributive as the rich consume and earn more than the poor, and hence contribute more than they receive from the grant. The two highest quintiles of the population would be net contributors and the three lowest quintiles net beneficiaries in the system. It is expected that tax collection could improve as the revenue base broadens when Namibians register for the grant.

• The grant proposal would effectively move the majority of the population above the poverty line and reduce income inequality. The transfer would improve basic nutrition levels and thus increase the productivity of the work force, particularly since adequate food intake is necessary for HIV/AIDS medicines to be effective.

• A cash grant of only N$100 per month would not discourage people from looking for work. Instead, it would enable them to get out of the vicious circle of poverty and unemployment. By increasing the income of the poor, both their capacity to look for and find work would improve.

• A universal grant would be less prone to abuse than a targeted grant. In addition, targeting would be relatively more costly and complicated. As the needs to be met in Namibia are urgent, a quick rollout of the program is preferable. To ensure sustainability, it would be important to finance the BIG through domestic resources and at this stage, no donors have been contacted.

46. Although it is critical to address poverty and inequality in Namibia, the current BIG proposal may put economic stability at risk and could compromise the country’s overall prudent fiscal policy stance. According to IMF calculations, the cost of the BIG proposal could reach 5½ percent of GDP and require a doubling of the current VAT rate to 30 percent, assuming that consumption patterns do not change and that there is no additional tax evasion. Moreover, a positive effect on income distribution would only originate from intended outcomes of redistributive tax increases.²² However, these increases could impose high dead weight losses given the narrow tax base. The affordability of the proposal, possible tax evasion, and effects on macroeconomic stability—one of Namibia’s greatest assets—should be carefully analyzed.

47. A universal cash grant may have unintended fertility and labor market effects that must be taken into account. If all citizens, including children, are entitled to a monthly cash grant, this may distort incentives to have children and increase fertility, which may conflict with other health policies underway. Furthermore, a universal grant may have adverse labor market effects as the reservation wage for taking up low paid jobs in the informal sector—often seen as the way out of poverty—would increase with the grant amount. Finally, it remains unclear how communities that largely depend on subsistence farming will react to substantial cash injections. If the additional cash is channeled into unproductive consumption (e.g., for alcohol), the intended stimulus for local economic activity will hardly materialize.

Conditional Cash Transfer (CCT) Programs

48. The recent introduction of CCT programs in Latin America is an innovative and increasingly popular approach to social assistance (Box II.1). Political support for the programs is strong and, contrary to common belief, administrative costs have proven to be low. By providing cash to poor families contingent on behavior, usually investment in human capital, the programs present a new approach to long-term social assistance programs (World Bank, 2004).

49. The CCT programs address both future poverty, by fostering human capital accumulation, and current poverty, by providing income support for smoothing consumption.²³ Furthermore, they address equity by targeting resources to the poor and restore efficiency by addressing market failures when externalities exist in the accumulation of human capital (Das, Do, and Özler, 2005).

50. The CCT programs explicitly tackle criticisms levied at more traditional social programs. These include weak poverty targeting, high administrative or component costs, lack of integration of disparate projects with a multiplicity of overlapping or unrelated goals, and excessive focus on reducing immediate poverty with little attention to long-term, structural poverty (Rawlings and Rubio, 2005). Early planning has allowed for the collection of baseline data, thus permitting comparisons of households in the treatment and control groups before and after program implementation. Effective implementation has often involved the donor community.

51. Namibia may be a good candidate for introducing a CCT program, as its high incidence of poverty and a limited social safety net coincide with a need for catching up with respect to some MDGs. Despite their shortcomings, Namibia’s education and health sectors are fairly well developed by SSA standards. A conditional transfer could be linked to the achievement of lagging MDG indicators such as school enrollment and child health care and thus indirectly provide more equal opportunities for Namibia’s poor over time.²⁴ At the same time, the monthly grant would provide much needed income support for the poor and enable consumption smoothing in the short run. Furthermore, a targeted transfer would be significantly less costly than the BIG and impinge less on economic stability.

52. By explicitly targeting the two most vulnerable groups in society—poor children and HIV-infected individuals—a CCT could reduce poverty and improve the distribution of income. Through proxy means testing, geographical targeting, or self-selection, the poor can be targeted without fundamentally raising administrative costs. Although it is important to root program management in strong government agencies, the possibilities for donor financing and technical assistance could be explored.²⁵

53. Following the example of other countries, a cash grant in Namibia could be targeted at young children as well as lactating and pregnant mothers. This would be contingent upon health center visits, health and nutrition workshops, yearly check-ups, prenatal health care, child growth monitoring, and/or vaccinations. A separate grant could be targeted at older children who attend school on a regular basis.²⁶ Such a grant would provide much needed relief to poor families for the payment of school fees and improve registration and school attendance among the growing number of OVC. However, as school fees are prevalent in Namibia, a clear government policy must prevent a corresponding increase in fees that would absorb any positive effects on poverty reduction. To avoid unintended fertility effects, the program could be limited to a specific number of children per family. Furthermore, to enhance the likelihood of the grant being spent productively on children, the recipient should generally be the mother. The transfer size should be equivalent to the opportunity cost of making more intensive use of existing educational and health facilities.

54. To reduce poverty among those with HIV/AIDS, two options are feasible. One alternative is to expand participation of people living with HIV/AIDS in the existing disability pension system by further destigmatizing the disease and encouraging the use of the pension among the infected. Another alternative is to provide a cash grant to the HIV-infected conditional on regular health center visits. By providing them with a cash grant that can finance a stable food intake, treatment will become more effective, with benefits to society as a whole. The advantage of the latter approach would be to combine the investment in future health with immediate poverty reduction. The respective costs and benefits of the two alternatives would have to be further explored. Furthermore, the possibility that people would expose themselves to HIV infection to qualify for the grant is emerging as a serious issue in the region and must thus be considered.

55. The introduction of a CCT program should take account of other grants and be accompanied by streamlining other welfare programs. For example, eliminating the existing OVC grant and means testing the social pensions could free up additional resources. Moreover, the current health and education systems need to be upgraded to accommodate an increasing use of services provided. The success of the program will depend on the ability of the most vulnerable to access services, so that they can qualify for the transfer. In addition, the distribution system needs to be upgraded accordingly, so that all beneficiaries can be reached and obtain ID cards, even in very remote areas. A gradual roll out of the program to monitor fiscal costs, quality of services, and appropriate targeting is crucial.