4 minute read
ECONOMIES ARE RUTHLESS…but also forgiving
After gaining independence in 1990 the Namibian economy enjoyed a honeymoon phase spanning 25 years. During this period, annual GDP growth was mostly positive, with only one out of the twentyfive years experiencing negative growth. Although Namibians were prospering, we were living in the moment without planning for future sustainable growth. Much like J. Paul Getty’s description of The Roaring Twenties, “the period of that great American prosperity which was built on shaky foundations.”
Today, a prosperous Namibian economy is but a distant memory, faded by stagnation, depression and, to make matters worse, a pandemic. The goal of this story is not to dishearten. Far from it. The goal is to address where we went wrong, as well as what needs to be done to revive this nation.
A prosperous economy requires informed policy decisions to accommodate growth. Simply injecting money is not enough. An example of this issue is the Namibian education system, which has the largest budget allocation of all sectoral expenditure yet lacks progress. Poor policies might not be evident immediately. However, over time the cracks begin to form, bringing us to the present day, scratching our heads and asking where we went wrong.
Namibia’s economic model has been rather simple to date – exploit natural resources, while adding limited value. The lack of industrialisation has limited the country’s capacity to create sustainable jobs. Between 2016 and 2019, the Namibian economy slumped roughly 0.5% annually. This was mainly driven by contractions in the mining and construction sectors, as well as weak growth in neighbouring countries, which adversely impacted demand for Namibian goods and services. There are a multitude of underlying factors that have culminated into the present state of the economy, but in the interest of simplification we will focus on two broad factors: human capital and the overall business climate.
Firstly, although progress has been made in the Namibian education system, educational outcomes are still dismal. The current average duration of schooling is a shocking 7 years out of the potential 12 years. This poor education system has failed the many young adults of today who are either structurally unemployed, as their skills are incompatible with the formal sector, or they find employment in the informal sector, which pays lower wages relative to the formal sector.
Source: Namibia Statistics Agency, IJG
To make matters worse, the informal sector, which is characterised by low labour productivity, makes up about 41% of Namibia’s employment. Meanwhile, the formal sector employs about 42.3% of Namibian workers. The low mobility of labour suggests informal workers struggle to enter the formal sector. Had these workers possessed the necessary skills, they could find more productive jobs, and create jobs necessitating higher skill levels, driving a higher rate of GDP growth. Additionally, the longer the workforce is either unemployed or dissatisfied with their jobs, their motivation wanes. This results in unemployed people giving up on their job search, currently employed workers becoming less productive due to a lack of job satisfaction, and overall innovation, which is crucial for economic progress, begins to dwindle. Improving the education system will be a long and painful process before the country begins to reap the benefits. It must be done, however, to upskill the population in a rapidly evolving global economy.
Secondly, there is a lack of competition, which is of great concern for Namibia’s private sector development. According to the World Bank, the market structure is highly monopolistic, whereby several big players dominate and use their position to restrict market entry by new competitors. Furthermore, a large government sector, and its presence in the private sector space through state-owned enterprises and parastatals, increases market inefficiencies and crowds out the private sector. According to the Global Competitiveness Report, Namibia ranks 100th out of 140 countries. These barriers to entry demotivate foreign investment into the country, as well as internal development, as locals struggle to start a business. According to the World Bank Doing Business Index, Namibia ranks 165th out of 190 countries for starting a business. This is due to highly inefficient regulators that hinder progress for no valid reason. It takes, on average, an eye-watering 66 days to register a company in Namibia. For a profitable multi-national, this process might not mean much, but for a local start-up with miniscule profit margins, this cumbersome process can be the difference between bankruptcy and prosperity. The good news is: several of these issues can and should be remedied in the shortterm. Overall, an improved business climate will create a more attractive environment for foreign investment, in addition to supporting local start-ups, which will result in a sustainable and fruitful business environment.
The good news is: economies are fair. Just as an economy ruthlessly punishes poor policies, it also rewards sound decisions. Of course, some policies, such as improvements in the education system, will likely take years to yield positive results, while others, such as addressing the country’s sluggish regulatory system, will have far more rapid results. The bottom line is that these decisions must be made with urgency for the overall recovery of the Namibian economy.
Josh Singer Mansfeld
Josh Singer Mansfeld is a trainee research analyst at IJG Securities, an established Namibian financial services market leader. IJG believes in tailoring their services to a client’s personal and business needs. For more information, visit www.ijg.net.
