‘Govt needs a plan – now’

Jo-Maré Duddy – Government needs to show it is serious about public sector reform, cutting wasteful expenditure, fundamentally changing its policy attitude especially towards investors, as well as tackling mismanagement and corruption.

“Government should put together a clear five-year plan showing how it intends to reform the public sector and get the public finances under control setting a credible debt limit and then follow through on the plan,” the Institute of Public Research (IPPR) says in a paper examining ways to kick-start the economy.

The think tank’s list of proposals (see table) follows on the heels of the updated economic update of the Bank of Namibia (BoN) last week. The BoN’s baseline forecast for annual economic growth currently stands at an all-time low of -7.8%. Under its worst case scenario, overall economic growth could plummet to -12.2%.

“Unquestionably, the Covid-19 pandemic in Namibia has accelerated and brought into focus economic issues that have been festering for many years. Namibia can no longer afford business as usual,” the IPPR says.

If government proves that it is serious about public sector reform, it will be able to roll over foreign debt at a reasonable cost and demonstrate to international investors it takes its reputation as a safe place to invest seriously, the IPPR says. If it achieves this it will be able to continue to tap international markets for capital to fund future growth, the institute adds.

“As a developing country, Namibia should need additional capital from the outside world but it has failed to show it knows how to use such capital and failed to take heed of advice from sovereign credit rating agencies whose role is to sound the warning bell,” the IPPR says.

Same old story

According to the IPPR, Namibia over the years has lost sight of the essential truth that it will need to expand the range and diversity of its exports to the rest of the world if it is to achieve higher incomes for the mass of the population.

“Long-standing characteristics, such as poor or non-existent formal employment growth, limited export diversification, the bloated size of the public sector, the generally poor performance of public enterprises, and wasteful public spending were all visible,” the IPPR says.

It continues: “Corruption and mismanagement were widespread as demonstrated most starkly by the Fishrot scandal which had arisen from the secretive way in which one of Namibia’s key economic sectors had been managed over many years.”

The IPPR says many of these problems had long been recognised in countless reports from credit rating agencies, international agencies such as the International Monetary Fund (IMF), international rankings such as those of the World Economic Forum or Transparency International, and independent analysts inside and outside Namibia.

Some were even “recognised at the highest political levels including by the president [Hage Geingob]”, the IPPR says.

“Covid-19 arrived just as things were coming to a head anyway.”

Wake-up call?

“The question now is whether the severe economic jolt administered by the pandemic will lead policymakers to continue with business as usual or encourage them to ‘never let a good crisis go to waste’ and implement far-reaching reforms,” the IPPR says.

“This is the choice facing Namibia as the country hopes to move to Stage 5 later this year,” the institute adds.

Government reforms will have to include cutting unproductive expenditures such as those for defence and security where levels of expenditure are not justified by the threats faced by the country, the IPPR says.

In addition, public sector reform should also examine how expenditures on health and education can be made more effective. “Namibia spends a large proportion of its national budget on these two sectors but the outcomes from these expenditures are lamentable.”

However, the IPPR elaborates: “Unfortunately, reversing thirty years of drift will not be a pain-free process but either the nettle is grasped now or it will be left to others – creditors, international finance institutions or foreign powers – to determine Namibia’s fate.

“This is the antithesis of what Namibia and the ruling party stands for. Realistically, public sector reform will be that much harder if the private sector economy is not growing,” it says.

‘Permanent scars’

The IPPR says it looks likely that the pandemic has already left permanent scars on the Namibian economy. It is by no means certain that for example the tourism, hospitality and transport industries will return to the state they were in at the beginning of the year any time soon if at all, it adds.

Namibia has to carefully assess whether public funds should be directed at sectors that have been damaged because it is not necessarily the case that they will rebound to where they were before the crisis, the IPPR says.

“There may be imaginative ways of supporting sectors such as tourism but blanket support is unlikely to be sustainable.”

According to the IPPR, a clear programme of reform exists comprising mainly of actions that Namibia should take regardless of the pandemic in order to foster growth and job creation.

However, only private investors can achieve this transformation, but government has a crucial supporting role to play, the IPPR stresses.

For this, Namibia urgently needs to restore its image as an investor-friendly destination.

“Levels of private investment and foreign direct investment, upon which future growth depends, had sunk back to levels not seen since before the global financial crisis,” the IPPR says.

According to the latest data by the Namibia Statistics Agency (NSA), gross fixed capital formation (GFCF), or investment, has plummeted from about N$47.4 billion in 2014 to around N$28.9 billion in 2019. Excluding general government, GFCF has fallen by some 45% from N$41.1 billion in 2014 to about N$22.6 billion in 2019.

“Policymakers will have to undergo a fundamental change in attitude and approach if they are to get the economy moving again,” the IPPR says.

Agents of change?

In favour of reform, the IPPR says, Namibia has two new faces as its two most senior economic policymakers – finance minister Iipumbu Shiimi, the former governor of the BoN, and Johannes !Gawaxab, the new governor of the central bank.

“If they put forward a common programme of radical reform, it is possible that real action will be the result. Imagination and dynamism have already been demonstrated in government’s immediate response to the pandemic,” the IPPR says.

The think tank Namibia has shown it can act quickly and boldly as its initial response to the pandemic demonstrated, the IPPR acknowledges.

“But this is a marathon not a sprint.”

“With the right actions Namibia could become a beacon of hope in Southern Africa. With the wrong actions it will become just another failed African economy,” the IPPR warns.