20 Years of Namibia’s Business Environment

By Johannes !Gawaxab

WHEN I look at my own children, I can’t help but think “my, how time flies”. It was not so long ago that this small child of mine was bouncing on my knee. Now this same child is out there in the world of work, earning a living, making decisions.

Twenty years is a long time in the life of a young person, but it is not that long in the life of a nation. And yet when I look around I get that same sense of “my, how far we have come!”.

Casting my mind back to 1990, it is hard to recall that South Africa was still a pariah state, that Angola was still at war, that Kenneth Kaunda was still President of Zambia, and that the Soviet Union still existed.

Before I proceed to the governing thoughts, allow me to bring before your instructed minds a few propositions and facts which, in themselves, and by what they imply, are sufficient to gratify our national pride and justify reasonable self-glorification:

– We have proven to ourselves and the world that we can maintain democracy, peace and stability

– We have created our own institutions and are governing ourselves

– The Rule of Law is respected, property rights are protected by law and the judiciary is independent

– The 2009 Global Competitiveness Report ranked this young nation as the 6th most competitive country in Africa

– Our real Gross Domestic Product increased at an average of 3.6% annually since independence. In addition to this, over the past 19 years we managed to implement prudent fiscal and monetary policies, which served us well during the recent global financial and economic crisis

– We achieved a higher Human Development Index ranking than South Africa in 2009 despite much lower GDP per capita – this speaks volumes.

– From no stock exchange in 1990, the Namibian Stock Exchange (NSX) currently boasts of a market capitalization of N$994 billion (as at March 16, 2010).

As head of one of our country’s leading financial institutions, balance sheets play an important part in the daily life of my business and therefore my life. So I thought the best way of summing up my thinking was in the form of a balance sheet with assets on the one side and liabilities on the other.

I would like to put my balance sheet of our business environment of the past 20 years in Namibia to you.

Namibia’s business environment “assets” – asset side of the balance sheet
I would argue that business operates best in a climate of political and economic stability and that this is self-evident.

It is a testament to how far we have come that we almost take our political stability for granted. Of course the events of 1999 in Caprivi dealt us a rude shock, but, by and large, Namibia has achieved what so many other countries yearn for: regular, peaceful, democratic elections, orderly handover of power and political stability.

Almost the same can be said for economic stability – especially property rights, stable prices and exchange rates.

You need to have experienced forced nationalisations or changes of ownership and hyperinflation to know what damage they can to do an economy.

Introducing our own currency linked to the South African rand in 1993 was an important insurance policy – who knew at that time that South Africa would turn out to be such an economic success story thus far - and allowed us to benefit from the stability and credibility of a much bigger and more traded currency.

Our Bank of Namibia has acted responsibly and predictably and the monetary stability this has created has worked in our favour.

Likewise, prudent fiscal policy – including responsible borrowing - has worked to benefit our nation. How many countries in the world have won their political independence only to sacrifice their economic independence by not keeping their fiscal houses in order?

Despite the massive social and economic spending backlog government faced in 1990, fiscal policy was pursued in a responsible way. Great credit has to go to our present Minister of Finance who saw the need to restrain the build-up of public debt and turned budget deficits into budget surpluses.

In hindsight, given what has happened to the world economy during the last three years, her judgement at the time appears even more sound. Namibia was in a relatively strong position when the crisis struck, which allowed the Minister to cushion the fallout using fiscal policy.

Government’s ability to use fiscal policy in this way has been aided enormously through the creation of a local market for government debt.

Thanks to this, government can raise the funds it requires, pretty much when it needs - much to the benefit of both the country and to investors in Government Treasury Bills and Bonds.

Our creditworthiness is underlined by our sovereign credit rating which has remained solid throughout the world economic crisis. Namibian international creditworthiness benefits us all, especially in the business sector as it is positive for cost of capital and other terms of funding.

Taxation has also been reformed in ways that make business easier to conduct in Namibia. Many people and institutions are obsessed with individual tax rates and the problems associated with accessing particular tax incentives. Unfortunately they lose sight of the fact that Namibia has maintained a relatively simple tax system which is competitive with most tax regimes elsewhere.

We have also steadily lowered the corporate tax rate from 42 percent at independence to the current 34 percent while the introduction of VAT in 2000 proceeded incredibly smoothly.

One of the major areas of change in the economy has taken place through the commercialisation of operations that used to be government departments. We see a lot of criticism about State-Owned Enterprises (much of it justified) but just imagine what the state of service delivery would be in telecoms, bulk water supply, airports, harbours, postal services and tourism if these were still run in the old way.

Additionally, I think government has to be congratulated for not rushing into any ill-thought out process of privatisation at the behest of certain private individuals and businesses.

In the modern world, decent telecommunication services are as vital to business as electricity, roads and water. Government had the vision to create a commercialised Telecom Namibia, establish MTC with the assistance of solid foreign partners, and invite in competition in the form of Cell One (now leo).

In stark contrast to many other countries, Namibia resisted the temptation to overspend on consumption at the expense of longer-term investment. The creation of SOEs and the attention given to the capital and development budgets in the national budget have meant that Namibia has maintained spending on the vital physical infrastructure that the economy – and every Namibian business – needs.

Namibia belonged to SACU at independence and still does. But SACU is today a renegotiated organisation no longer controlled exclusively by South Africa.

There is no doubt that our membership of SACU makes trade with the continent’s largest economy that much easier.

With vision and skill there is no doubt that SACU could serve as the kernel of further regional integration – something that Namibian politicians and Namibian business have always championed.

Finance too, has seen a wide variety of developments taking place which have opened up more options for business. Banks have improved their products and their services while a range of specialised financial institutions have sprung up in both the public and private sectors.

We now have a Development Bank, which over time is developing the capacity to invest in strategic projects with long-term payoffs. We have a Government Institutions Pension Fund (GIPF), which is moving towards putting its enormous resources at the disposal of the local economy.

The establishment of asset management firms, stock broking houses and corporate finance houses is largely attributable to the domestic asset requirements by the Government, as well as pressure by the GIPF.

We have a Stock Exchange, with a market capitalisation of N$994 billion, the second largest in Africa, which encourages Namibian companies to raise money through ways other than banks.

Private equity is slowly taking off, and our own NEDCAPITAL provides investment banking services right here in Namibia rather than relying on “briefcase bankers” who fly in from other parts of the world.

We have some of the region’s and the world’s foremost development finance institutions – the Development Bank of Southern Africa, the Industrial Development Corporation of South Africa, the African Development Bank, the International Finance Corporation, the European Investment Bank, KfW from Germany, ARD from France and many others – taking an interest in big projects that are currently in the pipeline in our economy.

And all the while the country has had to strike the difficult balance between ensuring stability and continuity whilst simultaneously ensuring continuous opportunities are made available for Namibians. Government has been cautious about pushing this too hard but there is no doubt it is starting to work.

They say the proof of the pudding is in the eating and certainly foreign investors are eating ever larger portions of the opportunities we have to offer. Namibia receives a greater vote of confidence now than ever before. Our 20-year track record is starting to pay dividends. No nation can shut itself off from the surrounding world. Change has come over the affairs of mankind.

We have kept the economy open to those investors who clearly have something to contribute here across all sectors of the economy such as grape farmers in agriculture, Pescanova in fishing, the world’s great mining houses – Anglo American, De Beers, Rio Tinto and Areva; Heineken Diageo in beverages and most recently, Ohorongo Cement in manufacturing, the Hilton and Kempinski Groups in hotels, and Portugal Telecom and Orascom in telecoms. That some of the world’s top companies have chosen to do business here is significant and is an unequivocal vote of confidence in the future of our economy.

As if this isn’t proof enough that we are doing something right, throughout an international economic crisis of historically unprecedented proportions, Namibia continued to attract interest from foreign investors, FDI and business investment remained strong, and corporate growth kept on rising.

I think it is fair to say that our stock has risen during the last few years and we have weathered the storm remarkably well.

I have spoken enthusiastically about what Namibia’s achievements in the past 20 years have meant for business here. This has been the asset side of my balance sheet. But it would be quite wrong of me to ignore the liability side. Namibian business is generally positive about past achievements and positive about future prospects. But that does not mean our performance cannot be improved. Let us now turn, as we must obviously do, to the liability side of our balance sheet.

(Part II)
I have spoken enthusiastically about what Namibia’s achievements in the past 20 years have meant for business here. This has been the asset side of my balance sheet. But it would be quite wrong of me to ignore the liability side.

Namibian business is generally positive about past achievements and positive about future prospects. But that does not mean our performance cannot be improved. Let us now turn, as we must obviously do, to the liability side of our balance sheet.

Namibia’s business environment “liabilities” - liability side of the balance sheet
It is common knowledge that as a country we score very low on skills, work ethic, crime, access to finance and public sector bureaucracy.

Judicial bottlenecks, especially in resolving disputes and some concerns about policy drift associated with transformation can also be listed on the liability side.

No matter where you are in the Namibian business world – whether you are running a large multinational company or a small SME – it is almost impossible to escape the harsh reality of the Namibian labour market.

Despite investing a quarter of our national budget in education each year for the past 20 years, we have to recognise that we are a long way from where we need to be if we are to employ everyone who wants a job. We simply have an inadequately educated workforce and a severe skills deficiency.

If Namibia’s public education system had been a business, it would have gone bankrupt a long time ago. I wonder at times whether there is not a case for bringing some private sector skills into our public sector education system to aid in remedying the situation.

Alongside the issue of skills is that of work permits. Yes, Namibians must come first in terms of opportunities in our labour market.

Yes Namibians must receive better education and training, but we must recognise that importing certain foreign skills can ultimately create more jobs for Namibians.

The inability to manage and expose those that abuse the work permit system does not mean that stifling business through declining genuine, legitimate work permit applications is the solution.

I am convinced that we could take more proactive advantage of the foreign skills that are out there – in the region, the continent and the wider world – to the benefit of the ordinary Namibian worker.

The private sector surely has a lot to learn from the public sector, but I suspect there is a lot that our public sector can learn from our private sector, especially about management, accountability and performance.

However, it seems the days when we talked seriously about public sector reform – and I remember the effort put into such exercises by the likes of our former Prime Minister, the Honourable Hage Geingob – are long gone.

We seem to have accepted the culture of mediocrity and poor performance as something that cannot be changed. We must reverse this decline.

Concurrently, we need to recognise that we will need to pay our civil servants adequately for improved performance and not view the public sector simply as a low-paying employer of last resort, as a side-job playing second fiddle to outside business interests, or a door to private business opportunities.

I have talked up infrastructure – indeed it is one of the first things to strike foreign business people when they get off the plane – but there are clearly big gaps. We have underinvested in infrastructure.

Electricity generation in particular has suffered. Over-reliance on South Africa for our energy needs is not in the best interest of Namibia.

As a nation we need to pull off a big energy generation project to sustain our business, industry and economic growth. Namibian business hopes the lights won’t go out later this year!

As a business leader in Namibia’s private sector, I cannot help but believe that strategic privatisation within the proposed divestiture framework would help certain SOEs improve their performance through accountability and robust performance management, improved corporate governance, reduced political interference and the ability to raise the enormous sums of capital they need to upgrade the nation’s infrastructure.

I understand Government’s reluctance to relinquish control but I believe Government will have to learn to let go if it is to unleash the economic potential that some of these businesses possess.

I am thinking in particular of Telecom Namibia, MTC, NamPower, NamPort and TransNamib.

I firmly believe that, given the opportunity, Namibia’s private sector could run them better, employ more people, invest more, provide better service, expand into new markets and complement the developmental efforts of Government.

A key lesson one learns in the private sector is that progress comes from innovation and a willingness to recognise when something has not worked. Developing the right policies that foster economic growth and employment is not a question of designing the right policies and then sitting back for 40 years and letting them work their magic.

These first twenty years have been eventful but I do wonder at times whether we are not running out of steam when it comes to policy initiatives.

In preparing this speech, I looked back at the legislation and policies the country has witnessed since 1990. What is striking is that there has been a clear slowdown in both the number of Acts being passed by Parliament and the number of policies being approved by Cabinet in the past few years.

Linked to this is a sense that we have lost the ability to communicate between private and public sectors. The various fora that have been established over time – and here I am thinking in particular of the President’s Economic Advisory Council as an example – have been allowed to run adrift.

Business organisations of various sorts complain that they struggle to make their views known and understood by Government. At the same time, Government talks about the lack of cooperation between public and private sectors. This is clearly a matter of distrust between the two sectors, which is crying out for attention and resolution.

Many ministers will insist that their doors are always open and this is often true, but the frustration lies in making a final and lasting impact. Namibian business often does not know where the centre of decision-making power really lies.

As a result, laws and policies are often flawed, badly designed and their implementation takes far too long.

• the mining royalty tax was first introduced in 2004 but it was not until five years later that it became legally watertight;
• we talked of a new telecoms framework since 1999 but it was only towards the end of last year that the new communications act was passed;
• Cabinet decided on radical changes to regulations 15 and 28 back in 2004 but we are still awaiting the required regulations;
• our competition law was passed in 2003 but the competition commission is only now getting into gear;
• our green scheme was launched in 2003 but has proven painfully slow to bear tangible fruit;
• finally our own version of black economic empowerment – TESEF – remains elusive 20 years after independence, casting a cloud of uncertainty over all business decisions.

Is our experiment an assured success? My contention, from the premises I have imperfectly laid down, resolves itself into the proposition that if we believe what we profess, we can and we must do better.

We are being held back by nothing but our own inertia. As things stand we will remain an economy dependent on minerals, where only the lucky few enjoy formal employment unless we can raise our game in designing and implementing the right policies that promote genuine empowerment and industrialisation.

In this uncertain world, business and Namibia both need a modern economy focused on education and exports, a stepped-up investment in infrastructure, exploiting the full potential of its natural resources (tourism and mining) and attracting foreign direct investment.

Namibia’s business sector is ready to help: there is ample energy and enthusiasm in the private sector which Government can draw on.

The African continent still arouses much excitement among international investors. These flows increasingly originate from diverse geographies, especially the BRIC countries. Namibia should capitalise on such geostrategic competition to the best of its ability.

Namibia is emerging as a top uranium producer and will probably receive international attention disproportionate to its market size, especially with global energy production and consumption projected to undergo rapid change in the decades ahead. This has wider implications for business and the country and requires proper management.

I have presented my balance sheet to you: the assets and the liabilities. I do not wish to argue that the liabilities are greater than the assets. Namibia Inc is still very much a solvent business with great growth prospects and we have a great story to tell. However, if we really do want to move away from dependence on diamonds (or indeed uranium) and become an industrialised country where all those who want to work can get work, if we want to go from good to great, we will have to raise our game.

It is time for true and real leadership. Namibia is well-positioned for the future and thus must rise and start putting on her yet unwoven garment.

Finally, our story will end as time passes, but no time will end our glory and prosperity if we return to the principles and methods in which our nationhood originated and we comprehensively address the dramatically altered business drivers and landscape on which our success rests.

Namibia’s business environment “liabilities” - liability side of the balance sheet
The private sector surely has a lot to learn from the public sector, but I suspect there is a lot that our public sector can learn from our private sector, especially about management, accountability and performance.

However, it seems the days when we talked seriously about public sector reform – and I remember the effort put into such exercises by the likes of our former Prime Minister, the Honourable Hage Geingob – are long gone. We seem to have accepted the culture of mediocrity and poor performance as something that cannot be changed. We must reverse this decline. Concurrently, we need to recognise that we will need to pay our civil servants adequately for improved performance and not view the public sector simply as a low-paying employer of last resort, as a side-job playing second fiddle to outside business interests, or a door to private business opportunities.

I have talked up infrastructure – indeed it is one of the first things to strike foreign business people when they get off the plane – but there are clearly big gaps. We have underinvested in infrastructure. Electricity generation in particular has suffered.

Over-reliance on South Africa for our energy needs is not in the best interest of Namibia. As a nation we need to pull off a big energy generation project to sustain our business, industry and economic growth. Namibian business hopes the lights won’t go out later this year!

As a business leader in Namibia’s private sector, I cannot help but believe that strategic privatisation within the proposed divestiture framework would help certain SOEs improve their performance through accountability and robust performance management, improved corporate governance, reduced political interference and the ability to raise the enormous sums of capital they need to upgrade the nation’s infrastructure. I understand Government’s reluctance to relinquish control but I believe Government will have to learn to let go if it is to unleash the economic potential that some of these businesses possess. I am thinking in particular of Telecom Namibia, MTC, NamPower, NamPort and TransNamib.

I firmly believe that, given the opportunity, Namibia’s private sector could run them better, employ more people, invest more, provide better service, expand into new markets and complement the developmental efforts of Government.

A key lesson one learns in the private sector is that progress comes from innovation and a willingness to recognise when something has not worked. Developing the right policies that foster economic growth and employment is not a question of designing the right policies and then sitting back for 40 years and letting them work their magic. These first twenty years have been eventful but I do wonder at times whether we are not running out of steam when it comes to policy initiatives.

In preparing this speech, I looked back at the legislation and policies the country has witnessed since 1990.

What is striking is that there has been a clear slowdown in both the number of Acts being passed by Parliament and the number of policies being approved by Cabinet in the past few years. Linked to this is a sense that we have lost the ability to communicate between private and public sectors. The various fora that have been established over time – and here I am thinking in particular of the President’s Economic Advisory Council as an example – have been allowed to run adrift.

Business organisations of various sorts complain that they struggle to make their views known and understood by Government. At the same time, Government talks about the lack of cooperation between public and private sectors. This is clearly a matter of distrust between the two sectors which is crying out for attention and resolution.

Many ministers will insist that their doors are always open and this is often true, but the frustration lies in making a final and lasting impact. Namibian business often does not know where the centre of decision-making power really lies.

As a result, laws and policies are often flawed, badly designed and their implementation takes far too long.

Think of the following examples:

• the mining royalty tax was first introduced in 2004 but it was not until five years later that it became legally watertight
• we talked of a new telecoms framework since 1999 but it was only towards the end of last year that the new communications act was passed
• cabinet decided on radical changes to regulations 15 and 28 back in 2004 but we are still awaiting the required regulations
• our competition law was passed in 2003 but the competition commission is only now getting into gear
• our green scheme was launched in 2003 but has proven painfully slow to bear tangible fruit
• finally our own version of black economic empowerment – TESEF – remains elusive 20 years after independence, casting a cloud of uncertainty over all business decisions

Is our experiment an assured success? My contention, from the premises I have imperfectly laid down, resolves itself into the proposition that if we believe what we profess, we can and we must do better. We are being held back by nothing but our own inertia. As things stand we will remain an economy dependent on minerals, where only the lucky few enjoy formal employment unless we can raise our game in designing and implementing the right policies that promote genuine empowerment and industrialisation.

In this uncertain world, business and Namibia both need a modern economy focused on education and exports, a stepped-up investment in infrastructure, exploiting the full potential of its natural resources (tourism and mining) and attracting foreign direct investment. Namibia’s business sector is ready to help:

there is ample energy and enthusiasm in the private sector which government can draw on.

The African continent still arouses much excitement among international investors. These flows increasingly originate from diverse geographies, especially the BRIC countries. Namibia should capitalise on such geostrategic competition to the best of its ability.

Namibia is emerging as a top uranium producer and will probably receive international attention disproportionate to its market size, especially with global energy production and consumption projected to undergo rapid change in the decades ahead. This has wider implications for business and the country and requires proper management.

I have presented my balance sheet to you: the assets and the liabilities. I do not wish to argue that the liabilities are greater than the assets. Namibian Inc is still very much a solvent business with great growth prospects and we have a great story to tell.

However, if we really do want to move away from dependence on diamonds (or indeed uranium) and become an industrialised country where all those who want to work can get work, if we want to go from good to great, we will have to raise our game. It is time for true and real leadership. Namibia is well-positioned for the future and thus must rise and start putting on her yet unwoven garment.

Finally, our story will end as time passes, but no time will end our glory and prosperity if we return to the principles and methods in which our nationhood originated and we comprehensively address the dramatically altered business drivers and landscape on which our success rests.

Delivered as part of Public Lecture Series: 20th Independence Anniversary
March 18, 2010, Windhoek, Namibia

Credit: www.newera.com.na