Namibia had one of the best performing economies in Africa. As late as 2015, growth was still a respectable 5%. Late last year, the economy was growing just barely at 0.1% and has since stalled. This puts the government of the country, in a politically difficult decision. Populism is on the rise, in the ruling party. However, the demands of these nativists, will do little to recharge a moribund economy.
President Geingob first elected in November of 2014, by an overwhelming margin of 87%, had previously seemed to support market reforms and foreign investment. However, populists in his own party, the South West Africa’s People Organization (SWAPO), have been demanding measures of redistribution, that will only further damage the economy.
The economy is experiencing a major downturn. It has been contracting every business quarter since March of 2016.
Part of the economic slowdown can be attributed to a near collapse of the construction industry. The building sector traditionally has relied on a number of government funded projects, that can no longer be afforded, in the present fiscal situation.
Annual inflation has practically doubled from 3.4% in 2015 to 6.7% in 2016. It has been driven mostly by an increase in administrative costs and food prices.
Geingob in office since 2015, is the third president of Namibia. He was the country’s first prime minister since independence. The President shares executive power with the cabinet and is limited to two five year terms. Geingob out of political necessity, has become far more populist, since becoming president.
The leaders of SWAPO are calling for the implementation the National Equitable Economic Empowerment Framework (NEEEF). Under the program, all businesses, no matter how small, would have to be at least 25% owned by previously disadvantaged persons. In reality, that means black Namibians.
Under the new law, a transfer of any portion in company ownership to a person not previously disadvantaged, would be prohibited. Neither, can that possession be transferred to a domestic or foreign company, unless that latter firm is owned by a previously disadvantaged person.
A further provision of the law, requires that all company boards as well as the management, must be black as well.
The move by President Geingob, to also begin a land reform program, signals the end of the first post independence period. That he went to Zimbabwe, for advice from the incompetent and corrupt long term President Robert Mugabe, does not inspire confidence. Zimbabwe is very close to being a failed state.
Geingob has stated that Namibia would indeed expropriate land from white owners, but would offer fair compensation. On the other hand, his public stance of the elder Mugabe being a personal mentor, gives true economic reformers pause and further discourages investors.
Around 4,000 white farmers have lost their land in Zimbabwe since 2000. During those years, the country went from an exporter of food, to a major food importer. Much of the confiscated property went from being highly productive farmland, to becoming overgrown and wasted.
Farming has become difficult enough in Namibia, with an ongoing drought and ever increasing costs. In addition, where the government will get the money, to finance this land redistribution scheme, remains unclear.
Namibia became the latest country in Africa, in having at least one junk rating on its debt. South Africa had received a similar downgrade, in April of this year. Overall, the countries in Sub-Sahara Africa have struggled, since the near collapse in commodity prices.
Sovereign debt has surged in these emerging African economies, which has been followed by a corresponding lowering of their credit worthiness.
The financial situation in Namibia is following the familiar story. Moody’s based it decision on the country’s growing fiscal imbalance and increasing debt burdens. They remain concerned over the ability of Namibian government to deal with the rising liquidity pressures, due to institutional weaknesses of the nation.
The debt to GDP (Gross Domestic Product) ratio, has reached 42%, from just 23% in 2014. It was a mere 14% in 2010. The budget deficit still came in at 5.8% of GDP in 2016, despite efforts to reduce government spending. Recent public expenditures, have proved to be totally unsustainable.
The nations of Africa have on the whole, largely failed to move from a natural resource based economy to a human resource supported model.
The emphasis has been on increasing black ownership of companies, rather than on raising education standards, to match the ongoing problem of a skills shortage.
Namibia is identified as a middle income country, with abundant reserves of minerals. The country is particularly blessed with copious amounts of diamonds and is the world’s fifth largest uranium producer. It is projected to become the second largest, after a Chinese owned mine comes on line.
The mining sector, brings in more than 50% of Namibian foreign exchange earnings.
Namibia located in the southwest part of the African continent, has a rather small population of just 2.4 million, in an area of 318,261 square miles or 824,292 square kilometers.
Formerly a German colony until the First World War, the discovery of diamonds in 1908, brought an influx of people to the area. Neighboring South Africa would seize the territory in 1915, as Germany was not able to defend the territory, due to the larger war in Europe.
South Africa would administer the territory moving forward, until 1990. Independence would finally arrive, after a bitter bush war led by SWAPO, that had lasted a quarter of a century.
The political reconciliation that followed, encouraged the Europeans that had settled there, over the previous years to remain. This small minority of people some 6% of the population, still play a vital role in farming and all major sectors of the economy. They also own most of the businesses inside Namibia.
The earlier efforts of racial cooperation, are now being abandoned, for the sake of political expediency and populism. The beleaguered European population mostly white, will be expected to surrender control of their assets without any effective protest.
There is no doubt, the passage of NEEEF would be abused by the party leadership. These individuals would seize stakes in businesses in the name of equality, but it would actually be done for self enrichment. This is what happened in similar schemes, in both South Africa and Zimbabwe.
What will actually follow, is the closure of many white owned businesses. Owners will see little merit to stay in business in this new era. Other firms will collapse, when new owners who lack the needed expertise, will bankrupt the firm in short order.
Foreign investors would soon begin exiting Namibia, with new ones unlikely to arrive, in such a anti-business environment.
President Geingob, was known to be more business minded than his two predecessors. He seemed to understand the importance of foreign investment to Namibia. He also did not want to alienate some of the most productive citizens of the country, knowing their importance to the economy.
He has surely observed that similar schemes elsewhere, have usually benefited an elite minority, without changing the overall economic inequality of the citizenry at large.
Black economic empowerment cannot succeed, without job creation and wage growth. These are not possible, unless there is a boost in both domestic and foreign investment.
That was why when NEEEF was first proposed in 2015, Geingob did not endorse it. Now with a stagnating domestic economy, the political mood of the country is becoming more radical.
The Prime Minister Saara Kuugongelwa supports NEEEF and is being encouraged by the country’s first president, Sam Nujoma. At age 88, he supposedly still believes, that socialism alone, will provide the best path for economic development. Before his official retirement in 2005, he ran SWAPO for 45 years.
The call for wealth redistribution is popular in a country where poverty is widespread, with official unemployment running at least 25%, but is actually near 40% by some estimates. Along with the well-situated descendants of white settlers,the country possesses a prosperous black middle class, but it is quite small.
Namibia has one of the most unequal economies globally. The wealth of the nation remains concentrated in very few hands. Near 40% of the population lives in simple shacks, with many citizenry unable to avail themselves of modern utilities.
The Party Congress of SWAPO will be held in November. Although President Geingob is most likely to be re-elected as the leader of the party, he will find it increasingly difficult to avoid the strident calls for wealth redistribution.
The economic future of Namibia is soon to be determined. If a flight of wealth and talent takes place, due to destructive economic schemes, there will be little chance for a return to growth in the near term.