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Namibia and the world economy
A longer term and regional perspective
16 September 2005
September 2004
Philip Clayton
Windhoek 15 March
2007
2
Namibia
Namibia: fiscal health (% of GDP)
3
50
40
30 Budget revenue
Budget expenditure
20
Public debt
10 Budget balance
0
Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008
-10
Source: EIU Namibia report
Doing business: good in a regional context
4
Ease of
Doing
Business Doing Business
Country Rank Starting a Business
Dealing with Licenses
Singapore 1
Employing Workers
New Zealand 2 Registering Property
United States 3 Getting Credit
Protecting Investors
Ireland 10
Paying Taxes
Lithuania 16 Trading Across Borders
Estonia 17 Enforcing Contracts
Malaysia 25 Closing a Business
South Africa 29
Namibia 42
Botswana 48
Swaziland 76
Mozambique 140
Zimbabwe 153
Angola 156
DRC 175
Source: IFC
Growth – OK, but could do better
5
GDP growth 2011-36
World 3.1
7.0 Sub-S Safr 5.0
Namibia 4.7
6.0
South Africa 6.0
5.0 World
4.0 Sub-S Safr
3.0 Namibia
2.0 South Africa
1.0
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source:World Markets
Government spending: Namibia out of line
6
38.0
36.0
34.0
32.0 World
30.0 Sub-S Safr
28.0 Namibia
26.0 South Africa
24.0
22.0
20.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Burden of government high. Public sector share of
formal employment out of kilter with region.
Need to focus on bang for tax buck
Government suggests 2009/10 spending at 29.7% of GDP
Source:World Markets
Deficit: much work still to be done
7
2.0 2011-36
1.0 World -0.2
Sub-S Safr 0.4
0.0
Namibia -4.7
-1.0 2002 2003 2004 2005 2006 2007 2008 2009 2010
South Africa 2.4
World
-2.0 Deficit to GDP
Sub-S Safr
-3.0
Namibia
-4.0
South Africa
-5.0
-6.0
-7.0
-8.0
Revenue can be very variable – fishing, diamonds
SACU. Need to look for new sources, while keeping
overall burden low. Need to assess value of spending
Government pencilling in deficit of 1.1% of GDP over MTEF
Source:World Markets
Share of revenue, revised 2006/07
8
Other revenue
Customs & excise
Two fifths of revenue – SACU transfers – will be under
pressure in real terms
Source: EIU
SACU payments, as % of SA revenue
9
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1
2
3
4
5
6
7
8
9
0
./0
./0
./0
./0
./0
./0
./0
./0
./0
./1
00
01
02
03
04
05
06
07
08
09
20
20
20
20
20
20
20
20
20
20
Source: SA National Treasury
Tax payments and compliance
10
Tax
payments Time to
per year comply
Belarus 123 1188
Namibia 34 -
Botswana 24 140
South Africa 23 350
Mauritius 7 158
Norway 3 87
Source: PWC
Corporate Tax
11
Total tax rate as % of
commercial profits
Mauritius 24.8
Namibia 25.6
Hong Kong 28.8
South Africa 38.3
Botswana 53.3
Corporate income tax, labour tax, and other taxes, Source: PWC
Individual Tax – highest rate
12
Monaco 0%
Singapore 21%
Namibia 35%
SA 40%
Norway 51%
Source: Worldwide-Tax.com
Today’s Budget: Balance sheet - positives
13
Pro poor – tax threshold up 50%, to N$36 000 pa, pension allowance up
33% to N$40 000; Grants for 78 000 children over MTEF
Education 22.2% of spending in MTEF (bang for buck?).Continued stated
focus on growth
Budget surplus this year of 2.1% of GDP (but specials influence this).
In MTEF, expenditure projected to decline to 29.7% of GDP, from 34.2% IN
06/07
Development budget up further $800m under MTEF
Debt management improved – prevents lumpy redemptions
Focus on tax compliance – revenue and grants 36.3% GDP in 2007/08
Today’s Budget: Balance sheet - negatives
14
Rising operational expenditure – 77.7% of total in 06/07, to 82.1% in MTEF.
Need is to improve capital stock; looks like economic services gets only
11%
Short on details regarding underperforming parastatals – particularly Air
Namibia (and is this subsidy pro-poor?)
Loan funding – even if concessional – to plug hole in revenue. But deficit at
1.1% of GDP over MTEF is sustainable. But, is the decline in share of
GDP on government consumption - and declining real spend pegged at
$17bn or so for three years - realistic?
Massive underspending on development budget in 06/07 thus far –
suggests capacity constraints. Will this continue?
Burden of state on economy not addressed (but perhaps not just Minister’s
job)
Budget conclusion
15
Within tough constraints, Minister has done a good job. Focus on poor, job
creation, transforming the economy – all to be applauded.
Thrust of focus on indigenising investment – on unlisted companies, and
decreasing share of dual listed that counts – a positive sentiment. But –
concern regarding unintended consequences (misallocated capital; another
building bubble, etc)
eed critical look at development, and particularly job creation, obstacles. It
is not only the measured tax burden that is at issue; the unmeasured
regulatory and other compliance is also an obstacle.
With the constraints – a good job. But, need to focus on diversifying
revenue; looking critically at all what government does (a third of formal
sector works for the state).
MTEF process a good start. With vision – Namibia can achieve a better life
for all – despite the tough periods it has gone through
16
Global context
Emerging markets – now pushing ahead
17
%
9
8
7
6
5
4
3
2
1
0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006
World GDP growth Advanced economies Developing economies
Source: IMF
Sustainable thrust
International issues affecting southern Africa
18
• Emerging market sentiment shifts – global risk shifts
• Commodity demand and prices (China key)
• Middle East, Iraq
• North Korea
• Zimbabwe
• United States and recession; global housing market
GLOBAL ENVIRONMENT REMAINS SOMEWHAT UNSETTLED
Population trends – median age
19
50
Europe
45
40 Northern
America
35
Asia
30
25
Latin America
and the
20 Caribbean
Africa
15
10
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Population dynamics moving absolutely – and relatively – in favour of Africa,
Latin America, Asia – against developed world
Source: Group Economics (from UN World Population Prospects)
China and India
20
China and India together, account for two fifths of the world’s population.
And greater region (with Indonesia, Vietnam, etc), over half
China has been growing at 10% pa for two decades; the Hindu giant
has begun stirring
Demand for commodities is huge. High value agriculture imports likely
to surge (in similar fashion to China shifting from oil exporter, to second-
biggest importer).
China now exporting inflation – not deflation: thanks to impact on
commodities, and small – but significant – revaluation of Renmimbi.
Also, labour costs pushing up even manufactured prices
Note increasing influence of China, and India, in African investments
China’s demand, commodity prices
21
Does the China, India effect mean the boom will last much longer than average?
Source: Economist, 22 July 2006
Africa and global growth
22
GDP growth pa
9
8
7
6
5 1988-97
4 1998.-07
3
2
1
0
World Africa Dvlping Asia
Long-term uptick in Africa’s performance
- but still below Asia
Source: IMF World Outlook, April 2006
23
South Africa
Economic growth
24
% y/y
8
Growth sustainable –
Shift from consumption,
6 to uptick in capital spending
(private sector and
4 government). Concern
is the skills gap; AIDS.
2 Good fiscal policies
opening up ability
0
to spend more on
social issues
-2
-4
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: SARB, Standard Bank Group
Sustainable step-lift?
Fixed investment
25
% y/y
10
8
6
4
2
0
-2
1960s 1970s 1980s 1990s 2000s
General government Public corporations Private business enterprises
Source: Standard Bank Group, SARB
The big dig
Inflation
26
% y/y
20 Exchange rate
Global inflation and competition
16
Credible inflation target
12 framework
Capacity utilisation
8
Vulnerable to external shocks,
especially exchange rate
4
0
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
CPI CPIX
Source: SARB, Standard Bank Group
Structurally lower
Economic forecasts
27
2002 2003 2004 2005 2006 2007 2008 2009
GDP (% y/y) 3.7 3.1 4.8 5.1 4.7 4.3 4.2 4.3
Cons exp by hshlds (% y/y) 3.2 3.5 6.7 6.6 6.9 5 4.5 4.7
Gross fixed capital (% y/y) 3.7 9.1 9.6 9.6 11 9 9 10
Current acc bal (% of GDP) 0.6 -1.3 -3.4 -4.2 -5.6 -5.1 -5 -4.9
2002 2003 2004 2005 2006 2007 2008 2009
Headline CPI (% y/y) 9.2 5.8 1.4 3.4 4.6 5.3 4 4.5
CPIX (% y/y) 9.3 6.8 4.3 3.9 4.6 5 4.9 4.7
PPI (% y/y) 14.2 1.7 0.5 3.1 6.9 7.4 6 5
Prime (ave) 15.6 15 11.3 10.6 11.2 12.4 11.2 11
$/R (ave) 10.54 7.55 6.43 6.33 6.77 7.2 7.11 7.42
Growth and inflation outlook benign, but talk about bottlenecks rising. Not sure I am as
positive on rand as group is.
Source: Standard Bank Group
28 February
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