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EAN contributes every second week an editorial to Business 7, these articles can be found here.

Why not creating farmworker villages?

The Second Land Conference held last week in Windhoek has covered a vast array of different land-related topics. Access to urban land, title deeds in communal areas, flexible land tenure systems, and the plight of farmworkers were just some of them. Farmworkers and their families often face uncertainties regarding a place to stay when they retire, resign or are being retrenched. Farm owners have to decide whether to allow them to stay on the farm even if they are no longer employed or to drop them somewhere. A solution could be to create farmworker villages:
Farm owners of two adjacent farms along major gravel roads could donate for instance one or two percent each of their farmland along the border with their neighbour, to develop a settlement area for their farmworkers. Farm owners on the opposite side of the road could donate land as well, while other farmers in the neighbourhood could contribute through investment in the necessary infrastructure, such as fences, water, sanitation, (off-grid) electricity. These areas will be reserved for farmworkers who have been employed for a minimum number of years on the farms that are participating in the scheme and for their immediate family members. They will receive a plot and title deed in this settlement area, where they can build their own house over time. The areas will also make provision for crop and livestock farming as well as public spaces, and some reserved areas for other facilities, such as clinics, kindergartens, pre-primary schools etc. Family members who are not employed on the farm, but stay with the farmworker could chose to continue staying on the farm or move already to their allocated plot in the settlement, while the farmworker could join them during off-times.
Family members can get involved in small-scale farming activities (livestock and or crop farming) or other business activities, such as shops where they sell basics including farm produce to other residents and passers-by. Over time the demand for other services will increase and these services can be provided more efficiently because of the higher population density. A mobile clinic can visit the place on a regular basis, while financial institutions will have an incentive to provide mobile ATM and other financial services, since cash is starting circulating, Depending on the number of children, a kindergarten could be set up and expanded to pre-primary and perhaps junior primary level over time.
Such farmworker villages can ease access to and cost of delivering basic services in rural areas, create additional business opportunities for family members, but most importantly provide a place to stay for farmworkers that they can call ‘home’. They will be enabled to create assets and wealth that they can pass on to the next generation.

Farmworker villages

Pursue a holistic transport sector strategy

Namibia has been investing heavily in public infrastructure from transport infrastructure to education and health. The investment is necessary to address existing backlogs as well as to accelerate the development of the country and achieve the main objectives of Vision 2030, namely to be a prosperous and industrialised country developed by her human resources.
Since domestic revenue has not been sufficient to finance such large investment, Government has borrowed domestically and abroad. This comes at a cost such as interest payments and costs due to exchange rate fluctuations. The costs can be justified by the expected return from the investment, be it a more productive and innovative workforce due to investment in health and education, be it additional private sector investment due to improved infrastructure and hence increased competitiveness, etc. However, some projects will most likely not yield the expected return due to substantial cost overruns and delays in their completion.
Other projects, such as the expansion of the existing and the construction of the new Walvis Bay harbour, seem to be quite ambitious in the current global economic and trade climate. There are currently about ten African ports with a capacity of more than 500,000 Twenty-foot-equivalent units (TEU) and only two with a capacity of more than one million TEUs. Walvis Bay harbour will be the third port once construction is completed early 2019.
Looking at South African and ports in other countries, they benefit from a ‘hinterland’ that is connected not only by roads, but by an extensive railway network. While Namibia’s road network is quite competitive, the railway network is not. With one exception, no neighbouring countries are connected by rail to the Walvis Bay harbour. However, before scarce resources are invested in fixing the existing network, Namibia needs to develop a clear vision for the railway sector which includes among others a decision about moving to the Standard Gauge, like countries in East and West Africa have embarked upon, or remaining with the narrow Cape Gauge. Without a clear vision and strategy, Namibia risks investing in a railway infrastructure that will not yield the expected returns and, by implication, will negatively affect the utilisation of the Walvis Bay harbour.
Furthermore, additional transport services focusing on sea-air transport should be explored to increase the utilisation of both the Walvis Bay seaport and airport. This could be an attractive alternative to road and railway transport not only for perishable, high-value or emergency cargo that would reach the destination in neighbouring countries within hours rather than days or weeks. Such innovative services could even tap into new markets.
Pursuing a holistic strategy for the whole transport (and logistics) sector will ensure that the considerable investment yield returns that justify the costs – and will ensure that we achieve the ambition of becoming the Logistics Hub.

Holistic transport sector strategy

Are we in for another perfect storm?

Emerging markets have come under severe pressure recently, partly owing to global events and partly to domestic – mainly policy – issues. The Argentinian peso lost about 50% of its value against the US dollar forcing the central bank to raise interest rates to 60%. The Turkish lira lost 40%. Following suit is the South African rand and hence the Namibia dollar that shed about a quarter of its value against the USD so far this year. The technical recession in South Africa is expected to put further pressure on the ZAR.
Interest rate hikes in the US, expected hikes in the UK and in 2019 in the EU coupled with multilateral trade war, unfinished business regarding the future of the North American Free Trade Area (NAFTA) as well as continuing uncertainties regarding the exit of the United Kingdom from the European Union has dampened global including China growth prospects and consequently demand for commodities resulting in declining prices and therefore dropping demand for currencies of commodity exporters, while increasing demand for in particular USD owing to a more attractive interest environment.
Namibia will not be spared the fallout. Despite fiscal consolidation efforts, fiscal space to respond to external shocks remains limited. The depreciation of the NAD will increase the value of existing foreign debt, unless denominated in ZAR, and the debt to GDP ratio. The trade deficit is not declining despite new mines having started production and might come under more pressure owing to the depreciation of the NAD. Inflation is on an upward trend, although well within the band of 3% to 6%, reducing consumers’ purchasing power and hence domestic demand. While the depreciation might benefit revenue from custom duties because of higher import values in local currency, the technical recession in South Africa dampen import demand and result in declining custom revenue and hence transfers from the SACU Common Revenue Pool. Although foreign exchange reserves at the end of July were at the highest level since almost a year translating into an import cover of 3.9 months, the above mentioned factors will exert pressure on the reserves.
While Namibia cannot influence the global demand for and hence prices of commodities and neither the exchange rate that is determined by politics in and the economic performance of South Africa, there is some policy space left, such as: Stronger shift of budgetary allocation from consumption towards building productive assets; ensure that infrastructure projects benefit Namibian producers of goods and services to the extent possible in order to create jobs and increase tax revenue; attract and direct domestic and foreign investment towards processing and manufacturing activities without duplicating existing, sufficient supply capacities in line with the sectoral growth strategies and focusing on future technologies; and abolish visa requirements for leisure tourists and business people alike, whose daily expenditure exceed any revenue from visa fees by far.
Another perfect storm?

Embrace technology (and the future)

Latest after the World Economic Forum’s Annual Meeting in Davos / Switzerland in January 2016, the Fourth Industrial Revolution and Artificial Intelligence are on the global agenda. It is often accompanied by fears and anxiety about job losses and robots taking over. These fears are certainly exaggerated, but clearly indicate that we need to start the debate about the potential impact on the current economic sectors, on employment and on the society.
Technological change has been around since millennia and has made life a lot easier for most of us. Recent technological development such as computers, laptops and smart phones enable us to connect easily, make payments and transfer funds even to those who do not yet have a bank account, order goods and services online etc. This results in shifts of employment from sectors that face automation to sectors that provide new goods and services.
Uber is being seen as a threat to the ‘traditional’ taxi operators. However, at least two Namibian companies have developed apps and offer services based on the Uber concept. Driverless vehicles are being introduced in some countries and sectors, such as the mining sector. Mining companies in Namibia will follow this trend sooner than later and use driverless haul trucks. Electric vehicles will result in a drop of employment at service stations and declining revenue for the MVA, Road Fund and Receiver of Revenue that derive (some of) their income from various levies charged on fuel. It can, on the other hand, lead to additional employment in the renewable energy sector.
Drones are being used in countries such as Malawi and Rwanda for transporting medication to remote hospitals and reportedly in Namibia to monitor movements in and around national parks in order to combat poaching. Countries such as Indonesia are making successful use of satellites to track the movement of vessels to curb illegal fishing, which led to an increase in revenue from fishing fees. Countries are wooing investors to build spaceports used to launch satellites that hardly weigh more than an adult. Spaceports will attract high-tech firms and professionals and support other technological spin offs. Namibia could be well positioned in the Southern Hemisphere, since the country is close to the South Pole and other uninhabited areas.
Technological change will result in a decline in employment in many traditional sectors and occupations, but will increase in other sectors and create new occupations. The impact of technology on our economy, labour market and society depends on how well prepared we are for it. We, therefore, need to start designing the necessary policy and legislative frameworks in order to ensure that the technology works for us and that work is equally distributed. And, we need to review the curricula at all levels of our educational system so that everyone is equipped with the skills and knowledge to exploit new opportunities.

Embrace technology

Public spaces create business opportunities

The purpose of urban development and planning is not only to provide serviced or un-serviced land for business of residential purposes and to provide necessary infrastructure (transport, water, electricity, communication), but it should also support social cohesion, innovation, creativity as well as business and employment opportunities. Instead of separating residential from businesses areas, which consequently results in increasing demands for transport services and infrastructure, these should be combined in mixed developments including residential (low to upper income), office and light manufacturing areas as well as public services such as education, health and civil registration and other amenities such as shops. Such a design would reduce the need for ever larger roads separating neighbourhoods and incentivise other forms of transport including non-motorised transport (walking, cycling). Furthermore, increasing the density of residential areas by building multi-storey flats will not only increase the efficient use of scarce serviced land, but will reduce construction costs and increase the viability of public transport since bus stops serve a larger number of potential passengers.
In addition, urban planning needs to create public spaces in neighbourhoods and city centres, where people from all walks of life can mingle. Beyond connecting people within neighbourhoods, public spaces can create new business opportunities. For instance, closing the Independence Avenue in Windhoek between the Hilton Hotel and the Kudu for traffic (only allowing access for delivery vans in the early morning hours and small municipality busses during the day) will not only reduce air and noise pollution – and would most likely increase the value of properties because the centre becomes even more attractive – but it could create opportunities for a number of income-generating activities and make the centre more lively: Musicians could play their music and sell their CDs, fashion designers can display their latest creations, acrobats can entertain the public and receive a token of appreciation, artists can sell their crafts and paintings and other vendors all kind of other things to locals and tourists. Moreover, the newly created space can attract specialised small shops, cafés, restaurants, etc. that all create jobs and generate income (and may be even generate tax revenue).
The same holds for the proposed (dry) river walk, promoted a few years ago that would run from the Goreangab Dam to the Avis Dam. It will not only connect very diverse communities and strengthen social cohesion, create space for out-door activities, but again provide income-generating opportunities like in the proposed pedestrian mall. A more innovative, creative and inclusive approach to urban development will ensure that we create sustainable cities in line with the Sustainable Development Goal 11 and create business opportunities.

Public spaces create business opportunities

Not the source, but the level of income matters

Benjamin Franklin reportedly said that there were only two things certain in life: death and taxes. Taxes have been with us for many thousand years dating back to ancient civilisations including in Africa. Taxes have been collected to finance public services ranging from safety and security (police, military) to health, education and other vital infrastructure, and have been used among other to redistribute wealth. Some see paying taxes as a responsibility of every citizen, such as the Tax Justice Network Africa that stated “Taxation is therefore needed to underpin the contemporary African version of Ubuntu as one of the fundamental responsibilities of every citizen”. Therefore, taxes are here to stay. The question that arises is who should pay taxes.
Adam Smith in his well-known book ‘The Wealth of Nations’ referred to four principles of taxation. One of the principles states that it should be “in proportion to the revenue which (the citizens) enjoy under the protection of the state”. This principle has been fine-tuned over time and is referred to as horizontal and vertical equity of taxation. While the latter refers to the taxation of different income levels at different tax rates, for instance through progressive taxes, the first refers to non-discrimination of taxpayers, meaning irrespective where the income is derived from or irrespective of how you buy goods the same tax rates should be applicable.
This brings us to the public debate whether the informal sector should be taxed. It will contravene the principle of vertical equity if someone who happens to be employed in the formal sector and earns for instance a salary of NAD60,000 per annum has to pay income tax, while the neighbour, who runs an informal business and makes a profit of NAD60,000 at the end of the year, does not need to pay income tax. Both ought to pay income tax on the amount that exceeds the tax threshold of currently NAD50,000 per annum, which would also level the playing field between formal and informal businesses. The tax threshold ensures that low-income earners whether they are employed or self-employed, whether they are involved in the formal or informal sector are protected from being taxed. As argued earlier1, taking inflation into account, the tax threshold should be increased to at least NAD65,000.
However, collecting taxes from the informal sector will increase costs, since tax inspectors have to go out identify un-registered businesses and determine their profit. In the absence of any or at least incomplete records of turnover and input costs, this will be challenging. These challenges touch on another principle, namely the cost-effectiveness of tax collection. If cost-effective ways are found, everyone who earns an income or makes a profit that exceeds the tax threshold should contribute to Government coffers in order to finance public services.

Taxing the informal sector

Extent of the public sector not fully known

Health Minister, Hon. Bernhard Haufiku, introduced amendments to the health professions laws in Parliament in order to reduce the number of council members. The announcement has shed light on an area of the public sector that is often overlooked, when talking about a leaner public service. There are not only five different health profession councils with currently 15 member each, but for each council exists an appeal committee. These councils and committees are part of more than 130 statutory institutions created through an Act of Parliament. New acts usually imply the creation of new committees, additional commissioners, review panels or tribunals etc. For instance, the draft Rents Bill 2017 stipulates the establishment of rent tribunals in each region that consist of a judge and an additional up to four members, an appeal board of three members as well as inspectors. The Whistleblower Protection Act No. 10 of 2017 will lead to the establishment of a Whistleblower Protection Advisory Committee, a Whistleblower Protection Review Tribunal and an office with staff, a commissioner and perhaps a deputy commission. Members of these entities who are not public servants are paid sitting allowances, retainer fees etc. for the time they spend on the councils, boards, committees or tribunals.
Besides these statutory bodies, the offices, ministries and agencies (O/M/As) and the Public Enterprises, there are about 40 extra-budgetary funds. Eleven financial institutions and extra-budgetary funds will fall under the Ministry of Finance based on the new Hybrid Governance Model for Public Enterprises, while the remaining extra-budgetary funds will continue to resort under the line ministry. Furthermore, there are special purpose entities such as the Agro Marketing and Trade Agency, the Financial Literacy Initiative, the Walvis Bay Corridor Group etc. Including regional councils, local authorities, traditional authorities, conservancies and a range of other entities it is estimated that there are more than 600 public sector entities.
Only few of these entities are self-sustaining and pay dividends to Government. Most entities rely on public resources – financial, human etc. While they all serve specific purposes, there is certainly room for consolidation and for a leaner public sector. For instance we have five health profession councils, three agricultural boards and so on. A comprehensive overview of all these entities including part-time and full-time employment, assets and liabilities as well as budgetary allocation will not only form the basis for a review of the public sector, but would also shed more light on the overall impact of the public sector on the economy.

Extent of public sector not fully known

Opportunities for new value chains

Electric bikes (e-bikes) have become a common sight in Europe and encourage those who do not feel fit enough to cycle longer distances or do not want to arrive in the office or at meetings sweaty to use the bike instead of other modes of transport. Likewise, e-scooters, e-cars etc. are more and more often seen on the roads. Similarly, the network of fast charging stations for e-cars etc. is expanding in cities and towns, while individuals recharge their cars over night at home. While the costs for fast recharge stations are currently relatively high, they will become more affordable as more and more companies produce electric or hybrid vehicles (vehicles driven by fuel and batteries) and invest in more advanced batteries and recharging solutions. The announcements of a number of governments across the world to ban the sale of fuel-driven vehicles roughly within the next two decades will support investments into new transport technologies.
Namibia is well endowed with the natural resources needed to fuel the e-vehicle industry, namely renewable energy sources to charge the batteries such as solar, wind, biomass and wave power. Furthermore, Namibia produces lithium that is currently exported, which is needed for the lithium-ion batteries used among others for e-bikes and vehicles. While a private inventor who drives an e-car since quite some time and the Namibian University of Science and Technology that constructed an e-taxi have proven that Namibia has innovation capacity, more support for research, development and innovation is required to create new value chains based on our natural resources. While Government needs to provide the policy framework for the introduction of the new technology, the private sector should seize the opportunity and start investing in e-vehicles. In particular, delivery vehicles as well as public transport vehicles in towns that do not drive long distances and could be relatively easily recharged could lead the shift from combustion engines to batteries.
The move will not only exploit and add value to our own natural resources, but will reduce our dependency on fossil fuels that are completely imported and hence save valuable foreign exchange reserves. Furthermore, operational costs of vehicles become more predictable and less dependable on geopolitical factors since once an investment in a renewable energy source is made the costs of producing electricity is known for the next decades. Moreover, the shift is in line with existing ambitions such as our Growth at Home policy that promotes the creation of value chains as well as the Sustainable Development Goals that promote amongst others access to sustainable and modern energy for all (SDG 7), sustainable economic growth (SDG 8) and sustainable industrialisation and innovation (SDG 9). Close cooperation between Government and the private sector could make Namibia the leader on the African continent in forward looking, sustainable and innovative transport solutions.

Create value chains

Continental integration – The role of free movement of labour

Recent policy initiatives on the African continent can contribute to higher economic growth and a reduction of poverty. The Single African Air Transport Market initiative (SAATM), the African Continental Free Trade Agreement (AfCFTA) and the abolition of visa requirements for Africans are a few examples. The AfCFTA includes not only a protocol on trade in goods, but also protocols on trade in services and the free movement of labour, which are often regarded as sensitive areas. Namibia has not been one of the initial signatories, but the government indicated that Namibia is going to join these initiatives.
While major economies such as Great Britain, several other EU member countries and the USA try to close their borders for immigrants due to populist policies that already start to backfire, African countries are – at least on paper – committed to open their borders for job seekers. Emigrants trigger the fear of job losses in destination countries, rising unemployment and other social ills. However, this is most often not backed by evidence. Rwanda has been the first African country to abolish visa requirements for citizens of other African countries and has been one of the initial signatories of the SAATM initiatives. The moves have among others attracted professionals to Rwanda and created increased interest in holding international conferences in Rwanda rather than in countries with more cumbersome immigration requirements. Furthermore, the 2018 UNCTAD report on Migration for Structural Transformation in Africa has highlighted the positive impacts of intra-African migration. Not only skilled emigrants, but also unskilled and semi-skilled emigrants contribute to increased productivity in the destination country as well as to economic growth and socio-economic development. In addition, they contribute to rising tax revenue, increased demand and to economic transformation. The country of origin also benefits from, for instance, remittances and when migrants return home from new knowledge and skills, which in turn stimulates economic growth in these countries.
We could learn from these experiences and design, in close cooperation between government, trade unions, employers federations and the private sector at large, smart, forward-looking immigration policies that address some of our socio-economic challenges such as the lack of skills and lack of innovation rather than maintaining policies that preserve the status quo. Thus, Namibia could become an early mover, tap into resources of other African countries and reap the opportunities deeper continental integration offers.

Free movement of labour

After the clean-up – What’s next?

Namibians turned out in numbers on Africa Day for a clean-up campaign initiated by the President, Dr. Hage Geingob. The clean-up focussed in Windhoek mainly on the informal settlements and north-western suburbs indicating that there is seemingly a bias in the waste removal and recycling infrastructure toward the formal and better-off areas of Windhoek. This needs to be addressed. Likewise, there is a need to create more awareness among consumers and producers about the sustainable use of our resources. Domestically for instance, plastic bags and other refuse end up in the guts of livestock causing health problems. Globally, the plastic patch in the Pacific Ocean covers already an area almost twice the size of Namibia and micro particles enter the global food chain not only of through fish, but plastic particles have been found in drinking water as well. Hence, there is a need to recycle, since our industry and household refuse is not just waste, but most often a valuable raw material that can be used for the production of new products. China has demonstrated over the past years, how access to cheap recyclable material increases competitive advantages.
However, since China, globally the main importer of recyclable materials ranging from scrap metal to plastic and clothes is closing her borders for imports, we need to develop our own recycling capacities locally and in the region. This creates new business and hence employment opportunities as well as opportunities for import substitution, since domestically available recycle material can replace imported raw materials including oil products.
Moreover, however, the amount and content of refuse is only the symptom of our consumption and production patterns and therefore, we need to go a step further in order to address the volume of refuse we generate. This is where the private sector plays a crucial role. There is a need to invest more into Research, Development and Innovation in order to produce products with a longer life span and that can be repaired when they are broken rather than have to be discarded. In addition, products have to be designed and produced in such a way that they can be easily recycled. Furthermore, there is need to research and invest in the production of biodegradable packaging material that is less polluting than current materials.
The clean-up campaign should therefore be taken a step further and lead to a review of our consumption and production patterns and aim at the shift towards a greener and more sustainable economy. This is in line with and supports our Growth at Home policy, the Fifth National Development Plan, in particular the pillars ‘economic progression’ and ‘environmental sustainability’, as well as the Sustainable Development Goals of the Agenda 2030.
After the clean-up