Overview

Namibia has enjoyed considerable successes since it gained independence from South Africa in 1990 resulting from sound economic management, good governance, basic civic freedoms, and respect for human rights. Namibia inherited a well-functioning physical infrastructure, a market economy, rich natural resources, and a relatively strong public administration. The country also inherited extreme social and economic inequities, however, which have left Namibia with a highly dualistic society. In addition, the country is vulnerable to short- and long-term environmental shocks as all major sources of growth depend heavily on Namibia’s fragile ecosystem. These factors have made job creation difficult, and poverty and inequality remain unacceptably high.

Namibia has made significant progress in addressing many development challenges. Access to basic education, primary health care services, and safe water is high and growing. Sound public policies are helping to lay the foundation for gender equality. Since independence, Namibia has been a leader in the area of natural resource conservation, with 43% of total land under conservation in 2012, up from 15% in 1990, and the country’s entire 1,570 km coastline enjoying protected status. Namibia maintains social safety net programs for the elderly, disabled, orphans, vulnerable children, and war veterans, as well as national programs that provide maternity leave, sick leave, and medical benefits to workers.

Nonetheless, daunting challenges persist. Although Namibia’s per capita income of $5,840 (2013, Atlas method) places it in the World Bank Group’s (WBG) upper-middle income grouping, average income paints a misleading picture since Namibia’s income distribution is among the most unequal in the world, with a Gini coefficient estimated at 0.5971 by the latest (2009/10) household survey. Poverty incidence is high, although it has declined somewhat during the past decade: 21% of individuals had consumption below $1.25/day in 2009, compared to 49% in 1993 (WBG calculations). Unemployment has remained extremely high for decades and is estimated at 29.6% in 2013 (Namibia Statistics Agency [NSA] data). Namibia is ranked 127 out of 187 countries surveyed in the 2014 Human Development Report. Although Namibia is on track to meet the Millennium Development Goals on education, environment and gender, the severity of the HIV/AIDS epidemic is frustrating efforts to meet the Millennium Development Goals (MDGs) to reduce child mortality (MDG4), improve maternal health (MDG5), and combat HIV/AIDS, malaria and other diseases (MDG6).

Economic overview

Namibia has maintained a track record of consistent economic growth, moderate inflation, limited public debt, and export earnings. Namibia’s economy is closely linked to South Africa’s economy through trade, investment, and common monetary policies. The Namibian dollar is pegged to the South African rand, making many economic trends (including inflation) closely follow those in South Africa.

Countercyclical macroeconomic policies dampened the shocks from the global financial crisis to some extent. GDP growth slipped to 0.3% in 2009, primarily as a result of declining external demand for Namibian exports (diamonds, minerals, and agricultural products), but rebounded quickly, growing at 5.4% per year on average since 2009 (NSA, 2014). Inflation fell after the onset of the crisis, bottoming out at 3.1% in February 2011, and has oscillated within a range of 5.5–7.5% since the beginning of 2012. In the wake of the crisis, Namibia launched an ambitious fiscal expansion aimed at stimulating job creation, with real central government spending rising by 9% per year on average since the 2010/11 fiscal year. Government debt grew rapidly in 2010–12, in part due to successful bond issues on international markets, and is expected to remain at around 26–27% over the medium term (Ministry of Finance data).

The structure of production and trade has remained essentially unchanged over the past two decades. The services sector has accounted for 55–60% of total GDP since 1990. Mining, livestock rearing, fishing, metallurgy, and food processing have been mainstays of the economy, with construction growing rapidly in recent years. Metals and minerals provide the majority of export revenue, followed by fish, tourism, livestock, logistics services, Africa’s best beer, beef, and grapes. Labor-intensive manufacturing has not taken root in Namibia.

Agriculture is the largest form of employment, accounting for 27% of jobs, and the national government is the largest employer, employing 12% of all workers (NSA, 2013 data). The informal sector remains large in Namibia. The major source of income for more than 40% of households is subsistence agriculture, a social grant, or other source outside of formal sector employment (NHIES 2009/10). Labor force participation is relatively low at 62%. Women have worse labor market outcomes than men: 33% unemployment for women versus 26% for men; 59% labor force participation for women versus 65% for men (NSA, 2013 data). There are large groups of discouraged workers in younger cohorts of the population, particularly among women, which poses a risk for the country’s long-term growth prospects.

Political Context

The presidential and National Assembly elections that took place in late November 2009 confirmed the continued dominance of the South West Africa People's Organization (SWAPO), which won over 75% of the vote. The Rally for Democracy and Progress Party, formed in 2006 and headed by the former SWAPO Party Minister of Trade and Industry, Mr. Hidipo Hamutenya, became the official opposition, overtaking the Congress of Democrats party.

In the 2009 election manifesto, SWAPO ran on the commitment that it would work to “Consolidate monetary and fiscal policies geared towards promoting growth and employment creation, and to ensure forward and backward economic linkages of economic sectors and regions.” Furthermore, the party promised to “maintain prudent macroeconomic policies that are responsive to domestic, regional and international economic developments.”

President Hikikepunye Pohamba completes his constitutionally allowable two terms in March 2015. Prime Minister Hage Geingob was re-elected as SWAPO vice president in November 2012 and has announced that he run as SWAPO’s candidate for president in the November 2014 general election. The election is expected to result in a larger number of women parliamentarians as a consequence of SWAPO’s decision to have 50/50 gender representation in its party list.

Development Challenges

Although Namibia has enjoyed economic growth and prudent macroeconomic policies, these have not generated the jobs needed to overcome the inequitable distributions of income, assets (notably land), and raise living standards in rural areas and among the urban poor. At the top of the governments agenda is bringing down the very high unemployment rate. Growth industries generate few new jobs. At the same time, there is a shortage and a correspondingly high salary premium for skilled labor, resulting from generally poor outcomes of the educational system and restrictive immigration policies.

Similarly, despite a decline in the total HIV prevalence rates, which has fallen to 14.3% in the 15-49 age group in 2013 from 16.1% in 2000, new HIV infections remain a serious concern (UNAIDS data). Namibia also has one of the highest tuberculosis incidence rates in the world at 655 per 100,000 people (WHO, 2012 data). Child under-nutrition, is surprising prevalent in Namibia. Stunting is high at 24% of children under five, the share higher in poor households (Demographic and Health Survey 2013).

The country is fast approaching a serious crisis in energy. Electricity demand has been growing rapidly, pushed by urbanization and the mining sector. Long-term agreements to purchase electricity at favorable rates are expiring. Meanwhile, the country has built no significant new generation capacity since independence. Wholesale electricity prices have risen by double-digit rates in each of the past several years.

All major production sectors—mining, tourism, livestock and meat production, and fisheries—are vulnerable to external economic and ecological shocks. Foreign demand in each industry is cyclical, seasonal, or unpredictable, with downstream effects for employment, income, and government revenue. All face risks from climate change and/or other countries’ policies to address climate change. The country has suffered from severe flooding during the past three rainy seasons, following a period of annual droughts.

Finally, the government has expressed concerns that its fiscal position faces long-term risks that must be addressed in the coming years. In addition to the factors already listed, Namibia’s receipts from Southern African Customs Union (SACU) revenue pool, which will make up almost 35% of government revenue, and over 13% of Namibian GDP in FY2014/15, are expected to decline over time. Personnel costs are forecast to reach 16% of GDP in the coming year (Ministry of Finance, 2014 data). The Ministry of Finance is taking steps to contain the growth of total spending and increase revenue, notably by increasing taxes on the mining sector and closing various tax loopholes.

In July 2012, the Fourth National Development Plan (NDP4) was launched, which will guide policies through 2017. Economic growth, job creation, and increased income equality are the three overarching objectives of NDP4. It proposes to achieve these objectives through industrial policies to stimulate growth in tourism, regional trade logistics, agriculture and manufacturing (primarily through greater processing of primary commodities). Reducing extreme poverty and improving education, health, infrastructure, and the business environment enter into NDP4 as “basic enablers” that support the economic priorities. NDP4 presents ten “desired outcomes,” each accompanied by an indicator for measuring attainment of the outcome, broad strategies expected to achieve the outcome, and a ministry that will serve as the champion. This selectivity stands are in stark contrast to previous NDPs, whose agendas spanned the entire public policy space.

Last Updated: Oct 22, 2014

World Bank Group (WBG) Cooperation

Namibia became a member of the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) in 1990. The WBG’s first-ever Country Partnership Strategy (CPS) was prepared in 2013 and guides activities by the WBG, IFC and MIGA through 2017. The CPS is built around two pillars: enhancing state capacity and strengthening the private sector. Priorities for technical cooperation include economic management, statistics and monitoring and evaluation capacity, natural resource management, and business regulations. IFC and MIGA are seeking opportunities to increase investment in infrastructure.

IBRD financing and technical cooperation: The WBG’s engagement with the country has been the most limited among Southern African Customs Union (SACU) countries, with only one loan program and two Global Environment Facility (GEF)-financed projects approved to date. A number of analytical and advisory activities were undertaken in the early years, some jointly with the government, but only three core economic diagnostics have been conducted since independence (one public expenditure review, one country economic report, and one investment climate assessment). The WBG recently has taken steps to broaden and deepen the dialogue with the government, including accrediting a WBG staff member in the country.

The first IBRD loan for Namibia – a $7.5 million Education Development Policy Loan (DPL) – was approved in May 2007. A second DPL in the same amount was approved in November 2008, signed in September 2010. Both loans have been disbursed and were repaid in full by April 2011. The DPLs supported the Education and Training Sector Improvement Program (ETSIP), the government’s 15-year strategy to improve education sector outcomes.

Namibia has received two Global Environment Facility (GEF) grants through the WBG, of which one is active. A $6.8 million grant to support the government’s Namibian Coast Conservation and Management Project (NACOMA) was approved in 2005 and is scheduled to close in December 2015. The Ministry of Environment and Tourism is requesting funds from GEF5 for additional work under this project. A second GEF project—the $7.1 million Integrated Community-Based Ecosystem Management Project (ICEMA)—was approved in 2004 and closed in April 2011.

External trust funds play an important role in financing WBG technical assistance and analysis in Namibia. The WBG has mobilized funds to support the government in addressing long-term strategic priorities (e.g., on energy investments and on climate change), responding to disasters (e.g., a post-flood disaster needs assessment), and building critical public sector capacities (e.g., in statistics, performance management monitoring and evaluation, and crisis management in the financial sector).

The International Finance Corporation (IFC) has been involved in several investments. In August, the IFC signed a ZAR300 million investment in Trustco, a financial services group, to support the group’s education lending and micro-insurance offerings. In past years IFC has invested in a fisheries project (Pescanova), a hotel in northern Namibia, and an equity investment in the country’s first indigenous life insurance company (Namibia Life). On the technical assistance front, IFC is working with the Ministry of Trade and Industry to improve business regulations and, through its infoDev program, with the Namibia Business Innovation Center to support mobile ICT applications development.

The IFC aims to support the NDP4’s goals of faster growth, more employment and greater income equality through both its investment and advisory services. Investment priorities include infrastructure, labor-intensive sectors such as tourism and agribusiness, health and education, and financial services. IFC advisory services will focus on helping Namibia improve the investment climate and on supporting public-private partnerships to encourage private investment in public infrastructure.

The Multilateral Investment Guarantee Agency (MIGA) assisted Namibia in the 1990s with developing investment promotion policies. Namibia’s membership means that direct foreign investment into the country is eligible for the MIGA’s risk insurance and credit enhancement products. In addition, Namibian firms investing in other developing countries are also receiving coverage from MIGA for their investments in the region. MIGA is currently investigating the potential to support investments in public infrastructure.

Last Updated: Oct 22, 2014

Namibia’s first Education and Training Sector Improvement Program supported an increase enrollment in math, science, and vocational education, and contributed towards improved learner achievement levels.

The Integrated Community-based Ecosystem Management Project helped to promote a new Tourism and Wildlife Concessions Policy in protected areas as well as strengthened the country’s system of communal conservancies, which have succeeded in increasing wildlife numbers while at the same time generating substantial economic benefits to communities from commercial use of wildlife.

The Namibian Coast Conservation and Management Project has brought Namibia’s entire 1,570 km coastline under protection and has shepherded the development of the Coastal Management Policy (launched in 2013). IFC investments in the fishing industry have contributed to generating jobs and export revenue. Its investment in what is now the Protea Hotel in Ondangwa helped raise the quality of hospitality services in an underserved segment of the Namibian market.

Technical support to the new Namibia Statistics Agency (NSA) has enabled the new institution to increase the frequency, quality, and dissemination of official statistics. In 2013, the WBG helped NSA document and distribute public-use micro-data from the latest census, labor force survey, and all household income and expenditure surveys conducted since independence.

Last Updated: Oct 22, 2014