Mid-term budget in reviewLast week''s announced budget cuts are an opportunity for the State to chisel a more efficient role for itself, in the national economy. Time for private sector to step up Extensive budget cuts announced by Finance Minister Calle Schlettwein may have its risks, but are vital if the country is to maintain its economic independence.This was the message shared by the Minister on Friday at a post-announcement breakfast following his second annual mid-year budget review in Parliament.
“Retaining our fiscal sovereignty is absolutely paramount. If we don''t take these actions now, someone else will do it for us, down the line,” Schlettwein said.
Analysts, while mostly in agreement that the steps were necessary, have expressed fears that the ministry''s cutting of some N$5.5 billion from this year''s national budget could effectively slip the country into recession solely based on the substantial role government plays in the local economy, at around one third of total activity.
“That (fear) was extensively discussed in deciding how far to go,” Schlettwein told members of the business community at the Hilton Hotel in Windhoek.
“Our feeling is that, in the current situation we can take that risk. We have a new (uranium) mine (Husab) that is expected to soon come into play, we just recently saw a new gold mine going into production and our tourism sector has been doing well,” Schlettwein said.
Current drought conditions across the country, he said, while drawn out over the last three years, were considered of a passing nature.
“Despite these difficult times, Namibia remains growing at a respectable rate of 3% on average. Others would love to be us right now,” Standard Bank CEO Junius Mungunda, who sat on a panel discussion with the minister, said in response to Thursday''s mid-year review.
“As long as we are able to emerge from this current situation in the next three or so years,” Mungunda opined.
Time to PPP
Expanding on his announcement of more emphasis to be placed on public private partnerships (PPP), Schlettwein said such agreements could both help free up capital expenditure from the State''s side, while providing good investment opportunities for the private sector.
“If effectively handled, there may in fact not be any real reduction in capital expenditure,” Schlettwein said.
The minister also hinted at possible tax changes, noting that while aggressive taxation would not be the way to go, there was still room to broaden the country''s tax base.
In that sense, he said double taxation agreements with trading partner countries and a Capital Gains tax (more extensive than current transfer duties), could be expected.
“Some of the tax exemptions we have in place now are not helping us. They basically only allow people to live easier, with government footing the bill,” he said.
SMEs must shape up
The minister also had a stern message for small and medium enterprises (SMEs) who heard on Thursday that they would likely be affected by a form of presumptive tax, come his next full budget announcement, in February 2017.
A key criticism against many such start-ups, Schlettwein said, was that they comprised of “nothing more but a person with a cellphone in an office.”
Once provided with a tender, he said often the only action these companies take is to call on other suppliers to outsource the work they were assigned to.
Moving forward, he said government would ensure that tender applicants meet certain requirements to prove their worth, including local employee numbers.
Stating his ambitions for the country''s SME sector, he said it was necessary for them to expand the country''s production capacity.
At present, he said, the sector was mainly comprised of traders.
In addition, he said government''s tax revenue from especially entities involved in the extraction industries, often came to nil.
“Now, if there has been no tax return on investment in our natural resources, or extractive industries, for 10 years, is it not advisable that we take that investment elsewhere to where it can be shown to be more profitable,” he said.
Mungunda acknowledged that, as one of the country''s four major banks, that Standard Bank has seen some effect from the State''s recent freezing of tenders.
“Especially from new, up and coming entrepreneurs who have come to us and said that they wanted to restructure here and there, based on delays in government support,” Mungunda said.
In conclusion, Schlettwein noted that the current pressing economic times, coupled with the State''s announced new direction, provide an opportunity to better align government''s role in the economy.
“Up to now, we have had enough (resources) to absorb the inefficiencies we have had in the past, but not anymore,” he said.
The budget review event was a joint collaboration between financial services company PWC, Standard Bank Namibia and Namibia Media Holdings (NMH).
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