'Economy needs positive wave'

'Economy needs positive wave'Reforms urgent The onus for Namibia's economic recovery lies with the private sector, but government will have to ensure an environment where private capital can grow. We need to reform aggressively, attract investments both domestic and foreign … Finance minister Iipumbu Shiimi Jo-Maré Duddy



Government will have to kick-start Namibia's economy by creating a “positive wave” to enable the private sector be become the primary drivers of growth.

The time is right for the private sector to lead economic growth, but it will not be able to do it alone, according to Standard Bank Namibia's head of public sector and market intelligence, Titus Ndove.

Ndove was part of an online review of the 2021/22 budget on Friday, hosted by PwC Namibia, Standard Bank Namibia, Liberty Life Namibia and Namibia Media Holdings (NMH).

Fiscal constraints are evident from the 2021/22 budget with government only earmarking about N$5.6 billion for development, about 9% of total expenditure or 3% of gross ­domestic product (GDP) – the latter lower than the standard of around 10% of GDP for middle-income countries.

Ndove said the development budget is the engine of economic growth and that projected spending is not sufficient, hence the importance of the private sector to step in.

Finance minister Iipumbu Shiimi, also part of Friday's review panel, said government's focus in the next three years will be on how to get Namibia's economy to recover following an expected contraction of 7.3% in ­2020 – the worst he has witnessed in his ­professional career, according to Shiimi. The private sector will be crucial in this process, he emphasised.

Government's role is no longer to pump money into big investment projects, the minister said. It has to partner with the private sector and create a conducive environment for Namibian and foreign business to play its role.

Ndove pointed out that government needs to create an enabling environment for private capital to thrive.



'COORDINATION'

“How do we reform our economy in such a way that, first of all, the existing industries that have the potential to grow, grow?” Shiimi said.

According to him, the answer lies in coordination. “Government's role is really to make coordination more effective and to provide the missing ingredients.” Providing these missing elements won't necessarily be in the form of money, but in the form of coordination and providing the basic services like roads, he said.

Government should provide the “necessary conditions” to ensure the private sector grows and attract both domestic and foreign investors, he added.

Getting the economy to grow and generate tax revenue for the fiscus is part of government's strategy to reduce the deficit and trim debt.

“We need to be aggressive as a country to ensure that we take advantage of the stability we see on the horizon in the global economy. We need to reform aggressively, attract investments both domestic and foreign and target those specific investment opportunities that we think will make a difference and where we think we will be successful as a country,” Shiimi said.

Government's focus is spelled out in the Harambee Prosperity Plan 2 (HPP2) and the idea is to lock in private investment, Shiimi said, emphasising the importance of implementation.



DEBT

Shiimi said government shares private sector concerns about the bulging debt in the budget, evident from the consolidation policy it embarked on in 2016.

Namibia's total debt is set to increase to nearly N$130.1 billion or 70.4% of GDP in 2021/22 – up from N$109.5 billion or 62.6% of GDP in 2020/21. By 2023/24 it is projected to reach N$159.3 billion or 77.3% of GDP.

“Government's strategy is try to trim down expenditure so that you really only spend on things you need to spend on and that's what we have been trying to do aggressively – to the extent that it temporarily had a negative effect on the economy,” he said.

At around 22% of GDP, government is a significant player in the economy. Its withdrawal as a spending superpower from 2016 onwards was a necessary reform to create long-term fiscal sustainability, Shiimi said. The liquidation of Air Namibia, a “difficult decision”, was part of government's reforms to try and reduce expenditure and contain the deficit, he said.

Government's updated fiscal strategy indicates a funding requirement of about N$30.1 billion in 2021/22. Shiimi pointed out that not all of this will come from the domestic market borrowings.



FUNDING

According to the updated fiscal strategy document, about N$2 billion will be used from the sinking fund for Air Namibia. About N$169 million will be used from the sinking fund for the GC21, while N$1.5 billion will come from the Eurobond sinking fund. About N$1.5 billion from the listing of MTC will also be used to fund the deficit.

Shiimi said the African Development Bank (AfDB) recently approved a loan of N$1.5 billion to support governance and economic recovery in Namibia. In addition, the country applied for a loan of about N$4 billion under the rapid financing instrument (RFI) of the International Monetary Fund (IMF).

According to Shiimi, the application is being processed by the IMF and will be considered by the Fund's board in the “next couple of days. We are positive that we're also going to get support from the IMF,” he said.



DOMESTIC MARKET

According to the updated fiscal strategy, government intends to borrow nearly N$17.9 billion domestically in 2021/22.

Shiimi said government was “not just tapping into domestic sources for two reasons.

“There is a limit to how much you can tap from the domestic sources and also you want to leave some capital available for the private sector as the private sector has to lead the growth.”

He added: “When the economy picks up, private sector will start borrowing and we don't want to compete with the private sector on resources, because that is the capital that is available to the whole economy, not just government. We want the private sector to also have their own share.”