Namibia and the world economy

1
Namibia and the world economy
A longer term and regional perspective
16 September 2005

• Philip Clayton
• Windhoek 15 March 2007

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Namibia
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Namibia fiscal health ( of GDP)
Source EIU Namibia report
4

Doing business good in a regional context
Doing Business Starting a Business Dealing with
Licenses Employing Workers Registering
Property Getting Credit Protecting
Investors Paying Taxes Trading Across
Borders Enforcing Contracts Closing a Business
Source IFC
5

Growth OK, but could do better
SourceWorld Markets
6

Government spending Namibia out of line
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
SourceWorld Markets
7

Deficit much work still to be done
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
SourceWorld Markets
8

Share of revenue, revised 2006/07
Two fifths of revenue SACU transfers will be
under pressure in real terms
Source EIU
9

SACU payments, as of SA revenue
Source SA National Treasury
10
Tax payments and compliance
Source PWC
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Corporate Tax
Corporate income tax, labour tax, and other
taxes, Source PWC
12
Individual Tax highest rate
Monaco 0 Singapore 21 Namibia
35 SA 40 Norway 51
Source Worldwide-Tax.com
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Todays Budget Balance sheet - positives

• Pro poor tax threshold up 50, to N36 000 pa,
  pension allowance up 33 to N40 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

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Todays Budget Balance sheet - negatives

• 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 Ministers job)

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Budget conclusion

• 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

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Global context
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Emerging markets now pushing ahead
Source IMF
Sustainable thrust
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International issues affecting southern Africa

• 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

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Population trends median age
Population dynamics moving absolutely and
relatively in favour of Africa, Latin America,
Asia against developed worldSource Group
Economics (from UN World Population Prospects)
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China and India

• China and India together, account for two fifths
  of the worlds 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

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Chinas demand, commodity prices
Does the China, India effect mean the boom will
last much longer than average? Source Economist,
22 July 2006
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Africa and global growth
Long-term uptick in Africas performance - but
still below AsiaSource IMF World Outlook, April
2006
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South Africa
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Economic growth
Growth sustainable Shift from consumption, to
uptick in capital spending (private sector and
government). Concern is the skills gap
AIDS. Good fiscal policies opening up ability
to spend more on social issues
Source SARB, Standard Bank Group
Sustainable step-lift?
25
Fixed investment
Source Standard Bank Group, SARB
The big dig
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Inflation

• Exchange rate
• Global inflation and competition
• Credible inflation target framework
• Capacity utilisation
• Vulnerable to external shocks, especially
  exchange rate

Source SARB, Standard Bank Group
Structurally lower
27
Economic forecasts
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