An extremely disappointing speculative BB Fitch rating and an economy on the edge of an abyss have prompted Team Namibia to call for a drastic improvement on Namibia’s appeal to domestic and foreign investors. However, the recently gazetted amendments of the Income Tax Act (No 7249) have repealed the current manufacturing incentives and is phasing out the Economic Processing Zone (EPZ) by 28 February 2021.
The Ministry of Finance has taken the stance that these changes to the investment sphere need to be made, partially to avoid black-listing by the European Union, and partially because the manufacturing incentive and the EPZ saw a minuscule return of investment.
Team Namibia, the non-profit organisation mandated with mobilising Namibians to buy local and to drive the promotion of quality local products and services, says that considering current economic development, where Namibia has a low manufacturing base and is largely dependent on imports, the country will remain hugely vulnerable. This, they said, is especially relevant when exports, predominantly minerals and other commodities, are extremely sensitive to demand and price fluctuations.
Team Namibia is adamant that local manufacturing and industrialisation is critically important should Namibia wish to become more self-reliant and less exposed to changes in global demand and supply chains.
But the organisation is concerned that the repeal of the manufacturing incentives is now imminent. The question is how attractive Namibia is for potential investors, particularly in the manufacturing sector.
In a recent statement, Team Namibia noted that when compared to alternative investment destinations, this drastic change will result in Namibia being less competitive.
“In a year’s time, Namibian manufacturing businesses will be taxed at the normal rate (32%), whereas in neighbouring Botswana and South Africa, manufacturing business will be taxed only 15% and 28%, respectively. In South Africa, there are additional manufacturing incentives,” read the Team Namibia statement.
The statement further emphasised that the manufacturing sector has a huge potential for job creation, which is vitally important, considering that unemployment is at an unprecedented all-time high. However, Team Namibia bemoaned the fact that with the amendments to the income tax legislation, Namibia is less likely to attract investment for new plants or the extension of existing plants.
Bärbel Kirchner, account director of Team Namibia, said: “It is such a pity that this now indeed has happened. Our members had hoped that considering the current economic environment, these drastic measures would not have taken place and that one would have engaged in further consultation. Extensive investments and expansion took place in the past due to manufacturing status businesses had, and related incentives… Team Namibia is totally in support of the manufacturing sector. We need more local produce and manufactured products for our sustainable economic development – and most importantly, job creation and the reduction of poverty. We, thus, hope that the authorities continue to engage before the actual expiry date of the incentives. At the very least, it would be critical to look at best options to make good for the loss of incentives.”
Kirchner continued that Namibia must work towards positioning itself as a superior business location and to make every effort to create an exceptional environment for economic activity, saying: “Pro-business policies are critical if Namibia wants to revive its economy and reduce its vulnerability”.
She stated that alternatives would be to look at performance-based incentives that would, however, still contribute to a reduction of start-up and operational costs.
Kirchner, therefore, suggested conducting some research and looking at the correlation of various incentives and the different effects on the performance of businesses in the sector.
“A comparative study of ‘peer countries’ would also help to identify which incentives would secure the best return-of-investments, and optimally contribute to the growth of the manufacturing sector and the economy at large,” Kirchner concluded.