Nadia Jansen
In Namibia, foreign investment is regarded as a drive for economic integration, as a significant proportion of aggregate economic activities in the country are made up of international transactions. This makes the economic prospects of the country depend on this foreign interdependence, as many of the current economic strategies and revivals are done around foreign investment. However, all of this seems to overlook the risk of capital flight that is detracting from the benefits of foreign investment. Namibia needs foreign investment to build on the benefits it brings to the table, but what about the negative effects that present themselves in the form of capital flight? A lesson so many times overlooked is that with all the foreign companies that set up businesses in Namibia, increases in capital flight were observed, eroding the tax base of the country, as most of these cases involved massive amounts of tax evasion. Surely, the effect of capital flight represents bygone investments, loss of productive opportunities, and the lack of development of human capital. This further deprives the government of building up the required reserves to reduce its fiscal deficits, limits its public spending, and in this way directly affects the growth prospects of the country. Everyone is seeking a solution to solve or reduce the capital flight problem, but fails to go back to the potential effect it has on the Namibian economy and its people. Might this be linked to what is referred to as the ‘debt trap’ which began with the apartheid legacy in the country? The country might be freed from direct foreign rule, but still suffers some form of colonialism because of being part of what the economist, John Williamson, refers to as the “Washington Consensus”.
Independence presented freedom from the yoke of colonialism, an era for the Namibians to be liberated from the injustices of colonialism, specifically regarding social inequalities. Addressing the inequalities or social injustice was at the forefront during the struggle for liberalisation in Namibia, often referred to as the “socialist” rhetoric. In the General Policy Statement on the Reconstruction and Development of Namibia presented at Independence in 1990, urgent economic and social issues were identified which had to be addressed.
High on the priority list were developmental challenges that included poverty, unemployment, the high illiteracy rate, inadequate healthcare, and poor housing conditions.
During the colonial apartheid, Namibia was regarded as the world’s second-most unequal society, and 32 years after independence, nothing changed as the country still ranks as the second-most unequal society in the world.
During the period of decolonisation, the country required external revenue to support these developmental and reconstruction needs, and the financing “repayment plan” was drawn up based on a financial order led by the United States, called the Washington Consensus. This called for the country to accept it as its economic system, supporting the growth of the country externally, but suppressing spending on social development. There were about 10 requirements, of which seven can be linked to the origin of the debt crisis of the country, which is also a key determinant for capital flight, and the originating presence of capital flight.
The requirements and their relationship to the presence of capital flight in the country, are as follows: (i) financial liberalisation, which led to the creation and establishment of safe havens; (ii) the adoption of a single, competitive currency, which led to capital flight to the jurisdictions where foreign currency reserves are held and encouraging black market round tripping; (iii) trade liberalisation has given rise to the trade mis-invoicing practices linked to capital flight; (iv) elimination of the barriers to foreign direct investment; (v) the privatisation of state-owned enterprises; (vi) deregulation of market entry and competition; and (vii) the security of property rights. All these created favourable conditions for international companies to establish international monopoly capitalism, thriving on extracting revenue from the country. All of this restricted the country to an imperially conceived economic system. The country was forced to value its currency against the US dollar, which is the same currency for its entry to international markets, and the currency used for assessing its balance of payments. This also made the country more vulnerable to capital flight, caused by corrupt practices plundering the domestic resources for revenue aimed at private gain, political interference, poor regulation enforcement, abuse of tax incentives and exemptions, and abuse of exploration licences.
Together with the transitioning legal system of the country, this gave external players access to draining the revenue resources of the country due to the legal institutions creating institutionalised ways towards capital flight. This was done by way of negotiating tax treaties which allowed profit-shifting to foreign jurisdictions through legalised tax avoidance schemes.
On the brink of the country’s energy rush, especially towards Green Hydrogen and the recently-discovered oil potential, Government will have to consider the high likelihood of capital flight as Namibia will have to make use of FDI to develop its Green Hydrogen or oil potential. Reforms will have to be considered and strategies should be drafted, considering the loopholes presented in the Washington Consensus.
*Nadia Jansen is a Research, Technology & Innovation Compliance & Risk Coordinato, at the Namibia University of Science and Technology (NUST). The opinions expressed in this piece are her own, and not the views of her employer.