The 2016/17 National Budget is unlikely to offer any major boost to the cash-strapped energy (infrastructure) sector which the government says is key to the country’s economic growth. Finance Minister (Calle Schlettwein) mentioned several budgetary allocations for targeted transfers to public enterprises for investments in infrastructure projects, including some in the energy sector. In this regard, N$13.6 billion was allocated to the economic and infrastructure sector for investments in growth enhancing infrastructure, including the energy sector.
In addition, an amount of N$13.2 billion was allocated as targeted subsidies and other current transfers to public enterprises for targeted development of key national infrastructure, among them energy related. While these were welcome developments, the budget speech lacked more details such as how to fund them.
Namibia’s creaky energy infrastructure is a key downside risk to the country and will continue to hold back the country’s economic growth if government continues to (financially) support this sector in the business-as-usual manner. Economic revival could be accomplished only by spurring investment in the energy sector and the budget is one of the most effective tools to close the funding gap that exists in the sector.
According to the Bank of Namibia study on Namibia’s infrastructure funding requirement, Namibia requires approximately N$223.6 billion for infrastructure funding for the next five years and beyond and of this amount N$50.8 billion (N$13.9 billion-2016/17) is required for the energy sector related infrastructure.
Budget expectations
The government’s repeated statements on supporting the sector had raised expectations that the finance minister would announce major steps in his budget proposals for the fiscal year starting April 1 to boost energy infrastructure investments. However, the budget failed to make any big-ticket announcements in the energy infrastructure sector. The minister didn’t announce any new incentives in support of funding energy sector infrastructure development except for the development of the public private partnership (PPP) legislation that was still underway.
The private sector continues to be reluctant to lend to an already debt-laden infrastructure sector due to government’s lack of bold financial pronouncements – as a result many large energy projects continue to be stuck. Government guarantees could improve the attractiveness of private funding in this regard.
Net importer of energy
Currently Namibia is a net importer of energy – meaning that the shortfall in energy supply is made up from importing from outside of our borders. Namibia generates about 1500 GWh, while it consumes more than 3500GWh. To this end, electricity is mainly sourced from South Africa, Zambia and Zimbabwe. Significant energy infrastructure funding is critical to ensure uninterrupted and sustained energy supply if Namibia aspires to self-sufficiency.
The importance of sustainable energy supply
The NDP4 high growth scenario predicts Namibia’s GDP to grow by 6.0 percent on average for the entire NDP4 span period (2012/13– 2016/17) as Namibia looks forward to being industrialised but without power this remains a distant dream. Power supply is therefore critical to the economic growth of the country as lack of it can compromise investment.
Experience elsewhere has shown that unsustainable energy supply and use coupled with an unreliable energy system have a striking and lasting impact on the economic, social and environmental development of any country.
In Namibia, the main economic sector – the mining sector – remains one of the heaviest energy consumers and together with the manufacturing sector drives electricity demand but the combined budgetary allocation remains a serious matter of concern. As in every country energy is the indispensable force driving all economic activities. The more the economy expands the more energy it will require in order to sustain growth.
Government led energy infrastructure investment required for Namibia
The importance of increased budgetary allocation directly or indirectly to the energy sector cannot be overemphasized. Government needs to be seen to be serious about investing in the energy sector. Currently Namibia is facing a critical shortage of reliable energy supply. The government budget is a critical input in the growth and development of the energy sector. A budget reduction to the Ministry of Mines and Energy (N$122.9 million in 2016/17 from N$231.1 million during the previous financial year) does not seem to be responding to the developmental needs of the sector. Furthermore, N$13.6 billion to the economic and infrastructure sector for investments in growth enhancing infrastructure, including the energy sector is a drop in the ocean if looked against the existing energy infrastructure funding requirement. (N$223.6 billion for infrastructure funding for the next five years and beyond and of this amount N$50.8 billion for energy sector related infrastructure).
Government needs to increase budgetary support to the sector given the capital intensive nature of the sector. High capital investment is the key ingredient that would increase energy production locally. It has already been established by numerous researches that PPP initiatives are required if the country is to see an upsurge in investment and I don’t see this happening given the lack of aggressiveness in the budget speech. Government should zoom in on the enhancement of participation and improve private sector funding attractiveness through government enablers.
*Mally Likukela is Standard Bank Namibia’s Economic and Market Research Manager.