Ngoni Bopoto
The Namibian government has succeeded in slowing growth in public debt over the past two years from a high of 45.1 percent y/y in February 2017 to the 17.5 percent recorded in January 2019. While the slowdown is commendable, the level of growth remains high and in addition, the impact on macro-prudential ratios such as the budget deficit and debt to GDP is muted by a contracting economy. It is therefore critical that government executes alternative strategies to finance the fiscus, while reigning in the expenditure side. The adoption of Distributed Ledger Technology (DLT) such as Trestor Network in the public sector can widen the tax net and optimise revenue collection while consolidating expenditure through effective and transparent monitoring of costs in real-time.
In his FY2018/19 Mid-Year Budget Review and the Medium-Term Budget Policy Statement, the Minister of Finance Hon. Calle Schlettwein re-iterated the State’s pro-growth fiscal consolidation stance albeit gradual. The Minister announced that in the prior fiscal year, “The emergence and settlement of a large stock of outstanding spending arrears represented a temporary setback for the fiscal consolidation program and adversely impacted on the fiscal indicators, with the budget deficit as a ratio of GDP rising from the initial budget estimate of 3.6 percent to the current 5.4 percent, while debt to GDP ratio rose to 43 percent.’’
Pro-growth fiscal consolidation may sound like a paradox for an economy where growth has been driven by the fiscus since the global financial crisis and the 2.3 percent budget deficit to GDP target will require rapid acceleration in economic growth and a virtual halt in government debt growth. The question then becomes “what will drive this growth?’’
In response the Honourable Minister cited ‘’revenue mobilisation, expenditure policy interventions and structural policy reforms’’. He went on to call on the support of all stakeholders being public or private sectors. This call underscores the role which the private sector is expected to play in the economy and by extension an acknowledgement of government’s role in creating an environment conducive for investment inflows and a thriving private sector.
Unlike its public sector counterpart, private investment is return driven, therefore countries invariably compete to attract inflows. The World Economic Forum’s Executive Opinion Survey highlighted the most problematic factors for doing business which are summarised overleaf. This chart highlights the areas of improvement economies must consider towards becoming a more competitive investment destination.
The World Economic Forum’s Global Competitiveness Report (GCR) 2018 ranked Namibia 100 out of 140 countries, one rank down compared to 2017. This makes Namibia the 6th most competitive economy in Sub-Saharan Africa behind Mauritius (49), South Africa (67), Seychelles (74), Botswana (90) and Kenya (93). Namibia is the tenth most competitive country on the continent.
The decline in ranking for most of the African countries despite an improvement in their scores indicates that other countries improved faster resulting in the African countries being left behind.
According to the Global Competitiveness Index (GCI), the nature of an economy’s competitiveness is largely influenced by the level of development along the knowledge value chain. In the first stage, the economy is factor-driven and countries compete based on their factor endowments—primarily unskilled labour and natural resources. Arguably most emerging economies languish in this competitive space. Maintaining competitiveness at this stage of development hinges primarily on well-functioning public and private institutions, a well-developed infrastructure, a stable macroeconomic environment, and a healthy workforce that has received at least a basic education.
As a country becomes more competitive, it is assumed that productivity will increase and wages will rise with advancing development. In this industrialisation stage, countries progress into the efficiency driven stage of development, where they develop more efficient production processes and increase product quality. At this stage, competitiveness is increasingly driven by higher education and training, efficient goods markets, well-functioning labour markets, developed financial markets, the ability to harness the benefits of existing technologies, and a large domestic or foreign market.
As countries move into the innovation-driven stage, wages will have risen by so much that they are able to sustain those higher wages and the associated standard of living only if their businesses are able to compete with new and unique products. At this stage, companies must compete by producing new and different goods using the most sophisticated production processes and by innovating new ones.
Due to efforts aimed at stimulating the economy, the Namibian government accumulated public debt and unwittingly crowded-out private sector investment initiatives. This acknowledgement should be accompanied by executing strategies directed at improving the business operating environment and encouraging investment inflows on well considered terms.
*Ngoni Bopoto is an Investment Strategist at Broadside Capital