2006-03-20Staff Report 2 "By Dr Hina MuAshekele In 2004 Namibia launched Vision 2030 (V2030) as a guide for its development programs between now and the year 2030. In this guide, Namibia aspires to reach the status of a developed nation and that its citizens enjoy the health and quality of life equal to that of their counterparts in developed nations. This paper contributes to the discussions and planning options for the implementation of V2030. The paper in particular, examines the minimum level of investment capital required to insure the minimum growth rate required for the realization of V2030 dream. The paper further examines the implications of appropriate capacity building through which efficient implementation of V2030 can be guaranteed. Currently, Namibia is a land of sharp contrasts. On the one hand, geographically, Namibia is a large mass of land (almost as big as all western European countries put together) which is full of raw materials, such as diamonds, copper, fish, uranium and many others. On the other hand Namibia has a small population (about 2 million), of whom 30% lives on less than one US$ a day. The recent Namibia Labour base survey indicated the average unemployment rate of 34%. The latest UN Human Development Index (HDI) showed that the inequality in income distribution is one of the skewest in the world. These challenges and many other weaknesses are the reasons why Namibia developed V2030 as a strategy to address these problems. The V2030 document estimated the medium growth rate to be 7% on average over the vision period. An average growth rate of this magnitude would require a significant capital injection, particularly at the beginning of the period. The capital may come from internal or external sources. Equally important is the mechanism how the capital is financed. Growth Rationale of Production Economics The growth rate in an economy is generally estimated as a function of labour, capital and the application of technological change (the state of technical progress) in such economy. It is a well known fact that, the more technical the economic production systems are, the more productive the labour force is likely to be. The rationale is that technical progress is embedded in skilled labour and productive equipment. In other words, the combination of appropriate investments in technical skills development and production equipment has the net effect of increasing the productivity of economic output. This was the case with Japan, Korea, Malaysia and other Western countries. This rationale is the analytical base to facilitate the contribution to this discussion. The method of capital estimation has taken the following assumptions in the Namibian economy into account. a)The average annual growth rate is estimated at 7% over the vision period. This growth rate was based on the middle of the road growth scenario predicted in the Vision 2030 document. The growth estimates also assume a high degree of economic diversification, value-addition and competitive advantage in the economic sectors of agriculture, fisheries, manufacturing and tourism. b)Technology is a new method of doing things; technology may be embedded in labour as new skills and ability to produce products and services better and efficiently technology may be embedded in equipment as new production systems which can increase productivity and efficiency; technology has the net effect of increasing output with less labour; the rate of technical progress (productivity) is assumed at 1% (empirically the productivity rate of developing countries) from 2005 - 2015, and at 2% from 2016 - 2030. Prioritisation of research and development, as well as innovation, is expected to have the impact of a growth in technical progress of 2%. c)Labour is assumed to grow at 2.7% from 2005 - 2015 and 3% from 2016 - 2030; it is assumed that, increase in skills training makes the labour force more productive, which has the effect of increasing productivity and reducing labour. The low growth rate estimate for labour is due to the estimated impact of HIV/AIDS. About 1 million persons are estimated to operate in the formal sector. By then, the majority of employees are expected to be in formal employment. Much of formal employment will be in the manufacturing sector. d)Relevant technical papers on V2030 and other sources materials are referred to. Overall Capital Requirement Estimates Applying the general method of production function the requirements for production capital over the V2030 period have been estimated (in millions N$) on average as follows: N$ 5 500 - N$10 000 for 2005 - 2015 N$11 000 - N$16 000 for 2016 - 2020 N$17 000 - N$25 000 for 2021 - 2025 N$28 000 - N$47 000 for 2026 - 2030 On average the investment requirements has been estimated at N$17 400 mil. per annum. Growth Trends of Major Economic Sectors The purpose of Vision 2030 is to bring about structural change in the production system of the economy in order to realize higher economic growth. The first expected fundamental change is that the income of the economy is going to be based on the sales of value-added Namibian manufactured goods. The second expected fundamental change is that the majority of the labour force will be employed in the manufacturing sector. Fishing, mining and agriculture are expected to continue offering competitive advantage for value-addition in Namibia. It is therefore expected, thirdly, that much of the secondary industries will be value-addition to local raw materials, such as minerals, fisheries and agricultural products. Finally the tertiary industries are expected to keep a minimum growth of 4% on average, with the exception of the tourism sector. Secondary Industries Secondary industries are industries such as manufacturing (of local raw materials); construction; electricity, water, fish, minerals, agri-products and others. The secondary industries are the value-adding industries of the economy. These industries are expected to achieve the highest annual growth rate of over ten percent on average over the vision period. In terms of the Macro-economic technical paper on V2030, the manufacturing section is expected to achieve an annual growth rate of over eleven percent on average over the vision period. During the first half of the vision period the sector is expected to achieve the annual growth rate of eight percent on average. During the last part of the period the sector's annual growth rate is expected to reach fifteen percent on average. It is with this level of growth rate that Namibia could hope for a period of full employment. The basis for value-addition are expected to be in mining, fisheries, agriculture and other new areas where Namibia has potential to excel. Electricity and water are expected to continue playing vital roles in manufacturing. It is therefore logical that the electricity and water sectors grow proportional to the growth of the manufacturing sector. In this regard, the electricity and water sectors are expected to achieve an annual average growth rate of ten percent over the vision period. During the last part of the vision period these sectors are expected to achieve an annual average growth rate of thirteen percent. The construction sector is generally an indicator of the status of the economy. If the economy is doing well, there is a lot of construction going on. On the other hand, if the economy is not doing well, the construction activities are to the minimum. It is therefore expected that the construction growth hikes to the annual average of over nine percent (9.4%) during the second half of the vision period. On average the sector is expected to reach an average growth rate of seven percent over the vision period. The tourism sector is, however, expected to achieve an annual growth rate of seven percent. It is expected that as the workforce becomes skilled and earns more money, they will be inclined to have extra cash to spend on leisure, travel and restaurant. This is expected to be the case and the sector's annual average growth rate is expected to go up to nearly ten percent (9.8%). Estimated Capital Requirements for The Major Economic Sectors The high growth rate estimated for Vision 2030 project will be essentially propelled by the continuing growth of the secondary industries. It would therefore be reasonable to expect and assume that the largest proportion of investments would have to be made in the sectors of the secondary industries. Against this background, the investment required by the secondary industries is estimated at N$17.4 billion per annum on average. The growth rate in the manufacturing sector is estimated at 11.3%, which is estimated to require an investment rate of N$3.4 billion on average per annum. The investments in the water and electricity sectors are estimated together at N$3 billion per annum and the investment in the construction sector is estimated at N$2.4 billion per annum. On the other hand the investment requirements of the tertiary industries are estimated at N$3.7 billion per annum. The investment requirements of the government services sector are estimated at N$360 mil. per annum. Similarly, the tourism sector is estimated to require the investment value of N$710 mil. p.a. The transport sector is estimated to require N$530 mil. of investments per annum. The wholesale and retail sector requires N$600 mil. of investments per annum in order to maintain the estimated sectoral growth rate as estimated in the related Vision 2030 documents. It is notable that the investments in the government services is going to remain steady because of the expected trend that government services will be lean, and that the implementation of V2030 will be effected by the Namibian private sector through the public-private-partnership principles. Insurance for Vision 2030 Successes The success of the implementation of Vision 2030 will largely depend on, among others, the following factors: the management framework of the Vision 2030 project; the political will of relevant government departments, commitment to the development of the critical mass of required Namibian expertise to run, manage and implement the project and the private-public-partnership principles. Management Framework of Vision 2030 Project The Vision 2030 plan is a development plan under the National Planning Commission, NPC. As such the NPC should be the overall coordinator of the project. NPC should plan, coordinate, control, monitor and evaluate the project progress at its various levels of implementation. Since the rationale of Vision 2030 is to decrease the size of government spending and since the growth activities of Vision2030 are largely driven by the private sector, it would therefore be reasonable to involve all stakeholders at all levels. At the national level the role of government should be to coordinate and facilitate the Vision 2030 project in consultation with other stakeholders. It is, however, gratifying to acknowledge that a Guiding Coalition has already been established by government. The coalition is chaired by the PS of NPC and has members representing a variety of stakeholders. The role of the coalition is to assist the Office of the Prime Minister and NPC to develop the implementation strategy of Vision 2030. After which it is hoped that stakeholders will buy into the Vision's strategic plan. However, it would still seem as if the new implementation strategy would be managed on the basis of the NDP models and implementation strategies. Similar strategies had the effect of not recording private sector sponsored activities before. It also had the effect of increasing government budget and the project being considered only as a government project. To create the spirit of private-public-partnership and to bring other partners in the equation as well as to reduce government costs, the researcher suggested the following: - Let each sector (or few similar sectors) organise, itself and develop its Vision 2030 implementation strategy; - Let each sector budget for Vision 2030 activities; - Let each sector develop a financing plan for implementing its Vision 2030 implementation plan and how its members can play a role; - Let each sector develop the rules of the game to guarantee appropriate mechanisms for tendering process, quality control, black economic empowerment, technology transfer, capacity building, etc; - Let these proposals go to the national level (Guiding Coalition) for rationalization, coordination, facilitation and possible approval for funding, as part of Vision 2030 project program activities; - Let government and private sector agree on funding arrangements (conditions); - Let private sector implement approved activities; - Let these activities be linked to coordination, monitoring and evaluation systems of NPC; - Let government only fund costs minimum activities related to creating enabling operating environment. Thirdly, Namibia is small and for the economy to kick start, there is a need for firm commitment by government to commit resources where they have been prioritised. By now government knows about Namibian priorities. Government also has committed itself to plans like V2030. What is required now is to make good of the promises made. Nami-bia does not always need foreign money to invest as required by the relevant sectors. Much of the investment funds could be tapped from domestic and regional markets. Private sectors can devise a borrowing system to be guaranteed by government. Private sector in turn has to guarantee success to government. Nami-bia sends billions and billions of Namibian dollars every month to S.A. This money can be invested locally and profitably. Finally, both government and the private sector have to commit themselves to capacity building of specialized expertise required by Vision 2030. In consultation with the Educational and Training Sector Improvement Programme (ETSIP), a national audit of human resources, requirements by the implementation of Vision 2030 needs to be carried out. The sectors should be able to assist with the sectoral human resources audit. The sectors develop their respective Vision 2030 strategies, they know how many and what type of critical mass of expertise will be required, they know what it costs to develop such critical mass, they equally know how much whole plan costs to implement it. It is therefore reasonable to trust them with the knowledge of what is required. Through the ETSIP program, relevant economic sectors and relevant tertiary as well as other vocational and post-matrix local training institutions should formulate and implement targeted performance and outcome-based capacity building programs where specific numbers and categories of expertise would be scheduled to complete training within a specified period. Since the economic growth is expected to be based on the sale of value-added products, it is therefore imperative that Namibia must have a strong manufacturing base. In this regard and through the ETSIP program, tailor-made manufacturing-oriented tertiary education training programs need to be developed and implemented. In order to support innovation, research and development, bodies such as the Council for Research and Industrial Innovation as well the Fund for Research Science & Technology need to be put into action in order to prioritise, direct and fund the research, innovation and development of new products and patents. The role of government is to coordinate, facilitate, monitor, evaluate and level the operating playing field. - Dr Hina MuAshekele is the Director of the Multidisci-plinary Research and Consul-tancy Center (MRCC) at the University of Namibia. He is also a coordinator of the Unam Task Force on V2030 to develop Unam's human resources capacity building for V2030. The contribution has been made in his own personal capacity." 2006-03-20Staff Report 2
