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Letter - Property rights and economic growth

2020-09-25  Staff Reporter

Letter - Property rights and economic growth
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JM Kretschmer

The latest figures from the Namibia Statistics Agency indicate that more than 360 000 Namibians of the active employable population are unemployed, representing 33.4% of the employable population. The youth are worse off with a total unemployment rate of 46.1%. The reality is dismal with repeated media reports of hundreds, if not thousands queuing for a handful of positions. Most recently, hundreds turned up in the Erongo and Kunene regions in the hope of securing a job during the upcoming local authority elections.

Media reports last year indicated that 26 000 people applied for 120 positions at the Namibia Correctional Services while 6 000 sat for written interviews for nine cleaning positions in Ohangwena and 4 000, also for nine cleaning positions, this time in Windhoek. During July 2019, there were reports of 600 applications for one education ministry position in Oshikoto. Even senior positions are seeing a record number of applications. The Namibian reported that “228 people scrambled for two senior human resources management positions advertised in the office of the prime minister and the justice ministry, and a deputy director post at the vice president’s office between July and October 2019”.

That we are in a joblessness crisis is apparent.
Calculations done by Cirrus during 2018 indicate that in Namibia, it costs roughly N$1 million to create one sustainable job. That implies massive private sector investment and a strong flow of foreign direct investment (FDI), which in turn need the correct government policies and a conducive environment. Skills are also important.

Two pieces of legislation, the Namibia Investment Promotion Act of 2016 (NIPA), and the so-called NEEEF Bill stand in juxtaposition to the creation of jobs. NIPA introduced greater government regulation in investments to support the developmental goals of the country and added certain provisions, including joint ventures, local employment and skills development which investors must comply with. Moreover, it limits sectors of investment, reserving these for government and local investors. There are several provisions which investors must meet, adding to the already top-heavy red tape in the regulatory landscape in the country.
Provisions of NEEEF remove all certainty of private property ownership, a central tenet to the promotion of investment, whether foreign or domestic. The government’s shift to a quasi-socialist approach over the last few years has seen FDI decline from US$374 million in 2017 to US$-17 million in 2019, according to the UN’s Conference on Trade and Development. The Economic Policy Research Association (EPRA) says this trend is directly linked to government’s shift in policy.

Economic growth has declined sharply in the country and Cirrus Capital says that for the economy to grow back to levels seen in 2015, a rate of 4% is needed every year, until 2030. 
Income inequality is another challenge that needs to be addressed. Experts however, say that even if there is job creation, not all jobs are created equal. For example, government spending on public works may create jobs, but these are construction jobs which, even though they reduce unemployment numbers, may not stimulate enough demand if better paying jobs were created. Recessions, such as the one Namibia is in, also contribute to income inequality because retrenched workers are willing to take jobs that pay far less.

The lack of opportunities has created a very large informal sector, driving more than 30% of the Namibian economy.
Towards the end of last year, The Namibian reported that the ministry of labour’s job portal only managed to create 857 job opportunities and more than 100 000 applied for these posts. In the first six months of 2019, only 265 job seekers were placed.
Covid has compounded the challenges Namibia faces. In July, labour minister Utoni Nujoma reported that just under 6 000 people were retrenched from 400 companies as a direct result of the pandemic and things are set to worsen.

Never before has ease of doing business and marketing Namibia as an attractive investment destination been more important.
In a free market economy, the government does not need to do anything when growth is healthy because capitalism encourages small businesses to compete. Small business is critical to job creation and in the United States, small business accounts for 65% of all new jobs created. Legislation such as NEEEF, will all but wipe out the creation and wealth of small business and will halt any investment into the sector because there is no guarantee of property rights.
The High-Level Panel on the Namibian Economy’s final report to President Hage Geingob urges the government to make urgent reforms. Formal sector employment must be developed, along with growth from exports and investment activities that are related to exports. The panel questions Namibia’s skills set to develop certain industries, labelling it a ‘chicken-and-egg’ dilemma. Moreover, “mineral extraction policy and primary agricultural production policy will be key to stabilise and re-kickstart growth in the short-term”.

But with murmurs of the expropriation (with fair compensation) of land, coupled with the NEEEF legislation, investment is in limbo.
‘Policy certainty’ is critical to investment and the protection of property rights is key to businesses and entrepreneurs pouring money into projects to make money. And while they are making money, Namibia must benefit. That is key to growth and job creation. But the demand must be allowed to drive the direction, in a safe, predictable market-driven environment.

2020-09-25  Staff Reporter

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