Amor N Kharugas
The ultimate objective for Namibia in terms of trade is to reduce imports in pursuit of attaining self-autarky (self-sufficiency) by 2030, as envisaged in the national development plans.
The dual circulation strategy (DCS) is a strategy employed within a jurisdiction that prioritises domestic consumption (internal circulation), while remaining open to international trade (external circulation).
The DCS, as adopted by China in its 14th Five- Year Plan, has key objectives: Reduce external demand as the driver of economic growth by boosting domestic consumption; obtain higher levels of self-sufficiency in key areas by enhancing innovation; and ensure access to critical inputs by diversifying supply chains and funnelling investments into key sectors such as manufacturing and agriculture.
The Namibian Trade Statistics Bulletin 2022 recorded that the total earnings from exports amounted to N$7.6 billion, having decreased by 24% monthly. The imports’ bill amounted to N$11.7 billion, which was shown to have decreased by only 6% on a monthly basis, resulting in an increased trade deficit from N$2.5 billion in December 2021 to N$4.5 billion in January 2022.
When compared to the global market, Namibia’s total merchandise trade (exports+imports) reduced by 14% between the months of December 2021 to January 2022.
Being an infant country faced with an unpredictable external market and the sudden outbreak of Covid-19, Namibia’s reliance on imported final consumption goods has plummeted. For instance, in January 2022, South Africa, Zambia, DRC, UAE and Bulgaria were the major sources of imports for Namibia.
These top five import markets supplied Namibia with 69.7% of all imports required by the country, up from its December 2021 level of 67.94%, and 58.4% recorded in January 2021.
This is the antithesis of what the country seeks to attain. One of the fundamental stumbling blocks of domestic production in an underpopulated jurisdiction is that the costs of production are high, resulting in an expensive final product, ultimately making it undesirable.
Consequently, to compete with imported goods, countries implement trade protectionism by imposing tariffs on final consumption goods that are imported. But this does not necessarily make a fundamental difference in the increase of the GDP of a country, as reflected by the above statistics. So, the question is, how do we increase the domestic output internally of final products for consumption at low costs?
The reduction of external demand as a driver of economic growth is by boosting domestic consumption in the agriculture sector, and ultimately driving the manufacturing industry.
The Heckscher-Ohlin model of trade suggests that there are two factors of production: Capital and labour. The underlying motive of this theory is that countries should produce and export goods using the resources that they have in abundance, and only import goods that they have in short supply by assuming that labour and capital can flow freely between these two sectors and as such, redistribute wealth between labour and the owners of capital. This theory can be implemented in the two following sectors:
Agriculture
According to the Namibian Agronomic Board, the country’s supply of onions and tomatoes was insufficient and as such, the borders were opened to the unrestricted imports of these products. It is assumed that the reason for the insufficiency of these crops was that not enough was produced on time due to the harsh drought conditions. What is astonishing is that Namibia imports 96% of maize from South Africa, spending an average amount of N$55.6 million. These positions can be improved by investing in innovative technology systems that grow these products at a faster rate and ultimately at a low cost.
Hydroponic farming is an innovative method that can be implemented for crop production on a large scale. It is cheaper in terms of labour compared to conventional farming methods as it saves up to 90% of water, and production outputs are catapulted at a rate of 1.55 million pounds per year, as recorded in neighbouring South Africa.
The initial cost for setting-up is expensive in terms of capital, but it is deemed to be more sustainable and profitable in future.
Mwetufena Investments CC is an example of a locally-owned close corporation that has a hydroponic farm (greenhouse) in Groot Aub, and has grown not just fodder, but maize in just seven days. An injection into this type of farming for commercial purposes (as the current greenhouses are mainly for subsistence farming) will ultimately reduce the imports of maize from South Africa, as it will be locally produced by the said CC and various other entities. The CC has also grown other foods such as barley, while the growth of other necessary foods is still under the experimentation process. This, in terms of the DCS, will spin the wheel of internal circulation in terms of consumption, and will ultimately reduce the high demand for imported products.
Manufacturing
According to the Namibia Trade Statistics Bulletin 2022, manufactured products emerged as the largest exported goods with a value of N$3.1 billion, absorbing 53.9% of total exports. The export of products from the manufacturing industry declined by N$639 million from N$3.7 billion recorded in January 2022. The demand- side was mainly dominated by products from the manufacturing industry, with an import bill of N$8.1 billion in February 2022. This is an increase of N$2.5 billion from N$5.6 billion recorded in January 2022.
This is also the opposite of what the country seeks to obtain, as far as a reduction of imports is concerned. The aim is to reduce imports by using raw materials found in the country, and increasing the exports of finished products in accordance with the demanding markets.
In terms of the DCS, internal manufacturing using raw materials found within the country obtains higher levels of self-sufficiency using the requisite innovative technology which would diversify supply chains. An injection into this market by using government subsidies helps reduce business costs for domestic producers. This would in turn reduce the price of domestic goods and services, making it more desirable for consumers in the local economy to buy, rather than buy foreign goods.
Subsidies may also increase exports as the cheaper qualitative goods become more attractive to foreign buyers.
To achieve self-sufficiency, reducing the number of imports by focusing on domestic production is imperative in Namibia. Using cheaper farming methods reduces the price of final products, thus boosting the domestic consumption of goods. In terms of manufacturing, affording subsidies to domestic producers lowers costs of production, thus making goods attractive to foreign buyers.
* Amor N Kharugas is a candidate legal practitioner and trade law enthusiast.