Namibia - iuj.ac.jp

Country Report

Namibia

January 2006

The Economist Intelligence Unit 26 Red Lion Square, London WC1R 4HQ United Kingdom

Namibia at a glance: 2006-07

OVERVIEW Conflict between the former president, Sam Nujoma, who remains leader of the ruling party, the South West Africa People�s Organisation (SWAPO), and those who favour greater democracy in the party is set to increase. The continuing influence of Mr Nujoma is also a challenge to the authority of the national president, Hifikepunye Pohamba, who may decide to press Mr Nujoma to resign if factionalism in SWAPO threatens further to weaken his presidency and undermine Namibia�s political stability. The Economist Intelligence Unit forecasts that real GDP will grow by 5% in 2006 as diamond production rises strongly, the Skorpion zinc refinery produces at full capacity and the fishing sector shows signs of recovery. Real GDP growth is forecast to fall to 4.5% in 2007 as the growth of diamond production slows, although it will be sustained by output from the new Langer Heinrich uranium mine. Rising inflation in South Africa is likely to push annual average inflation in Namibia to 4.5% in 2006, although it is expected to fall to 3.5% in 2007. Exports should rise strongly in 2006, owing to increased sales of diamonds, zinc and uranium. In 2007 exports are likely to fall back as diamond production slows and world mineral prices decline, whereas imports will accelerate to meet the demand of major new capital projects. The trade account is therefore forecast to roughly balance in 2006 but to return to deficit in 2007. Largely as a result of this, the current-account surplus is forecast to widen from an estimated 8.2% of GDP in 2005 to 12.4% of GDP in 2006 and then narrow to 8.2% of GDP in 2007.

Key changes from last month

Political outlook • The return of Hidipo Hamutenya to parliament and the expulsion from

SWAPO of one of his leading supporters presages a sharper struggle withinthe party between diehard supporters of Mr Nujoma and those who favour greater openness and democracy within the party.

Economic policy outlook • There is no change in the economic policy outlook.

Economic forecast • There is no change to the economic forecast.

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Namibia 1

Country Report January 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006

Contents

Namibia

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2006-07 7 Political outlook 8 Economic policy outlook 9 Economic forecast

13 The political scene

17 Economic policy

20 The domestic economy 20 Economic trends 24 Mining 27 Fishing 28 Manufacturing 28 Construction 29 Transport and communications

30 Foreign trade and payments

List of tables 9 International assumptions summary 12 Forecast summary 20 Central government debt 21 Gross domestic product: quarterly growth 23 Gross domestic product 24 Consumer prices, 2005 25 Uranium output, Jan-Sep 28 EPZ investment and employment 30 Current account, Jan-Jun 31 Capital account, Jan-Jun 32 External debt

List of figures 12 Gross domestic product 12 Consumer price inflation 23 Consumer prices

Namibia 3


Namibia January 2006

Summary

Conflict between the former president, Sam Nujoma, who remains leader of the ruling South West Africa People!s Organisation (SWAPO), and those who favour greater democracy in the party is set to increase, threatening further to undermine the authority of the national president, Hifikepunye Pohamba. The Economist Intelligence Unit forecasts that real GDP will grow by 5% in 2006, owing mainly to increased production of diamonds and refined zinc, falling to 4.5% in 2007 as the growth of diamond production slows. Exports should rise strongly in 2006, owing to increased sales of diamonds, zinc and uranium. In 2007 exports are likely to fall back as diamond production slows and world mineral prices decline, whereas imports will accelerate to meet the demand of major new capital projects. Largely as a result of this, the current-account surplus is forecast to widen from an estimated 8.2% of GDP in 2005 to 12.4% of GDP in 2006 and then narrow to 8.2% of GDP in 2007.

The expulsion of a leading member of SWAPO has sharpened factional conflict in the party. Hidipo Hamutenya has returned to his seat in the National Assembly. Mr Nujoma has received the title of "founding father of the nation". The discovery of mass graves of SWAPO fighters has revived controversy over the final phase of the guerrilla war. A new case of fraud involving public funds is being investigated. A reconciliation deal with Germany over colonial-era atrocities has been postponed. The first legal challenges to the policy of land expropriation are coming to court.

Namibia has received an investment-grade rating for sovereign debt. A new bill proposes greater government powers to control parastatals. The government is seeking to increase local diamond beneficiation.

Real GDP growth slowed sharply in the second quarter of 2005. The central bank has lowered its estimate of growth in 2005 to 3.2% but raised its estimates of growth in 2002, 2003 and 2004. Inflation rose to 3.4% in November. A num-ber of uranium deposits are being considered for development. The prospects for the fishing industry remain poor. Investment and employment in the EPZ have fallen. Windhoek is experiencing a property boom. Air Namibia has taken delivery of its first Airbus, although the company continues to run at a loss.

The current-account surplus more than doubled in first-half 2005. The government!s external debt has continued to rise.

Editors: Roger Boulanger (editor); David Cowan (consulting editor) Editorial closing date: December 16th 2005 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

Outlook for 2006-07

The political scene

Economic policy

The domestic economy

Foreign trade and payments

4 Namibia


Political structure

Republic of Namibia

Unitary republic

Based on the constitution of 1990 and Roman-Dutch law

Bicameral; National Assembly, with 72 members elected by universal suffrage and serving a five-year term, and up to six non-voting members appointed by the president; National Council, with limited powers of review and 26 members, two of whom are nominated by each of the country!s 13 regional councils, serving a six-year term

November 2004 (legislative and presidential); next elections due in November 2009

Hifikepunye Pohamba, elected president by universal suffrage in November 2004, took up his post in March 2005

President and his appointed cabinet; last reshuffle in March 2005

South West Africa People!s Organisation (SWAPO), the ruling party; Congress of Democrats (CoD); Democratic Turnhalle Alliance (DTA); United Democratic Front (UDF); National Unity Democratic Organisation (NUDO); Republican Party (RP)

Prime minister Nahas Angula Deputy prime minister Libertina Amathila

Agriculture, water & forestry Nickey Iyambo Central Intelligence Service Lukas Hangula Defence Charles Namoloh Education Nangolo Mbumba Environment & tourism Willem Konjore Finance Saara Kuugongelwa-Amadhila Fisheries & marine resources Abraham Iyambo Foreign affairs Marco Hausiku Gender equality & child welfare Marlene Mungunda Health & social services Richard Kamwi Home affairs & immigration Rosalia Nghidinwa Information & broadcasting Netumbo Ndaitwah Justice Pendukeni Iivula-Ithana Labour & social welfare Alpheus Naruseb Lands & resettlement Jerry Ekandjo Mines & energy Erkki Nghimtina Minister without portfolio Ngarikutuke Tjiriange National Planning Commission Helmut Angula Presidential affairs Albert Kawana Regional & local government, housing & rural development John Pandeni Safety & security Peter Tsheehama Trade & industry Immanuel Ngatjizeko Works, transport & communications Joel Kaapanda Youth, sport & culture John Mutorwa

Tom Alweendo

Official name

Form of state

Legal system

National legislature

National elections

Head of state

National government

Main political parties

Key ministers

Central bank governor

Namibia 5


Economic structure

Annual indicators

2001 a 2002 a 2003 a 2004 a 2005 b

GDP at market prices (N$ bn) 27.7 32.9 33.8 36.9 40.8

GDP (US$ bn) 3.2 3.1 4.5 5.7 6.4

Real GDP growth (%) 2.4 6.7 3.5 5.9 4.0

Consumer price inflation (av; %) 9.3 11.3 7.2 4.1 2.3

Population (m) 1.9 2.0 2.0 2.0 2.0

Exports of goods fob (US$ m) 1,147 1,072 1,262 1,828 2,040

Imports of goods fob (US$ m) -1,349 -1,283 -1,726 -2,110 -2,350

Current-account balance (US$ m) 58 128 336 573 529

Foreign-exchange reserves excl gold (US$ m) 234 323 325 345 365

Total external debt (US$ m) 427 465 1,013 1,145 1,218

Debt-service ratio, paid (%) 2.6 2.8 5.0 6.0 3.3

Exchange rate (av) N$:US$ 8.63 10.52 7.56 6.45 6.35

a Actual. b Economist Intelligence Unit estimates.

Origins of gross domestic product 2004 % of total Components of gross domestic product 2004 % of total

Agriculture & forestry 5.0 Private consumption 52.1

Fishing 4.0 Government consumption 24.5

Mining & quarrying 10.4 Gross domestic fixed investment 25.2

Manufacturing incl fish processing 12.2 Change in stocks 0.3

Wholesale & retail trade 11.2 Exports of goods & services 46.3

Financial services, real estate & business services 12.5 Imports of goods & services -45.0

Government 19.3

Main exports fob 2004 % of total Main imports fob 2004 % of total

Diamonds 35.2 Transport equipment 14.4

Prepared & preserved fish 23.0 Refined petroleum products 12.6

Metal ores incl uranium ore 9.0 Machinery & equipment 11.8

Beverages & other food products (excl meat & fish) 7.9 Chemical products, rubber & plastics products 10.3

Refined zinc 4.7 Textiles, clothing, leather products & footwear 9.7

Meat & meat preparations 4.5 Food excl fish, meat & beverages 8.1

Destination of exports 2003 % of total Origin of imports 2003 % of total

South Africa 31.5 South Africa 80.5

Angola 24.9 Germany 2.3

Spain 12.8 Switzerland 2.3

UK 10.4 Spain 1.4

US 2.7 China 1.3

6 Namibia


Quarterly indicators 2003 2004 2005 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 QtrPricesa Consumer prices (Dec 2001=100) 116.0 118.9 120.1 120.7 120.8 121.6 121.6 123.5Consumer prices (% change, year on year) 3.2 4.1 4.3 4.1 4.1 2.3 1.2 2.3

Financial indicators Exchange rate N$:US$ (av)b 6.727 6.794 6.611 6.381 6.053 5.975 6.420 6.504Exchange rate N$:US$ (end-period)b 6.640 6.370 6.270 6.450 5.630 6.235 6.650 6.360Bank of Namibia overdraft rate (av; %) 7.75 7.75 7.75 7.50 7.50 7.50 7.00 7.00Deposit rate (av; %) 7.47 6.47 6.34 6.32 6.27 6.34 6.34 6.29Govt bond yield rate (av; %) 12.00 11.68 12.57 12.23 11.06 10.29 10.26 10.76Lending rate (av; %) 13.01 11.55 11.94 11.21 10.86 10.63 10.59 10.60Prime rate (av; %) 13.20 12.50 12.50 12.25 12.25 12.25 11.75 11.75Treasury bill rate (av; %) 8.02 7.66 8.00 7.94 7.51 7.61 7.10 6.71M1 (end-period; N$ m) 7,851.4 n/a n/a n/a n/a n/a n/a n/aM1 (% change, year on year) 17.2 n/a n/a n/a n/a n/a n/a n/aM2 (end-period; N$ m) 12,913.4 n/a n/a n/a n/a n/a n/a n/aM2 (% change, year on year) 20.7 n/a n/a n/a n/a n/a n/a n/aIJG/IPPR Business Climate Index (Jan 2001=100) 106.0 106.9 103.8 103.7 112.6 112.9 115.9 119.2IJG/IPPR BCI (% change, year on year) 2.0 7.9 5.3 1.8 6.2 5.6 11.7 14.9Foreign trade & reserves Goods exports fob ( N$ m) 2,285 2,501 2,645 3,948 2,666 3,318 3,032 n/aDiamonds 736 1,254 1,007 2,000 1,058 1,643 n/a n/aOther mineral products 325 266 413 290 499 346 n/a n/aFood and live animals 287 310.1 429 421 383 421 n/a n/aManufactured products 901 641.7 753 792 562 610 n/a n/aGoods imports fob (N$ m) -3,377 -3,313 -3,339 -3,371 -3,567 -2,981 -3,315 n/aTrade balance (N$ m) -1,092 -812 -694 578 -901 336 -283 n/aServices balance 228 110 162 163 189 154 127 n/aIncome balance 506 205 107 -176 825 -182 482 n/aTransfers balance 819 925 1,125 1,132 1,122 1,238 859 n/aCurrent-account balance 454 422 693 1,690 1,228 1,544 1,180 n/aReserves excl gold (end-period; US$ m) 325.2 273.9 277.1 276.3 345.1 302.6 277.7 286.1

a Windhoek. b The Namibia dollar (N$) is at par with the South African rand.

Sources: Bank of Namibia, Quarterly Bulletin; IMF, International Financial Statistics; Irwin, Jacobs, Greene/Institute for Public Policy Research, Windhoek.

Namibia 7


Outlook for 2006-07

Political outlook

Although he was awarded the title of "founding father" of the nation in Nov-ember 2005, the activities of the former head of state, Sam Nujoma, are likely to prove increasingly divisive within the ruling party, the South West Africa People!s Organisation (SWAPO), of which he is president. At Mr Nujoma!s behest, a veteran SWAPO member and former minister of trade and industry, Jesaya Nyamu, was stripped of his party membership by SWAPO!s politburo in early December for allegedly promoting "division, violence and factionalism" within the party. Mr Nyamu, a leading supporter of the former foreign affairs minister, Hidipo Hamutenya, had expressed his reservations about remaining in the party in private notes leaked to the press at the end of 2004. His expulsion contrasts with the treatment of the disgraced former deputy transport and works minister, Paulus Kapia, a close ally of Mr Nujoma!s, who despite his involvement in a corruption scandal has only been suspended from SWAPO, although he has been forced to resign as a member of parliament (MP).

Following Mr Hamutenya!s return to the National Assembly as a SWAPO MP in place of Mr Kapia, the scene seems set for a long-delayed showdown over SWAPO!s future. Mr Hamutenya has openly declared his intention of combating the politics of autocracy and manipulation within SWAPO, which he claims"as has Mr Nyamu in even stronger terms"to have been fostered by Mr Nujoma. For SWAPO, which has always set store by loyalty and unity, these are serious charges. However, it remains unclear whether Mr Nujoma!s opponents will command enough support within the party to shift it towards greater internal democracy. The crucial figure is that of Hifikepunye Pohamba, whom Mr Nujoma chose to succeed him as president and who has always been deeply loyal to him. Mr Pohamba has tried to avoid conflict by appointing Nujoma loyalists as well as supporters of Mr Hamutenya to his cabinet, but this may not be enough to prevent a crisis of authority within SWAPO.

However, as long as Mr Nujoma remains president of SWAPO, Mr Pohamba, as SWAPO!s vice-president, will be his subordinate in party affairs. If Mr Pohamba decided openly to press Mr Nujoma to retire as SWAPO president he would risk splitting the party, earning the hostility of the Nujoma loyalists, who have proved themselves willing to use any means to destroy the reputation of those that question Mr Nujoma!s authority. Mr Nujoma himself, who is not due to retire as party president until SWAPO!s next ordinary congress in 2007, shows no sign of being willing to depart early. Mr Pohamba will almost certainly be nominated for the party presidency in two years! time and will probably prefer to wait till then before consolidating his position as both head of state and head of party. Nevertheless, he could decide to challenge Mr Nujoma before then if factionalism in SWAPO threatens further to weaken his presidency and undermine Namibia!s political stability.

Another challenge for Mr Pohamba!s leadership is the ambitious programme that his government has launched to improve the efficiency of parastatals and

Domestic politics

8 Namibia


boost economic growth through a new "developmental coalition" with the private sector. The three-year spending freeze envisaged in the current medium-term expenditure framework will also be difficult to achieve and is likely to affect the government!s popularity. Land redistribution is a priority, and white commercial farmers are under pressure to co-operate with the government!s compulsory purchase of selected farms.

As the situation along the Angolan border is stable, there are no perceived external threats to Namibia during the forecast period. Relations with the Angolan and South African governments will remain close, and Mr Pohamba has made almost no public show of support for the Zimbabwean president, Robert Mugabe, in contrast to the stance taken by Mr Nujoma. It is significant that Mr Pohamba chose to make his first foreign visits as head of state to Angola and Botswana"countries with which relations have not always been at their friendliest"rather than to Zimbabwe, which he has yet to visit.

Economic policy outlook

The main aims of economic policy are set out in the second five-year national development plan (NDP2), covering fiscal years 2001/02-2005/06 (April-March). These include reducing poverty and income inequalities, creating employment in the private sector, promoting black economic empowerment (BEE), achieving sustained economic growth and diversification, and combating the spread of HIV/AIDS. Progress in most areas is likely to remain slow, although the government has committed itself to speeding up the implementation of BEE initiatives and has reportedly finished drafting a new donor-supported programme to combat HIV/AIDS. It will become increasingly necessary for new foreign investors to form a partnership with a local BEE firm or trust. Most new foreign direct investment in export-oriented manufacturing will continue to benefit from incentives under the export-processing zone regime. A privatisation programme, as advocated by the IMF, is off the agenda in the short term, as the government prefers to improve the performance of state-owned enterprises by commercialisation and better management. In addition, in line with Mr Pohamba!s pledge to manage parastatals more efficiently, they are to come under the control of a new State-Owned Enterprises Governance Council, which is due to be set up in 2006.

The provisional outturn for fiscal year 2004/05 (April-March) shows a deficit of N$747m (US$117m), or 2.1% of GDP. Although above the original deficit target of 1.6% of GDP, a sharp upturn in revenue"particularly from diamond taxes"during the final quarter of 2004/05 makes the government!s deficit target of 1.2% of GDP in 2005/06 look more achievable. Continued growth of diamond taxes, owing to higher output, and a new 25% rate of value-added tax (VAT) on luxury goods should offset an expected fall in receipts from the Southern African Customs Union (SACU) and enable the government to meet its target of 3% revenue growth. Despite the more stringent controls on expenditure in 2005/06, spending growth will slightly exceed the government!s ambitious projection of 1%. Accordingly, the Economist Intelligence Unit forecasts a fiscal deficit of 1.4% of GDP in 2005/06.

Policy trends

Fiscal policy

International relations

Namibia 9


The government!s goal of achieving its first-ever budget surplus in 2006/07, of 1.2% of GDP, is largely based on its projection of overall revenue growth of 9%. This, in turn, is based on a projected 15% rise in SACU receipts, owing to transitional adjustments in Namibia!s favour, which is overoptimistic. We believe that revenue growth of 6% is more achievable. Expenditure is forecast to rise by 1.3%, slightly above the growth target of the previous year. Assuming that the government achieves its spending target, we forecast that, although it will not achieve a budget surplus in 2006/07, it will produce a fiscal balance.

The projected budget surplus in 2007/08 is predicated on spending growth of just 0.2%"a 3-4% decline in real terms"which we do not think is realistic. Revenue is forecast to contract by 1%, which is likely, owing to slower economic growth in 2007. Assuming spending growth of 1%, we forecast a small fiscal deficit of around 0.6% of GDP in 2007/08. The government will continue to finance its fiscal deficits through domestic borrowing, increasingly by issuing bonds rather than short-term maturities.

As the Namibia dollar is fixed to the rand, the bank rate set by the Bank of Namibia (the central bank) broadly shadows the repurchase (repo) rate set by the South African Reserve Bank (SARB). Because of a resumed upward trend in inflation in South Africa since mid-2005, owing largely to the spike in global oil prices, the next change in interest rates by the SARB Monetary Policy Committee will probably be upwards. A rise of 0.25 percentage points on the current 7% level is likely early in 2006. The SARB will continue mild tightening in 2006 to keep inflation within the current target range of 3-6%, and this trend is likely to continue in 2007. The risks to our forecast remain the possibility of sustained high or rising oil prices, burgeoning consumer credit levels and renewed sharp volatility in the exchange rate of the South African rand.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2004 2005 2006 2007

Real GDP growth World 5.0 4.4 4.0 3.9

US 4.2 3.6 2.7 2.9

EU25 2.4 1.7 2.0 2.2

Exchange rates ¥:US$ 108.1 110.1 113.8 104.5

US$:� 1.244 1.245 1.248 1.338

SDR:US$ 0.675 0.677 0.681 0.653

Financial indicators ¥ 2-month private bill rate 0.00 0.00 0.18 0.51

US$ 3-month commercial paper rate 1.48 3.49 5.13 4.88

Commodity prices Oil (Brent; US$/b) 38.5 55.0 55.0 46.8

Copper (US cents/lb) 129.5 163.0 150.0 95.8

Zinc (US cents/lb) 47.7 62.6 78.0 66.3

Uranium (US$/lb) 18.2 31.0 23.0 22.0

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

Monetary policy

International assumptions

10 Namibia


Having slowed to an estimated 4.4% in 2005, world GDP growth is expected to continue decelerating to 4% in 2006 and 3.9% in 2007. As demand for rough diamonds"Namibia!s main export by value"and global GDP growth tend to be correlated, weaker demand in the diamond market might be expected in 2006-07. However, the value of rough diamond sales in the first half of 2005 by De Beers! Diamond Trading Company, which accounts for some 60% of global supply, was 8% higher than in the same period of 2004. Demand from world cutting centres, and sales of diamond jewellery in the key US market, are expected to remain strong in 2006, but are likely to moderate in 2007. Rising demand will push zinc prices higher, to an average of 78 US cents/lb in 2006, falling the following year as stocks exceed requirements. The average oil price is expected to remain at around US$55/barrel in 2006 but to fall in 2007 to US$47/b as crude output and refinery capacity expands.

According to official estimates, real GDP growth slowed to 3.2% in 2005, compared with a previous official forecast of 3.8%. However, we estimate a real growth rate nearer to 4% in 2005, owing to much higher diamond and uranium output in the latter part of the year. The slowdown"from 5.9% in 2004, according to the recently published official estimate"is due to a slower rate of growth in diamond production, slightly lower uranium production, and a further contraction in fishing and fish processing. We forecast stronger real GDP growth of 5% in 2006, owing to faster growth in diamond output as a result of the first full-year!s operation by the new recovery plant at Namdeb!s Elizabeth Bay mine and continued expansion in offshore recoveries. Higher uranium output by the Rössing mine, of around 3,800 tonnes, the commissioning of the new Langer Heinrich uranium mine in the fourth quarter of 2006, along with the first year of full-capacity zinc metal production by the Skorpion mine and refinery (delayed from 2005 because of technical problems) will further under-pin overall mining sector growth of 20-25%. Agricultural output should also grow more strongly than in 2005, owing mainly to a further expansion in the number of cattle marketed (which fell in 2004 and only partly recovered the following year) and higher output of coarse grain, owing to better rainfall in the current growing season. Manufacturing growth will also accelerate, owing to higher output of refined zinc, smelted copper, beverages and leather production. Construction will be boosted by the building of the Langer Heinrich mine.

In 2007 real GDP growth will weaken to 4.5% as demand on the global market eases back and diamond output growth slackens. This will offset the first full year!s output of uranium (1,100 tonnes) by Langer Heinrich, assuming that it begins production on schedule; uranium production by Rössing and zinc output will barely increase. Real mining-sector growth will be around 10%. Agricultural output will also be weaker, as livestock marketing levels will be little changed on 2006. The Kudu gas-to-power project, expected to be approved in early 2006 and involving the building of gas production and pipeline facilities, together with the building of a power plant at Oranjemund, will boost construction.

Year-on-year inflation rose in November to 3.4%, compared with 2.9% in October and 4% in November 2004. The only significant month-on-month rise in the consumer price index was in food prices, which had increased by 4.5%

Inflation

Economic growth

Namibia 11


over the previous 12 months owing to seasonal factors. The other significant contributor to the annual inflation rate was transport prices, which had increased by 8.4% over the year, reflecting the increase in world energy prices. Even so, annual average inflation was only 2.3% in November and it is unlikely to exceed that for the year as a whole. In 2006 annual average inflation is forecast at 4.5%"as South Africa is the source of 80% of Namibia!s consumer goods, rising inflation there will significantly increase the cost of imports. The reintroduction of a 25% rate of VAT on luxury goods by early 2006 will also help to push up inflation. In 2007 Namibian inflation should drop back to 3.5%, owing to falling inflation in South Africa, lower oil prices and the monetary tightening carried out by the SARB and Bank of Namibia the preceding year.

The Namibia dollar will remain fixed at parity to the rand throughout the forecast period. After performing strongly in the first quarter of 2005, when it traded at under R6:US$1, the rand depreciated in the second and third quarters to average R6.40:US$1 and R6.51:US$1 respectively. The rand has stabilised slightly, to trade at an average of R6.62:US$1 in October-November, and we estimate an average exchange rate for the year of R6.35:US$1. During the forecast period the rand is expected to depreciate gently owing to lower commodity prices and the rising deficit on the current account, to average R6.55:US$1 in 2006, before falling further, to R6.75:US$1 in 2007. However, a sharper fall is possible, the risk factors being oil prices, US interest-rate movements, South Africa!s widening current-account deficit and the role of short-term speculative inflows in the capital account.

The trade deficit is estimated to have widened in 2005. The surpluses on the services and current transfers accounts are expected to have increased, owing to higher revenue from tourism and SACU receipts. However, the surplus on the income account is expected to have fallen, as debits on the account (chiefly repatriated profits by companies based abroad) are believed to have grown faster than credits (earnings from investments abroad). In consequence, the current-account surplus in 2005 is estimated to have fallen to 8.2% of GDP. In 2006 export growth should expand strongly again, as a result of higher diamond and zinc exports owing to continued strong global demand (not all refined zinc production by Skorpion was sold in 2004-05) and increased uranium sales following the start of production by the Langer Heinrich mine. Import growth should slow, as the upward trend in interest rates will reduce consumer spending, and the trade deficit will be substantially reduced, the account possibly being in surplus for the first time. We expect the surplus on the services account to show little change; but the surplus on the income account is expected to fall as in the previous year. Net inflows of current transfers will increase, owing to higher SACU receipts. Overall, the current-account surplus is forecast to widen to 12.4% of GDP.

In 2007 the current-account surplus is forecast to narrow to 8.2% of GDP, as most of the previous year!s trends will be reversed owing to the impact of the slowing global economy and a decline in current transfer inflows due to lower SACU receipts. There will be only modest growth in Namibian diamond output and this, combined with lower zinc prices, will more than offset the increase in

External sector

Exchange rates

12 Namibia


uranium exports. In addition, earnings from fish exports will remain static. Rising import growth"because of stronger consumer demand and imports of capital equipment for the start of construction of the Kudu gasfield and Oranjemund onshore power station"will probably cause the trade account to return to deficit. Growth in tourism receipts is expected to slow, causing the surplus on the services account to narrow. Improving returns on portfolio and other investment abroad, mainly pension and life-assurance funds, should cause the surplus on the income account to rise in 2007.

Forecast summary (% unless otherwise indicated)

2004 a 2005 b 2006c 2007c

Real GDP growth 5.9 4.0 5.0 4.5

Gross agricultural production growth -2.9 1.0 2.1 1.0

Consumer price inflation (av) 4.1 2.3 4.5 3.5

Consumer price inflation (year-end) 4.3 3.9 4.5 4.3

Short-term interbank rate (av) 11.4 11.0 12.5 13.0

Government balance (% of GDP) -2.0 b -1.4 0.0 -0.6

Exports of goods fob (US$ m) 1,828 2,040 2,490 2,460

Imports of goods fob (US$ m) -2,110 -2,350 -2,480 -2,680

Current-account balance (US$ m) 573 529 850 586

Current-account balance (% of GDP) 10.0 8.2 12.4 8.2

External debt (year-end; US$ m) 1,145 1,218 1,233 1,254

Exchange rate N$:US$ (av) 6.45 6.35 6.55 6.75

Exchange rate N$:¥100 (av) 5.96 5.77 5.76 6.46

Exchange rate N$:� (year-end) 7.64 7.56 8.84 9.19

Exchange rate N$:SDR (year-end) 8.77 9.10 10.17 10.65

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Namibia Sub-Saharan Africa

Gross domestic product(% change, year on year)

Namibia Sub-Saharan Africa

Consumer price inflation(av; %)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2001 02 03 04 05 06 07

2

4

6

8

10

12

2001 02 03 04 05 06 07

Namibia 13


The political scene

A decision by the political bureau (politburo) of the South West Africa People!s Organisation (SWAPO) on December 7th 2005 to expel the former minister of trade and industry, Jesaya Nyamu, from the party has increased the internal tensions that have been simmering since Hifikepunye Pohamba became head of state nine months earlier (October 2005, The political scene). The expulsion of Mr Nyamu, a party member since 1962 and a leading supporter of the former minister of foreign affairs, Hidipo Hamutenya, was announced by SWAPO!s president, Sam Nujoma, who charged him with inciting "division, violence and factionalism" within the party. Mr Nujoma added that the politburo had resolved that Mr Nyamu "is not worth [sic] SWAPO party membership" and had therefore been "excommunicated" from the party, a decision subsequently endorsed by a central committee meeting a few days later.

Mr Nyamu!s expulsion was ostensibly due to notes that he had written on the options for Mr Hamutenya!s supporters after the latter!s failure in May 2004 to secure the party!s nomination as its candidate in the presidential election the following November. These included the proposal that individuals could leave the party one by one and issue a series of statements to the press denouncing the lack of party democracy, and even the idea of forming a new political party (although this was not specifically advocated). The notes were leaked to the press at the end of 2004 after being stolen from Mr Nyamu!s private office. However, Mr Nyamu!s expulsion is widely viewed as having been engineered by Mr Nujoma and his group of ultra-loyal supporters in revenge for the downfall of Paulus Kapia, a protégé of Mr Nujoma. Mr Kapia was suspended from SWAPO membership in September 2005, pending an investigation of his role in a N$30m (US$45m) corruption scandal involving Avid Investment Corporation and the Social Security Commission (October 2005, The political scene). Although Mr Kapia reluctantly complied with a party directive that he resign as a member of parliament (MP), he has not been formally expelled from the party.

Questions have been raised over the constitutionality of Mr Nyamu!s expulsion, in view of the fact that only 11 of the 21 politburo members (who then included Mr Nyamu) actually attended the meeting at which the decision was taken. Mr Nyamu did not attend and was given no opportunity to answer the charges against him. Notable absentees included the prime minister, Nahas Angula; the deputy prime minister, Libertina Amathila; the speaker of the National Assembly, Theo-Ben Gurirab; the party!s chief whip in the National Assembly, Ben Amathila; and SWAPO!s secretary-general, Ngarikutuke Tjiriange. It cannot be known how they would have voted (and the politburo vote itself has yet to be disclosed) but it is likely that they would have opposed Mr Nyamu!s expulsion in the interests of party unity and in the spirit of the collegiate leadership style adopted by Mr Pohamba.

Renewed turmoil has broken out within SWAPO

The expulsion appears to have been constitutional

14 Namibia


The action taken against Mr Nyamu came only three weeks after Mr Hamutenya had made a return to frontline politics by taking over the National Assembly seat vacated by Mr Kapia. Mr Hamutenya was ranked 56th on his party!s list for the National Assembly election of November 2005 in which SWAPO won 55 seats (January 2005, The political scene), and following Mr Kapia!s resignation automatically took over the vacancy. It seems probable that Mr Hamutenya!s highly public return to the National Assembly in mid-November"when he was greeted by ululating supporters in the assembly!s packed public gallery"may have provoked Mr Nujoma into moving against Mr Nyamu as one of his principle lieutenants. In a speech outside parliament after being sworn in as an MP, Mr Hamutenya said that he remained a loyal SWAPO member, but was vehemently opposed to "autocracy" and "the politics of manipulation", coded words for Mr Nujoma!s domination of the party. He went further, accusing his opponents in the party of conducting a character assassination campaign and witch-hunt against him after he had been dramatically dismissed as foreign affairs minister on the eve of the May 2004 special party congress (July 2004, The political scene; October 2004, The political scene). Mr Hamutenya!s return will strengthen the hand of those within SWAPO who want Mr Nujoma to step down early from his post as party president, which he is not due to vacate until the party!s next ordinary congress in 2007, in order to strengthen Mr Pohamba!s authority.

Despite the growing concern of many within SWAPO at Mr Nujoma!s role"a concern apparently not confined just to Mr Hamutenya and his supporters"the party!s appetite for bestowing honours on the former head of state seems to be undimmed. At the beginning of December 2005 the National Assembly approved a motion conferring the title of "founding father" of the Namibian nation on Mr Nujoma. The minister of presidential affairs, Albert Kawana, a leading Nujoma loyalist, claimed that the proposal was a national and not a party political issue, as the former head of state would accept the honour on behalf of all Namibians, regardless of political affiliation. The motion was nevertheless strongly opposed by the official opposition party, the Congress of Democrats, whose leader, Ben Ulenga, himself a former SWAPO guerrilla, accused SWAPO of trying to rewrite history and of portraying the war for independence as a one-man struggle waged by Mr Nujoma"a reference to a controversial film being made of the latter!s life "Where Others Wavered". Mr Ulenga added that although no one disputed the leading role Mr Nujoma had played in Namibia!s struggle for independence, conferring the title of founding father on one man would belittle the contribution of countless others and was also inappropriate while Mr Nujoma remained active in politics as the president of SWAPO.

The debate about conferring the new title on Mr Nujoma coincided with the discovery of skeletal remains in some 20 mass graves at several different locations in northern Namibia, believed to contain the bodies of several hundred fighters from the People!s Liberation Army of Namibia (PLAN, the military wing of SWAPO) killed fighting South African forces in April 1989 at the start of the implementation of the UN-supervised independence process for

Mr Hamutenya takes over Mr Kapia�s seat in parliament

Mr Nujoma receives the title of "founding father"

Mr Nujoma defends SWAPO�s military actions in 1989

Namibia 15


Namibia. The sequence of events at this time, which almost derailed the independence process, has always been disputed, and the discovery of the graves has reignited the controversy. At least 300 PLAN guerrillas, and probably more, are thought to have lost their lives in nine days of conflict with South African forces. On November 24th Mr Nujoma held a press conference, at which he accused the former British prime minister, Margaret Thatcher, and South African and UN officials of "orchestrating" an attack on PLAN forces who he claimed were complying with the agreed arrangements for ending Namibia!s war of independence.

However, it is widely believed that the fighting broke out when PLAN units moved into Namibia from Angola. South Africa viewed this as an attempt to seize territory in breach of the UN-backed agreement and secured the backing of Mrs Thatcher and the UN!s representative for the re-mobilisation of South African forces, which were then confined to base awaiting the deployment of a 7,500-strong UN peacekeeping force in the border zone. Mr Nujoma!s version of events is that he had ordered his forces to make contact with the UN military contingent in Namibia to undergo demobilisation. This version is not, however, accepted by UN officials and Western diplomats, who maintain that Mr Nujoma knew that UN troops had yet to be fully deployed when he authorised PLAN units to cross into Namibia, and deliberately ran the risk that this might provoke a South African military response. Further controversy has been caused by claims from the families of several thousand SWAPO "dissidents" who were executed as alleged South African spies in southern Angola during the 1980s that the mass graves might contain the bodies of some of these victims.

The appointment of two Namibians with no known political connections, Paulus Noa and Erna van de Merwe, as director and deputy director respectively of the new Anti-Corruption Commission (ACC; October 2005, The political scene) was approved unanimously by the National Assembly in mid-November 2005. In response to claims by opposition MPs that the two appointees had little experience of prosecutions in this field"the director has worked for the magistrates! courts and the deputy director has extensive legal drafting experience"the prime minister, Nahas Angula, said that they should be given a chance to prove their worth. He disclosed that the government had contacted international anti-corruption agencies and other good governance organisations for help in establishing the ACC. Mr Angula admitted that the interviewing panel had not found any of the short-listed candidates ideally suitable but had decided to select the best applicants in a transparent process rather than cause further delay by holding a second round of interviews. He acknowledged that if the government had decided to canvass others for the posts rather than choose from those who had applied voluntarily it would be open to charges of trying to manipulate the appointments in favour of Namibians with political connections to the ruling party.

Anti-Corruption Commission officials are appointed

16 Namibia


The need for the ACC to be established quickly has been highlighted by a new case of high-level corruption. Even while the Avid-Social Security Commission corruption scandal is still being investigated (and no prosecutions have yet begun), the Offshore Development Company (ODC), which is in charge of promoting Namibia!s export-processing zone, has become involved in another complex fraud inquiry (see The domestic economy: Manufacturing). Although the ODC is officially described as a public-private partnership, in fact the government holds a 90% share, and it is accountable to the Ministry of Trade and Industry. During the past four years the ODC has incurred losses of around N$100m (US$15m) from investments in a network of shady financial concerns, including one Botswana-based firm that is no longer operational, Great Triangle Investments. The ODC is being sued by the Namibia Development Corporation (NDC) for N$55m of NDC funds re-invested in this way. In turn, the ODC began a legal action of its own in November 2005 to sequestrate the personal assets of a South African financial adviser and insurance broker, Peter Boonzaaier, who is alleged to have collected N$12m in fees for acting as an investment agent between the ODC and various companies since 2001.

Further discussions are to be held with Germany over its offer of a #20m (US$24m) reconciliation fund to provide assistance to Namibian communities that suffered during the German repression of the Herero-Nama rebellions of 1904-08 (July 2005, The political scene). During a five-day official visit to Germany at the end of November 2005, Mr Pohamba declined to sign a Memorandum of Understanding over the reconciliation fund, even though the text had been agreed by both sides. German officials said that Namibia had requested more time to consider new proposals for use of the funds, including land reform and transport projects. However, Namibia!s minister of foreign affairs, Marco Hausiku, said that the government wished first to consult fully with all the affected communities, including the Damara and San (Bushmen) as well as the Herero and Nama. Mr Hausiku, who did not explain why the gov-ernment had failed to carry out these wider consultations before Mr Pohamba!s visit, also accused Germany of trying to rush Namibia into a premature agreement over the reconciliation fund. The disagreement does not seem to have done any damage to the close links between the two countries. Germany, which has been Namibia!s largest bilateral donor since 1990, has offered substantially to increase its development aid under a new co-operation agreement. Talks on the reconciliation fund, which Germany refuses to recognise as reparation for the country!s colonial misdeeds, are due to resume in the early part of 2006.

The government!s policy on land reform through the compulsory purchase of commercial farms is to receive its first challenge in the courts. A white, Namibian-born owner of two commercial farms served with expropriation notices in August 2005 is contesting the government!s valuation, and a group of four Germans and one South African national who own seven farms between them plan to challenge the principle of compulsory purchase by the state. The government appears to be unconcerned by these developments, and the minister of lands and resettlement, Jerry Ekandjo, stated in early December that

Another instance of official corruption is revealed

Deal on a reconciliation fund with Germany is postponed

The first challenge to farm expropriation is lodged

Namibia 17


the government was ready for "a court war" to push through its expropriation policy. To date, 18 farms have been issued with expropriation notices, and it seems virtually certain that one or more of these disputes, and potentially others, will end up in court. In the case of the two farms, located 40 km north of Otjiwarongo, owned by Heide-Marie Lacheiner-Kuhn, a Namibian citizen of German origin whose family has held the properties for over 70 years, the dispute has been referred in the first instance to the independent lands tribunal, which will determine the price that the state should pay in the first ruling of this kind. Neither farm"like Ongombo West, the first farm to have been expropriated (October 2005, The political scene)"falls within the definition of absentee landlord-owned or unproductive land, which the government had originally stated would be its priority targets for expropriation. The four German farm owners are absentee landlords but claim that their assets should be protected under Germany and Namibia!s bilateral investment agreement. During his state visit to Germany, Mr Pohamba reassured German investors that farm expropriations would be carried out in accordance with existing laws.

The government faces mounting pressure by radical groups to speed up land resettlement. The Namibia Emerging Farmers! Association (NEFA, a body set up in July 2004 ostensibly to help with the training of newly resettled farmers) warned at the end of November 2005 that black, landless Namibians might otherwise take the law into their own hands. NEFA!s executive director, Nokokure Tjizera, a former SWAPO guerrilla, said that this could result in farm invasions as in Zimbabwe, and urged the government to target for expropriation farms owned by absentee landlords and those used solely for hunting. He also called on the government to review a decision taken by the national land conference of 1991 that ancestral land claims would not be allowed. The decision was made largely to avoid conflicting claims from Namibia!s different indigenous communities that had been dispossessed of their land or had settled their land under colonial rule.

Economic policy

Namibia has received its first-ever sovereign debt rating. At the beginning of December 2005 a London-based international credit ratings agency, Fitch Ratings, awarded a sovereign debt rating of BBB- for Namibia!s long-term foreign currency bonds and BBB for long-term local currency bonds. This puts Namibia at the same level as Croatia, Mexico and Romania and almost on a par with South Africa, which received a BBB+ rating from Fitch for long-term foreign currency debt, but below the A rating for this debt category awarded to Botswana by Standard & Poor!s. Although Namibia!s long-term local currency rating is well below the A rating currently held by South Africa, Fitch has awarded Namibia an A- country ceiling, the same as South Africa!s, reflecting the country!s membership of the Common Monetary Area whose members! currencies are pegged to the rand. Namibia!s ratings are considered investment grade, although in the lowest classification, and Namibia therefore joins South Africa and Botswana as the only countries in Sub-Saharan Africa with an investment-grade credit rating.

Namibia is awarded a BBB sovereign credit rating

A black farmers� group warns of farm invasions

18 Namibia


Fitch projects a stable outlook for both long-term ratings, an assessment it bases on the country!s perceived stable political and policy environment and sound macroeconomic fundamentals. According to Fitch, Namibia benefits from "a low public and external debt burden, high domestic savings and current-account surpluses, macroeconomic stability and relatively robust growth."

In a statement on December 7th, the minister of finance, Saara Kuugongelwa-Amadhila, expressed the government!s satisfaction with the rating from Fitch, which she said showed that Namibia!s fiscal and monetary policies were on the right track, while also taking into account some weaknesses "that we are all aware of". Factors identified as weaknesses by Fitch included the narrow base of the economy, with the primary sector accounting for 20% of GDP and 60% of exports. In addition, Namibia!s high level of gross domestic savings, although listed as a ratings strength, has resulted in persistent and growing capital outflows to South Africa, indicating limited domestic investment opportunities, a ratings weakness. The assessment, which has been paid for mainly by the US government, will be reviewed annually, and Mrs Kuugongelwa-Amadhila said that it would enable Namibia to "establish a footprint" (start borrowing) in the international capital markets.

The assessment will certainly help the government to raise new loans on international capital markets to finance its share of the estimated N$7bn (US$1.1bn) cost of the Kudu gas-to-power project. Furthermore, in addition to Namibia!s sovereign rating"and crucial to the financing of the Kudu project"Fitch has awarded the Namibia Power Corporation (NamPower), which is to build the new gas-fired power station at Oranjemund, a BBB- rating for long-term foreign currency debt.

The government will need to tackle inefficiently managed parastatals, and reduce their overall losses and levels of debt, if Namibia is to maintain its prized new sovereign debt credit rating. A bill setting out new government powers to regulate and restructure the operations of Namibia!s state-owned enterprises (SOEs), tabled in the National Assembly by the prime minister, Nahas Angula, in mid-November, contains more sweeping provisions than had been expected (July 2005, The political scene). Under the proposed act the government will in effect take over responsibility for the running of parastatals, which runs counter to long-standing advice from the IMF"regularly expressed in Article IV consultations"that it should implement a privatisation programme. The State-Owned Governance Act will apply to all of Namibia!s 52 SOEs, and extensive powers will be vested in a Governance Council (previously referred to as the Central Governance Agency) chaired by the prime minister, with the finance minister, the trade and industry minister, the attorney-general and the director-general of the National Planning Commission as the other members. The council will be responsible for drafting directives"rather than just guidelines"on performance agreements for individual parastatals, the criteria for evaluating the performance of chief executive officers and senior managers, as well as guidelines for appointing board members.

NamPower receives the same rating for long-term debt

The government seeks new powers to control parastatals

Namibia 19


Presenting the bill to parliament, Mr Angula said that the purpose was not just to turn round the financial performance of loss-making and inefficient parastatals, but to end the corruption and maladministration that had prevailed over the years. This would require a "mind shift" by management away from the current ways of doing business and towards "a new culture of hard work, innovation, competitiveness and skills development". In addition to supervising the introduction and monitoring of performance agreements between para-statal boards and the responsible minister, and between boards and managers, the Governance Council will determine the remuneration of board members and senior managers. Mr Angula also reiterated that only suitably qualified people should be appointed to the board of SOEs, in contrast to the practice in the past when the main qualification of many appointees appeared to have been their political links with the ruling party.

The combination of the bill!s regulatory provisions and a more rigorous hands-on approach by the Ministry of Finance should"if properly implemented"end the present freedom of parastatals largely to conduct their own affairs and pursue often widely divergent financial strategies. The Governance Council will be charged with developing a common policy for SOE operations, including asset and financial management, and with approving annual budgets, the distribution of profits and the declaration of any dividends, matters that until now have been the prerogative of the boards of directors. To curb the irregular-ities in public fund management exemplified in a number of recent fraud cases involving parastatals (October 2005, The political scene; July 2005, The political scene; January 2005, The political scene; February 2004, The political scene), the finance ministry is to tighten the controls on investment by SOEs.

The new approach was set out by the finance minister at a meeting in mid-November of senior officials of SOEs, regional councils and local authorities, convened by the Namibia Financial Institutions Supervisory Authority (Namfisa), which has been widely criticised for not regulating more effectively the investments of non-banking financial institutions. Mrs Kuugongelwa-Amadhila said that the government would prefer funds to be invested only in secure instruments within Southern Africa, even if the rates of return were lower than more risky ventures, and preferably in the banking sector. She acknowledged that the recent spate of failed investment deals by parastatals"the Social Security Commission!s N$30m deal with Avid Investment Corporation (October 2005, The political scene) and the recently revealed "loss" of N$100m by the Offshore Development Corporation (see The political scene)"was due to the commitment of public funds to risky "fly-by-night" ventures by officials with little expertise in making investment decisions. The finance ministry will henceforth require SOEs formally to notify it of their investment policy and procedures; the Governance Council will be responsible for monitoring parastatals! use of public funds.

Government aims for a culture change in SOE management

Tight financial constraints will be imposed

20 Namibia


Central government debt increased fractionally during the second quarter of 2005 to just under N$12.6bn (US$1.9bn); as a proportion of GDP it fell to 32%, compared with 35% at the end of March. The increase was entirely due to higher foreign debt, which rose by 7% quarter on quarter in April-June 2005 (see Foreign trade and payments), as domestic debt decreased by 1%. In consequence, the share of domestic debt in total government debt declined by 1 percentage point to 83% at end-June 2005. The year-on-year growth of debt slowed to 15% in the second quarter, compared with 23% in the preceding quarter: domestic debt expanded by 14% and foreign debt by 21%. Accordingly, the ratio of domestic debt to GDP fell to 27%, from 30% at end-March 2005. In US dollar terms, owing to the Namibia dollar!s appreciation during the second quarter of 2005, total outstanding debt fell by 7% quarter on quarter while registering a 9% year-on-year increase.

Central government debt (N$ bn unless otherwise indicated; end-period)

2004 2005

Juna Mar a Juna % changeb

Domestic debt 9,148 10,543 10,435 14.1

Treasury bills 5,071 5,616 5,586 10.2

Bonds 4,077 4,927 4,849 18.9

Foreign debt 1,788 2,016 2,155 20.5

Total debt 10,935 12,559 12,590 15.1

US$ m 1,744 2,014 1,893 8.5

% of GDP 30.6 35.1 32.3 -

a Actual. b June 2005/June 2004.

Source: Bank of Namibia, Quarterly Bulletin, September 2005.

The domestic economy

Economic trends

In its Quarterly Bulletin for September 2005, the Bank of Namibia (the central bank) provisionally estimated real GDP growth at only 1.1% year on year in the second quarter of 2005. This is considerably slower than the 4.1% year-on-year growth in the first quarter"the latter figure is an upward revision of the 2.5% growth rate given for first-quarter 2005 in the previous Quarterly Bulletin (October 2005, The domestic economy: Economic trends). The growth rate in April-June is also less than half the 2.4% growth rate in second-quarter 2004.

The main cause of the slower year-on-year growth rate in April-June was a sharp slowing in agricultural output coupled with a contraction in the mining sector, although the performance of agriculture was an improvement on the negative growth recorded in second-quarter 2004. Although the contraction in fisheries production was appreciably slower than in either January-March 2005 or in April-June 2004, this improvement was not sufficient to offset the weaker performance of agriculture. The slower growth of agricultural output than in first-quarter 2005 was due to a smaller year-on-year rise in the number of cattle marketed and despite a large rise in the number of sheep and goats marketed

Real GDP growth slows sharply in the second quarter

Central government debt growth slows sharply

Namibia 21


(the central bank comments that this is due to measures by the government to encourage the sale of small stock to Namibian abattoirs rather than their export on the hoof). The lower rate of deterioration of the fishing industry was due to higher landings of pilchards, crab and rock lobster during April-June 2005 than a year earlier, although this was offset by poorer catches of other species, including hake.

Gross domestic product: quarterly growth (% change, year on year; constant 1995 prices)

2004 2005

Apr-Juna Jan-Mar a Apr-Junb

Agriculture -4.5 12.0 0.4

Fishing -13.2 -18.6 -5.8

Mining 30.9 5.3 -5.8

Manufacturing 3.1 -7.5 5.4

Construction 0.8 0.8 2.9

Electricity & water 0.3 10.1 0.3

Wholesale & retail trade 1.3 18.1 2.0

Hotels & restaurants -9.3 14.0 -6.8

Transport & communications 10.1 7.1 4.1

GDP at market prices 2.4 4.1 1.1

a Revised. b Provisional.


The turnaround in mining sector growth in April-June was mainly due to a 6% drop in diamond output compared with a strong rise in the same quarter of 2004. However, this trend is unlikely to have continued into the third and fourth quarters of 2005 owing to higher production by the principal producer, Namdeb Diamond Corporation (Namdeb) from its new onshore plant at the Elizabeth Bay mine and expanded offshore recoveries by its exclusive contractor, De Beers Marine Namibia (October 2005, The domestic economy: Mining). Manufacturing output was 5.4% higher in April-June than in the previous year, in contrast to a contraction in the preceding quarter. This was due to higher output of smelted copper, refined zinc, processed meat and other food products. Construction activities picked up from a slow start in the first quarter.

Wholesale and retail trade grew slightly more strongly in April-June 2005 than in the same quarter of 2004, but markedly slower than in January-March 2005, which seems at odds with the continued benefit to consumers of low inflation and interest rates. The impact of the strong Namibia dollar continued to weigh on the hotels and restaurants sector, regarded by the central bank as a proxy for the tourism sector, and the contraction recorded in the second quarter, reflected an 8% year-on-year decline in tourist arrivals.

The Bank of Namibia governor, Tom Alweendo, has said that growth has weakened substantially in 2005 owing to a slowdown in the main export sectors of diamonds, uranium and fishing. In his annual address in mid-November, delivered to an audience of business leaders and diplomats in the capital, Windhoek, Mr Alweendo said that the central bank had lowered its forecast for real growth in 2005 to 3.2%, compared with its 3.8% forecast made at the beginning of the year and well below the strong growth of just under 6%

Central bank lowers its 2005 growth forecast to 3.2%

Diamond output falls but manufacturing recovers

22 Namibia


recorded in 2004. The Bank of Namibia!s estimate is below the 4% growth rate estimate of the Economist Intelligence Unit, which we still believe may be achieved given the renewed expansion in diamond and uranium output during the second half of the year. In fact, Mr Alweendo acknowledged that the actual 2005 growth rate might exceed the central bank!s projection (as it did in 2004), provided that inflation and interest rates remained at their current low levels, combined with continued strong commodity prices and favourable weather conditions for agriculture and fishing.

The latest national accounts data published by the Central Bureau of Statistics (CBS) put real growth in 2004 at 5.9%, considerably above the 3.5% growth rate that the CBS gives for 2003, the latter figure being a slight downward revision from the previously published figure of 3.7%. The breakdown of GDP growth by sector in the new national accounts shows that the mining sector grew rapidly in 2004"diamond output grew by 39% and that of other minerals by 31%. Manufacturing also made a significant contribution to GDP growth. Although overall manufacturing grew by 5.9% in 2004, only slightly faster than in the previous year, output in the "other manufacturing" category, which includes refined zinc production, expanded by 19%. This was partly offset by a contraction in output of both processed fish and processed meat.

The new national accounts data also include a major recalculation of GDP for 2002, with a sharp upward revision in the growth rate for that year to 6.7% compared with the previous figure of 2.5%. The main changes are to primary sector output, which is now stated to have grown by over 12% in 2002 compared with the previous estimate of just under 3%. Agricultural output was previously estimated to have contracted by 4.8%, but this has now been revised to 8.5% positive growth. Although the growth rate of fishing is unchanged, that for mining has been substantially increased, from just under 4% to 16%. This is mainly due to a revised figure for diamond output, which is now calculated to have grown in real terms by 17% compared with only 4% previously, although growth in other mining sectors has also been raised substantially to 13% (from 2.6%), reflecting the higher volume output of uranium, zinc concentrates and salt in 2002. The upward revision of manufacturing growth"from 4.9% to 9.6%"is largely due to a 2% expansion in real value added by manufacturing categories other than fish and meat processing and other food products. This is probably mainly attributable to the start of large-scale textile production by the Malaysian-owned Ramatex plant in Windhoek, since output of smelted copper fell in 2002 and the production of refined zinc had yet to start. Other changes contributing to the higher overall growth rate in 2002 include a reduction in the construction sector!s negative growth rate, a doubling of the growth rate of wholesale and retail trade and a switch from a contraction in real estate and business services to a strong positive growth rate.

Estimates of growth in 2004, 2003 and 2002 are raised

Namibia 23


Gross domestic product (% real change, year on year)

2002a 2003 a 2004b

Primary sector 12.4 0.2 13.6

Agriculture 8.5 3.6 1.5

Fishingc 11.4 4.2 -9.1

Mining 16.0 -4.6 36.8

Diamonds 17.3 -3.5 39.1

Secondary sector 3.8 9.4 4.7

Manufacturing 9.6 5.2 5.9

Fish processing -10.1 51.1 -2.2

Meat processing 2.1 -11.6 -10.5

Other foods/beverages 8.3 -0.3 0.2

Othersd 20.1 -2.6 19.1

Construction -13.1 23.0 1.7

Electricity & water 1.1 15.6 2.6

Tertiary sector 6.2 3.6 4.4

Trade 7.4 4.1 0.7

Hotels & restaurants 8.4 4.9 -3.2

Transport & communications 11.4 3.1 9.3

Financial services 3.3 9.4 13.0

Real estate & business services 7.2 5.2 2.4

Government 3.9 2.0 4.9

Less financial intermediation services -1.9 15.1 15.8

GDP at basic prices 7.1 3.8 6.1

Taxes less subsidies on products 4.1 1.4 4.7

GDP at market prices 6.7 3.5 5.9

a Revised. b Preliminary. c Includes on-board fish processing. d Includes copper smelting, zinc refining and textiles.

Source: Central Bureau of Statistics, National Accounts 1995-2004.

Year-on-year inflation rose for the sixth successive month in November 2005, to 3.4%, the highest rate since December 2004. Rising fuel prices have been the main reason for inflation over the period, year-on-year inflation in transport prices, which have a weighting of 15% in the Namibia consumer price index (NCPI), averaging 6.6% in January-November 2005. Owing to the continuing rise in world oil prices, domestic fuel prices were raised by an average of 9% in September 2005, bringing the import parity price nearer to the global bench-mark (although it is still below this) and year-on-year inflation in transport prices to an average of 8.5% in September-November. Food prices, with a 30% weighting in the NCPI, having remained very stable in the first seven months of 2005 (an average year-on-year inflation rate of 0.1%), began to rise more sharply in August and food price inflation reached 4.5% in November, the highest rate since September 2003. Inflation in housing and utilities costs, which have the second-highest weighting after food in the NCPI, also began to creep up in the second half. Even so, average inflation in January-November 2005 was 2.1%, compared with 4.2% in the first 11 months of 2004. Apart from crude oil prices, inflationary pressures remain modest at present, and inflation in South Africa, the source of 80% of Namibia!s imports, is expected to remain within the 3-6% target range of the South African Reserve Bank.

Inflation rises to 3.4% in November

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Nov2004

Jan05

Mar May Jul Sep Nov

Consumer prices(% change, year on year)

Source: Central Bureau of Statistics.

24 Namibia


Consumer prices, 2005 (% change, year on year)

Jan-Mar Apr-Jun Jul Aug Sep Oct NovFooda 0.8 -0.6 0.2 1.6 2.9 3.3 4.5Housing & utilitiesb 1.7 0.5 1.0 1.5 2.4 2.4 2.2

Transportc 7.0 5.1 4.8 6.4 8.6 8.4 8.4All items 2.3 1.3 1.7 2.2 2.9 2.9 3.4 12-month average 3.8 3.2 2.7 2.5 2.5 2.4 2.3

a Weight of 29.6% in index. b Weight of 20.6% in index; includes water, electricity, gas and other fuels. c Weight of 14.8% in index.

Source: Central Bureau of Statistics, Namibia Consumer Price Index, November 2005.

Mining

The current boom in world uranium prices, due to an expected shortage of primary (mined) supplies within the next decade, has drawn the attention of mining and exploration companies to uranium deposits that were previously regarded as too marginal to exploit. In mid-December 2005 the spot price of uranium oxide had risen to around US$35/lb, more than three times the price of two years earlier. For its part, the Namibian government has made clear that it welcomes investment in the development of any economically mineable uranium deposits. The minister of mines and energy, Erkki Nghimtina, confirmed at the end of October that eight identified uranium deposits are suitable for developing viable mines and that Namibia!s uranium resource potential was "by no means exhausted" and could be increased by further exploration. Most known deposits are located in the Namib Desert where the existing Rössing uranium mine is situated. Those currently under investigation include:

• Trekkopje, situated some 40 km north of Rössing, whose large but low-grade reserves are currently being re-evaluated by a British firm, UraMin; and

• the Valencia deposit, located 30 km east of Rössing and geologically similar to it, which is being surveyed by Westport Resources Namibia, a subsidiary of Canada!s Forsys Metals Corporation, with a view to starting full-scale exploration in 2006.

Mr Nghimtina!s strong support for the development of uranium mining in Namibia came in response to questioning by opposition members of parlia-ment over public concerns about the new Langer Heinrich mine"Australia!s Paladin Resources began construction of the mine in September 2005 (October 2005, The domestic economy: Mining). Some environmentalist groups have alleged that radioactive dust and the emission of toxic gases would put workers and residents at risk and cause irreparable damage to the fragile desert ecology. Earthlife Namibia has claimed that the huge volumes of water required by the mine would put pressure on the water supply to Swakopmund and Walvis Bay and affect farms in the Swakop River. In fact, the Rössing mine recycles over 80% of the water it uses and, provided that a similar system is used at Langer Heinrich, the impact on local water resources should be minimised. Mr Nghimtina accused environmental campaigners of "poisoning

Government favours more uranium mining

Concerns over the Langer Heinrich mine are rejected

Namibia 25


the atmosphere with unscientific information". He told the National Assembly that the government had been assured by Paladin that mining and processing operations at Langer Heinrich would be similar to those at Rössing, which was "internationally renowned for its good health and safety regulations, and environmental monitoring".

It had been planned to increase production at the Rössing mine in 2005 to provide uranium surplus to the mine!s delivery obligations to its long-term customers, which could be sold at higher prices on the global spot market. However, output in the first nine months of the year, at 2,625 tonnes, was 6% below that of January-September 2004. No official explanation for the shortfall, which occurred in the first two quarters of the year, was provided by the majority equity partner, the UK!s Rio Tinto Group, in its latest production report. The cause is likely to have been operational difficulties in accessing previously untapped ore reserves on the perimeter of the current open-pit area (July 2005, The domestic economy: Mining). However, mining recoveries improved in the third quarter of 2005, when production reached 1,038 tonnes, some 5% higher than in third-quarter 2004. If a further improvement is recorded in the fourth quarter of 2005, output for the year could yet exceed the 3,582 tonnes produced in 2004, which was 49% higher than the preceding year. Rio Tinto Uranium (RTU), a newly formed London-based subsidiary of the Rio Tinto Group, which holds a 69% equity interest in Rössing, has been appointed by Rössing Uranium to provide marketing, sales and contract administration services. RTU will perform the same function for the group!s other uranium mining interest, Energy Resources of Australia, and, according to Rössing!s general manager, Mike Leech, RTU will also work on improving the company!s sales efficiency in order to gain from the upturn in the global uranium market.

Uranium output, Jan-Sep (tonnes)

2004 2005 % changeUranium oxide 2,781 2,625 -5.6

Source: Rio Tinto, third-quarter 2005 operations review.

The government has confirmed that it wants to see much of Namibia!s production of gem-quality diamonds cut and polished locally, both to increase their export value and to increase skilled employment opportunities. It is clear that the government intends to put pressure on De Beers to agree that a proportion of the rough diamonds produced by Namdeb, the government-De Beers joint venture, be supplied to local cutting and polishing firms. (Namdeb accounted for 97% of Namibia!s rough diamond output of 1.9m carats in 2004.) This will be one of the main issues in the negotiations between Namdeb and De Beers! Diamond Trading Company (DTC) on renewing the DTC!s exclusive marketing contract, which were due to start in December 2005 (October 2005, The domestic economy: Mining).

To promote this policy and to hear the views of major players in the global diamond industry, the Diamond Board of Namibia"a joint government-private sector body"held a "diamonds for development" conference in Windhoek on November 2nd. The proceedings were attended by Gareth Penny, the managing

Rössing's uranium output is below target

Government aims to increase local diamond beneficiation

26 Namibia


director-designate of De Beers, and Lev Leviev, the head of Israel!s Leviev Group of companies, which in recent years has become the world!s largest cutting and polishing enterprise. Other industry leaders present included Maurice Tempelsman, a US diamantaire, whose company, Lazar Kaplan International, provides management and marketing services to the NamGem Diamond Manufacturing Company, the wholly-owned Namdeb subsidiary established in Okahandja in 1998 as Namibia!s first diamond cutting and polishing plant.

At the conference differences were apparent between De Beers and the Leviev Group, and it became clear that the future of Namibia!s diamond industry would largely be decided by the struggle between the two for influence over the Namibian government. Mr Penny, who takes over as managing director of De Beers in February 2006, said that his company fully supported more local beneficiation of diamonds in Namibia, provided that this took place on a "sustainable basis". This approach was endorsed by Mr Tempelsman, who advised the government to consider innovative ways of promoting the export of locally cut diamonds to the quality end of the global market to offset the comparative advantages of low-cost centres such as China and India.

In contrast, Mr Leviev, in a sharply worded presentation, accused De Beers of having deliberately pursued policies in Southern Africa that prevent the development of the local cutting industry in the belief that it was not economically viable to cut diamonds in Africa. Mr Leviev claimed that the operations of Namibia!s seven cutting and polishing firms"including the Leviev Group!s LLD Diamonds Namibia, which opened in Windhoek in 2004 (July 2004, The domestic economy: Mining), the country!s biggest"were hampered by not having access to locally mined diamonds, as they were obliged to obtain more expensive supplies on the world market. In fact, NamGem and the Namcot factory of Israel!s Beny Steinmetz Group are De Beers sightholders and do not have major supply problems, although the country!s smaller plants are affected by shortages. However, LLD Diamonds Namibia has been operating well below its full capacity of 35,000 carats of cut stones per month owing to the inability of the Leviev Group!s Namibian marine mining subsidiary, Sakawe Mining Corporation (Samicor), to produce sufficient rough diamonds. The head of the Leviev Group!s Namibian operations, Yaki Adar, conceded at the conference that Samicor!s offshore concession was of low quality and poor grade and too small for the company!s local manufacturing needs. Mr Leviev proposed that the government should sell rough diamonds to him at the same export price that it is paid by Namdeb, which is the DTC!s standard selling value minus a 10% marketing premium. A detailed proposal from the Leviev Group was to be submitted to the cabinet following the conference, pledging that in return for buying up to 50% of Namdeb!s rough diamonds it would open further cutting and polishing plants in Namibia to provide some 2,000 additional skilled jobs. The Leviev Group has also offered unspecified financial compensation to offset the loss of royalty income to the government, which amounted to N$500m (US$80m) in fiscal year 2004/05 (April-March). Whereas royalties are levied at 10% of the declared value of rough diamond production, cut and polished stones are royalty free.

Mr Leviev wants to buy 50% of Namdeb's output

De Beers backs beneficiation, but only if it is "sustainable"

Namibia 27


There could be advantages for the government in accepting Mr Leviev!s proposal, which would turn Namibia from being mainly an exporter of rough diamonds to a substantial exporter of polished stones. However, the government is unlikely to agree to half of Namdeb!s output being purchased outright by the Leviev Group, as this would have a serious impact on the mining company!s profitability (of which the government!s share is currently some 70%). In addition, the finance ministry is likely to express reservations over the financial impact of the loss of such a high share of royalty income. A compromise deal involving the sale of 10-25% of Namdeb!s output for local cutting seems probable. De Beers is certain to resist the Leviev proposal strongly, mainly on the grounds that much of Namdeb!s output is too small in size to make local cutting viable. According to Mr Penny, Namdeb mines some 4m individual stones per year, mostly in the 25-88 points (the standard cut stone measure) category, while, because of the higher cost base, local firms need stones of 100 points and more to make a profit. Namdeb maintains that only 6% of production by volume, some 115,000 carats per year, but 70% of output by value, would be large enough for viable local cutting.

Fishing

Another large fishing company"Gendor Fishing, a subsidiary of the part Spanish-owned NovaNam group"has been forced to cut back its operations owing to the poor returns currently affecting the fishing industry (July 2005, The domestic economy: Fishing). The company, which mainly operates a fleet of hake freezer vessels, announced in early November that owing to a 50% reduction in the hake catch in the current season, which left it unable even to cover its fuel and other operating costs, it was disposing of some of its vessels and reducing operations at its onshore processing plants. Many of the company!s 800 permanent employees"both fishing crews and factory workers"were expected to be laid off in consequence. The Namibia Seamen!s and Allied Workers Union (Nasawu) claims that NovaNam has already taken pre-emptive measures by locking out some employees and suspending others after they had questioned why they had not been paid for three months. According to the union, all night-shift workers were sent on unpaid leave until mid-November and eight vessels have been taken out of service without their crews being informed, paid or negotiated with. The impact of the cutbacks will be felt mainly in Lüderitz, Namibia!s southernmost port, where fish processing and offshore diamond mining are the main sources of employment.

Despite the optimism expressed earlier in 2005 by the minister of fisheries and marine resources, Abraham Iyambo, that the industry would benefit from more abundant fish stocks in 2006 (October 2005, The domestic economy: Fishing), there is little prospect in the near term of an end to the current difficulties faced by the industry, which are mainly due to the strong Namibia dollar, high fuel costs and weak global prices for hake and other white fish. In fact, the recovery in stocks seems mainly to have been limited so far to pilchard, for which the total allowable catch (tac) was raised by 25%, to 25,000 tonnes, in July 2005, with good prospects that it would remain at this level and might even be increased for the 2006 season (January-August). To facilitate early catches by the

A fishing company reduces its operations

The prospects for fishing show little sign of improvement

Most of Namdeb�s diamonds are too small to be cut locally

28 Namibia


deepwater fishing fleet, the new season!s pilchard tac is expected to be announced early in 2006. In contrast, the poor hake catch so far in the 2005/06 season (May-April) makes it unlikely that the current tac of 180,000 tonnes will be raised for 2006/07.

Manufacturing

Investment and employment in Namibia!s export-processing zone (EPZ) both declined in 2004/05 (August-July) following the closure of a number of enterprises. According to the latest figures from the Offshore Development Company (ODC; the public-private partnership that provides services for all licensed EPZ enterprises) investment in the EPZ totalled N$5.2bn (US$785m) at end-July 2005, 7% down on a year earlier, and employment fell by one-third, to 6,800 people. The heavy fall in employment was due to the closure of several operations in 2004/05, chiefly Rhino Garments Namibia, an affiliate of the Malaysian-owned Ramatex Namibia textile and garments company, which alone caused the loss of 1,700 jobs (April 2005, The domestic economy: Manufacturing). At end-July 2005 there were 25 EPZ enterprises in operation, compared with 32 a year earlier. The biggest EPZ enterprise is the NamZinc zinc refinery, owned by Anglo Base Metals (ABM), which processes the zinc concentrates produced by ABM!s adjoining Skorpion zinc mine. This accounted for N$3.7bn, over two-thirds of the total value of EPZ investment. The ODC figures also highlight the growing contribution made by diamond cutting and polishing plants: although investment in the seven operating plants amounted to only N$136m (US$21m), they employed just under 1,000 people, almost one-fifth of the total number of EPZ jobs.

EPZ investment and employment (N$ m unless otherwise indicated; end-period; years ending Jul 31st)

Sector No. of firms Investment Employees 2004 2005 2004 2005 2004 2005Manufacturing 18 13 1,641 1,455 8,391 5,182

Mineral processinga 11 10 3,738 3,725 1,417 1,731Meat processing & tanning 2 1 168 51 215 36

Vehicle assembly 1 1 11 3 34 27Total 32 25 5,558 5,234 10,057 6,976

a Includes diamond cutting and polishing, copper smelting and zinc refining.

Source: Offshore Development Company.

Construction

Low interest rates and the benign inflationary environment in 2005 have stimulated both the commercial and the residential property markets in and around Windhoek and have drawn in South African businesses on a greater scale than ever before. The latest new commercial development is a substantial expansion of the Maerua shopping mall, which was the first built to service the capital!s suburbs and nearby towns, as opposed to the central business district (CBD) malls, which are mainly used by office workers. The development, which is costing N$180m (US$28m) and is due for completion by the end of

Investment and employment in the EPZ fall

Windhoek is undergoing a property boom

Namibia 29


March 2006, will extend the Maerua complex by 60%, to 32,000 sq metres, making it the country!s biggest shopping centre. The expansion was made possible by the development of the old municipal swimming pool site by Oryx Properties, one of the 12 local firms listed on the Namibian Stock Exchange (NSX), and reflects strong demand from South African retailers, which dominate the domestic retail sector, for additional store space in Windhoek and for a regional shopping centre with ample parking space.

To cater for these and other businesses from South Africa setting up in Namibia, South African property service firms have extended their activities into Namibia, among them Gensec Property Services, which opened branch offices in Windhoek and Oshakati, its first outside South Africa, earlier in 2005. Gensec Namibia, a 25% stake in which is held by a black economic empowerment partner, Omutemo Investment Holdings, has already built up a client portfolio valued at N$1bn. The company compares the commercial property sector in Windhoek with that in Johannesburg, most properties being well maintained and with low vacancy levels and enjoying good supporting infrastructure.

Transport and communications

At the beginning of December Air Namibia took delivery of the first of two Airbus A340-300 aircraft, which the company hopes will mark a turning point in its financial fortunes. The A340-300 has been leased for seven years from Avequis, an affiliate of a French bank, Crédit agricole-Indosuez, and will be used interchangeably with a McDonnell Douglas MD-11 aircraft on Air Namibia!s Windhoek-Frankfurt and Windhoek-London routes. One of the two MD-11s leased from SwissAir has been returned, as will the other when the lease on a second A340-300 is taken up by in the latter part of 2006. The A340-300 has a larger capacity than the MD-11, at 278 passengers, and, as it is also more fuel-efficient, is expected to produce significant cost savings. In addition, the Airbus offers passengers greater travel comfort, and this should increase the attraction of flying Air Namibia on the London route, which was relaunched in July after a three-year gap but is proving costly to operate (April 2005, The domestic economy: Transport and communications). Passenger loadings have so far been disappointing, despite the offer of heavily discounted tickets for late bookers, which has attracted passengers wishing to travel from London to either Johannesburg or Cape Town more cheaply than is possible with British Airways, South African Airways or Virgin.

The minister of finance, Saara Kuugongelwa-Amadhila, has admitted that Air Namibia is still incurring substantial operating losses"N$150m in fiscal year 2003/04 (April-March), according to the latest available figures. In a statement to the National Assembly in mid-November she blamed "multiple" factors for the continued financial problems, including competition from other airlines (although no other operator flies the Windhoek-London route directly), the strong Namibia dollar and high fuel costs. The minister warned that the government, which has already subsidised Air Namibia by over N$1bn in the past five years, would not continue to underwrite the company!s losses in the future, but dismissed press reports of low staff morale and inefficient

Air Namibia takes delivery of its first Airbus

The airline continues to incur an operational loss

30 Namibia


management. Mrs Kuugongelwa-Amadhila refused to disclose the costs of restoring the London route and the total income from ticket sales in July-September 2005, as had been requested by the finance spokesman for the Democratic Turnhalle Alliance, Johann de Wal, on the grounds of commercial confidentiality. A recent exodus of senior personnel has included Air Namibia!s operations manager, Andre Compion, who left at the end of October 2005, three months before he had planned to go and just over a year after being confirmed in the post by the airline!s board. Mr Compion, together with Air Namibia!s former managing director, Gernot Riedel, was originally appointed by the government in 2002 as part of an interim management team to oversee the airline!s transition to part-private ownership, which has yet to take place.

Foreign trade and payments

According to the latest figures from the Bank of Namibia (the central bank), the trade surplus recorded in the first quarter of 2005 (October 2005, Foreign trade and payments) turned into a deficit in the second quarter, owing mainly to a quarter-on-quarter decrease in the volume of diamond exports. Nevertheless, a small trade surplus was maintained for the half-year. Exports in January-June were more than 20% higher in local currency terms than in first-half 2004, diamond exports being 22% higher. In US dollar terms the increase was greater owing to the stronger Namibia dollar in 2005: exports were 34% higher, at US$1.03bn, diamond exports totalling US$448m. In contrast to the weaker export performance of diamonds in April-June 2005, the central bank reported in its Quarterly Bulletin for September 2005 that exports of gold, base metals and industrial minerals such as fluorspar had expanded by almost one-third quarter-on-quarter; exports of manufactured products (including refined zinc) and food and live animals had also increased. Although in the second quarter imports were 11% higher in local currency terms than in the first quarter, they were slightly lower than a year earlier, and over the half year were 5% lower than in January-June 2004, although in US dollar terms imports were 2% higher, at US$1.02bn.

The small trade surplus in first-half 2005, in contrast to the substantial deficit in January-June 2004, combined with a modest increase in net inflows on the services and current transfers accounts, more than doubled the current-account surplus in January-June 2005, to N$2.72bn (US$442m).

Current account, Jan-Jun (N$ m unless otherwise indicated)

2004a 2005 a % change

Exports fob 5,146 6,350 23.4

Diamonds 2,260 2,757 22.0

Other mineral products 679 754 11.0

Food & live animals 739 1,003 35.7

Manufactured products 1,394 1,294 -7.2

Imports fob -6,652 -6,296 -5.4

The current-account surplus more than doubles

Namibia 31


Current account, Jan-Jun (N$ m unless otherwise indicated)

2004a 2005 a % change

Merchandise trade balance -1,506 54 -

US$ m -224 12 -

Services (net) 272 281 3.3

Income (net)b 299 293 -2.0

Current transfers (net)c 2,050 2,096 2.2

Current-account balance 1,114 2,724 144.5

US$ m 167 442 165.0

a Provisional. b Includes compensation of employees. c Mainly receipts from the Southern African Customs Union (SACU).


According to the central bank, the capital account deficit in the first half of 2005 was N$2.2bn, more than two-thirds greater than in the first six months of 2004; in US dollar terms the deterioration was even more marked, a deficit of US$348m being recorded. This was mainly due to the apparently inexorable expansion in net outflows of other long-term investment"mainly funds invested in South Africa by Namibian pension providers and insurance firms. To counter this, the government has indicated that it will tighten local asset requirements to ensure that a greater proportion of institutional funds are directed into domestic investments. However, because of the improved current-account balance and despite an increase in the negative account entry for errors and omissions, the overall balance-of-payments deficit actually narrowed, from US$49m in January-June 2004 to only US$17m in the first six months of 2005. The other adverse trend on the capital account in first-half 2005 was a heavy fall in short-term investment due to net outflows during the first quarter, attributed by the central bank to repayments of foreign liabilities of other depositary corporations (mainly commercial banks).

Capital account, Jan-Jun (N$ m unless otherwise indicated)

2004 a 2005 a % change

Capital transfers (net)b 256 256 0.0

Direct investment (net) 813 981 20.7

Portfolio investment (net) -1,164 -1,127 -3.2

Other long-term investment (net) -1,756 -2,306 31.3

Short-term investment (net) 563 40 -92.9

Capital account balance -1,288 -2,157 67.5

US$ m -192 -348 81.3

Errors & omissions -153 -670 337.9

Overall balance of payments -327 -104 -68.2

US$ m -49 -17 -65.3

a Provisional. b Mainly foreign aid receipts for capital projects.


According to the most recent figures published by the central bank, medium- and long-term foreign debt owed by the central government (excluding parastatal debt) has continued to rise, although the rate of growth has slowed in local currency terms. Central government foreign debt was N$2.16bn at the end

The capital account deficit widens further

External debt continues to expand

32 Namibia


of June 2005"a year-on-year increase of 21%, compared with a 26% year-on-year increase at the end of March. In US dollar terms debt at end-June was 14% higher, at US$324m, compared with a 28% year-on-year increase at the end of March. Multilateral debt expanded more sharply in the year to end-June 2005, increasing by 37% (29% in US dollar terms). In contrast, bilateral debt rose by 9% (3% in US dollar terms), although it still comprised the major share of outstanding liabilities.

The rise in multilateral debt was due to increased disbursements from new foreign loans, which with some exceptions Namibia is increasingly sourcing from multilateral lending organisations. This process will be intensified if, as expected, the government begins raising loan finance from next year to meet its share of the cost of the Kudu gas-to-power project. Now that Namibia has been accorded a BBB credit rating by Fitch Ratings, a London-based credit ratings agency (see Economic policy), both in respect of long-term foreign currency and long-term local currency prospects, it will also be better placed to access loan capital from international financial markets. Since such loans will be covered by government guarantees, central government debt obligations can be expected to expand quite sharply in 2006-07. For the present, however, the ratio of central government foreign debt to GDP remains low; although it rose to 5.5% at end-June 2005, compared with 5% a year earlier.

External debt (N$ m unless otherwise indicated; central government only; end-period)

2004 2005

Jun Mar Jun % changea

Bilateral 1,044 1,181 1,139 9.1

% of total 58.4 58.6 52.8 -

US$ m 167 189 171 2.9

Multilateral 743 835 1,017 36.9

% of total 41.6 43.6 47.2 -

US$ m 119 134 153 29.1

Total 1,788 2,016 2,155 20.5

US$ m 285 323 324 13.6

% of GDP 5.0 5.6 5.5 -

a June 2005/June 2004.


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