Namibia and the world economy

1. Namibia and the world economy Philip Clayton Windhoek 15 March 2007 A longer term and regional perspective 16 September 2005

2. Namibia

3. Namibia: fiscal health (% of GDP) Source: EIU Namibia report

4. Doing business: good in a regional context Doing Business Starting a Business Dealing with Licenses Employing Workers Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business Source: IFC

5. Growth – OK, but could do better Source:World Markets

6. Government spending: Namibia out of line Burden of government high. Public sector share of formal employment out of kilter with region. Need to focus on bang for tax buck Government suggests 2009/10 spending at 29.7% of GDP Source:World Markets

7. Deficit: much work still to be done Revenue can be very variable – fishing, diamonds SACU. Need to look for new sources, while keeping overall burden low. Need to assess value of spending Government pencilling in deficit of 1.1% of GDP over MTEF Source:World Markets

8. Share of revenue, revised 2006/07 Two fifths of revenue – SACU transfers – will be under pressure in real terms Source: EIU

9. SACU payments, as % of SA revenue Source: SA National Treasury

10. Tax payments and compliance Source: PWC

11. Corporate Tax Corporate income tax, labour tax, and other taxes, Source: PWC

12. Individual Tax – highest rate Monaco 0% Singapore 21% Namibia 35% SA 40% Norway 51% Source: Worldwide-Tax.com

13. Today’s Budget: Balance sheet - positives • Pro poor – tax threshold up 50%, to N$36 000 pa, pension allowance up 33% to N$40 000; Grants for 78 000 children over MTEF • Education 22.2% of spending in MTEF (bang for buck?).Continued stated focus on growth • Budget surplus this year of 2.1% of GDP (but specials influence this). • In MTEF, expenditure projected to decline to 29.7% of GDP, from 34.2% IN 06/07 • Development budget up further $800m under MTEF • Debt management improved – prevents lumpy redemptions • Focus on tax compliance – revenue and grants 36.3% GDP in 2007/08

14. Today’s Budget: Balance sheet - negatives • Rising operational expenditure – 77.7% of total in 06/07, to 82.1% in MTEF. Need is to improve capital stock; looks like economic services gets only 11% • Short on details regarding underperforming parastatals – particularly Air Namibia (and is this subsidy pro-poor?) • Loan funding – even if concessional – to plug hole in revenue. But deficit at 1.1% of GDP over MTEF is sustainable. But, is the decline in share of GDP on government consumption - and declining real spend pegged at $17bn or so for three years - realistic? • Massive underspending on development budget in 06/07 thus far – suggests capacity constraints. Will this continue? • Burden of state on economy not addressed (but perhaps not just Minister’s job)

15. Budget conclusion • Within tough constraints, Minister has done a good job. Focus on poor, job creation, transforming the economy – all to be applauded. • Thrust of focus on indigenising investment – on unlisted companies, and decreasing share of dual listed that counts – a positive sentiment. But – concern regarding unintended consequences (misallocated capital; another building bubble, etc) • eed critical look at development, and particularly job creation, obstacles. It is not only the measured tax burden that is at issue; the unmeasured regulatory and other compliance is also an obstacle. • With the constraints – a good job. But, need to focus on diversifying revenue; looking critically at all what government does (a third of formal sector works for the state). • MTEF process a good start. With vision – Namibia can achieve a better life for all – despite the tough periods it has gone through

16. Global context

17. Emerging markets – now pushing ahead Source: IMF Sustainable thrust

18. International issues affecting southern Africa • Emerging market sentiment shifts – global risk shifts • Commodity demand and prices (China key) • Middle East, Iraq • North Korea • Zimbabwe • United States and recession; global housing market • GLOBAL ENVIRONMENT REMAINS SOMEWHAT UNSETTLED

19. Population trends – median age Population dynamics moving absolutely – and relatively – in favour of Africa, Latin America, Asia – against developed worldSource: Group Economics (from UN World Population Prospects)

20. China and India • China and India together, account for two fifths of the world’s population. And greater region (with Indonesia, Vietnam, etc), over half • China has been growing at 10% pa for two decades; the Hindu giant has begun stirring • Demand for commodities is huge. High value agriculture imports likely to surge (in similar fashion to China shifting from oil exporter, to second-biggest importer). • China now exporting inflation – not deflation: thanks to impact on commodities, and small – but significant – revaluation of Renmimbi. Also, labour costs pushing up even manufactured prices • Note increasing influence of China, and India, in African investments

21. China’s demand, commodity prices Does the China, India effect mean the boom will last much longer than average? Source: Economist, 22 July 2006

22. Africa and global growth Long-term uptick in Africa’s performance - but still below AsiaSource: IMF World Outlook, April 2006

23. South Africa

24. Economic growth Growth sustainable – Shift from consumption, to uptick in capital spending (private sector and government). Concern is the skills gap; AIDS. Good fiscal policies opening up ability to spend more on social issues Source: SARB, Standard Bank Group Sustainable step-lift?

25. Fixed investment Source: Standard Bank Group, SARB The big dig

26. Inflation • Exchange rate • Global inflation and competition • Credible inflation target framework • Capacity utilisation • Vulnerable to external shocks, especially exchange rate Source: SARB, Standard Bank Group Structurally lower

27. Economic forecasts Growth and inflation outlook benign, but talk about bottlenecks rising. Not sure I am as positive on rand as group is. Source: Standard Bank Group 28 February