Coen Welsh | Nov 14, 2017 | 0
Budget lacks energy support
The 2016/17 national budget is unlikely to offer any major boost to the cash-strapped energy (infrastructure) sector which the government says is key to economic growth.
The finance minister mentioned several budgetary allocations for targeted transfers to Public Enterprises for investments in infrastructure projects including some in the energy sector. In this regard, N$13.6 billion was allocated to the economic and infrastructure sector for investments in growth enhancing infrastructure, including the energy sector. In addition, an amount of N$13.2 billion was allocated as targeted subsidies and other current transfers to Public Enterprises for targeted development of key national infrastructure among them energy related. While these were welcome developments, the budget speech lacked more details such as how to fund them.
Namibia’s creaky energy infrastructure is a key downside risk to the country and will continue to hold back economic growth if the government continues to (financially) support this sector in the business-as-usual manner. Economic revival could be accomplished only by spurring investment in the energy sector and the budget is one of the most effective tools to close the funding gap. According to a Bank of Namibia study on infrastructure funding requirements, Namibia requires approximately N$223.6 billion for infrastructure funding for the next five years and beyond. Of this amount N$50,8 Billion (N$13.9 Billion-2016/17) is required for energy infrastructure.
The government’s repeated statements on supporting the sector had raised expectations that the finance minister would announce major steps in his budget proposals for the fiscal year starting 01 April to boost energy infrastructure investments. However, the budget failed to make any big-ticket announcements in energy infrastructure. The minister did not announce any new incentives for funding energy infrastructure development except for the development of the Public Private Partnership (PPP) legislation that is still underway. The private sector continues to be reluctant to lend to already debt-laden infrastructure sector due to government’s lack of bold financial pronouncements. As a result many large energy projects continue to be stuck. Government guarantees could improve the attractiveness of private funding in this regards.
Currently Namibia is a net importer of energy. Namibia generates about 1500 GWh while it consumes more than 3500GWh. To this end, electricity is mainly sourced from South Africa, Zambia, and Zimbabwe. Significant energy infrastructure funding is critical to ensure uninterrupted and sustained energy supply if Namibia aspires to be self-sufficient.
The NDP4 high growth scenario predicts GDP to grow by 6% on average for the entire NDP4 period (2012/13– 2016/17). Power supply is therefore critical to economic growth as a lack of it can compromise investment. Experience elsewhere has shown that unsustainable energy supply and use coupled with an unreliable energy system, have a striking and lasing impact on economic, social and environmental development of any country. In Namibia the main economic sector – mining – remains one of the heaviest energy consumer and together with the manufacturing sector, they drive electricity demand. As in every country energy is the indispensable force driving all economic activities. The more the economy expands the more energy it will require in order to sustain growth.
The importance of increased budgetary allocation directly or indirectly to the energy sector can not be overemphasized. [The] budget is a critical input in the growth and development of the energy sector. A budget reduction to the Ministry of Mines and Energy (N$122.9 million in 2016/17 from N$231.1 million during the previous financial year) does not seem to be responding to the development needs of the sector.
The government needs to increase budgetary support to the sector given its capital intensive nature. High capital investment is the key ingredient that would increase energy production locally.
It has already been established by numerous researches that PPP initiatives are required if the country is to upsurge investment and I do not see this happening given the lack of aggressiveness in the budget speech. Government should zoom in on the enhancement of IPP participation and improve private sector funding attractiveness through government enablers.