Expectations for mid-term budget: – Building an economy that works for all
By Josef Kefas Sheehama.
The Finance Minister, Hon Iipumbu Shiimi will present the mid-term budget review on Tuesday 25 October 2022. This will be followed the next day by the interest rate announcement by the Monetary Policy Committee of the Bank of Namibia.
The mid-term budget review is expected to present an opportunity for fiscal authorities to review if the targets are being achieved, identify challenges and provide imminent solutions. We are expecting Hon. Shiimi to introduce tax relief packages to cushion industry and individuals to improve viability and increase spending.
On the macroeconomic front there hasn’t been much change economically around the globe. Growth was expected to be muted, which was bound to affect revenue. In the latest data released by the head of the IMF mission that assessed the performance and prospects of Namibia, Giorgia Albertin said the Namibian economy has been on a recovery path after a sharp gross domestic product (GDP) contraction triggered by the COVID-19 pandemic. The real GDP growth is expected at three percent in 2022 and 3.2 percent in 2023, supported by robust diamond, gold and uranium production, and rebounding tourism.
The IMF team called on President Hage Geingob’s government to work to preserve macroeconomic stability, advance structural reforms and protect vulnerable groups in order “to foster private sector-led and inclusive growth and reduce unemployment and inequality.” This should involve preserving debt sustainability, containing the public sector wage bill, advancing the reform of state-owned enterprises and strengthening tax administration.
Furthermore, Hon. Shiimi should provide clarity on how government proposes to reprioritize scarce funds, stimulate economic growth and create jobs. A combination of global shocks, currency instability and the effects of Russia/Ukraine have weighed down on Namibia’s economic performance. The review is really necessary taking into account the currency volatility, exchange rate movements and inflationary pressures so basically it is the fiscal authorities’ role to cushion ordinary consumers.
Industry needs incentives so it is all up to the fiscal authorities in ensuring that they strike a balance between spending and revenues by focusing on policies that guarantee sustainable production processes in the short to long term. For the business community, it is the need to facilitate tax relief for the mining, agriculture, tourism, retail and distribution that is also imperative in sustaining the economy.
Moreover, the budget review must focus on green hydrogen as a key energy resource. The biggest challenges facing Namibia are to develop and demonstrate green hydrogen technologies which are technically and economically viable and cost-competitive, and to create a robust supply chain and delivery mechanism for these technologies. Leveraging Namibia’s significant renewable energy potential to position the country as a top producer and potential exporter of green hydrogen should be a priority. An increase in investment in the sector will ultimately lead to better development and more jobs.
It is also crucial for the government to support the sector to continue promoting the new hydrogen economy. Green hydrogen is a new but reliable technology for reducing carbon emissions in areas where electrification is ineffective. The growth of green energy is predicted to be among the fastest of any aspect of the energy revolution, generating specialized opportunities for businesses and investors.
In addition, manufacturing remains central for industrializing the country. The policy reforms on improving the investment environment currently ongoing under the ease of doing business programme, must contain the cost of doing business by addressing cost-effectiveness challenges such as energy, road networks, corruption, dispute settlement, and property rights.
The rise in agricultural output and income can also help to expand the market for the manufacturing sector. The migration of surplus labour from agriculture to manufacturing calls for re-industrialization in the Namibian economy based on improving performance through innovation, skills development and reduced input costs in the economy.
This emphasis on skills applies across the economy and will be a centrepiece of partnership between business and labour. Promoting agriculture for the development agenda requires fast-tracking the productivity of smallholder farming by supporting smallholder farmers to access land, farm inputs and post-harvest facilities. Agricultural productivity is an important factor in labour reallocation to other sectors of the economy. In this regard, promoting access to fertilizer, expanding irrigation facilities, promoting non-tillage farming and investing in agriculture, are all pivotal to promoting agricultural productivity that could help link agriculture to poverty and inequality reduction in Namibia.
The availability of specific skills needed to prepare, launch, and manage Public Private Partnerships can represent a major implementation challenge in Namibia. Reaping the benefits of PPPs involves a careful and complex preparation process as final results may take time to materialize after the contract has been signed. The actual terms of contractual agreements and the changes needed to create an enabling environment will depend on the sector, and often the specific transaction. The steps needed to get there, though, are always the same, constituting a necessary framework for Namibia to succeed with PPPs.
Furthermore, the informal sector (SME) is a very much neglected sector as it seldom accounts for a special place in government planning for the overall economy. This may be due to a myriad of factors such as the unregistered and unregulated nature of most businesses in the informal sector.
But given the role of the informal sector in the economy, the government should begin to cast more than a simple glance at the informal sector with a view of enacting policies that will synergize the informal and formal sectors in order to unleash the vast potential of the Namibian economy since the activities in both sectors of the economy are not mutually exclusive.
Also expect Hon. Shiimi to unpack the Sovereign Africa Rating (SAR) agency as a very important step forward for African integration, not only when seen from an economic point of view, but also politically. The challenge for a Sovereign Africa Rating agency is how to overcome the skepticism around black people’s abilities to run countries with sophisticated market economies. Will the international community recognize SAR as an alternative for S&P Global, Fitch Ratings, and Moody’s International?
In conclusion, there are a lot of considerations as we seek to consolidate gains achieved so far but I think overall growth estimates will be lowered. There are also expectations that Hon. Shiimi will review revenue forecasts for this year in the wake of inflationary pressures.