Economic transformation through effective trade and industrial policies
By Josef Kefas Sheehama.
The political climate in Namibia is among Africa’s most tranquil and stable. But to enhance Namibia’s potential growth rate, reforms must be put in place for the country’s economy to continue on a sustainable path.
One of the main obstacles to Namibia’s industrial development, especially for small and medium-sized businesses, has been a lack of human and financial resources. Because institutions are not producing enough skilled human resources to meet market demand, skills mismatches and gaps are common in Namibia.
Maintaining competitiveness and facilitating long-term growth through the implementation of flexible trade and industrial policies should remain a strategic policy priority. Because industrial goods have a higher income elasticity of demand, particularly in global markets, manufacturing is a key driver of economic growth. A successful trade and industrial policy should be flexible, goal-oriented, and based on the idea of embedded autonomy. Prioritizing and justifying interventions is necessary for focused industrial and trade policy, and experience-based learning fosters flexibility. Embedded autonomy is necessary to support focus and flexibility. To do this, the government must obtain relevant data from the private sector, which is the most knowledgeable about trade and industrial opportunities.
The government should urgently implement a reform that can boost Namibia’s relevance in the short term, while also creating the conditions for higher long-term sustainable growth. These growth reforms should promote economic transformation, support labour-intensive growth, and create a globally competitive economy.
The current state of the Namibian economy is unsustainable. Low economic growth entrenches poverty and inequality. High income inequality aggravates social fragmentation and poses a risk to economic growth. Inequality contributes to extremely divergent views, which make compromises difficult thus the resulting stalemate and policy uncertainty can contribute to economic weakness. A growth-oriented policy agenda must be accompanied by interventions that change how the benefits of growth are distributed and fundamentally transform the systems and patterns of ownership. Initiatives that transform the economy must meet the dual tests of sustainability and intergenerational equity. In other words, economic transformation must be implemented in a manner that does not compromise the long-term ability.
This means that at the heart of our economic policy must be a concurrent emphasis on economic transformation, inclusive growth, and competitiveness as this offers the most sensible strategy to address the challenges of unemployment, poverty, and inequality.
Namibia’s industrial ambition is articulated in Vision 2030, which stipulates that the country should be an industrialized nation with a high income by the year 2030. But there are several factors that hinder greater participation by new firms such as the existing regulations and policies that support incumbents or are ineffective in assisting rivals and new firms. Other factors are competition legislation that favours large firms and incumbents; and access to finance challenges.
Change in economic relations must be the creation of opportunities for all Namibians to live productive, prosperous, and dignified lives. Current trade and industrial policies have made some progress to attain economic and structural transformation and contribute to inclusive growth. Namibia’s industrial policy is on the right track, but some important adjustments could significantly improve its effectiveness.
Furthermore, Foreign Direct Investment (FDI) in particular has become a major component of industrial policies, which aim to fundamentally alter the production structure and growth trajectory of an economy. Namibia aims to become a green hydrogen superpower in the near future by positioning itself as a leader in emerging markets and an international exporter of green hydrogen. Green hydrogen will be a significant source of foreign investment, as well as an important contributor to the country’s energy security and transition. According to the Bank of Namibia, the oil and gas sector generated N$33.4 billion in foreign direct investment inflows between 2021 and 2023. Foreign direct investment is a phenomenon resulting from globalization, which involves the integration of the domestic economic system with global markets.
Capital inflow is seen as a way of creating a surplus in the capital account of the balance of payments or to make up for the deficit on the current account. It directly affects growth through being a source of capital formation. As a part of private investment, an increase in FDI will, by itself, contribute to an increase in total investment. An increase in investment directly contributes to growth. FDI beneficially influences other macroeconomic variables, such as employment, export, consumption and saving. These, in turn, enhance growth.
Moreover, Namibia should promote local contents and sense of ownership in energy sectors. However, it is important to state that creating the regulatory and legal frameworks alone is not the only goal. For Namibia to be successful in promoting economic growth using energy revenues; it must strictly adhere to the frameworks as done by other countries. Strong institutions and administrative capacity for transparency and accountability in the industry is an important tool in achieving the purpose of improving human lives.
Namibia has a competitive advantage because of its peace and political stability, which attracts investors. Namibia is attracting the attention from different countries who are interested to form a partnership with Namibia in Green Hydrogen, Gas and Oil, such as Brazil. Namibia is expected to benefit tremendously from royalties and taxes paid by companies as well as the employment opportunities that will be created. Since the discovery of oil, the nation has had amplified expectations on possible accelerated economic growth and development.
Therefore, even if managed well, this industry either has the propensity to transform a structurally weak economy into a self-sustained economy, or can lead to social, economic and political instability as evidenced in some resource-rich countries where their economies are characterized by corruption, poverty, and conflict. Availability of both short and long term economic measures and macro-economic policies are needed to avoid the resource curse. The Namibian Government can effectively manage this scarce resource in the nation’s quest to achieve upper income status by 2030.
Namibia should promote good corporate governance, an effective regulatory framework for economic activities and corporate accountability. Furthermore, sound, transparent and predictable government policies should adhere to these standards to promote a quality standard of living and reduce the poverty rate. In order to succeed in the economic transformation we must continue to pay attention to education, health, and infrastructure development.
In conclusion, industrial and trade policy interventions cannot effectively achieve their desired outcomes if they are not complemented by an overall supportive business environment. For this reason, Namibia has to move its focus to increasingly attractive international growth opportunities which hold significant potential for economic development.
