Opening Up Trade – Consequences for Namibia?

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By Wezi Tjaronda WINDHOEK While trade liberalization is widely lauded as a solution for poverty reduction, an International Monetary Fund (IMF) advisor says Namibia will have to look beyond this to reduce the number of people living below the poverty line. Some believe that trade openness increases the size of the cake, yet others think it deepens poverty in both rich and poor nations. In the case of Namibia, says Dr John Steytler, a senior advisor in the Office of the Executive Director, International Monetary Fund, trade liberalization is likely to have a negative impact on Government’s ability to maintain pro-poor spending. Namibia spends more than half of its budget on the social sectors of health and education. One of the most important actions a government can adopt to mitigate the impact of trade liberalization, especially against the poor, is through safety nets, which Namibia has in the form of old age pensions, disability grants and orphans grants. However, Steytler says although they are important components of the response to the negative impacts of trade liberalization, they are not enough. He said yesterday, when he spoke at the 8th Public Dialogue on Trade and Poverty in Namibia, that a number of government policies for the Government to follow as a response would include increasing productivity, reducing inefficiency at firm level, and improving market conditions, infrastructure facilities and institutions. These would help producers to reduce their costs and improve the quality of their products which would in turn help them better cope with the various shocks and policy reforms. With the Doha Development Agenda, which is supposed to be a developmental round by benefiting developing nations, one of the possibilities put forward has been the free and fair trade policies, such as trade liberalization in the agriculture sector. He said Namibia could be affected from both sides resulting into the country being a net loser of agriculture trade liberalization under Doha, and hence increase the incidences of poverty. But, according to JÃÆ’Æ‘Æ‘ÃÆ”šÃ‚¼rgen Hoffmann, trade advisor at the Agricultural Trade Forum, Namibia sources most of her staples and horticultural and dairy products from SACU, with most value added products imported from South Africa. Therefore, the country would not be adversely affected by trade liberalization in the agricultural sector as far as its food requirements are concerned, but on its export markets. “This will have a detrimental effect on the agricultural development of Namibia. Most farmers are livestock farmers, although in the northern regions livestock farming goes hand in hand with crop production, and the obvious remedy is market diversification and the focus on quality,” said Hofmann. It was estimated that one billion people would be lifted out of poverty because of this, but recent statistics indicate the estimates were too optimistic. In the past, the World Bank estimated that full trade in goods liberalization would bring advantages of up to US$360 billion for developing and least developed countries, but the benefits have been reduced to US$89 billion, accruing to all trading nations that are members of the World Trade Organisation. He said it is believed that if a country is more open, it would attract more economic growth and thereby reduce poverty. However, growth does not always translate into poverty reduction. Most of the poor in Namibia reside in rural areas and depend on agriculture for their bread. Yet, the contribution of agriculture to GDP is about 5 percent. The high Gini Co-efficient of 0.6 percent also poses an additional challenge for poverty reduction. “Hence with a Gini Co-efficient of 0.6, the challenge of poverty reduction becomes even more difficult in Namibia and it would be necessary to look beyond trade liberalization to increase growth and reduce poverty,” he said. Apart from its impact on agriculture prices and growth, trade liberalization might also affect poverty through other channels, such as through the budget, especially where trade taxes are the biggest component of total revenue. For instance, trade liberalization could affect the Government’s ability to finance pro-poor expenditure. In addition to this, even if trade liberalization affected the households positively, there could still be some that are negatively affected and who would require the Government to adopt policies or programmes to mitigate against the impact. “Therefore, it is crucial that the Government takes the necessary actions or adopts policies to mitigate against the adverse effects of trade liberalization, particularly any negative effects on low income groups,” he added.