2007/8 Budget: Pro-poor or Pro-Poverty?

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… but it is unfortunate that she (Saara Kuugongelwa-Amadhila) cannot run away from the political culture of obscurism that has become the order of the day in our beloved Namibia and so forcing her to resort to some Machiavellian and sophistic arguments in support of the unbecoming aspects of her budgetary allocations

By D. Uuyuni waKamati

Mariental – ONE can argue that disagreeing is an integral part of national politics and that there will never be a day when a budget can be tabled that can give satisfaction to all people and all political players of this nation. Such an argument can undeniably be true, although in the case of Namibia disagreements and unhappiness regarding the state of the expenditure allocations of our state finances are hardly due to trivial political differences.

Most of the criticisms levelled at the shiftiness of our budgetary allocations are underpinned by an urgent yearning, of realistic and rational nature, of the fulfilment of social and economic responsibilities of the Namibian state towards its people. The most persistent and ugliest issues that continue to dog the conscience of so many Namibians are the never-ending expenditures on loss-making semi-state enterprises such as Air Namibia, lack of adequate spending on sustainable employment creation and poverty reduction, illusive macro-economic tools for economic growth and the capitalistic budgeting strategies. It is no doubt that William Boyes and Michael Melvin of the Arizona state University correctly observed and wrote, in their economic literature of 1996 titled Economics: International Edition, that The reasons for poverty are many and remedies are rooted more in politics than economics.

The question of the prudence of expending millions of dollars on Air Namibia every fiscal year for the past 17 years, which by now have surpassed the 2 billion mark, has been one of the crucial questions persistently put to the leadership of this country and equally and persistently dodged by the same leadership. Up until today the arguments put forward by our leaders on the situation of Air Namibia is worthy no dime. Such arguments have so far produced a very appalling mixture of misplaced aspirations and nightmarish failures.

It is continuously argued that Air Namibia is inseparable from the economically significant tourism industry in Namibia that is estimated to be the fastest growing in the southern African region and contributing up to 8.1% of the country’s GDP. It is also argued that most tourists come to Namibia on board Air Namibia especially those from Germany and return air tickets from Germany to Namibia cost in the region of N$9 000.00 to N$12 000.00. Flying in the face of strong arguments in support of Air Namibia are neck-cutting realities of Air Namibia making no operational profits, continuously receiving state bailouts and having declared no single cent in dividends since the inaugural flight 17 years ago.

Then from the perusal of this Dreams-versus-Reality fiasco of Air Namibia, one is bound to reach a commonsense conclusion that Air Namibians either failed to grab the niche of the market in the aviation industry or that the national airline is in the hands of people possessing, but not executing , proper management expertise.

There is no question that the business approaches and strategies of Air Namibia are no match with its competitors and its co-players in the industry characterized by the survival-of-the-fittest antics and undergoing perpetual revolution. One of such antics or strategies is strategic partnership. One is puzzled as to why Air Namibia is going solo in the industry dominated by players of huge economic proportions without seeking strategic partners. Equally puzzling is how Air Namibia can expect to survive a solo career in the industry in which even the main players such as Air France and Royal Airlines of the Netherlands (KLM) had forged strategic partnerships. If one misses the Air France flight from Paris to Johannesburg, then he/she is likely to be on a KLM flight to the same destination at no extra cost and without undue delay.

This is something I experienced personally. I missed the KLM flight, from Amsterdam to Johannesburg, by about 15 minutes and the next flight of the same airline was only going to fly the same route 24 hours later. But due to the strategic partnership between KLM and Air France I was able to be on my flight to Johannesburg, through Paris, on Air France barely 5 hours after missing my initial flight. This happened at no extra costs on top of the fact that the rescue flight saved me 12 consecutive hours of waiting at Johannesburg Airport for my connecting flight to Windhoek as I had only to spend 30 minutes in South Africa.

Strategic partnerships enhance the quality and reliability of the services and the corporate image of an airline thus increasing the market niche (customer base) for that particular airline. Why cannot Air Namibia find strategic partners in management and service/product-sharing without dropping the national flag and colours? As to what happened to the Brandson and Air Namibia/cabinet talk on the possibility of the British billionaire’s willingness to invest in Air Namibia is heretherto unknown, but partnerships investments into Air Namibia might be the only option that has the potential to turn Air Namibia into a sustainable business within the ambit of our Nation’s economic means.

The argument of Air Namibia being important to our economy in its current business shape is dead on arrival and is unacceptable. What economic importance is this if the national airliner has been averagely receiving N$125 million dollars per year from the government for the past 17 years without any profit/dividend being paid to the same government? If the current financial liabilities of Air Namibia are revealed, the picture can even be more frightening.

The arguments of our leaders not logically adding up is exactly the indication that something is seriously amiss with Air Namibia. Imagine that one is the leading supplier of transport services, or so it is claimed in the case of Air Namibia, to the customers of the out-of-town movie house that is going through the golden business circle, but the supplier of such transport services only reaps scraps. I am of the impression that either Air Namibia’ share of the tourists’ transport to and from Namibia is exaggerated or that the national airliner is seriously mismanaged. Facts must be laid on the table.

If it is the matter of trying business out there, then our leaders should just say so. It really appears that the minister of finance has done relatively well, compared to her aging predecessors, since coming to office, but champions are declared not by how they join the race, but rather by how they finish it. The minister of finance’s success so far will be obliterated by her failure to tackle huge swallowers of state resources such as Air Namibia.

The state president, in his state of the nation address, kept on telling the nation that “he is told that the situation at Air Namibia is not as negatively perceived by the public” or that “Air Namibia is only looked at from one angle”. Can the president and his cabinet elaborate on these arguments/ analyses of the government? The only thing that the government throws to the public about Air Namibia is the pathetic philosophy that “Air Namibia is our national pride”. What kind of a pride that is maintained at a billion dollars and in exchange for the wellbeing of 900 000 underemployed, unemployed and poor citizens? Does this relaxed attitude of the government indicate that the state president and the cabinet intend to maintain this ghastly situation at Air Namibia?

Suppose Air Namibia carries 50% of the clients of our 3-to-4 billion dollars tourism industry then that may mean that Air Namibia is, directly and indirectly, responsible for 1.5 to 2 billion of that industry. If the air ticket is, by all probabilities, the most expensive single item on the tourists’ bills, it is quite bitter to swallow how this club of air toys fails to pay a single brown cent in dividends to the government. Does that somehow mean that many of the business activities/services of our national airline are undertaken in kind and solidarity to some of its clients? Something does not sit quite well as far as the argument of mutual re-enforcement between Air Namibia and the tourism industry is concerned.

Surplus is the most celebrated achievement of this year’s budget and credit to the minister of finance! But the surplus so budgeted for the 2007/8 fiscal year is almost equivalent to the cash generated by the sale of government’s assets in MTC. It can hardly be regarded as a prudent act since MTC has been a dividend-paying parastatal and selling shares in other semi-state enterprises that are bad economic performers such as Air Namibia could have been a laudable action on the part of the government. The fact that there is a surplus is not enough to demonstrate the government’s departure from the reckless expenditure of the public finances, but rather where the money it plans to spend should be such an indicator. The finance minister surely knows that this nation is not a bunch of kids. How can the minister flash N$500 million in front of us and expect us to think she produced that surplus through prudent financial management when she knows very well that the money was generated from the sale of MTC shares while so many millions more go down the drains of some of the semi-state enterprises? Nothing was explained to this nation why it was so financially wise to sell shares in MTC but not turn Air Namibia into a partnership venture and sell off part of Air Namibia to private investors. Were the government shares sold at profitable market prices, or the deal might have been a golden handshake to some people/companies favoured for some reasons? If this nation can know what % of MTC was publicly-owned and what dividend, as percentage of shares or MTC’s public ownership, MTC has been paying to the state then it is only when ordinary Namibians or their watchdog institutions can appreciate/discredit the economic importance of the surplus produced by this mean.

Yet again there is lack of spending on the development projects that directly contribute to employment creation and poverty reduction. If I am mistaken on my observation here, then I would very much welcome information from the finance minister or cabinet that proves otherwise. The government that is serious on tackling the most critical elements of underdevelopment, such as unemployment/underemployment and poverty reduction, is expected to take a proactive role in this regard. If current markets fail to serve their most human purposes of development, obviously there is none else who is expected to take over to divert markets towards achieving these most noble aspirations of any society. Such purposes could have been partially served by removing VAT on the basic commodities that are home-made thus decreasing inflation on basic commodities, reducing the production costs and increasing the purchasing powers of the low-income earners on such goods and hence stimulate economic growth. The increase in the income tax threshold is indeed a welcome move by our government, but instead of such a move being seen as a mere macro-economic action of conventional economic thinking(the monetarist policy), government should make efforts to measure its effects as a stimulant of economic growth. In other words, GRN must analyse the expenditure habits of Namibians with extra cash on their hands and see if much of such cash is indeed spent on domestically-produced goods and services that can lead to economic growth or is left to the fate of the open and uncompetitive economy of a developing country. It is actual possible that instead of the government upping the tax threshold as a tool of economic stimulation the opposite can be true. Perhaps the apparent lack of state expenditure on employment-creating development projects/programmes is not necessarily the negligent act on the part of the government. It might rather be due to the chronic absence of the ideas on what constitutes real development. It might be that we should break the habits of commenting on development issues only when the budget is tabled or when we are caught in the midst of election fever. The culture of perennial discussion of development issues should be encouraged in Namibia to enable us to harness actionable views/ideas of what constitutes real development and be able to effectively contribute towards the expenditures’ debate on the development programmes during the tabling of the appropriation bill.

Budgetary allocation to Nampower would possibly come to pass as the most questionable aspect of this year’s budget tabling. It is very interesting to note that Nampower gave a loan to Zimbabwe and at the same time got a “fat” allocation from the appropriation bill and declared no dividend as the profits are to be re-invested in infrastructural development. Is this money game at work? The honourable minister of finance must not fool us around! It is almost straightforward that a piece of our budget was earmarked for Robert Mugabe’s regime through the back door. The most economic thing to be done by Namibia as a gesture of friendship to Zimbabwe is the provision of political wisdom to resolve the crisis that faces our neighbour, then the money can follow if available. It is a question of telling our comrade Mugabe, “First seek the democratic Kingdom of the ordinary Zimbabweans, then the dollars will be added onto you free of hesitation/grudges.”

Yes I agree with Madame Kuugongelwa- Amadhila that the SACU billions are not really the “windfall” in terms of the description/perception of most of the people who commented on them but are indicative of the good performance by our economy. Nevertheless, it is also true that our economy is dependent on the commodity industry whose economic cycles are determined by unpredictable factors/variables of the international economy and hence the reliability of SACU billions is too low and needs to be spent wisely. Uranium and copper booms are unlikely to offset the SACU shortage as our country is no voluminous producer of these commodities.

However, generally, I would like to register my happiness with what has been a general trend towards improving the financial management of our state resources under the presidency of Pohamba and the financial chancellorship of Madame Saara Kuugongelwa-Amadhila. I must admit that Saara Kuugongelwa-Amadhila is a very motivated and inspirational minister who by all means tries to do her best to bring some light to 16/17 years of black clouds that have been surrounding the financial management of the state resources, but it is unfortunate that she cannot run away from the political culture of obscurism that has become the order of the day in our beloved Namibia and so forcing her to resort to some Machiavellian and sophistic arguments in support of the unbecoming aspects of her budgetary allocations. I am indeed sorry that her day-to-day running of the finances of this country inescapably involves falling to some strings-pullers which cannot enable her to use her apparent natural virtue of listening to and understanding the wise advice of her economists and financial experts. I must further indicate that I am not oblivious to the constant efforts of the finance minister to bring on board sound management systems of the financial resources of this nation: the financial charter of Namibia, the tabling of the financial intelligence bill, the institution of the integrated financial management system, improved tax collection, her sound advice for the establishment of the community-based banking system to counteract the high banking charges of commercial banks and proposals to up the limits of the amount of money that insurance and pension institutions of this country have to save and invest inside the country. But it is not the mere existence of the sound financial management systems that are important for the development of this country, the fact remains that it the question of where the money is going. What is the use of the integrated financial management system managing money to fund the regime of Robert Mugabe? What use are good management systems for the money that goes into the money-eating Air Namibia? What use is the paper on which you write the management systems of the money that you spend on the development of monumental structures? I hope that the finance minister is not budgeting with eyes of getting into the “good” books of Ananias Nghifitikeko.

The 2007/8 budget has been described as being pro-poor. But the question still remains as to what is in this budget that can really make the budget be seen as mostly pro-poor? Pro-poor would mean that the budget would directly improve the lives of those who live on the US$2 per day or less. How about scrapping the VAT on basic commodities such as maize meal, bread and milk especially those that are produced in our country? This will mean that for every kilogramme of the maize meal that costs N$4.00, the poor will save N$0.60 that will in turn mean that for six kilogrammes of maize meal bought at current prices, inclusive of VAT , the poor will save enough to buy an extra 7th kilogramme of this commodity. That will also mean that the costs of local producers of the basic commodities will be reduced, enabling them to spend some of their savings on the expansion of their businesses to create more jobs as a result of the high demand created by their cheaper commodities. It may not be that straightforward but the benefits of an averagely-fed nation capable of an energetic pursuit of their economic activities carry with them the social and economic benefits worth pursuing. I simply do not buy the conventional economic argument, or classical economics to be precise, that change in the prices of basic commodities cannot affect demand and supply because our poverty and unemployment levels might be too high to perfectly obey the non-elasticity principle of the prices of basic commodities.

The 2000 dollars-a-month workers are not the poorest of the poor as they are 4.76 times better off than the 45% of the people of this country if the statistics of the UNDP report of 2005 are something to go by. Even if we assume that every such employee has got a family to look after, then it will require him/her to have more than 5 dependants that make no quantifiable income for him/her and his/her family to fall into the category of the poorest of the poor. The increase in the tax threshold may carry lesser benefits than the reduction of VAT on basic commodities. The money saved on the N$2000.00 – N$3000.00 category of our employees will likely go to the instalments of the purchase of foreign-made goods with an increase in “bubble-gum” economic growth due to the rise in the service/trade industry.

Is the economic growth that is export-biased and directly influenced by the economic factors of foreign countries sustainable? Even if the N$2000.00 –
N$3000.00 category of earners are given extra earning power, that power is likely to be cancelled out by, for example , the strengthening of currencies of the countries that produce luxury goods bought by such group of income-earners as the service company/increase in volume of services will immediately be cancelled out. At best the removal of the income tax charges for the N$2000.00-to-N$3000.00 category of earners will lead to the increase in VAT receipts thus putting into motion a Tax Circle with no net long-term spin-off effects on economic growth.

Pro-poor will mean that money is spent on efforts to create jobs for the unemployed poor. Where is such money apart from the money going to the expansion

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