Infrastructure investment is the foundation for economic growth

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Windhoek

Namibia has suffered from a huge infrastructure backlog at all levels – central, regional and local during the past 20 years or so. Although this situation is expected to change in the near future since it is now enjoying government’s attention – as can be seen from the recent budget allocation of about 15.7 per cent of the national budget (economic and infrastructure sector), the feeling is that it still falls way below the level required to propel Namibia’s economic growth to high and sustainable levels, as envisioned in the Fourth National Development Plan (NDP4).

Over the past two decades the average investment in infrastructure as a percentage of GDP has hovered around 5 per cent, a much lower ration when compared to growing economies such as China that invest about 9 per cent of their GDP in infrastructure development. This lower ratio is an indication that more investment in this sector is still needed and indeed so it is not surprising that Namibia has not achieved the 7 per cent average growth rate required to make significant progress towards achieving Vision 2030.

The recent interest by government to scale up investment is highly commended because it is a step in the right direction as infrastructure is one of the key enablers to achieve NDP4 goals.  However, there remains a huge infrastructure investment gap due to a combination of ageing infrastructure, years of under-investments and the expanding population – meaning more investment is still required.

In fact, the Bank of Namibia has estimated that over the next five years or so Namibia will require more than N$220 billion to finance the needed infrastructure projects. Of this amount, the highest requirement should go to rail, energy, housing and port infrastructure.

The importance of infrastructure in terms of Namibia is embedded in the objective of NDP4 – sustained economic growth, employment creation and improved income equality, which can only be achieved through sustained investment in physical infrastructure. Clearly, the lack of reliable and modern infrastructure is and will be an impediment to Namibia’s economic development and a major constraint on poverty reduction.

Both rural and urban infrastructure are key elements in developing a growth path that pull poor women and men out of poverty by increasing their productivity and generating positive rural-urban economic interaction. World-over massive poverty reduction happens this way and requires a huge increase in infrastructure provision.

There is a sizable measure of evidence that shows that lives and livelihoods are suffering from the fragile state of infrastructure in Namibia. Moreover, the lack of adequate transport, power, communication networks, water sanitation and other infrastructure has put severe constraints on economic growth and poverty reduction.

Taken as a whole, these infrastructures constraints, if not addressed, will begin to eroded Namibia’s competitiveness and make bringing Namibian goods and services to the world markets a challenge. The need for infrastructure indeed remains enormous, hence this call for reinvigorated efforts in the country’s infrastructure investment.

While investment remains important to the development process, we need to also realise that it is “a necessary and not a sufficient condition for economic transformation and sustained growth”. If we want investment to play an effective role in supporting economic transformation and growth, first and foremost we need to realise that the focus should not be solely on boosting the quantity of investment to levels deemed necessary to meet national development goals. Increasing investment (without) allocating it to sectors crucial to achieving Namibia’s economic transformation agenda will be counterproductive.

Secondly, we must also examine how to improve the quality or productivity of investment, which is particularly important in the area of public investments “to avoid resource waste and achieve maximum impact”.

Thirdly, there is a need for “policy coherence” at local, regional and national as well as international level for “strengthening linkages between local and foreign enterprises, stemming capital flight to release more resources for investment, using aid to stimulate investment and fostering international trade to boost investment”. The government remains at the heart of infrastructure delivery. With or without the participation of the private sector, it remains responsible for infrastructure reform, for setting and enforcing the basic rules of the game, and for regulation. This includes managing the political economy of reforms as infrastructure reforms are political processes, prone to backlash. Government also remains responsible for much of the infrastructure finance as well as social goals.

Of equal importance is the much needed better allocation. In particular, not enough is being spent on maintenance of ageing infrastructure. There is a need for a reliable source of funding to ensure the regular maintenance needed.

The main expectation on the new government is to see investment policies that are aimed and focused on strategic goals, such as completing networks. In framing and assessing these strategic policies there are three essential generic issues our government is urged to consider.

First, government should ensure sustainability – including financing, maintenance and environmental impact.
Secondly, government should strive to achieve efficiency – including effective planning, resource allocation and public-private partnerships.

Thirdly, government should increase impact – increase impact on growth and poverty reduction, including procurement approaches, local economy linkages and participatory decision-making processes for involving poor people. Government should not do this at the expense of providing services to the poor, rather do it at a relatively low cost.

As mentioned already in the article, the funding requirement of N$220 billion is quite a substantial amount of money. Which means that turning around the situation will require reforming the way in which business is conducted in infrastructure development. In forging ahead, there is a need for significant improvements in the management and operation of Namibia’s infrastructure development approach.

In terms of partnerships, the choice is no longer a dichotomous relationship between the public sector and the private sector but a mutual collaboration. At this time and age, the public sector is expected to retain a much more important role in financing while the private sector will help in meeting the significant needs associated with infrastructure construction, operation and to some extent financing.

• Mally Likukela is Standard Bank Namibia’s Manager of Economic and Market Research.

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