Windhoek-Namibia needs to take unconventional steps to respond to the unusual economic situation facing the country, and as a beginning should “evangelise confidence in the economy”, opined executive chairman of Eos Capital, Johannes !Gawaxab. Eos Capital is a newly incorporated wholly owned Namibian private equity fund manager that is managing the Allegrow Fund in Namibia.
“We need to re-imagine our economy,” said !Gawaxab yesterday in an interview with New Era. He pointed out that the global economy has weakened, which has had a negative impact on the local economy, aggravated by the drought and dwindling revenues from the Southern African Customs Union (SACU) pool.
While the finance ministry has, correctly so, already tightened the screws on government spending, the market still does not have confidence in the country. The market shunned the government bonds late last year because of what finance minister Calle Schlettwein admitted was a waning of confidence in the market.
As a result, treasury had to hold a special auction through which it was able to raise N$3.5 billion and pay off its financial commitments, some of which were way above the 30-day period.
And the public sector was also a tad averse because it was expected to swallow up much more than what they usually do, as government tries to raise more capital to fund its budgetary requirements.
“Confidence is lacking. That tells you if the market does that, there is going to be a default coming. The basis of any successful economy is confidence. People are thinking ‘are these Namibian guys going to pay back’. We need to evangelise confidence in our economy, that we can pay back,” says !Gawaxab, who advises that the country looks at revenue strengthening, curtails the spending in non-productive sectors and embark on transforming the economy.
He advises that the country looks at partial divestiture in three of its entities, such as MTC and Namibia Wildlife Resorts, which could immediately yield between N$4 billion and N$5 billion. He was quick to add that partial divestiture is not government giving up ownership or the controlling ownership in such entities, but simply giving up a portion of its holdings to the private sector, while retaining majority ownership.
“That can help us raise capital while improving efficiency in those entities,” he says.
Another suggestion is to improve tax collection, broaden the tax base and zoom in on transfer pricing, something he says no one checks, especially on prices the foreign holding companies charge their Namibian-based subsidiaries.
“Our tax system has the capacity to raise revenue,” he says.
“We need to think seriously about increasing value added tax (VAT),” he says and suggests an increase of between 0.5 and 1.5 percent. “I know VAT is regressive tax that hurts the poor the most, but to soften that we also need to increase social grants. On a net-net basis the country gets more revenue from VAT.”
The country also needs to police the Chinese businesses so that they pay their fair share of taxes, and that import values are not understated.
He also suggests implementing the investment of domestic assets from the current 35 percent of assets to 45 or 50 percent, and increasing the portion of pension funds that must be invested in the country.
On top of that !Gawaxab further suggests that economic diplomacy becomes Namibia’s language among its foreign representatives, especially those in developed countries, to attract foreign direct investments.
“We need to start spending on the productive sector – we spend too much on head offices, and such activities do not generate income. We need to spend on activities that generate income. Productive spending must be a priority.”
On economic transformation, !Gawaxab says Namibia has to accept that there is inequality and that the economy is controlled by a few Namibians. “This is unsustainable; we need to deconcentrate economic power. But I do not think this is to take away, without compensation, from the haves and give to the have-nots. We need policies that create jobs and generate revenue,” he says.
“Harambee is a great plan, but my assumption is that it was conceived when the economy was normal. We need to reboot the funding and execution of Harambee. It is a great plan, but the economy has changed. If you get those two things right the Harambee is going to deliver results,” he says.
Further, he says Namibia needs to use state procurement more aggressively to transform the economy. “We are in this for about 12 to 18 months – there are a couple of things that can get us out. There is a rebound in commodity prices; SACU revenue is going to improve better than last year; the rain is here, and the global economy is picking up slowly,” he says.
For now though “we are in the middle of the storm, we are facing headwinds. Consumers must behave as though there is a storm and protect themselves against the sun and rain that is going to come.”