An investor’s nightmare
The sins of the fathers… Namibia is in the grip of a major inequality struggle, a war on hunger, if you like. The World Bank rates Namibia second only to South Africa, in the top ten most unequal countries in the world. Our Gini-coefficient is at 59.1, South Africa’s is at 63.0. Thirty years of freedom – political freedom – have brought to the fore frustration at the inability of the bulk of our people to share in the fruits of liberation. Swapo’s response has been one of plasters. Stick ‘em here, stick ‘em there – irrelevant whether the wound is festering or not.
Government wants to create jobs, spread the wealth – so to speak – and keep the masses, of whom more than a third live in shacks with no services, appeased. Rightly so. It is, after all, their job. They are the government. But the government wants some form of control.
We’ve been a ‘country’ for 30 years. That’s a super-small window in the global economy and on the scale of things. And yet, in those 30 short years, Swapo has managed to produce no less than four documents regulating investment. Much-needed investment. Each one seesawing in a different direction, each one exerting just a little more control and each one, save for the first in 1990, pulled for further consultations. The message we are sending to the world is that we are an uncertain bride – not sure whether to walk down the aisle or not, while there are hundreds like us, some far prettier than us, more than willing to say, ‘I do’.
Those in the know say that tight controls are most often found in developing economies where the capital reserves are lower and more susceptible to volatility. Government’s money has run out – and there are various reasons for this, which are not the scope of this piece, but, the Namibian economy is in peril. Our government has lived a grandiose lifestyle – suffice it to say, buying Levi jeans on a Mr Price budget. Big spenders. Lots of half-baked plans, just like the Kora Awards, the “passionate about Namibia and its people” Kobi Alexander, many of our northern green schemes, the Kalimbeza rice project, resettled farmers, and hundreds of other projects, including Ramatex, which failed.
And now, the Investment Promotion and Facilitation Bill, tabled in parliament in November last year, and withdrawn on the self-same day by trade minister Lucia Iipumbu.
To date, after hundreds of thousands spent on consultations, development and more, the 1990 Foreign Investment Act is still the only valid regulation. The New Equitable Economic Empowerment Framework (NEEEF) was brought to the table in 2008, and was eventually withdrawn more than a decade later, for consultations. Then came the 2016 Namibia Investment Promotion Act, which although signed off by President Hage Geingob, was withdrawn too, again, for consultations. And now, the latest bill, which puts the power for investments in the hands of a single person – the minister. Those in the know say that we know what happens when sole power is granted. The Fishrot-scandal is a case in point.
According to the document, the minister “is empowered to formulate policies and to make or issue regulations and other measures to give effect to this Act”. Moreover, the minister may “set out the terms and conditions of investing in economic sectors and business activities” and may “identify and designate sectors that are reserved for certain categories of investors and investments”. The minister has control of inspectors to ensure “compliance”, can enter into performance agreements with investors, “must prepare an investment policy” and must recommend to Cabinet certain “categories of economic sectors or business activities as exclusive to certain categories of investors and investments”. The minister has the final approval of whether an investor can invest or not, and where they may put their money or not. And this list goes on. According to this document, the minister has the final say-so over whether the sun rises or sets on investment in Namibia.
A glance at the document and the South African investment economist, Dawie Klopper from PSG Consult in Johannesburg, says government should rather adjust existing legislation to improve challenges, including security and the investment environment, rather than trying to control details.
“The government must deregulate as much as possible and create an environment in which investors (domestic as well as foreign) will invest on their own initiative and thereby contribute to a growing economy. If the economy starts to grow, it will automatically contribute to achieving the objectives of the legislation (such as employment). But this document will deter me so much that I will not consider investing in Namibia at all.”
According to the document, the bill is for the “promotion and facilitation of foreign and Namibian investment to enhance sustainable economic development and reduce unemployment”. However, the bill also seeks to “provide for the designation of certain economic sectors and business activities reserved for certain categories of investors… and to provide for approval of investment in designated economic sectors and business activities”. It also aims to stipulate the rights and obligations of investors.
According to the Organisation of Economic Cooperation and Development, it is important to have rules regulating investment. It says, “the quality of a country’s investment policies directly influences the decisions of investors, be they small or large, domestic or foreign. Transparency, property protection and non-discrimination are core investment policy principles that underpin efforts to create a quality investment environment for all.”
The Investment Promotion and Facilitation Bill grants almost unfettered power to the “minister”. According to the Economic Policy Research Association, EPRA, the “minister’s powers to decide who may invest, where they may invest, and to prescribe terms and conditions for each and every investment, are virtually unlimited”. Ownership of the business investing in Namibia may also only change with the minister’s consent, and the minister’s conditions. EPRA says licences, permits and other authorisations by government are used as a tool to ensure the minister’s control.
Local economist and researcher Phil van Schalkwyk says that there are several factors in securing sustainable investments and skills, in the long-term. The first is freedom of choice: where to invest, who to team up with, how to share profits, who to sell to. “Nothing scares an investor more than telling him or her how to, and with whom, he or she may do business.” Consumers must have confidence in the investor itself and reverse is also true – investors must have confidence in businesses, industries and countries, to actually invest. Thus, says Van Schalkwyk, only countries that instil confidence will receive investments, and expertise.
According to Cirrus Namibia, in its 2022 outlook, notes that “overall investment [in Namibia] declined further in 2020, dropping below 2012 levels in nominal terms and below 2008 levels in real terms. Namibia’s gross fixed capital as a share of GDP, has been below her long-term average and the global average for the last few years. Furthermore, investment, as a share of GDP, has been improving globally and regionally over the last few years. These are clear indications that Namibia’s challenges are internal.”
EPRA adds that the investment environment is “toxic” and uses the 43 percent decline in investment in the third quarter of 2021, when compared to the same period in 2020, as reported by the Namibia Statistics Agency, as proof.
Van Schalkwyk, along with every single economist Kosmos News spoke to, highlighted the critical importance of property rights – especially in terms of long-term assets.
The importance of the private sector in investment, job creation and skills transfer cannot be over-emphasised.
The Australian government’s department of foreign affairs and trade performed research in the Indo-Pacific region, looking at the role of the private sector in promoting economic growth and reducing poverty. The researchers found that the private sector is the engine of growth. Successful businesses drive growth, create jobs and pay the taxes that finance services and investment. In developing countries in that region, the private sector generates 90 percent of jobs, funds 60 percent of all investments, and provides more than 80 percent of taxes.
The international thinktank, the Governance and Social Development Resource Centre says that their research indicates the “private sector is a key stakeholder in both urban and economic development, being a major contributor to national income and the principal job creator and employer. The private sector provides around 90 percent of employment in the developing world (including formal and informal jobs), delivers critical goods and services and contributes to tax revenues and the efficient flow of capital.”
The findings also indicate that the private sector will “undertake the majority of future development in urban areas. It is increasingly being encouraged to help leverage the opportunities, and mitigate the challenges, of rapid urbanisation [in these countries]. Private sector actors are perceived as playing a role in urban governance: they influence whether urban areas develop in inclusive and sustainable ways, and they affect poverty reduction and drivers of fragility and conflict such as unemployment, exclusion and instability.”
Van Schalkwyk agrees. In his view, one of the most critical aspects for investment is a government that understands the critical role the private sector plays and then, to develop and implement, under decentralised conditions, policy that meets the needs of the private sector and most importantly, policy that does not lend itself to a haphazard implementation or, can be amended at any time. “Businesses and industries cannot be internationally competitive in the long run if the government is not competitive in the provision of services in infrastructure.”
Businesspeople did not want to be quoted in this piece … possibly a sign of the times … but one senior manager at a large, local company says that “it seems that the legislators are extremely paranoid and want to control everything and this is, as we see in South Africa, to the detriment of economic growth and job creation, and the poorest of the poor.” A CEO is of the view that “any bill forcing people or organisations to act or make decisions in a certain way takes away freedom. No-one wants to live in a society where everyone is not free, that is why we as humankind have gone through so much conflicts with one another.”
The concern is of course, the centralised control. Says another, “As a nation, we must always strive to have counterbalances and corrections in place, too much power in one ministry can damage our society and/or economy to such an extent, that we destroy the future for our children.”
The agreement is that this document, if approved and enacted, will have as a result: Less job creation, disinvestment over time, more social unrest. Says another entrepreneur: “We should be pulling together to improve Namibia and this bill fosters more division. We have a lot of social problems to resolve and the only way to achieve that is more economic activity. A bill like this would have the exact opposite effect, less jobs and less development.”
Cirrus economist Robert McGregor agrees. In his view, the bill raises many concerns. “Centralising the approval of investments in this fashion is wholly undesirable and counter-productive – it lengthens the process, provides substantial powers to one person, and seeks to introduce job reservation. The latter is especially problematic. Namibia’s problem does not lie with whether Namibians, foreigners, private or public entities operate in any economic sector. Namibia should be actively attracting investment and skills by opening up – making it easier to do business here, and making it easier to bring skills and capital. However, proposals such these actively deter such – providing not only uncertainty as to what sectors will be affected (and when), but also as to how precisely such statutes and policy will be implemented.”
He agrees that centralising power to the extent that the bill proposes, is a “dangerous precedent”. It also leaves little in the way of recourse (apart from turning to the courts, which is slow and expensive).
He continues by saying that the “Heritage Foundation’s Index of Economic Freedom provides strong evidence that freer countries (not just in terms of democracy v autocracy, but economic and trade policy as well) fare much better than others. Policy proposals, such as the Namibia Investment Promotion and Facilitation Bill restrict economic freedom. In an economy that has seen a substantial reduction in investment since 2014 and several quarters of net FDI outflows from 2018 to 2020, we need to open up to trade, investment and skills – not create further restrictions and bureaucracy. The bill does not address any of the underlying challenges to driving investment in Namibia, but instead only adds to these challenges.”
McGregor, and others, say the bill’s central theme reminds of the job reservation policy in South Africa – obviously not a route a country should follow. We should be making it easier to start and operate a business in Namibia – and cheaper. Namibia, according to World Bank stats, tends towards the more expensive African countries for starting a business. Locally, it’s roughly N$6 800, just to get started. Without offices, equipment, bookkeepers, staff etc.
According to McGregor: “By subjecting investment to approval, and centralising this power, Namibia makes herself materially less attractive not only compared to her neighbours, but also when compared to the world. It is important to remember that Namibia competes for investment on a global scale, and investors will ultimately go where their capital is welcome and well-treated. The same applies to Namibian investors, who are not limited to investing in Namibia, but may opt to deploy their marginal dollars either to consumption (which does not have the long-term growth benefit) or to investment beyond Namibia’s borders (if better opportunities can be found there).”
Even more concerning, is that the bill reminds of NEEEF – a trend of centralising control over aspects of the economy by the central government. NEEEF proposes ownership structures – which the poor, those who the government wants to empower, cannot afford.
Economists agree that regulation of investment is important. According to Van Schalkwyk, investment legislation is especially important when the government of the day does not have a good reputation amongst international investors and fail to engender investment trust. Thus, in his view, there should be guarantees and assurance that investors can freely decide with whom to invest, that investors can appoint staff of their choice, can import skills to such a degree that the investment will not suffer due to lack of skills, that infrastructure and services are offered at competitive prices, and that there is an open market system based on capitalism.
For some, it is inexplicable that the government seems intent on implementing a centralised socialist-Marxist economic and governance model in the country. As mentioned earlier, there are better brides, far more willing to commit.
Says McGregor: “An important consideration for policy and statute is not to simply take it at face-value (on its preamble, objectives, etc.), but to look at its consequences – intended and unintended. What we need is the very opposite – cutting down on restrictive policies, reducing bureaucracy, streamlining and speeding up the administrative processes, and improving Namibia’s attractiveness as an investment destination. With a relatively high corporate tax rate and the introduction of the dividend withholding tax, investors will question if they are getting a sufficient return from any potential investment in Namibia and whether there is sufficient return from the relatively high taxes to justify the deployment of capital. What Namibia needs is investment – by providing entrepreneurs and businesses with a conducive environment. Legislation will not result or foster investment simply by what it is named.”
Too much central control, too much ministerial power, too many rules, and prescripts, too much you can, and you cannot. No investor can justify this to his or her board, or shareholders.
Parliament resumes sessions on 8 February. It is entirely unclear whether the trade minister, Lucia Iipumbu, will table the bill again after tabling and withdrawing on the same day in November 2021.
We are waiting with bated breath. And we live in hope.