Harvesting Private Sector Investment in Namibia

This piece originally appeared as a Blog in The Namibian on August 8, 2022

Namibia has achieved remarkable economic growth since 1990, transitioning to an upper-middle-income country in 2008. In the last few years though, its economy has stagnated, and the country has fallen into a recession between 2016 and 2020, exposing the vulnerability of its growth model to external and climate shocks.

In 2020, Namibia's economy contracted by a further 8.5% due to falling commodity prices, a tight fiscal policy to curb mounting debt, weak growth in key trade partners like neighbouring Angola and South Africa, and a severe drought. These challenges were exacerbated by the COVID-19 pandemic, which has also worsened socio-economic inequalities.

Despite these setbacks, however, the country is full of potential. Namibia is rich in mineral resources and has–largely untapped–world-class renewable energy resources. Its economy is expected to bounce back in the medium term, offering excellent investment and growth opportunities  in sectors ranging from agribusiness to housing. These sectors have the greatest potential to create jobs, fight poverty, and reduce inequality.

Going forward, how do we ensure these opportunities are realised and will set the country on a more sustainable growth path?

These opportunities are the focus of a new report by International Finance Corporation and the World Bank, the Namibia Country Private Sector Diagnostic (CPSD). The report analyses and presents opportunities to leverage private-sector capital and expertise to reposition growth on a green, resilient, and inclusive trajectory, rather than to rely on the dominant public-sector growth model, which is facing constraints.

The report identifies five key areas for reform: enhancing competition in the state-owned enterprise (SOE) sector; strengthening the public-private partnership framework; advancing digital transformation; addressing inefficiencies in logistics and trade; and tapping opportunities in the water sector. The monopolistic nature of SOEs and their huge footprint inhibits competition, productivity, and efficiency. Namibia can expedite the current SOE reform agenda to improve SOE performance and boost competition.

To transform the country's digital sector, policy reforms are needed to allow for the entry of new operators to increase affordability and reliable bandwidth. The country can also make use of infrastructure-sharing arrangements to ensure digital technologies are widely adopted. Namibia faces inefficiencies in the logistics and trade facilitation sectors, such as a lack of adequate transport infrastructure, connectivity, storage facilities, skilled professions, and high costs. These can be addressed by implementing digital systems, improving regulations, and border-crossing efficiency.

The CPSD further points to the need to strengthen the implementation of a robust public-private partnership (PPP) framework, accompanied by critical business environment reforms that could help attract much-needed private investments, especially in energy and water, thereby reducing the fiscal burden.

Water shortages are another critical issue.

As the driest sub-Saharan African country, Namibia is especially vulnerable to climate change. Water demand is expected to increase by over 30% by 2030, driven by urbanisation and agricultural needs. Meeting the growing water demand would require a comprehensive approach, including decentralisation, an equitable tariff policy, and technical innovation. With its expertise and capital, the private sector is well placed to help develop innovative solutions such as desalination.

In addition to these areas for reform, the report highlights three priority sectors for increased private-sector participation: renewable energy, climate-smart agribusiness and housing, based on their growth potential, ability to leverage natural resources, and create much-needed jobs.

Namibia's abundant renewable energy resources, including one of the highest solar irradiation levels globally and excellent wind speeds, are ripe for development. Strengthening private-sector participation in renewable energy generation would enable the country to transition into a regional supplier of electricity, and move to a zero-emissions electricity supply. That would allow the country to service its own rising electricity demand and also position itself as a global competitor for green hydrogen. Climate-smart investments in the agribusiness sector would help generate income and jobs, while mitigating climate change.

Despite limited arable land, over 70% of Namibia's population depends on agriculture for their livelihoods, and the sector creates nearly a quarter of all jobs. Diversifying crops, stimulating research, boosting exports, and investing in water-conserving irrigation and other digital technologies would help rejuvenate this key sector. In terms of housing, policy reforms in the country's housing and land-tenure systems are creating new opportunities by eliminating bottlenecks to urban serviced land and housing delivery.

The private sector will be vital in meeting the growing demand for formal housing, upgrading informal settlements, creating affordable mortgage finance products, and leveraging climate finance and green building opportunities.

Ultimately, as the report highlights, deepening reforms and boosting private participation will help reduce Namibia's fiscal burden and provide opportunities for the country to achieve sustainable broad-based economic growth after COVID-19.

The World Bank Group is committed to supporting the country in these efforts–to help reduce inequalities, combat poverty, and boost shared prosperity for the country's citizens.