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Namibia and the world economy A longer term and regional perspective 16 September 2005 September 2004 Philip Clayton Windhoek 15 March 2007 2 Namibia Namibia: fiscal health (% of GDP) 3 50 40 30 Budget revenue Budget expenditure 20 Public debt Budget balance 10 0 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 -10 Source: EIU Namibia report Doing business: good in a regional context 4 Country Ease of Doing Business Rank Singapore New Zealand United States Ireland Lithuania Estonia Malaysia South Africa Namibia Botswana Swaziland Mozambique Zimbabwe Angola DRC 1 2 3 10 16 17 25 29 42 48 76 140 153 156 175 Doing Business Starting a Business Dealing with Licenses Employing Workers Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business Source: IFC Growth – OK, but could do better 5 GDP growth 2011-36 7.0 6.0 5.0 World 4.0 Sub-S Safr 3.0 Namibia 2.0 South Africa 1.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source:World Markets World 3.1 Sub-S Safr 5.0 Namibia 4.7 South Africa 6.0 Government spending: Namibia out of line 6 38.0 36.0 34.0 32.0 World 30.0 Sub-S Safr 28.0 Namibia 26.0 South Africa 24.0 22.0 20.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Burden of government high. Public sector share of formal employment out of kilter with region. Need to focus on bang for tax buck Government suggests 2009/10 spending at 29.7% of GDP Source:World Markets Deficit: much work still to be done 7 2011-36 2.0 World 1.0 Sub-S Safr 0.0 -1.0 -2.0 Namibia 2002 2003 2004 2005 2006 2007 2008 2009 2010 Deficit to GDP -3.0 -4.0 World Sub-S Safr Namibia South Africa -5.0 -6.0 -7.0 -8.0 Revenue can be very variable – fishing, diamonds SACU. Need to look for new sources, while keeping overall burden low. Need to assess value of spending Government pencilling in deficit of 1.1% of GDP over MTEF Source:World Markets South Africa -0.2 0.4 -4.7 2.4 Share of revenue, revised 2006/07 8 Other revenue Customs & excise Two fifths of revenue – SACU transfers – will be under pressure in real terms Source: EIU SACU payments, as % of SA revenue 9 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1 2 3 4 5 6 7 8 9 0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /1 . . . . . . . . . . 00 01 02 03 04 05 06 07 08 09 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 Source: SA National Treasury Tax payments and compliance 10 Belarus Namibia Botswana South Africa Mauritius Norway Tax payments Time to per year comply 123 1188 34 24 140 23 350 7 158 3 87 Source: PWC Corporate Tax 11 Mauritius Namibia Hong Kong South Africa Botswana Total tax rate as % of commercial profits 24.8 25.6 28.8 38.3 53.3 Corporate income tax, labour tax, and other taxes, Source: PWC Individual Tax – highest rate 12 Monaco Singapore Namibia SA Norway 0% 21% 35% 40% 51% Source: Worldwide-Tax.com Today’s Budget: Balance sheet - positives 13 Pro poor – tax threshold up 50%, to N$36 000 pa, pension allowance up 33% to N$40 000; Grants for 78 000 children over MTEF Education 22.2% of spending in MTEF (bang for buck?).Continued stated focus on growth Budget surplus this year of 2.1% of GDP (but specials influence this). In MTEF, expenditure projected to decline to 29.7% of GDP, from 34.2% IN 06/07 Development budget up further $800m under MTEF Debt management improved – prevents lumpy redemptions Focus on tax compliance – revenue and grants 36.3% GDP in 2007/08 Today’s Budget: Balance sheet - negatives 14 Rising operational expenditure – 77.7% of total in 06/07, to 82.1% in MTEF. Need is to improve capital stock; looks like economic services gets only 11% Short on details regarding underperforming parastatals – particularly Air Namibia (and is this subsidy pro-poor?) Loan funding – even if concessional – to plug hole in revenue. But deficit at 1.1% of GDP over MTEF is sustainable. But, is the decline in share of GDP on government consumption - and declining real spend pegged at $17bn or so for three years - realistic? Massive underspending on development budget in 06/07 thus far – suggests capacity constraints. Will this continue? Burden of state on economy not addressed (but perhaps not just Minister’s job) Budget conclusion 15 Within tough constraints, Minister has done a good job. Focus on poor, job creation, transforming the economy – all to be applauded. Thrust of focus on indigenising investment – on unlisted companies, and decreasing share of dual listed that counts – a positive sentiment. But – concern regarding unintended consequences (misallocated capital; another building bubble, etc) eed critical look at development, and particularly job creation, obstacles. It is not only the measured tax burden that is at issue; the unmeasured regulatory and other compliance is also an obstacle. With the constraints – a good job. But, need to focus on diversifying revenue; looking critically at all what government does (a third of formal sector works for the state). MTEF process a good start. With vision – Namibia can achieve a better life for all – despite the tough periods it has gone through 16 Global context Emerging markets – now pushing ahead 17 % 9 8 7 6 5 4 3 2 1 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 World GDP growth Advanced economies Developing economies Source: IMF Sustainable thrust International issues affecting southern Africa 18 • Emerging market sentiment shifts – global risk shifts • Commodity demand and prices (China key) • Middle East, Iraq • North Korea • Zimbabwe • United States and recession; global housing market GLOBAL ENVIRONMENT REMAINS SOMEWHAT UNSETTLED Population trends – median age 19 50 Europe 45 40 Northern America 35 Asia 30 25 Latin America and the Caribbean 20 Africa 15 10 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Population dynamics moving absolutely – and relatively – in favour of Africa, Latin America, Asia – against developed world Source: Group Economics (from UN World Population Prospects) China and India 20 China and India together, account for two fifths of the world’s population. And greater region (with Indonesia, Vietnam, etc), over half China has been growing at 10% pa for two decades; the Hindu giant has begun stirring Demand for commodities is huge. High value agriculture imports likely to surge (in similar fashion to China shifting from oil exporter, to secondbiggest importer). China now exporting inflation – not deflation: thanks to impact on commodities, and small – but significant – revaluation of Renmimbi. Also, labour costs pushing up even manufactured prices Note increasing influence of China, and India, in African investments China’s demand, commodity prices 21 Does the China, India effect mean the boom will last much longer than average? Source: Economist, 22 July 2006 Africa and global growth 22 GDP growth pa 9 8 7 6 5 4 3 2 1 0 1988-97 1998.-07 World Africa Long-term uptick in Africa’s performance - but still below Asia Source: IMF World Outlook, April 2006 Dvlping Asia 23 South Africa Economic growth 24 % y/y 8 6 4 2 0 Growth sustainable – Shift from consumption, to uptick in capital spending (private sector and government). Concern is the skills gap; AIDS. Good fiscal policies opening up ability to spend more on social issues -2 -4 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 Source: SARB, Standard Bank Group Sustainable step-lift? Fixed investment 25 % y/y 10 8 6 4 2 0 -2 1960s 1970s General government 1980s 1990s Public corporations 2000s Private business enterprises Source: Standard Bank Group, SARB The big dig Inflation 26 % y/y 20 16 Exchange rate Global inflation and competition Credible inflation target framework Capacity utilisation Vulnerable to external shocks, especially exchange rate 12 8 4 0 1982 1985 1988 1991 1994 1997 CPI 2000 2003 2006 CPIX Source: SARB, Standard Bank Group Structurally lower 2009 Economic forecasts 27 GDP (% y/y) Cons exp by hshlds (% y/y) Gross fixed capital (% y/y) Current acc bal (% of GDP) 2002 3.7 3.2 3.7 0.6 2003 3.1 3.5 9.1 -1.3 2004 4.8 6.7 9.6 -3.4 2005 5.1 6.6 9.6 -4.2 2006 4.7 6.9 11 -5.6 2007 4.3 5 9 -5.1 2008 4.2 4.5 9 -5 2009 4.3 4.7 10 -4.9 Headline CPI (% y/y) CPIX (% y/y) PPI (% y/y) Prime (ave) $/R (ave) 2002 9.2 9.3 14.2 15.6 10.54 2003 5.8 6.8 1.7 15 7.55 2004 1.4 4.3 0.5 11.3 6.43 2005 3.4 3.9 3.1 10.6 6.33 2006 4.6 4.6 6.9 11.2 6.77 2007 5.3 5 7.4 12.4 7.2 2008 4 4.9 6 11.2 7.11 2009 4.5 4.7 5 11 7.42 Growth and inflation outlook benign, but talk about bottlenecks rising. Not sure I am as positive on rand as group is. Source: Standard Bank Group 28 February