Extracts from the 2015 Budget for the Republic of Namibia, tabled by Finance Minister Calle Schlettwein on Tuesday, 31 March 2015.

ACCOUNTABLE GOVERNANCE – RESULTS-BASED MANAGEMENT

Barely a week ago, on the 21st of March 2015, our country and people celebrated twenty-five years of independence, borne out of decades of protracted struggle and selfless sacrifices for the liberty and prosperity for all Namibians.

Our country has been able to make notable progress and register key achievements, which include:

• The expansion of the economy by a factor of 15 since 1990, from N$8.3 billion to N$126.6 billion by 2013, with the corresponding income per capita having increased more than 10 times, from N$5,500 to N$58,300, thus propelling Namibia into the league of upper middle-income economies by global comparison;

• improved access to education, health facilities and basic amenities;

• reduction in relative poverty from 38 percent in 1993/94 to 20 percent by 2009/10 and pushing back extreme poverty from 9 percent to 2.0 percent over the same period;

• an impeccable record of democratic governance, peace and stability epitomized by our outgoing President, the indefatigable His Excellency Hifikepunye Pohamba, having been bestowed the 2015 Mo Ibrahim Award for excellence in African Leadership;

• upholding of macroeconomic stability and fiscal prudence, which enhanced the competitiveness of our economy and the capacity of the State to expand the provision of public services to all our people; and

• in spite of the difficult adjustment period stemming from the effects of the global financial crisis, Namibia was able to have its investment grade sovereign credit ratings by Moody’s and Fitch reaffirmed as stable.

WHAT DOES THIS BUDGET OFFER?

The budget and the Medium-term Expenditure Framework I am tabling today are aimed at tackling the structural challenges that affect the development potential of our economy, unlocking opportunities for jobs and wealth creation and improving the welfare of Namibians in an inclusive and sustainable manner. It is a pro-poor, pro-growth budget, with deliberate scaled-up resource allocations to the targeted programmes for broad-based economic growth, job creation and poverty eradication over time.

To bring about better results in these focal areas of social and economic transformation, we need to depart from a business as usual mindset by making measurable efforts to hold Offices, Ministries and Agencies entrusted with programme execution accountable for their action or inaction. We have to move in top gear in our journey to Vision 2030.

In particular, we need to make bold decisions and commence with targeted policies to transform and diversify the economy, alongside a package of strategic interventions to amplify the policy impacts in the targeted areas.

POLICY PRIORITIES FOR THE MTEF

His Excellency President Hage Geingob’s administration came into office on the basis of a strong foundation laid over the past twenty-five years. As a matter of policy priorities, this administration will seize the opportunity to address the socio-economic challenges expeditiously.

By and large, Namibia’s economic growth so far has been positive and moderately high, but it largely remained jobless, with unemployment perpetually high, and now standing at 28.1 percent. A key challenge that we face is the narrow production base with growth being concentrated largely on the production and export of raw materials and commodities on one hand, and a high import bill on the other hand. This state of affairs limits the job creation potential, continually drives our trade balance deeper into deficit, exerts pressure on the stock of international reserves and renders the economy highly vulnerable to external shocks.

Thus, the first priority in this budget and MTEF is to bring about an inclusive growth agenda for our country by:

• diversifying and industrializing the economy, through targeted budgetary allocations to the priority economic sectors with high economic growth and job creation potential,

• continuous development of functional and technical skills through increased access to tertiary education and vocational training,

• developing and supporting domestic and regional value chains in the areas of comparative and competitive advantage,

• crowding-in the much needed investment through private sector and SME support programmes as well as harnessing PPPs,

• enhancing greater access to development finance through the operations of domestic Development Finance Institutions and tailormade commercial credit offerings, and

• leveraging PPPs for infrastructure development and public service delivery.

Although we have, undoubtedly, made a remarkable dent in poverty, deep pockets of poverty and vulnerabilities still remain.

Thus, the second priority for this budget and MTEF is to reduce poverty and improve social welfare. A sustainable and long-term strategy to address poverty is the provision of opportunities for income generation as well as promoting the creation of decent jobs. This will be achieved through:

• strengthening social safety nets in coverage and quantum as the first line of defence against poverty for the vulnerable members of our society,

• supporting the creation of decent jobs and self-employment opportunities in the private sector,

• implementing policies that promote local access to, and ownership of the resources, and nurturing the capacity to exploit the resources profitably,

• developing social security networks that are sustainable and meaningful, and

• designing and implementing redistributive tax policies that are pro-poor and pro-growth

The interconnectedness across the skills deficit, joblessness, poverty, income inequalities and skewed ownership levels, pose an unyielding barrier to wealth creation for the majority of Namibians. We need to recognize that there is no silver bullet to address these challenges. A package of policies and instruments is needed to break this barrier over time.

The third priority for the budget and MTEF is, therefore, the achievement of prosperity and wealth creation through:

• empowering Namibians in a manner that creates sustainable and broadbased wealth creation,

• promoting affordable and sustainable access to finance and means of production, while maintaining responsible lending,

• developing facilities to support SME access to finance and mentorship programmes,

• increasing the share of local ownership and value share in the value chains across various industrial and service-oriented activities,

• encouraging wealth accumulation and prudent management, and

• expanding the provision of basic amenities to all Namibians.

Lastly, a performance-oriented and results-based work culture needs to be strengthened in the realm of public service delivery to ensure accelerated service delivery, accountability and value for money. Hence, the fourth priority is to:

• improve service delivery by strengthening internal efficiency of the public service sector through performance measures and accountability;

• continuous skills development, and

• reform of public enterprises to ensure affordable, competitive, reliable and sustainable service delivery.

The extent to which we can address these priorities today depends on the multiplicity of internal and external factors impacting on our growth potential, the revenue generation capacity of our economy and the measures that we can deploy to address these constraints. Allow me, therefore, to highlight the economic context and constraints under which this budget and MTEF will be executed.

GLOBAL AND REGIONAL ECONOMIC AND FINANCIAL CONTEXT

The global economy is projected to grow, but at a weaker pace of 3.5 percent in 2015 and marginally improving to 3.6 percent in 2016. With the exception of the United States of America, the growth outlook is weaker for other major economies, such as the Euro zone, China and Japan.

The Sub-Saharan African region is also not spared, with growth projected to remain relatively flat at 5 percent over the MTEF.

Closer to home, the South African economy, which is closely linked to Namibia through strong trade and financial ties, is projected to remain subdued, having only registered an estimated 1.4 percent growth in 2014 and projected to grow by an average of 2.5 over the MTEF, mainly due to the effects of electricity supply shortages.

The prolonged low growth spell for the South African economy poses inescapable consequences for Namibia, particularly in regard to export growth and revenue accruing from the Southern African Customs Union (SACU).

DEVELOPMENTS IN THE DOMESTIC ECONOMY

With regard to developments in the domestic economy, growth is estimated at 6.2 percent in 2014, an acceleration from the growth rate of 5.1 percent recorded in 2013.

Growth in 2014 was anchored by the strong expansion of output in secondary industries, on the back of a booming construction activity and the recovery in the primary industry sector as well as associated increased investment in the mining sector, a strong surge in the retail sector and strong public consumption expenditure. Looking ahead, a stronger economic expansion could benefit from increased value chain developments in agriculture, agro processing, minerals beneficiation and stronger output from the services sector.

The Overall Balance of Payments recorded a deficit of N$1.8 billion, from a surplus of N$598 million in 2013, mainly as a result of a widening current account deficit. The current account continued to register a deficit as a result of strong inflows of imports over exports, which further puts pressure on the stock of foreign reserves, although the stock remains sufficient to support the currency peg. On the other hand, the capital and financial account recorded an increased surplus, primarily due to large net capital inflows from other long-term investment, albeit not enough to offset the deteriorated current account deficit. These inflows were due to increased borrowings by the private sector, especially in the mining sector.

Regional economic integration

In terms of the regional integration agenda, progress remains stalled regarding the current SACU revenue sharing and institutional arrangements.

Namibia believes in the relevance of SACU as the engine of regional integration and industrialization. We believe that SACU revenues are currently broadly shared in a manner that reflects the realities of the SACU economies and the proportional benefits accruing from the market share of the Member States in the Customs Union.

Regarding the drag on the SACU Revenue Sharing Formula and the perceived dependence on SACU receipts, our stance is that revenue matters cannot be seen in isolation. Associated trade and balance of payment benefits, rebates, duty drawdowns and industrial/agricultural development policies must be considered as well. A more balanced view on the revenue sharing formula through which all Member States of SACU can grow should, therefore, be our aim.

In regard to SADC, the Tripartite Free Trade Agreement between and among the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC) is envisaged for launching in June this year. This promises for a larger market of some 625 million people and representing about 58 percent of the continent’s GDP. However, to optimise trading opportunities, Namibia needs to significantly improve her productive capacity and avoid the trap of becoming a captive market for those countries with an ability to trade in finished goods.

THE MEDIUM-TERM ECONOMIC OUTLOOK

Over the medium-term, our economy is projected to grow above global averages, but the growth rates are expected to be moderate in line with global trends. GDP is estimated to have grown by 6.2 percent in 2014 and it is projected to moderate to 5.7 percent in 2015 and average at slightly above 5.0 percent over the MTEF.

Revenue for the budget year is projected at N$58.44 billion, an increase of 8.7 percent over the previous year. For the MTEF, revenue is projected to increase at a moderate pace of about 9.0 percent, to reach N$69.18 billion by the end of the MTEF or about 35.0 percent of GDP.

The major drag and significant risk for revenue growth is the projected reduction of SACU revenues, on account of lower growth outlook for the South African economy and clouded by the uncertainty regarding the pending negotiations on SACU institutional and Revenue Sharing Formula arrangements. Going forward, Namibia remains open for dialogue and reiterates the need for constructive engagements on this matter, which should be seen in the wider context than mere revenue sharing.

The FY2015/16 Budget and Expenditure Outlook for the MTEF

The budget that I table before this house, proposes an expenditure outlay of N$67.08 billion for the 2015/16 financial year, equating to 40.8 percent of GDP. This represents 7.0 percent nominal increase over the past year, a much moderate expansion rate, compared to 27.7 percent over the previous year. For the MTEF, total expenditure is forecast to moderately increase to N$72.06 billion by 2017/18 and average 39.0 percent of GDP.

Total non-interest expenditure for 2015/16 will increase to N$63.23 billion, from N$57.69 billion in 2014/15, and average around N$65.56 billion over the MTEF.

Interest payments, which represents Government obligations to debt servicing is estimated at N$3.87 billion in FY2015/16 or some 6.6 percent of revenue, seen against the limit of 10 percent of revenue.

Non-interest operational expenditure for the budget year is set at N$52.12 billion or 31.7 percent of GDP, representing a 3.0 percent nominal increase over the previous financial year, due to expenditure commitments arising from public sector remuneration corrections as well as adjustments to the Government structure.

The development budget, which is key to infrastructure development and fiscal countercyclicality is proposed to increase at a much higher rate of 15.9 percent to N$11.10 billion in the budget year and average around N$12.05 billion over the MTEF. As a portion of GDP, the development budget allocation increases from 6.4 percent in 2014/15 to 6.7 percent in 2015/16 and averages around this level over the MTEF.

In addition to the development budget allocation, budgetary allocations are made under the operational budget for targeted transfers to State-owned Enterprises for investment in strategic infrastructure projects such as the Kudu

Gas-to-Power project, railway and road network rehabilitation, Walvis Bay Port expansion and the Mass Housing flagship projects.

Going forward, Government must seek a better alignment of the development budget to our economic priorities, industrialization policy and our Growth at Home Strategy. This alignment would further be optimized through leveraging local sourcing requirements, PPPs, improved Namibian ownership and the development of value chains across the development initiatives.