Economist Rowland Brown said this week that from a macroeconomic perspective, Namibia is a country in trouble.
Brown, who was giving his thoughts on the performance of the economy this year, said while the country’s challenges are certainly not insurmountable their redress requires a number of tough decisions, many of which revolve around the budget.
“The reason for this is that for a number of years, public funds, allocated through the budget process, have provided a bastion for large-scale rent seeking, this is to say that through public expenditure, particularly, there is a large portion of the Namibian economy that is consuming or costing more than it is producing.
“While this can be sustained in the short-term, in Namibia’s instance largely through debt increases, over the long term it becomes unsustainable,” he told the Windhoek Observer.
Brown said the “rent seeking” takes many forms, including an oversized and often inefficient civil service, which he said was the fifth most expensive civil service relative to GDP in the world, excessive military, defence spending (the 12th highest defence spend to GDP in the world), a number of poorly run and inefficient state-owned enterprises, procurement middlemen, corruption, theft and leakage; excess regulation, buildings and vanity projects with no hope of generating a return on investment.
“All of these rent-seeking activities require financing from somewhere, and in many instances, the funding has come about as a result of a process of collecting revenue from the industrious activity of employed persons, corporates and similar, as well as from debt issuance.
“However, with each dollar that is redirected to rent seeking activity, economic inefficiency is introduced, and potential long-term growth is lost.”
Brown said for Namibia to recover from the current economic environment and return to a positive long-term growth trajectory, many of these inefficiencies need to be addressed.
“However, this requires hard decisions from policy makers, which decisions are neither politically popular nor expedient.”
He said Namibia’s fiscal problems do not stem from the revenue side of the budget or from a small minority of tax-payers that avoid and evade tax, but said the problems lie in the utilisation of funds.
“Without the extensive rent-seeking mentioned above, the Namibian government could easily achieve greater developmental outcomes for the majority of the Namibian people, with the same funds.”
Brown said much of the resolve of Namibia’s fiscal challenges rise and fall in the ambit of political will.
“It is political will that will bring about substantive expenditure changes away from rent-seeking towards productive activity and economic growth. However, without substantial political will, fiscal slippage, particularly in the areas of the wage bill, defence spending and SOE bailouts, will be inevitable.”
He said this will in turn bring the government to a point where efforts to increase revenue will be the only option and last resort.
“In fairness, this can be achieved in one of two ways – increase the tax burden on a shrinking economy, or grow the economy.”
He said increasing tax is undesirable, but yet is the option with which the government is flirting.
“If pursued, we will end up leaning ever more heavily on a small productive part of the economy to support an ever more relatively substantial rent seeing component of the economy.”
In terms of growing the economy, he said much like the restructuring of expenditure, returning the economy to growth requires political will.
“There are only four components of GDP (household consumption, government spending, net-export and investment). Only one of these is a leading competent, the rest follow. That component is investment.”
Brown said it is understandable that positive policy for the already relatively wealthy is counter intuitive for some, it is this accumulation and deployment of capital that causes an economy to rise, taking with it the living standards of its people.
“Thus, it is vital that Namibia turns away from populist propaganda-style policies towards positive investment policies for growth. It is only through measures such as this that household spending can grow sustainably once again, that government revenue can do the same, and that exports can be increased and imports reduced.”