Public Disclosure Authorized Poverty Alleviation with Sustainable Growth F X F . .. Public Disclosure Authorized .,~~~'....L. -. ;,'4!XIf..X. .. i. K Public Disclosure Authorized ' ~E,*X.... F4.s,}* .i '.S.....- V..a{{ -' ., ___j__ ,__ ,__._____. , Public Disclosure Authorized A WORLD BANK COUNTRY STUDY Namibia Poverty Alleviation with Sustainable Growth The World Bank Washington, D.C. Copyright i 1992 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1992 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member coumtries and of its dialogues with the governments. 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The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, Department F, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. ISSN: 0253-2123 Library of Congress Cataloging-in-Publication Data Namibia: poverty alleviation with sustainable growth. p. cm. - (World Bank country study) ISBN 0-8213-2182-X 1. Namibia-Economic conditions. I. Series. HC940.N365 1992 338.96881-dc2O 92-23414 CIP Preface This report is based on UNDP-financed economic provided by Ms. Noemi Dacanay and the support staff missions that visited Namibia between September and of AF6IE. Messrs. David Cook (AF6IE) and Stephen November 1990. Mission members included Pedro Denning (AF6DR) are the managing Division Chief Belli (mission chief and principal author), Maria Teresa and Department Director. Benito (economist), Joy de Beyer (health economist), The mission also benefitted from valuable Hjordis Bierman (fiscal economist), Francis Christy information provided by the UNDP resident mission in (fisheries economist), Alan Dock (education expert), Namibia, the ILO, UNICEF, and Prof. Chris Tapscott. Edward Echeverria (housing expert), Nancy Gillespie As indicated in UNDP Project Document NAM/90/ (economist), Jeffrey Gimbel (public health specialist), 002, dated March 2, 1990, the major objectives of the Roger Hay (agricultural expert), Melanie Johnson report are to examine the structure and evolution of (financial expert), Armando Lago (transport economist), the economy and several key sectors, and recommnend Arturo Meyer (macroeconomist), Peter va'i, der Veen an economic development or rehabilitation strategy for (mining engineer), Shujie Yao (agricultural economist), the country, including investment priorities and the and BrigidaTuason (research assistant).Word processing main economic policy reforms needed to implement of the report was done by Ms. Nuria Plaza. Secretarial this strategy. support and additional word processing assistance was i;ii Abbreviations CCN Council of Churches in Namibia CDM Consolidated Diamond Mines CHW Community Health Worker CMA Common Monetary Area DEA Department of Economic Affairs DFI Development Finance Institution DNE Department of National Education FNDC First National Development Corporation GFI Government Finance Institution HIV Human Immunodeficiency Virus ICSEAF International Commission for Southeast Atlantic Fisheries MLGH Ministry of Local Government and Housing MME Ministry of Mines and Energy MOHSS Ministry of Health and Social Services NBC Namibia Broadcasting Company NBIC National Building Investment Corporation NGO Non-government Organization NIED National Institute for Education Development NISER Namibia Institute for Social and Economic Research PHC Primary Health Care PLAN People's Liberation Army of Namibia RBSA Reserve Bank of South Africa RIDP Southern African Regional Industrial Development Program RSA Republic of South Africa SACU Southern Africa Customs Union SWABOU Southwest Africa Building SWAPO Southwest Africa People's Organization SWATF Southwest Africa Territorial Forces SWAWEK Southwest Africa Water and Electricity Corporation UNDP United Nations Development Program UNTAG United Nations Transition Assistance Group WFP World Food Program Currency Equivalents 1990: 1 Rand = 0.39 US$ 1 US$ = 2.57 Rands iv Contents CouIitry Data xiii Summary xv 1. The Economy and the People I Overview 1 Population 1 Links with South Africa 1 Transport Infrastructure 2 GDP and Per Capita GDP 2 Sectoral Contributions to GDP 2 Mining 2 Agriculture 3 Fisheries 4 Industry 4 The People: Poverty Profile 4 Population Overview 4 How Serious Is the Poverty Problem? 5 Who Are the Poor? S Sources of Income and Income Distribution S Social Indicators 6 Health 6 Education 6 Water and Sanitation 7 Housing 8 Vulnerable Groups 8 Notes 9 2. Recent Economic Developments 11 Macroeconomic and Sectoral Trends 11 Overall Economic Growth 11 Mining 11 Agriculture 12 Expenditures 14 Consumption 14 Investment 14 v Balance of Payments 14 Employment 15 Labor Force 15 Characteristics of the Unemployed 15 Recent Employment Trends and Prospects 16 Wage and Salary Structure 16 Unskilled Wage Trends 16 Economic Segmentation 16 Labor Market Segmentation 17 Winners and Losers During the 1980s 18 The Government's Economic Challenges 18 Reactivating Growth 19 Restraining and Redirecting Public Expenditures 19 Reducing Poverty 19 Creating Employment 20 Notes 20 3. Fiscal Policies 21 Introduction 21 Structure of the Non-Financial Public Sector 21 Recent Fiscal Performance: A Summary 22 Central Government 22 Revenues 22 Expenditures 23 Financing the Deficit 23 Central Government Performance for 1990/91 and Budget for 1991/92 23 The Dual Challenge of Improving Equity and Efficiency 24 Prospects for Own Revenues 25 Donor Funding: Rand and Non-Rand Borrowing Policies 26 Expenditures 26 Fiscal Policy Recommendations 28 Notes 29 4. Mining 30 Structure and Composition of the Sector 30 Large-scale Operations 30 Medium and Small-scale Operations 30 Recent Performance 30 Growth Potential 31 Suggestions for Strengthening the Business Environment 32 Mining Legislation 32 Mining Taxation 32 Government Services 33 5. Agriculture 35 Introduction 35 Resource Base 36 Water 36 Land 37 Recent Performance 37 vi The Policy Environment for Commercial Farmers 37 Pricing Policies 37 Credit 39 'Institutional Support and Policy Environment for Communal Area Farmers 39 Food Security 40 Land Reform 41 Recommendations 42 Marketing Channels 42 Transport Infrastructure 42 Small-holder Credit 42 Research and Extension 43 Water Development 44 User Fees for Land and Water 44 Institutional Reforms 45 Notes 46 6. Fisheries 47 Introduction 47 Resource Base 47 Biological Limits for the Short to Medium Term 47 Conceptual Framework 48 Policy Options for Inshore Fisheries 49 Management Measures 49 The Allocation of Rights 50 Extraction of Economic Rents 50 Policy Options for Offshore Fisheries 51 Maximizing Economic Revenues 51 Access Arrangements Si Duration of Agreements 51 Conclusions 51 7. Manufacturing Industry 53 Introduction 53 The Institutional Setup in the RSA 53 SACU 53 The Regional Industrial Development Program 54 The General Export Incentives Scheme SS Interim Policy Recommendations 55 Notes 56 8. Financial Sector 57 The Financial System 57 Financial Sector Developments 58 Equity Issues 59 Efficiency Issues 60 Interest Rate Structure 60 Costs of Intermediation 60 Capital Adequacy 61 Transition Issues 61 A Strategy for Financial Sector Development 62 vii Objectives for Financial Sector Development 62 Improving Equity and Expanding the System 62 Improving Efficiency 63 Notes 63 9. Health 64 Determinants of Health 64 The Health Care System 64 Government Health Services 64 The Private Sector 65 System Effectiveness 65 System Efficiency 66 System Extensiveness 66 System Equity