AFRICAN DEVELOPMENT BANK

REPUBLIC OF

COUNTRY STRATEGY PAPER (CSP) 2020-2024

RDGS/ECCE January 2020

REPUBLIC OF NAMIBIA

COUNTRY STRATEGY PAPER, 2020-2024

TASK TEAM Josephine Ngure Ag. Director General RDGS George Honde Lead Economist ECCE Noel Kulemeka Implementation and Support Manager RDGS Farai Kanonda Regional Operations Manager RDGS Neeraj Vij Regional Operations Manager RDGS Clement Ahossi Division Manager SNFI 1 Wilfrid Abiola Acting Division Manager ECGF Peter Mwanakatwe Consultant Country Economist ECCE Benson Nkhoma Senior Country Programme Officer RDCS Rosemary Mokati-Sunkutu Regional Integration Coordinator RDGS Moses Ayiemba Regional Procurement Coordinator RDGS Jonathan Nyamukapa Regional Financial Management Coordinator RDGS Walter Odhiambo Chief Agricultural Officer RDGS Baboucarr Koma Principal Governance Expert ECGF/RDGS Richard Malinga Principal Transport Engineer RDGS Mecuria Assefaw Chief Financial Analyst RDGS Raymond Besong Senior Infrastructure Specialist RDGS Herbert Chinokoro Senior Water and Sanitation Engineer RDGS Yappy Silungwe Senior Irrigation Engineer RDGS Jonathan Banda Senior Investment Officer COMW Olukemi Afun-Ogidan Principal Agri-Business Officer AHAI Pelotshweu Rammidi Senior Procurement Specialist RDGS Wiseman-Chavula Vwala-Zikhole Principal Disbursement Officer FIFC 3 Maurice Wanyama Senior Financial Management Specialist RDGS Linet Miriti Principal Gender Officer RDGS Annah Muja Principal Social Development Officer RDGS Musole Musumali Principal Climate Change & Green Growth Officer RDGS Brian Mwanamambo Senior Youth Employment Officer RDGS Ahmed El Gazzar Senior Investment Officer PICU Maria Marealle Principal Land Officer AHAI 2 Pieter Conradie Energy Consultant RDGS Monde Nyambe Principal PPP Investment Officer AHFR Njeri Kinyoho Senior Civil Society Officer RDGS RDGS/ECCE MANAGEMENT Josephine Ngure Ag. Director General RDGS Emmanuel Pinto Moreira Director ECCE PEER REVIEWERS Suwareh Darbo Principal Country Economist ECCE/RDGS Kelvin Banda Principal Country Economist ECCE/COLR Joel Muzima Principal Country Economist ECCE/RDGW

TABLE OF CONTENTS

ACRONYMS AND ABBREVIATIONS ...... ii EXECUTIVE SUMMARY ...... iv I. INTRODUCTION ...... 1 II. COUNTRY CONTEXT AND PROSPECTS ...... 1 2.1 Political Context and Prospects ...... 1 2.2 Economic Context and Prospects ...... 2 2.3 Sector Context ...... 7 2.4 Social Context and Cross-Cutting Themes ...... 9 2.5 Country Strategic Frameworks ...... 10 2.6 Aid Coordination Mechanisms, Bank Positioning and Comparative Advantage ...... 11 2.7 Strengths and Opportunities, Weaknesses and Challenges ...... 11 III. KEY FINDINGS OF 2019 COUNTRY PORTFOLIO PERFORMANCE REVIEW ...... 12 3.1 Ongoing Portfolio ...... 12 3.2 Portfolio Performance ...... 12 3.3 Strategic and Operational Challenges ...... 13 IV. LESSONS LEARNT ...... 13 4.1 Lessons at the Strategic Level ...... 13 4.2 Lessons at the Operational Level ...... 13 V. PROPOSED NEW BANK CSP 2020-2024 ...... 14 5.1 Strategy Rationale, Objective and Priority Areas for Bank Support ...... 14 5.2 Bank Strategy and Expected Results...... 15 5.3 Private Sector Window ...... 17 5.4 Indicative Lending Programme ...... 17 5.5 Indicative Non-Lending Programme...... 17 5.6 Country Dialogue ...... 17 5.7 Financing the Strategy ...... 18 5.8 Implementation Arrangements, Monitoring and Evaluation...... 18 5.9 Risks and Mitigation Measures ...... 18 VI. CONCLUSION AND RECOMMENDATIONS ...... 18

Annex 1A: Results Measurement Framework ...... I Annex 1B: Performance Matrix: Country Engagement Performance Matrix ...... IV Annex: 2A: Indicative Lending Programme ...... VII Annex: 2B: Indicative Non-Lending Programme ...... VIII Annex 3: Lessons Learned from the CSP 2014 – 2018 Completion Report and 2019 CPPR ...... IX Annex 4: Engagement with CODE/Board on the CSP 2014-2018 Completion Report ...... XI Annex 5: Outcome of Consultations with Key Stakeholders ...... XII Annex 6.1: Ongoing Portfolio ...... XIV Annex 6.2: Portfolio Performance Indicators ...... XV Annex 6.3: 2019 Country Portfolio Improvement Plan (CPIP) ...... XVI Annex 7: Development Partners’ Sectoral Areas of Intervention ...... XVIII Annex 8: Comparative Social Economic Indicators ...... XIX Annex 9: Namibia: Selected Macro-economic Indicators ...... XX Annex 10: Namibia’s Engagement with the IMF ...... XXI Annex 11: Namibia: Progress towards Selected SDGs ...... XXIV Annex 12: Namibia 2019 Country Fiduciary Risk Assessment ...... XXVI

FIGURES Figure 1: GDP composition ……………………………………………………………..... 2 Figure 2: Real GDP Growth ……………………………………………………………..... 3 Figure 3: Fiscal Balance and Public Debt…………………………………………………..3 Figure 4: Portfolio Distribution by Sector and High 5……………………………………………..13

BOXES Box 1: Namibia: Constraints and Opportunities for Industrialisation………………………………10 Box 2: SWOT Analysis ……………………………………………………………………………..13

CURRENCY EQUIVALENTS (December 2019)

Currency Unit = (NAD)

UA 1.00 = NAD 20.21 UA 1.00 = USD 1.37 USD 1.00 = NAD 14.72 NAD 1.00 = ZAR 1.00

FINANCIAL YEAR 1 April to 31 March

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ACRONYMS AND ABBREVIATIONS

ADB African Development Bank BIPA Business and Intellectual Property Authority BoN Bank of Namibia COMESA Common Market for Eastern and Southern Africa CPIP Country Portfolio Improvement Plan CPPR Country Portfolio Performance Review CSP Country Strategy Paper DBN Development Bank of Namibia DB Doing Business FDI Foreign Direct Investment GDP GRN Government of Republic of Namibia EU HDI HPP Harambee Prosperity Plan IFMS Integrat ed Financial Management System IPP Independent Power Producers LoC Line of Credit MIC Middle Income Country MTEF Medium -Term Expenditure Framework MTR Mid -Term Review MW Megawatts NDP National Development Plan NAMPOWER Namibia Power Corporation NPC National Planning Commission NSO Non-Sovereign Operations PEFA Public Expenditure and Financial Accountability Assessment PIT Project Implementation Team PFM Public Financial Management PPP Public-Private Partnerships RDGS Southern African Regional Development & Business Delivery Office SA-RISP Southern African Regional Integration Strategy Paper SACU Southern African Customs Union SADC Southern African Development Community SAPP Southern Africa Power Pool SME Small and Medium Scale Enterprise SOE State-Owned Enterprises SSA Sub-Saharan Africa SWAPO South West Africa People’s Organisation TVET Technical and Vocational Education and Training ZAR UA Unit of Account

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EXECUTIVE SUMMARY

1. The African Development Bank Group’s Country Strategy Paper (CSP) 2020-2024 for Namibia lays out the strategy that will guide Bank support to the country for the achievement of sustainable and inclusive growth. The Bank’s Committee on Operations and Development Effectiveness (CODE) discussed the strategic thrust of this CSP during its consideration of the CSP 2014-2018 Completion Report on 8th November, 2019.

2. Namibia, an Upper Middle-Income Country, has made significant economic and social progress since its independence in 1990. economy, until recently, recorded strong and steady economic growth while the country’s poverty rate was reduced significantly from 69% in 1993 to 17.4% in 2018. This impressive achievement has been underpinned by sustained political stability, sound macro-economic management and good governance. Some progress in reducing the pervasive income inequality has also been made. Despite these gains, Namibia remains amongst the most unequal nations in the world. It is evident that growth has not been sufficiently inclusive, as job creation has been limited due to lack of economic diversification and persistency of a dualistic economy.

3. Namibia’s overarching challenge is, therefore, to reduce the country’s high inequality and unemployment through sustainable and inclusive growth. The key challenges and constraints to sustainable and inclusive growth include limited economic diversification towards higher value economic activities, shortage of skilled labour, aging infrastructure, weakening business enabling environment and competitiveness, and high frequency of . The Government adopted the Fifth National Development Plan in 2017 (NDP5, 2017-2022) to address these constraints with the aim of bringing about accelerated structural transformation of the economy, with enhanced role of the private sector.

4. The economy has faced major challenges since 2016, emanating from slow growth in economies of Namibia’s key regional trading partners ( and Angola), low commodity prices, fiscal consolidation, and . Real GDP growth declined sharply from 6.4% in 2014 into negative territory of 0.1% in 2018, exacerbating the challenges of inequality and unemployment. The changes in Namibia’s economic fortunes underscore the need to urgently address the structural impediments in order for the country to achieve a more sustainable and inclusive growth. This will require, among others, stronger policy efforts to create an enabling environment for private investment to drive economic diversification and create jobs, especially for the youth, leveraging opportunities from regional integration. It is against this backdrop that the new CSP for Namibia has been formulated.

5. In response to Namibia’s overarching development challenge of reducing inequality and unemployment, the main objective of the CSP is to help Namibia achieve sustainable and inclusive growth by addressing key constraints. To achieve this objective, the CSP is articulated around the following two mutually reinforcing Priority Areas for Bank Support: Priority Area 1-Support

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Economic Governance for Improved Business Enabling Environment; and Priority Area 2- Support Infrastructure Development and Promote Value Addition. These priority areas are aligned with the NDP5 priorities, the Bank’s Ten-Year Strategy (TYS, 2013-22) and “High 5s” as well as the Southern Africa Regional Integration Strategy Paper, 2020-2024 (SA-RISP). The choice of the two priority areas has taken into account; (i) lessons learnt from the previous CSP implementation; (ii) the need for continuity in the strategic thrust of Bank engagement while refocusing the strategy in some areas; (iii) Bank’s comparative advantage; (iv) the outcome of stakeholder consultations; and (v) findings of the Country Diagnostic Note for Namibia. The Bank will under each pillar address cross-cutting issues of climate change/green growth, gender, youth and capacity building. In addition, the Bank will promote the use of new technologies, including digital solutions to enhance efficiency in delivery. 6. The CSP has identified potential projects for financing during the CSP period. The Indicative Lending Programme include a Policy Based Operation and project investments in water, energy, rail transport, and agriculture/agribusiness. The interventions will include private sector projects financed through the Bank’s Private Sector Window, including Public-Private Partnerships (PPPs) in infrastructure. The Bank will also support non-lending operations, including technical assistance for capacity building and country knowledge work. The Bank will deploy a broad range of financial products, including credit enhancement instruments, and Lines of Credit to financial intermediaries in implementing the strategy. The opportunities for co- financing with other development partners (DPs) and financiers will also be pursued to leverage more resources in priority areas, such as infrastructure. 7. The preparation of the CSP 2020-2024 was undertaken using a participatory approach. The Bank undertook consultations with a broad range of stakeholders, including Government officials, and representatives of the Private Sector, DPs, and civil society organisations. The CSP has benefited from the views and insights provided by the stakeholders. The CSP has also drawn from the Bank’s 2019 Country Fiduciary Risk Assessment, the Bank’s Namibia Country Diagnostic Note and analytical work of other DPs.

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I. INTRODUCTION

1. This Country Strategy Paper (CSP) proposes the African Development Bank Group (ADB)’s strategy for Namibia covering the period 2020-2024. It succeeds the CSP 2014-2018 (ADB/BD/WP/2014/21) approved in March 2014. Namibia, an Upper Middle-Income Country (MIC), has made significant economic and social progress since its independence in 1990. Despite the achievements, the levels of income inequality and unemployment are very high, while the economy is still undiversified. The challenges of high inequality and unemployment have been exacerbated in recent years by declining growth, weakening competitiveness, and the negative effect of climate change. Against this backdrop, the main objective of the Bank’s 2020--2024 CSP is to help Namibia tackle the aforementioned challenges by fostering sustainable and inclusive growth through private sector led economic diversification. To achieve this objective, the CSP is articulated around two priority areas: (i) Support Economic Governance for Improved Business Enabling Environment and; (ii) Support Infrastructure Development and Promote Value Addition. These priority areas are closely aligned with Namibia’s development priorities as articulated in its Fifth National Development Plan (NDP5) 2017-2022, and the Bank’s Ten Year Strategy (TYS) 2013-2022 focusing on the “High 5s”, as well as the Southern African Regional Integration Strategy Paper (SA-RISP) 2020-2024.

2. The preparation of this CSP has been informed by extensive stakeholder consultations. The process included a mission undertaken by the Bank to Namibia to review the performance of the previous strategy and discuss the priority areas for its new strategy in light of the challenges facing the country and its priorities. The mission consulted with the Government of the Republic of Namibia (GRN) officials and representatives of the private sector, civil society organisations (CSOs) and development partners (DPs) represented in Namibia. The strategy takes into consideration lessons from the Completion Report (CR) for the previous CSP 2014-2018 and 2019 Country Portfolio Performance Review (CPPR) for Namibia. It has also been formulated based on the findings of the Namibia Country Diagnostic Note (CDN)1, 2019 Country Fiduciary Risk Assessment for Namibia, and comments by the Board of Directors’ Committee on Operations and Development Effectiveness (CODE) on the CSP 2014-2018 Completion Report and Proposed Priority Areas for the new CSP for Namibia at its meeting held on 8th November 2019.

II. COUNTRY CONTEXT AND PROSPECTS

2.1 Political Context and Prospects

3. Namibia gained its independence in 1990 and is a multi-party democracy, where free and fair elections have been held every five years. The South West Africa People’s Organisation (SWAPO) has dominated Namibia’s politics since independence. The country has continued to enjoy peace and political stability which has underpinned its social and economic progress. Namibia’s sixth general elections, after independence, were held on 27th November 2019 and judged by international observers as, generally, free, fair, and peaceful. The incumbent, Dr Hage Geingob, was re-elected as , but with a significantly reduced majority. The elections also saw the number of seats held by SWAPO in the 96 seat Parliament reduced to 63 from 77.

4. Namibia consistently ranks among the top Sub-Saharan African (SSA) countries on good governance metrics. It was ranked 4th out 54 countries surveyed on the 2018 Mo Ibrahim Index of African Governance (IIAG), with a score of 68.6/100. Namibia’s performance is strongest on the dimensions of

1 http://collaboration.afdb.org/RDVP/RDGS0/RDGS%20Work%20Programme/CSP/Namibia%20CDN-11-Jan-20.pdf?Web=1 1

Safety and Rule of Law, Participation and Human Rights where it is ranked among the top three countries. The dimensions of the IIAG on which the country is ranked lower is Sustainable Economic Opportunities (9th) and Human Development (12th). On the 2018 Corruption Perception Index of Transparency International, Namibia ranked 52nd out of 180 countries globally, and 5th on the African continent, scoring 53 out of 100. While Namibia remains among the least corrupt countries in Africa, further efforts to strengthen institutions’ accountability are needed. Namibia ranked 23rd globally and first in Africa (score of 18.95) on the 2019 World Press Freedom Index, published by Reporters without Borders. Nevertheless, lack of a freedom of information law continues to obstruct the work of journalists, though the country’s constitution guarantees free speech and protects them. The Access to Information Bill has now been drafted and is expected to be enacted in 2020. In January 2017, Namibia unconditionally acceded to the African Peer Review Mechanism. This is further demonstration of Namibia’s commitment to good governance.

2.2 Economic Context and Prospects

5. The economy of Namibia has experienced some structural transformation, albeit limited. Namibia is well endowed with natural resources and inherited a dualistic economy at independence, with a modern formal economy driven by mining and services, coexisting with a large subsistence and informal sector. The country’s economic model has largely been based on exploitation of natural resources with limited value addition. The lack of industrialisation, in particular, has limited the economy’s capacity to create sustainable jobs. Services (tertiary industries) remain the key driver of growth and its contribution to Namibia’s Gross Domestic Product (GDP) rose from 50.4% in the 1980s to an average of 58% over the 2010-2018 period. This shift was largely driven by expansion in government services and financial intermediation. In contrast, the share of mining in GDP decreased by about half to an average of 11.2% of GDP. However, despite its reduced share in GDP, mining remains the largest earner of Namibia’s foreign exchange at about 45%. The heavy dependency on raw mineral exports has rendered the Namibian economy highly vulnerable to commodity price shocks. Agriculture’s share in GDP has fallen to below 5% in 2018 from 8% in 1990, due partly to frequent droughts, while the share of manufacturing has stagnated at around 11% of GDP. However, within agriculture, a shift towards higher value products by commercial farmers, such as horticulture products, has occurred. Diversification towards manufacturing, particularly value addition to natural resources, Figure 1: GDP Sectoral Composition is crucial for Namibia to achieve higher and 100 sustainable growth and create decent jobs. 80 There is need also to rebalance sources of growth within services away from public 60 services and towards high-end tradeable 40 services. On the demand side, consumption has 20 been the key driver of growth, though its share 0

over the past three decades has exhibited (%) GDP of AverageShare 1980-1989 1990-1999 2000-2009 2010-2018 volatility, fluctuating between 85% of GDP to Agriculture Mining Manufacturing Others Services 95%.

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6. Economic growth has been subdued in recent years. After achieving robust growth, partly fuelled by high public spending, Namibia’s real GDP growth rate declined from 6.4% in 2014 to 1.1% in 2016. This sharp reversal in growth was attributed to fiscal consolidation necessitated by falling revenues, tepid growth in key regional trading partner economies, completion of mega construction projects in mining, weakening of consumer spending and persistent drought. With the economy adjusting to lower demand, real GDP is estimated to further contract by 1.0% in 2019, from a dip of 0.9% in 2017 and Figure 2: Real GDP Growth (%) 0.1% in 2018. Secondary industries contracted by 15 3.4% in 2018 from 10.5% growth in 2014 largely 10 dragged down by sharp decline in construction activity from 42.6% growth in 2014 to a 5 contraction of 18.3% in 2018. Similarly, tertiary industries contracted by 2.4 % in 2018 after 0 2014 2015 2016 2017 2018 2019 2020 2021(p) growing by 7.7% in 2014. In contrast, primary -5 (est) (p) industries growth rebounded to 12.8% in 2018 due Rates Growth Percentage to expansion in and diamond output, -10 Primary Industries Secondary Industries resulting from higher capacity utilization of a new Tertiary Industries Overall Growth uranium mine and increased off-shore diamond mining activity. Growth in primary industries was further boosted by strong recovery in agricultural output (14.3%) from a low base following the drought of 2015/16. The continued decline in Namibia’s economic growth rate since 2016 has translated into falling real per capita income growth, threatening to reverse the country’s gains in poverty reduction.

7. The fiscal position deteriorated but is improving in response to fiscal consolidation. The GRN adopted an expansionary fiscal policy stance between FY2013/14 and FY2015/16 to stimulate growth amidst the global economic slowdown. Total expenditure grew from 36.8% to 42.8% of GDP during this period, driven by high capital spending, transfers to State-Owned Enterprises (SOEs), and high public sector wage bill. Between FY2014/15 and FY2016/17 the wage bill averaged 16% of GDP and 44% of recurrent expenditure, amongst the highest in SSA. Capital spending, which averaged 6.4% of GDP during the same period, was mostly on infrastructure, notably in transport, water, Figure 3: Trend in Fiscal Deficit & Debt (% of 60 agriculture and social sector. Revenues fell from GDP) 35.4% of GDP in FY2014/15 to 34.6% in FY2016/17, reflecting the fall in receipts from 40 Southern Africa Customs Union (SACU). 20 Consequently, the fiscal deficit widened from 3.7% of GDP in FY2013/14 to 8.3% of GDP in 0 FY2015/16, financed through domestic and GDP of Percentage 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 external borrowings. The GRN embarked on -20 fiscal consolidation from the second half of Fiscal Deficit Revenue Expenditure Debt FY2016/17 to safeguard macroeconomic stability. Fiscal adjustment entailed cuts in capital expenditure and non-priority recurrent expenditure and restraint in wage bill growth. To preserve growth, the development budget allocation was ring-fenced in subsequent budgets. On the revenue side, the GRN raised fuel levy, eliminated value added tax (VAT) exemptions, and initiated targeted recovery of tax arrears. The fiscal consolidation efforts have started yielding results. The fiscal deficit narrowed from 8.3% of GDP in FY 2015/16 to 4% in FY2018/19 and is projected to further narrow to 2.5% by FY2022/23. Nevertheless, uncertainty over SACU receipts, weak domestic revenues from a subdued economy, high wage bill and transfers to SOEs continue to pose significant fiscal risks.

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8. Namibia’s public debt stock has risen rapidly due to the growing deficit financing needs and funding requirements for infrastructure. Total public debt grew from 24.8% of GDP in 2014 to 45.3% of GDP in 2018, breaching the country’s self-imposed threshold of 35% of GDP, but lower than the SADC macroeconomic convergence target of 60%. Domestic debt jumped from 16.2% to 26.5% of GDP, while external debt rose from 8.6% to 18.8% of GDP during the same period. About 56% of Namibia’s external debt stock consists of two Eurobonds totalling USD 1.25 billion issued in 2011 and 2015 to finance infrastructure and ease emerging liquidity pressures taking advantage of low interest rates. Due to rising public debt, the share of total revenue absorbed by interest payments grew from 4.3% in FY2013/14 to 10.2% in FY2018/19. While Namibia’s growing debt is a concern, the risk of debt distress, as assessed by the 2019 IMF Debt Sustainability Analysis is low to moderate. However, the debt outlook is vulnerable to macro shocks.2 The volatility in revenues, amidst rising public debt, may create additional fiscal pressures. The Government is committed to fiscal consolidation to stabilise the debt dynamics while supportive of growth. The pace of increase in the debt ratio is in fact slowing down and is projected to stabilise at 53.1% of GDP by FY2022/23, before declining as growth recovers fully. The redemption of the Eurobonds will further reduce the debt burden. Consistent with its newly adopted Sovereign Debt Management Strategy, GRN is diversifying sources of financing and extending maturities of its borrowings to reduce rollover risks.

9. Monetary Policy remains largely accommodative in response to favourable developments. Namibia’s local currency is pegged to the South African Rand (ZAR), which constrains the Bank of Namibia (BoN) from pursuing an independent monetary policy. The BoN’s policy stance aims at supporting the one-to-one peg between the local currency with the ZAR by protecting foreign exchange reserves. Annual inflation rose from 3.4% in 2014 to 6.7% in 2016, driven by rising domestic food and housing price pressures. Inflation fell to 4.3% in 2018 as food and housing inflationary pressures abated. While it is expected to rise slightly to 4.5% in 2019 as domestic demand recovers, inflation is projected to remain within the BoN’s 3-6% target range. The policy rate was adjusted downwards from 7% in 2016 to 6.75% in August 2017 and reduced further to 6.50% in August 2019 to support growth in tandem with the low inflation risks. Over the 2014-2016 period, credit to the private sector grew rapidly, fuelling a housing and consumption boom, but has since slowed down. The has exhibited volatility mirroring developments in South Africa. The Real Effective Exchange Rate (REER) depreciated by 4% between 2014 and 2016, but this trend was reversed from 2017, with the REER appreciating by 2.7% in 2018, signalling a weakening in Namibia’s external competitiveness.

10. Namibia’s current account prospects are improving but remain vulnerable to shocks. The current account deficit widened from 9.4% of GDP in 2014 to 14% in 2016 due to the fall in export earnings, the surge in imports associated with the construction of new mines and decline in SACU receipts. The current account deficit subsequently improved to 5.1% in 2017 and 1.8 % of GDP in 2018 owing to weak import growth, and the recovery in export earnings and SACU receipts. Namibia’s current account deficit was largely financed by inflows of Foreign Direct Investment (FDI) largely in mineral extraction. The current account deficit is projected to increase to an average of 5% over the medium-term as import growth picks up steadily. The major risk, though, is the uncertainty over SACU receipts and volatile commodity prices. Gross international reserves, which had dropped to 2 months import cover in 2014, rebounded to 4.5 months at the end of 2018, boosted by improvement in the current account.

11. Namibia’s medium-term economic outlook is challenging with GDP growth projected to recover to 1.7% in 2020 and 2.4% in 2021. Economic recovery will largely be supported by secondary industries, as construction and manufacturing recover. Implementation of externally-financed

2 Eurobond 1 of USD 250 million matures in 2021 while Euro Bond 2 of USD 750 million matures in 2025. As part of its Debt Redemption Strategy, Namibia created two Sinking Funds to ensure adequate liquidity to repay the Bonds when they fall due. 4

infrastructure projects, such as ongoing ADB projects, will boost economic recovery through expansion in construction activity. The recently launched Container Terminal is also expected to provide impetus to growth through expansion of transport and logistics services, and also catalyse the blue economy. Prospects for achieving higher and sustainable growth hinge on steadfast implementation of structural reforms to improve the business environment to crowd in private investment, raise productivity growth, and foster economic diversification. Nevertheless, the Namibian economy is likely to face significant headwinds, including weak global diamond demand, as the ongoing trade tensions affect global growth, persistent drought, and the sustained underwhelming economic conditions in South Africa, which could dampen demand for the country’s exports and reduce SACU receipts.

12. Public Financial Management: The 2015 Public Expenditure and Financial Accountability Assessment (PEFA) for Namibia indicated progress in public financial management (PFM) reforms. Key reform achievements include the introduction of the Medium-Term Expenditure Framework (MTEF), programme budgeting, integrated financial management systems (IFMIS), and improved cash management. The use of IFMIS has improved the timeliness of financial reporting while debt management has been further enhanced by the adoption of a new Debt Management Strategy. A new Public Financial Management Bill has been drafted to replace the State Finance Act of 1991. In tandem, a new Internal Audit Bill has been drafted to align with international best practices. The GRN is also taking steps to strengthen efficiency in revenue administration, including establishment of a semi-autonomous revenue authority. While the overall PFM environment in Namibia is assessed as satisfactory, the Bank’s 2019 Country Fiduciary Risk Assessment, highlighted areas of weaknesses and gaps in existing reforms and PFM system (Annex 12) A key challenge is the delay in enactment of both the PFM and Audit Bills as this will likely hamper the implementation of some of the reforms required to further strengthen the country’s PFM system. Namibia’s PFM system also continues to face human resource capacity challenges particularly in the areas of internal audit and anti-corruption. Moving forward, the need to establish a PFM Reform Coordinating Secretariat will arise in order to give impetus to the reforms and ensure that support of development partners for PFM is better coordinated. Procurement reforms are also progressing, albeit at a slow pace. The recent regulatory and institutional reforms include the enactment of the 2015 Procurement Act, the adoption of Procurement Regulations, and the creation of the Public Procurement Unit (PPU) and Central Procurement Board (CPB) in 2018. Despite these positive steps, challenges remain. In particular, the use of the 2015 Public Procurement Act is still at an embryonic stage as procurement entities across ministries are not conversant with the Act, thereby limiting compliance to it. This is compounded by staffing constraints in various procuring institutions while lack of an independent procurement oversight body also poses a challenge. The 2015 Procurement Act is being amended to address the shortcomings and ensure a robust and well-functioning procurement system.

13. Investment Climate and Private Sector Development: While Namibia’s business environment is relatively better than in most SSA countries, it has lost ground on the Ease of Doing Business (DB) with its ranking slipping from 87th out of 185 economies in 2013 to 104th out of 190 countries in 2019. The fact that Namibia’s DB scores have remained fairly stable, suggests that other economies are reforming their business regulatory environments at a faster pace. In particular, starting a business, registering property, and trading across borders are areas of DB where Namibia’s performance is the weakest. The strongest areas are enforcing contracts, getting electricity and getting credit. Namibia is ranked 94th out of 141 economies on theWorld Economic Forum (WEF) 2019 Global Competitiveness Index (GCI), an improvement on the 2017/18 GCI (100th) and 99th on the 2015/16 GCI. Namibia is the fourth ranked economy in the Southern African Development Community (SADC) region on the GCI after Mauritius, South Africa and . According to the executive opinion survey conducted for the 2017/18 GCI, the top three problematic factors are inadequately educated workforce, inefficient government bureaucracy, and limited access to finance. The Government is pursuing wide ranging

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reforms to improve the DB in order to attract private investment, and spur industrialisation in line with its Growth at Home Strategy. Key reforms undertaken include enactment of the Business and Intellectual Property Bill (BIPB), Industrial Development Agency Bill and Public Private Partnership (PPP) Bill. BIPB provides for, among others, on-line business registration and licensing platform, known as the Integrated Customer Service Facility, and “One-Stop-Shop” for investors. The GRN has also embarked on various policy initiatives for small and medium-scale enterprises (SME) development to drive industrialisation and job creation. These include approval of the SME Policy and SME financing Strategy. However, Namibia needs to deepen regulatory reforms to improve the investment climate while promoting local entrepreneurship to advance private sector development. Namibia’s private sector has a dualistic structure with a formal sector consisting of a relatively small number of medium to large scale enterprises co-existing with a large informal sector dominated by micro enterprises. There are few companies with more than 50 employees. The formal private sector activities range from mining, financial services, manufacturing, construction, wholesale & retail, fishing and real estate. The largest private firms are in mining, financial services and manufacturing.

14. Financial Sector: Compared to its regional peers (Botswana, , and ), Namibia’s financial sector is relatively large, well developed, and sophisticated. The banking sector, with an asset value of 60% of GDP, is dominated by four major banks, of which three have funding and ownership links with South African banks. The non-banking financial Industry is even larger, with total assets of around 262% of GDP, dominated by pension funds, and in part reflecting a pre-funded Government Institutions Pension Fund. Namibia also has three development finance institutions, namely the Development Bank of Namibia, Agricultural Bank, and Namibia Housing Bank. Namibia’s financial sector is sound, profitable and adequately capitalised. However, the quality of bank assets has recently come under pressure due to the economy’s slowdown. The ratio of non-performing loans, rose from 1.4% in 2014 to 3.4% in 2018, but is still below the BoN threshold of 4%. Financial inclusion in Namibia has improved, with the share of banked population rising from 45% in 2007 to 68 % in 2017. Despite this, access to credit for the large segment of the population remains challenging. While Namibia’s financial sector is relatively well developed and stable, competition is limited and cost of financial services is high. Namibia is pursuing financial sector reforms under the Namibia Financial Sector Strategy, 2011-2021 to enhance efficiency, competitiveness, and inclusiveness of the financial sector.

15. Regional Integration and Trade: Due to the small domestic market, regional integration is key to Namibia’s growth prospects. Namibia is a member of SACU and SADC. Under the SACU arrangement, Namibia enjoys free movement of goods, a common external tariff regime, and harmonised rules of origin. The country has made strides in regional integration. Notably, it signed the Common Market for Southern and East Africa (COMESA)-East African Community-SADC Tripartite Free Trade Area agreement in 2015, securing access to a potential market of nearly 670 million people. Namibia also signed and ratified the African Continental Free Trade Area (AfCFTA) Treaty in 2018. However, the country’s ability to leverage growing regional market opportunities hinges on addressing supply side constraints to facilitate integration into regional value chains. This will require the removal of non-tariff barriers to cross-border trade and reducing the high logistics costs along corridors. Namibia has the highest logistics costs in the region according to DB Reports. Namibia relies heavily on international trade to augment its small domestic market: in 2018, trade accounted for about 111.5% of GDP up from 104.6% of GDP in 2014. At 18%, is currently Namibia’s leading export market followed by neighbouring South Africa at 16%, while Botswana, another SACU neighbouring country, is the fourth largest export market. Imports from SADC account for 65% of total imports, with South Africa accounting for about 44% of them, followed by at 14% in 2018. Exports to the region on the other hand account for about 31.5% of Namibia’s total exports, with 15.1% of exports to South Africa. Namibia’s export base is narrow and dominated by minerals, beef and fish products, with minimal value addition.

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2.3 Sector Context

16. Transport: Namibia has a relatively well developed road network covering 45,380 km, of which 14% is paved. About 93% is either in good or fair condition. The rail network comprises 2,382 km of Cape gauge configuration like the rest of the region. The railway network plays an important role in the movement of bulk freight. Namibia’s largest port, Walvis Bay, has recently undergone expansion and modernisation. The expansion of the port container terminal, which was commissioned in August 2019, is part of long term plans to position the country as a logistics and distribution hub for the SADC region. The port is linked to the region through four transport corridors, the promotion of which is key to the sustainability of the port3. Challenges in the transport sector include: (i) lack of adequate funding for road upgrading, rehabilitation and maintenance; (ii) the aging and inadequate rail network, with associated capacity restrictions; (iii) inadequate rolling stock; and (iv) the need to maintain competitiveness of the ports to attract more transit cargo from neighbouring countries. GRN is pursuing initiatives to address the challenges and is investing in transport projects to enhance connectivity and promote regional trade. The new Transport Policy, approved in December 2018, seeks to promote a multi-modal, safe, sustainable and inclusive transport system in support of Namibia’s structural transformation agenda.

17. Energy: Installed generation capacity currently stands at 611 MW, of which 521 MW is available against a peak power demand of 672 MW in 2018. Lack of access to energy remains a critical barrier to poverty alleviation and Namibia’s industrialisation efforts. In 2016, only 19% of the rural population had access to electricity compared to 80% for the urban population. The current national electrification rate stands at 49%, compared to 87.4% in South Africa. Rising urbanisation and rapid growth in mining have exacerbated the electricity supply gap. The shortfall in domestic supply is met through imports from South Africa and the Southern African Power Pool (SAPP). However, supply is at risk as the region faces generation and transmission bottlenecks. Namibia is well endowed with renewable energy resources, including hydro, and natural gas, which have not been fully exploited. The Government’s energy sector goal NDP5 is to have a sustainable mix of locally generated capacity of 755 MW by 2023 to support households and industry, reduce reliance on imports, and increase the national electricity access rate from 49% in 2018 to 67.5% by 2023. To this end, GRN is encouraging investments by Independent Power Producers (IPPs) in the renewable energy space, while promoting off-grid solutions to ensure rural communities and peri-urban areas are supplied with electricity in a cost effective manner in support of inclusive growth.

18. Water and Sanitation: Despite suffering from water scarcity, Namibia has made remarkable gains in the provision of water supply since the 1990s. Access to water supply increased from 64% in 1990 to 93% currently while coverage of improved sanitation increased from 24% in 1990 to 42% during the same period, a deceiving result for a MIC. NDP5 includes strategies to ensure the country achieves sustainable production and consumption of water resources and expands access to improved sanitation. The past few years have seen Namibia struggle with a national water crisis caused by a severe drought. Other challenges include (i) financing constraints for the backlog of infrastructure development, (ii) aged bulk water supply infrastructure, and (iii) limited human resource capacity. Namibia continues to implement various interventions aimed at improving water security. NDP5 includes strategies to increase access to water services from about 91% (85% for rural) to 100% of the population by 2023 while enhancing resilience to climate change.

3 The four corridors are: Trans Kalahari (to Botswana and Gauteng Province of South Africa), Trans-Zambezi (formerly Trans-Caprivi) (to Zambia and DRC), Trans-Cunene (to Angola) and the Trans-Oranj (to South Africa).

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19. Information and Communication Technology (ICT): Namibia has achieved significant progress in the expansion of access to ICT services. The mobile phone population coverage and subscription rates have increased significantly, standing at 95% and 103%, respectively. However, in comparison with peer MIC countries, Namibia still lags behind in use of internet (31%) and fixed broadband subscription rate (2.2%). In the 2019 Global Competitiveness Report, Namibia is ranked 91st out of 141 countries on the ICT Adoption Pillar with a score of 48.1. This highlights the need for the country to make further progress in the ICT space to build a foundation for a knowledge based economy. GRN has developed strategies to further expand access to ICT infrastructure and services, including broadband and e-government services. However, in order to fully harness ICT to build a knowledge based economy and prepare for the Fourth Industrial Revolution, Namibia’s youth need to be equipped and empowered through digital literacy training and relevant skills development.

20. Natural Resources: Namibia is well endowed with mineral deposits including diamonds, uranium, gold, and copper. The country also holds huge reserves of natural gas, which the GRN plans to exploit to meet future energy needs. Beyond the power sector, natural gas could support Namibia’s national industrialisation plans and significantly contribute to regional gas market development. Namibia’s unique flora, fauna, and landscape are a major attraction for international tourists. Currently, tourism is Namibia’s third largest source of foreign exchange earnings and has the potential to drive higher growth and create more employment opportunities. Going forward, there will be need to promote value addition to natural resources, including expanding mineral beneficiation and enhancing the natural resource governance framework to ensure the benefits from their exploitation are widely spread and sustainable from the environmental perspective. To promote tourism and transform Namibia into one of the most competitive tourism destinations in Africa, the Government is making strides aimed at creating a favourable and conducive regulatory environment for tourism investment with the objective of lowering transaction costs to allow the private sector to invest and grow the sector. Key interventions include intensive marketing, air access, safety and skills development and upgrade of infrastructure.

21. Agriculture: The sector contributes to only 4% of GDP, but is key to poverty reduction, as it employs about 23% of the labour force and directly and indirectly supports over 70% of the country's population. The sector is dualistic in nature with two distinct sub-sectors: (i) capital intensive, relatively well developed and export-oriented commercial sub-sector covering 44% of total arable land; and (ii) subsistence based, and low productivity sub-sector. Livestock is the predominant sub-sector with a share of 57% of total agricultural output. Low agricultural output in the non-commercial sector has necessitated reliance on food imports to meet domestic demand while limiting opportunities for value addition. Key challenges confronting the sector include increased frequency of droughts and floods, poor soils, limited access to productive land, and poor access to technology. The sector has been especially affected by climate change as demonstrated by the high frequency of droughts. While irrigation potential exists, this is limited to areas along perennial transboundary rivers. GRN has developed coherent policies, strategies and interventions to enhance food security, reduce dependence on imported food, support industrialisation, and ultimately foster sustainable growth. Integrating small rural producers into value chains is a priority for raising productivity and unlocking the sector’s growth potential.

22. Blue Economy: Namibia’s blue economy plays an important role. The sector, is the third largest source of income after mining and tourism and contributes about 15% of export earnings. The sector’s annual marine landings of 550,000 MT places Namibia amongst the countries with the largest fisheries capture in Africa. Fisheries provides 6,800 direct jobs and nearly a quarter million of indirect jobs. Namibia’s fisheries are almost entirely industrial and export oriented. The challenges the sector is facing include the weak regulatory framework, depletion of stocks of some fish species because of overfishing, and difficulty in securing access to the lucrative European Union (EU) market due to stringent

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phyto-sanitary regulations. The GRN is developing a Blue Economy Policy and Regulatory Framework with the aim to maximize benefits from marine resources and promote sustainable marine resource management.

23. Industry: Box 1 below provided an overview of the constraints to industrialisation, opportunities, and the industrialisation strategy.

Box 1: Namibia: Constraints and Opportunities for Industrialisation The level of Namibia’s industrialisation is low as evidenced by the small share of manufacturing in GDP, employment, and exports. Manufacturing contributes about 11% of Namibia’s GDP and 34% of exports, mainly processed fish. Key constraints to industrialisation include: (i) severe shortages of a skilled labour force; (ii) the small size of the domestic market; (iii) the dominance of South African manufactured products in the domestic market; (iv) a less competitive business environment; (v) high productions costs; and (vi) lack of innovation and weak entrepreneurship. Despite these constraints, the potential for Namibia to industrialise exists. Namibia is well endowed with a diverse range of natural resources, which can spur industrialisation through value addition to the resources, such as minerals, livestock and blue economy resources, particularly fisheries. The exploitation of Namibia’s huge natural gas resources could give added impetus to industrialisation by enhancing the supply of cheap energy and providing inputs for chemical industries. In addition, Namibia has access to a large and dynamic regional market, a key prerequisite for industrial development. It also has a large pool of institutional savings, which could be used to finance industrialisation. Namibia has developed an Industrialisation policy and executing strategy (the Growth at Home Strategy) to guide its industrialisation efforts, which is in line with Vision 2030, National Development Plan and SADC Industrialisation Strategy. Among the targets for industrialisation in NDP5 is to increase the share of manufactured exports (excluding diamond processing) in total exports from 34% to 50% by 2023. To achieve these targets, Namibia has developed growth strategies for ten industries (including agro-processing; leather and leather products; textiles; chemicals; salt and jewelry) and plans to establish Special Economic Zones. However, in order to harness the potential for industrialisation, a strong and predictable business regulatory environment, reduced cost of doing business, removal of barriers to diversified exports, and skills development will be particularly critical.

2.4 Social Context and Cross-Cutting Themes

24. Poverty, Human Development and Unemployment: Namibia has made significant progress in poverty reduction. The head count poverty rate (poor) declined from 27.6% in 2004 to 17.4% in 2016 whilst the headcount poverty rate (extreme poor) rate fell from 13.8% to 10.7% over the same period. Using the headcount poverty rate (poor) poverty is significantly higher in rural areas (25.1%) than in urban areas (8.6%). The gains in poverty reduction are largely attributable to social safety nets and other pro- poor programmes. Despite the progress, high inequality persists. Namibia’s (0.57) is among the highest in the world and has only reduced marginally from 0.59 in 2010. However, Namibia has made strides in human development. The country has managed to achieve universal primary education and gender parity at all levels of school in terms of enrolment. Despite the progress, challenges remain, including the low quality of education outputs and outcomes, and inefficiency of the education system and low access to tertiary and vocational education. Access to health services has also improved, resulting in declining rates of communicable diseases, such as HIV. Nonetheless, there are still challenges; for instance maternal mortality and stunting rates, are still high for a MIC. The unemployment rate is extremely high at 33.4% in 2018, with youth unemployment rate at 46.1%. Unemployment among the youth is compounded by inadequate training and skills mismatch. Provision of quality jobs, especially for the youth is critical for tackling inequality, social stability and exploiting the demographic dividend. The Government is pursuing initiatives to promote job-creating growth and skills development to ensure that the youth are equipped with the requisite vocational and entrepreneurship skills to participate in labour markets and engage in sustainable income generation activities. Under the ongoing Education and Training Quality Improvement project, the Bank is supporting the expansion of technical and vocational education and training (TVET) into seven regions of the country to increase the intake capacity from 25,000 to 42,000 students.

25. Gender Equality: Namibia performs relatively well on gender equality, however, further efforts are needed. In the 2018 Global Gender Gap Report, Namibia ranked 10th out of 149 countries, a significant improvement from 40th out of 142 countries in 2015. The gains have largely been driven by improvement 9

in women representation in Parliament and achievement of gender parity at all education levels. Despite the progress, gender inequality persist in many domains: the proportion of female population, for instance with at least secondary (39.9%) is lower than the average for medium Human Development Index (HDI) countries (42.9%), and employment rates for females (69.1%) are lower than their male counterparts (73.5%) according to the 2018 Labour Force Survey. This is despite the parity observed in primary and secondary education levels. Gender inequity also exists in access to finance and titled land. Furthermore, Gender Based Violence remains a challenge in Namibia. About 32% of all women aged 15-49 have experienced physical violence since the age of fifteen years. While Namibia has adequate policy and legislative frameworks for promoting gender equality, it needs to strengthen their implementation. Addressing this challenge will require strengthening capacity of government agencies to advance gender equality backed by adequate funding.

26. Climate Change and Green Growth: Namibia is among the driest countries in SSA and is, thus, highly vulnerable to climate change. This is manifested in the high frequency of natural disasters, particularly floods and droughts. In the 2015/16 growing season, Namibia was hit by the El Niño-induced drought, which was followed by an even more severe drought in 2018/19. The recent drought has caused agricultural output to contract by 5% and the country’s already severe water scarcity problem to worsen. The poverty effects of climate change are significant as livelihoods of poor households and rural communities are dependent on climate sensitive sectors, such as agriculture and fishing. Namibia has developed strong policies and strategies to foster climate change resilience, adaptation, and promote low carbon and green growth. These include the National Climate Policy (2010) and the Climate Change Strategy and Action Plan (2013-2020). Namibia’s main priority climate change mitigation and adaptation actions are articulated in its submissions to the United Nations Framework Convention on Climate Change through the Nationally Determined Contributions (NDC 2015 document. Namibia has in NDC identified lack of financing and access to environmentally friendly and clean production technologies as the two main challenges constraining implementation of climate action.

27. Civil Society Organisation Engagement: There are currently about 130 registered CSOs in Namibia, focusing mainly on the social sector. The CSO Sustainability Index for Namibia conducted in 2017 found that an enabling legal operating environment for CSOs exists in the country, with freedom of media, which creates adequate space for CSOs to conduct their work without fear of reprisals or negative repercussions from the state. CSOs were rated particularly highly in the provision of basic services to communities. However, CSO funding remains a big challenge, partly because the country is categorised as a MIC, and in the face of current global trends, donors are not keen on funding CSOs. This situation has driven some CSOs into dormancy or closures. Moreover, due to the lack of a strong CSO coordinating umbrella body, CSO activities are often carried out in silos and in an ad hoc manner. Most CSOs lack large grassroots network and their activities are concentrated in . The proposed measures to enhance the effectiveness and visibility of CSO include the: (i) need to develop a CSO data-base for easy identification and coordination of their interventions to avoid working in silos and duplicating efforts; (ii) need for CSOs to work on improving their image through more information sharing and forming synergies and shared responsibilities; and (iii) need to put a case to donors for increased funding support to CSOs.

2.5 Country Strategic Frameworks

28. The GRN launched the fifth National Development Plan (NDP5, 2017-2022) in May 2017 as successor to NDP4. NDP5 provides the pathway towards realisation of Namibia’s 2030 Vision. The vision is for Namibia to attain high income status by 2030. NDP5 is complemented by the Harambee Prosperity Plan (HPP), which was adopted in 2016 to fast-track achievement of desired development outcomes in NDP4 priority areas. NDP5, whose focus is on structural transformation, has four strategic

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goals: (i) achieve inclusive, sustainable and equitable growth; (ii) build healthy and capable human resources; (iii) ensuring sustainable environment and enhance resilience, and; (iv) promote good governance through effective institutions. In order to achieve these goals, NDP5 is organised around four interrelated pillars: Economic Progression; Social Transformation; Environmental Sustainability; and Good Governance.

2.6 Aid Coordination Mechanisms, Bank Positioning and Comparative Advantage

29. As an MIC, aid-related partnerships are limited. Namibia does not rely significantly on donor assistance as it received only 0.4 percent on average of the official development assistance to Africa from 2010 to 2017, Despite this, aid coordination has improved since the establishment of the High-level Development Partners’ (DPs) Forum in December 2016. DPs have also created a Development Partners Dialogue Group, which serves as a platform for enhancing coordination and effectiveness of international development cooperation in support of the GRN’s national development priorities in line with the Paris, Accra and Busan Principles on Aid Effectiveness. The Bank’s country dialogue and partner coordination has been enhanced significantly, particularly since the commencement of policy reform support within the context of the Economic Governance and Competitiveness Support Programme (EGCSP) and sectoral project investments. Currently, the Bank is chairing the Transport Sector Coordinating Group, with KfW as Co-chair. The Bank has been conducting regular consultations with other DPs during missions to Namibia to ensure coordination and seek co-financing opportunities. Annex 7 presents the current division of labour by key DPs in Namibia.

30. Since the opening of the Bank’s Southern Africa Regional Development and Business Delivery Office (RDGS) in January 2012, the Bank’s engagement with Namibia has expanded significantly. The Bank is now Namibia’s largest Development Financier. RDGS’s proximity to Namibia has repositioned the Bank to respond to the development needs of the country with greater speedy and agility. Closer engagement with the authorities through regular missions and Business Development Seminars has helped create better awareness of the Bank’s financial products, their competitiveness, and the Bank’s operational procedures, engendering mutual trust. The Bank is viewed as trusted partner with a comparative advantage in financing growth enhancing investment projects, especially infrastructure. Other major providers of development support to Namibia are and the EU. Germany, the second largest DP, is involved extensively in infrastructure, particularly water and transport. The areas of support for the United Nations (UN) Group include health, education, women empowerment, environment and governance. The presence of non-traditional donors, in particular China, is growing, particularly in infrastructure, presenting opportunities for co-financing in this area.

2.7 Strengths and Opportunities, Weaknesses and Challenges

31. Namibia’s overarching development challenge is to overcome the persistent high inequality and unemployment, which is demonstrative of lack of inclusive and sustainable growth. Through this CSP, the Bank will support Namibia’s efforts to tackle the challenges of pervasive inequality and unemployment by addressing the country’s weaknesses and binding constraints to sustainable growth, while helping it to leverage and harness its strengths and opportunities to bring about prosperity for its people. Namibia’s strengths and opportunities, weaknesses and challenges are discussed at length in previous sections of this document and summarised in Box 2 below.

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Box 2: SWOT Analysis Strengths and Opportunities Challenges and Weaknesses  Peace, Political Stability & Good Governance: Namibia has  High inequality and unemployment: High inequality and been politically stable since independence with relatively strong unemployment hinders growth by limiting the already small domestic governance institutions. market. It also presents a threat to social cohesion.  Proximity to and integration with South Africa: Namibia has  Limited economic diversification and small domestic market: The easy access to a range of South Africa’s expertise; advanced Namibian economy’s over reliance on minerals and few other primary technology; developed infrastructure; relatively advanced commodities (notably fish) renders it highly vulnerable to volatility in intermediate inputs and goods markets; capital and financial global commodity prices. The smallness of the market hinders markets and investment resources. The currency peg with the economies of scale in production. ZAR ensures exchange rate stability. These factors provide an  High dependency on volatile SACU revenues: Overreliance on SACU opportunity to connect to South Africa’s supply chains and the revenues complicates the management of the budget and attainment of region. fiscal sustainability.  Abundant natural resources: Namibia is rich in mineral  Capacity Constraints & Shortage of skilled labour: Namibia faces a deposits. It also has fishing grounds with potential sustainable severe shortage of skilled labour. The resultant skills mismatch has yields of up to 1.5 million metric tons/year; and unique flora and affected negatively the investment climate and productivity. Poor fauna, an opportunity for value-added manufacturing and education quality in lower levels and low access and relevance in middle bolstering tourism. to higher education causes a skills mismatch.  Potential to become a regional logistics hub through the Walvis  Weak business climate: Namibia’s weakening business climate is a Bay Port: The deep-water port facilities and a network of trunk hindrance to private investment needed to drive growth and create jobs. roads and rail that cross its borders, position Namibian well as a Infrastructure Bottlenecks: Rail infrastructure is aging while water and regional logistics hub. energy supply is constrained pushing up the cost of utilities.  Preferential access to markets: Namibia’s membership of  Fragile Eco system: The aridity of the country renders it highly SACU, COMESA and SADC and new regional and continental vulnerable to climatic shocks. trade deals signed (Tripartite Free Trade Area and AfCTA) provide access to potentially huge market.

III. KEY FINDINGS OF 2019 COUNTRY PORTFOLIO PERFORMANCE REVIEW

3.1 Ongoing Portfolio

32. As at 31st December 2019, the Bank’s active portfolio in Namibia comprised twelve operations with a total commitment of UA 879.9 million, a significant growth from UA 227.4 million in 2014. ADB loans constitute 99.7% of the portfolio and 0.3% are grants from Middle Income Countries Technical Assistance Facility (MIC-TAF), Africa Water Facility (AWF) and Special Relief Fund (SRF). Out of twelve operations in Namibia, two operations are non-sovereign and constitute 26% of the total portfolio value. The portfolio has a disbursement ratio of 74% as of 31st December 2019, which is a significant improvement from the ratio of 57% in 2016. The multisector and transport sectors dominate the ongoing portfolio at 34% and 28%, respectively, followed by financial sector (26%). Agricultural and Social sectors have each a 6% share and Water and Sanitation has a 0.01% share. The portfolio is distributed across the following four of High 5 areas: Improve the quality of life for the people of Africa (40%); Integrate Africa (28%); Industrialise Africa (26%); and Feed Africa (6%). Figure 4 presents the portfolio distribution by sector and High 5s. Annex 6.1 presents more details on the ongoing portfolio. 3.2 Portfolio Performance

33. The 2019 Country Portfolio Performance Review (CPPR), which was combined with the CSP 2014-18 Completion Report, was approved by CODE in November 2019. The overall performance of the portfolio at end December 2019 was satisfactory, with a rating of 3.1 (for rated projects) on a scale of 1 to 4 compared to 2.5 in 2016 CPRR. The portfolio is relatively young with an average age of 2.9 years and has no problematic projects nor outstanding Project Completion Reports of projects that are closed. The process efficiency has improved. The average time taken from approval to signature reduced from 5.0 months in 2014 to 3.98 months in 2018 with one operation signed within one month after approval. Annex 6.2 provides more details.

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Figure 4: Portfolio Distribution by Sector and High 5

3.3 Strategic and Operational Challenges

34. The Namibia portfolio implementation challenges include: (i) Quality at Entry; (ii) Oversight and Project Management; and (iii) Fiduciary Management relating to procurement, disbursement and financial management. All these challenges are currently being addressed in the 2019 Country Portfolio Improvement Plan (CPIP) developed with the Government of the Republic of Namibia (see Annex 6.3). The performance of the Bank’s portfolio is discussed in detail in the CSP 2014-18 Completion Report and CPPR (ADB/BD/WP/2019/242), which was considered by CODE on 8th November 2019.

IV. LESSONS LEARNT

4.1 Lessons at the Strategic Level

35. There is need for the Bank to deepen support for Namibia’s structural transformation efforts in order to build resilience of the economy with a sharper focus on industrialisation and job creation. In doing so, the Bank should strive to foster closer synergies and linkages across sectoral interventions to maximize the overall transformational impact of its support to Namibia. Importantly, the focus on the private sector, as the engine of growth, should be further enhanced.

4.2 Lessons at the Operational Level

36. The Bank needs to continue adapting the design and modalities of its support to the dynamic needs of Namibia, an upper MIC. While maintaining flexibility, the Bank should still strive for selectivity in the choice of specific areas of intervention within broadly defined priority areas. The Bank performed well in providing technical assistance to Namibia through MIC TAF Grants. However, the Bank should allocate more resources for country knowledge work, and in a predictable manner to support policy dialogue and advisory services. Furthermore, the Bank needs to pursue private sector financing opportunities more aggressively. This would rebalance the Bank portfolio towards Non-Sovereign Operations (NSOs). The Bank has, in fact, already embarked on Business Development Seminars (BDS) and these activities will be sustained. The most recent BDS was held in November 2019. The Bank will also need to build the capacity of local contractors to enhance their capability to compete effectively for international tenders in line with the GRN’s economic empowerment policy.

37. The GRN working with the Bank should intensify capacity building for executing agencies and strengthen oversight of projects by the Ministry of Finance to ensure stronger accountability for implementation performance and results. While the GRN has demonstrated strong commitment to reform,

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capacity for policy execution and coordination across ministries require strengthening. The capacity for monitoring and evaluation also requires enhancing.

V. PROPOSED NEW BANK CSP 2020-2024

5.1 Strategy Rationale, Objective and Priority Areas for Bank Support

38. As discussed in preceding sections, Namibia has made significant economic and social progress, but high income inequality and unemployment persist. Economic growth has not been sufficiently inclusive, as its impact on job creation has been limited due to lack of economic diversification. Moreover, productivity growth and competitiveness of the Namibian economy have stagnated which, could undermine the realisation of the country’s Vision 2030 goal of becoming an industrialised and high income country by 2030.

39. Namibia’s overarching development challenge, as articulated in NDP5, is to reduce the high unemployment and inequality through inclusive, green and sustainable growth. The aim of the plan is to address five critical challenges the country is facing, namely, slow economic growth, inadequate decent employment opportunities, poverty, persistent inequality, and lack of socio-economic transformation. In response to the overarching development challenge, the main objective of the CSP is to help Namibia achieve sustained and inclusive growth through structural transformation. To achieve this objective, the CSP will address obstacles to private sector investment to contribute toward the diversification of the Namibian economy and job creation. In particular, it is critical for Namibia to implement policies and interventions aimed at reducing the high cost of doing business, as well as removing infrastructure bottlenecks and barriers to regional trade, while investing in skills required for economic transformation. 40. Accordingly, the CSP is articulated around the following two Priority Areas for Bank Support: Priority Area 1- Support Economic Governance for Improved Business Enabling Environment; and Priority Area 2 - Support Infrastructure Development and Promote Value Addition. Priority Area 1is aligned with the Economic Progression and Governance pillars in NDP5, as well as the Bank’s Ten-Year Strategy (TYS), and the two “High 5s” of Industrialise Africa” and “Improve the Quality of Lives of Africans”. Priority Area 2 is aligned with the Economic Progression Pillar in NDP5, HPP and the Growth at Home Strategy, as well as the Bank’s TYS and the four “High 5s” of “Industrialise Africa”, “ Light Up and Power Africa”, “Integrate Africa” and “Feed Africa”. Importantly, the Bank will address cross- cutting issues of climate/green growth, gender, youth, and skills and technology in each of the above mentioned priority areas. 41. The choice of the two priority areas has been guided by the following criteria: (i) the need to address the most pressing development challenges; (ii) alignment with the Government’s NDP5, as well as the Bank’s TYS, “High 5s and SA-RISP; (iii) the need for continuity while refocusing the strategy in some areas to enhance its developmental impact; (iv) Bank’s comparative advantage; (v) the outcome of stakeholder consultations; and (vi) findings of the Country Diagnostic Note and other relevant country analytical work. The outcome of the consultations is summarised in Annex 5.

42. The need for continuity in the thrust of Bank strategy is justified so as to build on and consolidate the achievements of the previous CSP 2014-2018. For instance, while implementation of the EGCSP helped push important economic governance reforms successfully, Namibia needs to sustain macro- economic stability and improve public sector efficiency. Furthermore, ongoing business regulatory reforms need to be deepened to achieve the desired impact on private investment. Also, missing links and gaps in infrastructure have emerged, particularly in water, electricity and rail infrastructure that need addressing in order to support Namibia’s industrialisation efforts while ensuring that the social and

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economic benefits of growth are distributed more equitably. However, while maintaining continuity, the Bank will place greater emphasis on value addition to enhance job creation, especially for the youth as a pathway to reducing inequality. Given its small market, focusing on value addition will help reposition Namibia to derive benefits from regional trade integration in line with SA-RISP.

5.2 Bank Strategy and Expected Results

43. The Bank’s strategy under each of the two priority areas is presented in the following sections. The Results Measurement Framework in Annex 1 demonstrates alignment of the CSP with Namibia’s NDP5 and the Bank’s corporate strategic framework, and presents a performance matrix to monitor results expected to be achieved upon completion of the strategy in 2024.

Priority Area 1: Support Economic Governance for Improved Enabling Business Environment

44. The main objective of Priority Area 1 is to improve Namibia’s enabling business regulatory environment and competitiveness through improved economic governance. This objective will be achieved through sustaining macroeconomic stability; improving the ease of doing business; enhancing provision of pro-growth public services; and expanding support to SMEs to spur industrialisation. Bank support under Pillar I, which will be coordinated with other DPs, will provide continuity in the policy reforms supported under the Bank’s previous CSP. The ongoing Higher Education, Vocational and Technical Training Project will contribute toward addressing the skills gap which is also critical to fostering an enabling business environment. The Bank will consider a new Skills Development Project depending on progress of the ongoing project.

45. Key Result Area 1: Economic Governance, Accountability and Transparency Strengthened. The Bank will support key policy reforms aimed at advancing growth friendly fiscal consolidation, strengthening the PFM system, and improving public sector efficiency. The focus of fiscal consolidation reforms will include expenditure rationalisation and revenue mobilisation. PFM strengthening will target, among other areas, procurement reform and enhancement of the PFM legal framework. Bank support under Result Area 1 is expected to contribute towards reduction in the fiscal deficit, improved governance and performance of SOEs. This will in turn contribute to inclusive growth by promoting private sector development through macroeconomic stability, enhanced accountability and transparency, and improved efficiency in provision of services to the private sector. The Bank will use policy based operations and technical assistance to deliver on these objectives and results.

46. Key Result Area 2: Business Enabling Environment Improved. The Bank will support reforms and skills development aimed at improving Namibia’s business enabling environment. These reforms will help improve the ease of doing business and reduce the cost, thereby increasing private investment to drive economic diversification and job creation. The envisaged reforms include continued modernisation of business licencing and registration processes, as well as operationalisation of the SME Financing Facility and Special Economic Zones. The expected results from Bank support under Result Area 2 include reduced number of days for starting a business, increased number of SMEs, increased access to financing and other support services for SMEs, and operationalisation of the Industrial Development Agency. The Bank will use the PBO and technical assistance to deliver on the objectives and results.

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Priority Area 2: Support Infrastructure Development and Promote Value Addition

47. The main objective of Priority Area 2 is to remove infrastructure bottlenecks that increase production costs, constrain Namibia’s competitiveness and thereby stifle private sector development. These include shortages of electricity and water supplies, and an aging rail network. The Bank’s other objective is to support private sector investments in value adding economic activities with emphasis on commercialising agriculture and agri-business to create decent jobs along value chains, especially for the youth and women.

48. Key Result Area 1: Infrastructure Improved: The focus will be on water and sanitation, energy, and transport. Support to the water sector will seek to expand supply of clean water for household, industrial and agricultural use. This will lead to improved access to water and sanitation for the population and enhanced water security and climate resilience, thereby contributing to improved living conditions, industrialisation, and inclusive growth. Support to water will also enhance gender equality. In energy, the focus will be on expanding renewable electricity generation capacity and expansion of transmission lines to reduce Namibia’s power supply deficit while promoting power trade through the SAPP. Due emphasis will be placed on electrification of rural and peri-urban areas. The resultant increase in the electricity access rate will improve the competitiveness of the Namibian economy by ensuring reliable and cheaper power supply. Improved access to electricity at relatively favourable costs will encourage the growth and survival of SMEs, contributing to inclusive growth and reduction in inequality. In the transport sector, the priority will be on improving connectivity through upgrading the rail network (including to meet SADC standards) to reduce the network capacity constraints. This support will build on the ongoing railway upgrade (between Walvis Bay Port and Kranzberg) intervention in the transport sector with the aim of enhancing connectivity of the Walvis Bay Port to the SADC region. By contributing to the lowering the high transport and logistics costs, Bank support to the transport sector will promote regional trade and incentivise investments in value adding activities and facilitate integration into regional and global value chains, as well as catalysing the blue economy. The Bank will use project investment sovereign and non- sovereign loans and technical assistance to support the development of infrastructure. The GRN will also be assisted to crowd in PPPs in infrastructure through transaction advisory services building on the on- going Instututional Support.

49. Key Result Area 2: Value addition Enhanced. The focus of support for enhanced agricultural value addition will be on promoting value addition to both crops and livestock through support for investments by small and medium scale agribusinesses, young agripreneurs and commercial investors. This will enable Namibia to be competitive against imports and become more export-oriented in line with the Bank’s Feed Africa Strategy for Agricultural Transformation 2016-2025, specifically Special Agro- Industrial Processing Zones Initiative, ENABLE Youth Initiative, and Technologies for Agricultural Transformation (TAAT) Initiative. Bank support will also focus on accelerating adoption of climate smart and climate resilient modern agricultural production models. The Bank will also help Namibia improve access to productive and titled land for smallholder farmers to encourage investment and commercialisation. Bank support for agricultural value chains will contribute to inclusive growth by creating job opportunities, especially for the youth and women through upscaling private investments. Expected outcomes will include increased export of value added agricultural products and reduced importation of food. Bank support will be provided through a mix of project investment loans, grants, lines of credit to financial intermediaries for on-lending to productive enterprises including SMEs, technical assistance, and knowledge products. The Bank will also help Namibia leverage opportunities created by new technologies to enhance productivity and connectivity to markets.

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5.3 Private Sector Window

50. The Bank will provide financing for bankable private sector projects from the private sector window, leveraging a wide range of instruments, including lines of credits to financial intermediaries, equity, as well as credit enhancement instruments, such as partial risk and partial credit guarantee schemes. Considering the relatively small size of the private sector in Namibia, the use of financial institutions through deployment of instruments, such as lines of credits, will continue to be emphasised. The lines of credit will be used to channel funding towards SMEs with high growth potential. There are also opportunities to support creation of venture capital funds. The Bank will play a catalytic role by crowding in financing from other financial institutions, such as private commercial banks and pension funds. The Bank will target enterprises engaged in value adding economic activities, including manufacturing and agro-processing to foster job creation and promote inclusive growth. In addition, the Bank will provide corporate loans to strategic SOEs for infrastructure investment on the strength of their balance sheets.

5.4 Indicative Lending Programme

51. The Bank has identified potential projects to be financed during the CSP 2020-2024 period that are aligned with CSP and NDP5 priority areas, the TYS and the High 5 priorities. The list of projects and alignment with the Bank’s High 5s is given in Annex 2 A. Under Priority Area 1, the indicative pipeline includes the Supplementary Loan for the EGCSP and a new multi-year Programme Based Operation. The projects under Priority Area 2 include one agricultural project, one rail project, one water and sanitation project, two energy sector projects and one line of credit for SMEs. Specific operations identified include the follow up to the ECGSP, National Water and Sanitation Programme, Crop and Livestock Value Chain Project, Tsumeb-Kranzberg Rail, Corporate Loan to Nampower, Angola-Namibia Transmission Line, SME Line of Credit, and the Baynes Hydro Power Project (multinational project with Angola). The total cost of the projects identified in the indicative programme is UA 1.2 billion, including UA 155 million for NSOs. The Bank will seek co-financing for some of the operations in the indicative lending programme.

5.5 Indicative Non-Lending Programme

52. The Bank will provide non-lending support to complement its lending operations. Non-lending activities will include technical assistance for capacity building, policy formulation, sectoral studies, and the design of new projects. The areas for non-lending support will be aligned with the two priority areas of the CSP. The Bank will also undertake demand-driven country knowledge work to help GRN develop innovative solutions to Namibia’s evolving development challenges. The Bank will also facilitate sharing of best development practices between Namibia and other MIC countries. Furthermore, Namibia will benefit from regional studies, such as the proposed Study on Alternatives to SACU Revenues. The Indicative Non-Lending Programme is presented in Annex 2 (B).

5.6 Country Dialogue

53. The Bank’s country dialogue will focus on the following key policy reform areas: (i) Fiscal consolidation to sustain macro-economic stability; (ii) strengthening government institutions, including anti-corruption commission, as part of ongoing government efforts to fight corruption; (iii) PFM strengthening and enhancing public sector efficiency to achieve value for money and improved service delivery; (iv) deepening business regulatory and trade reforms to spur private investment, export diversification, and job creation; (v) sustainability of infrastructure investments through adequate maintenance; and (vi) land reform to broaden access to economic opportunities and assets.

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5.7 Financing the Strategy

54. As an MIC, Namibia is only eligible to access the ADB window. The lending activities will, therefore, be financed only from non-concessional resources. However, Namibia will continue to access grant resources from the MIC TAF and other trust funds to finance non-lending activities, including knowledge work, feasibility and design studies, climate change action, as well as capacity building. Bank support to Namibia for investment projects will be provided through a diversified menu of innovative financial products, including credit enhancement instruments. The choice of financial products will take into consideration the need for preservation of the country’s debt sustainability by denominating loans in ZAR. The Bank will actively pursue opportunities for leveraging other financing sources through co- financing arrangements and PPPs. The Bank will also explore the possibility of using Results-Based Financing (RBF) for some of its future operations.

5.8 Implementation Arrangements, Monitoring and Evaluation

55. Responsibility for coordination and monitoring of NDP5 implementation lies with the National Planning Commission. The implementation of the CSP will be aligned with NDP5’s implementation to ensure ownership by GRN and effective tracking of the CSP contribution towards the national development goals. The Bank will undertake a mid-term review of the CSP in 2022 to assess implementation progress and make appropriate adjustments where necessary. A Completion Report will be prepared at the end of the CSP cycle. The Bank has developed a results tool to track CSP results, which is aligned with NDP 5 Results Framework. The results of the CSP will feed into NDP5 Annual Progress Reports. GRN has under NDP5 improved the monitoring and evaluation process. It has adopted a results based approach to systematically track progress towards development goals and desired outcomes. The Government is taking steps to further enhance monitoring and evaluation, including improving sector coordination and reporting. Other challenges relate to the quality of data in some of the sectors. The Bank will closely engage the Government on statistical capacity building needs, especially in CSP priority areas.

5.9 Risks and Mitigation Measures

56. The key risks that may negatively affect the CSP implementation and their mitigation measures are summarised below. First, capacity constraints, including in the fiduciary area, could delay project implementation and achievement of CSP results. To mitigate this risk, Bank will reinforce capacity building. Secondly, Namibia’s appetite to undertake significant additional borrowing may diminish as public debt breaches the Government fiscal limits. To mitigate this risk, the Bank’s long term lending will be denominated in ZAR, packaged with other risk mitigating features to ensure additional borrowing from the Bank preserve public debt sustainability. Also, the Bank will actively pursue private sector lending opportunities to maintain the flow of development finance in case sovereign borrowing is scaled down. The third risk is that exogenous shocks, such as commodity price shocks and droughts, could undermine growth prospects and macroeconomic stability. Namibia is pursuing policies and strategies to diversify its economy to build resilience. Lastly, uncertainty in SACU revenue could jeopardise availability of counterpart funding and weaken fiscal consolidation. The tax reform efforts currently underway would mitigate the risk by broadening the tax base.

VI. CONCLUSION AND RECOMMENDATIONS

57. Namibia’s overarching development challenges is to reduce the high inequality and unemployment. The Bank’s proposed Bank strategy will support Government’s efforts to transform the economy and achieve more inclusive growth and reduce inequality through enhanced job creation,

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especially for the youth. The Bank strategy builds on the achievement of the previous strategy, but with an enhanced focus on structural transformation. In this regard, the focus of the strategy will be on two mutually reinforcing Priority Areas: (i) Support Economic Governance for Improved Enabling Business Environment; and (ii) Support Infrastructure Development and Promote Value Addition. These Priority Areas are aligned with Government’s development priorities articulated in NDP5 and HPP, and the Bank’s TYS and the High 5s. The Bank strategy will complement the support of other DPs to maximize the development impact of external development support.

58. The Board is hereby invited to consider and approve the CSP for Namibia, covering the 2020- 2024 period.

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Annex 1A: Results Measurement Framework

Annex 1A: CSP Strategic Alignment Matrix

PRIORITY AREA 1: Support Economic Governance for Improved Business Enabling Environment REPUBLIC OF NAMIBIA AFRICAN DEVELOPMENT BANK NATIONAL PRIORITIES: CORPORATE POLICIES: Fifth National Development Plan (2017-2021) Ten Year Strategy (2013-2022)  Goal 1: Achieving inclusive, sustainable and equitable economic growth - Pillar  Operational Priorities: Private sector development, governance and accountability, 1: Economic Progression Skills and Technology  Goal 3: Promoting Good Governance through Effective Institutions- Pillar 2:  Areas of Special Emphasis: Gender, Green Growth & Climate Change Good Governance-through effective institutions and enhanced accountability High 5 Priorities  Industrialise Africa  Improve the Quality of Life Country Sector Strategy/Thematic Strategy Bank Sector Strategy/Thematic Strategy Priority Area 1: Support Economic Governance for Improved Business Priority Area 1: Support Economic Governance for Improved Business Enabling RESULTS CHAIN Enabling Environment Environment  Growth at Home Strategy (Industrialisation) (2015 – 2030):  Bank Group Industrialisation Strategy for Africa (2016 – 2025): Focus areas: Flagship Pillars: (i) Supporting Value Addition, Upgrading & Diversification, (ii) One: Foster successful industrial policies, Flagship Two: Attract and channel funding Securing Market Access at Home and Abroad (iii) Improving the investment into infrastructure and industry projects climate and conditions  Strategy for Jobs for Youth in Africa 2016-2025  SME Financing Strategy (2018)  Bank Group Governance Strategic Framework and Action Plan (2014 – 2018).  Medium-Term Fiscal Strategy (2019/20 – 2022/23) Supporting Pillar 3: Investment and business climate. Country Development Results/Indicators Bank Interventions/Resources

Indicator Baseline Target (2024) Areas of intervention investment Amount Total (UA (2019) instrument/sectors (UA m) m)

Economic Governance Fiscal Balance (% of GDP) -4.8 -3.3 Supplemental Financing-Economic Governance 126.3 126.3 Annual growth in public debt (%) 11.7 2.5 and Competitiveness Support Programme Public Enterprises Commercialised (#) 0 2 Programme Based Operation (3 year 378.9 378.9 Business Regulatory Environment Programmatic Operation) Days to start a business (#) 66 20 Technical Assistance 1.0 1.0 MSMEs contribution to GDP (%) 12 17.3 Knowledge Products (ESW) 0.03 0.03 New SMEs created annually of which 0 65 Total 506.2 30% women owned (# ) 0 100

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RESULTS CHAIN

PRIORITY AREA 2: Support Infrastructure Development & Promote Value Addition

PRIORITY AREA 2: Support Infrastructure Development & Promote Value Addition REPUBLIC OF NAMIBIA AFRICAN DEVELOPMENT BANK NATIONAL PRIORITIES: CORPORATE POLICIES: Fifth National Development Plan (2017-2021) Ten Year Strategy (2013-2022) Strategic Goals  Operational Priorities: Infrastructure Development & Regional Integration;  Goal 1: Achieving inclusive, sustainable and equitable economic growth: Pillar 1: Skills and Technology Economic Progression High 5s  Goal 3: Ensure Sustainable Environment: Pillar 3: Environmental Sustainability  Light Up and Power Africa: Establishing a Transformative Partnership on Energy Strategic Pillars for Africa, Mobilising domestic and international capital for innovative financing  Pillar 1: Economic Progression in Africa’s Energy sector  Pillar 3: Environmental Sustainability  Integrate Africa: Supporting regional infrastructure development  Industrialise Africa  Improve the Quality of Life of the People of Africa Country Sector/Thematic Strategy Bank Sector/Thematic Strategy Priority Area 2: Support Infrastructure & Promote Value Addition Priority Area 2: Support Infrastructure and Promote Value Addition  Energy: National Energy Policy (2017) Bank Group Strategy for the New Deal on Energy for Africa (2016-25)  Transport: Transport Policy (2018); Transport & Logistics Master Plan, 2017  Regional Integration Strategy (2014-2023) – Pillar I: support to projects that foster  Water and Sanitation: Integrated Water Resource Management Plan, 2010 regional integration.

RESULTS CHAIN - National Sanitation and Hygiene Strategy, 2019-2024  SA RISP (2020-2024): Infrastructure Connectivity & Market Integration &  Growth at Home Strategy (Industrialisation) (2015 – 2030): Industrailisation Pillars: (i) Supporting Value Addition, Upgrading & Diversification, (ii) Securing  Integrated Water Resource Management Strategy (2000): focus areas: Sections Market Access at Home and Abroad; (iii) Improving the investment climate and 3.3 (technical Strategies),Section 3.5 (Social Strategies) conditions  Feed Africa Strategy for agricultural transformation in Africa 2016–2025; Jobs for -  Value Addition/Agriculture & Agric. Industry Youth in Africa Strategy (2016 – 2025) - Natural Agricultural Policy, 2015  Gender Policy (2013 – 2018) – Pillar 1: Legal Status and Property Rights; Pillar 2: - Ministry of Agriculture, Water & Forestry Strategic Plan-2017/18-2021/22 Economic Empowerment - Namibian Agricultural Marketing & Trade Policy and Strategy  Cross-Cutting Issues; Climate Risk Management and Adaptation Strategy (2009

 Land Rights: Ministry of Land Reform’s Five year Strategic Plan  Cross-Cutting Issues: National Climate Change Strategy and Action Plan ( 2013 – 2020) Country Development Results/Indicators Bank Interventions/Resources Indicator Baseline Target (2024) Area of intervention and Instr. Amount (UAm) (2019) instruments/sector by High 5 Energy Nampower CSP Project ADB Pvt 29 Population electricity access (%) 49 67.5 Corporate Loan to Nampower ADB Pvt 126 Local Electric Power Generation capacity in (MW) 521 755 Baynes Hydro (600MW) Multi-National ADB Pub 64 Transport with Angola Rail network complying with SADC Axle (%) 52 70 Angola-Namibia Transmission Line ADB Pub 100

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Modal split for cargo transported by Rail as 10 30 Transport Infrastructure Improvement ADB Pub 100 percentage of total cargo transported on land Project – Phase II (Tsumeb-Kranzberg Rail Water and Sanitation Line) % of population with access to safe water supply 93 100 Namibia Water Sector Support Programme ADB Pub 94

Value Addition Crop Farming (% of value added) 35 45 Integrated Cereal and Livestock Value ADB Pub 80 Chain and Agro-processing Programme Agri Bank ADB Pub 30 SMEs Line of Credit ADB Pub 25.6

RESULTS CHAIN

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Annex 1B: Performance Matrix: Country Engagement Performance Matrix Performance Area Monitoring Indicators Baseline Year Target year Data Source 1. Operational Results from Projects 2018 2024 i. Economic Governance - Outcomes 1: Improved economic . Real GDP Growth -0.1 3.0 Budget Review & Economic Reports, growth and enhanced macro-economic . Fiscal Deficit (% of GDP) 4.8 3.3 Ministry of Finance stability Article IV Reports, IMF - Outcome 2: Expenditure Control & . New PFM Law Passed No Yes Budget Review Reports & Fiscal Management Improved . Payroll Audits for wage bill containment Irregular Annual Annual Accountability Reports, (frequency) Ministry of Finance

ii. Business Regulatory Environment - Outcomes: Improved business enabling Business Enabling Environment & environment and investment facilitation Investment Facilitation improved . Days for starting business reduced (#) 66 20 Ease of Doing Business Report . Private Investment as share of GDP increased (%) 22 25 NDP 5 Annual Progress Reports

- Outputs . Phase 2 of Integrated Client Service Phase 1 Phase 2 Ease of Doing Progress Reports, FacilityCompleted completed Progress . SME Financing facility Not operational Operational Ministry of Industrialisation, Trade operationalised and SME Progress Reports iii. Transport Rail Average train speed for freight (kms/hr) 20-30 >80 Project Implementation Reports - Outcomes: Improved performance of Rail transport market share (%) 24 30 NDP 5 Annual Progress Reports railways

- Increased railway transported cargo

Rail: 0 612 Project Implementation Progress - Outputs: Upgraded railway line to 18.5 Length of rehabilitated and upgraded railway Reports. tonnes Axle Load, SADC standard line between Walvis and Tsumeb (kms)

iv. Water and Sanitation Outcome 1: Increased and sustained access People accessing safe drinking water (%), of 93 100 NDP 5 Annual Reports to improved Water Supply which 50% are women Outcome 2: Increased access to improved sanitation among residents People accessing improved sanitation (%) of 54 63.5 NDP 5 Annual and Water Sector which 50 % are women Review Reports

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Performance Area Monitoring Indicators Baseline Year Target year Data Source - Outputs Water networks upgraded, augmented (kms) 0 1,400 Project Implementation Reports Water networks extended (kms) 0 17,000 Rural water schemes constructed (#) 0 7 v. Energy

Outcomes: Improved access to clean Population with access to electricity (%) 49(2019) 67.5 Nampower energy Output: Increased Power Generation Additional renewable energy generation Nil 224 Nampower Capacity capacity installed (MW) vi. Agriculture and Agribusiness

Outcomes: Value added to strategic agricultural commodities - Enhanced Value Addition to Crops and Share of Value Added in Crop Production 34 40 NDP 5 Annual Progress Reports & (%) Ministry of Industrialisation, Trade & SMEs Reports - Outputs: Increased output of Volume of cereals produced (‘000 metric 40 70 NSO Agricultural Surveys & Project strategic agricultural crops tonnes) Implementation Reports vii. Skills Development

Outcomes: Increased Access to and Students enrolled (#), of which 50% are 25,000 42,000 NTA Monitoring Reports relevance of technical, vocational education women and training Output: TVET and Higher Education 0 4 Facilities constructed and or extended TVET and Higher Education Facilities QPR; IPRs constructed and or extended viii. Mainstreaming of Cross- Cutting Issues in Bank interventions - Climate Change/Green Growth & - % projects with climate informed 70 % 100% Project Implementation Reports environment) design (adaptation/mitigation of GHG emissions)

2. Financial Leveraging - Utilisation of Trust Funds 3 Trust Fund G 50% of projects supported Bank Reports - Co-financing rants by Trust Fund Grants

0 1/3 of projects co- financed

3. Portfolio performance - Average Gender Marker rating for projects 3 2 CPPR - Average IPR rating - Timely completed PCRs 3.1 3.5 - Disbursement ratio 100 100 74% 80% V

Performance Area Monitoring Indicators Baseline Year Target year Data Source

4. Sustainability and capacity building - Number of projects with capacity 8 12 CPPR building activity 5. Development coordination and - Number of Development Partners 2 meetings/year 2 meetings/year UN Reports harmonisation Dialogue meetings attended by the Bank - Number of Development Partners Forum 1 meeting/year 1 meeting/year Reports from National Planning meetings attended by the Bank Commission - Active participation/leadership of the 1 Sector 4 Sectors (transport, Reports from Sectors Bank in Sector Working Groups (transport) agriculture, education, governance)

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Annex: 2A: Indicative Lending Programme Financing Sources (UA Million) Total Total Co- AfDB Cost Year of Financing (UA (UA Approv Operation Sector /PPP4 million) million) al ADB ADB FAPA AFAWA MIC AGTF Public Private TAF PRIORITY AREA 1 SUPPORT ECONOMIC GOVERNANCE FOR IMPROVED BUSINESS ENABLING ENVIRONMENT 2020 Supplemental Financing- Governance 126.3 Economic Governance 126.3 and Competitiveness

Support Programme 2020- Programme Based Governance 378.9 378.9 2023 Operation (3 year Programmatic Operation)

PRIORITY AREA 2: SUPPORT INFRASTRUCTURE DEVELOPMENT AND PROMOTE VALUE ADDITION

2020 Namibia Water Sector Water 94.0 94.0 Support Programme

2021 Integrated Cereal and Agriculture/ 80.0 80.0 Livestock Value Agro- industry

2021 Nampower CSP Project Energy 29.0 29.0

2021 Agri-Bank Line of Credit Finance 30.0 30.0

2021 Angola-Namibia Energy 100.0 100.0 Transmission Line

2022 Corporate Loan to Energy 126.0 126.0 Nampower to fund priority capital programme

2023 Transport Infrastructure Transport 100.0 Improvement Project – 100.0 Phase II (Tsumeb- Kranzberg Rail Line)

TBD SMEs Line of Credit Finance 25.6 25.6 TBD Baynes Hydro (600MW) Power 64.0 64.0 Multi-National with Angola

Total 998.8 155.0 1,153.8

44 The opportunities for co-financing with other Development Partners and financiers will be pursued during the projects preparation and development to leverage more resources. VII

Annex: 2B: Indicative Non-Lending Programme Year Title of Study Total Amount Source of Funding (UA million) 2020 Support to Public Enterprise Reform 0.71 FAPA 2020 Namibia Skills Audit and Education System Diagnostic Studies 1.1 MIC Grant 2020 Climate Finance support for NDC in Namibia and other selected countries. 0.71 (total) ACCF The project will provide capacity building in designing portfolios of bankable climate projects. 2020 Comprehensive Private Sector Assessment 0.10 Trust Fund 2021 Trans-Kalahari Corridor Diagnostics Study 0.43 NEPAD-IPPF Grant 2021 Labour Market Information System Capacity Enhancement 1.1 MIC Grant 2022 Wild Fruits Value Chain Development Project, for Women and Youth Groups 4.3 Adaptation Fund (Grant) 2023 Master Plan for Namibia Airports Development 0.58 MIC TAF Grant

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Annex 3: Lessons Learned from the CSP 2014 – 2018 Completion Report and 2019 CPPR

Key Findings of the CSP 2014-2018 Completion Report and 2019 CPPR

1. The 2014-18 Namibia CSP, approved by the Bank Group’s Board of Executive Directors in March 2014, was anchored on two pillars: (i) Infrastructure Development-water, transport and energy and; (ii) Private Sector Development, focusing on business regulatory environment and skills development. Its overarching goal was to assist Namibia achieve inclusive and sustainable growth with the focus on economic diversification away from mining. The strategy was aligned with Namibia’s Fourth National Development Plan (NDP 4) for the period, 2012/13-2016/17 and the African Development Bank Group’s Ten-Year Strategy (TYS) 2013- 2022. The CSP Mid-Term Review (MTR) conducted in March 2017 reaffirmed the relevance of the focus of the Bank’s assistance to the country. The purpose of the Combined CSP Completion Report and CPPR was to (i) assess the implementation of the CSP and the results achieved at completion; (ii) draw lessons to inform the design of the new CSP; and (iii) review the portfolio performance and recommend new measures to address emerging portfolio challenges.

2. During the CSP period, Namibia remained politically stable and peaceful. Namibia continued to rank highly on Governance indices. However, on the economic front, Namibia faced major headwinds; real GDP growth dropped sharply from 6.4% in 2014 to -0.1% in 2018 and fiscal vulnerabilities emerged as SACU revenues declined following years of high public spending through fiscal stimulus. The GRN embarked on fiscal consolidation from the second half of 2016 to address growing fiscal imbalances, but this weighed on growth, as high public spending has been a key driver of growth. The recession, fall in private investment, and reduced Government spending exacerbated the twin challenges of high inequality and unemployment. Against this backdrop, the CSP Completion Report emphasised the need for Namibia to accelerate structural reforms in order to enhance private sector investment, raise competitiveness, and diversify the economy to achieve sustainable growth and spur job creation.

3. The CR assessed the CSP, 2014-2018 implementation as successful. Nine operations were approved during the 2014-2018 CSP cycle, for a total amount of UA 675 million compared to UA 227 million, the previous cycle with only two investment operations. The projects approved during the CSP cycle included 1 policy based operation, the EGCSP, a Line of Credit to the Development Bank of Namibia, and 3 investment projects in transport, agriculture, and in higher education, vocational and training. The Bank also provided support in form of Non- Lending. Two MIC TAF Grants were approved for institutional strengthening of the PPP Unit in the Ministry of Finance and the Namibia Council for Higher Education and one African Water Facility Grant for the Integrated Windhoek Water and Sanitation Master Plan.

4. The achievement of CSP results at completion was found to be mixed. While 71% of outcome targets were met, partly through Government own interventions, the achievement rate at the output level was only 43%. This was mainly because the majority of projects approved during the CSP period are still under implementation and expected to contribute to the results

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of the next CSP cycle. The sectors and areas where positive results were achieved include transport and private sector development. For instance, the Walvis Bay Port Container Terminal Project, which was completed recently, has increased cargo handling capacity from 335,000 TEUs to a potential million TEUs, surpassing the CSP target of 750,000 TEUs.

5. The Namibia portfolio grew significantly during the CSP period from UA 227.4 million in 2014 with seven operations (two investments and five technical assistance) to UA 878.81 million as of 31st December, 2018 with eleven operations. The operations comprised eight investment operations and three technical assistance operations funded through MIC Grants and the African Water Facility Grant. Two more operations were approved by 31st August 2019. The average disbursement rate increased gradually from 2.4% in 2014 to 57.3% in 2016 and 74% in August 2019. The overall portfolio rating has improved to 3.1 in August 2019 from 2.5 in 2013 (on a scale of 1-4, with 1 being highly unsatisfactory and 4 highly satisfactory). The improvement in portfolio quality is largely due to improved supervision and follow-up of ongoing projects and quick disbursements under the budget support operation. During the Country Portfolio Performance Review Workshop in May 2019, the Bank and the Government reviewed the 2016 Country Portfolio Improvement Plan (CPIP) and agreed on new measures and prepared a new CPIP to address the challenges that the portfolio continues to face in order to speed up project implementation.

6. The key lessons learnt from the implementation of the 2014-2018 CSP to inform the design of the CSP, 2020-2024include: (i) the need for the Bank to reinforce its support of Namibia’s structural transformation efforts in response to the challenges of declining growth, persistent inequality and high unemployment; (ii) the need for the Bank to continue exercising flexibility in the design of its CSP and programming of support to Namibia, recognising the need to remain competitive and the dynamic nature of the borrower’s needs; (iii) the need to provide adequate and predictable resources for country knowledge to assist Namibia identify innovative solutions to emerging development challenges; and (iv) to pursue private sector lending opportunities more aggressively to rebalance the portfolio towards non-sovereign operations and in line with the Government’s policy focus on crowding in the private sector. On the Government side, the lessons include the need to strengthen implementation capacity, and improve oversight of projects in the portfolio by the Ministry of Finance, and enhance policy reform execution capacity.

7. In consideration of the challenges facing Namibia and NDP 5 priorities, two pillars for the new CSP were proposed in the CR: (i) Support Economic Governance for improved Business Regulatory Environment; and (ii) Support Infrastructure Development and Promote Value Addition.

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Annex 4: Engagement with CODE/Board on the CSP 2014-2018 Completion Report

CODE Comments Responses and Actions Taken by Management Management was asked to remove any The narrative relating to the 2019 Namibian general information that tended to pre-empt the outcome elections has been revised accordingly, and updated to of the forthcoming elections in the country. They reflect the actual outcome of the elections of 27th also called on Management to limit itself to November 2019 factual analyses. CODE Members encouraged Management to The Government’s NDP 5 has identified sectors for better address the issue of diversification in the economic diversification. The focus is on value addition upcoming CSP by explaining in what areas to natural resources, taking into consideration diversification was needed and the specificities comparative advantage, as well as spillover and job of the Namibian economy that needed to be taken creation effects. The areas where diversification is into account. needed to enhance inclusive growth are highlighted in the new CSP. These include agro- processing, which the new strategy seeks to support. EDs welcomed the presentation by Management The CSP document provides a deeper analysis but indicated that the next CSP should be based justifying selection of priority areas. The analysis on more analysis. Some EDs stated that the identifies the development challenges and constraints proposed pillars need to be further justified with facing Namibia, as well as the priority areas for regard to how they address Namibia’s needs and unlocking its growth potential. An Information Note to challenges, and also its geographical context and CODEhas been circulated providing clarity on the membership in several bodies (e.g. member of selection of priority areas. the Southern African Customs Union, SACU; the , CMA; and the Southern African Development Community, SADC). They also pointed out that, as one of Namibia’s major donors, the Bank also needs to enhance engagement with the country on policy dialogue and help it to find innovative solutions to its challenges. CODE questioned the fact that only three non- The CSP places due emphasis on growing the NSO sovereign operations were included in the portfolio. However, as explained to CODE, developing Indicative Operations Pipeline for the CSP period a pipeline of NSOs is difficult given the opportunistic (2020-2024), despite their huge potential in the nature of private sector lending. country. In addition, some EDs wondered whether NSOs should be reflected more explicitly in the future CSP.

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Annex 5: Outcome of Consultations with Key Stakeholders

Introduction

. The Bank conducted extensive consultations with key stakeholders in Namibia, including Government, representatives of the Private sector, Civil Society; and Development Partners during the preparation of the CSP 2014-2018 Completion Report and the new CSP, 2020- 2024. The initial consultations took place during the CSP CR Preparation & CSP Pillar Mission of late May, 2019 while the CSP Validation took place during November, 2019. . The stakeholder engagements during the mission of May, 2019, included a CSO Workshop jointly organised with the Namibia Institute for Democracy and hosted at the Democracy House. The meetings with DPs was facilitated by the by the UNDP Namibia Office at the Namibia U.N Office. The Stakeholders applauded the Bank for the consultative approach to the preparation of the CSP. . The consultations with stakeholders were productive and provided valuable insights into the emerging challenges facing Namibia, development opportunities, and areas the Bank should prioritise in its support to Namibia.

Key Outcomes of the Consultations

. The Government noted the strong support provided by the Bank during the previous CSP period and indicated to the Bank Mission that the thrust of the Bank’s 2014-2018 CSP (focusing on Infrastructure & Private Sector Development) remained relevant. However, the GRN would like the strategy to be fine-tuned to enhance the focus on job creation through expanding the productive base, and address emerging critical needs. In this regard, water, energy, rail and skills were identified as of high priority. The GRN noted that, during the previous CSP cycle, the Bank did not intervene in water and energy, as projects were not yet ready.

. Non-Governmental Stakeholders highlighted the challenges being faced by Namibia. These include the high unemployment, inequality, and climate change. The recent downturn in the economy has worsened unemployment and inequality. They reaffirmed, in particular, the urgency of tackling high unemployment, especially of the youth. Building resilience to climatic shocks is also critical as Namibia is highly vulnerable to droughts, which are becoming more severe and frequent.

. The Civil Society pointed out areas the Bank should prioritise in its strategy: youth employment, women economic empowerment, interventions to boost agricultural productivity, enhance the capacity of the private sector, and promote PPPs, especially along agricultural value chains.

. DPs applauded the Bank’s for prioritising improvement to the business climate and infrastructure development, including water. However, some of the DPs encouraged the Bank to do more in human resource development, education and health. Human resource development is an area where Namibia continue to face challenges. The DPs further highlighted the challenges of weak implementation capacity and quality of statistical data in

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sectors, such as education. The DPs were appreciative of the efforts being made by the Bank to enhance coordination. They looked forward to further enhancement of collaboration with the Bank and increased opportunities for co-financing.

. Overall, the Stakeholders confirmed the relevance and appropriateness of the Bank’s proposed strategy and choice of priority areas of Bank support.

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Annex 6.1: Ongoing Portfolio

Source of Approved Amount Cumulative Disbursement Age Completion Project No Operation Approval Date Finance (UA)5 Disbursement6 (UA) Rate (%) (Years) Date Status 1 Namibia Agricultural Mechanisation and ADB Loan 49,972,015.67 888,977.62 1.78 4-Dec-2017 1.9 31-Dec-2022 NPPP Seed Improvement Project 2 MIC TAF Grant Proposal - Feasibility MIC Grant 723,000.00 2,923.25 0.4 2-Mar-2019 0.6 31-Dec-2020 NPPP Studies on Feed Africa Agriculture 3 Humanitarian Emergency Assistance to SRF Grant 727,315.04 0 0 9-Aug-2019 0.2 30-Jun-2021 Not rated Mitigate Effects of 2018/19 Drought Subtotal for Agriculture Sector 51,422,330.71 891,900.87 4 Economic Governance and Competitiveness NPPP ADB Loan 149,916,047.01 149,916,047.01 100 10-May-2017 2.5 31-Dec-2019 Support Programme (EGCSP), Phase I 5 EGCSP II ADB Loan 149,916,047.01 149,916,047.01 100 18-July-2018 1.3 31-Dec -2021 NPPP 6 MIC-Institutional Strengthening for PPP MIC Grant 787,671.00 554,203.07 70.36 8-July-2015 4.3 31-Dec-2020 NPPP Subtotal for Multi-Sector (Governance) 300,619,765.02 300,386,297.09 7 Development Bank of Namibia ADB Loan 224,874,070.52 199,888,062.68 88.89 9-July-2015 4.3 1-Jan-2028 NPPP 8 Corporate loan to TRUSTCO Finance NPPP ADB Loan 3,248,181.02 3,248,181.02 100 7-Dec-2011 7.9 1-Aug-2019 Limited Subtotal for Financial Sector 228,122,251.54 203,136,243.70 9 Education and Training Quality NPPP ADB Loan 49,972,015.67 516,015.17 1.03 4-Dec-2017 1.9 30-June-2023 Improvement Project Subtotal for Social Sector 49,972,015.67 516,015.17 10 Namibia Transport Infrastructure NPPP ADB Loan 99,944,031.34 2,731,229.28 2.73 13-Dec-2017 1.9 31-Dec-2025 Improvement Project 11 New Port of Walvis Bay Container Terminal NPPP ADB Loan 149,016,550.73 143,747,828.84 96.46 22-July-2013 6.3 30-June-2020 Project – Loan Subtotal for Transport Sector 248,960,582.07 146,479,058.12 12 Windhoek Integrated Urban Water Supply AWF Grant 837,139.49 30,975.12 3.7 11-Jan-2018 1.8 26-May-2022 Not rated and Sanitation Master Plan Subtotal for Water and Sanitation Sector 837,139.49 Grand Total 879,934,084.50 651,440,490.07 74%

5 Used SAP Exchange rate as of 10th October 2019 6 Disbursement as at 10th October 2019

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Annex 6.2: Portfolio Performance Indicators Selected Portfolio Performance Indicators Dec-13 Dec-16 Oct-19 Portfolio performance (Flashlight Report) % satisfactory N/A 86 67% Number of projects flagged red 0 0 0 Average size of projects (UA million) 32.5 58.8 73.3 Average project age (years) 2.6 2.9 2.9 No. active operations (#) 7 7 12 Average disbursement rate (%) 2.4 57.3 74

No. of ageing projects (#) 0 0 0 Slow disbursing projects (#) 0 1 4 Projects at Risk (#) 0 0 0 Commitments at Risk (UA million and %) 0 0 (0) 0 (0) Average time from approval to effectiveness (months) 8 6 4 Projects experiencing delays: signature/ effectiveness/ 1st disbursement 0 0 1 Average Time Lapse: Approval to Signature (month) 5 6 4 Average Time Lapse: Approval to Effectiveness (month) 8 7 5 Average Time Lapse: Approval to First Disbursement (month) 13 11 9 Overall Portfolio Rating 2.5 3.0 3.1

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Annex 6.3: 2019 Country Portfolio Improvement Plan (CPIP) Baseline Target Issue Action required Responsible Measurable Indicators Timeline (2019) (2023) Quality at Entry Ensure adequate preparation for the project including consultations with all key stakeholders Government % of projects experiencing start- Ongoing Advance preparation of key project documents and Bank up delays because of lack of 30% 0% (Immediately for including complete set of tender documents, readiness. new projects) Delays in Project safeguard documents, etc. before project approval Effectiveness and by the Board % of experts with adequate Start-up Ensure skill mix during preparation and appraisal Bank and 70% Immediately for required skills involved during 100% of projects Government new projects preparation and appraisal. Establish Project Implementation Unit (PIU) with Ongoing % of new projects with PIU required expertise before project approval by the Government 0% 100% (Immediately for established before project starts. Board new projects) Oversight and Project Management Increase the oversight role of the Ministry of Government - Ongoing Finance (MoF) on the implementation of projects Limited oversight All Executing Agencies (EAs) to timely submit % of project reports reviewed by from the Ministry quarterly reports (technical and financial) to the EAs 60% 100% Immediately MoF and guidance provided of Finance MoF for review and guidance Conduct joint regular Portfolio Performance No. of Portfolio Performance Start in 2nd half of MoF and Bank 0 9 Review meetings with all EAs Review meetings organised 2019 No. of technical assistance Once every year Adequate staffing and build capacity of staff in Bank and programmes to improve staff Weak Project 0 5 in 5 years – to PIU Government capacity and project management Management and start in 2019 and implementation Coordination Strengthen capacity in the Department of Works 3 months from Government Quantity Surveyors increased 1 3 (Quantity Surveyors) May 2019 Organise training programmes, fiduciary training Limited experience No. of training programmes / 5 training Once each year that include project management and contract Bank 0 and knowledge of fiduciary training organised. sessions for 5 years management aspects Bank rules and Coaching of EAs on Bank rules and procedures % of missions including coaching procedures Bank 0 100% Ongoing during supervision missions sessions Delays in Project EAs to ensure quarterly reports are timely EAs/Governm % of quarterly progress reports Within 45 days of 75% 100% Reporting submitted to the Bank within the required time ent timely submitted end of quarter Ensure timely response to Government submission Bank No. of days for Bank response >10 days =< 10 days Immediately

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Baseline Target Issue Action required Responsible Measurable Indicators Timeline (2019) (2023) Delays in Bank response Minimise disruption during change of Task Managers Fiduciary Management – Procurement, Disbursement and Financial Management Assign qualified Procurement Experts to carry out % of projects with qualified Government 75% 100% Immediately procurement activities before project approval Procurement Experts An initial draft Procurement Plan must be agreed Delays in start-up upon, at the latest, before negotiating the % of projects with PP cleared Government/B of procurement Financing Agreement. The detailed PP shall be within the first month of project 0% 100% Immediately ank activities after submitted to the Bank, for clearance, at Project effectiveness project approval effectiveness Streamline / Improve on internal processes of Improved internal approval approvals and strengthen Procurement Government Slow Efficient Immediately processes Management Units in line ministries Respective Line ministries through the MoF to ensure funds Delays in the Line requirements are included in the National Budget % of funds disbursement from provision of Ministry/EAs 20% 100% Immediately MoF counterpart funds Timely disbursement from the MoF upon requests Government by EAs Lack of compliance with % of acceptable quarterly EAs/Governm the Bank’s EAs to ensure quarterly financial reports are sent performance reports submitted to Within 45 days of ent 50% 100% quarterly financial to the Bank within 45 days of end of the quarter the Bank within 45 days of the end of the quarter reporting end of the quarter requirements Delays in timely Acceptable annual audit reports Within 6 months EAs to ensure annual audit reports are submitted to submission of EAs/Governm submitted to the Bank within 6 from the end of the Bank within 6 months of end of the reporting 70% 100% Annual Audit ent months of end of the reporting the reporting period reports period period Delays in timely Regularly submit the justification of funds EAs/Governm All funds justified within the submission of disbursed in Special Accounts (6 monthly, or 55% 100% Immediately ent required time justification of when attained 50% utilisation) funds use in the EAs to improve the quality of justification EAs/Governm % of justifications improved 50% 100% Immediately Special Accounts documents, especially Form A2 ent

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Annex 7: Development Partners’ Sectoral Areas of Intervention European United Sectors of intervention AfDB Finland U.S.A. Germany Japan Union Nations China* Agriculture, Water, Rural Development x x - - x x x x - x Health - - x - - - x x - Education x x x - x x x x x x Governance x x - - - x - x x - Poverty - x - - - x x x - Culture - - - - - x - x - - Environment & Natural Resources - x x x x x - x - - Infrastructure x - - - x x x x - x Innovation & Technology - x - - x - x - - - Trade & Industry - x - - - x - - - - Economic Development - x - - - x - - - - Financial sector x ------Source: UN Development Partners’ Coordination in Namibia (2018).

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Annex 8: Comparative Social Economic Indicators Namibia COMPARATIVE SOCIO-ECONOMIC INDICATORS

Develo- Southern Year Namibia Africa ping Africa Countries Basic Indicators GNI Per Capita US $ Area ( '000 Km²) 2018 823 6,571 30,067 94,808 Total Population (millions) 2018 2.4 203.7 1,274.2 6,306.6 7000 Urban Population (% of Total) 2018 52.9 49.0 42.9 49.8 6000 Population Density (per Km²) 2018 3.0 31.4 43.4 68.4 5000 4000 GNI per Capita (US $) 2018 5 250 2 804 1 783 4 837 3000 Labor Force Participation *- Total (%) 2018 60.8 71.4 63.5 61.8 2000 Labor Force Participation **- Female (%) 2018 56.2 67.1 54.6 47.0 1000

Sex Ratio (per 100 female) 0

2000

2008

2012

2013

2014

2015

2016 2017 2018 94.0 96.7 99.8 100.6 2018 Human Dev elop. Index (Rank among 189 countries) 2017 129 ...... … Popul. Liv ing Below $ 1.90 a Day (% of Population) 2007-17 13.4 41.7 31.2 11.8

Namibi a Africa Demographic Indicators Population Grow th Rate - Total (%) 2018 1.9 2.3 2.5 1.3 Population Grow th Rate - Urban (%) 2018 4.3 3.3 3.6 2.4 Population < 15 y ears (%) 2018 36.9 39.3 40.8 27.7 Population Growth Rate (%) Population 15-24 y ears (%) 2018 19.9 19.3 19.3 16.5 3.0 Population >= 65 y ears (%) 2018 3.6 3.5 3.4 7.0 2.5 Dependency Ratio (%) 2018 68.2 74.9 79.2 54.6 Female Population 15-49 y ears (% of total population) 2018 26.4 25.1 24.1 25.4 2.0 Life Ex pectancy at Birth - Total (y ears) 2018 63.4 63.0 63.2 70.6 1.5 Life Ex pectancy at Birth - Female (y ears) 2018 66.2 65.8 65.0 72.7 1.0 Crude Birth Rate (per 1,000) 2018 28.6 31.1 33.5 20.3 0.5

Crude Death Rate (per 1,000) 2018 8.1 8.0 8.1 7.4 0.0

2000

2007

2012

2013

2014

2015

2016 2017 Infant Mortality Rate (per 1,000) 2018 29.0 41.4 48.7 31.3 2018 Child Mortality Rate (per 1,000) 2018 39.6 56.8 70.2 42.0 Total Fertility Rate (per w oman) 2018 3.4 3.8 4.4 2.6 Namibia Africa Maternal Mortality Rate (per 100,000) 2017 195.0 245.8 432.3 230.0 Women Using Contraception (%) 2018 59.3 49.4 38.5 61.6

Health & Nutrition Indicators Phy sicians (per 100,000 people) 2010-16 ... 36.5 33.6 119.9 Life Expectancy at Birth Nurses and midw iv es (per 100,000 people) 2010-16 ... 160.3 123.3 233.9 (years) Births attended by Trained Health Personnel (%) 2010-17 88.2 68.4 61.7 78.5 80 Peop. Using at least basic drinking w ater serv ices (% of Pop.) 2017 82.5 69.5 66.3 87.7 70 60 Peop. Using at least basic sanitation serv ices (% of Population) 2017 34.5 44.6 40.3 68.5 50 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 40 2018 11.8 12.2 3.4 ... 30 Incidence of Tuberculosis (per 100,000) 2016 446.0 412.0 221.7 157.0 20 Child Immunization Against Tuberculosis (%) 10

2018 94.0 84.4 81.4 85.0 0

2000

2007

2012

2013

2014

2015

2016 2017 Child Immunization Against Measles (%) 2018 82.0 73.6 76.1 85.2 2018 Underw eight Children (% of children under 5 y ears) 2010-16 13.2 11.7 17.5 15.0

Prev alence of stunding 2010-16 23.1 35.1 34.0 24.6 Namibi a Africa Prev alence of undernourishment (% of pop.) 2017 27.3 25.3 18.5 12.3 Current health ex penditure (% of GDP) 2016 9.1 6.8 5.3 5.4

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2010-18 124.2 115.7 100.1 104.1 Primary School - Female 2010-18 122.1 113.5 98.0 104.4 Infant Mortality Rate Secondary School - Total 2010-18 ... 62.7 52.8 71.9 ( Per 1000 ) Secondary School - Female 2010-18 ... 61.8 50.6 71.4 90 Primary School Female Teaching Staff (% of Total) 80 2010-18 68.5 59.4 48.6 62.9 70 Adult literacy Rate - Total (%) 2010-18 91.5 77.5 66.9 84.0 60 Adult literacy Rate - Male (%) 2010-18 72.6 82.7 70.8 88.2 50 Adult literacy Rate - Female (%) 40 2010-18 91.4 73.2 60.0 79.8 30 Gouv ernment ex penditure on Education (% of GDP) 2010-17 3.1 5.4 4.3 ... 20 10

0

2000

2008

2012

2013

2014

2015

2016 2017 Environmental Indicators 2018 Land Use (Arable Land as % of Total Land Area) 2016 1.0 8.4 8.7 11.4 Agricultural Land (as % of land area) 2016 47.1 45.0 41.8 38.3 Forest (As % of Land Area) 2016 8.3 22.9 23.1 31.9 Namibi a Africa Per Capita CO2 Emissions (metric tons) 2014 1.6 3.1 1.2 3.5

Sources : AfDB Statistics Department Databases; : World Development Indicators; last update : November 2019 UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+) ** Labor force participation rate, female (% of female population ages 15+)

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Annex 9: Namibia: Selected Macro-economic Indicators Actual Projections Indicators Unit 2013 2014 2015 2016 2017 2018 2019 2020 Economic Indicators Real GDP growth rate Percent 5.6 6.4 6.1 1.1 -0.9 -0.1 -1.0 1.7 Real per capita GDP growth rate Percent 3.5 4.3 4.1 -1.0 -1.2 -2.2 -2.7 0.4 Inflation (consumer price index) (annual average) Percent 5.6 5.4 3.4 6.7 6.2 4.3 4.4 5.2 Exchange rate (end of period) NAD/USD 7.2 11.6 15.6 13.7 13.5 13.2 … … Total revenue and grants Percent GDP 32.0 35.5 34.5 33.1 31.2 30.5 30.5 30.4 Total expenditure Percent GDP 39.3 38.3 40.9 38.1 36.5 34.1 39.4 39.9 Overall deficit (-)/(+) Percent GDP 7.2 -2.8 -6.4 -6.9 -5.4 -3.4. -4.5 -4.0 Current account balance Percent GDP 4.8 -9.4 -14.1 -14.1 -5.1 -1.8 -3.6 -5.1 Gross reserves Months of imports 2.2… 2.0 3.0 3.7 4.7 3.8 3.8 3.5 Total Public debt Percent GDP …24.2 24.8 38.0 42.6 43.3 45.3 49.2 51.4 External debt Percent GDP …8.2 8.6 13.1 17.6 15.3 16.3 17.2 14.7 Domestic debt Percent GDP …8.2 8.0 24.9 25.0 28.0 29.0 32.0 36.7 Social Indicator 20133 2 Indicators Unit 19901 20002 0184 Population Million 1.4 1.9 2.2 2.6 Employment to population ratio 15+, percent of total 45.2 47.2 40.0 59.9 Poverty headcount ratio at $1,25 a day percent of population 49.1 31.9 28.8 17.4 () Maternal mortality ratio modelled estimate, per 100,000 live births 200.0 280.0 265 265 Total enrolment, primary percent net 85.7 87.1 85.1 119.1 Proportion of seats held by women in parliaments Percent 6.9 26.4 24.4 41.3 Prevalence of HIV, total percent pop (15–49) 7.1 16.2 13.4 13.8 Environment and Climate Change Indicators Indicators Unit 19901 20002 20133 20174 CO2 emissions kg per purchasing power parity USD of GDP 0.5 0.5 0.5 1.6 Improved sanitation facilities percent of population with access 26.0 30.0 32.0 34.4 Improved water source percent of population with access 73.0 87.0 91.0 93.0 Sources: Bank of Namibia (BoN), Ministry of Finance, ADB statistics department, ADB statistics department databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; country reports. Notes: Data not available 1Latest year available in the period 1990-95; 2 Latest year available in the period 2000-04; 3Latest year available in the period 2010-15, and 4 Latest year

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Annex 10: Namibia’s Engagement with the IMF

IMF Executive Board Concludes 2019 Article IV Consultation with Namibia

Press Release No. 19/331 FOR IMMEDIATE RELEASE September 13, 2019

IMF Executive Board Concludes 2019 Article IV Consultation with Namibia

On August 30, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Namibia and considered and endorsed the staff appraisal without a meeting.

During 2010–15, Namibia experienced a period of exceptional growth but macroeconomic imbalances rose, resulting in public debt sharply increasing and international reserves falling below adequate levels. Rapid credit growth fueled fast-rising house prices and elevated private sector indebtedness. Robust growth masked slowing productivity growth and declining external competitiveness, hindering the long-term growth prospects of the economy. Income inequality and unemployment remained very high.

With the temporary stimuli now ended, the economy is rebalancing while the government is implementing a significant fiscal consolidation. Real GDP declined in 2017 and, at a slower pace, in 2018. The current account deficit has narrowed significantly, despite a decline in Southern Africa Customs Union (SACU)’s receipts. Credit to the private sector slowed and the house price real growth rate turned negative. The authorities have implemented significant fiscal adjustment. However, public debt remains on a rising path, and government’s growth financing needs are elevated. International reserves improved, although remain below adequate levels. The financial sector has so far been resilient, although with the economic slowdown, banks’ assets quality has deteriorated.

A likely slow recovery, the need for further fiscal adjustment to bring public debt to a sustainable path, persistent inequalities and structural impediments to growth, point to a challenging outlook. Real GDP is projected to mildly contract in 2019, before gradually recovering. Absent structural reforms, growth is expected to converge to a long-term level of about 3 percent, which is too low to deliver meaningful improvements in per capita income and reduce unemployment. Pending further actions, public debt would continue rising, although at a more moderate pace than in the past. While the current account deficit is expected to stabilize at around 4 percent of GDP, international reserves coverage would gradually decline.

Downside risks weigh on the outlook. Risks emanate from possible fiscal slippages that could trigger further debt increases; declines in SACU revenue; and, low demand for key exports due to rising trade tensions and weaker global growth. With a highly interconnected financial sector, macro-financial feedback loops could amplify the adverse effects of shocks.

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Executive Board Assessment In concluding the 2019 Article IV consultation, Executive Directors endorsed staff’s appraisal, as follows:7

Namibia’s economy is rebalancing, but significant challenges remain. After a period of exceptional growth and rising macroeconomic imbalances, public debt remains on a rising path, international reserves below adequate levels, and growth has come to a halt. Years of strong growth masked slowing productivity and declining external competitiveness, hindering growth prospects, while income inequality and unemployment have remained high.

The authorities’ fiscal consolidation objectives strike an appropriate balance between stabilizing public debt and supporting the economy, but actions are needed to deliver this outcome. In the short term, staff assess that an additional ¾–1 percent of GDP in measures is required to contain the FY19/20 fiscal deficit within the budget target. Policies to deliver the adjustment planned for the next two years (about 2 percent of GDP) also need to be fully defined.

Policies should combine spending reductions and selected revenue increases that can enhance the long-term growth prospects of the economy, while protecting the poor. Measures should include: continuing the authorities’ policy of containing salary indexation and new hires, applying the policy to all public entities; rationalizing transfers to public entities and enterprises; and, expanding tax bases by reducing exemptions and special tax regimes. Over time, these policies would help bring wage dynamics closer to the productivity trends, improve service delivery, and create a level-playing field for private investors, with positive effects on external competitiveness and long-term growth. Widening the coverage of children’s grants, better targeting of housing programs, and a more progressive personal income tax would help protect the poor and strengthen the distributive role of fiscal policies. In this context, the BoN should keep the policy rate broadly in line with the SARB’s rate and maintain the peg. Fiscal reforms are essential for the success of the authorities’ adjustment plans. Rationalizing public enterprises and extrabudgetary entities, strengthening revenue administration, and improving budget and expenditure controls are critical steps to deliver the planned fiscal adjustment. To strengthen the credibility of the fiscal adjustment plans and reduce risks, it also important to control off-budget financing of investment projects, develop a fiscal risks framework, and publish a risks statement. In consultation with the authorities, a Fund’s medium-term capacity development strategy has been developed to support improvements in some of these areas.

Accelerating structural reforms would boost productivity and competitiveness and long-term growth, while supporting the fiscal adjustment strategy. Structural reforms should focus on reducing policy uncertainty and removing existing obstacles to stronger and more inclusive growth. Reforms should aim to: streamline business regulations (e.g., lowering regulatory compliance costs); reduce the high electricity and transportation costs (e.g., reforming public enterprises operating in these sectors); contain public sector salary dynamics to better align productivity and wage dynamics in the economy; and, avoid regulations hampering domestic competition (e.g., preferential procurement rules). Over time, it is important to reduce non-tariff obstacles to exports (e.g., quotas, imports ban, SACU-related restrictions); address shortages of well-educated and skilled workers through better access and quality of higher education, vocational and on-the-job training programs; and foster the adoption of new technologies (e.g., better broadband services). The potential gains from improvements in the above areas could be large.

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Actions are needed to further strengthen the oversight of the financial sector, particularly of the large non-bank financial industry. Despite a recent increase in NPLs, the financial sector remains sound. However, with a large non-bank financial industry, planned legislative changes to address existing regulatory gaps in the industry (e.g., NAMFISA, Financial Institutions and Market bills) should be adopted expeditiously, while reviving efforts to introduce risk-based supervision. With the BoN set to have an explicit macroprudential mandate to regulate a deeply interconnected financial sector, the coordination framework between the BoN, NAMFISA and the Ministry of Finance should be strengthened, including through the creation of the planned Financial Stability Committee. Complementing the macroprudential toolkit with DSTI limits and other macroprudential measures would better manage risks from the highly leveraged private sector. Finally, efforts to develop a full crisis management and resolution framework should be stepped up, including by granting BoN and NAMFISA full resolution powers of financial institutions, and operationalizing emergency lending assistance.

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Annex 11: Namibia: Progress towards Selected SDGs

1 2 3 1 2 3 2000 2010 2018 2000 2010 2018 Goal 9: Build resilient infrastructure, promote Goal 1: End poverty in all its forms everywhere inclusive and sustainable industrialisation and foster innovation Proportion of population living Manufacturing value below the international poverty line ...... 28.8 ...17.4 added per capita 457.4 648.2 ... of US$ 1.90 (PPP) per day (Constant 2010 US $) Proportion of employed population below the international poverty line Goal 10: Reduce inequality within and among ...... of US$1.90 per day, aged 15 and countries over (%) Total resource flows for Goal 2: End hunger, achieve food security and improved development (US $ 127.4 28.7 443.5... nutrition and promote sustainable agriculture Millions) Goal 11: Make Cities and human settlements

inclusive, safe, resilient and sustainable Proportion of urban Prevalence of stunting among 23.6. 29.0 23.8. population living in …… 16.6... ..26.6. children under 5 years of age slums (%) Annual mean levels of Total official flows (official fine particulate matter development assistance plus other 22.5 15.8 16.64... (PM2.5) in cities, ...... official flows) to the agriculture population weighted, sector (Millions of constant $US) 2014 (%) Goal 3: Ensure healthy lives and promote well-being for all at all

ages. Goal 12: Ensure sustainable consumption and Under-five mortality rate (per 1 000) 74.6 56.0 59.6 production patterns Total material footprint Maternal mortality ratio (per 100 352.0 319.0 311... (Thousands of metrics 10290 13320 ... 000) tons) Total net official development Total material footprint assistance to medical research and 1.4 4.8 9.84.. (Thousands of metrics 5.4 6.1 ... basic health sectors (Millions of tons) constant $US) Total domestic material Goal 4: Ensure inclusive and equitable quality education and consumption (Thousands 8644 14535 ... promote lifelong learning opportunities for all of metrics tons) Proportion of children and young people at the end of primary Goal 13: Take urgent action to combat climate ...... achieving at least a minimum change and its impacts (no data available) proficiency level in: Reading (%) Goal 14: Conserve and sustainably use the oceans, Goal 5: Achieve gender equality and empower all women and seas and marine resources for sustainable girls development Coverage of protected Proportion of women aged 20-24 areas in relation to years who were married or in a ...... 0.1... 16.7 83.3 83.3 marine areas (%) union before aged 18 years

Goal 6. Ensure availability and sustainable management of Goal 15. Protect, restore and promote sustainable water and sanitation for all use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss XXIV

Coverage by protected Proportion of population using areas of important sites safely managed drinking water 78.5 87.3 92.9.. 0.0 33.3 33.3 for mountain services (%) biodiversity (%) Level of water stress: freshwater withdrawal as a proportion of ...... 0.93... Red List Index 1.0 1.0 1.0 available freshwater resources Goal 16: Promote peaceful and inclusive societies Total official flows for water supply for sustainable development, provide access to and sanitation (Constant US$ 3.0 12.3 9.7... justice for all and build effective, accountable and Millions) inclusive institutions at all levels Proportion of children under 5 years of age Goal 7: Ensure access to affordable, reliable, sustainable and whose births have been ...... modern energy for all registered with a civil authority Unsentenced detainees Proportion of population with access 36.5 43.7 49.0.. as a proportion of overall ...... to electricity (%) prison population (%) Goal 17: Strengthen the means of implementation Renewable energy share in the total 34.2 32.8 26.5. and revitalise the Global Partnership for final energy consumption (%) Sustainable Development Volume of remittances Goal 8: Promote sustained, inclusive and sustainable economic (in United States dollars) growth, full and productive employment and decent work for 0.2 0.1 ... as a proportion of total all GDP (%) Total amount of all resources made available Unemployment rate, (aged 15-24) ... 22.0...... 33.4 to strengthen statistical ... 1319.4 ... (%) capacity (Thousands of US$) Proportion of children aged 5-17 Proportion of individuals ...... 3.0... 1.6 11.6 ... years engaged in child labour using the Internet (%) Sources: ADB Statistics Department Databases; United Nations Statistical Division, Online Database on Sustainable Development Goals (https://unstats.un.org/sdgs/)/ Namibia Statistics Agency – 2015 Poverty Survey and 2016 Labour Force Survey 1 Latest year available in the period 2000-2005; 2 Latest year available in the period 2006-2010; 3 Latest year available in the period 2011-2016

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Annex 12: Namibia 2019 Country Fiduciary Risk Assessment

Introduction The primary purpose of the Country Fiduciary Risk Assessment (FRA) is to assess the inherent fiduciary risk associated with the use of national Public Financial Management (PFM) Systems. The FRA establishes whether the Bank can place reliance on the core PFM systems for the implementation of the Bank’s aid initiatives, as well as indicate scope for capacity development where weaknesses are identified, in line with the Bank’s commitment to operationalise the objectives of the Paris Declaration. This FRA covers the PFM systems of Namibia. In assessing the fiduciary risk, the team used recent diagnostic reviews including but not limited to Public Expenditure Financial Accountability (PEFA) 2015, the 2016 Country Policy and Institutional Assessment (CPIA), the 2018 Country Portfolio Performance Assessment (PPA), and the Worldwide Governance Indicators (WGI) as updated. In addition, the team reviewed a number reports and publications on public procurement in Namibia. The Team also had discussions with the Government of Namibia Offices, Ministries, and Agencies (OMAs); as well as Development Partners. This is in line with the Bank’s guidance on the fiduciary risk assessment framework for policy-based operations.

2 Overall Fiduciary Risk

The overall fiduciary risk for the Government of Namibia is assessed as Moderate

Table 1 – Summary of Overall Risk

Risk Pillars Risk rating Governance Moderate Budget Moderate Treasury Moderate Accounting, Recording and Reporting Moderate Internal Control Substantial External Scrutiny and Audit Substantial Procurement Substantial OVERALL RATING Moderate

3 Governance

Fiduciary Risk Rating Moderate

3.1 Review of Performance 59. Namibia has enjoyed political stability since attaining independence from South Africa in 1990. It is a secular presidential representative democracy with a multi-party system, where free and fair elections and are held every five years. The President heads the Executive branch of Government while Legislative power is vested in the two chambers of Parliament. The judiciary is impartial and independent of the executive and the legislature but it is understaffed and faces capacity challenges. Complementary to the government political structure is a traditional leadership structure, with recognized traditional authorities entrusted with the allocation of communal land, the formulation of the traditional group's customary laws, as well as some minimum level of judicial work. The South

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West Africa People’s Organisation (SWAPO) has dominated politics since independence from South Africa in 1990. In March 2015, H.E. Hage Geingob was elected President of Namibia, in March 2015, under the ticket of SWAPO. His administration has continued with the policies of upholding the fundamental rights and freedoms enshrined in the Constitution. Namibia’s sixth general elections after independence were held on 27 November 2019 and judged by international observers, as generally, free, fair, and peaceful. The incumbent, Dr. Hage Geingob, was re-elected as President of Namibia, but with a significantly reduced majority. The elections also saw the number of seats held by SWAPO in the 96 seat Parliament reduced to 63 from 77.

Namibia’s governance record continues to improve, with the country consistently ranking among the top sub-Saharan African countries on good governance. Its score of 68.6/100 (3.3 point improvement over the 10-year trend 2008-2017) on the 2018 Ibrahim Index of African Governance ranked Namibia 4th out of the 54 African countries surveyed. The country ranked among the top three in the dimensions of Safety and Rule of Law and Participation and Human Rights. Since 2016, Namibia has continued implementing fiscal consolidation measures geared towards improving the quality of spending while strengthening revenue mobilisation. The Namibia Revenue Agency (NAMRA) Act has been passed by Parliament and steps are being taken to contain the wage bill. Progress has also been made in efforts to improve the performance of State Owned Enterprises, which continue to be a major source of fiscal risk. The approval by Parliament of the Public Enterprise Governance Amendment Bill in 2018 is a significant development. In January 2017, Namibia unconditionally acceded to the African Peer Review Mechanism (APRM), which provides for self- and peer- assessment of governance policies and practices on the Continent. This is a clear demonstration of Namibia’s commitment to good governance. The 2018 Corruption Perception Index of Transparency International ranked Namibia 52nd out of 180 countries globally, with a score of 53/100, which is significantly higher than the Sub-Saharan Africa average of 32/100. It places the country fifth on the African continent and represents an improvement of two places over the previous year’s ranking. The country established an Anti-Corruption Commission (ACC) by an Act of Parliament (the Anti-Corruption Act, 2003) to combat and prevent corruption in Namibia. This has helped to strengthen the legal framework to prevent and combat corruption. The mandate of ACC, established in 2006, includes investigating allegations of corrupt practices, educating the public on the negative impact of corruption, and prevention of corruption. A strong anticorruption drive by the president, backed by exemplary action, has helped the fight against graft. However, more needs to be done to strengthen institutions of accountability. Namibia’s constitution guarantees free speech and protects journalists, but the lack of a freedom of information law continues to obstruct their work. The country ranked 23rd globally and first in Africa (score of 18.95) on the 2019 World Press Freedom Index, published by Reporters without Borders. This represents a three-step improvement over the 2018 ranking. Namibia scored 58.7 on the 2019 Index of Economic Freedom, making its economy the 99th freest in the world and 10th among 47 countries in the Sub-Saharan Africa region. Its overall score has marginally increased by 0.2 point from 2018. High scores were recorded for government integrity and the tax burden, while declines were recorded in business freedom and government spending. The constitution guarantees property rights, but the parliament may expropriate property and regulate the property rights of foreign nationals. The Namibian Constitution provides for the protection of investments, and the country is a member of the Multilateral Investment Guarantee Agency, and has

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bilateral reciprocal investment promotion and protection treaties with over 20 countries. Namibia has benefited significantly from relative openness to trade and investment and from global commerce. Its membership of the Southern Africa Customs Union (SACU) and the Southern African Development Community’s (SADC) Free Trade Area, carry huge advantages, including a large regional market. However, economic freedom continues to be constrained by long-standing institutional weaknesses. Although Namibia’s business environment ranking is above the Sub-Sahara Africa average, the country lost ground on the Ease of Doing Business Index in recent years. Namibia’s ranking slipped marginally from 106th in 2017 to 107th out of 190 countries in 2018. The slippage suggests that other Sub-Sahara African economies are reforming their business regulatory environments at a faster pace. Starting a business, registering property and trading across borders are aspects of Doing Business where performance is weak in Namibia. The country’s ranking on starting a business is likely to increase in the coming years following full operationalisation of the integrated Client Service Facility, designed to support the online platform for business registration and licensing. The introduction of the National Single Window is also a step in the right direction, as it will improve trade facilitation. Namibia ranked 100th out of 140 countries, one rank down compared to 2017, according to the 2018 edition of the Global Competitiveness Report published by the World Economic Forum. This is despite a slight improvement of 0.3 in the score to 52.7/100 compared to 2017, making it the 6th most competitive economy in Sub-Saharan Africa behind Mauritius (49), South Africa (67), Seychelles (74), Botswana (90) and Kenya (93). Namibia performed well in the pillar ‘Labour market’ (39), ‘financial system’ (47) and ‘institutions’ (51). However, it lagged behind in terms of ‘business dynamics’ and ‘market size’ (both 121), ‘health’ (117) and ‘ICT adoption’ (105).

4 Performance of the PFM systems and Risk Ratings Table 2 – PFM Risk Determination

Average Average Development Development Current Risk Elements Capacity Rating (based Capacity Rating Trajectory Assessment on 2015 PEFA Indicators) (based on 8UPDATES 2019 1. Budget 1.1 The Budget sub-system capacity is adequate to plan 2.2 2.2 - Moderate (formulate) budgets for the programmes and projects

1.2 The Budget sub-system capacity is adequate to 2.2 2.2 - Moderate execute budgetary control of programmes or projects 2. Treasury 2.1 The Treasury sub-system capacity is adequate to 2.5 2.5 - Moderate manage the inflow of resources and disbursements of aid funds. 2.5 2.5 - Moderate 2.2 The Single Treasury Account is an appropriate and reliable way to administer aid funds

3. Accounting Recording and Reporting 3.1 The Financial Accounting sub-system is sound and 1.5 1.5 - Substantial capacity is adequate to record programme and/or project transactions and account for their progress and financial status.

3.2 Financial Management information systems have flexibility to accommodate specific reporting 1.5 1.5 - Substantial requirements of programmes and projects and have

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procedures in place to ensure timeliness and quality of information produced. 3.3 The Financial Accounting sub-system has an integrated Fixed Assets module for the proper recording and control of assets purchased with 1.6 1.6 - Moderate programme / project funds.

3.4 The Accounting sub-system maintains up to date records of the country’s borrowings. 2.6 2.6 - Low 3.5 The Accounting systems are secure against deliberate manipulation of data and/or accidental loss of or 2.5 2.5 - Moderate corruption of data. 4. Internal Control 4.1 The Internal Control sub-system capacity is adequate to control the financial operations of programmes and 1.4 1.4 - Substantial projects.

4.2 Competition, value for money and controls in procurement are adequate - - - 4.3 The Internal Audit function capacity is adequate 1.5 1.5 - Substantial 5. External Scrutiny and Audit 5.1 The SAI has the level of “independence” needed to 1.5 1.5 - Substantial enable it to effectively fulfill its functions.

5.2 The SAI has the capacity to meet its audit mandate 1.5 1.5 - Substantial

Risk assessment (see para 6 below): Below 0.75 = High Risk, Between 0.76-1.50 = Substantial Risk Between 1.51-2.50 = Moderate Risk Above 2.51=Low Risk

4.1 Budget

Fiduciary Risk Rating Moderate

4.1.1 Review of Performance

i. Credibility of the Budget

The State Finance Act (1991) still guide budgeting, due to delays in finalising the proposed successor Public Financial Management Bill. This notwithstanding, budget credibility is considered high, particularly at the aggregate level, where actual outturns differ from expected by generally small variations. Significant variations do sometimes however occur at individual vote level, because of incorrect estimations. The variations are not a function of expenditure arrears as commonly occurs in other countries, because the stock of arrears appears well controlled, through the IFMIS, although the IFMIS arrears data does not provide an age profile. Provided for in the Act is the supplementary budgets, with a well-defined procedure for invoking these. In practice, supplementary budgets have rarely been used in Namibia.

ii. Comprehensiveness and transparency of the budget

The Budgets are presented in accordance with economic, administrative and sub-functional classifications which are consistent with both GFS and COFOG standards. Ongoing revisions to the chart of accounts is being done in tandem with the budget department, to ensure that existing alignments between the two remain. The budget is set against the Medium Term Expenditure Framework (MTEF) of the Government’s medium term strategic objectives, and budget documentation is generally comprehensive. Capital and investment expenditure is the responsibility

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of the National Planning Commission (NPC), and any investment expenditure financed by loans and grants (categorised as “outside” expenditures) are listed separately under the respective votes. There are no explicit/transparent rules governing horizontal allocations, with budget allocations to regions and sub national levels determined on a needs basis at each point in time. But The Government is fairly transparent in terms of making accessible its financial and general government operations reports that are available on the Internet in a timely fashion after submission to the parliament.

iii. Policy-based budgeting

Both the MoF and the NPC issue comprehensive and clear budget circulars for the year’s recurrent and development budgets respectively, generally guided by the MTEF, but subject to minor adjustments as may be required and approved by Cabinet in the setting of each year’s ceilings. A clear budget calendar exists, which allows ministries and agencies sufficient time to generate their estimates. The calendar is also generally adhered to in all material respects. Although both the Constitution and the State Finance Act do not clearly indicate the timeline (deadline) by which the National Assembly shall pass the Appropriations Act, the State Finance Act does makes provision for a third of the total approved expenditure budget of the preceding year to be allocated and spent during the current year for a period not exceeding four months, provided the current year's Appropriations Act is not passed before the start of the financial year. Offices, Ministries, and Agencies (OMAs) generally prepare sector strategies, which are costed, together with the concomitant public sector investment programmes. The OMAs further prepare three year rolling medium term plans (whose main weakness is that they are normally not costed because they do not include the recurrent expenditure forward impacts/estimates). The medium term plans use the approved MTEF for overall guidance, while capital investment forecasts are linked to the National Development Plan priorities. Regarding capital investment forecasts, a similar weakness exists in that there is no linkage between the investment forecast and forward expenditure estimates.

iv. Predictability and control in budget execution

The process of setting up a Namibia Revenue Authority is still underway, aimed at optimising the synergies of housing under one umbrella, the income taxes, value added tax, and customs depts. In the interim however, legislation that is clear and comprehensive exists for all classes of taxes. In line with good practice, the legislation limits the discretionary powers to waive, and directs the application of any penalties, thereby enhancing predictability of revenues. In this regard, penalties for non- compliance exists for most areas and the penalties are consistently applied. On their part, tax payers have easy access to comprehensive and up to date information on the administrative procedures which assists in the computation of applicable tax obligations. Tax payer registration is well controlled, with the taxpayers registered for all the major tax classes (Customs, VAT and Income Tax) using a unique Tax Registration Number () which is maintained in a database. On the negative side, while the TIN and VAT numbers are included in the Customs ASYCUDA system, it is not clear if any meaningful reconciliation of the data is done routinely. Domestic revenues account for approximately 50% of total revenue, with Southern African Customs Union (SACU) revenues accounting for another 45%. Of late, SACU revenues have been unstable, volatile, and on a sustained downward spiral, negatively impacting predictability.

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Complete accounts reconciliations involve a comparison of tax assessments, collections, arrears records, and receipts by the Treasury. Currently, there is no reconciliation made of collections against tax assessments, meaning that the figure of tax arrears is generally unknown. 4.1.2 Current Risks– The sub system is operating satisfactorily, with only minor areas requiring obvious improvement:

(a) The need to establish transparent rules for governing horizontal allocations between regions, to enhance further, fairness in resource allocations; (b) Sharpening of individual vote estimates, to further enhance budget credibility; (c) Costing of the three year rolling OMA medium term plans, to enhance the effectiveness of the MTEF process; (d) Introduction of complete reconciliation between tax assessments, collections, arrears, and receipts from customers,

4.1.3 Mitigation The Government is seeking to revise the State Finance Act and replace it with the Public Financial Management Bill which will incorporate a raft of improvements to current practices. Although the new Act is expected to formalise the majority of the current weaknesses, finalisation of the Bill has however taken an extended period (five years and counting), and it is unlikely that the new Act will be passed before the close of the current financial year.

4.1.4 Overall Ratings Overall risk rating for the budgeting sub system was Moderate at May 2019.

4.2 Treasury

Fiduciary Risk Rating Moderate

4.2.1 Review of Performance

The sub system is also governed by the State Finance Act together with the supporting Treasury Instructions, pending the introduction of the proposed PFM Bill. The government Treasury Single Account (TSA) is fully functional, and operating satisfactorily. The overwhelming majority of government accounts are managed by treasury, and consolidated daily. Only the few OMA accounts which must of current necessity remain in commercial banks, as well as donor project accounts, remain outside the cash consolidation process within the central government banking framework. Daily cash consolidations enable efficient and effective cash management.

OMAs prepare annual cash flow forecasts based on the approved Appropriations Act for the year. These are consolidated by treasury to establish an overall government cash requirement position, before being split into calendar quarters for ease of management. The forecasts are updated periodically based on actual cash flows, while each OMA receives a quarterly Treasury Authorisation Warrant (TAW) for expenditure commitment, following the approval of the quarterly cash flow plans by the Treasury Management Committee. Where budget virements must occur, clear rules exist for invoking these, both in the State Finance Act and the Treasury Instructions.

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(a) Some OMA bank accounts still remain outside treasury control; (b) The accounts of donor financed projects still remain outside the treasury consolidation process, when outside borrowing is on the up and the amounts involved may become significant.

4.2.3 Mitigation

Envisaged improvements to the sub system will also be captured and codified within the new PFM Bill under consideration.

4.2.4 Overall Risk Rating The overall rating for the treasury sub system at May 2019 was Moderate.

4.3 Accounting and Reporting

Fiduciary Risk Rating Moderate

4.3.1 Review of Performance

The sub system is likewise guided by the State Finance Act 1991. Since 2006, financial accounting and reporting has been run on an IFMIS, running primarily on Oracle. The system provides an adequate audit trail, with sufficient passwords control to regulate unauthorised access. This should ordinarily guarantee financial data integrity, however, because only Bank reconciliations for Treasury managed accounts are regular, with the reconciliation of OMAs’ commercial bank accounts lagging behind (with some backlogs exceeding five years principally due to capacity constraints) the quality and integrity of financial information is negatively impacted. Reconciliation and clearance of suspense and advance accounts is also sometimes not timely, further impacting the reliability of financial data in the system. Other key points to note are:

 As already noted, donor project accounting is generally conducted outside of the IFMIS, with the concomitant banking independent of treasury;  The basis of accounting is IPSAS cash, with a longer term intention to graduate to IPSAS Accrual, via a managed period of Modified Cash Accounting;  The annual financial statements provide detailed information on revenue (both actual and arrears), expenditure, key assets and liabilities, but exclude statutory obligations and expenditure arrears (any commitments and/or payments that remain unpaid by the 31st March year end each year are de-committed and reprocessed the following financial year).  The annual financial statements are generally produced within seven months after the end of period (the Auditor General generally collates information collected from Treasury to draft the financial statements prior to auditing them). The Deputy Executive Director with responsibility for accounting and reporting is in the process of reclaiming this role, so that audit is confined to audit;  The Government maintains an acceptable record of both financial and non-financial assets;  On debt, the Minister of Finance is sole officer mandated by the State Finance Act to raise loans and issue guarantees on behalf of government and public entities. The sovereign debt management strategy sets benchmarks for public borrowing. Both domestic and foreign debt including guarantees are properly recorded in the CS-DRMS system, and reconciled monthly, quarterly, and bi-annually with information obtained from creditor statements. XXXII

4.3.2 Current Risks

These pertain primarily to the separate accounting for donor projects, which area is slowly gaining prominence.

4.3.3 Mitigation

Efforts to transfer the compilation of the financial statements to the Accounting Department, discussions with donors to incorporate donor accounting within the IFMIS, plus enhancements to practices that are proposed for the new PFM Bill will help address the identified weakness.

4.3.4 Overall rating

The overall risk rating for the accounting and reporting sub system at May 2019 was Moderate.

4.4 Internal Controls

Fiduciary Risk Rating Substantial

4.4.1 Review of Performance

Both the State Finance Act of 1991 and the Treasury Instructions directly address internal controls and allocate specific duties and responsibilities to accounting officers in ministries. The main Treasury Instructions are comprehensive and clear. In addition to the Treasury Instructions, there are other manuals for account payable, payroll procedures, and daily subsistence allowances. Appropriate segregation of duties is prescribed throughout the expenditure process and responsibilities are clearly laid down. There is also clear segregation of responsibilities when it comes to recording of financial data, reconciliations. Within IFMIS, commitment controls are comprehensive and limit expenditure commitment to approved Treasury Authorisation Warrants, in line with the approved budget. While the level of compliance is said to be improving, there is still a high degree of non-compliance, which has been attributed to the absence of punitive measures or sanctions to staff who fail to comply, rather than low levels of training, or low human capacity. There is also an issue regarding exemptions associated with major transactions, for which simplified procedures are adopted. There is no integration between the personnel and payroll databases. This seriously affects the integrity of the payroll, given that there is also no reconciliation between personnel and payroll records. Payroll is acknowledged as a significant component of government expenditure. Changes to personnel and payroll records take up to three months to process, resulting in frequent retrospective adjustments. On the plus side, some payroll audits have been conducted, to weed out ghost employees.

While the State Finance Act has provisions for Internal Audit at the Ministry of Finance, in practice all ministries do have internal audit. However leadership and control is still fragmented, the Internal Audit Policy for government has only recently been approved, and this is not yet backed up by an Internal Audit Law that is in line with modern practice. Even the organisational structure to support the new internal audit policy is yet to be agreed. Where internal audit reports are XXXIII

produced, and recommendations made, executive action is limited, and where it is in fact taken, it is most often delayed, resulting in recurring/repeat audit recommendations.

4.4.2 Current Risks

Main risks relate to low levels of compliance with set procedures; the absence of personnel records to payroll reconciliations, and the ineffective internal audit.

4.4.3 Mitigation Measures

Within the confines of the new PFM Bill, discussions on how best to position Internal Audit are ongoing, while the IFMIS consultant is committed to expanding training and improving compliance with procedures and system requirements.

4.4.4 Overall Rating

The above mitigations notwithstanding, the assessed overall rating of risk relating to internal controls was Substantial, at May 2019.

4.5 External Scrutiny and Audit

Fiduciary Risk Rating Substantial

4.5.1 Review of Performance

There is currently no separate Audit Act, with the powers and authority of the Office of the Auditor General (OAG) derived from the constitution, and the State Finance Act. The Auditor General (AG) is not a public servant, and is appointed in accordance with Article 127(1) of the Constitution by the President as recommended by the Public Services Commission, with the approval of the National Assembly. The term is five years renewable, with no term limit, although the AG can be removed by a two thirds majority in the national assembly. Expenditures by the Audit Office are a direct charge to the consolidated fund, in terms of the State Finance Act. The OAG submits annual budget estimates to the Ministry of Finance just like any other OMA, and staff of the OAG are public servants, recruited under the Public Service Act. Thus while the Constitution guarantees some level of independence in terms of term of office, it fails to provide financial independence. Another minus is that the OAG audits itself! In terms of staff capacity, the OAG has 132 staff, of whom 75% are qualified auditors. With regards to the actual work, the audits performed by the OAG generally meet International Standards for Supreme Audit Institutions (ISSAIs), issued by INTOSAI, based on the corresponding International Standards of Auditing (ISAs) adapted for the public sector audit. The OAG’s audit manual conforms to INTOSAI standards and AFROSAI-E implementing guidelines, and audit coverage is 100% of OMAs each year. Audit are generally completed within the set timelines. The audit of state owned enterprises is outsourced to private audit firms, as is the audit of most donor financed projects. In addition to the annual financial audits, the OAG also performs performance audits. The OAG reports include valuable recommendations, but there is limited evidence of executive action to implement the recommendations timeously, nor is there evidence of any systematic follow up. XXXIV

4.5.2 Current Risks The main risks relate to low auditor independence, and the absence of follow up on audit recommendations, and the associated limited executive Action to implement the recommended improvements. 4.5.3 Mitigation

Together with the PFM Bill, a new Audit Bill is under discussion which is meant to address especially the issue of auditor independence, as well as formalising ministry based Audit Committees that will champion the implementation of auditor recommendations.

4.5.4 Overall rating

The risk rating at May 2019 remains Substantial.

5 Review of Performance: Procurement

Fiduciary Risk Rating Substantial

Public Procurement System

5.1 Introduction

5.1.1 Since the Tender Board of Namibia Act was passed in 1996, there has been noticeable progress albeit at slow pace in undertaking procurement reforms initiatives, such as the enactment of the procurement Act of 2015; the adoption of Procurement Regulations, the setup of the Public Procurement Unit (PPU) and Central Procurement Board (CPB) in 2015 respectively. However, despite these developments challenges still remain in certain areas such as; The use of the Public Procurement Act of 2015 is still at an embryonic stage as Procurement Entities across ministries are not conversant with the Act and may not even be using it, there are no critical Standard Bidding Documents for high value contracts and enabling toolkits thereby limiting adherence to/uptake of use of the Act and the capacity constraints in terms of staffing and expertise in the various institutions amongst others. In addition, the Public Procurement Act contains provisions on preferential schemes in favor of national suppliers, contractors and suppliers, which aim to promote local content and develop national industry. However, such provisions have not achieved the expected results due to the lack of implementation guidelines.

5.1.2 Furthermore, it is to be noted that the Namibian Government has embarked on a process to improve the wider public procurement system, regulate the letting and hiring of anything or the acquisition or granting of any right and the disposal of assets through promotion of the following key principles: integrity, accountability, transparency, competitive supply, effectiveness, efficiency, fair-dealing, responsiveness, informed decision-making, consistency, legality and integration in the procurement of assets, works and services.

5.2 General Public Procurement Environment

5.2.1 According to PEFA Assessment report of 2015, the Public Procurement System in Namibia is regulated by two legislations that take care of its governance structure, and caters for procurement for Regional and Local Authorities and for Central Government Entities. Procurement for Regional and Local Authorities is regulated by the Tender Board Regulations No 43 of 2001 which provides for a highly decentralised procurement system, where each authority is responsible for its procurement and has its own

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Tender Board. Procurement for Central Government is regulated by three (3) pieces of legislation: Tender Board of Namibia Act (1996), Tender Board Regulations (1996) and Tender Board of Namibia Code of Procedure (1997), which have since been revised as cited the above paragraph. The Act of 2015 establishes the Central Procurement Board of Namibia, which has authority to process and adjudicate on all tenders each estimated to cost more than N$10,000. The legislations apply to all procurement undertaken using government funds, except for procurement of security items by Security Organs. State Owned Enterprises (SOEs) have their own tender regulations guided by the Acts establishing them.

5.2.2 Central Government Entities follow the procedures in the Act, the Regulations and the Codes in processing procurement contracts below the threshold of N$10,000. For all contracts above N$10,000, procurement processing is a shared responsibility between the Entities and the Board. The Entities prepare budgets that include schedules of procurement items. They prepare specifications for goods and works, and terms of reference for services. They are responsible for evaluation of tenders, preparation and signing of contracts and management of contracts. The Board assembles the tender documents, invites for tenders and adjudicates on proposed contract awards based on the evaluation reports from the Entities. The NS$10,000 threshold is considered too low and puts a big burden on the Board to deal with hundreds of small contracts. According to available records, the Board processes about 50 tenders per month. The Board has about 8 Members, given by practice members from Ministries are Permanent Secretaries. This large Board which meets at least one whole day per week may in a way constitute a high administrative cost to the Government. Moreover, it is not logical to spend Permanent Secretaries’ time adjudicating on small tenders. The role of the Permanent Secretary as a member of the Board constitutes a serious conflict, given they review cases they are submitting to the Board from their Entities.

5.2.3 The procurement legislation specifies open competition as applicable method of procurement. It does not specify other methods of procurement, specifying open competition as the default method and the conditions under which methods other than open competition would be applied. Thus there are no safeguards against the application of less competitive methods. The Act allows for Entities to apply for exemption from tender procedures. The Code has an opening for accepting late bids and for postponement of bid opening to the following day. Accordingly, the tender documents reviewed, indicate that the client determines the criteria during the preparations of the specifications. In fact, the “Instructions to Tenderers” has a provision to the effect that “preference will be given to tenderers who tender market related prices at the award of the tender”. However, it is not clear how this preference is applied or calculated. These shortcomings reflect procurement procedures that can be applied in a discretionary manner, thus eroding the gains of transparency and subjecting the system to the inherent risk of compromise.

5.2.4 There is a fairly good access to procurement information. The Act, the Regulations and the Code are published on the Website of the Ministry of Justice that displays Namibia’s Laws. They are however not on the Ministry of Finance website. The Ministry of Finance Website indicates that the Act, the Regulations and the Code can be obtained at the Ministry of Justice Website for a chargeable fee. These documents should be posted on the Ministry of Finance website and be readily available to the public. Hardcopies of the Act, the Regulations and the Code are however given out free by the Tender Board. All tenders are advertised in newspapers of wide circulation. Tenders and contract awards are published in the “Tender Bulletin” (an acclaimed private sector publication) that is published weekly and is readily available to the public, including business community. There is no information published in the newspapers or on the website regarding procurement complaints. The newspapers are very active in publishing stories on public procurement. Bidding documents are sold at a cost considered on the higher side for some tenders, taking into account the cost of preparing them. For example a 10-page tender document for design layout, editing and printing an Annual Report would be charged N$ 300, which is about N$ 30 for copying each page. High cost of bidding documents discourages competition.

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5.2.5 The procurement legislation does not include provision for independent public procurement oversight, an independent mechanism for handling complaints, sanctions for non-compliance (including debarment of suppliers, contractors and consultants), procurement planning, procurement compliance monitoring, procurement record-keeping and use of e-Procurement.

Some of the shortcomings of the system include the following:

(i) Procurement Oversight does exist in the public procurement function through the newly created Public Procurement Unit (PPU). However, its independence is yet to be tested, which is an essential feature of a well–functioning public procurement system, given it takes care of policy, standards, monitoring, capacity building and compliance monitoring, it must have the necessary capacity, expertise and procurement related skills to fully discharge its mandate.

(ii) The Entities and the Board deal with any complaints from bidders, but there is no provision in the legislation that indicates how complaints should ideally be handled. Complaints are forwarded to the Chair of the Tender Board or to the Accounting Officer of the Entity for consideration. Reference of complaints to the Board and to the Entity is a rational first step of a complaints process, but it is not perceived independent as a final arbiter, given the Chair of the Tender Board or the Accounting Officer of an Entity authorises the procurement process and approves contract awards. This constitutes a serious conflict of interest in the public procurement system. Furthermore, there is no time specified after contract award notification before signature to allow for any objections or complaints. The complaints cover all aspects of procurement, including on matters prior to contract signature. In any case, the Chair of the Tender Board and the Accounting Officer of an Entity are not likely to suspend the procurement process they have already approved or cleared. Complainants not satisfied with response from the Chairperson of Tender Board or from the Accounting Officer of an Entity take the matter to the Court of Law, which can be lengthy and expensive, thus discouraging many bidders from challenging non-compliance with procurement procedures.

(iii) Sanction for non-compliance is non-existent. This is a tool used internationally to ensure suppliers, contractors and consultants who contravene national procurement procedures are debarred from further participating in public procurement. The sanctioning must be provided for in the procurement legislation as it has legal implications. In most cases firms are debarred for providing false information, corruption, collusion, coercion, obstruction, price fixing, non-performance of contractual obligations, and conviction of a criminal offence relating to a procurement process. Sanctions provide an effective discipline in the public procurement function.

(iv) Procurement Planning is non-existent. Procurement Planning is a necessary feature of a prudent public financial management; it should not be an option. Procurement planning is non-existent in the public procurement system in Namibia and hence there is limited scope for ensuring economies of scale in packaging contracts, timeliness of deliverables and rational cash planning. This lack of planning makes procurement to a large extent an ad-hoc exercise.

(v) Procurement compliance monitoring is non-existent. Procurement Compliance Monitoring is essential for a well-functioning procurement to assess compliance with procurement procedures and performance levels by the Central Procurement Board, the Entities, suppliers, contractors, consultants and other stakeholders. Compliance Monitoring should be a fair and transparent system for monitoring the performance of staff and vendors against specifications and contractual obligations based on the evidence recorded in the contract management files. Compliance Monitoring drives reforms in public procurement by pointing out shortcomings and irregularities, and in preparing action plans for improvements and appropriate sanctions.

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(vi) Procurement record-keeping is rather weak or non-existent in some of the entities. Procurement record keeping is a specific requirement under a public procurement function. Procurement records are kept in a specific way, by contract, by activity to facilitate the work of audit, compliance monitoring and complaints review. Procurement units without procurement complete records would automatically be deemed to hide something. Procurement records enhance transparency, a key feature of a public procurement function.

(vii) Electronic procurement (e-procurement) is partly applied in the public procurement function. E- procurement is becoming increasingly relevant in the public procurement function, particularly for promoting transparency and access to information. The Ministry of Finance website publishes tenders and contract awards, but this is not done consistently. For instance, in the last two years (2011 – 2012), the Board has processed over 1000 tenders, but only about 150 publications appeared on the website. The Website does not have procurement legal documents, frequently asked questions, procurement plans, a database of registered suppliers, training modules and access to bidding and proposal documents. The Board agrees that the Website is still work in progress, so there are plans to improve it to include all adverts and contract awards and other features of the public procurement function.

5.2.6 In Namibia, procurement is often carried out by general staff (not procurement professionals or procurement-trained staff), which could undermine efficiency and professionalism. There is no work stream for the procurement function, even though it is profiled in the public sector as a strategic technical function that delivers value-for-money and enhances service delivery. Procurement is now recognised worldwide as a specialised profession, given the technical and managerial skills required to process and manage procurement contracts. A well-functioning procurement system must be supported by well-trained staff of procurement professionals; including procurement-literate managers and other staff that have procurement-related functions, e.g. members of tender and evaluation committees. Capacity building is a long term and continuous process to ensure timely replacement of retiring staff and expanding government business.

5.2.7 According the same report, the sample bidding documents reviewed were very scanty in many aspects, particularly in instructions to tendering information and conditions of contract. In order to ensure conformity and uniformity, standard tender documents are used for easy reference. Standard tender documents greatly improve transparency and competition. A robust procurement law provides that standard tender documents are used on a mandatory basis.

In addition, some of the main constraints which require urgent reforms are as follows: (i) The amendment of the procurement Act of 2015 and its regulations. There has been challenges in implementing the Act to its full extent. (ii) There is a critical need to complete the standard bidding documents and other related manuals & toolkits to fully apply the Act; (iii) The Procurement Policy Unit need a full staff complement to enable the Unit to carry out its full mandate; (iv) Challenges remain with the newly formed Procurement Units within the Procuring Entities to carry out procurement in compliance to the Act. PPU’s Capacity Development Strategy should be finalised and implemented in order to fully equip the Procuring Entities to perform the duties;

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(v) The Central Procurement Board should have a full complement of key experts in various specialties to carry out specialised and complex procurements transactions (vi) A Guidance Note is needed to facilitate the implementation of the provisions on preferential schemes in favor of national suppliers and contractors & consultants (vii) E-procurement is central to the efficiency & effectiveness of a well-functioning public procurement system, in this regard the PPU should pursue this initiative as priority rigorously.

5.3 Internal Control: Procurement transactions are audited by both Internal Audit and the Auditor General as part of normal financial audits. There is no special system and no specially trained auditors to audit procurement transactions, given the rigorous procurement procedures an Entity has to comply with to ensure legitimate payments. The Auditor General is making plans to establish a system and special teams to conduct procurement audits, especially as performance and value for money analysis/audits.

5.4 Overall risk assessment: The inherent risk of failure to achieve value for money and efficiency arise from; procurement mismanagement, a loose procurement system, absence of SBDs, and low procurement capacity and professionalism in Procurement Units. For Namibia to be able to implement a robust procurement system with minimal risks, it would require a new public procurement law, a revised regulations & standard bidding documents coupled with a strong independent oversight agency, and professionally staffed procurement units. The procedural risk is that the GRN may not be willing (due to political and cultural considerations) to enact a new public procurement law and there is no guarantee that the deviations/discrepancies identified in this report will be addressed in a timely manner. The overall risk rating is therefore considered substantial

6.0 Legal, Regulatory and Policy Framework 6.1 Coverage 6.1.1 The Republic of Namibia legal and regulatory framework for Central Government procurement is organised hierarchically and precedence is established by the three (3) pieces of legislation: framework for Procurement is underpinned by The Tender Board of Namibia Act, 1996 (Act No. 16 of 1996) and as revised in 2015 [(Public Procurement Act, 2015] also called ‘The Act’. The Act is implemented by Public Procurement Regulations No. 2016. The Procurement by Regional Councils and local authorities has been decentralised and is governed by the Tender Board Regulations No. 43 of 2001 by which each has its own Tender Board rather than using Central Procurement Board. Procurement by State Owned Enterprises (SOE’s) is not governed by the legal and regulatory framework but each has its own tender regulations. As such the coverage of the framework is not fully comprehensive and does not provide a uniform framework for all procurement using public funds. 6.1.2 However, the Procurement Bill (has been drafted and is currently with the legal drafters). It is hoped that the new legislation will be passed during the course of 2020. The Draft Bill in its present form cover procurement for all public procurement, including central, regional and local government as well as SOE’s. 6.2 Procurement Methods 6.2.1 The Legislation does not make open competition the default method of procurement and define conditions under which other methods would be applied, and while competition is taken as the default,

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the Act also allows when “for a good cause (it is deemed) impracticable or inappropriate to invite tenders”. As a result exemptions are extremely common and more than half as many exemptions come before the Central Procurement Board as formal tenders. Moreover, such exemptions are not monitored consistently. Fractioning of contracts is prohibited in the Act, but reportedly takes place in practice. 6.2.2 The current framework only allows for one procurement method where evaluation is based on the lowest price technically compliant tender, with exemption for tendering below a threshold of N$ 10,000. There are no methods available to facilitate procurement of goods, works or services that are not able to be fully described in terms of specifications or where it would provide better value for money to give precedence to quality over price. The draft bill establishes a menu of procurement methods including open advertised bidding, restricted bidding, request for sealed quotations, request for proposals and direct procurement. However, in its current form it still does not clearly define conditions when methods that limit competition may be used and how this will be controlled. Moreover, unlike the current Bill, it does not prohibit the fractioning of contracts. Thresholds are not described in the Act and will presumably be covered in the revised regulations. The increased menu of procurement methods should improve the possibility to manage risks and administrative costs and thereby increase competition, however, attention will need to be made to how they are applied, monitored and controlled. A challenge remains that the draft bill has not been passed by parliament to become an “Act” for the full gains of the ongoing reforms. 6.2.3 Furthermore, the current legislation does not require entities to prepare procurement plans; it does not provide for public access to government procurement plans and data on resolution of procurement complaints, since there are none. The legislation provides for public access to bidding opportunities and information on contract awards. 6.2.4 In a nutshell, the major challenge is the full implementation of the public procurement system across the institutions and to provide the tools required for it to be fully functional. The delays in taking the necessary actions affects the credibility of the system due to the lack of capacity in the new system and understaffing in the Public Procurement Unit (PPU) and at the level of Central Procurement Board (CPB). Without the requisite expertise, skills and adequate staff compliments in these institutions does compromise the effective and successful implementation of the ongoing reforms. A concern shared by the various Development Partners active in Namibia.

6.3 Implementing Documentation

6.3.1 While there is a code of Procedure (1997) associated with the Act, the code is an elaboration of some of the provisions of the Act and is not per se a User Guide or Procurement Manual. This lack of clear guidance on application of the requirements can result in lack of consistency in application. Though a few of standard bidding documents (SBDs) have been draft, those ones for high value contracts are yet to be completed awaiting the approval of the Bill into an Act, in this regards, it is noted that there are no standardised and compulsory SBDs or General Conditions of Contract. In practice all tenders for central government agencies are sent out by the Central Procurement Board (CPB) and a standard document is attached to the Tender Documents that have been prepared by the entity, providing some form of standardisation. However, there is no standard approach covering local government agencies or SOE’s. This lack of quality control in legal documents exposes the GRN to

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high level of risk and increases the complexity for the supplier/contractor community in responding to tenders.

The main constraints in addition to the ones cited above are as follows:

(i) The Public Procurement Regulatory Framework (Public Procurement Act No. 15 of 2015), does not include specific exemptions on donor funded procurement; (ii) Absence of a fully functional web- site of the PPU weakens the transparency of procurement system; (iii) Sub-section 4 (2) allows the Minister to grant a general or specific exemption to certain provisions of the Act that are not practical or appropriate for the purpose for which such goods are let, hired or disposed of, including goods, works and services being procured; (iv) the scope of application of the Act does not cover Public Private Partnership; (v) the law does not require the publication of the Review Panel decisions; (vi) in some cases, whilst Open Advertising Bidding is the default, there are some cases where it is not applied such as Two stage or Open Restricted Bidding and yet not explained; (vii) the law does not explicitly state that it allowed State-Owned Enterprises with commercial licenses to partake bidding; (viii) there is no independence in the Review Panel to accept requests for review directly but it is rather through the Minister of Finance and the review board is not a standing board which may convenes as when required. Based on the above findings the risk for this pillar is rated substantial.

7.0 Institutional Framework and Management Capacity

7.1 Procurement Oversight Body (Procurement Policy Unit (PPU))

7.1.1 To date, the Regulations establish the functions of the Procurement Policy Unit (PPU) and in the Ministry of Finance and advices the Minister of Finance on procurement policy related matters and providing oversight to the Procurement Units (PU) in the procuring entities. Unlike most countries the GRN does not have an “Independent Oversight Procurement Body” to discharge oversight functions.

7.1.2 The Government of Namibia established the Procurement Policy Unit (PPU) in the Ministry of Finance as contemplated in Section 6 of the Public Procurement Act of 2015. The Procurement Policy Unit is responsible to advise the Minister of Finance on procurement or disposal as stipulated in Section 6(1), which includes: (a) the monitoring of compliance with this Act, directives, code of procedures and guidelines issued under this Act; (b) the reviewing of the procurement system and proposal of mechanism for improving the implementation of government policies by public entities; (c) the assessing of the impact of the procurement system on the socio economic policy objectives of the Government; (d) the promotion of the fundamental principles of procurement governing the administration of procurement; and (e) the reviewing of, monitoring and assessing methods of disposal of assets. The Procurement Policy Unit is newly established and requires strengthening in several areas as detailed in the summary below.

7.2 Central Procurement Board

7.2.1 Under the current framework all procurements from central government agencies exceeding N$10,000 do go through the Central Procurement Board (CPB). The CPB is supported a Secretariat. Procurement requests are submitted by Ministries to the Secretariat who review the specifications to ensure that they are appropriate and generic. The Secretariat is then responsible for the process through XLI

advertising until Tenders are opened. The Tenders are then returned to Ministry for evaluation. Once the evaluation is complete they are returned to the CPB for review and award. The perception from the Ministries seems to be that the CPB is a bottleneck and delays the process. However, this seems to be more a resistance to the process itself rather than the actual performance of the CPB/Secretariat which process submitted cases according to the standard timeframes. It may also be exacerbated by the very low thresholds above which cases to be submitted to the Board. Apart from significant cases submitted per week, which includes a number of late submissions which go to great lengths to accommodate at times as reported, Board members bring cases to meeting for approval and this has been accommodated. This practice brings a high level of risk to the GRN as it does not allow for sufficient review of submissions.

7.2.2 The Board has 8 members. The Act specifies that membership s one staff member from the Office of the President, one staff member from the Office of the Prime Minister, one staff member from each Ministry and two other members who are not staff members. It has become a practice that all members from Ministries are Permanent Secretaries. Since they are also those responsible from the Ministries for submitting the cases, it constitutes a serious conflict of interest as they are in fact reviewing themselves. It is also reported that the Board is not consistent in its decision making. The current membership also does not include technical specialist and it is not practice to avail of independent specialists in the review of complex technical cases. Moreover, the large size of the CPB, which meets for several hours each week, constitutes a s very high administrative cost to the GRN.

7.2.3 Procurement Monitoring Currently there is no system or procedure in place for collecting and monitoring procurement data. Insofar that procurement of central government agencies is centralised, then information relating to procurement that goes through the CPB is available. However, there are only manual systems and data is currently not systematically collected, analysed or reported. This makes it impossible to monitor performance of the procurement system, to determine the level of compliance with the Legal and regulatory framework and not least to assess whether procurement actually contributes to the government socio-economic objectives intended.

7.2.4 Links to Public Finance Management Under the current arrangements, procurement is quite well integrated into the Public Finance Management System. This is due to the fact that procurement is currently not seen as an independent and professional function and typically is the responsibility of the Accounting Officers in entities. Moreover, the CPB is chaired by the Permanent Secretary of the Ministry of Finance (MoF) and its Secretariat is part of MoF. Currently the same people are responsible for Finance and Procurement which supports integration. There are some issue however, for example, although it is required that funds are committed before contracts are awarded, sometimes the funds do get spent elsewhere regardless and the contracts then have to be cancelled. Arising from the above, the pillar is rated substantial and more reforms need to be undertaken. Based on the findings cited above, main constraints identified are as follows:

(i) There is inadequate and weak capacity of public entities due to lack of expertise, skills in procurement and low level attention to training programmes; the weak or lack thereof of human resource at the PPU and CPB hinders the full implementation & effectiveness of the procurement system; (ii) There is no training strategy for procurement management units across the public entities which sometimes paralysis the procurement processes in spite of the existing institutional setups;

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(iii) Undue delays at the level of CPB hinders efficiency & effectiveness of procurement processes and; (iv) Absence of Performance measurement system integrated with the strategy for education, training & professionalisation of procurement cadre;

8.0 Procurement Operations and Market Practices

8.1 Professionalism of procurement 8.1.1 Procurement is not presently seen as a professional function in the GRN. Procurement in entities is seen as the responsibility of “committees” supported by clerical staff. There is no specific cadre for procurement in the public service, no job descriptions related to procurement roles, responsibilities, and no requirement that those working with procurement have procurement education or training. Perhaps because of this, the availability of training and education programmes relevant for those working in public procurement in Namibia is extremely limited. Staff members of the CPB Secretariat have undertaken a course in Supply Chain Management but the direct relevance to their functions is limited.

8.1.2 As reported that there is a lack of technical capacity within GRN concerning the management of procurement in Namibia and a high level of reliance on consultants in the process. For technical procurement and related matters, consultants are often relied on for developing tender documents including specifications, conducting evaluations and subsequently monitor contracts. Excessive reliance on consultants for these functions without technical capacity to monitor and control their activities can expose the GRN to a high level of risk. Consultants are themselves suppliers and not subject to the same requirements and standards as public officials.

8.2 Procurement Practices

8,2,1 Due to the absence/weak capacity of specific procurement departments in entities, procurement planning is done as part of the budgeting process, but systematic operational plans are not regular feature. Perhaps as a result of the lack of planning, the tendering process is very lengthy and as reported a typical tendering process takes around 240 days. This, combined with the low thresholds, implies that the process is neither effective nor efficient. Contract management is another area where the country experiences challenges leading to over reliance on consultants.

8.3 Public Procurement Market

8.3.1 Public procurement market in Namibia is well functioning and competitive. While statics are not always available, according to CPB, sufficient number of Tenders are received in most cases. It is reported that the GRN has regular dialogue with the Namibian Chamber of Commerce & Industry. The Act and Regulations include detailed provisions to apply price preference in tender evaluations. These preferences are not specific to markets or sizes of contracts but are generally applicable. There are no statistics available about how these work in practice and whether they have the desired effect.

8.3.2 There do not appear to be systemiic constraints that make it difficult for SME’s and similar targeted groups to participate in procurement processes. There are arrangements in place with the Banking sector to enable credit when participating in government contracts. In addition, the CPB has been carrying out training for suppliers, though not regularly on how to complete tenders which have been well attended. One limiting factor can be the price of the tender documents. The Act specifies a

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minimum fee of N$ 20 (approximately, USD 1.43 at the current exchange rate) for tender documents, however they typically cost in the range of N$ 200-300, and in some cases in excess of n$ 10,000. The Secretariat say that the fee is calculated as a percentage of the estimated contract value and is intended to discourage frivolous tenders. However, other tools, such as prequalification could be more effective in this regard without compromising competition. Another issue is that tender documents for the Ministries are mostly available in Windhoek, while low value contracts, tenders documents are available in the Regional Districts. It therefore means that companies operating outside Windhoek or internationally have to provide proof of payment and then have to arrange to have documents sent. This is discriminatory and only favours bidders in Windhoek as they have more time to prepare and submit their bids to the requesting entity. Based on the assessment this pillar is rated high with main constraints being: (i) Procurement is not recognised as a profession with well-defined job description at each professional level with appointments and promotion not made on competitive basis, (ii) No mandatory requirement by the procurement entities to prepare a detailed procurement plan (PP), except for the budget process purposes which will serve as a tool for tracking of the implementation of the procurement activities and monitoring of aspects within the realm of contract management; (iii) There is no database system for information on markets research, survey and analysis to better inform the public at large including the bidding community; (iv) It is not clear how socio-economic factors/aspirations are captured on the available government documents and their applicability within the market and procurement operation practices in Namibia.

8.4 Integrity and Transparency of the Public Procurement System

The key significant findings relating to Integrity and Transparency are captured herein below:

8.4.1 There is structure for appeals and complaints mechanism in Namibia with 15 members and having 5 at any given request for review to ensure fairness and due process for economic operators and which does so in an efficient and effective way without unduly delaying the procurement process. However, the outcome of the reviews are neither made public nor enforceable.

8.5 Control and Audit

8.5.1 Overall the procurement arrangements under the Act ensure segregation of duties with Ministerial Committees and the CPB. However, there is no specific procurement monitoring taking place to assess or ensure compliance. Annual audits do take place, however, the audit system is considered to be robust and effective, although auditors have not specific training in procurement. In 2012 it was reported that there is a performance audit being undertaken that looks specifically at tendering. To date, 8 performance audits have so far been conducted by PPU. It is not clear whether these reports have been so far been documented or not.

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8.6 Access to Information

8.6.1 As it stands, it is reported that there is a good access to procurement information. Tender notices and contract awards are published in newspapers with wide circulation and on the website or the CPB. It is noted that newspaper are still predominantly the main channel used by the economic operators’ community. However the amount of information available on the official channels is limited.

8.7 Ethics & anti-corruption

8.7.1 The Anti-Corruption Commission in Namibia is active in investigating public procurement cases and prosecutions have taken place. They have a secure hotline for reporting which is well advertised. However, the Commission is focused not only on investigation but also on prevention and have, for example been conducting public awareness campaigns.

8.7.2 While all public officials are subject to a code of conduct, there is neither specific code of ethics relating to those working in public procurement space, nor is there a policy for financial disclosure for those with public procurement.

8.7.3 In Transparency International’s Annual Corruption perception, Index for 2015 Namibia was rated with a ranking of 53 in 2015, 52 in 2016, 51 in 2017 & ranking of 53 in 2018 out of the 178 countries that were surveyed. This is a slight setback compared to last year 2017. This index however, shows that Namibia does not fall among the most corrupt countries. This pillar is rated high, due to the following reasons:

(i) There is no legal or regulatory requirements regarding the review and timely distribution of internal audit reports;

(ii) Internal audit reports provides recommendations, but executive actions are limited and where some actions are taken, they are often delayed.

(iii) The non-functional audit committees, which were only established in early 2015 has contributed largely to the limited managerial actions.

(iv) There is no legal backing for internal auditors in line ministries, apart from the Treasury functions, as indicated in the PEFA 2015, PI-21 Effectiveness of Internal Audit;

(v) No data is available on the review of the effectiveness and compliance of the procurement system at various levels with the existing legal and regulatory requirements

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Table: 1 - Country Procurement Risk Assessment Rating Using the MAPS PILLAR I – LEGAL, REGULATORY AND POLICY FRAMEWORK

Indicator 1 – Public procurement legislative and regulatory framework achieves the agreed standards and complies with applicable obligations RATING

Sub-indicators 1(a) –Scope of application and coverage of the legislative 2 and regulatory framework

Sub-indicator 1(b) – Procurement Methods 2

Sub-indicators 1(c) – Advertising rules and time limits 2

Sub-indicators 1(d) – Rules on participation 1

Sub-indicators 1(e) – Procurement documentation and specifications. 2

Sub-indicators 1(f) –Evaluation and award criteria 2

Sub-indicators 1(g) – Submission, receipt and opening of tenders 1

Sub-indicators 1(h) Right to challenge and appeal 2

Sub-indicator 1(i) – Contract management 2

Sub-indicator 1(j) – Electronic Procurement (e-procurement) 1

Indicator 2 – Existence of Implementing Regulations and Documentation

Sub-indicator 2 (a) –Implementing regulation that provide defined 2 processes and procedures included in higher-level legislation

Sub-indicator 2 (b) - Model procurement documents for goods works, 2 and services

Sub-indicator 2 (c) – Standard Contract Conditions 2

PILLAR II – INSTITUTIONAL FRAMEWORK AND MANAGEMENT CAPACITY

Indicator 5 – The country has an institution in charge of the normative /regulatory function

Sub-indicator 5(d) – Avoiding conflict of interest The normative/regulatory institution has a 1 system in place to avoid conflicts of interest

PILLAR III – PUBLIC PROCUREMENT OPERATIONS & MARKET PRACTICES

Indicator 9 - Public procurement practices achieve stated objectives

Sub-indicator 9(a) – Planning 2

Sub-indicator 9(c) – Contract management 2

PILLAR IV – ACCOUNTABILITY, INTEGRITY AND TRANSPARENCY OF THE PUBLIC PROCUREMENT

Indicator 12 – The country has effective control and audit system

Sub-indicator 12(a) – Legal framework, organisation and procedures of 2 the control system

Indicator 13 – Procurement appeals mechanisms are effective and efficient

Sub-indicator 13 (a) – Process for challenge and appeals 2

Sub-indicator 13(b) – Independence and capacity of the appeals body 2

Sub-indicator 13(c ) – Decisions of the appeals body 1

Indicator – 14 Country has ethics and anti-corruption measures in place

Sub-indicator 14(a) – Legal definition of prohibited practices, conflict of 2 interest, and associated responsibilities, accountabilities and penalties

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Provision on prohibited practices in procurement documents 1

OVERAL PROCUREMENT RATING 39

Legend: Rating is based on a 0-3 scale, according to the defined criteria indicated in the June 2006 OECD/DAC paper. A score of 3 indicates full achievement of the stated generally-accepted international practice for each sub-indicator. A score of 2 is given when the system exhibits less than full achievement and needs more improvements in the area being assessed, but still reflects substantive compliance with the standard.

COUNTRY PROCUREMENT RISK RATINGS - Current Assessment - Substantial

Overall Programme Risk: Low (between 71-78) Moderate(between 48-70) Substantial (1-47 points)

9 Fiduciary Risk Management Framework: Key to Risk Ratings Low (L) Risk implies a situation where the structure of PFM broadly reflects good international practice and there is routine compliance with the majority of controls within the system. Moderate (M) Risk implies a situation where the structure of the PFM system broadly reflects good international practice, although there may be some gaps or inefficiencies. There is basic compliance with controls within the system and although regular exceptions occur, these are not financially significant. Substantial (S) Risk implies a situation where the structure of the PFM system falls short of good international practice in a number of areas and/or there are numerous and/or material weaknesses in compliance with many controls within the system. High (H) Risk implies a situation where the structure of PFM system shows a significant divergence from good international practice and/or there is widespread lack of compliance with many of the controls within the system. Inefficiencies and leakage from the system may be financially significant.

10 Key fiduciary risk not addressed by the existing PFM reforms

PFM Reforms in Namibia do not have an identifiable home in the form of a recognised PFM Reform Secretariat. Establishing one enables the government to not only coordinate the reforms, but ensure proper sequencing while avoiding duplications that may occur. This would likely expedite the passage of the PFM Bill, the Audit Bill, and revisions to the Procurement Act. The government will be encouraged to consider formalising the establishment of a PFM Reform Coordinating Secretariat to clarify the path of reform, coordinate the combination of government and donor efforts aimed at improving the PFM landscape in the country. The following are some of the key fiduciary risks not addressed by the existing reforms:  Accounting for donor financed projects;  Elimination of commercial bank based government treasury operations 11 Short-term safeguards to mitigate key fiduciary risks

There is a need to continuously assess the implementation of the reforms and prepare evolving strategies to address shortcomings as well as to accelerate the implementation of the ongoing reforms. For the ongoing reforms, the government and development partners should maximise efforts on the following areas to accelerate the implementation of the PFM reforms in the country: XLVII

 Formalise the formation of a PFM Reform Secretariat, augmented by a robust platform for inclusive dialogue with interested donors;  Ensure adequate funding for the key elements of the agreed PFM reforms;  Formalise the structure and authority of Internal Audit, expand support to increase its reach and capacity, given its critical role in improving the overall control environment;  Expand support to both the Procurement Policy Unit, and the Central Procurement Board, to build their capacity for policy formulation and procurement oversight respectively; and  Introduce Payroll related reforms to improve control on the wage bill. For the upcoming CSP period, Bank financed investment projects will continue to be ring fenced and accounted for and audited outside the IFMIS due to the current inflexibility of IFMIS regarding the production of necessary Bank specific reports, while policy based operations can be implemented within IFMIS as no unique and separate reporting is expected nor required. The use of Borrower Procurement Systems will continue to be determined on a case by case basis.

12 Monitoring fiduciary risk The Bank, in collaboration with Development Partners will support and cooperate with the Government of Namibia in addressing fiduciary risks identified for each operation.

13 Country Fiduciary Strategy 13.1 Financial Management As already noted, during the upcoming CSP period, investment projects will continue to be accounted for outside of the IFMIS, pending a review of compatibility and capacity of the IFMIS to generate Bank specific financial reports. Bank specific audits will continue to be coordinated by the OAG, including scope for the OAG to conduct the audits without the need to outsource, depending on the OAG’s own capacity and resources.

13.2 Procurement 13.2.1 In order to reach a common agreement on the utilisation of Country public procurement System, it will be important, within the context of continued dialogue with Government, to engage in discussions and reach agreement on the identified deviations and the modalities for their resolution through; (i) enactment of the Procurement Law (ii) Revision of the Regulations and Manual to better align them with the law; (iii) Revision of the SBDs and any relevant toolkits to conform with the related law & Regulations.

13.2.2 Apart from the utilisation of the Country Procurement System and new SBDs, successful management of the inherent risks will lead to reduction, and final elimination, of prior review by the Bank in favour of post review of Namibia’s procurement processing under Open Competitive Bidding (OCB) – National. In pursuit of this objective and apart from the implementation of some of the recommendations, the following supplementary mitigating measures should be envisaged during the appraisal, negotiation and implementation of projects and programmes financed by the Bank: (i) systematic assessment of the procurement capacity at the sector, project and that of the Executing Agency (EA); (ii) consideration by the Bank of setting-up the threshold for OCB (National) at the same level as that for prior review; (iii) initial prior review of a specified number of OCB contracts to ensure that the track record of the EA concerned is acceptable based on its procurement risk; (iv) XLVIII

ensure the post review of OCB contracts by the Bank; (v) intensify the frequency of supervision on Bank-funded projects and programmes; and (vi) jointly with other Development Partners prepare a MAPS II Assessment to inform on how public procurement reforms has brought about the desired improvements and to make recommendations for further improvement in the system.

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