Report No. 9510-NAM Namibia Public Disclosure Authorized Poverty Alleviation with Sustainable Growth October 29, 1991 Industry and Energy Operations Division Southern Africa Department FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Document of the World Dank Public Disclosure Authorized This Ui ,9ment ha's a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization. CURRENCY EQUIVALENTS 1990: 1 Rand = 0.39 US$ I US$ = 2.57 Rands GLOSSARY OF ABBREVIATIONS CCN Council of Churches in Namibia CDM Consolidated Diamond Mines CHW Community Health Worker CMA Common Monetary Area DEA Department of Economic Affairs DFI Development Finance Institution DNE Department of National Education FNDC First National Development Corporation GFI Government Finance Institution HIV Human Immunodeficiency Virus ICSEAF International Commission for Southeast Atlantic Fisheries MLGH Ministry of Local Government and Housing MME Ministry of Mines and Energy MOHSS Ministry of Health and Social Services NBC Namibia Broadcasting Co. NBIC National Building Investment Corporation NGO Non-government Organization NIED National Institute for Education Development NISER Namibia Institute for Social and Economic Research PHC Primary Health Care PLAN People's Liberation Army of Namibia RBSA Reserve Bank of South Africa RIDP Southern African Regional Ir lustrial Development Program RSA Republic of South Africa SACU Southern Africa Customs Union SWABOU Southwest Africa Building SWAPO Southwest Africa People's Organization SWATF Southwest Africa Territorial Forces SWAWEK South West Africa Water and Electricity Corp. UNDP United Nations Development Program UNTAG United Nations Transition Assistance Group WFP World 1Yood Program FOR OFFICIAL USE ONLY PREFACE This report is based on LJNDP-financed economic missions that visited Namibia between September and November 1990. Mission members included Pedro Belli (mission chief and principal author), Maria Teresa Benito (economist), Joy de Beyer (health economist), Hjordis Bierman (fiscal economist), Francis Christy (fisheries economist), Alan Dock (education expert), Edward Echeverria (housing expert), Nancy Gillespie (economist), Jeffrey Gimbel (public health specialist), Roger Hay (agricultural expert), Melanie Johnson (financial expert), Armando Lago (transport economist), Arturo Meyer (macroeconomist), Peter van der Veen (mining engineer), Shujie Yao (agricultural economist), and Brigida Tuason (research assistant). Word Processing of the report was done by Ms. Nuria Plaza. Secretarial support and additional word processing assistance was provided by Ms. Noemi Dacanay and the support staff of AF6IE. Messrs. David Cook (AF6IE) and Stephen Denning (AF6DR) are the managing Division Chief and Department Director. The mission also benefitted from valuable information provided by the UNDP resident mission in Namibia, ILO, UNICEF, and Prof. Chris Tapscott. As indicated in UNDP Project Document (NAM/90/002) dated March 2, 1990, the major objectives of the report are to examine the structure and evolution of the economy, and several key sectors, and recommend an economic development or rehabilitation strategy for thz-country, including investment priorities and she main economic policy reforms needed to implement this strategy. NAMIBIA POVERTY ALLEVIATION WITH SUSTAINABLE GROWIH Table of Contents Page No. Country Data Executive Summaary ................................................... ijxxii I. THE ECONOMY AND THE PEOPLE ............................... 1-17 Overview . .................................................... 1 Population ............... ............................... 1 Links with South Africa .................................... 1 Transport Infrastructure .................................... 2 GDP and PerCapita GDP .......... .............................. 2 Sectoral Contrbuonsto GDP .................................... 3 Mining ................................................. 3 Agriculture .............................................. S Fisheries ................................................ 6 Industry. ................................................ 6 The People: Poverty Profile ........... , 7 Population Overview ......... ............................. 7 How Serious is the Poverty Problem? .......................... 8 Who are the Poor? ....................................... 8 Sources of Income and Income Distribution ..... ................ 9 Social Indicators ........... ............................... 11 Health . ................................................. 12 Education ............................................... 12 Water and Sanitation ......... ............................. 13 Housing ................................................ 14 Vulnerable GrOups .............. ............................... 15 I. RECENT ECONOMIC DEVELOPMENTS ........................... 1&-35 Macroeconomc and SectoralTrends .8...............................i Overall Economic Growth .................................. 18 Mining ................................................. 18 Agriculture .............................................. 21 -2 Expenditures un GDP ............ ............................... 23 Consumption ............. ............................... 23 Investment .................................. ........... 23 Balance of Payments ...................................... 24 Employment . ................................................. 26 Labor Force .............. ............................... 26 Characteristics of the Unemployed ............................ 26 Recent Employment Trends and Prospects ..... ...... .......... 27 Wage and Salary Structure .................. I I ........I..... 27 Unskilled Wage Trends ............... 28 Economic Segmentation .................................... 28 Labor Market Segmentation ................................. 28 Winners and Losers During the 1980s ............................... 32 The Government's Economic Challenges ............................. 32 Reactivating Growth .... ................................. 33 Restraining and Redirecting Public Expenditures . ............... 34 Reducing Poverty .34 Creating Employment .35 III. FISCAL POLICIES .3648 Introduction .36 Structure of the Non-Financial Public Sector .36 Recent Fiscal Performance: A Summary . ............................. 38 Central Government .......... ............................. 38 Revenues ............................................... 38 Expenditures . ........... ............................... 39 Financing the De&cit ...................................... 39 Central Government Performance for 1990/91 and Budget for 1991/92 ...... 40 The Dual Challenge of Improving Equity and EfMiciency ..... ............ 42 Prospects for Own Revenues ...................................... 42 Donor Funding: Rand and Non-Rand Borrowing Policies ..... ........... 45 Expenditures . ................................................. 45 Fiscal Policy Recemmendations .................................... 47 Iv. MINING ..................................... 49.55, Structure and Composition of the Sector ........... .............. ... 49 Large Scale Operations .................................... 49 Medium and Small-Scale Operations .......................... 50 Recent Performance .............. ............................... 50 Growth Potential ................................................ 51 Suggestions for Strengthening the Business Environment ..... ........... 52 Mining Legislation .......... .............................. 53 Mining Taxation .......... 53 Government Services ........... ........................... 53 -3- V. AGRICULTURE ............................................... 56-75 Intrduction 56 Resource Base ...................................... 58 Water . .58 Land. 60 Recent Performance ..... ....... ................................ 60 The Policy Environment for Commercial Farmers .. 62 Pricing Policies .. 62 Credit. 64 Institutional Support and Policy Environment for Communal Area Farmers . 65 Food Security ............ 66 Land Reform ................................................. 67 Recommendations ....................................... ...... 69 Marketing Channels .. 69 Transport Infrastructure. 69 Small-holder Credit .. 69 Research and Extension .. 70 Water Development .. 71 User Fees for Land and Water .. 72 Institutional Reforms .. 74 VI. FISHERIES ................................................... 76-84 Introduction .................................................. 76 Resource Base ..................................... 76............ Biological Limits for the Short- to Medium-Tern .................. 77 Conceptual Framework ..................... 7........78 Policy Options for Inshore Fisheries ............... ................. 80 Management Measures .. 80 The Allocation of Rights .. 81 Extraction of Economic Rents .. 81 Policy Options for Offshore Fisheries ........... ........ 82 Maximizing Economic Revenues .. 82 Access Arrangements .. 83 Duration of Agreements .. 83 Conclusions.. 84 VII. MANUFACTURING INDUSTRY. 8590 Introduction .85 The Institutional Setup in the RSA .86 SACU .86 The Regional Industrial Development Program .86 The General Export Incentive Scheme .89 Interim Policy Recommendations .89 -4 - VII. FINANCIAL SECTOR ............................ ... ....... 91-101 The Financial System .... .. - 91.......... Financdal