AFRICAN DEVELOPMENT BANK
PROGRAM: ECONOMIC GOVERNANCE AND COMPETITIVENESS
SUPPORT PROGRAMME (EGCSP)
COUNTRY: REPUBLIC OF NAMIBIA
APPRAISAL REPORT
RDGS/ECGF
April 2017
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TABLE OF CONTENTS
Currency Equivalents i
Fiscal Year i
Weights and Measurement i
Acronyms and Abbreviations ii
Program and Loan Information iv
Program Timeframe-Main Milestones v
Program Executive Summary vi
Results-based Logical Framework viii
I – INTRODUCTION: THE PROPOSAL
II – COUNTRY AND PROGRAM CONTEXT
2.1 Political Development and Governance Context
2.2 Recent Economic Developments, Macroeconomic and Fiscal Analysis
2.3 Competitiveness of the Economy
2.4 Public Financial Management
2.5 Inclusive Growth, Poverty and Social Context
III – GOVERNMENT DEVELOPMENT PROGRAM
3.1 Government Overall Development Strategy and Medium-Term Reform Priorities
3.2 Challenges to National/Sector Development Program
3.3 Consultation and Participation Processes
IV – BANK SUPPORT TO GOVERNMENT STRATEGY
4.1 Link with the Bank Strategy
4.2 Meeting the Eligibility Criteria
4.3 Collaboration and Coordination with Other Partners
4.4 Relationship with Other Bank Operations
4.5 Analytical Work Underpinning
V – THE PROPOSED PROGRAM
5.1 Program Goal and Purpose
5.2 Program Components
5.3 Policy Dialogue
5.4 Loan Conditions
5.5 Application of good practice principles on conditionality
5.6 Financing Needs and Arrangements
5.7 Application of Bank Group non-concessional borrowing policy
VI – OPERATION IMPLEMENTATION
6.1 Beneficiaries of the Program
6.2 Impact on Gender, Poor and Vulnerable Groups
6.3 Impact on Environment and Climate Change
6.4 Impact on Private Sector Development
6.5 Implementation, Monitoring and Evaluation
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6.6 Financial Management, Disbursement and Procurement
VII – LEGAL DOCUMENTATION AND AUTHORITY
7.1 Legal Documentation
7.2 Conditions Associated with Bank’s Intervention
7.3 Compliance with Bank’s Policies
VIII – RISKS MANAGEMENT
IX – RECOMMENDATION
List of Tables
Table 1: Key Macroeconomic Indicators
Table 2: Link between the NDP/HPP, the CSP and the EGCSP
Table 3: Key lessons learnt from previous operations
Table 4: Prior Actions and Triggers
Table 5: Projected financing requirements and sources, date
Table 6: EGCSP Risk and Mitigation Measures
Appendices
Appendix I: Letter of Development Policy
Appendix II: IMF Press Release
Appendix III: Namibia: Meeting the Eligibility Criteria for PBO
Appendix IV: EGCSP Policy Matrix
Appendix V: Prior Actions and Indicative Triggers
Appendix V: Social Sector Challenges and Development
Appendix VI: Link Between EGCSP and IIDP
Appendix VII: Map of the Republic of Namibia
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i
CURRENCY EQUIVALENTS (As of April 2017)
1 UA = NAD 18.01
I UA = ZAR 18.01
1 UA = USD 1.36
1 UA = EUR 1.27
FISCAL YEAR April 1 – March 31
WEIGHTS AND MEASURES
1metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (“)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
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ACRONYMS AND ABBREVIATIONS
ADF African Development Fund
AfDB African Development Bank
AG Auditor General
AMTA Namibia Agro-Marketing and Trade Agency
AU Accounting Unit
BoN Bank of Namibia
BOP Balance of Payments
BSO Budget Support Operation
CAR Commitment at Risk
CFRA Country Fiduciary Risk Assessment
CMA Common Monetary Area
CPPR Country Portfolio Performance Review
CSO Civil Society Organization
CSP Country Strategy Paper
CPIA Country Policy and Institutional Assessment
DO Development Objective
DPs Development Partners
DSA Debt Sustainability Analysis
EGCSP Economic Governance and Competitiveness Support Program
ESW Economic and Sector Work
EU European Union
FDI Foreign Direct Investment
FM Financial Management
FY Fiscal Year
GBS General Budget Support
GCI Global Competiveness Index
GDP Gross Domestic Product
GRN Government of the Republic of Namibia
HDI Human Development Index
HRMIS Human Resources Management Information System
IFMIS Integrated Financial Management Information System
IIDP Infrastructure Investment Development Programme
IMF International Monetary Fund
IOP Indicative Operational Program
IRD Inland Revenue Department
KPI Key Performance Indicator
MDGs Millennium Development Goals
MIC TAF Middle Income Country Technical Assistance Fund
MoF Ministry of Finance
MSME Micro, Small and Medium Enterprise
MTEF Medium Term Expenditure Framework
MTFF Medium Term Fiscal Framework
MTP Medium Term Plan
MTR Mid-Term Review
NAD Namibian Dollar
NAMFISA Namibia Financial Institutions Supervisory Authority
NANGOV Namibia Non-Governmental Organizations’ Forum
NNFU Namibia National Farmers Union
NAMRA Namibia Revenue Agency
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OECD Organization for Economic Cooperation and Development
PBO Program Based Operation
PCR Project Completion Report
PEFA Public Expenditure and Financial Accountability
PFM Public Financial Management
PPPs Public Private Partnerships
PSD Private Sector Development
SACU Southern Africa Customs Union
SADC Southern Africa Development Community
SARB South African Reserve Bank
SME Small and Medium Enterprises
SoE State-Owned Enterprise
SSN Social Safety Nets
TA Technical Assistance
TYS Ten Year Strategy
UA Bank Group Unit of Account
USD United States Dollar
VAT Value-added Tax
WB World Bank
ZAR South African Rand
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PROGRAM INFORMATION
INSTRUMENT GENERAL BUDGET SUPPORT – PROGRAM BASED LOAN
PBO DESIGN TYPE PROGRAMMATIC OPERATION
LOAN INFORMATION
Client’s information
BORROWER: REPUBLIC OF NAMIBIA
EXECUTING AGENCY: MINISTRY OF FINANCE
Financing plan for 2017 and 2018
Source Amount (2017) Amount (2018)
ADB Loan 3 billion Rand (ZAR) 3 billion Rand (ZAR)
TOTAL
FINANCING
3 billion Rand (ZAR) 3 billion Rand (ZAR)
ADB key financing information
Loan Currency South African Rand (ZAR)
Loan Type Fully Flexible Loan
Tenor 12 years (Up to 25 years inclusive of Grace Period)
Grace period 3 years (Up to 8 years)
Average Loan Maturity* TBD (function of the amortization profile)
Repayments 48 Consecutive quarterly payments after grace period
Interest Rate Base Rate +Funding Cost Margin+ Lending Margin + Maturity Premium
This Interest Rate will be floored to zero
Base Rate
Floating Base Rate ( 3-month JIBAR reset each 1st February, 1st May, 1st August
and 1st November)
A free option to fix the Base Rate is available
Funding Cost Margin The Bank funding cost margin as determined each 1st January and 1st July and
applied to the Base Rate each 1st February, 1st May, 1st august and 1st November
Lending Margin 80 basis points (0.8%)
Maturity Premium TBD:
- 0% if Average Loan Maturity <= 12.75 years
- 0,10% if 12.75< Average Loan Maturity <=15
- 0,20% if Average Loan Maturity >15 years
Front-end fees 0.25% of the loan amount payable at latest at signature of the loan agreement
Commitment fees 0.25% of the undisbursed amount. Commitment fees start accruing 60 days after
signature of the loan agreement and are payable on Payment dates
Option to convert the Base
Rate**
In addition to the free option to fix the floating Base Rate, the borrower may
reconvert the fix rate to floating or refix it on part or full disbursed amount.
Transaction fees are payable
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Timeframe - Main Milestones
Option to cap or collar the
Base Rate**
The borrower may cap or set both cap and floor on the Base Rate to be applied on
part or full disbursed amount
Transaction fees are payable
Option to convert loan
currency**
The borrower may convert the loan currency for both undisbursed or disbursed
amounts in full or part to another approved lending currency of the Bank
Transaction fees are payable
Program Appraisal January/February 2017
Program Approval May 2017
Loan Effectiveness June 2017
Disbursement Closing Date 31 December 2017
Completion 31 December, 2018
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PROGRAM EXECUTIVE SUMMARY
Paragraph Topics to cover Program
overview
Program name: Namibia – Economic Governance and Competitiveness Support Program (EGCSP).
Expected outputs: The key outputs of the Program are (i) Enhanced fiscal consolidation (improved revenue performance, wage
bill contained, debt management enhanced); (ii) Strengthened public financial management and public sector efficiency
(strengthened strategic anchor for PFM reforms, enhanced efficiency and value for money in public procurement; SOE
governance improved); and (iii) Improved business environment (Dispute resolution mechanism improved; business registration
and licensing processes modernized; PPP framework enhanced; policy framework for MSMEs improved; framework for access
to finance improved; industrial development framework strengthened).
Overall timeframe: 2017/18-2018/19, two-year programmatic operation.
Program Cost: The program cost for the first year of the two-year programmatic operation is 3 billion Rand. The cost for the
second operation (2018/19) will also be 3 billion Rand subject to assessment of liquidity.
Program
outcomes The Expected outcomes of the program are: (a) Enhanced fiscal consolidation (Revenue performance; Wage bill as a % of GDP); (b)
Strengthened PFM and SOE efficiency (Improved Internal and External Audit and Public Procurement; Government transfers to SOEs as
% of overall budget); and (c) Improved business enabling environment (Private investments as share of GDP; Number of new MSMEs
created. These are expected to result in higher GDP growth rates, and a reduction in unemployment and poverty.
Alignment
with Bank
priorities
The operation is closely aligned to two of the operational priorities of the Bank Group’s Ten-Year Strategy, 2013-2022, namely
Private Sector Development, and Governance and Accountability, and reinforced by two of the High-5 priorities, namely,
Industrialize Africa and Improve the quality of life of the people of Africa. The program is also linked to two of the three
strategic pillars of the Governance Strategic Framework and Action Plan, 2014-2018 (GAP II), which are (i) public sector and
economic management, and (ii) investment and business climate; as well as the Bank’s Private Sector Development Strategy,
2013-2017. Furthermore, the program is closely linked to the second pillar of the Namibia Country Strategy Paper - private
sector development through skills development and improving the regulatory environment.
Needs
Assessment
and
Justification
After demonstrating strong resilience during the economic downturn, Namibia’s small and open commodity-driven economy is
showing enormous vulnerabilities that are putting pressure on macroeconomic stability. Growth in 2016 is estimated to have
sharply slowed down to 1.6%1 from 5.3% the previous year. This was driven largely by weak commodity prices, persistence of
drought and subdued domestic economic activity in South Africa and Angola, which sharply reduced Namibia’s SACU revenue
inflows and services sector activity, respectively. The slowdown in growth and consequent negative impact on government
revenues is happening at a time when the economy is nursing wide fiscal deficit (8.3%), current account deficits (13.7% of
GDP), high public sector debt (39.8% of GDP) and precariously low international reserves (2.8 months of imports) as at end
2015/16. The emerging macroeconomic vulnerabilities are compounded by two other core development challenges (i)
weaknesses in PFM environment that limit GRN’s capacity to optimize domestic resource mobilization and reduce the quality
and efficiency of public spending and (ii) deep rooted structural bottlenecks in the business environment that limit Namibia’s
capacity for industrialization and economic diversification. Dependence on the low labor-intensive mining sector as a leading
export earner and one of the key growth drivers contributes to growth volatility, slow job creation and income inequality. The
Government is committed to addressing these challenges by implementing a series of fiscal consolidation, PFM and business
environment reforms.The justification for the proposed operation is premised on the need to create fiscal space to facilitate
development expenditure and improve the targeting of public spending to the most vulnerable segments of the population. The
programme seeks to strengthen the GRN’s on-going efforts aimed at taking early precautionary policy measures to avert being
caught in an unsustainable circle of debt, falling international reserves and fiscal deficits. It also seeks to lay the foundation for
industrialization by supporting business environment reforms. The operation is being processed in parallel with a complementary
infrastructure development investment programme, which will also contribute to improving long term economic competitiveness
and private sector development. The processing of the operation has been fast-tracked to enable the Government access the
resources at the beginning of 2017/18 fiscal year, which will enhance predictability.
Harmonisation The Bank actively coordinates its interventions with all the major bilateral and multilateral Development Partners (DPs)
including the UN system in Namibia. This is done bilaterally as well as formally through the DP group, which works closely
with a number of thematic groups. Donor coordination and harmonization is limited, explained largely by the low share of
development assistance to Namibia, as a high Middle Income Country. Currently, no other DP is providing general budget
support to Namibia. However, the Bank will ensure continuous engagement with all DPs throughout the processing and
implementation of the operation. During the Appraisal Mission, the Bank held extensive consultations with all key DPs in
Namibia, as well as the World Bank and IMF in South Africa, and all have made valuable inputs, including to the policy matrix.
At the sector level, coordination is effected through various sector working groups, which meet regularly although currently
their activities are not linked to the forum. The Bank will use the DP’s forum to report on progress and seek feedback on
implementation of the policies. It will work closely with the EU and Finish Embassy on PFM and revenue mobilisation and GIZ
on the business environment to strengthen sector working groups in these policy reform areas of the operation.
Bank’s Added
Value
The Bank has become a strong development partner of choice in Namibia. This operation is responding to both emerging and
long term development challenges and demonstrates the Bank’s added value and relevance in the country. The type of
instruments and the structuring of Bank’s support responds to the Government’s short and medium term development agenda.
In the short term it will give fiscal space for the Government to implement its fiscal consolidation reform program in a gradual
and growth friendly manner. In view of the prevailing liquidity constraints in the domestic market, the long term tenure of the
Bank’s lending in South African Rand (ZAR) packaged with risk mitigating features will have a much softer impact on public
debt than borrowing from the international capital market. The Bank’s lending not only mitigates exchange rate risks, but also
helps extend the maturity profile of the government debt. While helping finance the fiscal deficit, the resources which will be
denominated in ZAR will also support international reserves. In the medium to long term, it supports the Government’s policy
reform agenda that addresses structural bottlenecks to advance industrialization and economic diversification for job creating
1 The growth rate has been revised downward to 0.2% based on new Government national accounts data of March, 2017
vii
growth, income equality and poverty reduction. The Bank has considerable experience and expertise in designing and
implementing PBOs, derived from similar programmes focusing on fiscal consolidation, PFM and investment climate reforms,
including recently in Egypt and Nigeria. The choice of the programmatic approach also brings some flexibility on the use of
triggers and hence allows for the possibility of adapting to changing circumstances during program implementation. Through
the proposed operation and accompanying policy dialogue, the Bank will leverage its unique position as a reliable and trusted
partner of choice to sustain and help implement difficult reforms.
Contributions
to Gender
Equality and
women’s
empowerment.
The policy focus of the EGCSP on fiscal consolidation will create fiscal space, which will enable the government to fund social
programs in health and education, amongst others, targeting the most vulnerable and poor, including women and youth. The
focus on strengthening PFM and public sector efficiency will help to improve the efficiency of public spending and improve
service delivery (including through better performing SoEs), which will benefit the poor and vulnerable groups. The focus on
MSME development and industrialization will also help create employment opportunities, including for women, and help reduce
income inequality.
Policy
dialogue and
linked
technical
assistance
The proposed operation will focus on supporting fiscal consolidation policy actions, PFM and public sector efficiency and
investment climate reforms. Through this operation and on-going MIC Grants (including Public Private Partnership institutional
support), the Bank will continue to encourage and support best practices in fiscal consolidation, PFM, and business environment
reforms in Namibia. The program will create a strong platform for policy dialogue and advisory services, with the Bank’s
Directorate General - South playing a pivotal role.
viii
RESULTS-BASED LOGICAL FRAMEWORK
Country and project name: Namibia: Economic Governance and Competitiveness Support Program (EGCSP)
Purpose of the project: To promote inclusive growth and economic competitiveness and diversification through improved economic
management and business environment reforms.
RESULTS CHAIN PERFORMANCE INDICATORS
MOV RISKS/MITIGATIO
N MEASURES Indicator (including CSI*) Baseline Target
IMP
AC
T
Inclusive growth
and enhanced economic
competitiveness
Real GDP growth 20.2% (2016) 3.3% (2019/20)
IMF/ MoF
Risk #1:
Macroeconomic
risks: Namibia’s
vulnerability to
external shocks remains a major source
of risk. The economic
outlook envisages downside risks
stemming mainly from
further declines in SACU revenue and
commodity prices,
slow growth in mining
and construction and
debt-related risks.
Mitigation: Embark on further pro-growth
fiscal consolidate
efforts to bring public debt on a declining
path, safeguard
priority capital and social spending and
implement reforms
geared towards addressing structural
challenges.
Risk #2: Fiduciary
risks: The recent
Country Fiduciary Risk Assessment
(CFRA) conducted by
the Bank for Namibia indicates that the
overall residual risk
level is deemed moderate, taking into
account the risk
mitigation factors. Some of the areas of
weakness identified
relate to the legal and regulatory framework,
and roll out and
integration of the Integrated Financial
Management System (IFMIS). Failure to
mitigate the identified
fiduciary risks could negatively impact
Poverty rate (disaggregated by gender)
318% (2015/16) (M-7%; F-12%)
12% (2019/20) (M-4%, F-6%)
Unemployment rate
(disaggregated by gender)
28.1%4(2014) F-31.7 % ; M-24.3%;
Youth 53.7%
20% (2019/20)
F-26%; M-20%; Youth 45%
OU
TC
OM
ES
Outcome 1:
Fiscal consolidation
enhanced.
Revenue 5N$51.51 billion
(2016/17)
Average growth of 5.7% over 2017/18-
2019/20 MTEF
IMF/
MoF
6Public sector wage bill as a % of total non-interest
expenditure
49% (2016/17) 45% (2018/19)
Outcome 2:
Strengthening Public Financial
Management and
Efficiency of State Owned
Enterprises
Improved Internal and External
Audit and Public Procurement
PEFA7 (2015) PI-26
Scope, nature and follow-up of External
Audit (D+)
PEFA (2015) PI-21
Effectiveness of
Internal Audit (C)
PEFA (2015) PI-19
Competition, value for money and
controls in
procurement (D+)
PEFA (2019) PI-30 External Audit (C+)
PEFA (2019) PI-26 Internal Audit (B)
PEFA (2019) PI-24 Procurement (C+)
PEFA
95% compliance to SOE Governance Framework
-
875% (2017/18) 85% (2018/19)
IMF/ MoF
Outcome 3
Business
enabling environment
improved
Private investments as share of
GDP 22% (2015/16) 25.5% (2018/19
Govt
reports
Number of new MSMEs created (disaggregated by
gender)
- 300 (2018/19) – At least 30% owned by
females
Govt
Reports
OU
TP
UT
S
Component I: Advancing Fiscal Consolidation
1.1 Revenue
performance enhanced
Establishment of the Namibia
Revenue Agency (NRA)
Inland Revenue
Department (IRD) and Customs
operating as two
separate entities (2016)
(i) Cabinet approves and submits Bill for the
Establishment of the Namibia Revenue Agency (NRA) to Parliament in 2017.
IMF/
MoF
1.2 Expenditures
streamlined and
rationalised
Containment of the wage bill Bloated wage bill
(2016)
(i) Cabinet approval of a comprehensive set
of measures to contain the wage bill in
2017.
IMF/
MoF
% of budget allocated for social
expenditure
32.4% (2015/16)9
35% (2018/19)
1.3 Debt
management
enhanced
Approval of a macro-fiscal
framework
Old macro-fiscal
framework in place
(2016)
Approval by Cabinet and submission to
Parliament of the Macro-Fiscal Framework
for the FY 2017/18 Budget” (2017)
2 2016 Preliminary Annual, National Accounts 3 2016 Namibia Household Income and Expenditure Survey 4 Namibia Labor Force Survey 2014 5 2017/18 Budget Statement 6 2017/18 Budget Statement 7 PEFA: Baseline scores are based on the old methodology while the targets are based on the new methodology. As a
result of the change in the PEFA methodology, the old and new scores are not necessarily directly comparable. 8 MTEF 2017/18 – 2019/20 9 Source: 2016/17 Mid-Year Budget Review and medium Term Budget Policy Statement
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Development of a robust debt management framework
2005 Debt Management Strategy
in place (2016)
New Sovereign Debt Management Strategy approved by Cabinet (2018/19)
MoF program implementation, and
achievement of
expected program objectives.
Mitigation: The
measures being implemented under
proposed programme
and ongoing technical assistance being
provided by the EU
and other development partners will help
strengthen public
financial management and further mitigate
the identified risks.
Risk #3:
Implementation
capacity risks: Capacity across
government to
implement the wide ranging reforms being
pursued by the
government may be a challenge.
Mitigation: Provide
technical assistance to complement support
being provided by
Development partners.
Risk #4: Social
impact risks: Fiscal consolidation
measures pose potential risks to social
sector spending and
basic service delivery, with negative social
ramifications.
Mitigation: Pursue the
objective of pro-
growth fiscal consolidation by
preserving capital
expenditure and pro-poor spending, and put
in place social safety
nets.
Component II: Strengthening Public Financial Management and Public Sector Efficiency
2.1 Strategic
anchor for PFM reforms
strengthened
Number of Public Expenditure
Tracking Surveys (PETS)
No PETs carried out
(2015)
2 PETS completed in 2017 and additional 2
in 2018
MoF
MoF
Strengthening of the institutional independence of
the Auditor General
State Finance Act of 1991 - amended 1995
(2016)
Auditors Bill approved by Cabinet in 2017 MoF
Improvement of the policy
framework for Internal Audit
No Internal audit
Policy in place (2016)
New Public Sector Internal Audit Policy
approved by Cabinet in 2018
MoF
2.2 Enhanced
efficiency and
value for money in public
procurement
Strengthening of the public
procurement function
Public Procurement
Act (2015) enacted in
2015.
(i) Regulations issued in 2017
(ii) Procurement Policy Unit (PPU), Central
Procurement Board and Review Panel established in 2018
(ii) Procurement Plan prepared, and
Standard Bidding Documents for works,
goods and services approved and adopted in
2018.
MoF
2.3 Governance
of SOEs improved
Enhancement of the policy and
legal framework for Public Enterprise Governance
Public Enterprises Governance
Amendment Act of
2015 in place (2016)
Public Enterprise Governance Amendment
Policy approved in 2017
Govt
Reports
Public Enterprises Governance Amendment
Bill submitted to Parliament in 2018
Govt
Reports
Component III. Improving the Business Enabling Environment for Industrialization
3.1 Investment
facilitation framework and
processes
enhanced
Improvement of the Dispute
resolution mechanism Inadequate
framework for dispute resolution
(2015)
(i) Investment Promotion Act submitted to
Parliament (2016/17) (ii) Investment Promotion Regulation issued
and gazetted (2017/18)
Govt
Reports
Modernization of business
registration and licensing
processes
No automated
procedure for
business registration and licensing (2015)
(i) Integrated Client Service Facility
operationalised (2017/18)
Govt
Reports
Enhancement of the legal and
institutional framework for
PPPs No legal framework
for PPP in place
(2015)
(i) Draft PPP Legislation submitted to
Parliament (2016/17)
(ii) PPP Regulation issued and gazetted (2017/18)
(iii) PPP Committee established (2017/18)
Govt
Reports
3.2 Industrial
development, value addition
and
diversification enhanced
Strengthening of the legal and
institutional framework for industrial development
Weak framework for industrial
development (2015)
(i) Industrial Development Agency Bill
submitted to Parliament. (2016/17)
GovtRep
orts
Promotion of value addition
and development of value chains for local industries (with
target for women
entrepreneurs)
Growth Strategies
prepared for 10 local industries and
associated value
chains (2016) 10
Sector Committees and an Inter-ministerial
Committee to drive the implementation of the Growth Strategies for 10 industries
established. (2017/18)
Govt
Reports
3.3 Framework for MSME
development
improved
Improvement of the policy framework for MSME
development
1997 Small Business Development Policy
in place (2015)
New National Policy on Micro, Small and Medium Enterprises approved by Cabinet.
(2016/17)
Govt Reports
Enhancement of the legal framework to facilitate access
to finance for MSMEs
Lack of access to finance for MSMEs
(2015)
Approval by Cabinet and submission to Parliament of a Micro-lending Bill
(2017/18)
Govt Reports
Funding: ADB Loan = 3 billion ZAR (Similar amount will be provided for 2018)
10 The ten Growth Strategies and associated value chains are Namibia’s Cosmetic Industry, Sea Food, Agribusiness, Metal Fabrication, Handicraft,
Leather Industry, Jewellery Industry and Colored Gemstone, Swakara Wool, Taxidermy Industry. Women constitute high proportion of employees
in these industries.
1
REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB TO THE
BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF NAMIBIA TO
FINANCE THE ECONOMIC GOVERNANCE AND COMPETITIVENESS SUPPORT
PROGRAM (EGCSP)
I - INTRODUCTION: THE PROPOSAL
1.1 Management submits the following proposal and recommendation for an ADB Loan of
Three billion South African Rand (3 billion ZAR), equivalent to UA 166.57 million, to the Republic
of Namibia to finance the Economic Governance and Competitiveness Support Program
(EGCSP). The EGCSP is designed as a programmatic series of two consecutive General Budget Support
(GBS) operations covering the fiscal years 2017/18-2018/19, for a total indicative financing of ZAR 6
billion (UA 333.14 million). This is the first operation, and the Bank’s debut Program Based Operation
(PBO) intervention in Namibia. The operation is designed in response to a request submitted by the
Namibian Authorities in November 2016.
1.2 After a sustained period of high economic growth (average of more than 5% per annum over the
period 2010-2015), Namibia experienced a slowdown in real gross domestic product (GDP), from 5.3%
in 2015 to 1.6%11 in 2016, driven largely by declining commodity prices, persistent drought and subdued
domestic economic activity in South Africa and Angola, which sharply reduced Namibia’s Southern
Africa Customs Union (SACU) revenue inflows and services sector activity, respectively. As at end
2015/16, the economy faced a high fiscal deficit of 8.3%, current account deficit of 13.7% of GDP, a
relatively high public debt of 39.8% of GDP and precariously low international reserves of 2.8 months
of imports. The emerging challenges are compounded by weaknesses in the PFM environment that
impact on resource mobilisation and reduce the quality and efficiency of public spending; and deep
rooted structural challenges in the business environment that limit capacity for industrialisation and
economic diversification, resulting in high rates of unemployment (particularly youth unemployment),
poverty and inequality. It is against this backdrop that the Government approached the Bank for budget
support.
1.3 The Government of Namibia (GRN) has embarked on wide ranging reforms aimed at tackling
these macroeconomic challenges and existing structural bottlenecks, with a view to reducing
unemployment, poverty and income inequality, as articulated in the Letter of Development Policy
(Appendix 1). The Economic Governance and Competitiveness Support Program (EGCSP) is designed
to support the Government’s fiscal consolidation and broad-based reform efforts. The objective of the
operation is to contribute to promoting inclusive growth, economic competitiveness and diversification,
through improved economic management and business environment reforms.
1.4 Designed as a two year programmatic operation, the EGCSP will help address immediate
macroeconomic challenges (by supporting growth-friendly fiscal consolidation efforts and preserving
macroeconomic stability). The long term tenure of the Government’s borrowing for this operation in
ZAR (the currency in which Namibia keeps sizeable reserves) will also help improve the reserve
position, mitigate exchange rate risk and extend the maturity profile of Government debt. The program
will also address medium to long term challenges (by creating fiscal space to finance critical capital
expenditure and social sector spending, and supporting Public Private Partnerships). Unemployment in
Namibia, estimated at 28.1% (and youth unemployment of 53.7%) in 2014, remains high despite the fact
that the country registered one of the highest average growth rates in Africa over the past 20 years.
Growth appears to be driven largely by less labour intensive sectors, hence the need for diversification.
The programme’s strong diversification, industrialization and MSME development focus will contribute
11 The growth rate has been revised downward to 0.2% based on Government national accounts report of March, 2017
2
to job creation and poverty reduction. The program targets a reduction in unemployment from 28.1% in
2014 to 20% in 2019 and a reduction in poverty from 18% in 2015 to 12% in 2019. It also targets the
creation of 300 new MSMEs and an increase in the percentage of the budget allocated to social
expenditure from 32.4% in 2015 to 35% in 2018. The use of the programmatic approach for budget
support also brings the advantage of predictability and flexibility on the use of triggers, by allowing for
the possibility of adapting to changing circumstances during program implementation.
1.5 To ensure sustainability, the Bank is processing in parallel, an integrated infrastructure
development investment programme. The two operations complement each other, in that while the PBO
helps to preserve macroeconomic stability, address structural challenges and support PFM and business
environment reforms, the infrastructure investments will help boost the long term competitiveness of the
economy, and hence contribute to creating the foundation for long term sustainable growth and job
creation (Appendix VII).
1.6 The PBO was formulated based on continuous dialogue with the Government of the Republic of
Namibia (GRN), and in close collaboration with Development Partners and other stakeholders, including
the private sector and Civil Society.
II - COUNTRY AND PROGRAMME CONTEXT
2.1 Political Developments and Governance Context
2.1.1 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 are held regularly. In March 2015, H.E. Hage Geingob was inaugurated as the third
democratically elected President of Namibia, under the ticket of the South West Africa People’s
Organization (SWAPO) Party, which has been in power since Independence. The current administration
is continuing with the policies of upholding the fundamental rights and freedoms enshrined in the
Constitution.
2.1.2 Namibia is one of the countries with the best governance record in Africa. The country was
ranked 5th out of 54 countries in the 2016 Ibrahim Index of African Governance (IIAG), with an overall
score of 69.8. 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. Namibia has
put in place strong accountability systems in line with the Constitution and the State Finance Act of 1991
(amended 1995). The Minister of Finance tables an accountability report, together with other budget
documents at the National Assembly every year, and this is made available to the public. The
modernization of the public procurement system is being pursued through the new Public Procurement
Act 2015, which became effective on 1st April 2017, following issuance of Regulations. The Constitution
clearly defines the legal and institutional framework for the fight against corruption. The Namibia Anti-
Corruption Commission, established under the Anti-Corruption Act No. 8 of 2003, is mandated to
combat and prevent corruption. The 2016 Corruption Perception Index ranks Namibia 53 out of 176
countries, with an overall score of 52/100.
2.2 Recent Economic Developments, Macroeconomic and Fiscal Analysis12
2.2.1 Namibia has a strong track record of economic performance attributed to a stable political
environment and prudent macroeconomic policies. With a median growth rate of 4.5% since
independence in 1990, GDP per capita has more than doubled reaching USD 11,408.10 in 2015.
12 Based on figures from the IMF Article IV Consultation Report of December 2016
3
Underpinned by an expansionary fiscal policy and new mega foreign direct investments into mining
during the global economic downturn following the 2007-2008 financial crisis, Namibia posted real
annual GDP growth rate of above 5% from 2010 to 2015. In line with the robust domestic economic
activity, total investment as a share of GDP increased from 24.1% in 2010 to 34.2% in 2015. However,
after strong resilience, the country’s small and open commodity-driven economy is showing enormous
vulnerabilities that are putting pressure on macroeconomic stability (Table 1). Growth slowed down
from 5.3% in 2015 to an estimated 1.6%13 in 2016 as mega construction projects ended, weak commodity
prices and drought persisted and the subdued economic activity in South Africa and Angola sharply
reduced Namibia’s SACU14 revenue inflows and services sector activity, respectively.
2.2.2 The stimulus policy stance adopted to mitigate the impact of the global economic downturn,
accelerated the government’s financing needs and worsened the fiscal deficit and public sector
debt. The fiscal deficit, as a share of GDP, widened significantly from 0.1% in 2012/13 to 8.3% at the
end of 2015/16, as revenue inflows could not keep pace with strong growth in public spending. Under
the stimulus policy environment, total expenditure increased from 33.8% of GDP to 43.3%, driven by
rapid growth in capital spending, subsidies and transfers and public sector wages and salaries. Total
revenue grew only marginally from 33.7% of GDP in 2012/13 to 35.5% at the end of 2015/16, weighed
down by a sharp reduction in both SACU and domestic tax receipts.15 The Government reacted, tapping
into the domestic capital market and also deploying proceeds from the US$750 million Eurobond issued
in 2015, and the Johannesburg Stock Exchange (JSE) bonds issued in 2015 and 2016, to finance the
deficit.
2.2.3 The capital market issuances, combined with the recent depreciation of the Rand, sharply
increased public debt from 24% of GDP in 2012/13 to 39.8% at the end of 2015/16, breaching the
government’s fiscal limit of 35% of GDP16. The latest analysis, carried out by the International Monetary
Fund (IMF) in 2016, shows that although Namibia’s public debt sustainability and outlook remain below
the distress threshold of 70% of GDP, it needs closer monitoring. The sharp rise in foreign currency
denominated debt and reliance on short term debt, exposes Namibia to exchange rate and roll-over risks.
As at end 2015/16, about 42% of total public debt was denominated in non-Rand foreign currencies,
mainly the US dollar, while short-term treasury bills accounted for about 43% of government’s domestic
debt. With emerging liquidity constraints in the domestic market17, the authorities’ borrowing strategy
under the Medium Term Expenditure Framework (MTEF) 2017/18 – 2019/20 is to continue diversifying
sources of borrowing while focusing on ZAR denominated debt and extending the maturity profile. The
2005 sovereign debt management strategy is being revised to ensure that fiscal risk benchmarks (which
are soft rules) reflect recent developments in the economy. The accelerated fiscal consolidation efforts
combined with projected improvements in growth and revenues are expected to put public debt as a share
of GDP on a declining path in the medium term.
2.2.4 Although Namibia’s membership of the Common Monetary Area (CMA) has limited the
country’s discretion in monetary policy, it benefits from price stability of the South Africa Reserve
Bank (The SARB’s policy framework. The SARB’s accommodative monetary policy stance18 to support
growth during the global economic downturn saw Bank of Namibia (BoN) repo rate also come down
from 7.0% in 2010 to 5.5% in mid-2014. The low interest rate regime propelled domestic demand with
private sector credit averaging 14% growth during 2010-2015, driven by mortgage lending to
households. The currency peg to the Rand helped contain headline inflation, which after rising from
13 The growth rate has been revised downward to 0.2 % based on Government national accounts report of March, 2017 14 SACU receipts are a major source of revenue and foreign exchange (35% of revenues between 2012/13-2014/15). 15 As a share of total government revenue, SACU receipts represent about 35 percent in Namibia. In 2015/16 they slowed down to 8.6 % of GDP from 11.6% in 2013/14 while tax revenue moderated to 32.7% of GDP from 33.1%. During the period subsidies transfers increased to 11.9% of GDP in 2015/16 from 10.7% of GDP in 2014/15 while wages and salaries increased from 15.3% of GDP to 16%. 16 Public debt and publicly guaranteed debt stand at 44.7% of GDP 17 In 2015/16, undersubscription across all government securities amounted to NAD3.2 billion. 18 Namibia’s monetary policy aligns with SARB’s monetary policy owing to the local currency peg to the South African Rand (ZAR).
4
4.9% in 2010 to 6.7% in 2012, moderated to 3.7% in 2015. Higher food prices due to drought and rising
rental costs and administrative prices increased inflation back to 6.7% in 2016. BoN has since raised the
repo rate to the current 7%, at par with SARB rate, to help contain inflationary pressures, while
preventing capital outflows within the CMA. Namibia will need to closely monitor developments
following South Africa’s credit rating downgrade19.
2.2.5 The current account deficit widened sharply to 13.7% of GDP in 2015 from 7.6% in 2014,
as import growth accelerated amidst weak export performance (mainly mining) and sharp
slowdown in Southern Africa Customs Union (SACU) revenues. In tandem, international reserves
reached record low levels at 1.8 months of imports in 2014. Although reserves increased to 2.8 months
in 2015, owing to the Eurobond proceeds, they have remained persistently below 3 months since their
peak at 3.9 months in 2009. As at end 2016, reserves improved slightly to 3 months of imports, following
a negotiated asset swap arrangement between BoN, the Public Pension Fund and NAMPOWER.
2.2.6 The Government, in its 2017/18 budget, reiterated its commitment to achieving fiscal
sustainability. Building on the mid-term review of the 2016/17 budget, it has continued implementing
fiscal consolidation measures which aim at improving the quality of spending while strengthening
revenue mobilization so as to improve the country’s debt and reserves position and preserve its strong
sovereign credit rating. Measures include cutting non priority spending of up to 2.8% of GDP, while
realigning spending plans in line with the revenue stream and introducing some levies and taxes. The
bold measures aim at reining in current non-productive spending, and reducing some capital spending,
while preserving growth-enhancing capital investments and strengthening domestic revenue
mobilisation. The
MTEF for 2017/18 to
2019/20 targets a zero
net increase in the size
of the civil service, with
wage increase capped
to a maximum of the
annual inflation rate.
These measures, which
also aim at protecting
social spending, are
expected to put the fiscal deficit on a declining path, towards compliance with the fiscal limit of 5% of
GDP by 2019/20.
2.2.7 The medium term growth outlook is positive, on the back of strong growth from new mines
and recovery in agriculture. Real GDP growth is projected to rebound, although potential downside
risks to growth emanate from soft global commodity prices, subdued growth in South Africa and Angola
which may continue reducing SACU receipts and services sector growth respectively and sharp fiscal
consolidation. SACU revenues are forecast to slightly recover in 2017/18, owing to some rebound in
regional economic activity and rising revenue from excise duties. Headline inflation is expected to
remain largely contained, as the anchor currency holds steady, while food and oil prices slow, although
rental and administrative prices present an upside risk. The current account deficit is expected to improve
as growth in exports accelerate while imports slowdown.
19 The credit rating downgrade could mean a weakened Rand, and hence a weakened Namibia dollar, which can increase the cost of imported goods and services, boost inflation and increase the cost of debt servicing.
Table 1: Key Macroeconomic Indicators (% of GDP, unless otherwise indicated)
2015
(e)
2016
(p)
2017
(p)
2018
(p)
2019
(p)
2020
(p)
Real GDP growth rate (%) 5.3 1.6* 4.7 4.8 3.6 3.7
Consumer prices (end period) 3.7 7.3 6.0 5.7 5.8 5.7
SACU revenue (% GDP) (% GDP) in Fiscal Year from
2015/16
11.6 8.6 9.3 8.9 8.7 8.4
Revenues (% GDP) in Fiscal Year from 2015/16 34.9 31.3 32.8 33.0 33.2 33.0
Fiscal balance (% GDP) in Fiscal Year from 2015/16 -8.7 -7.2 -6.4 -5.4 -2.3 -2.0
Public debt (% GDP) in Fiscal Year from 2015/16 39.8 43.2 46.0 47.2 45.9 44.3
Current account deficit (% GDP) -13.7 -9.7 -9.4 -2.6 -0.8 -0.7
International reserves (months of imports) 2.8 3.0*
*
2.8 3.1 3.5 3.7
Source IMF (2016) based on reform scenario * 0.2% new GRN data ** BoN
5
2.3 Competitiveness of the Economy
2.3.1 Namibia has a relatively conducive investment climate, compared to the Sub-Saharan
Africa average but has to do more to catch up with peers. The country offers the advantages of
political stability and a favorable macroeconomic environment. It has an independent judicial system,
and has mechanisms for the protection of property and contractual rights, as well as good quality
infrastructure. Namibia’s membership of the SACU and the Southern African Development
Community’s (SADC) Free Trade Area, carries huge advantages, including a large regional market.
According to the World Bank’s 2017 Doing Business Report, Namibia has a ranking of 108 out of 190
economies, with five comparator countries in Africa (Mauritius, South Africa, Rwanda, Kenya and
Botswana) having a higher ranking. Starting a business (170th) and registering property (174th) have been
identified as being particularly difficult in Namibia. The 2016/17 Global Competitiveness Report ranks
the country 84 out of 138 economies, with a score of 4.0/7, representing a one-step improvement from
the previous year. Namibia performs relatively well in the Index of Economic Freedom, being ranked
78/180 economies.
2.3.2 Namibia ranks highly for its institutions, financial market development and labour market
efficiency. However, there are some problematic factors, such as lack of access to financing,
inadequately educated workforce, lack of access to land and inefficient government bureaucracy. The
Namibian Constitution provides for the protection of investments, and the country is a member of the
Multilateral Investment Guarantee Agency, and has bilateral reciprocal investment promotion and
protection treaties with over 20 countries. It has acceded to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States, but is yet to ratify it accession. The
country has also put in place attractive tax incentives for investors.
2.4 Public Financial Management
2.4.1 The 2015 Public Expenditure and Financial Accountability (PEFA) Assessment for
Namibia indicated progress in the implementation of PFM reforms. The adoption of medium-term
expenditure framework (MTEF), medium-term plans (MTP) and programme budgeting, among others,
has contributed significantly to progress made by the country in PFM reforms. The PEFA, however, also
noted considerable delays in finalising and promulgating key PFM laws, such as the Public Finance
Management Bill. As part of the preparation of this proposed EGCSP, the Bank undertook a Country
Fiduciary Risk Assessment (CFRA) for Namibia in February 2017. The CFRA shows that Namibia has
continued to make progress in the implementation of PFM reforms in the areas of revenue management,
budgeting process, cash and debt management, financial accounting and reporting, and procurement.
However, a number of challenges were identified, including delays in finalizing relevant legal and
regulatory frameworks, implementation of the Integrated Financial Management Information System
(IFMIS), development of systems linkages such as for human resources and the Treasury to boost
internal control, and implementation of audit recommendations (see paragraph 6.6.1 and the CFRA in
Technical Annex II for details).
2.5 Inclusive Growth, Poverty and Social Context
2.5.1 Namibia has initiated a number of policies and strategies to promote inclusive growth and
social progress but implementation remains a challenge. The poverty level in Namibia, according to
the 2016 Namibia Household Income and Expenditure Survey, is estimated at 18%, and the incidence
of poverty is higher among female-headed households compared to male-headed households, with
regional disparities. Unemployment rate stood at 28.1% in 2014 and it is higher among women (31.7%)
than men (24.3%). Youth unemployment is particularly serious, estimated at 53.7%. Namibia has
recorded a reduction in inequality in recent years, partly explained by the huge investment in the social
6
sector through the government’s social safety net program for the elderly, youth, people with disabilities,
orphans, and vulnerable groups.
2.5.2 The government recognizes the problem of poverty and inequality and has instituted
several measures to deal with them. It has developed a blueprint on wealth distribution and poverty
eradication as a policy framework aimed at advancing strategies for eradication of poverty and reducing
income inequality. The blueprint was approved by the Cabinet in August 2016. The Ministry of Poverty
Eradication and Social Welfare is currently (as at Feb 2017) developing the implementation plan to guide
the roll out of the blueprint.
2.5.3 GRN has prioritised education, health and social sectors in the national budget. Government
is committed to extending the provision of free education through to the secondary school level, and
improving teacher upgrading programs and facilities to enhance access to especially tertiary education
and vocational training. GRN is also committed to maintaining funding for the health sector in real terms
to address gaps in health facilities and improve service delivery. For every 100,000 births, 130 women
die from pregnancy related causes. Furthermore, Namibia also has one of the highest HIV prevalence
rates in the world, with women accounting for 53% of all reported new HIV cases20. In the context of
the ongoing fiscal consolidation efforts, and as outlined in the 2016/17 Mid-Year Budget Review and
Mid-Term Budget Policy Statement, the government has ring-fenced expenditures in education and
health to ensure that gains in the social sector are not eroded.
2.5.4 Namibia has put in place a robust social safety net as part of efforts to fight poverty and
inequality. The government intends to increase the social safety net grant with the objective of lifting
the beneficiaries above the national poverty line. Over the past fifteen years, child welfare grant has
expanded more than 29 fold in coverage, from 9,000 beneficiaries in 2002 to 261,183 in January 2017.
Moreover, about 202,000 people above the age of 60 years old benefitted from the universal social grant
for the elderly and persons living with disabilities. The Ministry of Poverty Eradication and Social
Welfare is developing a comprehensive policy, action plan, and implementation arrangement, together
with robust unified Monitoring and Evaluation framework. As part of its efforts to reduce food poverty,
the government introduced a “Food Bank”, which is a social benefit providing food packs to vulnerable
households. The program was introduced in June 2016 and is already benefiting 22,000 households, as
at February 2017, in Windhoek. The government plans to roll out the program to other parts of the
country.
III - GOVERNMENT DEVELOPMENT PROGRAM
3.1 Government overall Development Strategy and Medium-Term Reform
Priorities
3.1.1 Namibia’s Vision 2030 articulates the country’s long term development plan while the
National Development Plan (NDP) maps out its medium term implementation framework.
Currently in its fourth phase, the NDP, 2012/13-2016/17 was designed to help the country achieve three
main goals: high and sustainable economic growth, job creation, and reduction of income inequality.
The underlying goal of NDP is to address the country’s dual economy, a legacy of the colonial era when
a highly productive capital-intensive mining sector prospered, while the agro-based subsistence sector,
which employs the majority of the population, remained less productive. To redress this dichotomy, the
plan focuses on four key priority sectors: transport and logistics, tourism, manufacturing, and agriculture
and agro-processing. A review of NDP4 shows progress in reducing unemployment and inequality. The
launch of the Harambee Prosperity Plan (HPP) 2016-2020, by the new administration, reflects a sense
of urgency to achieve structural transformation in line with Vision 2030. The HPP, which is well aligned
20 National Gender Policy 2010. (need to up-date the statistic)
7
with the High 5s, has identified high priority areas in which to expedite reforms and scale up investments
under the NDP. The Fifth NDP (NDP5: 2017/2018-2021/22), scheduled for approval in 2017, will seek
to consolidate the gains made thus far and position the country for greater development outcomes. The
NDP5 will provide more detailed strategic actions for achieving the targeted results of the HPP.
3.1.2 To support the industrialisation agenda and facilitate creation of quality jobs, GRN launched in
2015 the ‘Growth at Home’ strategy. The strategy focuses on supporting value addition, upgrading and
diversification; securing market access at home and abroad and improving the investment climate and
conditions.
3.2 Challenges to National/Sector Development Program 3.2.1 Namibia continues to take steps to address national/sector issues. These challenges include
macroeconomic imbalances (huge fiscal deficit, double-digit current account deficit, and dwindling
foreign reserves), growing public debt, currently standing at about 39.8% of GDP, and deep-rooted
structural impediments which have kept unemployment high, and contributed to persistently high
inequality. Emerging vulnerabilities are presenting risks to macroeconomic stability, while longstanding
structural bottlenecks, such as the low level of public sector efficiency, skills mismatch and lack of
economic diversification, are reducing the capacity for greater job creation and income equality. In spite
of recent progress made (e.g. halving of poverty headcount since 2003/2004), Namibia has one of the
highest unemployment rates (28.1%) and remains one of the most unequal societies (Gini coefficient of
0.572) in the region, and steps are being taken to reduce inequality. This declining trend should be
encouraged.
3.2.2 Core macroeconomic headwinds and preserving macro-economic stability: The main task is
to put the medium-term fiscal framework on a sustainable path, so as to recapture investor confidence
and facilitate job-creating growth. The protracted expansionary fiscal policy that successfully stimulated
growth during 2010-2015 has eroded fiscal space and put public debt sustainability outlook on a
deteriorating path. The fiscal deficit and public debt level have breached the GRN’s own risk
benchmarks, while the current account deficit is in double digits and international reserves remain
persistently below the international benchmark of 3 months. These internal and external imbalances,
pose significant challenges to macroeconomic stability and erode market confidence, thereby making it
difficult to secure financing.
3.2.3 Supporting a coherent and comprehensive PFM Reform Strategy: The public sector also
faces the challenge of deepening institutional and legal reforms for improved quality and efficiency of
public spending and strong public financial management (PFM) and revenue administration. Policy
efforts to improve revenue administration have just started with the recent finalisation of the draft bill
for the establishment of a semi-autonomous Namibia Revenue Agency, which has been approved by
Cabinet. On public spending, the bloated wage bill which accounted for 16% of GDP and nearly half of
tax revenue at the end of 2015/16, and transfers to SOEs are particularly problematic. While SOEs play
an important role in social service delivery and public sector capital investments, they exhibit poor
governance and financial performance and represent a significant burden on public finances through
annual budget transfers. They are also a source of fiscal risk, through guaranteed debt estimated at 4.5%
of GDP.
3.2.4 Need for improving the business environment to support industrialization and economic
diversification: Namibia’s core development challenge is its dependence on mining as one of the
key growth drivers, which contributes to growth volatility, slow employment creation and income
inequality (Appendix VII). While mining accounts for the second largest share of GDP after wholesale
and retail trade as at end 2015, contributes nearly half of export earnings and offers the highest wage
rate, it employs only 2% of the labour force. Agriculture on the other hand is the biggest employer but
contributes less than 5 % share to GDP and has one of the lowest wage rates. Capacity for industrial
8
growth and greater economic diversification is constrained by business environment challenges (e.g. in
starting a business, registering property and buying industrial land), infrastructure bottlenecks, shortage
of skilled workforce, lack of financing for Micro, Small and Medium Enterprises (MSME) and weak
Public Private Partnerships (PPP) framework. This PBO is a great opportunity for Namibia to advance
bold reforms for long term competitiveness and job creating growth.
3.3 Consultation and Participation Processes
3.3.1 In preparing the proposed operation, the Bank undertook extensive consultations with key
stakeholders. These include GRN ministries, departments and agencies, development partners, the
private sector and civil society, to get their feedback on the programme design and policy matrix. The
outcome of the consultation reveals that, on the whole, they are supportive of the operation in view of
its relevance to the current Namibian context. The importance of fiscal consolidation and PFM reforms
for macroeconomic stability was highlighted. They also underscored the relevance of government’s
ongoing investment facilitation, industrial and MSME development related reforms and their potential
impact on business climate improvement, diversification, economic growth, and job creation. They
provided feedback on the programme design and policy matrix, which has been taken into account in
preparing the operation. The proposed operation is aligned with various government strategies, which
were themselves subject to wide ranging consultations. The Bank’s Directorate General South will
ensure continuous engagement with all key stakeholders throughout the implementation of the proposed
operation, including during half yearly supervision missions. See Paragraph 6.5.2 for monitoring and
evaluation arrangements.
IV - BANK SUPPORT TO GOVERNMENT STRATEGY
4.1 Link with the Bank Strategy
4.1.1 The proposed EGCSP is linked to one of the two pillars of the Bank Group’s Country
Strategy Paper (CSP), 2014-2018, for Namibia, namely private sector development through
improvement to the regulatory environment and skills development. The Bank’s key objectives under
the CSP, are closely aligned with the NDP 4 priorities and the Harambee Prosperity Plan (HPP: 2016-
2020). The proposed EGCSP is also aligned with the Private Sector Development core priorities of the
Bank Group Ten Year Strategy (2013-2022) and reinforced by two of the High-5s, namely, “Industrialize
Africa” (by supporting the legal and institutional framework for industrialization, SME development,
PPP, value addition and diversification) and “Improve the Quality of life for Africans”(by helping
improve the efficiency of spending and creating fiscal space to finance infrastructure and social
protection schemes). It is also closely linked to two of the three strategic pillars of the Bank Group
Governance Strategic Framework and Action Plan, 2014-2018 (GAP II), namely, Public Sector and
Economic Management, and Investment and Business Climate; and the Private Sector Development
Strategy, 2013-2017 (pillar 1 on investment and business climate). EGCSP’s linkage with both the CSP
and GRN’s development agenda is summarized in Table 2.
9
4.2 Meeting the Eligibility Criteria
4.2.1 Namibia has met the Bank Group’s Program-Based Operation (PBO) Eligibility Criteria
(Appendix III). The Government is committed to poverty alleviation, as evidenced by the content of
NDP4. The Harambee Prosperity Plan (HPP: 2016-2020), and various sector policies and strategies aim
at driving the Government’s poverty reduction and inclusive growth agenda. Namibia has enjoyed
political stability since attaining independence from South Africa in 1990. Elections are held regularly
and the current Government is continuing with the policies of upholding the fundamental rights and
freedoms enshrined in the Constitution. The December 2016 IMF Article IV Report, while noting deep-
rooted structural impediments, recognised that strong policy frameworks and expansionary domestic
policies have contributed to macroeconomic stability, robust growth and rising living standards. It noted
that the Government is taking steps to consolidate its economic gains and preserve macroeconomic
stability, particularly in view of the rising fiscal and external vulnerabilities. The Bank’s 2017 Country
Fiduciary Risk Assessment for Namibia puts the overall residual risk level as moderate, taking into
account the risk mitigation factors. This allows the Bank to maintain an approach based primarily on the
use of country systems. Steps have been taken to improve aid coordination in Namibia, including through
the establishment of the Annual High-level Development Partner Forum. The Forum has encouraged
development partners to align their assistance programs with the Government priorities identified in
NDP4, in line with the Paris Declaration.
4.3 Collaboration and Coordination with Other Partners
4.3.1 This is the Bank’s first general budget support for Namibia, and the Bank is the only
partner providing this kind of intervention. However, the proposed operation has been designed in
close consultation with development partners. The appraisal mission held meetings with the development
partners in Windhoek, who provided extensive input to the design of the operation and the policy matrix.
Input from the European Union Delegation, based on its experience in providing sector budget support
in Namibia, was instrumental in sharpening the focus. The operation also benefited from meetings with
the IMF and World Bank teams covering Namibia based in Pretoria and Washington. Two of the DPs
have also served as external peer reviewers.
4.3.2 As an upper Middle Income Country (MIC), aid-related partnerships in Namibia have been
limited due to the small number of development partners providing support. However, steps have
been taken to improve aid coordination and harmonisation. A high-level Development Partner Forum,
which fell dormant following its establishment in 2014, has since been revived in December, 2016. Co-
chaired by the National Planning Commission and the UN resident coordinator, the forum aims to
encourage development partners to align their assistance programmes with GRN priorities identified in
the NDP. At the sector level, coordination is effected through various sector working groups, which meet
regularly although currently their activities are not linked to the forum. The Bank will use the DP’s forum
to report on progress and seek feedback on implementation of the programme. It will work particularly
closely with the EU and Finish Embassy on PFM and revenue mobilisation; and with Deutsche
Table 2: Link between the NDP4, the CSP and the EGCSP
NDP4/HPP CSP: 2014-2018 EGCSP: 2017 – 2019
Strategic Objectives:
(i) Achieving high and sustainable economic growth;
(ii) Employment creation; and (iii)
Increasing income equality.
Strategic Objectives:
(i) To assist the Government to achieve a more inclusive and sustainable growth and
development trajectory through structural
and economic transformation.
Program Goal: Promote inclusive growth and economic
competitiveness and diversification through improved economic management and business environment
reforms.
Program Objective: Strengthening fiscal consolidation, public financial management and business environment.
Priorities:
The NDP4 focuses on four key priority
sectors: (i) transport and logistics; (ii) tourism; (iii) manufacturing; and (iv)
agriculture and agro-processing.
Strategic Pillars:
(i) Pillar 1: Infrastructure development –
transport, energy and water; and (ii) Pillar 2: private-sector development –
improving the business environment and skills.
Program Components:
(i) Advancing fiscal consolidation,; (ii) Strengthening
Public Financial Management and Public Sector Efficiency; and (iii) Improving the Business Enabling
Environment for Industrialization.
10
Gesellschaft für Internationale Zusammenarbeit (GIZ) on the business environment, to strengthen sector
working groups in these policy reform areas of the operation. 4.4 Relationship with Other Bank Operations
4.4.1 The Bank Group’s active portfolio in Namibia as at end November, 2016 comprised seven
operations with a total commitment of UA 394.2 million (Technical Annex V) . The financial sector
dominates the portfolio with 60.1%, followed by transport sector with 39.5%. The rest are Middle
Income Country (MIC) Grant technical assistance projects supporting Walvis Bay Corridor Group, PPP
institutional strengthening, statistical capacity building, and higher education quality assurance system.
The portfolio includes one operation funded through the ADB public-sector window – the New Port of
Walvis Bay Container Terminal Expansion Project (UA 155.7 million); two operations funded through
the ADB private-sector window – Corporate Loan to Trustco Finance Limited (UA 3.3 million) – and
the Line of Credit (LoC) to the Development Bank of Namibia (UA 233.4 million). The ADB accounts
for 99.3% of the financing, while MIC Grants account for 0.7%. The Country Portfolio Performance
Review of 2016 rated the overall performance of the portfolio as satisfactory, with an IPR rating of 3 on
a scale of 1 to 4. This is in line with the portfolio flashlight report, which shows that 57% of the portfolio
is performing satisfactorily above the regional average of 55%. There is no aged or problematic operation
or commitments at risk. The disbursement rate at 57.6% has significantly improved from 2.5% in 2014.
4.4.2 The proposed operation has strong synergies with the ongoing portfolio. The goal of the first
and second pillars of the operation namely Advancing Fiscal Consolidation and Strengthening PFM and
public sector efficiency is in line with the objectives of the Bank’s Technical Assistance (TA) to support
institutional strengthening of PPPs. Building the capacity of GRN to mobilise private financing and
reduce commercial risks for some of its public investments will support the on-going fiscal consolidation
measures and reinforce sound PFM. The goal of the third Pillar on Improving the Business environment
for Industrialization is in line with the objectives of the on-going NAMPORT Container Terminal
Expansion Project, the TA to the Walvis Bay Group, the Line of Credit to the Development Bank of
Namibia, the Trust Co project and the TA to National Council for Higher Education. The proposed
EGCSP and the new infrastructure development investment programme being prepared (Appendix VII)
also complement each other, in that while EGCSP supports policy and institutional reforms, the
development of transport infrastructure contributes to reducing the cost of doing business and hence
increases economic competitiveness and improves the overall business environment. The table below
presents lessons learnt (including PBOs in other countries) and how they have been reflected in
programme design.
Table 3: Key lessons learnt from ongoing/past operations
Key lessons learned How lessons are incorporated into the new operation (EGCSP)
Bank business processes continue to be lengthy and rigid. Speed, flexibility and
pragmatism in enforcing compliance with
policies and safeguards are of essence to ensure quick delivery of investment support
and to maintain competitiveness.
Capacity challenges in Namibia are a key
hindrance for project planning,
implementation and monitoring. There is need for close collaboration and to package
each lending operation with an MIC grant to support the capacity of the borrower
throughout the project cycle from
identification.
The Bank needs to leverage its convening
power to help improve the coordination of development partners.
The Bank needs to focus on high-priority measurable indicators closely aligned with
The Bank has fast tracked this operation waiving some of the usual processes to ensure timely delivery. This is necessary to provide GRN with predictable resources at the start
of the fiscal year, as it implements measures to address fiscal and current account deficits
and falling reserves. The budget support resources will be critical to preserving macroeconomic stability. The Bank will also speed up the disbursement process since
each phase will have a single tranche to be disbursed immediately after Board approval
following the fulfilment of the prior actions.
The operation uses a programmatic approach which introduces flexibility into the policy matrix for subsequent phases of the program. The indicators in the policy matrix
are fully owned by GRN and are realistic and achievable in the time frame of the program.
During appraisal there was strong involvement of all GRN ministries and departments
responsible for the identified reforms as well as the office of the Attorney General for the disbursement triggers. The Bank will also prepare TAs in the areas of SOEs and Public
Procurement to support the reform program, in addition to the ongoing MIC Grant
supporting PPP and investment planning.
In appraising this operation the Bank undertook extensive consultations with
development partners based in the country as well as those not in the country to seek their
input for improved design.
All indicators, prior actions and triggers were derived from the Government’s own
11
Government’s development programme.
Need to embed flexibility in programme
design, with the possibility of adapting to
changing circumstances during the
program period.
economic/sector plans and strategies and are fully owned by Government.
The choice of the programmatic approach was informed by the need for flexibility. It is
best suited to accommodate changing circumstances, with the possibility of reviewing
indicative triggers during appraisal of Phase II
4.5 Analytical Work Underpinning
4.5.1 The design of the proposed EGCSP was underpinned by numerous analytical work and
country reports. These include work done by the Bank, the IMF, the World Bank, GRN and other
development partners. The Bank’s thematic analytical work conducted in the context of the African
Economic Outlook in the area of Entrepreneurship and industrialisation, Sustainable cities and structural
transformation and Regional development and spatial inclusion, informed programme design. The
Economic and Sector Work on SME development in Namibia, which demonstrates that lack of economic
diversification is one of the key drivers of growth volatility, slow employment creation, income
inequality and high rural urban migration, also contributed to the background analysis. The analytical
work also helps show why industrialisation with active participation of SMEs provides the biggest
opportunity for creating quality jobs and reducing income inequality. The report is also informed by the
Public Expenditure and Financial Accountability (PEFA) Assessment that the GRN undertook in 2015
with the support of the Bank. The PEFA report provides a good benchmark for policy based lending and
further PFM technical assistance. The programme design was also informed by in-depth analytical work
by the IMF, conducted within the framework of the Article IV Consultation concluded in December
2016. The IMF Article IV report and the World Bank reports provide the basis for the macroeconomic
framework and the fiscal impact of the various measures proposed as well as business environment
reforms. Country policies and strategies, such as the budget documents, MSME Policy, Industrialization
Strategy and Financial Sector Development Strategy, also informed the operation’s design.
V - THE PROPOSED PROGRAM
5.1 Program Goal and Purpose
5.1.1 The goal of the proposed operation is to support the implementation of the Namibian
government’s medium term development agenda, aimed at accelerating inclusive growth and
sustainable development, by preserving macroeconomic stability, and addressing the challenges of lack
of diversification, high unemployment and income inequality. In this regard, the programme aims to: (i)
Advance fiscal consolidation through improved revenue collection, and enhanced efficiency in public
spending; (ii) Strengthen public financial management and public sector efficiency by improving the
public procurement, internal and external audit functions and the governance framework for SOEs; and
(iii) Improve the business environment through enhancement of the investment facilitation framework,
and improving the framework for industrial and MSME development.
5.2 Program Components
5.2.1 The package of reforms under the proposed program is organised around three mutually
reinforcing and complementary components. Component 1, on advancing fiscal consolidation, would
enhance macroeconomic performance, create fiscal space for the prioritization of capital and social
spending, and improve the environment for private sector development. Measures proposed under
component 2, on strengthening PFM and public sector efficiency, would reinforce the attainment of the
fiscal consolidation objective by improving the management of public finances and reducing subsidies
and transfers to commercial SOEs. Measures under component 3 are focused on improving the business
environment to support industrialization, spur growth and job creation. Their implementation will
reinforce the fiscal consolidation measures through increased tax revenue expected to be generated from
a more vibrant private sector. The reduced funding needs as a result of PPPs also reinforces fiscal
consolidation. It is a balanced program combining fiscal, PFM and MSME and industrial development
12
reforms, with prioritization of capital and social spending to mitigate possible negative social impact of
fiscal consolidation on the poor and the vulnerable. The expected overall impact is: (i) an increase in real
GDP from 1.6% in 2016 to 3.3% in 2019; (ii) a reduction in poverty from 18% in 2015 to 12% in 2019;
and (iii) reduction in unemployment from 28.1% in 2014 to 20% in 2019.
Component 1: Advancing Fiscal Consolidation
5.2.2 Challenges and Constraints: Having recorded robust economic progress and macroeconomic
stability in the past several years, Namibia, since 2015, has been confronted with huge fiscal imbalances
driven by revenue shortfall, rising wage bill, and rising public debt, threatening macroeconomic stability.
Declining SACU revenue, rising wage bills and the depreciation of the Namibian dollar drove fiscal
deficit and current account deficit to about 8.3% and 13.7% of GDP, respectively, in 2015/16. The latest
IMF debt sustainability analysis for Namibia shows that the country’s debt sustainability outlook,
particularly for public debt, have deteriorated recently. Rising public debt and high financing needs pose
serious sustainability and liquidity challenges. The outlook will remain challenging in the absence of
bold fiscal consolidation and reforms in the face of uncertainty in SACU revenue, which have been
volatile historically, and worsened by weak commodity prices and subdued economic activity in South
Africa. Reforms will have to be implemented to better prioritise spending and increase revenue.
5.2.3 Recent Government Actions: GRN aims at preserving macroeconomic stability while
safeguarding capital and social spending. In this regard, it has taken a number of steps geared towards
the reduction of expenditure, the fiscal deficit and debt levels. The government, in the mid-year review
of the 2016/17 budget, announced bold fiscal consolidation measures to improve quality and efficiency
of public spending, while strengthening revenue mobilisation to put public debt on a declining path. On
the spending side, the authorities have already started implementing some measures to contain the public
sector wage bill, and curtail transfers to commercial SOEs and other entities. Moreover, fiscal policy has
recently turned a tightening course. With the FY2016/17 budget and mid-year revised budget, the
government started implementing spending cuts and announced medium-term fiscal consolidation plans
to progressively reduce public debt. Measures already taken include the introduction of further spending
reductions of about 2.8% of GDP for the remainder of FY2016/17. Reductions included a freeze on new
hiring, and cuts to non-critical capital and non-wage recurrent expenditure. On the revenue side, the
government has put in place incentives to encourage payments of outstanding tax arrears. Development
Partners, such as IMF, EU and GIZ, will support MoF in enhancing revenue collection, including through
the establishment of the Namibia Revenue Agency. The authorities have also embarked on the process
of re-prioritizing the structure of public spending towards critical capital investments and social
spending. The authorities recognized that achieving their medium-term fiscal targets require additional
fiscal adjustment and have indicated their intention to undertake additional reform measures.
5.2.4 Program Activities: The Bank’s operation is aimed at supporting the deepening of fiscal
consolidation and ensuring that it is anchored to a credible medium-term plan that minimizes the
negative impact on growth. Activities under this component in this first operation of the programmatic
series include: (i) approval by Cabinet of a comprehensive set of measures proposed by the Prime
Minister’s Office to contain the wage bill (Prior Action). This will improve expenditure efficiency, limit
the fiscal burden of personnel emolument on the budget, and result in savings estimated at 0.35% of
GDP in 2017/18; (ii) approval by Cabinet of the Bill for the Establishment of the Namibia Revenue
Agency, which seeks to merge the Inland Revenue Departments and Customs (Prior Action); (iii)
approval by Cabinet and submission to Parliament of the Macro-Fiscal Framework for the FY 2017/18
Budget (Prior Action); and (iv) increase in the size of the social expenditure budget. Cumulatively, these
policy actions will strengthen fiscal consolidation.
5.2.5 The subsequent operation under the programmatic series will support further actions to
reinforce fiscal consolidation. These include: (i) completion of a study on the size of the public service
13
wage bill; (ii) appointment of a Board and Commissioners of the NRA and the launch of an Integrated
Tax Administrative System; and (iii) introduction of a new Sovereign Debt Management Strategy that
lays down polices to elongate the maturity of debts, diversify sources of financing of the budget deficit,
and issue new instruments to mobilize additional resources. These measures, coupled with the adoption
of pro-growth fiscal consolidation path, will further reinforce debt sustainability.
5.2.6 Policy actions supported by the proposed operation will result in the enhancement of fiscal
consolidation through: (i) 5.7% growth in revenue during the MTEF period 2017/18 - 2019/20. (ii)
decrease in the wage bill as % of non-interest expenditure to 45% in 2018/19 from 49% in 2016/17.
Component 2: Strengthening Public Financial Management and Public Sector Efficiency
5.2.7 Challenges and Constraints: Lack of a coherent and comprehensive PFM Reform Strategy
is a key challenge and a limiting factor in the GRN PFM reform efforts. There have been considerable
delays in finalising relevant legal and regulatory frameworks, including the promulgation of key PFM
laws, such as the Public Finance Management Bill, and the Audit Bill. Other challenges include delays
in the approval of the new Public Sector Internal Audit Policy, implementation of public procurement
reforms, implementation of the IFMIS, development of systems linkages, such as for human resources
and the Treasury, to boost the internal control systems and implementation of audit recommendations.
Moreover, significant capacity constraints continue to undermine PFM reform efforts, most notably,
weak capacity in fiscal planning, procurement, budget analysis and auditing, the latter evidenced by the
significant outsourcing of auditing assignments. Challenges related to the State Owned Enterprises
(SOEs) include existing poor governance arrangements and poor financial performance which represent
a significant burden on public finances through annual budget transfers, and hence remains a source of
fiscal risk (Technical Annex IX).
5.2.8 Recent Government Actions: The above challenges and constraints notwithstanding, GRN
has implemented a number of reforms to strengthen PFM and Public Sector Efficiency. These
include payroll reforms to ensure complete linkages between personnel and payroll databases. There is
an on-going effort to revise the State Finance Act 1991 and/or replace it with a PFM Act. There is also
a longstanding effort to promulgate a Public Audit Act. The passage of these bills into law will strengthen
institutional independence and capacity for sound public financial management. A new Public
Procurement Act was passed in 2015 and the related Regulations were recently issued. The Public
Procurement Act (2015) centralizes public procurement for central Government Entities and creates a
dual responsibility system in processing procurement contracts between the Central Government Entities
and a Central Procurement Board.
5.2.9 Programme Activities: The proposed operation will support a number of measures aimed at
strengthening the PFM function and improving public sector efficiency. These include measures to
bring into force the PFM Act, Auditors Act and Public Procurement Act, amongst others. It will, thereby,
contribute to strengthening the strategic anchor of PFM reforms, including procurement and contract
management, and improving transparency and accountability. In this context, the proposed operation
will support the following policy actions: (i) Completion of at least 2 Public Expenditure Tracking
Surveys (PETS); (ii) Cabinet Approval of the Auditors Bill; (iii) Issuance of the Regulations for the
Public Procurement Act (2015) and its publication in the Official Government Gazette (Prior Action);
and (iv) Cabinet Approval of the hybrid governance model for Public Enterprises (Prior Action), which
provides for separating State Owned Enterprises into 3 clusters (commercial, financial and social)..
5.2.10 The subsequent operation under the programmatic series will support further actions to
reinforce public financial management and public sector efficiency. These include: (i) Cabinet
approval and submission to Parliament of the Public Financial Management Bill; (ii) Cabinet approval
of the new Public Sector Internal Audit Policy to provide a coherent framework for the internal audit
function; (iii) Automation of the Human Resource Management Information System (HRMIS) and the
14
integration to IFMIS; (iv) The implementation of the Public Procurement Act (2015) by (1) Setting up
(a) the Procurement Policy Unit (PPU), in accordance with part 2 Art 6 (1) of the Act; (b) the Central
Procurement Board of Namibia, in accordance with part 3 Art 8 (1) of the Act; and (c) the Review Panel,
in accordance with part 7 art 58. (1) of the Act; and (2) Preparation of annual Procurement Plan, and
approval and adoption of Standard Bidding Documents for works, goods and services; (v) Submission
to Parliament of the Public Enterprises Governance Amendment Bill which, amongst others, gives the
Ministry of Public Enterprises shareholding right over commercial related SOEs.
5.2.11 Policy measures supported by the EGCSP will strengthen public financial management and
efficiency of state owned enterprises, through an improvement in external audit (PEFA score of C+
from the 2015 score of D+); improvement in internal audit (PEFA score of B from the 2015 score of C);
an improvement in public procurement (PEFA score of C+ from the 2015 score of D+); and SOEs
compliance with the SOE Governance framework (75% in 2017/18 and 85% in 2018/19 ).
Component 3: Improving the Business Environment for Industrialization
5.2.12 Challenges and Constraints: While the Government of Namibia has made huge strides over
the years to improve the business environment, many challenges remain. The 2017 World Bank
Doing Business Report has ranked Namibia 108 out of 190 economies, a deterioration of 4 places from
2016. The report highlighted starting a business as particularly difficult in Namibia (It takes on average
66 days and 10 procedures to start a business). The 2016/17 Global Competitiveness Report also cited
lack of access to financing, inadequately educated workforce, and inefficient government bureaucracy
as some of the most problematic factors. Shortage of critical skills continues to negatively impact
Namibia’s economic competitiveness. The Government has embraced Public Private Partnerships (PPP)
as an innovative funding instrument but the legal and regulatory framework needs to be put in place. The
Government, in 2015, launched the Growth at Home strategy to drive the industrialization agenda
envisaged under the industrial development policy of 2012. However, the absence of a well-functioning
institutional framework to coordinate its implementation remains a challenge. The institutional
frameworks for micro, small and medium enterprise (MSME) has been clarified in the policy of 2016
but needs to be operationalised. While an SME Bank is now fully operational following its establishment
in 2012, issues of availability of venture capital, collateral requirements and business mentoring still
need policy push to further enhance access to finance. Simplifying business regulations (e.g. starting a
business, registering property, buying industrial land) can help improve employment elasticity. They can
help boots labour intensive MSMEs and the manufacturing sector, with positive employment effects.
The policy environment is gradually improving but the pace of implementation needs to be expedited.
5.2.13 Recent Government Actions: The Government of Namibia has taken numerous steps with a
view to improving the business environment and facilitating economic transformation. In 2015, the
Government adopted the “Growth at Home” strategy, which aims at driving Namibia’s industrialization
interventions in the strategic areas of value-addition, economic diversification, and securing market
access, with a view to reaping the benefits of domestic and regional value chains and improving the
investment climate. In an effort to enhance greater access to development finance the Government
continues to take steps to crowd-in private sector investment through implementation of a reviewed fiscal
incentive regime and diversification of sources of financing through leveraging PPPs. In November
2016, the Government approved the National Policy on Micro, Small and Medium Enterprises
(MSMEs). In December 2016, an Industrial Development Agency Act was passed by Parliament to pave
the way for the creation of the necessary institutional arrangements to facilitate the implementation of
Namibia’s Industrial Policy. An Investment Promotion Act, providing for a dispute settlement
framework, among others, was also passed by Parliament recently. The recent issuance of the Regulation
for the Business and Intellectual Property Authority (BIPA) Act, will create the basis for online business
registration and licensing.
15
5.2.14 Program Activities: The proposed operation will support a range of measures geared
towards improving the business environment. These include actions that support the modernization
and strengthening of the investment facilitation regime, industrial development, value addition and
diversification, as well as SME development. In this context, the proposed operation will support the
following policy actions: (i) Approval by Cabinet and Submission to Parliament of the Investment
Promotion Act, which among others, provides for a dispute resolution mechanism; (ii) Approval by
Cabinet and Submission to Parliament of the Business and Intellectual Property Authority (BIPA) Act,
which among others provides for online business registration and licensing; (iii) Regulations for the
BIPA Act issued and published in the official gazette; (iv) Cabinet Approval and Submission to
Parliament of the Public Private Partnerships (PPP) Bill (Prior Action); (v) Cabinet Approval and
Submission to Parliament of the Industrial Development Agency Bill (Prior Action); and (vi) Approval
by Cabinet of a National Policy on Micro, Small and Medium Enterprises (Prior Action), which provides
a strong basis for addressing the challenges of MSMEs.
5.2.15 The subsequent operation under the programmatic series will support further actions to
build on achievements in improving the business environment. These include: (i) Operationalization
of an Integrated Client Service Facility, providing online business registration capability (currently
limited to name recognition); (ii) Establishment of a PPP Committee provided for by the draft PPP
Legislation; (iii) Approval of Regulations for the PPP Act; (iv) Establishment of Sector Committees and
an Inter-ministerial Committee to drive the implementation of the Growth Strategies for 10 industries;
(v) Approval by Cabinet of a draft framework on fiscal and non-fiscal incentives for MSMEs ; (vi)
Issuance of Regulation for the Investment Promotion Act; and (vii) Approval by Cabinet and submission
to Parliament of a Micro-lending Bill, to address the challenge of lack of access to finance.
5.2.16 Policy actions supported by the proposed operation will result in an increase in private
investments to 25.5% of GDP in 2018/19 (from 22% in 2015/16). It will also help create 300 new
micro, small and medium enterprises.
5.3 Policy Dialogue
5.3.1 Dialogue with the Government will focus on the need to: (i) deepen fiscal consolidation to enhance
macroeconomic stability and preserve the country’s strong credit rating. The focus will be on
strengthening efforts to contain the wage bill, and enhancing government revenue by supporting the
establishment of the NRA. (ii) governance reforms aimed at enhancing the performance of state owned
enterprises; and (iii) accelerate business environment and economic diversification reforms for job
creation and inclusive growth. To complement the dialogue and ongoing support in the area of PPP, the
Bank will, in collaboration with the EU, Finish Embassy and GIZ, provide technical assistance to support
the GRN’s efforts to improve SOE performance and build capacity for the operationalisation of the
Public Procurement Unit in the Ministry of Finance.
5.4 Loan Conditions
5.4.1 Prior Actions for 2017/18 and indicative triggers for phase 2 of the operation: Before the
proposed operation is presented to the Board for approval, the prior actions presented in Table 4 below
would have been met by the authorities and the required documentary evidence submitted to the Bank.
Appendices IV and V also show indicative policy actions that will serve as triggers for the second phase
of the operation, subject to modification during the preparation of the streamlined program appraisal
report in 2018. All the prior actions and triggers are drawn from the matrix jointly agreed between the
Government of Namibia and the AfDB during the program appraisal mission.
16
5.5 Application of Good Practice Principles on Conditionality
5.5.1 The design of the proposed EGCSP is in line with good practice principles on
conditionality. The reform policy matrix is fully owned by GRN. This is reflected in its policy reform
program (Letter of Development Policy, Appendix I). EGCSP was designed in line with GRN’s reform
program and in harmonization with the principles of the recently established Namibia donor coordination
group and development partners’ programs and operations in Namibia. The proposed EGCSP contains
a number of prior actions in critical areas aligned to the government program. Details of compliance
with Good Practice Principles of Conditionality are outlined in Technical Annex X.
5.6 Financing Needs and Arrangements
Table 5: Financing Requirements and Sources, 2016/17-2019/20
Table 4: EGCSP Prior Actions and Required Evidence for FY 2017/18 EGCSP Prior Actions Evidence required
Advancing Fiscal Consolidation
1 Cabinet Approval of the Bill for the Establishment of the Namibia Revenue Agency
Copy of signed letter from the Ministry of Finance confirming approval of the Bill.
2 Cabinet Approval of a comprehensive set of measures proposed by the
Prime Minister’s Office to contain the wage bill.
Signed Cabinet Action Letter from the Ministry of Finance confirming
Cabinet approval of the measures.
3 Cabinet approval and submission to Parliament of the Macro-Fiscal Framework for the FY 2017/18 Budge
Signed Cabinet Actionletter from the Ministry of Finance confirming Cabinet approval of the Fiscal Strategy, the proposed policy
measures and the fiscal policy stance for FY 2017/2018 – 2019/2020
MTEF Strengthening Public Financial Management and Public Sector Efficiency
4 Issuance of the Regulations for the Public Procurement Act (2015) and its
publication in the Official Government Gazette.
Copy of the Regulation and the Gazette
5 Cabinet Approval of a hybrid governance model for Public Enterprises, which provides for separating State Owned Enterprises into 3 clusters
(commercial, financial and social)
Cabinet Action Letter from the Ministry of Finance confirming Cabinet approval of the model.
Improving the Business Environment for Industrialization
6 Cabinet Approval and Submission to Parliament of the Public Private Partnerships (PPP) Bill.
Copy of Memo/letter from the Ministry of Finance confirming transmission of the Bill to Parliament, together with a copy of the Bill.
7 Cabinet Approval and Submission to Parliament of the Industrial
Development Agency Bill
Copy of signed Cabinet Action letter from the Ministry of
Finance/Attorney General confirming transmission of the Bill to Parliament, together with a copy of the Bill.
8 National Policy on Micro, Small and Medium Enterprises approved by
Cabinet.
Copy of Memo/letter from the Ministry of Finance, confirming
Cabinet approval of the Policy, together with a copy of the policy.
FY 2016/2017 FY 2017/2018 FY 2018/2019 FY 2019/2020
N$
Billion
USD
Billion
N$
Billion
USD
Billion
N$
Billion
USD
Billion
N$
Billion
USD
Billion
GDP 158.62 11.10 171.03 11.97 183.97 12.88 199.51 13.97
Total revenue and grants 51.51 3.61 56.43 3.95 57.19 4.00 60.80 4.26
Of which: grants (excl, budget
support) 0.16 0.01 0.16 0.01 0.17 0.01 0.17 0.01
Total expenditure and net
lending 61.50 4.30 62.54 4.38 61.86 4.33 62.72 4.39
Of which: interest payments 3.88 0.27 5.00 0.35 4.26 0.30 3.13 0.22
Of which: capital expenditure 17.45 1.22 15.39 1.08 20.24 1.42 21.95 1.54
Overall balance (cash basis)
(A - B) -9.98 -0.70 -6.12 -0.43 -4.67 -0.33 -1.93 -0.13
Accumulation of arrears 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Overall balance (commitment
basis) (C - D) -9.98 -0.70 -6.12 -0.43 -4.67 -0.33 -1.93 -0.13
External financing (net – minus
Bank) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Domestic financing (net) 0.00 0.00 3.12 0.22 1.67 0.12 1.93 0.13
17
5.6.1 The GRN estimates
the budget deficits for the
fiscal years 2016/17,
2017/18 and 2018/19 at
N$9.98 billion, N$6.12
billion and N$4.67 billion,
respectively (Table 5 from GRN sources). The budget deficits (as a percent of GDP) for the 2016/17,
2017/18 and 2018/19 fiscal years are projected at 6.3%, 3.6% and 2.5% respectively. The total deficit
over the MTEF period (2016/17 – 2018/19) adds up to N$20.77 billion. For the 2017/18 – 2018/19
period, the government plans to finance the nominal deficit with the AfDB budget support of N$3 billion
each year. The balance of N$ 3.12 billion and N$ 1.67 billion will be financed from the domestic market
in 2017/18 and 2018/19, respectively.
5.7 Application of Bank Group non-concessional borrowing policy
5.7.1 Namibia is classified as an ADB country and is, therefore, only eligible for financing under
the ADB non-concessional window. Results from the IMF’s Debt Sustainability Analysis (DSA) for
Namibia, published in December 2016, indicate that Namibia’s debt sustainability indicators have
deteriorated, particularly for public debt. This is caused largely by external shocks. The DSA also notes
that the recent increase in public debt (which more than doubled from 16% to 39.8% of GDP between
FY10/11 to FY15/16) and high gross financing requirements raise both sustainability and liquidity
concerns. Exchange rate and rollover risks are also estimated to have increased as at end 2015 because
of the larger share of non-Rand denominated debt (42 percent of public debt) and increased reliance on
short-term debt (about 43 percent of public domestic debt). The public debt outlook is also viewed by
the DSA as being exposed to risks from delays or insufficient fiscal consolidation, volatile SACU
revenues and macroeconomic shocks.
5.7.2 The proposed loan under the EGCSP is to be denominated in South African Rand (ZAR)
and will help address the country’s financing needs as it implements its fiscal consolidation plans
to help curtail the rising public debt burden. The proposed loan should help to improve the
composition of Namibia’s public debt structure by enabling the Government to secure substantial
funding at lower lending rates, and at a longer maturity than Namibia would otherwise be able to access
elsewhere (Technical Annex 11). Furthermore, given the Namibian dollar’s peg to the South African
Rand (ZAR) and Namibia’s membership of the Common Monetary Area, the proposed loan’s ZAR
denomination should help achieve the dual objective of avoiding an increase in external public debt
obligations and increasing foreign exchange reserves. Overall this is expected to be supportive of
Namibia’s goal of maintaining its investment-grade rating status with international agencies, provided
the Government achieves its fiscal consolidation and debt reduction objectives.
VI - OPERATION IMPLEMENTATION
6.1 Beneficiaries of the Program
6.1.1 The direct beneficiaries of the EGCSP will be the Ministry of Finance, Ministry of
Industrialization, Trade and SME Development, Ministry of Public Enterprises and other
ministries and agencies in charge of public financial management and business environment
reforms. The entire population of Namibia will ultimately benefit from the ongoing fiscal consolidation
efforts, through the resultant fiscal space which will help to fund infrastructure development. Creation
of fiscal space will also guarantee pro-poor expenditures for basic social services delivery, which benefit
the poor and other vulnerable groups. The entire population will also benefit from improved governance
AfDB PBO 0.00 0.00 3.00 0.21 3.00 0.21 0.00 0.00
Financing (F + G+H) 0.00 0.00 6.12 0.43 4.67 0.33 1.93 0.13
Financing gap (-E - J), financed
by: 9.98 0.70 0.00 0.00 0.00 0.00 0.00 0.00
Identifed measures
(cumulative deficit reducing) 0.00 0.00 0.00 0.00
Others
Residual financing gap
(I – J – K – L) 9.98 0.70 0.00 0.00 0.00 0.00 0.00 0.00
18
of state owned enterprises through improved performance of SOEs and enhanced service delivery. The
private sector will also benefit from an increased competitiveness of the economy, resulting from
macroeconomic stability, PPP opportunities, and an enhanced investment facilitation framework
supported by the programme. MSMEs, including women owned enterprises, will particularly benefit
from the improved policy, legal, regulatory and institutional framework for industrial and MSME
development.
6.2 Impact on Gender, Poor and Vulnerable Groups
6.2.1 Impact on gender: The Government of Namibia is committed to empowering women, reducing
gender inequality, and eliminating all forms of discrimination. The Government has initiated a number
of national policies and laws addressing gender-related challenges. Namibia is a signatory to several
international gender conventions, all of which uphold the principles of gender equality. The revised
Gender Policy seeks to create an enabling environment for different sectors to mainstream gender. In
2014, the Government approved the Gender Responsive Budgeting Initiative. Accordingly, the Ministry
of Finance has incorporated gender guidelines into the budget call circular. The 2014 Gender
Development Index (GDI) shows that Namibia is closing the gender gap. The reforms supported by this
operation will positively influence efforts geared towards reducing gender inequality. The policies and
actions under Component 3 (improving the business environment) will help to create jobs, facilitate the
growth of micro, small and medium enterprises (MSMEs), including through support to implementation
of growth strategies for 10 industries that predominately employ women. Support to procurement
reforms, will among others, increase access to procurement opportunities for MSMEs, including those
headed by women.
6.2.2 Impact on poor and vulnerable groups: The reforms supported by this operation will positively
influence efforts geared towards reducing poverty and vulnerability. The implementation of the
HARAMBEE Prosperity Plan, Growth at Home (Execution Strategy for Industrialization), and the Broad
Based Economic Empowerment Framework are addressing economic and social constraints to achieve
universal access to basic services and unlock the full potential of all Namibians. The Government Fiscal
Policy Strategy for 2016/17 - 2018/19 provides for the implementation of targeted measures to reduce
poverty and vulnerability. Some of the specific measures include (i) supporting investments in the
priority economic and social infrastructure; (ii) implementing policies which promote local access to,
and ownership of the resources; and (iii) strengthening the quality and coverage of Old Age Pension,
Orphan and Vulnerable Children and disability grants as a first line of defence against poverty for the
vulnerable members of society. By helping provide the much needed fiscal space in the context of fiscal
consolidation, and targeting an increase in social spending, the proposed programme will give a boost to
the transformation of both economic and social sectors, and positively impact the poor and vulnerable
groups. It will help GRN to fulfil its commitment to ensuring adequate funding for key social sectors.
6.3 Impact on Environment and Climate Change
6.3.1 The EGCSP is classified as Category 3, in accordance with the requirements stipulated in the
Bank’s Integrated Safeguard System (ISS) and the Environmental and Social Assessment Procedures
(ESAP). The validation of the category is based on the fact that the programme focuses solely on policy
and institutional reform measures, with no direct or indirect adverse environmental, climate change and
social impacts. Components 1 and 2 address fiscal consolidation and PFM reforms while component 3
addresses business environment reforms. None of these affects the environment or climate change in any
way. Supporting the improvements in policies and institutions for managing public resources, and
contributing to the Government’s ongoing efforts to create jobs, reduce poverty and income inequality
19
are rather likely to have a positive social impact. In the long run, the positive social impacts will
contribute to improved standards of living.
6.4 Impact on Private Sector Development
6.4.1 The EGCSP is expected to have a positive impact on Namibia’s economic competitiveness
and private sector development. The component on fiscal consolidation will help create
macroeconomic stability, which is necessary for attracting long term private investments. By helping
create fiscal space for increased investment in infrastructure, the programme will enhance Namibia’s
economic competitiveness, reduce the cost of doing business, and hence boost private sector
development. Other reforms targeting the strengthening of public financial management (including
public procurement) and improved governance of state owned enterprises will eventually help improve
efficiency of public spending, minimise leakages and hence contribute to macroeconomic stability and
enhanced public service delivery, which will benefit the private sector. Business environment reforms
targeting improved business registration and licensing and enhanced dispute resolution framework will
create immense benefits to the private sector. Development of the PPP framework will provide the
necessary comfort to the private sector to make long term investments in infrastructure and related
services and create business opportunities. The industrial and SME development focus of the operation
will also create opportunities for micro, small and medium enterprises through the strengthening of the
policy, legal, regulatory and institutional framework.
6.5 Implementation, Monitoring and Evaluation
6.5.1 Implementation Institutional Framework: The Ministry of Finance will serve as the implementing
agency for the EGCSP. It will also be responsible for the overall coordination of the programme, by
working closely with other Ministries and agencies such as the Ministry of Industrialization, Trade and
SME Development and the Ministry of Public Enterprises. The Ministry of Finance has the necessary
capacity to coordinate the implementation of the programme. The Bank will explore the option of
providing additional capacity development support through MIC Grants, to complement ongoing support
by other Development Partners, such as the EU. The Bank is also currently supporting the Ministry of
Finance and other Government ministries and agencies through an ongoing MIC Grant supporting public
private partnerships and public investment management.
6.5.2 Monitoring and Evaluation Arrangements: The main framework for monitoring and evaluation
of the EGCSP will be the Operations Policy Matrix (see Appendix IV and Technical Annex III), agreed
between the Government of Namibia and the Bank, as well as the quantitative and qualitative indicators
defined in the Results-Based logical Framework. The Ministry of Finance, with the support of the
National Statistics Agency and other relevant bodies, will be responsible for collecting data and
coordinating monitoring and evaluation, and will make information available to the Bank, as necessary.
The Bank will monitor the implementation of the Program through regular supervision missions and
constant follow-ups to assess progress achieved based on the agreed indicators and triggers. In the
absence of a Country Office in Namibia, the Southern Africa Regional Development and Business
Delivery Office will play a critical role in follow-up of implementation and monitoring of program
results and, in particular, drive the policy dialogue with Government and maintain regular consultations
with Development Partners. This operation will be followed by a second operation in 2018, to complete
the programmatic series. Following completion of the second operation, a Program Completion Report
(PCR) will be prepared to evaluate progress against the Results-Based Logical Framework and to draw
lessons for future operations.
20
6.6 Financial Management, Disbursement and Procurement
6.6.1. Country Fiduciary Risk Assessment (CFRA)
According to a CFRA carried out in accordance with the Bank’s guidelines, Namibia has made progress
in the implementation of public financial management reforms over the years in the areas of budgeting
process, cash and debt management, revenue management and financial accounting and reporting. Many
of these reform interventions have resulted in a measurable impact on PFM performance as indicated in
the 2015 Public Expenditure and Financial Accountability (PEFA) Assessment carried out with the
assistance of the Bank. While acknowledging achievements made in core areas of PFM, there remains
challenges relating to the legal and regulatory framework, and roll out and integration of the Integrated
Financial Management System (IFMIS) to the regions. Others include the establishment of an integrated
modelling tool for Fiscal Planning, the development of systems linkages such as for human resources
and the Treasury for boosting the internal control systems and implementation of audit
recommendations. There are currently ongoing PFM reform initiatives (Bank and other donor funded)
underway to address these challenges. These include the Bank funded support to Public Private
Partnership (PPP) and investment planning; and review of IFMIS, with the assistance of AFRITAC
South, a capacity-building programme (the Institutional Capacity Development Program ICDP) aimed
at enhancing the effectiveness of revenue, budget and public expenditure management and supporting
the Office of the Auditor General in strengthening its external audit functions funded by the European
Union. In order to maintain the momentum on PFM reform, the GRN needs to consolidate these efforts
into a comprehensive reform strategy. It is expected that the implementation of these reforms will further
lead to improvements in the country PFM systems. Taking into account progress made since the last
PEFA exercise in 2015 and the risk mitigation factors, the overall residual risk level is deemed moderate
(Technical Annex II). This allows the Bank to maintain an approach based primarily on the use of
country systems, while continuing its support, where required, for the system’s reform aimed at their
further improvement.
6.6.2 Financial Management, Audit and Reporting Requirements
6.6.2.1 Financial Management, Audit and Disbursement Arrangements:
The debt management unit within the Ministry of Finance will play a central role in the financial
management of the overall program, including overseeing the drawdowns, planning for the use of funds,
related controls, reporting as well as arrangements for oversight. The disbursement will be effected based
on achievement of agreed prior actions as indicated in Table 4. The loan proceeds will be credited to a
designated account denominated in ZAR, to be indicated by GRN and opened at the Bank of Namibia
(BoN), dedicated to receiving the proceeds of the Loan, in accordance with the AfDB disbursement
procedures. GRN will be required to acknowledge receipt of the funds, and to provide confirmation to
the Bank that an amount equivalent to the loan proceeds in local currency has been credited to the
Treasury Account within five working days of the disbursement from the Bank. The programme will
rely on national external audit of the Government budget as well as an annual Flow of Funds audit by
the Office of the Auditor General. The flow of funds audit will be performed in accordance with Bank-
approved audit Terms of Reference, and the audit report together with the auditor’s management letter
submitted to the Bank within six months after the end of the respective financial year. In addition,
reviews will also be done of the government national accounts and audit report as part of the overall
program monitoring.
6.6.2.2 Procurement:
In line with the Bank’s PBO policy, the country’s procurement systems will be used. The CFRA
concluded that the overall risk level of the country’s procurement system is substantial, and the residual
21
risk is rated moderate, taking into account the ongoing and planned reforms and mitigation measures.
EGCSP will support and monitor the implementation of key policy actions to reduce fiduciary risks
related to procurement, including (i) adoption of procurement regulations; (ii) setting up of a
Procurement Policy Unit, Central Procurement Board and Review Panel; (iii) preparation of an annual
procurement plan; (iv) approval and adoption of Standard Bidding Documents for works, goods and
services; (v) implementation of a capacity building program for accounting officers.
VII - LEGAL DOCUMENTATION AND AUTHORITY
7.1 Legal Documentation
7.1.1 The Loan Agreement between the African Development Bank and the Republic of Namibia.
7.2 Conditions Associated with the Bank’s Intervention
7.2.1 Conditions Precedent to Entry into Force of the Loan Agreement: The entry into force of the
Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 12.01 of
the General Conditions Applicable to Loan and Guarantee Agreements of the Bank.
7.2.2 Prior Actions: Before the proposed operation is presented to the Board, GoN shall have provided
evidence, satisfactory in form and substance to the Bank, that the prior actions for the EGCSP outlined
in Table 4 have been fully fulfilled.
7.2.3 Conditions precedent to disbursement of the funds of the EGCSP: Disbursement of the loan
amount of 3 billion Rand (ZAR) shall be conditional upon the entry into force of the Loan Agreement,
the transmission to the Bank of the details of a ZAR-denominated account opened with the Bank of
Namibia for purposes of receiving the proceeds of the Loan.
7.2.4 A Streamlined Appraisal Report (SAR) for the second year of the programmatic series (EGCSP
II) will be prepared at the end of phase I of the operation in 2018 and presented to the Board for approval.
The SAR for the second year will indicate, inter alia, any applicable prior actions adopted before Board
presentation and/or any conditions precedent to disbursement. A separate loan Agreement shall be
prepared for each phase of the programmatic operation.
7.3 Compliance with Bank Group Policies
7.3.1 The proposed EGCSP complies with all applicable Bank Group policies and guidelines. The key
Bank Group Guidelines and policies applied to this Program are the following: (i) Bank Policy on
Program-Based Operations (2012), (ii) the Bank Group Ten-Year Strategy (2013-2022); (iii) the
Governance Strategic Framework and Action Plan 2014-18, (iv) the Revised Staff Guidance on Quality-
at-Entry Criteria and Standards for Public Sector Operations, (v) the Private Sector Development
Strategy, 2013-2017, and (vi) Guidelines on Product and Pricing for MICs (2009).
VIII - RISK MANAGEMENT
8.1 The risks and mitigation measures of the program are presented in table 6 below and are also
summarized in the logical framework:
22
Table 6: EGCSP Risk and Mitigation Measures
Risk Mitigation measures
Macroeconomic risks: Namibia’s vulnerability to external shocks remains a major source of risk. The economic outlook envisages downside risks stemming mainly from further declines in SACU
revenue and commodity prices, slow growth in mining and construction and debt-related risks.
Embark on further pro-growth fiscal consolidate efforts to bring public debt on a declining path, safeguard priority
capital and social spending and implement reforms geared
towards addressing structural challenges.
Fiduciary risks: The recent Country Fiduciary Risk Assessment (CFRA) conducted by the Bank for Namibia indicates that the overall residual risk level is deemed moderate, taking into account the
risk mitigation factors. Some of the areas of weakness identified relate to the legal and regulatory
framework, and roll out and integration of the Integrated Financial Management System (IFMIS). Failure to mitigate the identified risks could negatively impact program implementation, and
achievement of expected program objectives.
The measures being implemented under proposed programme and ongoing technical assistance being
provided by the EU and other development partners will
help strengthen public financial management and further mitigate the identified risks.
Implementation capacity risks: Capacity across government to implement the reforms being pursued by the government may be a challenge.
Provide technical assistance to complement support being provided by Development partners.
Social risks: Fiscal consolidation measures pose potential risks to social sector spending and basic
service delivery, with negative social ramifications.
Pursue the objective of pro-growth fiscal consolidation by
preserving capital expenditure and pro-poor spending, and
put in place social safety nets.
IX - RECOMMENDATION
9.1 Management recommends that the Board of Directors approve an ADB loan not exceeding 3
billion South African Rand (ZAR 3 billion) to the Republic of Namibia, for the fiscal year 2017/18 for
the purposes, and subject to the conditions, stipulated in this report. Management invites the Board to
note that this operation is part of a 2 year programmatic series, for the period 2017/18-2018/19.
I
APPENDIX I: LETTER OF DEVELOPMENT POLICY
II
III
IV
V
VI
VII
VIII
APPENDIX II: IMF PRESS RELEASE
Press Release No. 16/547: December 8, 2016
IMF Executive Board Concludes 2016 Article IV Consultation with Namibia
On December 2, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the
Article IV consultation1 with Namibia.
Since the financial crisis, Namibia has experienced remarkable growth and economic progress.
Strong policy frameworks and expansionary domestic policies have contributed to macroeconomic
stability, robust growth, and rising living standards. Yet, deep-rooted structural impediments have
kept unemployment high and unresponsive to growth, contributing to persistently high inequality.
In 2015, growth remained strong, but vulnerabilities increased. Despite a severe drought, real GDP
grew by 5.3 percent buoyed by construction in the mining and housing sectors, and expansionary
fiscal policy. However, with strong domestic demand and declining Southern African Customs Union
(SACU) revenue, the current account registered a double-digit deficit. In combination, the large fiscal
deficit, the depreciation of the Namibian dollar along with the South African rand, to which it is
pegged, and the issuance of a Eurobond in November 2015 increased public debt to about 40 percent
of GDP, close to the median of similarly-rated emerging economies. At the same time, continued
rapid credit growth contributed to fast growing residential real estate prices and elevated household
indebtedness. Headline inflation rose to 6.9 percent in September, from the 3.4 average in 2015,
mostly due to rising food prices caused by the drought.
Fiscal and monetary policies are on a tightening course. The government has revised the FY16/17
budget and announced the intention to reduce the fiscal deficit in the coming years. In the context of
the peg with the South African rand, the Bank of Namibia raised its policy rate in 2015 and in 2016
to 7 percent, at par with the South African Reserve Bank’s rate.
The outlook remains positive with considerable vulnerabilities and risks. Growth is projected to
temporarily weaken in 2016 to 1.6 percent as the construction of large mines ends and the government
starts consolidating; it would then accelerate to about 5 percent in 2017–18 as production from new
mines ramps up. However, without further deficit reduction, public debt is projected to increase
above 60 percent by 2021. On the positive side, the current account deficit is expected to narrow to
around 5 percent of GDP on the back of larger mining exports. Inflation is anticipated to decline to
6 percent by 2017 as food prices normalize.
Downside risks dominate the outlook and stem mainly from possible further declines in SACU
revenues and commodity prices, lower growth in mining and construction, and sudden corrections in
housing prices and domestic credit. With limited buffers, shocks could be amplified by abrupt policy
responses, especially if combined with sovereign credit rating downgrades. Linkages between banks
and non-bank financial institutions could further amplify shocks.
Executive Board Assessment
Executive Directors welcomed Namibia’s robust economic performance and rising living standards
in the past several years. Directors noted, however, that while medium-term growth prospects remain
positive, rising public debt, a widening current account deficit, low international reserves, and further
declines in commodity prices pose risks. They underscored that continued strong commitment to
IX
sound policies and structural reforms will be key to preserving macroeconomic stability, managing
financial sector risks, and promoting job creation and inclusive growth.
Directors welcomed the authorities’ debt and fiscal strategy, and agreed that additional consolidation
over the medium term will be necessary to put public debt on a declining path. Noting the authorities’
preference for some front-loading, they emphasized that adjustment efforts should be carefully
calibrated and focus on both revenue and expenditure measures while safeguarding priority capital
and social spending, thus minimizing the impact on growth.
Directors noted that measures to contain the public wage bill, curtail transfers to state-owned
enterprises (SOEs) and other entities, as well as the strengthening of public financial management
and revenue administration would help facilitate the adjustment and ensure equitable burden sharing.
They also encouraged steps to reform SOEs to strengthen their governance, oversight, and
performance.
Directors noted that fiscal consolidation would lift pressure on monetary policy and that, in the
context of the peg with the South African rand, the authorities should consider maintaining the policy
rate at par, or with limited positive spread, with the South African Reserve Bank’s rate.
Directors recognized that Namibia’s financial sector is generally stable, and called for continued
efforts to monitor and manage risks from rising housing prices, household indebtedness, and linkages
between banks and non-bank financial institutions. They commended the central bank for introducing
loan-to-value-limits for non-primary residence purchases, and recommended that further targeted
macro-prudential measures to tame housing price dynamics be explored. Directors recognized that
the tight linkages between banks and non-bank financial institutions are macro critical and stressed
the importance of monitoring and assessing possible financial stability risks from such linkages. In
this context, Directors encouraged steps to improve the financial regulatory architecture and to
enhance the central bank’s capacity to assess macrofinancial risks and exercise macroprudential
controls.
Directors emphasized that implementation of well-focused structural reforms is necessary to address
high unemployment and income inequality. They highlighted that priority should be given to
reducing skill mismatches through targeted education and training programs, simplifying business
regulations, including improving the functioning of the labor market. Directors welcomed the
authorities’ intention to improve the targeting of key social assistance programs, including cash
transfers and housing subsidies to make further inroads in reducing inequality and poverty.
X
APPENDIX III: NAMIBIA: MEETING THE ELIGIBILITY CRITERIA FOR THE PBO
Prerequisites Country Eligibility
Government
Commitment to
poverty
alleviation
The current National Development Plan (NDP4), covering the period 2012/13-2016/17, places emphasis on
achieving three overarching goals: high and sustainable economic growth; reducing income inequality; and
job creation. As a result of the slow progress in achieving the desired results, the GoN launched the
Harambee Prosperity Plan (HPP: 2016-2020), which refocused reform and investments on the high impact
priority areas of the NDP4. The fifth National Development Plan (NDP5), currently under preparation and
expected to be approved by April 2017, will build on the achievements recorded so far and pave the way for
consolidating the Government’s poverty reduction and inclusive growth agenda. The Government is
committed to making inroads in reducing high unemployment and income inequality.
Macroeconomic
framework21
After years of strong performance, Namibia’s GDP growth has slowed down in 2016. Based on IMF
estimates, 2016 growth is estimated at 1.6 percent, representing a sharp reduction from the 5.3% recorded in
2015. This can be ascribed largely to weak commodity prices, persistence of drought and subdued domestic
economic activity in South Africa and Angola. The medium term growth outlook is positive (projected at
4.7% in 2017), on the back of strong growth from new mines and recovery in agriculture, albeit with
downside risks (related to further weakening of commodity prices, export demand and SACU revenue
inflows). The stimulus policy stance adopted to mitigate the impact of the global economic downturn,
accelerated the government’s financing needs and worsened the fiscal deficit. The fiscal deficit, as a share
of GDP, widened significantly from 0.1% in 2012/13 to 8.3% at the end of 2015/16 The Government, in its
mid-year review of the 2016/17 budget, reiterated its commitment to achieving fiscal sustainability and has
announced accelerated plans to unwind the stimulus package so as to improve the country’s debt and reserves
position and preserve its strong sovereign credit rating. Measures include cutting non priority spending of
up to 2.8% of GDP, while realigning spending plans in line with the revenue stream and introducing some
levies and taxes. The December 2016 IMF Article IV Report underscored that continued strong commitment
to sound policies and structural reforms will be key to preserving macroeconomic stability, managing
financial sector risks and promoting job creation and inclusive growth
Political
stability
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 are held
regularly. The South West Africa People’s Organization (SWAPO) has dominated politics since
independence. In the National Assembly elections held in 2009, SWAPO maintained its commanding
majority, obtaining 54 out of the 72 elected seats. In March 2015, H.E. Hage Geingob was inaugurated as
the third democratically elected President of Namibia, under the ticket of the South West Africa People’s
Organization (SWAPO) Party. The current administration is continuing with the policies of upholding the
fundamental rights and freedoms enshrined in the Constitution.
Satisfactory
fiduciary risk
assessment
The 2015 PEFA highlighted Namibia’s well developed debt strategy, and comprehensive transparent
management of debt; credible three year fiscal forecasts along with realistic revenue forecasts, well managed
budget releases and a comprehensive and effective commitment control process, as areas of strength. The
country has taken a number of initial steps towards achieving a budgetary process that is fully capable of the
strategic allocation of resources. However, challenges related to public procurement were highlighted. These
include the need to institute an independent public procurement oversight authority and an independent
administrative review board. In this regard, a Procurement Act has been passed and its executive regulations
are being prepared. The new procurement system has 3 entities: (i) Central Procurement Board, (ii) Review
Panel, and (iii) Procurement Policy Unit based in the Ministry of Finance. Substantial progress has been
made on the PFM Bill. The recent Country Fiduciary Risk Assessment (CFRA) conducted by the Bank for
Namibia indicates that the overall residual risk level is deemed moderate, taking into account the risk
mitigation factors
Harmonization As Middle Income Country, aid-related partnerships are limited in Namibia. However, steps have been taken
to improve aid coordination, including through the establishment of the Annual High-level Development
Partner Forum, which is co-chaired by the National Planning Commission and the Head of the United
Nations agencies. The Forum has encouraged development partners to align their assistance programs with
the Government priorities identified in NDP4, in line with the Paris Declaration. At the sector level,
coordination is effected through various sector working groups, which meet regularly. However, the
coordination challenge lies in the fact that the decisions of the sector working groups do not usually feed into
the High- level Forum. Therefore, while donor coordination is effective, there is scope for improvement
21 Analysis based on figures from the IMF Article IV Consultation Report of December 2016
XI
APPENDIX IV: NAMIBIA EGCSP: POLICY MATRIX
Medium term policy
objectives
Policy measures (2017/18)
Policy measures (2018/19)
Outcomes
(Monitoring
indicators)
CSP goals to which the
program is contributing
Component 1: Advancing Fiscal Consolidation
Objective 1.1 Enhancing
Government Revenue
*The Cabinet has approved Bill for the
Establishment of the Namibia Revenue Agency
(NAMRA).
**Appointment of Board and Commissioners of the NAMRA
Average growth in
Revenue
Wage bill as % of non-interest expenditure
Pillar 2: Private sector
development – improving the
business environment and
skills
Launch of Integrated Tax Administrative System
Objective 1.2 Containing the
wage bill
*Cabinet has approved a comprehensive set
measures proposed by the Prime Minister’s
Office to contain the wage bill.
**Completion of the research on the size of the public service wage
bill
Objective 1.3 Enhancing debt
sustainability
*The Cabinet has approved and submitted the
Macro-Fiscal Framework for the FY 2017/18
Budget to Parliament.
**Approval by Cabinet and publication of the new Sovereign Debt
Strategy
Component 2: Strengthening Public Financial Management and Efficiency of State Owned Enterprises
Objective 2.1 Enhancing Public
Financial Management
(i) 2 Public Expenditure Tracking Surveys
(PETS) concluded
(i) Cabinet has approved and submitted to Parliament the Public Financial Management Bill
Improved external audit: PEFA PI-30
Improved internal audit:
PEFA PI-26 Improved procurement:
PEFA PI-24
Compliance to SOEs Governance framework
Pillar 2: Private sector
development – improving the
business environment and
skills
(ii) The Cabinet has approved the new Public Sector Internal Audit Policy
(ii) The Cabinet has approved the Auditors Bill (iii) Automation of the HRMIS and the integration to IFMIS
Objective 2.2 Enhancing Public
Procurement
*The Regulations for the Public Procurement
Act (2015) have been issued and published in
the Official Government Gazette.
**The implementation of the Regulations for the Public
Procurement Act (2015) by:
(i) Setting up (a) the Procurement Policy Unit (PPU), in accordance
with part 2 art 6. (1) of the Act; (b) the Central Procurement
Board of Namibia, in accordance with part 3 art 8. (1) of the Act;
and (c) the Review Panel, in accordance with part 7 art 58. (1) of
the Act; and
(ii) Preparation of annual Procurement Plan, and approval and
adoption of Standard Bidding Documents for works, goods and
services.
Objective 2.3 Improving
Efficiency of State-Owned
Enterprises
*The Cabinet has approved the hybrid
governance model for Public Enterprises,
which provides for separating State Owned
Enterprises into 3 clusters (commercial,
financial and social)
**Submission to Parliament of the Public Enterprises Governance
Amendment Bill which, amongst others, gives the Ministry of
Public Enterprises shareholding right over commercial related
SOEs
XII
Component 3: Improving the Business Environment for Industrialization
Objective 3.1: Enhancing the
Investment Facilitation
Framework and Processes
Cabinet has approved and submitted to
Parliament the Investment Promotion Act, which provides for a dispute resolution
mechanism
Phased Operationalization of an Integrated Client Service Facility,
providing online business registration capability.
Private investments as
share of GDP Number of new MSMEs
created
Pillar 2: Private sector
development – improving the
business environment and
skills Cabinet has approved and submitted to
Parliament the Business and Intellectual Property Authority (BIPA) Act, which provides
for online registration of companies
Regulations for the Business and Intellectual
Property Authority (BIPA) Act published in the
Official Government
*Cabinet has approved and submitted the
Public Private Partnerships (PPP) Bill to
Parliament
**Implementation of the PPP Act by: (a) Establishment of a PPP
Committee provided for by the draft PPP Legislation; and (b)
Issuance and gazetting of the PPP Regulation
Submission to Parliament of a One Stop Border Post Bill
Regulations for the Investment Promotion Act; published in the
Official Government
Objective 3.2: Enhancing
Industrial Development, Value
Addition and Diversification
*The Cabinet has approved and submitted to
Parliament the Industrial Development
Agency Bill.
**Establishment of Sector Committees and an Inter-ministerial
Committee to drive the implementation of the Growth Strategies
for 10 industries.
Objective 3.3: Enhancing the
Development of Micro, Small
and Medium Enterprises
(MSMEs)
*The Cabinet has approved a National Policy
on Micro, Small and Medium Enterprises
(MSMEs)
Approval by Cabinet of a draft framework on fiscal and non-fiscal
incentives for MSMEs
**Approval by Cabinet and submission to Parliament of a Micro-
lending Bill
SME financing strategy approved
*Single asterisk denotes prior action
** Double asterisk denotes indicative trigger for EGCSP II
XIII
APPENDIX V: PRIOR ACTIONS AND INDICATIVE TRIGGERS
Table 4: EGCSP Prior Actions and Required Evidence for FY 2017/18 EGCSP Prior Actions (Assessed in February 2017) EGCSP II Indicative Triggers
Advancing Fiscal Consolidation
1 Prior Action 1: Cabinet Approval of the Bill for the Establishment of
the Namibia Revenue Agency
Evidence required: Copy of Copy of signed Cabinet Action letter
from the Ministry of Finance confirming Cabinet approval of the
Bill.
Indicative Trigger 1: Appointment of Board and Commissioners of the
NRA
2 Prior Action 2: Cabinet Approval of a comprehensive set of
measures proposed by the Prime Minister’s Office to contain the
wage bill.
Evidence required: Signed Cabinet Action Letter from the Ministry
of Finance confirming Cabinet approval of the controls.
Indicative Trigger 2: Completion of the research on the size of the
public service wage bill
3 Prior Action 3: Cabinet approval and submission to Parliament of the Macro-Fiscal Framework for the FY 2017/18 Budget.
Evidence required: Copy of Memo/letter from the Ministry of
Finance confirming submission of the framework to Parliament.
Indicative Trigger 3: Approval by Cabinet and publication of the new
Sovereign Debt Strategy
Strengthening Public Financial Management and Public Sector Efficiency
4 Prior Action 4: Issuance of the Regulations for the Public
Procurement Act (2015) and its publication in the Official Government Gazette.
Evidence required: Copy of the Regulation and the Gazette.
Indicative Trigger 4: The implementation of the Regulations for the
Public Procurement Act (2015) by:(i) Setting up (a) the Procurement Policy Unit (PPU), in accordance with part 2 Art 6 (1) of the Act; (b)
the Central Procurement Board of Namibia, in accordance with part 3
Art 8 (1) of the Act; and (c) the Review Panel, in accordance with part 7 art 58. (1) of the Act; and
(ii) Preparation of annual Procurement Plan, and approval and adoption
of Standard Bidding Documents for works, goods and services.
5 Prior Action 5: Cabinet Approval of the hybrid governance model for Public Enterprises, which provides for separating State Owned
Enterprises into 3 clusters (commercial, financial and social).
Evidence required: Signed Cabinet Action Letter from the Ministry of Finance confirming Cabinet approval of the model.
Indicative Trigger 5: Submission to Parliament of the Public
Enterprises Governance Amendment Bill which, amongst others, gives
the Ministry of Public Enterprises shareholding right over commercial related SOEs.
Improving the Business Environment for Industrialization
6 Prior Action 6: Cabinet Approval and Submission to Parliament of
the Public Private Partnerships (PPP) Bill.
Evidence required: Copy of Memo/letter from the Ministry of
Finance/Attorney General confirming transmission of the Bill to Parliament, together with a copy of the Bill.
Indicative Trigger 6: Implementation of the PPP Act by: (a) Establishment of a PPP Committee provided for by the draft PPP
Legislation; and (b) Issuance and gazetting of the PPP Regulation.
7 Prior Action 7: Cabinet Approval and Submission to Parliament of
the Industrial Development Agency Bill
Evidence required: Copy of signed Cabinet Action letter from the Ministry of Finance/ confirming transmission of the Bill to
Parliament, together with a copy of the Bill..
Indicative Trigger 7: Establishment of Sector Committees and an Inter-
ministerial Committee to drive the implementation of the Growth Strategies for 10 industries.
8 Prior Action 8: National Policy on Micro, Small and Medium Enterprises approved by Cabinet.
Evidence required: Copy of the policy.
Indicative Trigger 8: Approval by Cabinet and submission to Parliament of a Micro-lending Bill
XIV
APPENDIX VI: SOCIAL SECTOR CHALLENGES AND DEVELOPMENT
I. Context
The poverty level in Namibia, according to the 2016 Namibia Household Income and Expenditure
Survey, is estimated at 26.9 % (568,000 people) and the incidence of poverty is higher among female-
headed households (22%) compared to male-headed households (18%)22 with regional disparities.
Namibia has recorded a reduction in inequality in recent years, partly explained by the huge
investment in the social sectors through the government’s social safety net program for the elderly,
youth, people with disabilities, orphans, and vulnerable groups.
Women’s participation in the labor force is lower than that of men: 54.7 percent compared to 63.7
for men. Gender disparities can be found when comparing subsistence agriculture with wage
employment. It is evident that more females than males are employed as unpaid family workers
whether in subsistence or other activity.23 The Global Entrepreneurship Monitor (GEM)24 Namibia
Report (2012) shows that women are almost as likely as men to be involved in early-stage
entrepreneurship (18% and 19%, respectively). It also shows that whereas 32% of male entrepreneurs
cite necessity as having driven them into business, the figure rises to 43% for women, suggesting that
they see setting up their own business as a survival strategy. More male entrepreneurs say they have
entered business because they identified an opportunity in the market.
Challenges facing women entrepreneurs are25:
- Triple roles of women at the household and family versus employment;
- Inability to work long hours due to commitments to children and family;
- Lack of personal confidence in business matters;
- Operating in a traditionally male dominated industry;
- Less record to access financial institutions;
- Lower levels of income making it impossible to invest ; and
- Problems in developing networks with customers, suppliers and advisors.
The implication of the mismatch between male and female entrepreneurs raises concerns. Namibia
recognises the social and economic potential of encouraging men and women to see themselves as
equally competent in creating and running their own enterprises. The Government of Namibia has
put in place a robust policy framework to address social, economic, and gender disparities challenges.
These include the following:
Harambee Prosperity Plan (2016-2020): Primary objectives include (1) greater government
accountability and service delivery; (2) economic advancement and job creation; (3) attack on
hunger and poverty, reduction in infant mortality and improvement in sanitation and housing; (4)
development of energy, water, transport and ICT infrastructure; and (5) strengthening
international ties, fulfilling global obligations and seeking support for Namibia's economic
transformation. The Harambee Prosperity Plan does not replace but complements the national
development plans and vision 2030 which focusing on Six pillars include: 1) education; 2) science
and technology; 3) health and development; 4) sustainable agriculture; 5) peace and social justice;
22 NSA 2012 23 Ibid 24 GEM is the largest single study of entrepreneurial activity in the world with the most geographically and economically diverse sample. It is largely
about measuring entrepreneurial activity within the adult population, entrepreneurial spirit, and attitudes to entrepreneurship. 25 An Evaluation of the Challenges Faced by Women Owned Small To Medium Enterprises and Their Impact On Organisational Performance: A Case Study Of Katter Incubation Centre, Thomas Region, Namibia, Kuwait Chapter of Arabian Journal of Business and Management Review Vol. 5, No.3,
November 2015
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and (6) gender equality. The Harambee Prosperity Plan specifically indicated youth and young
women as key target beneficiaries for development, and as key implementing partners, and
participants.
New Equitable Economic Empowerment Framework (NEEEF) (2016): Aims to provide a
clear overarching policy framework for Government empowerment policies and private sector
initiatives with the goal of creating wealth among the poor. The Government reiterate the creation
of an equitable and socially just society for previously disadvantaged population, namely women
and people living with disabilities. Special reference would focus on two pillars are of high
relevant to this transaction: Management Control and Employment Equity Pillar and Corporate
Social Responsibility Pillar. The first emphasizes board-based empowerment should benefiting
as many persons as possible, while the latter is to broaden the CSR and that it should not
concentrated on a few locations and or a few activities. Furthermore, it needs to be ensured that
rural and urban poor communities benefit.
National Gender Policy (2010 – 2020): The revised Gender Policy seeks to create an enabling
environment for different sectors to mainstream gender including in the energy sector. It focuses
on 12 areas of concern, which include: (i) Poverty and Rural Development; (ii) Education and
Training; (iii) Reproductive health and HIV/AIDS; (iv) Gender Based Violence; (v) Trade and
Economic Empowerment; (vi) Gender Governance and Decision Making; (vii) Research, Media,
Information and Communication; (viii) Management of the Environment; (ix) Issues of the Girl-
child; (x) Gender, Peace Building, Natural Disaster and Conflict Resolution; (xi) Gender Legal
Affairs; and (xii) Human Rights. The clusters are primarily responsible for ensuring the
implementation of the National Gender Plan of Action. Representation in clusters are established
and comprises of gender focal persons, representatives nominated by various government
ministries, private sector, academic institutions, development partners, NGOs and civil society
Growth at Home: This was developed by the Ministry of Trade, Industry and SME Development
to reinforce the importance of accelerating economic growth, reducing income inequality and
increasing employment. The strategy emphasises industrialization, manufacturing and value
addition. A number of training and technical support were given to women entrepreneurs to
enable them tap into new markets and increase their exports. Moreover, ten Growth Strategies
and associated value chains were developed, focusing on the following industries: Cosmetics,
See Food, Agribusiness, Metal Fabrication, Handicraft, Leather, Jewellery and Colored
Gemstone, Swakara Wool, and Taxidermy. Women constitute a high proportion in most of these
industries.
II. Government reforms undertaken
GRN has prioritised education, health and social sectors in the national budget. In the education
sector, Government is committed to extending the provision of free education through to the
secondary school level, and improving teacher upgrading programmes and educational facilities to
enhance access to especially tertiary education and vocational training for expanded skills formation.
GRN is also committed to maintaining funding for the health sector in real terms to address gaps in
health facilities and improve service delivery. For every 100,000 births, 130 women die from
pregnancy related causes. Furthermore, Namibia also has one of the highest HIV prevalence rates in
the world, with women accounting for 53% of all reported new HIV cases. In the context of the
ongoing fiscal consolidation efforts, and as outlined in the 2016/17 Mid-Year Budget Review and
Mid-Term Budget Policy Statement, the government has ring-fenced expenditures in education and
health to ensure that gains in the social sector are not eroded.
Namibia has put in place a robust social safety net as part of efforts to fight poverty and inequality.
The government intends to increase the social safety net grant with the objective of lifting the
beneficiaries above the national poverty line. Over the past fifteen years, child welfare grant has
expanded more than 29 fold in coverage from 9000 beneficiaries in 2002 to 261,183 in January 2017
XVI
and these have significant poverty-reducing effects. Moreover, about 202,000 people above the age
of 60 years old received social grant under the universal social grant for the elderly and persons living
with disabilities. The social safety net operates from different line ministries and there are efforts by
the Ministry of Poverty Eradication and Social Welfare to come with a comprehensive policy, action
plan, and implementation arrangement, together with robust unified Monitoring and Evaluation
framework. As part of its efforts to improve food poverty, the government introduced a “Food Bank”,
which is a social benefit providing food packs to vulnerable households. The program was introduced
in June 2016 and is already benefiting 22,000 households as at February 2017 in the capital city of
Windhoek. The government plans to roll out the program to the other parts of the country later.
The Government has developed a blueprint on wealth distribution and poverty eradication as a policy
framework aimed at advancing strategies for eradication of poverty and reducing income inequality.
The blueprint was approved by the Cabinet in August 2016, even though its implementation is yet to
commence. The Ministry of Poverty Eradication and Social Welfare is currently (as at Feb 2017)
developing the implementation plan to guide the roll out of the blueprint.
Namibian Ministry of Land Reform is implementing a comprehensive land reform strategy to ensure
fair and equitable access to land in Namibia. Other ministries, such as the Ministry of Agriculture,
Water and Forestry, Ministry of Urban and Rural Development, Ministry of Mines and Energy and
the Ministry of Environment and Tourism, are also involved in the creation of integrated regional
land use plans to serve as the basis for planning rural investments. Appropriate legal frameworks
have been established for land registration in communal areas and for equitable access to commercial
land. Communal land boards established by the government work with traditional hierarchies, such
as clan chiefs, to arbitrate land disputes. Women and marginalised groups, such as people living with
HIV/AIDS, have benefited in particular from improved legal rights and guarantees of access to land.
By end 2016, approximately nine million hectares of land have been peacefully distributed to landless
and previously disadvantaged persons in commercial areas. The Namibian Government has,
therefore, made significant progress towards achieving its goal of redistributing a total of 15 million
hectares of land by 2020.
III. Impact of the reforms supported by the proposed operation on the poor and
vulnerable groups: Enhancing inclusion
The reforms envisaged under this proposed PBO focus on three different areas: fiscal consolidation,
public financial management and business climate. The beneficiaries are the Namibian citizens at
large, with a particular focus on investors and the business community. The anticipated overall
outcomes include a more effective PFM, better performing state owned enterprises and an improved
business enabling environment.
The reforms supported by this operation will positively influence efforts geared towards reducing
poverty, vulnerability and spur economic growth. The programme’s focus on fiscal consolidation will
widen the tax base and reduce large inefficient expenditures and hence help create fiscal space for
increased investments in critical areas, such as infrastructure development and social sector programs,
including social housing and the extension of water and sanitation facilities in rural and remote areas
largely populated by vulnerable and poor communities. In addition, some of the reforms under the
business environment component are anticipated to support the development of micro, small and medium
enterprises, thereby facilitating job creation opportunities, including for youth and women. The focus on
investment facilitation is likely to attract investment and hence create job opportunities and reduce
poverty and income inequality.
The programme also supports the Government’s Fiscal Policy Strategy for 2016/17 - 2018/19, which
provides for the implementation of targeted measures to reduce poverty and vulnerability. Some of
XVII
the specific measures include (i) supporting investments in the priority economic and social
infrastructure; (ii) implementing policies which promote local access to, and ownership of the
resources; and (iii) strengthening the quality and coverage of Old Age Pension, Orphan and
Vulnerable Children and disability grants as a first line of defence against poverty for the vulnerable
members of society. By helping provide the much needed fiscal space in the context of fiscal
consolidation, the proposed programme will give a boost to the transformation of both economic and
social sectors, and positively impact the poor and vulnerable groups. It will help GRN to fulfil its
commitment to ensuring sufficient funding for key social programmes. As reflected in the logical
framework, a specific indicator targeting an increase in the budgetary allocation to social expenditure
forms part of the operation. It will help to ensure that fiscal consolidation reforms, rather than worsen
the already high inequality, will actually reduce inequality by supporting social safety net programs.
This will help improve the quality of public spending which is an important aspect of fiscal
consolidation reforms. The programme also supports procurement reforms which will, among others,
increase access to procurement opportunities for MSMEs, including those headed by women, hence
creating employment opportunities, increase income levels and reducing inequality. The EGCSP
intervention is expected to help create 300 new Micro, Small and Medium Enterprises. It will also
contribute to a reduction in the unemployment rate from 28.1% in 2014 to 20% in 2019 and a
reduction in the poverty rate from 18% in 2015 to 12% in 2019.
XVIII
APPENDIX VII: LINK BETWEEN THE PBO AND THE INFRASTRUCTURE DEVELOPMENT INVESTMENT PROGRAMME (IDIP)
THE MACROECONOMIC AND STRUCTURAL CONTEXT FOR THE BANK’S FINANCIAL SUPPORT TO NAMIBIA:
THE LINK BETWEEN THE PBO AND THE INFRASTRUCTURE DEVELOPMENT INVESTMENT PROGRAMME (IDIP)
The Bank’s financial support to Namibia takes a two pronged approach designed to help advance the country’s development agenda in a manner that is coherent with country priorities
and High5s. The PBO constitutes one part to support policy measures for addressing emerging vulnerabilities undermining macroeconomic stability and bold structural reforms adopted
to drive long-term job creating growth and income equality. An infrastructure investment program) and sharpened focus on rail transport, water and sanitation and agriculture value chain
development, being prepared in parallel, constitutes the other part that builds on and reinforces the PBO results for enhanced development outcomes. The EGCSP and IDIP complement
each other, in that while the PBO helps to preserve macroeconomic stability, address structural challenges and drive PFM and business environment reforms in support of industrialization,
the infrastructure investments will help boost the long term competitiveness of the economy, and hence create the foundation for long term sustainable growth and job creation. Details of
their contribution to addressing core development challenges are tabulated below. CORE DEVELOPMENT CHALLENGES GRN’S INTERVENTION BUDGET SUPPORT
(POLICY BASED)
OPERATION
INFRASTRUCTURE
DEVELOPMENT
INVESTMENT
PROGRAM
Emerging
vulnerabilities
and challenges
are
undermining
macroeconomic
stability
After strong growth performance during the global downturn,
Namibia is nursing wide fiscal and current account deficits, sharp
rise in public debt and low international reserves. Furthermore,
liquidity constraints in the domestic market and rollover risks are
impacting on the authorities' capacity to raise money domestically
a traditionally preferred modality for gap financing. Recourse to
international capital markets, is constrained by exchange rate risks
and its impact on public debt. Fitch and Moody’s in 2016Q4 revised
Namibia’s sovereign credit rating outlook from stable to negative.
Accelerated fiscal consolidation stance:
Spending cuts of up to 2.8% of GDP in 2016/17
budget; Establishing semi-autonomous Revenue
Agency to strengthen revenue collection;
Strengthening revenue mobilization and tax
arrears clearance; Reducing non priority
spending, containing public sector wage bill.
Prudent fiscal gap financing: To limit negative
impact on public debt, GRN is focusing on ZAR
borrowing from domestic market, Johannesburg
Stock Exchange and AfDB at competitive rates
Policy measures support
enhancement of tax
revenue collection and
containment of wage bill.
Financing provides fiscal
space for priority capital
and social spending.
Long-term liquidity in
ZAR extends the maturity
profile of GRN debt and
mitigates exchange rate
risk on debt
Construction phase will
be instrumental in
catalyzing domestic
demand and creating jobs
supporting the GRN’s
‘growth friendly’ fiscal
consolidation stance.
Weaknesses in
PFM and
economic
governance are
impacting on the
quality and
efficiency of
public sector
spending
Slow pace of PFM reforms is weakening public sector efficiency,
regulatory oversight and enforcement and increased participation of
private sector in public investment financing. At the same time
while SOEs play an important role in social service delivery and
public sector capital investments, the majority exhibit poor
governance and financial performance and represent a significant
fiscal burden and risk on public finances through annual budget
transfers and guaranteed debt estimated at 4.5% of GDP
Making public procurement more transparent
and efficient and facilitating participation of
SMEs, Operationalizing Public-Private
Partnerships to strengthen mobilization of
private financing. Improving SOE governance
and financial performance to reduce fiscal risks.
Modernizing PFM law and achieve Auditor
General’s independence. Enhancing public
debt strategy
Policy measures support
advancements in the PPP
framework, new Public
Procurement law, new
PFM and Audit laws,
improvements to SOE
performance and approval
of the new public debt
strategy
Subject to readiness
review at appraisal
possible use of country
institutions and systems
such as public
procurement, PPP unit
and related SOEs as well
as on-going and planned
TA in these areas will
help strengthen capacity
XIX
Structural
bottlenecks are
limiting
Namibia’s
capacity to
achieve broad
economic
diversification for
the creation of
quality jobs and
meaningful
reduction in
income inequality
Dependence on mining contributes to growth volatility, slow
employment creation and income inequality. An analysis of the
growth pattern, shows that low labor intensive mining sector has
been a key growth driver. Mining account for the second largest
share of GDP, contributes nearly half of export earnings and offers
the highest wage rate but employs only 2% of the labour force.
While agriculture is the biggest employer it contributes less than 5
% share to GDP and has one of the lowest wage rates. The low
employment elasticity of mining and low wage in agriculture partly
explains the failure by the economy to translate high growth rates
into more jobs and greater income equality. Economic
diversification efforts are hampered by a poor business regulatory
environment, infrastructure bottlenecks, skills mismatch, and lack
of financing for Micro, Small and Medium Enterprises.
The HPP has identified SME based
manufacturing (industrialization) as one of the
key priorities of the NDP on which to focus
reforms and resources in order to drive economic
diversification and long term job creating growth.
The Growth at Home Strategy provides a clear
road map for export oriented industrialization.
It promotes the creation of quality jobs through
SME value-adding market oriented activities in agriculture including cereals, horticultural
crops and livestock, and the country’s vast
mineral resources including diamond, gold and
copper. The HPP, NDP and Growth at Home
underscore the importance of improving
competitiveness of infrastructure: energy,
transport, water and sanitation and ICT for
industrialization. The Green Scheme is
supporting growth in agricultural productivity. An
SME Bank and the Business and Intellectual
Property Authority (BIPA) have been
established under law to improve the business
environment. An MSME policy is in place and an
Industrial Agency is being established for
oversight.
Policy measures support
the operationalization of
BIPA to improve the
business environment for
industrialization, MSME
policy and financing
strategy and establishment
of the Industrialization
Development Agency.
This component directly
advances the Bank’s
High5’s priority focus on
‘Industrialization’
Bearing in mind the
GRN’s preference to use
NAMPOWER’s strong
balance sheet and
Independent Power
Producers for energy
capital investments, the
IDIP will support priority
investments in water for
domestic use and
industrial development
and agriculture to
promote agricultural
productivity and SME
driven agricultural value
chain development and
rail transport for cost
efficient evacuation of
agro inputs and agro-
products between the
farm gate, the industry
and the market (domestic
and export). The IDIP
directly advances 4 of the
Bank’s High5s namely
Industrialize Africa,
Integrate Africa; Feed
Africa and Improve the
quality of life for the
people of Africa;
XX
APPENDIX VIII: MAP OF THE REPUBLIC OF NAMIBIA
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