Namibia Economy

ECONOMY

The Namibian economy has a modern market sector, which produces most of the country's wealth, and a traditional subsistence sector. Namibia's gross domestic product (GDP) per capita is relatively high among developing countries but obscures one of the most unequal income distributions on the African continent. Although the majority of the population depends on subsistence agriculture and herding, Namibia has more than 200,000 skilled workers, as well as a small, well-trained professional and managerial class.

The country's sophisticated formal economy is based on capital-intensive industry and farming. However, Namibia's economy is heavily dependent on the earnings generated from primary commodity exports in a few vital sectors, including minerals, livestock, and fish. Furthermore, the Namibian economy remains integrated with the economy of South Africa, as the bulk of Namibia's imports originate there.

Since independence, the Namibian Government has pursued free-market economic principles designed to promote commercial development and job creation to bring disadvantaged Namibians into the economic mainstream. To facilitate this goal, the government has actively courted donor assistance and foreign investment. The liberal Foreign Investment Act of 1990 provides for freedom from nationalization, freedom to remit capital and profits, currency convertibility, and a process for settling disputes equitably.

Namibia is part of the Common Monetary Area (CMA) comprising Lesotho, Swaziland, and South Africa. Both the South African rand and the Namibian dollar are legal tender in Namibia, but the Namibian dollar is not accepted in South Africa. As a result of the CMA agreement, the scope for independent monetary policy in Namibia is limited. The Bank of Namibia regularly follows actions taken by the South African central bank.

Given its small domestic market but favorable location and a superb transport and communications base, Namibia is a leading advocate of regional economic integration. In addition to its membership in the Southern African Development Community (SADC), Namibia presently belongs to the Southern African Customs Union (SACU) with South Africa, Botswana, Lesotho, and Swaziland. Within SACU, no tariffs exist on goods produced in and moving among the member states. In July 2008, SACU signed a Trade, Investment and Development Cooperation Agreement (TIDCA) with the United States. SACU also has plans to negotiate free trade agreements with China, India, Kenya, and Nigeria. The SACU Secretariat is located in Windhoek.

Over 80% of Namibia's imports originate in South Africa, and many Namibian exports are destined for the South African market or transit that country. Outside of South Africa, the EU (primarily the U.K.) is the chief market for Namibian exports. Namibia's exports consist mainly of diamonds and other minerals, fish products, beef and meat products, grapes and light manufactures.

Namibia is seeking to diversify its trading relationships away from its heavy dependence on South African goods and services. Europe has become a leading market for Namibian fish and meat, while mining concerns in Namibia have purchased heavy equipment and machinery from Germany, Italy, the United Kingdom, the United States, and Canada. Namibia is an eligible country under the African Growth and Opportunity Act (AGOA), but has had limited success with exports under this program.

In 1993, Namibia became a General Agreement on Tariffs and Trade (GATT) signatory, and the Minister of Trade and Industry represented Namibia at the Marrakech signing of the Uruguay Round Agreement in April 1994. Namibia has been a member of the World Trade Organization since its creation in 1995 and is a strong proponent of the Doha Development Agenda announced at the Fourth Ministerial Conference in Doha, Qatar, in November 2001. Namibia also is a member of the International Monetary Fund and the World Bank. In December 2007 Namibia signed an interim Economic Partnership Agreement (EPA) with the European Union, which provides duty- and limited quota-free access to European markets for Namibian exports, thereby continuing many of the expiring trade benefits from the Cotonou Agreement. Negotiations continue over the new EPA, which must be finalized by the end of 2008.

Mining and Energy
Mining contributed approximately 12.4% of GDP in 2007. Diamond mining activities alone represented about 6%. Namibia's diamond production of about 2 million carats generates the bulk of its export earnings. Other important mineral resources are uranium, zinc, copper, lead, gold, fluorspar, and salt. Recent investments include the opening of Anglo American's $454 million Skorpion zinc mine in 2003 and the opening of Australia's Paladin Resources' Langer Heinrich Uranium mine in 2006. About three more uranium investment projects are in the pipeline. The country also is a source of natural stones such as granite and marble. Semiprecious stones are mined on a smaller scale.

During the pre-independence period, large areas of Namibia, including offshore, were leased for oil prospecting. Natural gas was discovered in 1974 in the Kudu Field off the mouth of the Orange River. The field is thought to contain reserves of over 1.3 trillion cubic feet. The Kudu gas field development is led by Tullow Oil Plc. Tullow Oil owns 70% of the Kudu gas fields, Japanese firm Itochu Corporation owns 20%, and the Namibian Government through state petroleum firm, NAMCOR, owns the remaining 10%. Plans are also underway to build the country's first combined cycle power station near Oranjemund. With power shortages facing the Southern African region, the government has stated its commitment to develop the Kudu gas field. However, supply of electricity in the short to medium term remains a challenge.

Namibia has a well-developed legislative framework governing the upstream and downstream oil business. Currently there are eight companies exploring for oil and gas.

Agriculture
Although Namibian agriculture--excluding fishing--contributed about 6% of Namibia's GDP for the past five years, about 70% of the Namibian population depends on agricultural activities for livelihood, mostly in the subsistence sector. Animal products, live animals, and crop exports constitute roughly 5% of total Namibian exports. The government encourages local sourcing of agriculture products. Retailers of fruits, vegetables, and other crop products must purchase 27.5% of their stock from local farmers.

In the largely white-dominated commercial sector, agriculture consists primarily of livestock ranching. Cattle raising is predominant in the central and northern regions, while karakul sheep and goat farming are concentrated in the more arid southern regions. Subsistence farming is confined to the "communal lands" of the country's populous north, where roaming cattle herds are prevalent and the main crops are millet, sorghum, corn, and peanuts. Table grapes, grown mostly along the Orange River in the country's arid south, are becoming an increasingly important commercial crop and a significant employer of seasonal labor.

The government's land reform policy is shaped by two key pieces of legislation: the Agricultural (Commercial) Land Reform Act 6 of 1995 and the Communal Land Reform Act 5 of 2002. The government remains committed to a "willing seller, willing buyer" approach to land reform and to providing just compensation as directed by the Namibian constitution. As the government addresses the vital land and range management questions, water use issues and availability are considered.

Fishing
The clean, cold South Atlantic waters off the coast of Namibia are home to some of the richest fishing grounds in the world, with the potential for sustainable yields of up to 1.5 million metric tons per year. Commercial fishing and fish processing is one of the fastest-growing sectors of the Namibian economy in terms of employment, export earnings, and contribution to GDP.

The main species found in abundance off Namibia are pilchards (sardines), anchovy, hake, and horse mackerel. There also are smaller but significant quantities of sole, squid, deep-sea crab, rock lobster, and tuna. However, at the time of independence, fish stocks had fallen to dangerously low levels due to the lack of protection and conservation of the fisheries and the overexploitation of these resources. This trend appears to have been halted and reversed since independence, as the Namibian Government is now pursuing a conservative resource management policy along with an aggressive fisheries enforcement campaign. Namibia is a signatory to the Convention on Conservation and Management of Fisheries Resources in the South-East Atlantic (Seafo Convention). The country is also part of the Benguela Current Large Marine Ecosystem (BCLME) program, which is designed to help the Governments of Namibia, Angola, and South Africa manage their shared marine resources in an integrated and sustainable way.

Manufacturing and Infrastructure
In 2007, Namibia's manufacturing sector contributed about 14.3% of GDP. Namibian manufacturing has historically been inhibited by a small domestic market, dependence on imported goods, limited supply of local capital, widely dispersed population, small skilled labor force and high relative wage rates, and subsidized competition from South Africa.

Walvis Bay has a well-developed, deepwater port, considered by many the best in Western Africa, and Namibia's fishing infrastructure is most heavily concentrated there. The Namibian Government expects Walvis Bay to become an important commercial gateway to the Southern African region.

Namibia also boasts modern civil aviation facilities and an extensive, well-maintained land transportation network. Construction continues to expand two major arteries--the Trans-Caprivi and Trans-Kalahari Highways--which will further open up the region's access to Walvis Bay.

Tourism
Tourism is a rapidly growing sector of the Namibian economy and a significant generator of employment. It is the third-largest source of foreign exchange after mining and fisheries. Although the majority of Namibia's international visitors originate in the region, other international travelers are increasingly attracted by the country's unique mix of political stability, cultural diversity, and geographic beauty. Tourism in Namibia has had a positive impact on resource conservation and rural development. Some 29 communal conservancies have been established across the country, resulting in enhanced land management while providing tens of thousands of rural Namibians with much needed income.

Labor
While most Namibians are economically active in one form or another, the bulk of this activity is in the informal sector, primarily subsistence agriculture. In the formal economy, official estimates of unemployment range from 30% to 40% of the work force. A large number of Namibians seeking jobs in the formal sector are held back due to a lack of necessary skills or training. The government is aggressively pursuing education reform to address this problem.

There are two main trade union federations in Namibia representing workers: the National Union of Namibian Workers (NUNW), which is affiliated with the ruling SWAPO party, and the Trade Union Congress of Namibia (TUCNA), which is not affiliated with any ruling party. Both unions have eight affiliated unions.

In 2007, Namibia passed a new labor act, which updates the 1992 law but also contains controversial new provisions, such as leave time and the banning of labor hire companies (temporary agencies). The new law is expected to be implemented in phases starting November 2008.

GDP (2007): $6.7497 billion.
Annual growth rate (2007): 5.9%.
Per capita GNI (2007): $3,360.
Inflation rate (2008): 8.4%.
Natural resources: Diamonds, uranium, zinc, gold, copper, lead, tin, fluorspar, salt, fisheries, and wildlife.
Agriculture (10.6% of GDP, 2007): Products--livestock and meat products, fish and fish products, grapes.
Mining (12.4% of GDP, 2007): Gem-quality diamonds, uranium, zinc, copper, other.
Trade: Exports (2007)--$4.36 billion: diamonds, uranium, zinc, copper, lead, beef, cattle, fish, karakul pelts, grapes. Imports (2007)--$4.56 billion: foodstuffs, construction material, manufactured goods. Major partners--South Africa, Angola, Botswana, Germany, U.K., U.S.