Financing the Inclusive Growth Development Agenda A Presentation by Hon. Calle Schlettwein, MP Minister of Finance

0. In this Presentation, we discuss …. Overview and Namibia’s Development Agenda Policy Frameworks Decomposition of Growth, Structural Challenges and Opportunities Composition of Spending and Budget Revenue Domestic Resources Mobilization and Funding Strategy & Financing the Development Agenda Concluding Notes

I. Overview of the Republic of Namibia Key Highlights Strong governance and political stability A stable Parliamentary democracy Growing and diversified economy: Diversified economic base supported by the services and mining sectors as key contributors Stable macroeconomic environment: Price stability, manageable public Debt to GDP ratio of 40.0%1 (2015/16) Investment grade economy Capital: Windhoek Official Language: English Population: approx. 2.2million3 Surface area: 824,292 sq km Currency: Namibia Dollar (NAD) Snapshot of Namibia Credit Ratings International Domestic Moody’s Baa3 (stable) Fitch BBB- (negative) BBB (negative) 2013 2014 2015 Nominal GDP (NAD bn)1 122,749 139,500 146,619 Real GDP Growth (%)1 5.7 6.5 5.3 Government Debt / GDP (%)1 24.3 23.2 40.0 1 NAD = 1 ZAR (pegged) 1 USD = 13.42 NAD4 Economic and Demographic Indicators (2014)2 Helvi to update debt information. Namibia South Africa Botswana Ghana Nigeria Senegal Zambia GDP per capita (USD) 5,720 6,448 7,757 1,462 3,185 1,071 1,722 GDP Growth (annual %) 5.33 1.3 4.4 4.2 6.3 3.9 6.0 Population Growth (annual %) 2.37 1.6 0.9 2.1 2.8 2.9 3.1 Life Expectancy at Birth (years) 63 57 47 61 52 58 Primary School Enrolment (% net)3 90 n/a 89 64 73 91 Infant Mortality Rate (per 1,000 live births) 33 36 74 44 43

I. Namibia’s Development Agenda is well set-out in the national development policy frameworks Vision 2030, sets out the national long-term aspirations and development targets, The National Development Plans provide policy cohesion, inter-sectoral coordination and alignment with the Vision, The Medium-Term Expenditure Framework gives and alignment of the resource envelop and budgetary provisions, Industrial Policy and Growth at Home Strategy set-out productive capacity interventions The total Public Sector Investment frame is costed in the National Development Plans

Effective Governance and Service Delivery Economic Advancement I. The Harambee Prosperity Plan is Namibia’s fast-track intervention strategy for inclusive growth and shared prosperity, with a focus on FIVE Key Pillars Effective Governance and Service Delivery Economic Advancement Social Progression Infrastructure Development International Relations and Cooperation Estimates put Namibia’s infrastructure funding gap at some N$50 Billion by 2015. Large deficits exist in social sectors too

II. Decomposition of Growth, structural challenges and opportunities The economy is relatively diversified, with the tertiary sector at over 50% of GDP The share of manufacturing has steadily risen, but low commodity prices have impacted on beneficiation activity Price-induced production slowdowns for some metal commodities and meat processing led to slowdown in overall manufacturing output. Uranium production is expected to raise beneficiation activity

Investment Grade African Economies II. Decomposition of Growth, structural challenges and opportunities Namibia is only among the five African countries with investment grade credit rating The strong growth, political and macroeconomic stability have been key ratings strengths for Namibia, but structural challenges remain Country Moody’s Fitch TE Rating Investment Grade African Economies Botswana A2 Stable   73 Mauritius Baa1 Stable 65 Namibia Baa3 Stable BBB- Negative 55 Morocco Ba1 Stable BBB- Stable 54 South Africa Baa2 Stable 49 Medium-term Policy is directed at addressing structural challenges:- Jobless, less-inclusive high economic growth: unemployment is broadly at 28.1% High Income Inequalities: The Gini Coefficient Ratio of 0.58, though declining, is still among the highest in the world, Technical skills base remains low, hence emphasis on education, Deep pockets of poverty still remain, although bsolute poverty was halved since 1993/94, thanks to social safety nets, Hence the policy emphasis on inclusive growth, reduction of inequality, eradication of poverty and achieving shared prosperity The Government has responded to addressing ratings weaknesses by defining a balanced, medium-term fiscal consolidation stance

I. The economy may be relatively diversified, but mineral commodities make up over 50% of exports There is a case for commodity-based industrialization for Namibia in areas of competitive advantages

III. Composition of Expenditure and Budget Revenue Development budget, together with capital transfers to SOEs hover around 26% of budget The Budget financing is mainly sourced from own revenue and debt capital. Grants are less significant Transfers to SOEs are mainly targeted for development project financing, and social services delivery in the social sectors

IV. Domestic Resources Mobilization and Financing Strategy: Five-Pronged Approach. The key measures for DRM and Financing are (i) diversification of revenue, protecting revenue base and implementing tax administration reforms, (ii) mobilization of domestic savings, (iii) SOEs reforms and (iv) leveraging PPPs and (v) Off-budget project financing I. Revenue as % of GDP1 is one of the best in the region III. Leveraging SOE reforms Government wholly owns numerous SOEs, in economic, financial and social spheres Some of the economic and financial SOEs are credit-rated and can raise own funding in execution of their mandates. Partial listing of some of the SOEs offer opportunities for improving efficiencies and financial returns, while relieving reliance on the budget for project financing IV. Harnessing PPPs and debt capital to finance infrastructure II. Mobilizing Domestic Savings Namibia is a net exporter of capital, due to high institutional investment savings (assets > GDP) The economy experiences savings-investment gap, exacerbated by capital flight Domestic Asset Requirements prescribe that 35% of total assets be invested locally and about 1.75% so invested be in unlisted assets. The 35% threshold is now being lifted gradually to about 45-50%. This is expected to release about N$9.47 billion in the economy annually over the next 4 years For the fiscal year 2015/16 8.9 bn N$ 4.5 bn N$ Funding gap of N$4.3 bn 50,78% 49,22% 100% Infrastructure investment need as per 6% of GDP Development budget on core infrastructure programs Source: BoN Annual Report 2015, MTEF 2016/17 to 2018/19

V. Conclusion: Funding the Development Agenda A stable environment and medium-term growth prospects offer prospects for inclusivity and growth-friendly fiscal policy, Scope for private sector has widened as Government fiscal policy assumes consolidative mode, The currency peg with the ZAR offers price stability. Namibia remains an Investment Grade economy and thus a credible and safe investment avenue, Exchange Control regulations have embedded pro-investor provisions Tax policy provides for a variety of fiscal incentives. Corporate tax has been lowered by a cumulative of 3% in last 3 years Financing for development obtains from (i) revenue diversification, (ii) SOE reforms, (iii) mobilization of national savings and harnessing PPPs The Cohesion is achieved through alignment of financing and national plans frameworks

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