Research Report. An Overview of the Namibian Economy. Dr. Jeremy Wakeford

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1 Research Report An Overview of the Namibian Economy Dr. Jeremy Wakeford Dec 2017

2 Contents List of Figures... 3 List of Tables... 3 Highlights... 4 SWOT Analysis... 4 Investment ratings... 4 Macroeconomic outlook... 5 Key macroeconomic indicators... 5 Macroeconomic Performance... 6 Economic growth and inflation... 6 Composition of GDP... 6 Sectoral growth rates... 8 Fiscal sector... 8 Monetary and financial sector... 9 External sector Investment and savings Business Environment Governance & Political Stability Sectoral Issues Infrastructure Energy Mining Conclusion References

3 List of Figures Figure 1: Macroeconomic performance indicators... 6 Figure 2: Broad sectoral composition of value added, Figure 3: Sectoral composition of GDP, Figure 4: Government revenue, expenditure and debt... 9 Figure 5: Money supply and credit extension Figure 6: Consumer inflation and interest rate Figure 7: Imports and exports (current US$) Figure 8: Prices indices of Namibia s export commodities Figure 9: FDI, remittances, current account balance and exchange rate Figure 10: Total foreign reserves in months of imports Figure 11: Investment and savings Figure 12: Map of Namibian railways Figure 13: Map of roads and airports Figure 14: Shares of total primary energy supply, Figure 15: Mining production indices Figure 16: Map of Namibian geology and mineral occurrences Figure 17: Map showing Namibia's active mining licences List of Tables Table 1: Namibia's sovereign credit rating... 4 Table 2: Forecasts of economic growth in Namibia... 5 Table 3: Key macroeconomic indicators for Table 4: Growth rates of Gross Domestic Product at constant 2006 prices (percent), Table 5: Top 5 export and import partners, Table 6: Top 5 export and import products, Table 7: Ease of Doing Business rankings for top 20 countries in Sub-Saharan Africa Table 8: Namibia s position on the Ibrahim Index of African Governance, Table 9: Worldwide Governance Indicator rankings for Namibia, Table 10: Namibia's mining tax regime Table 11: Structure of the mineral industry in

4 Highlights SWOT Analysis Strengths solid economic growth over past decade moderate and fairly stable inflation rate still moderate level of government debt politically stable strong governance metrics large mineral resources (diamonds, uranium) good transport, logistics and energy infrastructure solid financial institutions & infrastructure Opportunities further investment in infrastructure to boost growth and competitiveness further development of mineral resources, with new mines coming on stream Weaknesses slow economic growth in following commodity price slump large fiscal deficit, rapidly rising public debt large and widening current account deficit exchange rate weakness and volatility declining and low savings rate rising household debt high rate of unemployment, especially youth very high income inequality very high dependence on imported petroleum External: Threats uncertain global economic environment commodity price volatility (diamonds, uranium, copper) growth of synthetic diamond industry global financial market volatility capital flight from emerging markets Internal: lack of fiscal consolidation may crowd out private investment and lead to rising debt Investment ratings Namibia was ranked 9 th on Quantum Global Research Lab s Africa Investment Index as of April Namibia performs particularly well on the doing business, liquidity factors, and domestic investment sub-indices. Both Fitch and Moody s currently rate Namibia s sovereign debt as junk (non-investment grade speculative), one notch below investment grade. Table 1: Namibia's sovereign credit rating Rating Outlook Date Fitch BB+ Stable 20 November 2017 Moody s Ba1 Negative 11 August 4

5 Macroeconomic outlook Having posted an average rate of economic growth of 4.2% over the past 10 years, Namibia s economy is set to expand at moderate rats over the next few years. The World Bank expects growth to average 4% in 2018 and pick up slightly to 4.2% in The IMF s forecasts, which are in local currency terms, are somewhat lower at 2.5% for next year and rising to 3.5% by The ramp of production at some new mines is expected to contribute to a pick-up in economic growth next year. However, the outlook has recently dimmed somewhat, in the light of rising debt, slowing growth, a credit rating downgrade to junk status, and current account weakness. Table 2: Forecasts of economic growth in Namibia Agency World Bank* IMF** Source: World Bank (2017b), IMF (2017) Note: * 2010 USD; **Constant local currency units Key macroeconomic indicators Table 3: Key macroeconomic indicators for 2016 Indicator 2016 Population (million) 2.5 Population growth rate 2.2% Real GDP growth rate 1.2% Real GDP per capita growth rate -1.0% GDP per capita (purchasing power parity) $10,550 Inflation rate (annual %) 6.7% Fiscal deficit (% of GDP) -7.7% Government gross debt (% of GDP) 40% Current account balance (% of GDP) -14% Gini coefficient (income inequality) 61 Unemployment rate 19% Poverty headcount at national rate 30% Source: World Bank (2017a) and IMF (2017) 5

6 Annual % change Macroeconomic Performance Economic growth and inflation Real GDP grew by an average rate of 4.4% between 2007 and After a big dip amidst the global economic crisis in 2009, the growth rate remained above 5% between 2010 and 2015, but fell sharply to 1.2% in 2016 following the collapse in commodity prices. Growth was negative in 2017Q1 (-1.04%) and Q2 (-2.15%), and is projected to average about 0.5% for the year. Real GDP per capita growth averaged 2.5% between 2007 and 2016, while the population grew on average by 1.9% per annum. In 2016, the level of GDP per capita stood at US$4,140, or $10,585 when measured in purchasing power parity (PPP) terms (current international dollars). Namibia still has a very small population (2.5 million) in relation to its geographic size. The rate of consumer price inflation averaged 6.3% between 2007 and Inflation has been relatively stable at around 6%, except in 2008 and 2009 when it climbed above 8%. The inflation rate tends to move counter-cyclically to economic growth, partly because it is influenced heavily by the exchange rate, which is tied the South African rand, which in turn depends heavily on commodity prices. Thus when commodity prices slump, the exchange rate tends to weakens, imports become more expensive, and inflation picks up. Figure 1: Macroeconomic performance indicators Real GDP Real GDP per capita Consumer price inflation Source: World Bank (2017a) Composition of GDP Figure 2 shows how the composition of Namibia s economy has evolved over the past decade. Agriculture s share of gross value added declined from 10.5% in 2006 to 6.7% in The share of industry (including mining) in the economy also diminished, from 35% to 31% over the period. Services, by contrast, have expand from 55% to 62% of the economy. These trends show a continued maturing of 6

7 Value added (% of GDP) Namibia s upper-middle income economy, although industry (including mining) still plays a large role compared to many of its regional peers. Figure 2: Broad sectoral composition of value added, % 80% 60% 40% 20% 0% Agriculture Industry Services Source: World Bank (2017a) Figure 3 shows the percentage contribution to GDP of the main economic sectors in 2016 (based on revised, but not final, GDP estimates). Public administration (including defence, education and health spending) was the single largest sector (26%), followed by retail and hospitality (15%), financial services and real estate (14%), and manufacturing (12%). Mining accounts for 12% of GDP, with diamonds making up 6.6% and uranium 1.2%. Fishing is nearly as important to the economy as land-based agriculture. Figure 3: Sectoral composition of GDP, 2016 Public administration 26% Agriculture & fishing 7% Mining 12% Community services 3% Finance & real estate 14% Transport & communication 5% Trade & hospitality 15% Manufacturing 12% Electricity & water 2% Construction 4% Source: Namibia Statistics Agency (2017) 7

8 Sectoral growth rates As Table 3 shows, the sectoral growth rates have varied greatly, both over time and across sectors, in recent years. Mining and quarrying has been hard hit by the commodity price slump, with the sector contracting in 2014, 2015 and 2016 by 5-6% per year. Between , construction was the fastest growing sector, expanding by 11% per annum on average. Some of this construction was related to new mines, including the Husab uranium mine. Most of the service sectors grew at robust rates (over 5%), while agriculture floundered and manufacturing grew very slowly and erratically. Table 4: Growth rates of Gross Domestic Product at constant 2006 prices (percent), Sector Average Agriculture Fishing Mining & quarrying Manufacturing Electricity & water Construction Wholesale & retail trade Hotels & restaurants Transport & communication Financial intermediation Real estate & business services Public administration & defence Education Health Community services GDP Source: Namibia Statistics Agency (2017) Fiscal sector Tax revenue as a proportion of GDP has been on a slightly upward trend over the past 15 years, rising from a low of 25% in 2004 to a high of 19.6% in 2015 (see Figure 4). However, government expenditure has grown even more rapidly as a percentage of GDP, from 16.2% in 2002 to 34% in 2015, before being curtailed to 31% in Government expenditure as a proportion of GDP has grown even more rapidly, from 25% in 2007 to 42% in After running a budget surplus from 2006 to 2009, the Namibian government budget has subsequently been in deficit, which has widened to 7.6% of GDP in Consequently, gross government debt has been increasing, from a low of 15.5% of GDP in 2009 to 38.5% of GDP in This is still a manageable level of debt, especially compared to many other countries in Sub-Saharan Africa. Nevertheless, the rapid increase in debt in recent years is cause for concern, and in the absence of further deficit reductions, the IMF (2016) expects public debt to rise to above 60% by The government s Medium Term Expenditure Framework (MTEF) presented in November 2017 projects 8

9 % of GDP % of GDP (debt) that general government debt will expand to 44.2% of GDP in FY19. The rising debt levels, together with slower growth, were major reasons why Fitch downgraded Namibia s credit rating to junk status on 19 November. The Namibian government will need to adopt prudent fiscal management to contain debt levels in the future. Furthermore, any additional increases in real government expenditures should be directed towards productive investments that lay the foundation for future economic growth. Figure 4: Government revenue, expenditure and debt Debt Revenue Expenditure Source: IMF (2017) Monetary and financial sector Domestic credit extension to the private sector has grown at a brisk pace over the past decade (13.2% per annum on average), consequently rising from 48.3% of GDP in 2007 to 56.7% in The broad money supply has grown at a similar pace, averaging 15.1% per annum over the past 10 years, taking it to 56.9% of GDP in The pace of growth in credit and money supply has facilitated economic growth but has not led to strong inflationary pressures. 9

10 % of GDP Figure 5: Money supply and credit extension Broad money Credit to private sector Source: World Bank (2017a) The rate of consumer price inflation averaged 6.3% over the past 10 years, and increased slightly to 6.7% in 2016, partly as a result of drought-induced higher food prices. Overall, Namibia s monetary regime is relatively stable, with sound management of inflation by the Bank of Namibia, taking its cue from the South African Reserve Bank (because of the exchange rate peg to the South African rand). The monetary policy rate (MPR) is currently at 6.75%. The lending rate declined from 13.7% in 2008 to 8.3% in 2013, but picked up to nearly 10% in Figure 6: Consumer inflation and interest rate % Consumer price inflation Lending interest rate Source: World Bank (2017a) 10

11 US$ Billions External sector Namibia s exports (in US dollar terms) were on a rising trend from the early 2000s until 2011, after which they flattened out and subsequently declined. Since 2007, imports have consistently exceeded exports, with a growing gap between the two. The current account deficit has widened to 14% of GDP in This is one of the major weaknesses of the Namibian economy. Namibia, along with South Africa, Lesotho and Swaziland, is part of the Southern African Customs Union (SACU). SACU has an export revenue sharing formula, which makes the smaller countries dependent on the state of their larger neighbour s economy. SACU revenues have declined significantly in recent years, contributing to Namibia s current account deficit. Figure 7: Imports and exports (current US$) Exports Imports Source: World Bank (2017a) The prices of some of Namibia s main commodity exports have been volatile in recent years (Figure 8). Gold had a long upswing from 2000 until 2011, but from 2013 lost more than a third of its value as jewellery demand in China and India slackened. Uranium rose to stratospheric heights in 2007, but soon collapsed again, and have continued a downward trend since Japan s Fukushima nuclear disaster in Copper has followed the pattern of most base metals, with a major slump between 2011 and 2016 followed by a partial recovery. 11

12 Index (Jan 200 = 100) Index (Jan 200 = 100) Figure 8: Prices indices of Namibia s export commodities Copper Gold Uranium Source: World Bank (2017c) Switzerland is Namibia s largest export destination (18.8%), as the largest share of Namibia s raw diamond exports are sent to that country for global trading and processing. Other major consumers of Namibia s exports in 2016 were South Africa (16%), Botswana (14%) and Zambia (6.2%) - the latter two countries receiving transhipments via Namibia s port at Walvis Bay. Total exports were valued at $4.8 billion in Namibia s total imports were valued at $6.7 billion in 2016, with by far the largest share (57.2%) sourced from South Africa, followed by the Botswana (6.8%), Zambia (4.1%) and China (2.9%). Market (for exports) Table 5: Top 5 export and import partners, 2016 US$ million % share Exporter (source of imports) US$ million % share Switzerland South Africa South Africa Botswana Botswana Zambia Zambia China Unspecified Unspecified World World Source: WITS (2017) Table 6 displays Namibia s top five export and import products. The top five exports are diamonds, copper core, gold, uranium and frozen fish. The top import products are petroleum fuels, diamonds, copper products and ores, and vessels. 12

13 % of GDP NAD/USD Table 6: Top 5 export and import products, 2016 Exports US$ million Imports US$ million Diamonds Petroleum 802 Copper ore 544 Diamonds 527 Gold 287 Copper 219 Uranium 240 Copper ore 207 Fish 221 Vessels 166 Source: WITS (2017) Namibia s current account balance has been in negative territory since 2009, with the deficit steadily worsening since then and reaching -14% of GDP in 2016 (Figure 9). Given that the Bank of Namibia maintains an effective peg of the Namibian dollar to the South African rand, it has had to draw down its foreign reserves as the current account deficit has widened. Net foreign direct investment (FDI) has been fairly strong over the past decade, reaching a peak of 9% of GDP in Remittances are negligible relative to GDP. The nominal exchange rate (NAD/USD) has weakened considerably over the six years, falling from 7.26 in 2007 to 14.7 in 2016 driven of course by movements in the South African rand. Figure 9: FDI, remittances, current account balance and exchange rate Current account FDI net inflows Remittances Exchange rate Source: World Bank (2017a) Namibia s stock of foreign reserves, measured in terms of months of import cover, has fluctuated greatly since 2001 (Figure 10). After peaking at 4.5 months of imports in 2009, total reserves have subsequently fallen to 2.5 months of imports in 2015 as the current account deficit widened. 13

14 % of GDP Months of imports Figure 10: Total foreign reserves in months of imports Total reserves Source: World Bank (2017a) Investment and savings Total investment (gross capital formation) gradually rose as a percentage of GDP between 2000 (22.3%) to 2015 (34%), but declined sharply in 2016 to 25.7% (Figure 11). The savings rate has declined precipitously from 36% of GDP in 2007 to 11.6% in This is a cause for concern, as lower savings mean less capital available for investment in future productive capacity. Together with the large current account deficit, it suggests that Namibian consumers are living beyond their means, and a rebalancing will be necessary. Figure 11: Investment and savings Investment Savings Source: IMF (2017) 14

15 Business Environment Namibia slipped to 108 th position on the World Bank Group s Ease of Doing Business ranking in 2017, down from 101 st the previous year (Table 7). This puts Namibia ninth in the Ease of Doing Business rankings in sub-saharan Africa. In terms of individual doing business criteria within a regional context, Namibia performed particularly well in getting electricity (2 nd ), enforcing contracts (4 th ), getting credit (11 th ) and paying taxes (11 th ), but less well in resolving insolvency (23 rd ) and registering a property (41 st ). Clearly, Namibia is one of the easiest countries to do business in on the African continent, although there is still room for improvement. Table 7: Ease of Doing Business rankings for top 20 countries in Sub-Saharan Africa Country Global Rank 2016 Global Rank 2017 SSA Rank 2017 Mauritius Rwanda Botswana South Africa Kenya Seychelles Zambia Lesotho Namibia Ghana Swaziland Uganda Cabo Verde Tanzania Malawi Mozambique Burkina Faso Côte d Ivoire The Gambia Senegal Source: World Bank (2016, 2017d) 15

16 Governance & Political Stability Namibia scored 71.2 (out of 100) on the overall Ibrahim Index of African Governance in 2016, which placed it 5 th out of 54 African countries. Namibia ranked particularly high on Participation and Human Rights (3 rd ) and Safety and the Rule of Law (3 rd ), but performed less well on Human Development (11 th ). Namibia s score on the overall index has risen by 0.42 points since 2007, and by 1.0 points since Its scores on all four major sub-indices improved over the decade Namibia has a strong record as one of the best governance performers on the continent, scoring significantly better than the African average on all four major components of the IIAG. Table 8: Namibia s position on the Ibrahim Index of African Governance, 2016 Namibia rank Namibia score Africa average score Namibia trend Overall index Safety and the rule of law Participation & Human Rights Sustainable Economic Opportunity Human Development Source: Mo Ibrahim Foundation (2017) Table 9 shows Ghana s percentile rankings on the World Bank s Worldwide Governance Indicators in Namibia s best category was Political Stability (70), followed by Voice and Accountability (64). Namibia performed relatively less well on Regulatory Quality (50) and Government Effectiveness (60). Namibia performs quite well compared to its large southern neighbour, South Africa, especially on political stability. However, Namibia is outperformed by Botswana on all but one category (Voice and Accountability). Category Table 9: Worldwide Governance Indicator rankings for Namibia, 2016 Percentile Rank Namibia Percentile Rank Botswana Percentile Rank South Africa Voice and Accountability Rule of Law Regulatory Quality Political Stability and Absence of Violence/Terrorism Government Effectiveness Control of Corruption Source: World Bank (2017e) 16

17 Sectoral Issues Infrastructure Namibia has solid transport infrastructure, including: 1 eight airports operates by the Namibia Airport Company (NAC) Ltd., including an international airport in Windhoek; two ports handling merchandise imports and exports and servicing the fishing industry, including a deep-water port in Walvis Bay and a harbour in Luderitz; a high-quality road network connecting all the major cities, including 6,664 kilometres of standard bitumen roads, 25,710 kilometres of standard gravel roads, and 11,460 kilometres (7,120 mi) of earthgraded roads; 2 a railway network comprising km of narrow gauge track, with a main line running from the border with South Africa via Keetmanshoop to Windhoek, Okahandja, Swakopmund and Walvis Bay, and a northern branch to Tsumeb; one of the most modern postal and telecommunication infrastructures in Africa, which links Namibia directly to most countries in the world via fixed telephone, internet and cellular phone networks. Figure 12: Map of Namibian railways Source: Htonl - Own work / OpenStreetMap geodata., CC BY-SA 2.0,

18 Figure 13: Map of roads and airports Source: 18

19 Energy Namibia relies very heavily on oil for its energy supply; oil accounted for 78% of total primary energy supply (TPES) in Biofuels and waste mostly traditional fuels such as wood and charcoal are still used in some rural areas, and account for 14% of TPES. Hydropower (8%) makes up the remaining component of TPES, with negligible contributions from coal (0.1%) and solar and wind (0.2%). Oil is used for both transport and electricity generation. Namibia has offshore gas reserves in the Kudu field, but has yet to develop them because of the very long distance to any major city. Figure 14: Shares of total primary energy supply, 2015 Biofuels & waste 14% Solar & wind 0% Coal 0% Hydro 8% Oil 78% Source: International Energy Agency (2017) Namibia generates 98% of its domestic electricity from hydropower, and a very small amount from diesel generators (2%). The country also imports substantial volumes of electricity from South Africa, especially in the dry season when hydropower is constrained. In 2015, net electricity imports accounted for 62% of total supply (IEA, 2107). Nearly 30 MW of solar photovoltaic power capacity has been added since 2015, and Namibia has abundant solar resources. Total electricity consumption was 3,790 gigawatt hours (GWh) in Electricity consumption stood at 1.54 megawatt hours (MWh) per capita in 2015, which is considerably higher than the 0.57 MWh average for Africa as a whole (IEA, 2017). Half (50%) of Namibia s population has access to electricity, although the figure is considerably higher in urban areas (83%) than in rural areas (21%). This discrepancy relates to the extremely low population density, which makes it uneconomical to connect most rural communities to the national grid. 19

20 Jan 10 Jun 10 Nov 10 Apr 11 Sep 11 Feb 12 Jul 12 Dez 12 Mai 13 Okt 13 Mär 14 Aug 14 Jan 15 Jun 15 Nov 15 Apr 16 Sep 16 Feb 17 Jul 17 Index (2008=100) Index (2008=100 Mining Mining is a very important sector in the Namibian economy, contributing 12% of GDP in 2016 and accounting for the majority of export revenues. Diamonds are the country s main mineral export, generating US$1.2bn in forex revenues in 2016, and accounting for a quarter of all exports. Namibia is also the world s fifth-ranked producer of uranium, accounting for about 7.3% of world output in 2013 (USGS, 2015). Several metals are produced in Namibia, including arsenic, copper, gold, lead, manganese, silver, and zinc concentrates. Apart from diamonds, various other industrial minerals are produced, such as cement, dolomite, fluorspar, granite, marble, salt, semiprecious stones, and wollastonite (USGS, 2015). In 2013, some 16,709 people were employed in the mining sector, including temporary employees and full-time contractors (USGS, 2015). Namibia s volume of mining production has been somewhat erratic over the past few years, fluctuating by up to about 30 percentage points (Figure 15). Gold output has been especially variable, with a huge jump in early 2015 followed by a temporary plunge in early Figure 15: Mining production indices Overall Index (RHS) Diamonds Uranium Copper concentrate Zinc concentrate Gold Bullion Source: Namibia Statistics Agency (2017), Monthly Mining Report The general slow-down in the global economy has negatively affected mining in Namibia in recent years. In particular, the slump in uranium prices has delayed the onset of production from the already-completed Husab uranium mine, which is set to treble Namibia s uranium output and boost the country to third in the world s uranium production rankings. 3 The slump in mining has led to substantial negative spillovers on many economic sectors, notably external trade and public finances (World Bank, 2017f). Chamber of Mines members paid a total of N$3.2 billion in taxes and royalties in 2016, plus N$844 million in Pay-asyou-earn (PAYE) taxes, and dividends of approximately N$1 billion. The mining sector generated N$28.85 billion in foreign exchange revenues in 2016 (Chamber of Mines)

21 Namibia is well endowed with minerals, with deposits spread over large parts of the country (Figure 16). Diamonds are concentrated along the coast, both onshore and offshore. Other minerals deposits are concentrated in the central and north-western regions of the country. Figure 16: Map of Namibian geology and mineral occurrences Source: Namibia Mining Cadastre Portal ( 21

22 Figure 17: Map showing Namibia's active mining licences Source: Namibia Mining Cadastre Portal ( 22

23 Mining policy and regulations The Minerals Policy of Namibia (Republic of Namibia, 2002) affirms the following approach to the country s mining industry: The Government of Namibia recognises that the exploration and development of its mineral wealth could best be undertaken by the private sector. Government therefore focuses on creating an enabling environment for the promotion of private sector investment in the mining sector. This will include competitive policy and regulatory frameworks, security of tenure and the provision of national geo-scientific data to further stimulate exploration and mining. In the same vein the Government will expect the industry to take the challenge of social responsibility in terms of planning for closure, community involvement and empowerment of formerly disadvantaged people. Companies applying for a Mining Licence (ML) have to submit for the approval/disapproval by the Minister of Mines and Energy their projected production profile for the first year, and for the next four years thereafter (Republic of Namibia, undated). There is also a 30% local value addition requirement, and if the relevant facility is non-existent, the company is obliged to establish one or to show good cause of its inability to establish such facilities. The company management must include a minimum 20% representation of historically disadvantaged Namibians, while the ownership must include at least a 5% stake for Namibian nationals or a company wholly owned by Namibians. Furthermore, mining projects are required to address poverty in Namibia: The proposal should address the Government s objectives of poverty eradication by (i) providing an opportunity for Namibian participation, as well (ii) setting out a strategy to benefit the Namibian youth and women particularly from the disadvantaged groups and the poorest of the poor. There are concerns in the Namibian mining industry that the proposed Economic Empowerment legislation, which is mooted to include a provision requiring at least 25% ownership of enterprises by racially disadvantaged people, may thwart investment in the mining sector. Bloomberg reports that the draft Act has helped see Namibia lose its spot as Africa s second-most attractive jurisdiction for mining companies to invest in, based on policies, to Botswana, the Fraser Institute s 2016 survey of 2,700 firms worldwide shows

24 Mining tax regime Table 10 shows the basic elements of Namibia s mining tax regime. Ownership of mineral resources is vested in the State. There is currently no compulsory government ownership share in mining companies, and 100% foreign ownership is permitted. The corporate tax for non-diamond mining is 37.5%, while the royalty for base metals is 3%. The value-added tax rate is 15%. Table 10: Namibia's mining tax regime Description Rate/Remarks Foreign ownership allowed 100% Compulsory government share Foreign exchange controls Tax stability agreements No Limited None Corporate tax rates 32% - 55% Corporate tax for non-mining companies 32% Corporate tax for diamond mining 55% Corporate tax for non-diamond mining 37.5% Royalties on rough diamonds 10% Royalties on rough emeralds, rubies & sapphires 10% Royalties on unprocessed dimension stone 5% Royalties on gold, copper, zinc & other base metals Royalties on Semi-precious stones 2% Royalties on Nuclear fuel minerals 3% Royalties on industrial minerals (fluorspar, salt, etc) Royalties on non-nuclear fuel materials 2% Royalties on oil/gas 5% Corporate tax on oil/gas 35% 3% 2% Tax holidays None 24

25 Deduct exploration/development costs Ring fencing Forward carry of losses Depreciation Yes, 100% in first year Yes (oil and gas) Yes, indefinitely Yes, 20 & straight line, see text Capital gains tax 0% Value added tax 15% Non Resident Shareholder s Tax (NRST) 20% NRST-if a Non-resident recipient of dividends is a company which holds at least 25% of the capital of the Namibian company paying the dividend. 10% Withholding tax 10% Land tax (on valuation) Provincial taxes Municipal taxes Exploration & Mining Licence Fees Surface rent Mineral ownership Namibian citizens %, Foreign Nationals 1.5% None Services (Rates on Services) Yes, schedule available from the office of the Mining Commissioner To landowner, on mutual compensation agreement Vested in the State Training Levy Source: Chamber of Mines of Namibia 1% of payroll 25

26 The table below sets out the structure of the mineral industry in Namibia as of 2013, including the major mineral commodities, operating companies, location of mines and annual production capacity (in metric tonnes unless otherwise stated). Some of the major companies include De Beers and Namdeb (diamonds), Rio Tinto and Vedanta (uranium oxide and zinc), Paladin Energy (uranium), QKR Namibia (gold bullion), Rosh Pinah Zinc Corporation (zinc and lead concentrates). Dundee Precious Metals Tsumeb produces blister copper from imported copper concentrates at its smelter in Tsumeb. Table 11: Structure of the mineral industry in

27 Table 11: Structure of the mineral industry (continued) Source: USGS (2016) According to the Chamber of Mines, production has begun at three new mines during the past three years, netting more than N$40 billion in fixed investments. Swakop Uranium's Husab mine, the world's second largest uranium mine, started production on 30 December B2Gold s Otjikoto gold mine went into production 11 December Weatherly s Tschudi mine produced the country s first copper cathode in February The latter two mines increased to full production levels in 2015, giving a major fillip to export and government earnings. The Lodestone Dordabis iron ore mine, Namibia first such mine, started production in These examples testify to the dynamism of the Namibian mining industry, despite the recent period of low mineral prices. 27

28 Conclusion Namibia is a politically stable upper-middle income country with a tiny population and good infrastructure. Mining plays a very important role in the economy, and is the main source of export revenues. The main challenges the economy faces are to do with persistently high unemployment and income inequality. Amidst rapidly rising public debt, the government will have to carefully manage fiscal consolidation over the next few years. The large current account deficit is also a concern, mainly as a result of the weaker commodity prices and reduced revenues from the Southern African Customs Union, although increasing mining output should alleviate this in the coming years. Rising public debt and household indebtedness are causes for some concern. The commissioning of some new mines will contribute to an expected pick-up in economic growth in the coming years. References Chamber of Mines of Namibia [accessed on 29 November 2017] Energy Information Administration International Energy Statistics. [accessed 6 November 2017] International Energy Agency (IEA) Energy Statistics. [accessed on 21 November 2017] International Monetary Fund (IMF) World Economic Outlook database: October [accessed on 20 November 2017] International Monetary Fund (IMF) Namibia 2016 Article IV Consultation. IMF Country Report No. 16/ Consultation-Press-Release-Staff-Report-and-Statement-by-the [accessed on 23 November 2017] Mo Ibrahim Foundation. Ibrahim Index of African Governance (IIAG). Available online: [accessed on 20 November 2017] Namibia Statistics Agency [accessed on 21 November 2017] Republic of Namibia Minerals Policy of Namibia. 28

29 Republic of Namibia. Undated. Additional Conditions. [accessed on 29 November 2017] USGS (Unites States Geological Survey) Minerals Yearbook: Namibia. [accessed on 20 November 2017] WITS (World Integrated Trade Solution) [accessed on 21 November 2017] World Bank Doing Business 2016: Measuring Regulatory Quality and Efficiency. Washington, DC: World Bank. DOI: / World Bank. 2017a. World Development Indicators. [accessed on 20 November 2017] World Bank. 2017b. Global Economic Prospects database. October [accessed 31 October 2017] World Bank. 2017c. Commodity Prices. [accessed on 20 November 2017] World Bank. 2017d. Doing Business 2017: Equal Opportunity for All. Washington, DC: World Bank. DOI: / [accessed 22 September 2017] World Bank. 2017e. Worldwide Governance Indicators. [accessed 3 November 2017] World Bank. 2017f. The World Bank in Namibia. [accessed 23 November 2017] 29 Quantum Global Research Lab Ltd The entire contents of this publication are protected by copyright. All rights reserved.