The Economics of Drugs and Drug Abuse

The Economics of Drugs and Drug Abuse

In 2001 Portugal came to the conclusion that with approximately half its prison population in jail because of drug related offences that changes in laws were absolutely necessary. In that year the government embarked on what is still to this date the most radical experiment in the management of illicit drugs of any country. Rather than legalize drugs, something that would gotten the very unwanted attention of the US government as well its EU partners Portugal decided to decriminalize all dugs, both hard and soft, and start to treat those who were drug addicts as a public health rather than a criminal issue. Decriminalization means it is still illegal but use is treated as a misdemeanor rather than a felony. After all a crime normally has a victim and in this case, unless the drug addict commits another crime  as a result of their addiction, then there is no victim apart from addict and their family.

Since then the Portuguese experiment has been dissected by virtually every country and despite what one would expect the actual rate of addiction has not increased. In April 2009, the Cato Institute published a White Paper about the decriminalization of drugs in Portugal. Data about the heroin usage rates of 13-16-year-olds from and claims that decriminalization has had no adverse effect on drug usage rates The results of the Portuguese experiment are impressive. The rates of HIV have decreased and so have drug related crimes.  However, Portuguese officials themselves will tell anyone who is willing to listen that decriminalization is not a panacea for drug abuse and that there are many other aspects of the country’s drug abuse problem that were addressed.

In the USA the government maintains a policy that has only changed slightly since President Nixon launched the War on Drugs in 1971. Penalties for the pushing of drugs remain draconian and  a large portion of the prison population in the USA are small time drug pushers and users.  Yet the criminalization along with mandatory prison sentencing has resulted in a massive increase in prison populations in the USA. All drug lords know their economics- the more severe the penalties  for selling,  the higher the price and given a normally price unresponsive demand the greater the profits. You will never find the drug lords advocating either decriminalization or legalization. They know that it is their ‘retailers’ and their mules who go to jail and this is a  minor inconvenience to the drug lords

Last year in the USA it  was estimated that some 50,000 people died of drug overdose. The majority are based on dangerous opioids such as heroin and fentanyl.  This annual death rate is roughly the same as the number of Americans who died during the Vietnam War over a period of nine years. The main substance are opioids which are also used in common pain killers like codeine. One of the main ‘gateways’ for opioid abuse in the USA are not the heroin pushers on the mean streets of American cities but the family doctor who commonly  prescribes opioid based pain killers to help people deal with severe pain. From this people graduate to more deadly opioids.   

Two weeks ago Ms Cheryl Green was arrested in Walvis Bay for growing marijuana for what she claims are medical reasons to help her partner Reiner Kring, who suffers from amyotrophic lateral sclerosis (ALS), which is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord. There are several scholarly articles which support the contention that cannabis does appear to have positive effects for ALS sufferers.

Ms Green was reportedly charged under Act 41/1971 Section 2A which relates to the possession and dealing in prohibited dependence producing drugs or a plant from which such drugs can be manufactured. The law under which Ms Green was arrested was a colonial law from the apartheid era which has in effect been struck down by the courtsin South Africa recently. In many states of the USA Ms Green would simply have go to a doctor and get a letter permitting her to grow a certain quantity of marijuana for her partners condition.

Cannabis for medical uses is  legal in many countries including Australia, Canada, Chile, Colombia, Croatia, Cyprus, Finland, Germany, Greece, Israel, Italy, Norway, the Netherlands, New Zealand, Peru, Poland, and Thailand. In the United States, 33 states and the District of Columbia have legalized the medical use of cannabis, but at the federal level its use remains prohibited for any purpose. Cannabis has without reasonable doubt positive medical advantages and to imprison people for using it for medical purposes seems to be a  destructive pandering to a small minority of voters  whose knowledge of and interest in the facts regarding the medical advantages of cannabis in  treating some diseases.

Two countries, Canada and Uruguay have legalized cannabis for recreational purposes, South Africa has, following a Constitutional Court ruling, also legalized the recreational consumption of marijuana and  it is time that Namibia starts a national dialogue on reforms of antiquated colonial laws that does not reflect current best practice and medical knowledge. It is an election year and it is doubtful that President Geingob and the Minister of Health would lose votes by asking the country’s Law Reform Commission to publicly review the law especially as it pertains to medical use of cannabis but also for its recreational use.

There can be no doubt that the consequence of abuse of hard drugs are dreadful and addiction to hard drugs often destroys its victims and breaks up families. Yet the question arises as to whether serious drug abuse ie opioids and coca based substances are best treated as criminal  activities as is currently the case, or should users be treated as individuals having a disease, whether social or psychological. The more humane and cost effective way to deal with this scourge of drug addiction is to treat it as a disease and not to waste the nation’s scarce financial resources incarcerating drug users but giving them the medical care that similarly ill people receive from our medical system.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.  

Namibia’s ‘Receiver Led’ Economic Recovery

                                      Namibia’s ‘Receiver Led’ Economic Recovery

There is not a day goes by when the torrent of bad news about Namibia’s economy does not depress even the most pessimistic of economic analysts. With Jet closing down a number of its stores, government guarantees ballooning by N$12.5 billion, and with layoffs in most sectors there is little cheer. In February, Fitch revised Namibia’s rating outlook to “negative”, primarily off the back of weaker than expected growth, resulting in “adverse implications for the government's ability to stabilize the public debt trajectory”. 2019 is an election year and already we see signs of increased spending, coupled with public sector efforts to increase revenue through further tax on a shrinking economy and the fact that SACU receipts appear set to fall this year. The  New Era has recently said ‘This month alone, employees at the Roads Authority, Air Namibia and Namibia Institute of Mining and Technology (Nimt) have told their employees to expect delays in salaries. Some of the companies have told their employees that the delay was due to ‘technical glitches’, while others were frank in stating that they simply had no cash to fulfil their salary obligations.’  

Passenger vehicle sales which are usually a good early indicator of the state of the economy and they are now at their lowest levels for a decade with monthly sales down to a little over 300 in January 2019  from a high of over 900 per month in 2014.

Namibia is in the midst of a depression, not an extended recession. The Minister of Finance and the rest of the cabinet along the President and the Governor of the Bank of Namibia are still trying to put a brave face on a dreadful situation and are talking about ‘green shoots’ and modest economic recovery in 2019. One can only pray that this is the case but right now prayer seems all that is left as an economic policy initiative. If you speak to the lawyers, bankers and accountants  they will tell you clearly that Namibia, is in the middle of what they call, with their deadpan humor, a ‘receiver and default’ lead economic recovery. Meaning that business is booming for those repossessing houses, cars and dealing with commercial bankruptcies.

It would indeed be funny if there were not thousands of people losing their jobs, their homes and the education of their children. The depression has its roots in our over-spending but if you listen to the Ministry of Finance the roots of the current depression are to be found everywhere but in Namibia and especially not the government. There is some truth in this argument as the decline has in part resulted in South African imports flat-lining since 2013 which in turn has resulted in a relative decline in SACU revenues, one of namibia's main source of revenue. This has badly affected the four BLNS states (Botswana, Lesothoto, Namibia and Swaziland).

This external situation has been compounded by what has been done internally. The government tried to deal with poverty by creating ever more ministries and building ever more infrastructure projects ( NATIS, police, home affairs, the Walvis bay port expansion and longer freeways) and then it was soon realized that, like everyone else on planet earth, those governing Namibia have unlimited wants and limited means to achieve them. Once all that investment slowed down the economy went into a long technical depression.

Namibia faces a situation that resembles in many ways the on-going crisis that has confronted Greece for the last decade. Greece too has been in a depression largely because it has refused to decouple from the Euro and reintroduce a devalued Greek drachma. Greece has also has introduced very slowly the painful reforms demanded of it by its ‘European partners’ ie Germany. Many economists believe that Greece’s depression would  have eneded much earlier if the country had decoupled from the Euro early on and devalued by returning to the local currency.  The IMF has demanded painful changes to policy and the endless bail-outs of the country’s state owned enterprises. Few believe that this will happen in an election ear and that a major crisis awaits Namibia next year.

According to normally well informed sources there have been on-going discussions between the Bank and Namibia  and the Ministry of Finance for over a year on the question of the currency peg of the Namibian dollar to the rand. Those who plainly oppose decoupling look at the situation in Zimbabwe where the new for the local currency has been given the new ‘sexy’ name of RTGS or realtime gross settlement dollar. This new currency is widely expected to rapidly lose much of its market value against the US dollar which was the nation’s currency from 2009 until a few days ago. For a decade the Zimbabwean economy was disciplined by the fact the currency was the US dollar like Greece with the Euro and Namibia with the rand. But it is precisely that fiscal and monetary discipline and the subsequent absence of liquidity for big spending governments that has caused the introduction of the new currency.

Namibia stands on the edge of the precipice. If the government fails to introduce the very politically unpopular reforms required by the IMF which includes discipline on the state owned enterprises whose debts and overspending are strangling the economy then we will fall over the edge next year and we will only be caught by the IMF.  The pain that the IMF will inflict to assure that we repay our loans will be much harder than what if we would have the political courage to do it ourselves. Given the pattern of events 2020 will be considerably worse than what we are currently experiencing. 2020 is set to be an event better year for the receivers.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Gadaffi's Gold - Dead men tell no tales

Gadaffi’s gold-dead men tell no tales?

What happened to Gadaffi’s gold  is a question commonly posed by the lunatic fringe of the internet and comes from those who are still looking for Elvis Presley or the Russian Czarina. And yet from what is now becoming publicly known, the question of what happened to an estimated 143 tonnes of gold that was held by the former Libyan dictator Muamar Gadaffi prior to a very violent and unceremonious death at the hands of his opponents in 2011 is now far more credible. The question was commonly dismissed as even the UN Security Council’s team of experts who were looking for Gadaffi’s missing wealth had not commented on the missing gold and silver stock estimated to be worth some $7 billion at the time.

It was not until the infamous WikiLeaks of Hilary Clinton’s E mail on Libya that some understanding of the whole issue of Libyan gold became clearer. (See Hillary Clinton Email Archive:  France's Client & Qaddafi's Gold. from: http://archive.is/pBkCO#selection-1097.0-1097.32)  The E mails dating from 2011 purported to explain the French motivation for leading the bombardment of Libya. In the E mail Clinton suggested that the French motivation was principally, though not entirely to stop Gadhafi from using his gold stock to give the West and Central African states a new currency that would be based on the Libyan golden dinar and to end the economic domination of Africa by France. And so Clinton’s Email concluded that according to reliable French sources Sarkozy’s motivation for entering the war stemmed from:

a. A desire to gain a greater share of Libya oil production,

b. Increase French influence in North Africa,

c. Improve his internal political situation in France,

d. Provide the French military with an opportunity to reassert its                     position in the world.

e. Address the concern of his advisors over Qaddafi’s long term                      plans to supplant France as the dominant power in, Francophone                    Africa.

There was much in the Clinton Email that was questionable including the fact that the gold and silver were supposedly held in the vaults of the Central Bank of Libya in early 2011. This may have been correct but they were certainly not part of the country’s official reserves at least according to the IMF. According to IMF and World Gold Council data, the Central Bank of Libya only sold 27 tonnes of gold in 2011 and has sold nothing thereafter. But now Libya has two central banks and it is difficult to know who exactly the international community is dealing with.

All of this could have been dismissed as just so much internet gibberish pitched to those at  the lowest intellectual level. But fast forward to 2017 and then suddenly the question of what happened to Ghadaffi’s apparent gold holdings suddenly became more credible. According to the United Arab Emirates trade statistics in 2016 Libya had exported some 81 tonnes of gold to the UAE i.e. Dubai and over the period  between the revolution which overthrew Ghadaffi, the country had exported some 171 tonnes from 2012 to 2016. 198 if you include the official 27 – which it may be safe to say did not go to the UAE  

 In 2016 the volume of gold exports from Libya made it the single largest source of African gold to the UAE, larger than Sudan or Ghana or any of the more traditional gold producing countries in Africa. Libyan exports constituted some 9% of Dubai’s gold supply in 2016. In 2016, the UAE reportedly imported 446 tonnes of gold from Africa, much of it being smuggled from the tens of thousands of small scale gold miners throughout the continent.

What makes the figure odd, to be polite, is the fact that Libya mines almost no gold to speak of. According to both the US and British Geological Surveys, which are amongst the most authoritative sources,  Libya is not a gold producer which would be of no surprise to anyone as Libya was and remains known only for its massive oil exports.

The obvious question is then where did 171 tonnes of gold exports between 2011 and 2016 come from if not from Libyan mines? There are several obvious and quite legitimate explanations. First is the fact that many Libyans during the Gadaffi period held gold as ‘drop dead money’ either in the form of golden dinars or gold ingots. As Libya slid into civil war and complete chaos following Gadaffi’s death in 2011 many Libyans no doubt liquidated their gold holdings just to survive. Another important source of Libya’s gold exports could be from either Darfur and Sudan in general or from the other West African countries. As Libya became a failed state following the Anglo-French intervention and a major entrepôt for human smugglers, gold from sub-Saharan Africa and Sudan was commonly used to pay the cost of the traffickers from West Africa. Africans trying to escape war or grinding poverty would commonly join the estimated 10 million Africans working in small scale gold mines to earn enough to pay for their transit to Italy.

But it seems unlikely that these two ‘legitimate’ sources could conceivably amount to171 tonnes of gold over 5 years and hence the third source  seems more credible -that much of Gadaffi’s gold ended up captured by the one of other Libyan ‘governments’ or war lords and exported to UAE to fund on-going activities. This then returns us to the question of why Sarkozy actually bombed Libya and had Gadaffi eliminated. In 2018 new information arose when a French investigative magistrate indicted Sarkozy for election financing improprieties when his election team  received some Euro 50 million from Gadaffi to fund his 2007 election.  What was the motivation for the French led intervention into the 2011 Libyan war which has resulted in yet another failed state? So did the motivation  stem from high international policy as suggested in Hilary Clinton’s leaked Email or from the eternal verity that dead men tell no tales?

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

The New Peugot Assembly Plant- Is Namibia Industrializing?

Peugot  Assembly Plant  – Is Namibia Industrializing?

Since independence one administration after another has promised to industrialize the country. None have but recently Namibia took a major step towards fulfilling that dream. Namibia is now the proud owner of a Peugot/ Opel assembly plant in Walvis Bay which rolled out its first Peugot 308 SUV off the production line a couple of weeks ago and some two dozen workers were seen happily welcoming the first Namibian produced car. One can only wish the company well but there is every reason to fear that we may have just bought a second ‘Ramatex’. The assembly plant is based on kit assembly which essentially means we get several boxes of parts and assemble them here in Namibia for sale to the SACU i.e. South African market.

The plant is based on a joint venture with PSA i.e. Peugot. Namibia owns 51% having invested what is reported to be N$ 141 million PSA gets the other 49% having invested $50 million.  If those figures seem skewed in favour of PSA its  is only because if you want to assemble cars in a remote place like Namibia you have to offer companies incentives and this is part of the price that Namibia has to pay to attract this sort of investment.  In the 1960’s and 1970’s Peugot had an assembly plant in South Africa which it eventually closed in 1976. There was a time when Peugot was ‘the car for Africa’. But that was in the 1970’s when Peugot produced the justifiably famous Peugot 404. PSA has similar production facilities in Morocco, Algeria, Nigeria, Ethiopia, Kenya and Tunisia and so one can imagine that the main target market for the new Namibian facility is SACU.  Like so many transnational companies they are here primarily to avoid import tariffs and they are unlikely top  ever allow the Namibian facility to compete for market with their Nigerian or Kenyan sister company.

PSA has a long history of assembling motor vehicles mostly from kits in developing countries. The aim of joint venture is to produce and sell 5,000 cars in SACU market by 2020. Given the state of the market in most SACU countries then the only reasonable response is good luck and we shall see how many they manage to sell. It is estimated that the $140 million that Namibia invested in the land and building  will provide 50 jobs ie $2.8 million per job. Now that may appear like a very high price to pay but if the gamble of the government pays off and we eventually develop a sustainable automobile industry and not just a kit assembler then it will have been worth every penny. But that is a big ‘if’

There are many reasons to be cautious about what Namibia has done  and to fear yet another ‘white elephant’ state owned enterprise. But one very great risk is not failure but success. We are by no means the first country in SACU to try to take advantage of the market access rights that it gives Namibia for exports to South Africa. Botswana tried this 25 years ago by establishing a Hyundai assembly plant in Gaborone  to try to export to the South African market. The problem was that product was a fabulous success and exports to South Africa boomed beyond expectations. The product was both cheap and reliable. It started giving Toyota a serious headache in South Africa.

So what happened? South Africa saw this as a step too far – it was quite one thing for South African exports to the four BLNS countries to swamp  any domestic production in the small states but the idea that tiny Botswana would produce a product that would start hurting South African producers was too much. So South African DTI set about to destroy  Botswana’s Hyundai plant. First, they tried to stop exports by arguing that these sort of kit assembly plants violate the SACU ie South African rules of origin. When that failed and the Hyundai plant was beefed up they simply strong armed Botswana into accepting what is called in trade as ‘voluntary’ export restraints. VERs are illegal under WTO law but few seem to care. What South Africa did was set a ‘voluntary’ limit on the number of cars South Africans could import from Botswana to a maximum exports of 1,000 cars per month when the apparent break-even of the plant was monthly sales of 2,000. In an interview in 2014 with Kitso Mokaila, who was in 2000, the General Manager of the Hyundai facility he said ‘The business was sunk by the South African quotas. We could have survived with sales of 1,800 cars per month into South Africa but with a quota on 1,000 units we would certainly go broke’

South Africa destroyed Botswana’s best hope for industrialization. Until then Botswana’s manufactured exports were rising rapidly. Manufactured exports from Botswana never recovered from the collapse of Hyundai and it fell back to being a diamond economy. Fortunately for Namibia  Peugot’s , SUVs are  not down-market Hyundai and so the risk of Peugot making a big dent in the South African market is very limited. The target level of production is 5,000 units per year by 2020. That is about a quarter of what Hyundai was doing in Botswana 25 years ago. In the current market in Southern Africa even this sounds optimistic. If production is too low on the other hand the financial risk of another state owned enterprise losing money is very real.

The up-side of all this is that one day the planned steel plant in Otavi will one day provide the steel for a successful Peugot factory but that would involve both PSA and  the new steel plant which is also partly state owned (Otavi town reportedly owns 20%) making a basic change away from their current  business models. The steel factory is basically interested in producing basic steel for construction  and  the PSA  facility in Walvis is based on kits  which come with their own steel panel.

Last week President Hage Geingob came to the new plant in Walvis Bay and said that the company should share its profits with its workers. A truly positive sentiment which one can only endorse and let us hope that it has profits to share and that both the PSA factory and the Otavi steel facility are not Air Namibia two and three.

 These are the views of the Professor Roman Grynberg and not necessarily thos of UNAM where he is employed. 

2020/2021- The Year of Economic Reckoning?

2020/2021- The Year of Economic Reckoning?

Two weeks ago the IMF paid a visit to Namibia. They were not here for their regular annual Article IV consultation but something far more serious. They were undertaking a Macroeconomic Risk Assessment of the country. The report now in wide circulation has one outstanding feature. The Action plan and interventions the government is supposed to implement are all dated 2019. That means the IMF expects the government to implement what it sees as the necessary economic reforms on the economy before the election scheduled which is scheduled for around November 2019.

To say the least many of the reforms proposed by the IMF are not exactly vote winners and as a result the obvious question arises as to whether the government will have the political will to implement these reforms and lose votes at this time. What are these reforms? By and large they involve cuts in government spending. The most obvious change that the IMF has pointed towards is what emphatically calls ‘Reduction in  the expenditure rigidities’ and  ‘greater flexibility’ in public sector wages. The barely veiled intention is to lower real wages in the public sector and/or to decrease employment. Recently the governor of the Central Bank Mr Iipumbu Shiimi bemoaned the enormous wage bill of the government which currently stands at 50% of the country's revenue, and 16% of the gross domestic product (GDP). “If we add state-owned enterprises, the wage (bill) goes up to 70%,” he stated, adding that the workforce stands at 117 000 public servants, with a wage bill that has shot up from N$13 billion to N$30 billion over the past years. The IMF’s version of flexibility means only one of two things for Namibia’s public sector employees, either lower wages and/or even more unemployment.

But wages are only one of a slew of measures that the IMF is expecting the government to grapple with in 2019. Probably just as important is a bloated state-owned-enterprise sector where many lose money hand over fist. The partly state owned but privately managed Windhoek Golf Club, is run by efficient external managers who handed the government a revenue check of $6 million this years as it does almost every year. On the other hand the state owned parastatal Namibia Wildlife Resorts (NWR) and owns numerous hotels and resorts throughout the country lost suffered losses amounting to N$126 million over the last two years. Of these losses, N$40 million was reportedly  incurred this year, while N$86 million was for last year, indicating that things are looking up?  If the lessons are not clear then it is because someone doesn’t care- state ownership without private management is a recipe for sustained losses.

What is more we have just acquired another SOE - Namibia is a 51% share holder in Peugot PSA plant in Walvis Bay. And the Council at Otavi has taken a 20% share in the new steel mill. It is normal practice for local governments that take a financial interest in a business and these holding are guaranteed by the national government. But not all SOEs lose money. Nampower as well others like Telecom , for example, has been earning profits but it is the exception. The real threat is not these investments nor is it even the enormous losses of many SOEs like Air Namibia which lost $1 billion in 2017 but the heart of the problem is political- the belief by government  that government can solve the nation’s problems through ever more state ownership.

State ownership and the ensuing losses of SOEs are just part of the nation’s economic problems. The IMF has identified a more fundamental issue and that is the massive investments in infrastructure by SOEs and the government directly that are drowning the country in unsustainable debt. The proliferation of new buildings from Home Affairs to the Police to NATIS in Namibia along with huge white elephants like the Medical faculty at UNAM, the completely unnecessary expansion of the container facility at Walvis Bay and the multi-billion dollar oil storage facility at Walvis Bay along with the four lane freeway to the airport are all examples infrastructure investment that have never been subjected to rigorous analysis!  But the remedy to this potentially disastrous proliferation of unjustifiable investments suggested by the IMF simply won’t work. The IMF has suggested that Namibia ‘Develop a gatekeeping mechanism that serves as a check and balance for the business case of each investment project through multi-stakeholder engagement (NPC, portfolio ministry, MoF and public entity)’

Getting Planning, Finance and the line ministry involved to determine which investments have a good business case and which do not is akin to inviting Dracula into the blood bank! For Dracula, all blood tastes good.  These line ministries along with the National Planning Commission will not say ‘no’ to a powerful minister who wants a project that may make no commercial sense. He may want the project for reasons of ego or reasons that even far less salubrious and the ministers will normally get their way.

The only way to have a real ‘gateway’ that ranks projects and stops completely sub-economic projects infrastructure project from bankrupting the nation is to have a thoroughly independent assessment of the economic cost and benefit and a ranking of investments which are best done by the national assembly in free and completely open evidence based discussion.

If the government does not do what the IMF asks in 2019 what will happen? Nothing so long as we don’t need a loan from them. But the IMF has asked for implementation of all this because Namibia is sitting a on an economic precipice and we will fall in shortly. In 2021 Namibia has to roll over a US$500 million ( $N6.5 billion) Eurobond on the money markets. The last time we went to the money markets we got the loan at 5.75% but then we were still labelled by credit rating agencies as being investment grade. Now Namibia has acquired ‘junk’ status and when we go back to the money markets we will be lucky to borrow at 10% and the loan could well be under subscribed. If we are going to have roll over debt at such high interest rates or not be able to raise sufficient funds from the market then we will have no choice but to go cap in hand to the IMF and then the proverbial will hit the fan.

IMF adjustment loans are ugly things. The boys and girls from Washington will take over the management of the economy and the IMF will force government to cut back wherever it feels it is necessary in order to assure that Namibia repays its debt. It will be the poor and public servants- policemen, teachers and nurses and doctors who will suffer the most.  

These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.

Is the African Development Bank really helping Develop Africa?

Is the African Development Bank Helping African Development?

In October the Namibian Minister of Finance Mr Calle Schlettwein was reported to have asked the Minister of Works, Mr John Mutorwa to suspend two major AfDB funded projects, one on the development of the railway from Walvis Bay to Kanzberg and the second the long expected freeway to the airport from Windhoek. These are part of the  $10 billion AfDB loan to Namibia for the construction of infrastructure projects. The reason that the minister asked for the deferral is that the pre-conditions required by the AfDB for companies bidding in effect excluded Namibian firms because they required the firms to have capital, track record and assets that were such an order of magnitude that they could meet the minimum tender requirements.

The Deputy Minister of Works Mr Sankwasa was quoted as saying that the threshold requirements for participating in the tender are too high and in effect block Namibian construction firms from the tenders. According to the report firms are required to have a 5 year balance sheet which shows the applicant has long term profitability and has a cash flow of $N 130 million ( US$10 million). The report also states that the tender documents expect the applicant to have a minimum average annual construction turnover of $800,000 within the last ten years.

This raises first the issue of whether companies that are so small should be involved in major international tenders. What commonly happens in construction contracts is that local ‘tenderpreneurs’ will take a contract that they cannot implement and then sub-contract to a much larger international firm where this is permitted.  All over Africa this allows party apparchnicks to get a share of the action on tenders who have no capacity to implement. The question is whether government wants the project properly implemented by large firms or does it want someone who is connected just to make money. One of the important and legitimate objectives of government is to develop a national entrepreneurial elite and this very ugly business of handing out tenders is an integral part of that process.

Mr Sankwasa is quoted as saying ‘If Namibians are the ones who will pay back this loan, why put threshold they know Namibians wont meet? The ADB is African. Is what they are doing being African? What does it benefit Africa then? You are simply saying Namibians should not participate.’

There are always two reasons for every commercial action- the good reason and the real reason. The good reason for this AfDB threshold is to assure that the project is implemented by companies that have the wherewithal to finance and implement the project. Giving a major project to too small and inexperienced an African firm will simply mean they are doomed to fail. The real reason is that Mr Sankwasahas a romanticized vision of what the AfDB does.It is first and foremost a bank and those who provide its capital expect to be repaid just like any other bank. But the AfDB is a very political animal. China, the USA the UK, France Germany  and whole host of other ‘generous donors’  sit on its governing board as non-regional members and whose firms tender for these projects. The AfDB may be run by well dressed and well groomed Africans who speak immaculate French and English but whose interests these people serve is entirely another matter.

The AfDB has good reason to impose minimum financial thresholds to assure that illegitimate politically connect tenderpreneurs do not get projects that they cannot possibly implement  but whom  it benefits are the non-regional members who want to see the money they loan for ‘African development’ boomerang back to them in the form of construction contracts for their large construction firms.

The AfDB has many instruments that can in theory help African firms. According to the AfDB procurement rules, countries ‘may’ provide preferences for local firms in tenders which amounts to 15% over non-local bidders for manufactured goods and related services and 10% for construction works.  This amounts to nothing more than an empty  best endeavor provision. There is no ‘shall’ in the language and the country must get the agreement of the AfDB first. Using the word ‘shall’ would mean that countries would have more debt to the borrowers AfDB because they wish to help local firms. As long as this someone is connected this may not be an issue but it should.  This does not help Mr Schletwein or Mr Sanakwasa because Namibian firms are too small to even get in the door. If Mr Snakawasa really wants to be  a developmental minister he should do what the Koreans and Japanese did when they found that their firms could not compete with the Europeans and Americans- they helped them form cartels or ‘chaebols’ in Korean. He must work to force small Namibian firms to work together to become big enough to compete.

 But the nice men and women who work for the AfDB are supposed to be helping Africa develop are not there for that. This benevolent bureaucrat  is just a figment of the imagination of African ministers. The AfDB officials are there to do their board’s bidding. They are not there to line pockets of tenderpreneurs. If they wish to help in the transformation of Africa they should create a preference that is pan-African in nature. In the coming decades Africa will be electrified, thousand of kilometres of railways and roads will cross the continent and this will be loaned to African countries  through the World Bank, the AfDB and the BRICS bank. In Europe and America and China these major infrastructure projects were the catalysts to transforming their countries when the investment was made because there were backward linkages to iron steel coal, aluminum and copper, zinc industries. This sparked real development and economic transformation but it will not in Africa because the backward linkages will be to Chinese American and European manufacturers. And if we are honest then it will be China, with its highly subsized base metal sector that will benefit the most.

If  Mr Schlettwein and the other African ministers who attend the lovely annual meetings of the AfDB  and World Bank were actually serious about doing something that will develop all of Africa they would force the board to implement a new preference provision which would give a neutral preference to Africa, not the tenderpreneurs. It is time the President of the AfDB Mr Akinwumi Adesin to show real leadership and create a truly pan-African rule of origin. The pan-African preference should read. ‘No African member country shall accept a tender from any company for an AfDB (or World Bank) project by 2025 which does not use 30-50% African content’. This would force Chinese, American  and European firms to invest in backward linkages in Africa.  This will transform Africa much more than helping line the pockets of some small well connected tenderpreneur whose first expenditure is so commonly a new Mercedez Benz . But the great powers who really control the AfDB and the World Bank will never allow such a thing unless they forced by real African leaders determined to transform the continent. Real transformational development will await the day that African leaders demand it and refuse to accept the continent’s centuries old position of ‘hewer of wood and drawer of water’.     

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed

Namibia's Great Depression

                                                      Namibia’s Great Depression

The economic situation for most people in Namibia over the last two or three years of fiscal austerity have been pretty dire. Employment has been in clear decline and unemployment rates in Namibia is estimated to be at 37.3% in 2017 according to recent reports, up from 37% in 2016. These are unemployment rates much higher than those found in the USA at the height of the Great Depression in 1933 which was 24.9%.  

Since  independence in Namibia in 1990 the growth rate of real GDP in Namibia has been an average of 4.25% which is considered pretty healthy by global standards. These are growth rates that most countries only dream of but they do not reflect the most biting fiscal austerity in the nation’s economic history and the resulting recession that began in 2016.

But what we have had in Namibia over the last few years is not a recession but what more closely approximates what economists refer to as a depression. So what is the difference between the two? The formal and widely accepted definition of a recession is widely accepted as when real GDP has been falling for two consecutive quarters. The definition of a depression is contested but is commonly defined when GDP falls for more than two years and GDP decreases by 10%. From 2016 onwards we have had at least two and a half years of negative growth and this fulfils at least one criteria of a depression even though real GDP in Namibian dollars has only decreased by 5% since 2015. But the economic situation that Namibians faces is actually much worse than these Namibian dollar figures suggest. 

Reality can never be easily captured by one single number but economists, the media, politicians and the public like simple numbers. A better way of capturing what has happened to the standard of living of Namibia’s people more accurately is not in terms of rand or Namibian dollar but rather to look at GDP per capita in terms of the world’s main trading currency the US dollar i.e. what Namibians can buy from the world market. Doing this we get a picture of the Namibian economic reality that probably looks far closer to what most of us understand at the end of the month. Based on NSA and Bank of Namibia data in 2011 the Namibian real GDP per capita peaked at US$5,684 and went into a steady decline for six years until 2017 when it reached a low of US$3,437 in 2010 dollars. This is a huge 39.5% decrease in US dollar denominated real GDP/capita for six years amounts to an economic depression by any reasonable definition. As we move to the point where 2018 figures become available there will almost certainly be another very substantial decline in real US dollar GDP per capita because the exchange rate has fallen to 14- 15 rand to the dollar.

We are arguably in Namibia’s worst ever depression when it is measured in US dollars. The recession immediately following independence was minor by comparison. But what has largely caused the US dollar depression is the exchange rate. In May 2009 when President Zuma came to power the rand was about 7-8 rand to the dollar. But by the time he left power in 2018 the value of the rand ie the Namibian dollar had halved in value to 15 to the dollar. There was a temporary recovery in the value of the rand in 2017 when our US$ GDP/capita rose but in 2018 the Rand is once again moving towards new lows against the US dollar. Much of the deterioration can be put down to the worsening perception of the South African economy and its prospects by investors. If the exchange rate between the rand and the US dollar had stayed at 2011 levels there would have been no “Great Depression’ but a modest 11.5% growth rate of Namibia’s real US$ GDP/capita between 2011-2017 rather than the 39.5% decrease.

But why does the US dollar matter at all to Namibia as almost everything that Namibia imports is from South Africa and so the US dollar should simply not count much? Wrong! We may buy most of our imports in rand but South Africa which produces a very large part of what we consume buy its inputs in US dollars and we are also importing more from outside of the SACU block and that means we pay in US dollars.  A halving of the value of the rand during the Zuma years meant that South Africans as well as Namibians are poorer and import less and therefore there is less SACU customs revenue to distribute as a result and it also means that the cost of everything that is bought from abroad to produce goods in South Africa is increasing.

But what is perhaps the most interesting issue is the interpretation of this ‘Namibian Great Depression’. The experts have been arguing that the current austerity and the recession are a result of a decline in SACU revenues or a result of slow domestic growth or excessive government debt or a host of other domestic factors. While much of this is true Namibia’s depression is very much an exchange rate phenomenon caused by South Africa and its turbulent politics and has little to directly do with matters in the country.

But simply blaming South Africa perhaps offers too much comfort to those Namibian policy makers who have done nothing to arrest this most remarkable economic decline. We have remained so connected to the South Africa and its rand because it is easy and comfortable for many at the top. What it has done for lives and livelihoods of Namibia’s working people and the masses of unemployed is quite another matter.

It is time for government to seriously rethink economic policy in Namibia before we slide into ever more dire poverty.

These are the views of Professor Roman Grynberg and Mr Fwasa Singogo (research associate) and not necessarily those of UNAM.