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Namibia is not China’s puppet…yet!

 

Last week in a meeting with Chinese Ambassador to Namibia the ambassador appeared to be telling the President what to say when he meets Chinese President Xi Jingping next week at the African leaders summit in Beijing for the annual Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) . This did not go down well. Mr Geingob  made it quite clear that he did not believe that Namibia was ‘China’s puppet’ and for the moment that remains absolutely true. Namibia remains a free nation to do what it chooses and say what it chooses  with China, the country’s old friend and liberation struggle supporter. For decades when the Western world condemned Namibia and South Africa’s liberation struggle heroes such as Nelson Mandela and Sam Nujoma as terrorists, the Chinese stood behind Africa and gave invaluable support to the struggle for freedom. But that was yesterday’s China.  

China is slowly achieving its primary political and economic objective of the 21^st century which is to return to its rightful place as the world’s largest nation and economy which it was at the beginning of the 19^th century before the European, American  and Japanese powers took over the entire coast of China with what were called ‘treaty ports’. In 1839 Britain fought the first of two so-called ‘Opium Wars’ against the imperial Chinese government to convince that country that they should not restrict the trade in opium which was the one of the few legal exports that Britain had from India that many Chinese wanted to buy. If you had Chinese silk, why would you buy cheap cottons from Manchester? Much was different then- opium was a legal drug but much was the same- the iron ships of the British navy devastated the wooden ships of the Chinese navy. In compensation the British got Chinese tea for which they have a deep and enduring love rather than having to pay for the tea in silver or gold which they definitely love more than tea, they could pay in Indian opium. For China the 19^th century ‘free trade’ in British opium was a catastrophe that resulted in what was estimated as many as 20 million drug addicts.

In the 19^th century it was not the Kali or Sinaloa cartels that controlled the trade in addictive and lethal drugs it was institution that was far more greedy and ambitious, Her Majesty’s government and its chief enforcer the British Navy, which was more murderous than anything the 21^st century drug cartels could ever hope to produce. As recompense at the end of the war the British got Hong Kong as a colony from which they could continue to trade drugs and Canton (now Guangzhou) as a treaty port where British law ruled and opium was freely traded. But Britain was not alone, France, Germany, Russia and Japan all had treaty ports where Chinese sovereignty ended. By the latter part of the 19^th century China as a nation state in effect ceased to exist as a functioning nation, it was a puppet as its entire coast was gobbled up by treaty ports of the imperialists. It was this period of great humiliation at the hands of the imperial powers that sparked the creation of the Kuomintang and the Communist Party and resulted eventually in revolution and the rise of communism in China. History is long!

After such an unhappy history one would imagine that China understood the meaning of humiliation and loss of sovereignty to greedy imperial powers  and would have learned but then power, hubris, money and time change everything.  China has been reborn as a great power, no longer easily trampled on by the European imperialists but yet in many ways it is doing precisely what the Europeans did 150 years ago but its choice of weapon is quite different and far more effective. Whereas in 1834 it was the British navy that was the principle vehicle of imperial control, but today the new Chinese empire has a more effective and peaceful weapon- debt and we in Namibia seem to love debt much more than tea.

China today has foreign exchange reserves of US$3 trillion. What do you do with that much money after you have bought as many US Treasury bills that you can? Clearly you have to be both intelligent and inventive and the Chinese are certainly both. China has assiduously used its exchange reserve to help ‘develop’ the so-called Belt and Road initiative (US$4-8 trillion) which aims to improve transport and port infrastructure all over the world to link raw materials to Chinese markets and markets to Chinese producers. By building efficient railroads and ports China will cement its commercial advantage over all other potential competitors.   

In the last three years China has embarked on an ambitious port, road and rail building program all over the developing world. It has built railways such as the Benguela railroad that will link Katanga and the Copperbelt to the Angolan coast. It is building the port at Cabinda as well as Walvis Bay. Last year China acquired its first foreign naval facility in Djibouti right under the noses of the French and Americans.

But in 2017 the Chinese government did something unparalleled in its history – it seized the port of Hambantota in southern Sri Lanka. The port which was built and funded by China as  part of, called Belt and Road and was seized because the government of Sri Lanka had failed to meet its mounting debts and the Chinese in turn did what they were legally entitled to do – they seized not only the port but also the 15,000 acres around the port which it will own for the next 99 years. Thus without a shot being fired China got exactly what British Navy got from China  in Hong Kong 180 years ago after the First Opium war- a ‘treaty port’. Similar situations are developing in Mynmar and in other regions.  

Today President Xi Jingping will tell the assembly of African leaders in Beijing that what China is doing on the African continent is about development and yes it is true, but it is about China’s development. China is now the world’s leading producer of just about everything when it comes to minerals but this will not last forever as these  Chinese resources are non-renewable and so if it wants to bring 1.3 billion Chinese to the same standard of living as the developed world then it will need resources from Africa and Asia and if it wants to sustain its trade advantage it has to make sure that those resources arrive in Chinese ports cheaply. So rather than developing Africa, China is bringing its engineering firms, its workers and its materials to build ports and railroads all over the world. These are expensive ‘gifts’ for which Africans will have to repay and when by 2022  Namibia’s debt has grown from 45% of GDP today to an estimated 70% of GDP will Mr Geingob still be able to look the nation in the face and say we are not puppets?

 

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

The anatomy of a white elephant

Elephants of the natural variety are normally grey. These natural pachyderms can be dangerous  as they will trample fields and people but they are not half as dangerous as man-made  white elephants. The formula for creating these deadly beast is, in all places, the same. Just add three parts hubris, two part ignorance of the facts (or in some cases just greed will do) and one part cowardice and sure enough, there you have a perfect man-made white elephant. If a country makes enough of these it will financially self-destruct. I have seen many and the one recently built at UNAM, the Medical Faculty fits the formula perfectly.

 In the past you could be assured that if you sent your child to study medicine or nursing they would, unlike so many other graduates, end up with a good well paid job. Based on that assumption large numbers of Namibians sent their children abroad to countries like South Africa, Russia,  China, Ukraine and Cuba for medical studies. Many have started to return and they have begun to compete with the increasing number of home-grown UNAM doctors seeking internships that are the next stage of completing their studies and apprenticeship. As of 2017 government was training  more than 180 medical interns under a two-year programme at three of its biggest hospitals, the Katutura Intermediate Hospital, the Windhoek Central Hospital and the Oshakati State Hospital. The estimates are that there are some 200 doctors returning from overseas this year.

The first 35 UNAM medical graduates entered the  market in 2015 and since then the Medical faculty has expanded and the number of graduates in was 80 but based on agreements with health and education is expected to have an intake of 60 in 2018 , with  drop outs this will mean about 40 will graduate in six years. But staff in 2016 there were 130 staff on the recently renamed and recession proofed, Hage Geingob Campus. It is staff-student ratio that teachers in other faculties of UNAM only dream of but it is precisely that which makes the UNAM Medical faculty a white elephant. Recent reviews of the School of Medicine have indicated that UNAM has the lowest staff student ratios of any medical school in sun-Saharan Africa.

In 2016 UNAM spent some N$240,000 (US$18,000) per medical student per year. In other words for a six year medical degree the cost of the education is, give or take,  $N1.5 million. This does not include the cost of the two year internship nor does it include the grants given by government to support medical students or the cost of university and residence fees.  By contrast the University of Pretoria costs some ZAR 390,000 for a six year medical degree. So why is Namibia so expensive? The reason that the cost is so high is common to virtually everything the country produces – economies of scale. We are simply too small to be low cost. The University of Botswana which created a very similar and expensive white elephant in its own medical faculty estimated that in order to enroll 100 students it would need approximately 125 staff. In Namibia the Medical faculty employs good highly specialized professionals and most of the people who teach doctors are foreign specialists who require internationally competitive salaries to be attracted to come and work in remote places like Botswana and Namibia.

 

The most recent problem is that the number of internships is insufficient for the number of graduates coming from UNAM as well as the Namibians returning from studies overseas. The problem is that there is a desire and a real need to expand the number doctors and if you look at the data Namibia has approximately half the number of doctors per head of population compared to neighboring South Africa. Clearly, Namibia needs more doctors but increasingly government simply does not have the revenues to be able to hire the number of doctors required or to produce enough to make  the medical faculty viable.

In the 2017 state of the nation address the President, Mr Hage Geigngob said that ‘in  the public health sector,  our per capita ratio is one doctor to every 5,092 people and one registered nurse to 914 people.  In contrast, the World  Health Organisation’s benchmark is one doctor or one nurse per 435 people, respectively’ So how much would this cost? It would mean that we have to increase the number of doctors from around 450 in the public service to around 5,000 doctors for the public service to achieve this WHO target. That would cost the government N$7.6 billion just to train that many doctors and then a further $2.5 billion in extra salaries every year. Clearly, having the right number of doctors is an important objective but one that will have to wait until the country has a real economic recovery. So we have a medical faculty that produces expensive doctors and a government that does not have the money to keep hiring them. That is the definition of a white elephant but surely one that any reasonably trained official could have readily foreseen.

 So if it costs that much to train a doctor in Namibia then perhaps the least cost option is to close the faculty and send the students abroad as was case before Namibia built its very expensive white elephant. This might make accounting or economic sense but it would be difficult to find a politician or health/ education policy maker that would countenance such an option even if setting up such a high cost institution as the medical faculty for 2.3 million people was utter economic foolishness in the first place. Politicians don’t readily admit such colossal  blunders and so we will continue to drain the nation’s resources and will soon produce unemployed doctors because the government does not have the money to hire them. 

What then are the options if closing the faculty is politically unpalatable? There are several options and they relate simply to becoming bigger. UNAM could co-operate with UB on training because the two countries are simply too small to support such expensive white elephants on a national scale in both countries. But the very purpose of the medical faculty is based on developing  national capacity rather than relying on external sources. The unwillingness of small African countries to co-operate is pure political hubris- arrogant pride rather than being based on something that makes any economic sense in terms of development of the country.

The broader question that arises is how do countries like Namibia and Botswana make such colossal financial mistakes and how can they be stopped? It is not because there are no competent people in both the ministries of health and education who could not warn their superiors that with such a small country could not possibly undertake such a venture in a cost effective way. So why was such foolishness not stopped by a bureaucracy that should know better? Some ministers want pyramids built in their name so that they are remembered. And those that care nothing for pyramids at least want the 10% kick-back on the construction project. Those who know the facts are, for good professional reasons, unwilling to tell political or bureaucratic masters that such infrastructure proposals are an economic nonsense. Only those who agree with their political and bureaucratic masters get promoted, troublemakers or those who ask difficult questions are on a fast track to nowhere. The only way to protect the people from such folly is to submit all these massive proposed infrastructure projects to a thorough and independent cost-benefit analysis which could be undertaken by the ministry of planning or, better still, by an independent parliamentary agency that would rank them and tell the people the facts. Otherwise we shall continue to propose and build white elephants that only harm the long term development of the country.

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

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The Walvis Bay White Elephant

In Namibia we love our elephants but as with so many things, and the white ones seem greatly favored above other colors. The Walvis Bay port expansion is amongst the newest addition to the species and will cost Namibia N$4.2 billion. The project was was initiated by Namport and funded by the African Development Bank. The Chinese built port, when the expansion is completed will in effect increase the size of the port to carry 1.05 million TEU (twenty foot equivalent containers) per year. The current capacity is about 350,000 TEU  and there now seems that the expansion and the resulting debt will probably result in a further deepening of Namibia’s economic morass because Namport, which should be able to carry the debt for the expansion from revenues, may not be able to do so and the government of course has had to provide loan guarantees to the lenders.

            The problem is that container shipping at Walvis Bay is not growing but is in rapid decline. Most importantly the trans-Kalahari railway from Botswana has not and probably will not progress and container traffic in transit through the port is in decline. The transshipment to Angola was supposed to be the economic basis for the expansion of Walvis Bay port but to assume that Angola would not develop its own ports in the wake of the civil war and that Walvis Bay would continue to act as its major transshipment centre was economic folly. New ports are being constructed all over Angola by the Chinese at Cabinda with a US $600 (N$7.2 billion)  loan from China and there has been an expansion of the container port at Lobito the end of the Chinese reconstructed the US$1.8 billion (N$20 billion) Benguela Raliway to DRC and Zambia. The first shipments of manganese from DRC arrived at the port of Lobito in Angola earlier this year.

The question that Namibians must ask is how did the nation get into this mess and how do we stop the development of yet more multi-billion dollar white elephants? There are many white elephants in Namibia, this deadly species is not in any imminent danger of extinction  and we will almost certainly continue to build more.  The market section of the feasibility study for the Walvis Bay port expansion was done by Namport in 2011 when TEU through Walvis Bay peaked at 334,000 containers. Since then it has decreased to 203,000 in 2017 but according to the AfDB projections it was supposed to be 561,000 TEU by 2017. Most of the decline was because of the collapse of transshipment. This will mean that, based on current throughput, the new 1.1 million TEU port will operate at 20% capacity and that the expansion was simply an unnecessary investment that Namport will now struggle to repay. The N$3 billion borrowed from AfDB will have to be repaid by government and people of Namibia if Namport cannot. The growth of shipping in 2011 made it look possible to believe that a 1.1 million  TEU port might make sense one day in the very distant future but only so long as the transshipment traffic to Angola continued. No-one, especially the AfDB, should have assumed such a thing, which should have done its own assessment when it finally agreed to the $N3 billion loan in mid-2013 by which time shipping was already in decline. This white elephant is not just a case of unfortunate future projections on shipping demand as this could have been foreseen by 2013 if there was a proper review by AfDB just  prior to disbursement.

The only way to stop this sort of economic folly from continuing and ultimately bankrupting Namibia, which no-one should doubt will be the end result,  is for the President and National Assembly to protect the people from some of their ministers. Some, but not all ministers build white elephants out of pure vanity and hubris and the hope that it will be a ‘pyramid’ in the their name. Others have even less noble objectives such as getting kick-backs which are common in such large infrastructure projects. In theory the Ministry of Planning should be mandated to conduct an independent review of all infrastructure projects using proper economic cost-benefit analysis. But the ministry cannot be trusted not to be leaned on by one or other powerful ministers to give a favourable outcome. What the country needs is to resurrect the now defunct NEPRU (Namibian Economic Policy Research Unit) directly under the control of the National Assembly. It should change into an independent economic watchdog, based on the US Congressional Budget Office model,  that would publish an independent analysis of any proposed infrastructure project in the country. The IMF has earlier this year warned Namibia that one of  the nation’s greatest financial risks lies amongst our state owned enterprises and their penchant for such sub-economic projects. It is time for parliament and the President to protect the people and insist that proper facts based cost-benefit analysis be done by an independent parliamentary body before any large infrastructure project is approved. If we do not then the herd of white elephants we are building will destroy our economy and further impoverish the people of Namibia.

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

De Beers new Nuclear Weapon

Fifty years ago De Beers and General Electric were the leading technology firms making synthetic, man-made  diamonds. It was held as a truism in the global diamond  industry that De Beers would only use the synthetic technology to produce industrial diamonds  which can readily be bought in any hardware shop and are used as cutting tools. These are an essential ingredient in construction and are manufactured in China by the billions of carats. But one De beers CEO after another would solemnly promise that De Beers would never produce gem quality synthetic diamonds because, after all, that would undermine their highly profitable mined diamond operations. While they were protesting their innocence Element 6 which is the De Beers synthetic diamond arm, was busily filing patents for gem quality synthetics and preparing for what happened in May and June

 Two months ago De Beers dropped a huge bomb on the global diamond industry and by extension the relative prosperity of Botswana and Namibia, by far the two most diamond dependent countries in Africa,  by announcing that it would establish a new firm under its existing Element 6 which would produce  gem quality synthetics. The new company called  Lightbox will manufacture synthetic diamonds for jewellery at a price range of US200 for a quarter of a carat to $800 for a one carat diamond.

These are modest prices and are aimed at tempting back ‘Millennial’ consumers who as a group are simply not interested in ‘bling’ in the same way as their parents. This new younger generation of affluent consumers looks at a range of possible luxuries when buying and diamonds are only one option and so De Beers has purposely targeted the price range that will compete with branded leather hand bags. This strategy could not be done with quality mined diamonds which are much more expensive.

For Botswana, Namibia, South Africa Angola and Zimbabwe this move is nothing short of an economic disaster because it will certainly not be long before De Beers begins to compete against more high value stones. Namibia produces amongst the world’s most valuable rough diamonds selling at unit export price of more than N$7000 per carat. The Namibian Ministry of Mines appear to have been totally silent about the De Beers move even though in one swoop the old cartel master of African diamonds has completely undermined any bargaining power that African countries have by giving itself  a ‘nuclear option’. In the three countries where De Beers has mines in Africa; Botswana, Namibia and South Africa it has seen government policy towards diamonds decrease their relative power and market position as governments try to extract ever more surplus from the industry.

As the technology for manufacturing modern synthetic gem quality diamonds matured at the beginning of this century Botswana, which already owns 15% of De Beers signed a secret  agreement with De Beers in 2004 that if De Beers ever began to produce gem quality diamonds that it would form a 50/50 partnership with the government. What remains unknown is whether this has eventuated in the case of the US$94 million plant in Portland Oregon and what will be the financial stake of the government of Botswana in the impoverishment of its people.

Why this move is the nuclear option for Africa’s mined diamond producers has to be understood in light of what has happened in the past to the price of industrial diamonds after GE and De Beers started producing synthetics. These were first developed in the 1950’s and GE went into production in the 1960’s. De Beers then entered in a big way in the 1970’s and after 1981 prices on the global market collapsed. First Japan in the 1990’s developed synthetics followed by China at the beginning of the current century. The world’s biggest producer of diamonds is not Russia or Botswana but China which manufactures what is estimated between 4- 8 billion carats per year but has no mines.

The entry of De Beers, then Sumitomo in Japan and finally China collapsed the price of industrial diamonds on the world market. Prices fell in the US from a peak in 1981 of US Synthetic industrial diamonds from a unit import price of US$26 million per tonne to approximately US$2 million per tonne by 2009. Synthetic industrial diamonds are now more than 98% of total global production of industrial diamonds. This sort of massive price decrease for mined diamonds can now be reasonably expected in the gem market once the Japanese and Chinese enter synthetic gem production in the same way they did for industrial synthetics in the last 20 years.

For Botswana and Namibia De Beers has been granted a nuclear weapon with which it can bomb the African economies. So why is De Beers now willing to in effect bomb its own diamond mines with synthetics when it made no sense before? For years De Beers has complained that its market was progressively being eroded in one negotiation after another with African governments. The rates of return on their African mines have declined massively since the heyday in the 1990’s when they were making 500% return on share capital in Debswana, its joint venture with Botswana

But this is only the beginning. De Beers is not the first synthetic gem quality diamond producer but it will for a time be the largest. But having opened what De Beers would argue was the inevitable flood gates of synthetic gem quality diamonds, De Beers will eventually lose complete control of the diamond market that it once monopolized for almost a century. The logic of the market, the often superior quality of synthetics and the competitiveness of Chinese synthetic producers will make mined diamonds much less profitable. The victim will be, once again Africa’s modest prosperity which has come from the twins of relatively good management and good fortune. One of the most important pillars of Namibia’s wealth and the very foundation of the Botswana economy is being undermined by the new De Beers policy. Diversification of the economy is now an utter necessity if Namibia and the other diamond dependent countries of the region are not to slip backwards into further poverty. These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Namibia’s $N2.2 billion  diamond subsidy to Botswana

A wonderful thing has happened to Botswana over the last three years. As a result of its suite of agreements with De Beers and the government of Botswana signed in 2011 Botswana rather than London has become the centre of De Beers diamond aggregation activity. It is right and fitting that Africa’s biggest producer of diamonds and the world’s second largest by value should now become the centre of the trade in Africa. It is something that all Africans should celebrate. All diamonds produced by De Beers have to be sent to Gaborone. This includes Namibian and South African diamonds as well as those produced in Canada.

As a result of this De Beers- Botswana agreement however all  Botswana’s neighbors in SACU are, based on 2017-18 data,  paying a massive subsidy of ZAR 3.3 billion to Botswana. Botswana is the richest member of SACU and is being subsidized. This includes some of the poorest countries in SACU such as Lesotho which is  losing some ZAR 750 million because of the diamond trade.  

Botswana has become the third biggest export market for Namibia. In 2016 Namibia exported N$ 10 billion to Botswana. Much of this was diamonds that previously went to London. And for every dollar we export to Botswana or any other SACU member we lose money from the SACU customs pool. Why, you ask? The SACU customs revenues that each country gets from the SACU customs pool depends on the size of the pool and on the share of intra-SACU imports. In other words the more you import from say South Africa the more revenue you get. This may help explain why so many comfortable and relatively well paid servants are in no hurry to assure we produce more and provide jobs.

Of the many strange economic ideas invented by man,  the SACU revenue sharing formula must surely rank high amongst them. Countries are subsidized to import essentially from South Africa. The more you import from SA the more money you get and the more jobs SA has. But if  Botswana imports more diamonds from South Africa and Namibia then it will be richer. Botswana has gone from getting 30% of all SACU revenue before the De Beers agreement to getting 36% based on 2017/18 results.

In a recent paper sent to both SACU and the Namibian Ministry of Finance called ‘Unintended  Consequences’ the present  writer with Dr Nyambe and Dr Kalihowa of UNAM have calculated the biggest loser  of the Botswana- De Beers marketing agreements is Namibia which based on 2017 data will lose $2.2 billion in revenue as a result of the diversion of trade from London to Gaborone. For those not accustomed to such large numbers what this means is that Namibia would be able to pay the entire budget of NUST and UNAM if the trade would revert to the previous situation where we sent Namibian diamonds to London.

Normally well informed sources who have access to the De Beers-Botswana Agreement indicate that legally Namibia, or any other country,  has the right to  step away from this agreement if it so wishes. Such a measure would damage Botswana and undermine its rightful  attempts to beneficiate and aggregate diamonds. More importantly it is completely unnecessary as there are several ways to deal with this that would allow Botswana to continue to be Africa’s aggregation centre and not have an effect on SACU revenues.

The first way is for SACU members to agree not to include diamonds in the calculation of intra-SACU imports but this would create a precedent. For the small SACU members the current formula, which is such a large part of government revenues  is sacrosanct and they will do nothing that undermines that formula. So politically it would be hard to reach consensus.

Another way to do this to tell De Beers and Botswana that these completely unintended effects were not foreseen and that while Gaborone should remain the aggregation centre for De Beers diamonds ways should be developed  around the ‘SACU effect’ the easiest way to do this is to first send the diamonds to London ( or at least outside SACU ) and then send them to Gaborone. This would have no effect on each country’s share of intra-SACU imports and would add slightly to De Beers costs.

Gaborone, like everyone else in the region, is fairly desperate for revenue and might dig in its heels, even though there was not the government of Botswana’s intention of obtaining a  SACU subsidy when it shifted aggregation  from London. But now that it has a subsidy it will not be happy to give it up. In that case Namibia has the legal right to walk away from the agreement and this would be a serious blow to Botswana’s development effort.

The movement of diamond aggregation to Gaborone is what Africa wants- more economic power to mineral and gem producers. That SACU members would even think of ending it shows once again how distortionary the SACU customs revenue sharing formula is and how absolutely essential reform  of the formula must be for the sound development of the region. The South Africans have long argued that it should become a development formula and not an apartheid era subsidy to the BLNS. They are absolutely right. 

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

Namibia’s Country Club ‘model’ -The future of SOEs in Namibia?

 

Some state owned enterprises (SOESs) are fairly obvious. With entities like Nampower, Namwater and Nampost government ownership is common in many countries  around the world. Others do not exactly jump off the page and really require a second look to understand how we got there. This is certainly the case with one of the poshest establishments in the capital, the Windhoek Country Club (WCC) which is 100% owned by the people of Namibia. 

 

The most obvious question is why would the state own a casino and  country club? It is certainly not at all a likely candidate for ‘nationalization’. The reason is historic. In 1994 Namibia agreed to host the Ms Universe contest but had no place to host it so with a period of 9 short months the hotel was built. The rest is history. 

 

But from a public policy standpoint was building the WCC with public funds just for a Miss Universe contest money well spent or was it just part of Namibia’s long problem with making highly political decisions on infrastructure project? But from a narrow commercial standpoint it was one of the more profitable investments made by the people of Namibia as unlike so many of the SOEs   this has  over the last number of years made a consistent profit.

 

Mr Jooste, the Minister of Public Enterprises  frequently uses the WCC as an unfortunate source of invidious comparison for so many of the other state owned hotels which do not have  a record that looks anything like that of the Windhoek Country Club.

 

But the interesting question is precisely why the WCC is making money and the state owned Namibian Wildlife Resorts (NWR) which holds some of the finest hotel and lodges in the country does not make money? NWR has become a financial albatross around the neck of the Minister of Finance and, according to senior government officials, has never made a profit? There is one obvious answer which jumps off the page and that is management and the board. In so many countries the Board of Directors of SOEs is stacked with politically appointed hacks, many from the public sector, who have no commercial ability and whose only interest is getting their board fees.

 

In the case of the WCC the management has long been in the hands of the Legacy Group which is a South African Hotel and leisure company with long years  of experience  of managing hotels in the region. NWR, on the other hand, while having a portfolio of some very fine properties in some excellent locations has never made a profit.  It has been and remains in the hands of government appointed managers.

 

Government ownership is not necessarily the problem with SOEs. Two minimal requirements for profitability are good management and a board of directors which is financially  astute and supportive of management. Until last year the NWR was run by a board of directors which was stipulated under the act and straight out of the ‘SOE Manual for Financial Disaster’. Under the NWR  Act (1998) the board was made of the Permanent Secretary of the Ministry Finance, Tourism , Lands Parks along with just one representative of businesses and labour. And the results were predictable- no profits. Last year, using the provisions of the new Public Enterprises Governance Act (2015) the government overrode the old NWR Act and appointed a new board made up of experienced people from the private sector.

 

However, by doing that the government has created a potential governance conflict at NWR. Do those on the board now reflect Namibia’s interest or simply that of the private sector? Tourism in Namibia is a peculiar business and for some private sector operators the fact that NWR resorts may not be well managed is a blessing in disguise. So if you own a private resort outside a national park, for example, and the NWR resorts in the park are not working effectively then you have an interest in maintaining the situation  exactly as it is. But those on the NWR  board do not appear to have an obvious interest in this sort of commercial sabotage. Those on the board from Avani or Swakopmund Hotel, for example,  have no obvious interest to support the  poor management at NWR.

 

If the recipe for financial success in SOEs as in private firms is based, at the very least, on having a good board and a good experienced commercial management, then why is NWR not making a profit? It is the second part of the equation that remains unchanged and the board has not yet brought in new management. Until professional management is brought in Namibia’s fine portfolio of hotels and resorts will remain a financial liability to the people rather than an asset. The question is why the board of NWR and the government have been unable to change the management and repeat the positive experience of the  Country Club? Perhaps Minister Jooste needs to consider the reasons why progress is not made in management reform. The longer reform is delayed the more resources government will have to pour into NWR rather than using them for important priorities like poverty alleviation. 

 

 

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

Of Fish and Diamonds

Several weeks ago Mr Daniel Kali, the resident Director of De Beers in Namibia wrote an article in The Namibian in June about the contribution of diamond mining sector makes to the economy of Namibia. In that article he claimed that the diamond industry had contributed some $N3.7 billion last year to the coffers of Namibia in the form of taxes and  other revenues paid. This was out of a total sales of some $N10- 11 billion and  no-one should have much to complain about with figures like that. But then Mr Kali made a comparison with another, unnamed industry, of similar value to the diamond industry which only made a meagre contribution of N$130 million. While the industry was unnamed the only industry of comparable value is the fisheries and this questions opens a can of worms, or a just a can of horse mackerel if you prefer. Fish are vitally important to Namibia and are the source of employment for 13,000 Namibians. More importantly, if we manage the nation’s fisheries properly, and that is a big ‘if’, the jobs will be there forever, unlike diamonds which are not forever.

Some might say that it is a bit unfair compare horse mackerel to diamonds and one can only reasonably expect that the diamond sector would contribute more to the economy. There is more in common between the two industries than immediately meets the eye. The fisheries sector generated some N$ 8.8 billion in exports in 2016 and yet it paid little in taxes. Needless to say the contribution of the fisheries is small but these numbers probably do not include income tax returns from all those beneficiaries of horse mackerel quotas who simply ‘flipped’ i.e. sold  their quota to actual fishing companies and received what was in 2016, a payment  of N$3,500 per tonne which is what was paid in Walvis Bay. In 2012 the last year for which data is available, the government earned only $130 million from the fisheries and it sold the quotas for N$109 million.  That means that given the total allowable catch of some 350,000 tonnes of Horse mackerel alone the government could have received N$1.2 billion if it were to auction these quotas at the going market price rather than allocate them to firms and individuals, some of whom who have the most tangential connection to the industry. Moreover, given the extreme reluctance of the Ministry of Fisheries to release the names of beneficiaries, it starts to bear a painful resemblance to the situation in the diamond industry.

This situation of opaque transactions and prices is very similar to the diamond industry. Namdia (Namib Desert Diamonds) was established by the government for one specific purpose and that was to sell 15% of Namdeb’s diamond production. The reason is, despite what Mr Kali says about the great contribution of De Beers to the economy, there has been the long held suspicion in government circles that the price De Beers pays for Namibia’s diamonds is below the market price. This mistrust of De Beers pricing is transnational in nature because there is only one price of diamonds and that remains the price established and kept secret by De Beers. Botswana, which owns 15% of De Beers and is a far larger producer of diamonds than Namibia, has also followed this route because, despite protests to the contrary, as it also distrusts its partner De Beers and the prices it sets. It has established a firm called Okavango Diamonds but unlike Namdia, Okavango auctions its diamonds and as a result there has been no controversy like that which has engulfed Namdia since its creation with continual allegations of underpricing and commercial impropriety. These allegation may be completely untrue and merely attempts by those not getting access to Namibian diamonds to discredit the process, as has been alleged by the former Diamond Commissioner and new Namdia CEO Mr Michael Hamutenya in recent press interviews.  But if the purpose of Namdia is the same as that of Botswana’s Okavango Diamonds i.e. ‘price discovery’ in the diamond industry which means finding out what the real market value is,  then Namdia’s approach of selling to a few buyers is not fit for purpose. President Geingob and the Minister of Mines and Energy, Mr Obeth Kandjoze need to look at what Okavango Diamonds is doing through its auctions in Botswana and they will conclude that the model should be copied by Namibia.  

But one should not assume too much. In both the fisheries and the diamond industry the purpose of policy may not be the efficient allocation of resources. It may be that government simply wishes to allocate both diamonds and fish to those who, for one reason or another will do as the government wishes as in the case of Fishcor or even Namdia, or are connected to the right people. It is a common objective of many post-independence states in Africa to create an indigenous commercial elite and these sorts of policies may well be designed to achieve this objective. The creation of such an elite is, simply put, a very ugly business as it requires transferring large, often public surpluses to them. It is akin to Count Bismark’s famous aphorism about making laws and sausages- both are best kept from the public eye. This policy will be opposed because the rise of this commercial elite may have nothing to with their commercial ability and everything to do with who they know. Moreover, if the elite is devoid of real commercial ability because it has accumulated wealth by favors rather than sweat, suffering or cleverness, then these people will not reinvest their surpluses effectively and are more likely to spend them on consumption.

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

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