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.

Strange Journeys along Africa’s Value Chains

 

Africa has massive quantities of natural resources whether they are minerals, oil or agricultural products or human resources and yet there is no transformation of these products into either intermediate products or final goods. In the SADC region, between the Congo River and the Cape are 250 million plus people with all the resources they need- minerals, fuel, land , water and industrious people to be as rich as the citizens of the developed world. Yet everywhere, with the exception of the sons and daughters of the elite,  there is poverty and massive unemployment and hopelessness for the younger generation. Everywhere and in all commodities Africa’s place remains at the bottom of the value chain. Africa, despite all the hype,  is as it was largely in the past, the proverbial ‘hewers of wood and drawers of water’ of the new and increasingly New Asiatic mode of production that we call globalization. 

 This is because the middle part of the value chain, that process whereby there is transformation of basic inputs is occupied by one or other country and small African states simply cannot produce at prices which are competitive.

Take two of Africa’s biggest resources- gold and diamonds. If the possession of unprocessed resources were enough to make a country industrialize then Africa countries like South Africa and Botswana and DRC would be huge producers of gold jewellery and polished diamonds. The cost of transporting processed gold and rough diamonds is a tiny portion of price and so the advantage of being close to a high value to weight item is very small indeed. That means getting both resources to a low cost centre is minimal and there is no advantage of processing them in Africa. India employs 4.3 million people process and sell diamonds and gold into jewellery.

This control of the value chain is true of even the most bulky commodities. With the invention by the Japanese of the super-bulk carrier in the 1960’s Japan became then and remains today the world’s second largest producer of refined copper ( after China) while having almost no copper ore , expensive electricity and expensive unskilled labour. All this was a result of deliberate industrial policy and the development of super bulk carriers by Japan which could bring copper from Chile and Indonesia to the great Japanese refineries at very low cost.

Coffee on the other hand should be easy for Africa to process but even this is not. After all Africa is the home of coffee and  unlike gold or diamonds it is a very low cost to weight item and therefore it should be easy to process in Africa where the coffee is grown.  But oddly it is Germany, without a single coffee bush outside a green house,  that is the world’s biggest exporter of green coffee and not Brazil, or Ethiopia or Vietnam  and Germany exports more green coffee than all of Africa put together. Why, because of logistics? Ground coffee has a limited shelf life and must be processed close to destination market or have easy access to the  supermarket shelf. The great European coffee firms import large volumes from Africa, Asia and Latin America and then export it in the same unprocessed coffee to other countries of the EU. They do not even process but because their flight connections are so good with the connections of other European countries they are a natural entrepot for a short shelf life green or even roasted beans which deteriorate within a few weeks. The trade in Europe is dominated by large European processing companies which know their market and that market will remain under the control of these firms. African countries have long harbored dreams of exporting processed coffee in volume but this will not happen until the day that Africa  has firms that are  national champions that are  sufficiently endowed that they can either merge with or acquire large European processors. So when it comes to one of Africa’s finest exports the continent remains largely confined to exporting green beans with European companies processing and adding the value.

But what of logs. This is one of tropical Africa’s biggest exports. Tropical countries like DRC Ghana Gabon Cameroon Congo are big exporters of tropical  forest products. Countries like Togo DRC and Congo have continued to ship out round logs with no value addition. But logging is amongst the most corrupt of industries globally. These logs are easy to under measure and mis-identify and therefore incur less taxes and royalties and usually result in bigger bribes for officials and ministers. But some countries have succeeded in moving down the value chain to the production of sawn timber and plywood and veneers. This includes relative success stories like Ghana where 76% of forest exports are now processed products and only 21% are logs.

Where Africa has universally failed however has been in the value added end product, which is commonly wooden furniture where all of Africa together exports no more $600 million per annum in 2016 and almost 55% of those exports comes from Egypt, which, to be polite is not exactly known as a forestry powerhouse. It shows once again that having the natural resource contributes little further down the value chain.

 

These facts are used by simple minded economists who argue against beneficiation of African raw materials. Why beneficiate, they argue? The ownership of the resource provides no commercial benefit down the value chain. Look at Egyptian furniture, or German coffee or Japanese copper or Indian diamonds. None of them have the natural resource and yet they can export in relatively large volumes at competitive prices. How can they do this? It is simply because they have worked out the ingredients for making their countries and those products in their economies competitive and are continuing to work at it because they know it is competitiveness that matters. That is what is missing in Africa, not a policy direction on a range of products because it does not matter whether it is beneficiation of diamonds or the manufacturing and export of refrigerators. What is missing is a political elite that ‘gets it’ and knows that success for Africa rests on becoming internationally  competitiveness and is willing to do whatever it takes to make their countries competitive. Some economic managers in Ethiopia and a few other countries understand competitiveness but the rest are mostly  feeding their citizens empty and absurd platitudes about an industrialization that has not occurred and will never occur unless there is profound shift in policy thinking in Africa. And so the children wallow in shanty towns or worse, drown in the Mediterranean dreaming of a better life in Europe because their own homes offer no employment possibilities and a future of misery and poverty.

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

Mr Tweya's Toothpicks

Mr Tweya’s Toothpicks

Earlier this week the minister responsible for Trade and Industrialization Mr Tjeroko Tweya pointed quite eloquently to the fact we do not even produce toothpicks in Namibia. What cannot be avoided is the fact that the minister responsible for industrialization got up and said that after 28 years the cornerstone of Namibia’s economic policy i.e. industrialization is so clearly a failure. The question is why have we failed to industrialize?

The reason is simple enough – we cannot compete with our neighbors, let alone the economic giants of China and India. We cannot compete because our costs are too high and this is largely, but not exclusively because professional labour costs are high along with much of the costs of setting up and running a business in this country. But there is another reason that is also obvious, we are simply too small to industrialize. Even though we have access to the huge SA market through SACU,  that proves to be a commercial liability not an asset as larger and more cost competitive South African producers can just as easily sell into Namibia as vice versa.

Let us assume that you are unwise enough to establish a tooth pick factory in the SADC market. First you would have to compete with Chinese toothpicks which are low cost with toothpicks produced in the billions for a nation where picking teeth after a meal is widely practiced. The economies of scale that the Chinese have would simply make any small scale operation in Africa commercially unviable. We would need high tariffs against Chinese imports. Assume that you can compete with China which is a mighty assumption – where would you locate such a factory in SADC? You would not choose Namibia but rather Gauteng where all the inputs and skilled and specialized labour and services are located. Alternatively you would choose a place close to the raw materials ie. either bamboo or hardwoods but close to markets. The only place close to materials that could be used would be in the North but that would mean that you would have to ship your toothpicks to South Africa. Who would you sell your toothpicks to? The South African owned supermarkets of course, but they hate buying from multiple sources. They want their toothpicks delivered to one location, usually in South Africa and then distributed through their trucking networks to all their supermarkets. Multiple points of sale and distribution are totally against the modern supermarket model which exists because products are bought in bulk to one place and then distributed.

What is true of toothpicks is unfortunately true of almost everything that is manufactured whether it is refrigerators or cut diamonds or gold jewellery. We simply cannot compete and as a result our children have no jobs. All we can do is make holes in the ground to extract minerals and ship out our rich fish resource.  There are two ways to deal with our high cost structure but they are both would be about as politically popular as cancelling Christmas. The first is to bring in large numbers of African and possibly even Asian professionals to Namibia. This would drive down salaries of the professional elite in Namibia, both the old and new, would suffer a significant decline in their living standards. The second option is easier but even more painful. Namibia could decouple from the South African rand and continue to devalue the Namibian dollar until the cost of producing manufactured goods in Namibia is competitive with Asia. This would take a real devaluation of between 30-50% according to recent estimates and will lower everyone’s living standard. The suffering that such a policy would create, especially for the poor,  would need to last for at least ten years before real positive results occurred in terms of increased industrial production in Namibia.

So neither of these hard policies will happen and this is precisely why Namibia’s children will linger in unemployment. But what Mr Teywa, as an honest man, should now do is to go to cabinet and tell his colleagues including the Prime Minister and the President that Harambe, as currently designed, will not work. Furthermore, the country does not have the stomach for the painful economic changes needed to make industry competitive. Such honesty would earn the good minister an immediate dismissal from cabinet for his troubles. It is thus up to the President Geingob to face the truth that Harambee needs to be re-jigged and we need another road for Namibia.

Fortunately Namibia’s predicament is far from impossible. Namibia is a spectacularly beautiful country with tourism potential in abundance. Historically, the closing of the ‘sperregebeit’ in the south and northern part of the Skeleton Coast to only the super-rich who can fly in to the north has stopped Namibia from being what it could be, which is the most fascinating dessert journey in the world. Tourism arrivals are growing rapidly and will, with fluctuations continue in the future. Agriculture also constitutes an enormous opportunity given the discovery of the Ohangwena II aquifer in the north which is often described as ‘oceanic’ in proportions and enough to supply water for Namibia for over 400 years. We are in fact a water rich nation, not water poor. Only those who have never visited a cattle feed lot, a modern piggery or a poultry producing facility can still naively think that agriculture is not industry. A shift to agriculture can easily be fitted into a revised Harambee where we use what we have in Namibia to provide thousands of rural jobs rather than dreaming of industrialization. Sudan has used the equally large Sudanese aquifer to become a major producer of fodder for export to Saudi Arabia.

Mr President, our policies of industrialization are not working and will not work without imposing terribly painful economic reforms. Your ministers are all telling you this and the mark of a great leader is one that examines the situation and concludes that change is necessary. To continue on the current path is to condemn a whole generation of young Namibians to virtually permanent unemployment and yourself to historical oblivion.

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

The Mother of All Gold Thefts

The mother of all gold thefts?

Over the last five years there has been a steady drum beat of reports  issued by various international agencies including the UN, by ECA and the by the African Union all suggesting that there has been massive a wholesale looting of Africa’s resources by the mining companies. All the reports have come to the same conclusion that those exporting  resources from the continent have been under-invoiced them ( selling them below the real or so-called arm’s length price) and the profits siphoned off through third country jurisdictions, often tax havens to avoid the payment of taxes and  royalties.

For thirty years I have been investigating these sorts of legal and illegal frauds from the tuna fisheries in the Solomon Islands to logging industry in Papua New Guinea to diamonds in Botswana. In all of them the common cause was to make more profits and the common method was fraud and deceit to avoid the payment of taxes. Those who are honest and study these sorts of resource sectors confront this all the time but they normally turn their heads and look the other way because the reality of international trade in these commodities is just too ugly to face and respectable people do not dwell on such matters. I have no doubt that many but not all mining companies would have no compunction about looting Africa’s resources  but some of the estimates that have been thrown about have been so outrageous that they defy credulity.

The report on the ‘mother of all resource rip-offs’ was published by the United Nations Conference on Trade and Development in 2016. In their report the UN  suggested that between 2000-2014 the gold mining companies in South Africa had under invoiced some US$78.2 billion in gold alone. How did they get to this number? They argued that  anything more than a 10% difference between what South Africa says it exported and what the receiving country says it imports was deemed to be some form of trade malpractice. Translated into Rand at today’s exchange rate that makes it about ZAR1 trllion. It is sum so immense that it makes the Guptas look like choir boys. But it is merely the latest in an outpouring of such gold thefts estimates that make the mining companies look like Ali Baba and the 40 thieves.

Needless to say South Africa’s gold miners and the Chamber of Mines did not take these estimates well and sprung into action, hired a consulting firm and lo and behold came up with a much smaller estimate because the data that was used by UNCTAD was simply unreliable and just about  everyone in international trade knows that you take the international data base produced by the UN ( Comtrade) with a  sack  of salt. Eunomics, the company hired by the Chamber of Mines eventually found much more reliable data. After much digging they found the gap between exports from SA versus imports from trading partners to be USD 19.5 billion and not USD 78.2 billion. This they explained could be caused by errors in reports with trading partners. So no theft after all, maybe!

The interesting question is how is it that South Africa, a country that was for  decades the world’s leading exporter of gold could possibly not be able to tell anyone exactly how much gold was  exported and where it went at the press of a button. The UNCTAD report caused a minor sensation with the South African Revenue  Service defending itself against the  implied criticism that they were completely incompetent. After 150 years of exporting gold and having produced somewhere between 35-40% of the world’s total gold stock this report made the South African authorities look  extraordinarily incompetent. 

South Africa is not alone in having dodgy gold trade statistics. If you look at Namibia’s trade figures you would think that Namibia produced no gold at all. This is far from the truth and if you check the  Namibian Chamber of Mines statistics you will see that total production  in 2016 was some 6.6 tonnes of gold. This minor stuff in comparison to South Africa’s 150 tonnes but it is growing. While Namibia used to be a small producer,  B2 Gold has increased the country’s production substantially. At the 2016 gold price and exchange rate the value of gold production this was N$3.7 billion Even if one deducts  several percentage points for  transport and refining the sum would make gold the country’s fourth largest export and yet not even a mention in the trade statistics. There is greatly increased interest in gold exploration in Namibia by the junior miners and no doubt this is set to increase. The reason I  was told that the figures do not appear was that gold is subsumed under diamonds. 

Why does Africa seem to care so little about trade data? The reason is  simple enough when a Minister of Finance is given the choice between allocating funds for trade data and funds for education, health or the police the choice is pretty obvious. But this is very short-sighted because if you do not monitor effectively  we will lose the revenue.  In Namibia we do not know what  we export and where it actually goes. Switzerland  is still the biggest destination but Switzerland says it buys almost nothing from us. All this indicates is that we have no idea as  to whether we are actually being cheated by the mining companies as that requires even more data.

It is essential that African countries work together to not only improve trade statistics so there can be certainly what is going out and where to but that we know what price it is going out at. Unless exports are monitored and cross checked by competent authorities then the resource exporters will be merciless in their exploitation of the fools and incompetents who do not bother and not check thoroughly what actually leaves their country.

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