Namibia's economic links to South Africa

CURRENT AFRICAN ISSUES 14 ISSN 0280-2171


Bertil Oden


NAMIBIA'S ECONOMIC
LINKS TO SOUTH AFRICA


Nordiska Afrikainstitutet
p O Box 1703, S-75147UPPSALA Sweden
Telex 8195077, Telefax 018-69 56 29


November 1991




ISSN 0280-2171


© Nordiska Afrikainstitutet and


Printed Sweden by
Reprocentralen Uppsala 1991


Oden, 1991




Contents


Preface 5
The Legacy of Econornic Dependence 6
Walvis Bay 7
Other transport issues 8
The foreign trade pattern and the SACU 8
Agriculture, fishing and manufacturing 10
Mining 11
Energy 11
Foreign currency and membership in the Central Monetary Area 12
The "government debt" 12


General Comments on the Economic Links and the Concept
of Inderdependence 14
The concept of interdependence 14
Dependencies that can be used for destabilisation 14
Economic links and policy reforms 15
Areas where South Africa is dependent on Namibia 17


Namibia and the Future Regional
Southern Africa 18
Policy Options for the Namibian Government on
Major Dependency Issues 23
Walvis Bay-how to get full controi 24
Other transport issues 25
The foreign trade pattern and the SACU 26
Industrial investments and SACU 27
The issue of SACU membership 27
Fishing 31
Mining 31
Energy 32
Central Bank, national currency, and the membership
of the Central Monetary Area 33
Budget finance and the central government debt 33
Restructuring the public administration 35
Cooperation with SADCC and its member countries 35
The role of development assistance 36
Swedish development assistance 38
Namibian nation-building and the 38


Selected 40


Annex 1




MAP OF NAMIBIA


MAP NO. 3591 UNITED NATIONS
MARCH 1990


The boundaries and names shown M/his map do not imply
official endorsement by the Uni/ed Nelion$


_.- International boundary


:.~ Capita!


o Town, village


+--+- Rai!road
--Main road


-- Other road


-t- Airport




Preface


''Namibia is a country producing what it does not consume and consuming what is
does not produce./I


This study was commissioned by the Development Cooperation Office of
the Swedish Embassy in Windhoek. The aim of it is to map out and dis-
cuss the economic links between Namibia and South Africa, to suggest
some possible economic policy implications of those links, and to com-
ment on the role of development assistance in this context. (The terms of
reference of the study are endosed as Annex 1.) The study was carried out
in Namibia from 11 to 29 March 1991. A draft version was distributed in
April and has later been commented upon by a number of administrators
and researchers. Some updating due to events in Namibia in April and
May has also been made. My sincere gratitude goes to all who have taken
themselves time to share their experience and knowledge with me.


Basic economic data on Namibia are available from many sources and
will only be inc1uded in this document if they are relevant to its special
focus. Some of the recent sources for general economic information on
Namibia are the Statistical/Economic Review 1990 and the Economic
Review/Budget 1991 published by the Ministry of Finance in Windhoek,
and the EIU document Namibia Country Profile 1990-91. A major
document on government policy and achievements during the first year of
independence is the government White Paper on National and Seetorai
Policies, published in March 1991.


5




The Legacy of Economic Dependence


to


It is a well-known fact that up to independence Namibia for all practical
purposes was treated as a fifth province of South Africa. One consequence
of this is an institutionallegacy that has to be restructured in order to be
able to serve an independent country. The apartheid system was prevail-
ing in the public administration, health, education, and other sectors.
There are many institutionallinks between South Africa and Namibia, and
a number of key people in both the public and private sector seem to con-
tinue to "think South Africa" in their day-to-day actions.


The economic legacy included La. that around 40% of the GDP is gener-
ated in activities controlled by South African interests; that 90% of the im-
ports came from South Africa although some goods in turn were imported
by South Africa; that four out of five commerdal banks, including the two
major ones, are controlled by South African interests; that the insurance
companies as well as a large part of the whoie-sale business are South
African controlled, that the transport net is structured according to South
African and settler interests; that all international telecommunications go
via South Africa; that all petroleum products, and coal came from South
Africa and that part of the electridty supply is depending on the South
African parastatai Eskom.


As Namibia was treated as part of South Africa it also for all practical
purposes formed part of the Southern African Customs Union, SACU, and
the Common Monetary Area, CMA.


Another part of this legacy is lack of reliable statistics. AIso basic statis-
tics, such as on population and foreign trade are incomplete.


On top of this Namibia was born crippled, as South Mrica kept Walvis
Bay and the off-shore islands at independence, daiming that those areas
did not belong to Namibia.


With independence the international economic sanctions against
Namibia, which formed part of the sanctions against apartheid South
Africa, were lifted. Legislative and other matters delayed the lifting of
sanctions in some cases. The South African refusal to leave Walvis Bay


complicated matter. An to sanctions is a prerequisite
Namibia to open relations, other forms


cooperation the Union, to
rii'Ta..."ihT the mtlented


6




ott-·stllnre islands is also related
can be


Walvis Bay


Walvis Bay is not only an economic but also a highly symbolic and politi-
cal issue. During the UN-coordinated negotiations that led to the inde-
pendence of Namibia the issue of Walvis Bay was not forrnally on the
agenda, with the intention that it should be solved through negotiations
between the governments of Namibia and South Africa after indepen-
dence. This was contradictory to the UN Security Council Resolution 432
from 1978 according to which the Security Council "declares that the terri-
torial integrity and unity of Namibia must be assured through the reinte-
gration of Walvis Bay within its territory".


It was also contrary to the opinion of SWAPO, which during the negoti-
ations in which it did not formally take part, however, did not insist that
the issue should be sorted out during those negotiations. The Namibian
position is however clearly expressed in the Namibian Constitution, which
states that "the national territory of Namibia shall consist of the whole of
the territory recognized by the international community through the or-
gans of the United Nations as Namibia, including the enclave, harbour
and port of Walvis Bay, as weIl as the off-shore islands of Namibia".


South Africa's claim on Walvis Bay and the off-shore islands is based
on their original annexation by Great Britain on behalf of the Cape Colony
in the late 19th century and on the subsequent transfer of colonial title to
South Africa at the formation of the South African Union in 1910. When
South Africa after World I took over the administration of Namibia as
a League of Nations Mandate, Walvis Bay was not distinguished from the
rest of Namibia and this up to 1977, when the
apartheid regime of South Africa changed its legislation for Namibia so
that Walvis Bay also the off-shore islands were separated and
administered as part Province.


The South African arguments criticized by international legal
expertise on several grounds, including violation of basic obligations to-
wards non-self-governing territories, the precedence of pre-colonial
boundaries and due to the long period during which it was administrated
as part of the rest of Namibia. For more details see e.g. Moorsom (1984).


The area of the Walvis Bay enclave is 1, 124 sq km and the number of
inhabitants is estimated to around 3D, 000. It contains a deep water har-
bour, a number of fish processing factories and fishing companies, a salt
mine, a military base, and possibly satellite receiving facilities for monitor-
ing of shipping in the South Atlantic. The most important issue for
Namibia is of course the controi of the harbour, without which Namibia
can consider itself almost a landlocked country, as the small harbours of
Liideritz and no capacity to handle necessary
volumes of cargo.


The importance
to the claims of i"1C In n"'l n- Q:rotmcls
V4A6' ........ on


7




Other transport issues


The road and rail transport network investments are structured to serve
the interests of South Africa, the mining companies and the settlers. With a
large part of foreign trade taking place with South Africa, the network is
adapted to those trade flows.


From South Africa there are two main roads and one railway connec-
tion. Two trunk roads were constructed to the Angolan border in the
north, mainly for South African military purposes before independence.
At the Angolan side of the border the road network is very bad. From
Rundu (see map) there is a low quality road through Caprivi Strip to
Katima Mulilo at the Zambian border. There are also a number of minor
roads into Botswana.


Large volumes of goods are only taken from South Africa. Three major
new transport links have been discussed: The trans-Kalahari highway, the
trans-Caprivi highway and the trans-Kalahari railway (with viability
totally depending on transport of at least 10 million tons of coal per year).


The foreign trade pattern and the SACU


South Africa's role in the foreign trade of Namibia is sirnilar to that of
Botswana, Le. with South Africa dorninating the imports but with the
main part of the exports going to markets overseas.


After a number of years with a negative foreign trade balance, from
1985, (except in 1987) the trade balance has been positive. Changes in
world market prices and, to alesser extent, export volumes of minerals
have a major impact on the trade figures. Minerals contributed 76% of
total export earnings in 1989. 1989 total export value corresponded to
62% and total import to 54% of (at factor cost).


Table 1. Foreign trade 1985-1989 (R million)


Year
1985
1986
1987
1988
1989


Exports
(fob)


1,594
1,994
1,796
2,141


Imports
(fob)
1,272
1,552
1,822
2,077


Source: ElU: Namibia Country Profile 1990-91


All major export minerals except uranium are produced by companies
controlled by South African interests (see below). With the exception of
diamonds they no influence over the world mineral market prices,
which is of export eamings. South Africa plays a major


8




import value of the imported commodities. In a report on cross-border
flows (Department of Eeonomic Affairs, 1989) the following eommodity
groups are stated as the largest volume-wise: "Other" (including petro-
leum produets and military equipment), non-metal manufaetured prod-
uets, eoal, agricu1tural produets, and food.


Table 2. Exports by Commodity 1989 (R million)


Minerals 2,027
of which diamonds 814
Agricultural products 294
of which cattle 155


small stock 95
karakul pelts 25


Fish products 65
Manufactures 135
Other 152


Source: EIU: Namibia Country Profile 1990-91


much smaller
Botswana's


up to 1989/90
the nOT"""


The SACU membership strengthens the South African import dominance
as the competition from other potential sources is reduced. It also im-
proves Namibian exporters' access to the South African market.


The share of the SACU revenue alotted to Namibia has been important
for the finandng of the Windhoek administration before independence
and for the Namibian government since independence.


Before independence the SACU revenue to Namibia was decided upon
by the South African authorities based on a very rough estimate, due to
lack of detailed trade statistics for Namibia. The SACU revenue was R 350
million in 1987/88, 394 million in 1988/89, and 448 million in 1989/90.
In the first budget after independence for 1990/91 the amount increased to
R 543 million. In his budget speech in May 1991 the Namibian finance
minister stated that Namibia had reached a provisional agreement with
the other members of SADCC that Namibia will receive 9.6% of the reve-
nue from the customs pool. For 1991/92 this is estimated to 810 million,
a further increase with R 267 million or almost 50%. The minister wamed
that the precise amount might be adjusted upwards or downwards during
the budget year.


This means that the SACU revenue has provided 20-25% of total gov-
ernment revenue, induding South African budgetary support before in-
dependence, and that the SACU revenue share will increase further to-
wards 30% in 1991/92.


When trade statistics are improved revenue from SACU will be
based on information provided by the Namibian authorities, and calcu-
lated according to the formula used for the BLS states. The effect of this is
auncult to project, but a of of the last two
years can be ruled out.


argue that Namibia's revenue
lmloorts are


9




1982/83-1985/86 SACU revenue for Botswana an import of 3,949
million was 636 million and the estimated SACU revenue for Namibia
with a total import of 4,511 million was 755 million (NEPRU 1990). For
the period 1986/87 to 1988/89 Botswana's SACU revenue has been lower
than Namibia's, while its imports have been higher (Eill, 1990).


Historical data thus support the thesis that Namibia will receive
approximately the same or even lower share of import costs as SACU
revenue when it is calculated according to normal SACU formula,
compared to what she has during the years. This means that
the SACU revenue will continue to playan important role as source for
government revenue.


Agriculture, fishing and manufacturing


Some 70% of Namibia's population are dlrectJlv or indirectly dependent on
farming activities for livelihood, most of as subsistenee farm-
ers/ cattle owners in lands in the and eastern parts of
the country. Before were totally neglected by
the Windhoek extension
services, and ;"''''L,n,l-''


As a contrast COlnn1er'Cl
out with slgmtJlcaJ1t gl)V¬:rmne11t SlIPpIort


10




before independence all companies have to be registered in Namibia.
Fishing and processed fish products contributed an important part of


the exports in the 1960s, but in 1989 their share of total export earnings
was 3%.


Manufacturing contributes about 5% of GDP. As already mentioned
fish processing has been an important part, but declined. Food processing,
beverages, tobacco, wood industry, metal produets, and repairing are
some other branches.


Local capital and South African groups are the main owners. The small
local market inhibits rapid growth and investments in Namibia for pene-
tration of the South African market is opposed by South African compa-
nies and lobby groups.


Mining


The mining sector is the largest contributor to the GDP (29% in 1989 and
22% in 1990) and export earnings (around 75%). Of the major mines all but
one-Rössing-are owned or controlled by South African mining compa-
nies.


is 70% owned by Tsumeb, which means
(Johannesburg Consolidated Invest-


- Tsumeb is owned by GoldFields Namibia, which is 69% owned by Gold
Fields South Africa.


- Rosh Pina zink mine is 100% owned by IMCOR, which is 51 % owned
by ISCOR.


- Vis tin-mine is Aurru:,ri 100% by -"-U"'_'-"".' Production was closed down in
November 1990.


- Othjehase copper /pyrite
controlled by 30%
ment).


- Navachab gold owned to 70% Erango Mining and Ex-
ploratory Company, 30% by Metal Mining Corp of Canada, and 10% by
Rand Mines Windhoek Exploration Company. 33% of Erango is owned
by CDM, the balance by companies belonging to Anglo American
Company.


The government of Namibia has 51 % of the voting power in Rössing, but
only 3,5% of the shares. Rössing's uranium production was reduced dur-
ing the 1980s due to international sanctions and the low demand for ura-
nium internationally with the low expansion of the nuclear power capaci-
ty. The further reduced its production in 1991.


Energy


independence petro,lellm products coal were imported from
UU",",oif-lhor or by rail or road south.


11




their supplies from the Caribbean region. Of the six major oH companies
working in Namibia, four-Shell, Caltex, and Mobil-are also the
major ones in South Africa.


In the field of electric energy the South policy in Namibia fo-
cussed on the development of an integrated electricity generation and dis-
tribution network based on hydro and thermal power, mainly to supply
the mines, the cities and the commercial farms.


The electricity grid gets from major sources: The Rua-
cana hydro-power plant (240 MW) the Kunene river, the van Eck coal
(imported from South Africa) power plant (120 MW) outside Windhoek
and a linkup with the Eskom ne! via the Aggenys line (130 MW) in South
Africa. The total capacity is around 600 MW, which is higher than the
national demand, which is estimated to increase by 3-4% per year. The
grid makes possible both Namibian import of from South Africa
and South African import from Namibia.


Foreign currency and membership in the Central Monetary Area


Before independence South African Reserve acted as central bank
also for N amibia and the policy was A national
ceIltn3.1 bank, of Namibia, was established 1990 and is building up
its capacity and gradually expanding into all activities of a central


continued to use the South African
ete,clC1eet to introduce a


It will at least


a government debt", mainly
the Windhoek administration during


South government. The composi-


To non "--'VJI.M.-''''''L.
South African
Domestic inst.


ind tenn bands


Source: ElV; Narnibia LOllntlV


12


independence


71.0
39.0
35.6
19.0




This debt is not to be considered heavy if related to GDP or total export
earnings. The problem is its legal status, as the loans were issued by an
internationally illegal regime, and most of it is guaranteed by the South
African government.


The outstanding stock loans are included in the loan portfolios of banks
and other financial institutions in South Africa, Namibia and even to a
minor extent also outside the CMA.


The total debt service (including miscelaneous fees and foreign ex-
change losses) in 1990/91 is estimated to R 316 million, corresponding to
12% of total budget expenditures. In the 1991/92 government budget the
debt service is estimated to be R 231 million. Projections on future debt
service are not available, but can be assumed to be in the range of R 200-
250 million per year for the next few years.


13




General Comments on Economic Links and
the Concept of Interdependence


Namibia's GDP is 2% of South Africa's. It is comparable with the "GDP"
of Port Elizabeth. The South African economic dominance is very strong in
a number of sectors. A very rough calculation sums up to almost 40% of
GDP being generated in activities controlled by South African interests,
with mining, construction, wholesale and retail trade, hotels etc, finance
and insurance being the most heavily dominated sectors.


The concept of interdependence


According to one theory, economic relations create an interdependence
tween the partners, who are mutually dependent on each other. This does
not mean that the relations have to be balanced. If the relations are asym-
metric, that is if one partner dominates or can set the terms, the situation
can be used by that partner to achieve political or economic concessions in
different areas. In the relations between Namibia South Africa, the
overall dominance of the is obvious.


In the case of N amibia three aspects of the dependency might be dis-
cussed. One is the extent to can for C>("'{"Wlr\\n-'\\U'
destabilisation, should African govern-
ment. second aspect is economic relations with
South put restrictions on the of Namibian gov-
ernment's development relates to different
interests in South Africa interested further development of the relations
with Namibia. Their interest reduces s1ightly overall asymmetry of the


14




for instance in the fields just mentioned. With the record of apartheid
South Africa in the field of destabilisation, it is not surprising if govern-
ments in the neighbouring states feel they have to keep this possibility in
mind also during an era of "good neighbourhood".


Although the economic cooperation between Namibia and South Africa
on the whole has gone smoothly during the first year of independence,
there seem to exist other South African interests who have not given up
the destabilisation perspeetive. Aecording to press reports (e.g. SouthScan
no 22 and 23, 1991) there are still South African agents working in the
Namibian political opposition and civil service.


As long as South Africa controis Walvis Bay and with the inherited road
and railway systems, the government in Pretoria can sealoff Namibia
quite effectively, by for instance eutting the supply of petroleum produets,
eoal, eleetricity, and food. The dependeney in the transport seetor thus is
potentially the most vulnerable point, except for the very unlikely option
of military intervention from South Africa.


To handle this dependency the Namibian govemment has to strike a
balanee between this potential risk of destabilisation and the very high
eosts involved in doing away with those dependencies. To avoid some of
the risks of destabilisation, emergency planning would for instance be
required for the event that the Namibian access to the Walvis Bay port will
be restricted, which means construction of an alternative harbour to an
estimated cost of US$ 500 Storage petroleum products
is another example.


South behaviour as a neighbour during Namibia's first year of
inclep'endel1ce has on benevolent. Namibian govern-
ment on the other hand been eautious not to upset its powerful
neighbour. this policy on both is of using large
resources "emergency" planning investments little attraction,
especially if a post-apartheid govemment South can expected
in a few years time.


Another aspect of this issue is with improved "emergency plan-
ning" the scope is widened for a more independent attitude of the
Namibian government. The costs for "emergency planning" that the
Namibian government should accept will of course depend on a risk
analysis. At present a changed attitude from Pretoria is unlikely, and
therefore the resources for "emergency planning" should be kept low.


Economic links and policy reforms


Another issue is in which sectors dependence on South Africa is a
potential restriction on ec<mC)m:lC policy objectives. This has also to be


.., In,,,,,,.. both an "'Y'l'öll'thDllri a post-apartheid perspective.
no objective per se to the


the cooperation
other hand,


15




reduction
the society


de'pelldt?nt on


the financialcontroi


post-apartheid era, there might be contradictory interests involved, which
might force the Namibian government to choose between confronting
South African interests or compromising with its own objectives.


Four main economic policy objectives of the Namibian government are
focused upon in its initial policy documents:


- To re-activate economic growth.
- To create employment.
- To reduce income disparities.
- To alleviate poverty among the population.


In the government White Paper on National and Sectoral Policies, pub-
lished in March 1991, the widespread poverty, unemployment, illiteracy,
and the landlessness amongst the black population are emphasized as
remnants of apartheid that have to be tackled. Other acute problems men-
tioned are the fragile ecology, the economy's overly dependency on non-
renewable resources and that many institutions continue to be tied to
South Africa.


Some of the present economic links with South Africa might impose
restrictions on these policy objectives, such as the following, which will be
discussed later in the paper:


- The inherited trade pattern and the membership of SACU. This is also
related to the obstacles for dornestic agriculture and manufacturing
production.


- The issue of budget financial reducing the capacity to use
the government budget as an instrument for necessary social and eca-
nomic changes, especially the social sectors, also to create an eca-
nomic environment, enabling production activities among the majority
of the population. Linked to this is the issue of the government debt,
inherited at independence and the government policy to retain the ma-
jor part of the people employed the public administration at inde-
pendence. The issue of the budget revenue through broaden-
ing the tax base is another aspect.


- The issue of government's monitoring
sector.


- The issue of institutionai and "mental" links to South Africa, which
often excludes alternative relations and solutions, both in the public and
the private sector.


Generally speaking a high eC()n()mlC growth gives better scope for reforms
and potentially more resources budget. Economic growth, export
earnings tax revenue run are on world
market for minerals. This of diversification,
also from an income


strong government "'H ''1_fA'"a"."


16




growth strategy, with minerals and fisheries as the main sectors.


Areas where South Africa is dependent on Namibia


In the present situation the de Klerk govemment in South Africa has a
political interest of a "good neighbour image" in order to reach full inter-
national acceptance and the dismantling of international sanctions. One
part of such a policy is most probably to create good relations to Namibia,
and not using the economic dominance for destabilisation. This by no
means implies that the good neighbour policy does not have other object-
ives as well.


There are also economic areas where South African interests both dur-
ing the on-going transition period and in the post-apartheid era would like
to continue and strengthen the links with Namibia. Examples are the
South African mineral companies~ interest in continued production and
exploration in Namibia, South African interests to expand their impact in
the fishing sector, the imports by for instance ISCOR (steel company) of
volatile minerals from Namibia, imports of catt1e and fish products,
Namibia as a market for South African manufacturing exports, and the
interests of South African financial institutions the Namibian market.
Finally, at least during the transition period, Namibia might serve as an
entrance to the market for South African companies.


17




Namibia and the
in Southern Africa


Regional Development


The main development objectives of the Namibian government were
briefly introduced in the previous section. The envisaged restructuring of
the Namibian economy will have to contain major efforts to support rural
development and involve the majority of the population. Employment
creation will be a critical issue, both in rural and urban areas. Economic
resources to implement such a strategy in the short- and medium- term
will have to be generated by export-led economic growth, based on the
mineral and fishery sectors.


The regional development in southern Africa will be heavily influenced
by what happens in South Africa. Any discussion on the future of the re-
gion therefore has to be based on some assumptions as to the continuing
transformation in that country, which of necessity have to be speculative.
Several scenarios are possible, among others:


1. A continuation of the present transitional process, leading eventually to
the election of a majority-government in a country with a non-racialist
constitution.


2. A transformation process leading to a power-sharing arrangement
which does not totally fulfil demands for a democratic, non-racialist
constitution.


3. A reactionary return to neo-apartheid by the de-railing of the presently
on-going process through a right-wing military/security forces
coup.


4. An increasingly chaotic situation where the leadership of both the pre-
sent white authorities and the ANC and other anti-apartheid move-
ments lose control.


Here it is assumed that first scenario is the most likely. It is further-
more assumed that the constitution will be a negotiated compromise
between the major parties involved, possibly also with some measures of
temporary "protection clauses" whites, that new majority govern-
ment will formed with the as black party, that this
government adopt a I designed to ease domes-


and already new government
is power all are lifted. (eJ. Tostensen,
1991)


18




between the two stages should, however, not be exaggerated. Recent
experience suggests that the participation and thereby the influence of
South African authorities and institutions in regional matters is already
gradually increasing.


It can be assumed that the de Klerk government will continue its
IIfriendly neighbour" regional policy as long as the on-going transforma-
tion process in South Africa from its point of view makes progress. This
means that South African authorities and institutions will seek coopera-
tion with their counterparts in the neighbouring countries as well as with
regional organisations. One example is the participation of Eskom repre-
sentatives in technical meetings with the SADCC Energy Unit.


If this trend continues we will see agradually increased cooperation
between South African institutions and companies on one hand and their
counterparts in the SADCC region on the other, also before a majority
government is in power in South Africa. Such a development is in the
interest of the de Klerk government both politically and economically, as it
further reduces the previous isolation.


From a regional point of view the medium and long term perspective
will heavily depend on the regional policy of afuture democratic South
African government. The ANC position regarding the future regional
policy has been touched upon only in few written sources, including a dis-
cussion document on Economic Policy for a Post-Apartheid South Africa, from
an workshop 28 April-l May 1990, stating:


"The (South African) state would actively to promote re-
gional economie along new lines, in ways that would not be exploitative
and will correct in current relationsmps. The state must be prepared to en-
ter into negotiations with its neighbours to a dynamic and non-exploitative
and mutually benefidai form of regional co-operation and development. This may in-
volve making concessions to our neighbouring states."


gellerai terms from the
ANC to a potentially dominant South African position when the
future regionallinks are defined. if probably realistic to be cautious
about the possibilities for such a non-dominant policy to be implemented.
As Tostensen points out:


"Assuming that the ANC will playa determining role in a future South African
government, its constituency will undoubtedly be inside the country. Pressures will be
mounting for public expenditure on health, education and housing to dismantle real
apartheid. Coalition partners of the government-be they on the right or the left-
might add to those pressures, although for different reasons. In such drcumstances,
will the ANC succumb or stick to its good intentions? Will it be affordable to make
eXJ:lem;ive concessions to neighbouring states in order to develop new non-exploita-
tive relationships? These are real problems that are likely to face a majority goverment
in future. The author is not at that an ANC-
dominated will deviate that much from the economic
POllicil~s of towards the A rather perceived
'national interest' however is to the day." 1991)


re~;lOnal nOlu"u of a


19




20




carry out feasibility studies for the Namibian part, and financing them
over the capital budget instead of waiting for aid financing. The feasibility
studies have started as has the detailed planning of 150 km of the trans-
Caprivi highway.


Financing for a micro-wave telecommunications link to Botswana is
secured. An agreement can be expected in one year and the construction
implemented in 3-4 years.The micro-wave-link will also connect the
Namibia telecommunications with the PANAFTEL net.


A number of donor agencies, including the African Development Bank,
Germany, and Norway have expressed interest in financing the trans-
Kalahari highway , while Germany, Sweden, and the Mrican Develop-
ment Bank have indicated interest in the trans-Caprivi highway. The
micro-wave link to Botswana will be financed by Norway and Sweden.


A PTA membership will be of little immediate use for Namibia as its
main export products are not suitable for the PTA market, while many of
the export products from PTA countries are competing with potential
domestic production. a majority-ruled South Africa chooses to become a
member of this will probably imply the discontinuation of SACU, as
the two are not Such a step wotild change the


"'n>",,4h,,:irl and
government


i:>V'.U:U and eco-
Dn~D,'lre for a new


memb4er of all


post-apartheid era
are:


21




into. With SADCC less attractive to donors, the regional interest might
also be reduced. This is a reason for the Namibian government to be
very active now in order to get financial commitrnents to Namibia-
related SADCC projects.


4. The industrialized world might reduce their interest in the southern
Africa region after the fall of apartheid, and what remains of that inter-
est might focus on South Africa. This might reduce the scope for
Namibia getting both private investment and espedally official aid.
This is an argument for continuing the present policy, aiming at attract-
ing both private and aid capital. It should also emphasize the option for
potential investors to use Namibia as a basis for the South African mar-
kel. A reason for South African companies to invest in Namibia might
be to get access to the EEC market via Namibia's membership in the
Lome Convention.


5. There might be a restructuring of the regional trade regime, where the
role of SACU changes for instance either by expanding northwards and
include more members, or by being abolished and replaced by some
type of adjusted PTA arrangement.


6. Post-apartheid in South Africa and peace Angola will probably
strengthen the South African-Angolan links Namibia
might either gain from development by serving as a springboard
into Angola or it might lose through being between the
two countries.


22




Policy Options for Namibian Government on
Major Dependency Issues


A number of measures taken by the Namibian government during the first
year of independence have improved or created the potential for increased
national controi of the economy. Some of these are basic for any country's
independence in general.


One set of activities contains the creation institutions that did not
exist before independence, e.g. a bank and a national planning
commission and membership organisations such as the
IMF, World Bank, Commonwealth, the Non-
AIJlgnled M(>vemE~nt, UN, UN agencies. Of importance


su<xe!,Shll nlegcltiatiOIls 11111"1no- 1990, leading to membership


restru.ch.:mflg of pre-indepen-
order to cope


mClep1endellt state. Some examples of
mtro(1u<:ed or preparation are:


along the coast.
a National Fisheries


legislation.
mll:1er,allegislation National Assembly.


De've.lol:lml:mt of a legal framE'W()rk operations: The
petroleum (Exploration Act 1991 and the Petroleum
(Taxation) Bill 1991, were passed National Assembly in 1991. In-
vitations prospecting were op~?n¬~d in late March 1991 and will be
open until November.


- Efforts to convince foreign COITIP1anies to invest Namibia by intro-
ducing a 1990 and organizing an
Investors in 1991, as weIl as other investment
prl)motion activities.


23




As is clear from the previous sections, should a situation develop where
the South African regime finds it to be in its interest to destabilise Namibia
economically, sufficient means are available, for instance


- by not giving Namibia access to the port of Walvis Bay. This will block
petroleum product imports, and exports from Tsumeb and other mines
and imports of equipment to those mines.


- by restricting or halting road and rail transports at Namibia's southern
border either totally, or for specific products e.g. imports of petroleum
or food or exports of cattle.


- by cutting the electricity from Eskom.
- by cutting telecommunications.


To guard itself against such emergencies would be veryexpensive for the
Namibian government, and the period of necessary investments would be
a number of years. A new port at Henties Bay, north of Swakopmund is
for instance estimated to cost around US$ 500 million. Alternative trans-
ports via the port of Namibe in Angola requires large rehabilitation and
infrastructure investment in Angola.


The total costs would be of a magnitude that would hamper all other
capital investment for at least a five-year period. Any emergency invest-
ments will have to be calculated against the risk that they will be neE~åeid.
With the experiences from the year of independence,
ments for possible future cannot be re<:onlrn.endelj.


A better strategy is to the systems and try to
use them as effectively as are suggested
some the fields.


24




northern bank, which would have denied Namibia access to irrigation and
also would have implications for the off-shore diamond explorations at
the mouth of the river. Now it was agreed that the border will be in the
middle of the river, which is international standard.


To get full controi of Walvis Bay and the off-shore islands is the most
important issue in the Namibian government's relations with South Africa
for a number of reasons: The political symbolic value of getting
sovereignty over the entire Namibian territory, the removing of the main
instrument for potential South African destabilisation, the removing of the
uncertainty as to the future of the enc1ave as a base for fisheryand other
industries and the potential to develop it into a regional port.


At the same time any attempt by the present South African government
to negotiate an agreement that inc1udes compromises as regards the sover-
eignty of Walvis Bay should be avoided. What should be discussed is the
modalities of the transfer. This could however be made wHhout formally
involving the issue of sovereignty, if both parties agree on that. In such a
negotiation it could be agreed that Namibia takes over the administration
from a certain date, possibly after a transfer period with a joint adminis-
tration.


After the political decision, traln.sh~r of the assets in Walvis Bay will
probably involve bargaining the commercial entities involved.


pn~Celjerlt that the Namibian can use is the transfer of SATS
railways) 1985, when all fixed and


l""UL'-";:'''' administration and later
:'011tn rH'l"'..<-"L g,ovlerrlm,ent at that occasion paid the


over the management of the
PrE~Se]1tport authorities


a the running of the
Walvis of a joint venture. In any
case Namibian side has to itself the transfer, for example
by commissioning a studYon value assets.


Another technical issue will have to solved, and therefore pre-
pared in is the of now legislation in
Namibia Walvis other activities the fishing
and canning industry Walvis individuals now paying South
African taxes other fees. special issue will be the present South
\\.tncan government subsidies to salt mining company in


Walvis Bay.


25




by around 400 km, while at the same time improving the links between
Botswana and Namibia. The construction of this road will probably in-
crease road transports from Transvaal to Namibia and reduce railway
transports. The trans-Caprivi highway will improve transport links
between Namibia, northern Botswana, Zambia, Zimbabwe, and Zaire, and
open up for increased relations with those countries. It will be an impor-
tant prerequisite for increased transit goods traffic to Europe and the
Americas via Walvis Bay. It might also improve the prospects of inte-
grated rural development in the Caprivi area.


The existing SACU agreement also deals with transit transports. One
paragraph grants the members mutual freedom of transit and non-
discrimination in the treatment of transport operators. Thus according to
the SACU agreement Namibia shall e.g. have unrestricted access to Walvis
Bay for transit traffic. The same paragraph also provides non-discrimina-
tion in the treatment of transport operators. This might restrict the scope
of action for the Namibian government, if it seeks to introduce measures
to get compensation for the damage on the roads due to traffic from South
Africa. One measure that can be introduced immediately is the introduc-
tion of weight bridges at the border posts to avoid overloading of the
trucks using the Namibian roads.


The foreign trade pattern and the SACU


On the export side one important issue is the Namibian membership of the
Lome IV Convention. It gives access to the development cooperation in-
struments under this convention both under a national indicative
gramme and from funds for emergency aid, STABEX aid to compensate
for unforeseen declines in export earnings and SYSMIN to compensate for
unforeseen declines in mineral export earnings, and from funds for
regional development as well as for supporting NGOs. also gives access
to loans from the European Investment Bank. Namibia also got temporary
status as least developed country spite of her high per capita.
reduces the requirements to get access to STABEX and SYSMIN funds,
which is of special interest for the karakul and uranium production. A beef
export quota with 90% levy rebate of 60,000 tons for a five year period
(1991/92-1995/96) has also been agreed. The quota for the first and sec-
ond year is 10,500 tons and for the subsequent years 13,000 tons, which
corresponds to around 65, 000 and 78, 000 cattle respectively (according to
figures in Country Report No. 2, 1991). This means that the quota
corresponds to 2/3-3/4 of the South African quota for live cattle.


Exports from Namibia will continue to dominated by minerals, at
least in the medium term implies dependency on world
mBlrkl~tprices, independently ownership mining companies.


long term fishing sector processing is
tmoiected to an important to the mentioned are


'-'U"VH or more the to
sent revenues from Fisheries projections
ever are very uncertain. A fishing sector
most promising identified optio,n


26




implications for employment, exports, eeonomic growth, and government
revenue.


Other options for diversifieation of exports are manufacturing and
assembling for the South African market, along the lines of the diseussed
Citroen plans for an assembly plant in Gobabis, and agro-processing,
induding game meat for the European market. If the on-going preparation
for oH prospecting is sueeessful, petroleum products will be an important
part of the future exports.


It is government policy to reduce the import dependency when it comes
to food consumption by increasing and restructuring the agriculturai
sector. There is also a potential to do so. White maize is one of the main
basic food Hems, and a large part of the consumption has been covered by
imports from South Africa. Aecording to the documentation to the
Investors Conference in February 1991 consumption was 68, 000 tpa and
domestic production on average 27, 000 tpa. According to press reports
the 1990/91 season gave a bumper erop of around 50,000 tons. If this is
correet it might partly be due to favourable rains. Still it shows the
potential for self-sufficieney of this crop.


should be noticed, however, that above relate to the com-
mercial farms. improvement of subsistenee and small peasant agricul-
ture has so slow. is legacy, where no re-
sources sueh as eredits, and distribution fadli-
ties were available major Namibian rural popula-
tion. the government is sueeessful to improve this seetor


will the of agriculturai produets
related to this problem is a


possible land ret,orrn. issue June 1991 is intended
to be frH.AT<l"nC area.


Small seale tarmers on-going government and
Rössing to inc:re<lse the loeal variety of
millet, ealled mahango. ln(;re.2lsed !-'AVl.A ...n.U,",'H eommerdal distribution
of mahango will also 111"~"<ln consumption of maize, as
the is the traditionaI segments of the popula-
tion.


objective to increase self-suffidency in agricuitural
products for the urban population should related to the costs involved


not as an se.


ln{lUs:rnlfU investments and


27




infant industries in the smaller members of the union, other regulations
restrict this objective in practise. The experience of the BLS states is that
South Africa seldorn is prepared to accept protection for industries in
member countries against South African companies. One of the few recent
examples of the opposite is the protection for the soda ash production at
Sua Pan in Botswana. This can be explained by the South African glass
and chemical industry's need for soda ash, which it previously had to im-
port from outside SACU.


It is not only the paragraphs in the SACU agreement that are of concern
to the Namibian government. The BLS states have for many years tried to
improve their degree of influerice over the South African industriaI policy
from the present zero leve! They have for instance tried to get representa-
tion in the South African Board of Trade and Industry, where in practise
the industriaI policy of the whole customs union area is determined, and
some influence in the South African programme of decentralization of in-
dustries to bantustans by far-reaching incentives. Those issues are impor-
tant also for Namibia. The discussions around the possible Citroen
assembly plant is a good example. According to South African regulations,
car assembly factories should have 65% local content in order to avoid
having to pay fees into a scheme under the Local Content Programme for
Motor Vehicles, with certain regulations regarding exports that can reduce
this figure. Citroen argues that they have to get at least a temporary
waiver from this scheme. In this case the company and the Namibian
Government have a common interest, but the decision is in the hands of
the South African authorities.


Apart from the interest of Citroen, up to April 1991 the only major in-
vestrnents where foreign companies have been reported to show an inter-
est is the Lonhro Sugar plantation in Caprivi, a joint venture for exports of
white fish products overseas between a F<Er0 Island Company and
Namibian Marine Resources. Unilever has acquired a majority share in
Namswa Oils and Guinness is involved in a joint venture with Namibia
Breweries.


The government promotion activities to attract foreign capital have
been met with cautious interest. The Foreign Investment Act, which the
National Assembly decided upon in December 1990 is important, but for-
eign companies look very much to the practise and they might behave like
they have done in the case of Zimbabwe, "sitting on the fence" for ten
years to see what will happen. From their point of view, however,
Namibia must be more promising due to the activities of the government
and the availability of the South African market through the customs
union. It has been suggested that one argument for foreign companies to
invest in Namibia, rather than in South Africa proper, will be the uncer-
tainty and turbulence in the South African labour market that might con-
tinue also with a majority government. On the other hand, an argument
against investing in Namibia is the present scarcity of skilled labour.
other argument for South African companies to invest in Namibia is the
access to the EEC market through the Namibian membership of the Lome
Convention. This ought to be especially interesting during the present
transition period in South Africa.


28




A minor government involvement in the manufacturing sector has been
through the First National Development Corporation, FNDC, which was
set up in 1978 and was inherited at independence. Preiiminary govern-
ment thinking is that FNDC should be divided into one Investment Advi-
sory Centre, fadlitating for interested foreign companies to find their way
through the Namibian ru1es and regu1ations, and one Deve10pment Bank,
espedally directed to providing credits to domestic companies, inc1uding
small ones.


Another sector with potential for increased generation of foreign ex-
change is tourism, which presently takes in around R 100 million per year.
Branch peop1e suggest that this figure cou1d be trip1ed, provided increased
resources for the sector are made availab1e.


ct", .. ri.."o- in the SACU or leaving
NEPRU study pro-


which most of


gO'veI'nrnel1t revenue. important point
a customs administration for


m(lel)er\\dt~nt Namibian customs,
the same net customs


Namilbiawill have to be higher than
""'-_U at present. On the other


impoJrt goods can be better adjusted to the
Namibian import pattern, general tax other national economic
policy objectives with an independent customs system.


A second issue is the price effects. As has been pointed out the average
duty rate will probably have to be higher for an independent customs
regime for a the consumers price in
Namibia. degree of cooperation


on goodsthrough
cornp.on~mt. the other hand


The issue of SACU membership


SACU membership implies certain restrictions as to foreign trade regime,
loss of fiscal discretion, and difficu1ties for investments in Namibia com-
peting with South African interests. It is uncertain if the present formula to
calculate the smaller members revenue compensates them for those losses.
Still the government of Namibia can advised to stay in SACU for at
1east a term regional economic cooperation
might even it with other forms of re-
gional eco,nOlmlC int1egr'ahon.


When it comes to
....H'.V"" a HU.""""""


29




from South Africa than from e.g. Europe. These advantages are easier
accessible with Namibia inside the SACU.


A fourth issue is the balance of payments effect. Theoretically this
changes when Namibia gets its national currency, probably in 1992. In
practise this will not change the situation significantly from a balance of
payments point of view, as the Bank of Namibia's Rand assets in the South
African Reserve Bank also in the present system immediately can be trans-
ferred into any convertible currency. .


After the introduction of the Namibian dollar, the SACU revenue from
the pool will be received in foreign currency, namely Rand. On the other
hand the Namibian consumers' payment of duties and taxes will have to
be paid in Rand to the same pool. The difference between the first factor
inc1uding the compensation factor of 1.42 and the second factor constitutes
the net balance of payments effect. Added to this should be the effect of
the cases when products produced in and imported from SACU are more
expensive than if they would have been imported from outside under an
independent customs regime.


Theoretically Namibia outside SACU would have full freedom to set its
duty rates. In reality there are restrictions due to the fact that if the rates
are much different from South Africa's they will create smuggling and loss
of revenue. With its very small market compared to South Africa there is
little scope for the import substitution option. On the contrary, it could be
argued that free access to the South African market is an important incen-
tive fm potential investors. These factms together thus strengthen the
argument that Namibia should stay within SACU.


The conc1usion seems to be that most factors support that Namibia
should stayas a member of SACU, at least as long as there are no major
changes of the SACU agreement. When more comprehensive and detailed
trade statistics are available, a study on a possible alternative independent
customs regime should be carried out, based on the assumption of un-
changed net customs revenue. Not until such a study is made, is it possi-
ble to seriously discuss the long term alternatives to SACU membership.


In the meantime short- and medium- term efforts should focus on
renegotiating improvements in the SACU agreement. This has to be
prepared together with the BLS states. Some of the issues to be raised
should be:


- The decision-making process in the industry sector. Namibia and the
BLS states should insist to be members of the South Africa Board of
Trade and Industry.


- Efforts to minimize the time lag of payments, basing first estimate on a
projected trend value instead of the actual figures two years earlier.
Accumulated funds in South Africa awaiting the calculations of actual
import data should also be made interest bearing.


role of the donors could be to provide the necessary technical exper-
tise that the government of Namibia might be interested ini to strengthen
its negotiation position.


the longer time perspective issue of might change,
as a majmity government in a n.nn_.·",,,·,,,, South Africa might initiate
changes in the geographical scope and eccmc)m:lc objectives COlnp,ared to


30




the present situation. But also in this perspective it is in the national inter-
est of Namibia to receive as much as possible from the customs revenue
and to work for regulations that are beneficiai to Namibia. The competi-
tion in this field between the members of the customs union will not
change as a result of a majority government in South Africa.


Fishing


The great potential for export earnings from the fishing and fish process-
ing has already been discussed in the section on foreign trade.


The rehabilitation of the depleted fishing grounds, and the fisheries in-
dustry in Walvis Bay, is partly unrelated to the issue of the sovereignty
over Walvis Bay. The three main issues are 1) to reduce and then increase
fishing quotas both for pelagic and high-sea fishing and get sufficient con-
trolover the 200 mile in a manner that guarantees sustainable in-
creased catch; 2) to give incentives so that a maximum part of the total
catch is taken by Namibian interests and processed in Namibia; and 3) to
provide training to Namibians fisheryand fish processing. Incentives
can include conditions for the "namibianized"


issues will be facili-
nrl'_CI"lA1'O lEilarws are returned to Namibia.


islands can create compli-
IJV:::';::)lIJlt: future oil pros-


Mining


TS'UITleb mine are nearing its
'sumE~b is further exploration and


imports of concentrates from other sources to its smelting complex.
are two recent cases production in the mining sector.


the field by CDM, is
eX1Jected to 250,000 carats


prclduchcm or R 270
Navachab gold


eXIJected to prcldulce
market prices


60 11 LlUH)lll


31




discoveries and much depends on the market prospects, which are not
very favourable for a number of metaIs. It is government policyaIso to en-
courage small scale mining.


To support further expansion and diversification of the mineral sector is
an obvious long-term option for the Namibian govemment. It is also the
policy stated in the govemment White Paper on National and Sectoral
Policies, where the expansion of geological surveys is one main activity
focussed by the government. A number of other issues have also to be
taken into account. One of them is the large infrastructural investment
costs normally involved and often paid by the host government rather
than the mining company and the potential to generate government
revenue, which can be used for social and physical infrastructure to the
benefit of the before independence neglected parts of the population.


A diversification can be used to reduce the South African dominance in
the mining sector. The Namibian capacity to negotiate and participate in
the management of mining companies should be strengthened, in the
short term inevitably through technical assistance and in the long term by
better training facilities in this area. One step in this direction is the
planned establishment of a Namibian Institute of Technology.


Energy


Plans to establish a new oi! terminal with a mooring buoy arrangement in
Swakopmund have been accepted as a SADCC project. Financing for the
feasibility study (US$ ap million) has not yet been found. The total cost is
notknown.


In May 1991 a joint venture agreement between the Namibian govern-
ment and the British firm Enerkor on an oi! refinery investment i Usakos
was signed. Estimated investment cost is stated as US$100 million and
capacity is la, 000 barreIs a day, which makes it small by international
standard but sufficient also for certain exports to neighbouring countries.
According to plans the refinery should start operating by the end of 1992.
There is no information as to source of financing of the project and the
calculated production costs. With such a small capacity they might be
high. An operating refinery will make Namibia less dependent on imports
of refined petroleum products from South Africa, as it will be easy to
receive crude oi! from other sources than via South Africa.


The Taiwanese company Overseas Petroleum Investment Corporation
(OPIC) received acceptance from the govemment to commence an explo-
ration in the Etosha area and plans to start drilling in late 1991.


The Namibian part of the Kudu gas fields outside the southern coast is
explored by Namcor (Namibia Oi! Corporation). Gas has been found and
the reserves are estimated at between 5 and 15 trillion cubic feet (Namibia
Report, March Apri!1991).


Seismic and other data indicate oi! potentiat both on-shore and off-
shore, but if they are sufficiently convincing to justify exploration remains
to be seen. Exploration consultants from have collected seismic data
on the entire off-shore Zone. The interpretations are going on and presen-
tations for oil companies took London and Houston in the first


32




half of 1991. The government opened a period for exploration biddings in
March, which is planned to continue until November 1991.


In this context it should be mentioned that the South African c1aim on
the off-shore islands complicate the exploration activities, as it can
be used also to daim resources the "economic zone strips" starting from
the islands. .


Tuming to the hydro-electric energy, there is an agreement in principle
between the Namibian and Angolan governments to develop Cunene
riverIs resources jointly, induding a proposed hydro-power plant at
Epupa at an estimated eost of 800 million. However, there is an interest
on the Angolan side to use the alternative of exporting surplus electricity
from other sources to Namibia, once the war is over. After the peace
agreement in 1991 the Angolan govemment and UNITA,
this option seriously by the Namibian govemment.


In 1990 an was also signed with Zesco from Zambia
for supply of power to to replace existing expensive
diesel generators.


Namibia totally indepen-
existing integrated


uv ...... u. Africa.


mel11lJeTshiv of the Central Monetary


33




ment Debt ought to have been around R 551 million. The main part of the
service is on stock loans from the pre-independence regime, guaranteed
by the South African government. (77% of total in March 1990.) Another
5-7% of the total are loans direct from the South African govemment.


In June 1991 the government issued its first treasury bills since indepen-
dence. The total amount was R 10 million and the issue was heavily over-
subscribed, which signifies that the capital investors have a certain confi-
dence in the government of Namibia.


The servicing of the debt will remain a heavy burden on the govern-
ment budget during the next few years, exactly the period when restric-
tions on govemment revenue and strong pressure for increased govern-
ment expenditure will take place. Assuming that the budget deficit during
the next few years will be in the range of R 200-300 million, a moratorium
on debt servicing, including interest payment, would cover a large part of
this deficit.


It has been argued, to my mind correctly, that the responsibility to
repay the inherited debt from the pre-independent Windhoek adminis-
tration should not be put on the government of independent Namibia.


Some of the relevant issues related to the inherited "foreign debt" are:


1. The main aim should be to convince the South African govemment to
take over the debt, as soon as possible. The minimum requirement
should be that the South African government writes off the government
part of the debt.


2. With sanctions lifted it is now possible for the Namibian government to
borrowon the international capital markets. A moratorium on the ser-
vicing of the debt guaranteed by the South African government,
together with a well-organized information campaign explaining the
illegality of the debt as reason for the Namibian government
introducing such a moratorium, would probably not affect the
Namibian international credibility much. As the loans are guaranteed
by the South African government, it will have to pay them as they fall
due, and the debt based on the stock loans is transferred into a debt
directly to the government of South Africa.


3. However, it can be assumed that the Namibian govemment borrowing
to cover the budget deficit normally will take place on the Namibian
market, and thereby as long as the currency is the same also on the
South African market. This might exdude the option of unilateral mora-
torium, but the Namibian government should try to negotiate a
rescheduling of the outstanding debt for, say, a five year period, using
the same method as indicated under 2), with the important difference
that the moratorium will be the effect of an agreement between the two
governments. However, is that actions that are regarded as not
consistent with "good neighbour behaviour" in Pretoria might affect the
owtcome of the negotiations on Walvis Bay.


role of the donors would this case be to convince South African
government to accept a reduction of debt using silent diplomacy, as
this seems to be consistent with Narnibian go'ver'nn1erlt.


Another measure to improve the budget revenue side would
renegotiate the agreement with the sirnilar to those of in


34




company venture between de Beers
and the Botswana government. 'lUJl"A!V'UlH government should negoti-
ate a deal where it gets a percentage the shares, and representation at
the Board CDM.


state apparatus is
to entrench


in(:iet:)enld¬~nce.This means
inclepen,jenlce, that is all the people


colioniai days are
hll c!Pptrl f V costs


Restructuring the public administration


The main instrument to change structure and seriously get
to grips with its lopsidedness and the unequal opportunities for different
layers of the society is the public sector. The public administration has to
be restructured into a suitable instrument creating an enabling envi-
ronment for rural development, job creation, and to expand social and
physical infrastructure to the of the population.


The inherited along apartheid lines, includ-
ing eleven regional·administrations. Many of
the central Africans, most of whom left
at mclepen,jerlce.




The annual consultative conference in 1991 was held in Windhoek. On
that occasion it was planned that Namibia would get the responsibility for
the SADCC coordination of sea fishing activities but due to resistance
from Malawi, the present coordinator of the fisheries sector, no decision
was made. This of course is not a sign of smooth cooperation within
SAOCC.


For Namibia the SADCC cooperation as such in the short run is not as
important as the cooperation with its immediate neighbours among the
SAOCC countries, suchas Angola, Botswana and Zambia. This
cooperation can possibly gain from SADCC through the mobilisation of
aid resources to certain projects.


Cooperation in the fields of transports and production with especially
southern Angola will be possible, when the security situation there has
improved. The destruction of infrastructure at present is an obstacle to
cooperation. With peace in Angola the potential can be opened through
rehabilitation of the Angolan infrastructure. Energy cooperation is an
obvious option. With peace in Angola the South African interest of
cooperation with that country will increase. For economic actors in
Namibia it is important to prepare for this situation.


The role of development assistance


In the present situation development assistance can be used for at least
three different purposes in Namibia.


The first is to finance investments in and outside the capital budget,
thereby either providing scope for increased capital budget expenditure or
to reduce the budget deficit that the government will have to cover with
public borrowing. Aid financing, however, is normally quite different
from the straight budget support provided by the South African govern-
ment to the administration before independence, as aid donor agencies
have their principles and procedures to be followed before the amounts
pledged actually are disbursed and made available to the Namibian
authorities. AIso when an aid agency is prepared to finance expenditures
included in the capital budget, it normally requires that those
expenditures are earmarked for identified projects or programmes. At this
level it is more a question of book-keeping, and provided the financial
management of the government is good, it leaves significant flexibility. In
the case of Namibia, eight donors so far have been prepared to accept this
type of aid as part of their programmes. (See table 4.)


36




Table 4. Budget support to the 1990/91 budget


Country/organisation
USA
Finland
EEC
Norway
Sweden
Denmark
Netherlands
Malaysia
Total


Rand million
25.0
17.2
15.5
11.5
10.9
9.0
2.0
0.3


91.4


Source: National Planning Commission


Some of the donors' interest in budget support might be restricted because
they have the opinion that government expenditure is unnecessary high,
due to servicing of a government debt of dubious origin and due to the
high remuneration costs of the inherited public administration.


Another type of financial assistance is project financing, inc1uding in-
vestments, equipment, specialist staff and sometimes other types of soft-
ware over an identified period. This is the traditional aid project or pro-
gramme and it is often developed on the basis of discussions with line
ministries. Sometimes it even originates out of ideas from the donor
agency or Hs consultants, wHhout much linkage to relevant authorities in


country concerned. governments in deep finan-
cial difficulties have to adjust administration so that it mainly
functions as a receiving organisation projects. course this is an
unhappy situation, which scope a firm government
development


sec~ona role nr,p,;;:c'nt situation is to provide the
government with "'rlU1I"'D Dvn,oT'ficD support the restructuring of the
Namibian society rlD'iTOIAn new institutions necessary for an inde-
pendent nation.


These tasks are within an administration, with a predomi-
nant white staff that has working long before independence.
While some members that staff are perfectly ready to follow new
political guide-lines and restructure existing institutions according to new
political objectives, others are not prepared to such changes. This means
that the government sometimes will have to rely on technical assistance
staff for preparing significant reforms, rather than on the inherited
administration. of the political struggle that is carried out in the
National Assembly and other political fora is also mirrored in the
admi,nh;tr'lti4)n. Aid aware situation and recruite


to of working


37




independent era, due to the previous isolation of the country. Another
important part of this catalyst role is to provide Namibia with non-South-
African methods and solutions in the modern sector. This does not mean
that Namibia should avoid South African techniques or methods as a
principle, but that those should be compared to alternatives from other
countries in for instance Europe, rather than taken for granted.


Swedish development assistance


One of the five main objectives for Swedish development assistance is to
support the independence of the cooperating partners. This has for a long
period meant to support the front line states against apartheid South
Africa through the strengthening of their economic and manpower
capacity.


In the case of Namibia the South African dominance is very strong and
will continue to be so also after the fall of apartheid. It can therefore be
argued that it still is an important objective to improve Namibia's efforts
to build national institutions and make the interdependence with South
Africa less assymetrica1. This could form part of a general policy to
support efforts to reduce the unbalanced regional development in
Southem Africa.


Such a policy would also imply to support the Namibian government in
its restructuring of the society from the legacy of apartheid.


The present focus of Swedish aid on education and the rural transport
sector, budget support plus institution building, e.g. Central Bank, and
Central Statistical Office, is in line with such a policy. Further support to
the strengthening of institutions and "the reform camp" in the Namibian
administration would be a logical continuation. It is important that possi-
ble future budget support is linked to activities aimed at improving the
situation for the previously neglected groups in the society.


Namibian nation-building and the relations to South Africa


This study has touched upon a number of issues relevant as part of the
nation-building process of a young nation. In the case of Namibia some of
them are complicated by the South African dominance, both towards
Namibia and towards the Southern African region. This has been the con-
text of the recommendations in this report.


The complications of a regional dominant will not disappear with a
majority government in a South Africa without apartheid, but their quality
will change. Primarily the hope for peace in the region will increase and
the risk of economic destabilisation in the neighbouring states will de-
crease. In an optimistic scenario further regional integration could gener-
ate increased economic growth. Still the necessity for adequate and effec-
tive national economic policy instruments to implement a development
policy decided by the representatives of the Namibian people will remain.
And still the economic competition between companies, institutions and
states will continue within the region, white possibly the region as such
might become a more important player in the world economy.


38




To sum up. The Namibian government has started a number of activi-
ties to strengthen and restructure national institutions. Some of them also
improves the Namibian potential to handle the present economic South
African dominance.


In a post-apartheid perspective there are no political reasons to reduce
links to South Africa, but a too strong South African economic dominance
is uncomfortable, and might restrict the scope for national economic pol-
icy. A number of issues in this context have been discussed in this report.
Some of the most important are:


- To get an agreement with South Africa on the returning of Walvis Bay
and the off-shore islands as soon as possible, without having to com-
promise on other issues of Namibian interest. An agreement on Walvis
Bay can include temporary joint administration. Technical preparations
for taking over should start immediately.


- To convince the South African government to write off or at least
reduce the "foreign debt", inherited at independence.


- To fulfill the efforts to revive the depleted fishing grounds, including
the introduction of new legislation and increasing the degree of
Namibian control the to which Namibian companies are
involved.


- To remain a member of and together with the BL5-countries try
to get more influence over industriai issues.


- To the efforts to commitrnents to SADCC-Iabelled
projects. includes both acceptance different SADCC bodies
and initiatives towards ... """"'." ag,enICles.


- To strengthen the efforts to restructure administration and make it
an instrument for reforms, than status quo.


- To South mineral sector by contin-
ued efforts joint ventures with companies from other coun-
tries promoting of Namibian interests. agree with CDM to get
part of its shares and representation at Hs board.


continue the present activities in the oil sector, with
finandng from interested companies, and to increase the capadty for
negotiations.


39




Seleeted References


African Development Bank: Namibia-General Economic Background and the
Bank Group 's Interim Lending Strategy for Namibia. Abidjan, 1990.


Carvalho Simoes, J.T. Namibia and the SADCC Energy Sector. Paper to DN
Council of Namibia Seminar on the Integration of Namibia into the
Regional Structures for Economic Co-operation and Development in
Southern Africa, Harare, 23-27 actober 1989.


Department of Economic Affairs: Manpower Survey. Windhoek,1988.
Department of Economic Affairs: Report on Cross-Border Flows and the In-


troduction of Border Control. Windhoek, 12 May 1989. Prepared by Van
Wyk & Louw and Urban-Econ.


Department of Economic Affairs: Manufacturing Industry Survey. Wind-
hoek,1989.


EIU: Botswana, Lesotho, Swaziland. Country Profile 1990-91. London.
EIU: Namibia. Country Profile 1990-91, London.
EIU: Namibia, Botswana, Lesotho, Swaziland, Country Report No 2, 1991. Lon-


don.
Eriksen, T. L. Landanalys Namibia. SIDA Stockholm, 1988.
Eriksen, T. L. Paper on Namibia presented at WUS conference on agriculture in


Namibia. Mimeo, Copenhagen, 1991.
IFO Institute for Economic Research. Basic Study Namibia, Vol 14. Struc-


ture, Problems and Potential of Economic Development, Munich, 1990.
Goodison, The European Community and Namibia. A Users' Guide to the


Lome Convention and the Development Resources of the EC Annual Com-
munity Budget. NEPRU, Windhoek, September 1990.


Harvey, C. and J Isaksen (eds): Monetary Independence for Namibia. NEPRU,
Windhoek,1990.


Keohane, R and J. Nye: Power and Interdependence: World Politics in Transi-
tion, Little, Brown and Company. Boston and Toronto, 1977.


Moorsom, R. Walvis Bay. Namibia's Port. IDAF, London, 1984.
NEPRU: Walvis Bay Fact Finding Mission Report. Windhoek, actober 1990.
NEPRU: The Southern Africa Customs Union Agreement and Namibia. Wind-


hoek,1990.
Oden, B. Will Southern Africa get any aid in the post-apartheid era? Paper to


the International Conference on South Africa, Copenhagen 21-23
February 1991.


Private Sector Investment Conference Documents. Windhoek, February
1991.


Project Document. Project: Fisheries Surveillance and Controi in the Namibian


Republic of Namibia: Budget Speech. Additional Budget 1990/91. Windhoek,
1991.


40




Republic of Namibia: Economic Review; Budget 1991 Ministry of Finance.
Windhoek; 23 May 1991.


Republic of Namibia: White Paper on National and Sectoral Policies. Wind-
hoek; 1991.


Republic of Namibia: Foreign Investment Act. Windhoek; 1990.
Republic of Namibia. State Revenue Fund. Capital Projects Included in the Es-


timate of Expenditure for the Financial Year ending 31 March 1991. Wind-
hoek; 1991.


Republic of Namibia. State Revenue Fund. Estimate of Additionai Expenditure
for the Financial year ending 31 March 1991. Windhoek; 1991.


Republic of Namibia. State Revenue Fund. Estimate of Revenue and Expendi-
ture for the Financial Year ending 31 March 1991. Windhoek; 1991.


Sellström; T. 'Namibia's Economy a Year After Independence"; Southern
Africa Political & Economic Monthly, Vol 4, No 6. Harare; 1991. Statisti-
cal/Economic Review. Namibia 1990. The Ministry of Finance. Windhoek,
1990.


Tapscott; "Towards democracy or neo-eolonialism?" WIP 73; 1991.
Tostensen; A. Post-apartheid Perspectives on the Southern African Region. Pa-


to the International Conference on South Africa; Copenhagen;
February; 1991.


Transport and Communications Namibia; 1990. Consultancy report. Pre-
pared the Ministry and Communications.
Windhoek; 1990.


Walters; J. the Southem African
Conrtm(m Market Studies; September 1989.


Magazines and newspapers


Africa South
African Business
African Economic LJ'AJ::~'C;:)b
Namibia Brief
Namibia K~IJU]rr
New African
SouthSean
The Namibian
The Windhoek Advel'tislt'r


41




Annex 1


Tenns of Reference for a Study on Namibia's Economic Dependency
on South Africa


Background


Namibia became independent on 21 March 1990. Up to that time the
Namibian economy was wholly integrated into that of South Africa. In
fact, Namibia was in all practical aspects treated as a fifth province of
South Africa.


For those reasons, independence for Namibia has so far only meant
political independence from South Africa. Economically the ties with
the former colonial government are still strong, and difficult to severe.


It is with this in mind that the Development Cooperation Office in
Windhoek sees a need to throw some light on these continuing
relations and dependencies on South Africa through a preliminary
study.


Aims


The aims of the studYis to darify and analyze the existing ties in the
economic sphere with South Africa, and suggest some implications of
those ties when it comes to decisions for the future and choices
between different alternatives for the new Government.


The study will cover some central issues regarding the economic
relations between Namibia and South Africa. Among those issues are
the Namibia membership of the Southern African Customs Union,
SACU, and the Common Monetary Area. Both issues are economically
and technically complex and an in-depth analysis of them requires long
time and specialist competence, which they get under on-going
projects. The role of the suggested study in those areas is to highlight
some general points without going into technical details.
Other issues to be induded in the study are:
- The external debt situation
- Foreign trade pattern and its implications
- Transport issues, induding Walvis Bay


Energy imports
The scope of the economic dependency of Namibia upon South


Africa could be illustrated by exemplifying from some strategic sectors,
such as oil and electricity.


The implications of the dependency for future choices
Government it comes to e.g. the
be studied.


42




The study shall also comment on the possible role of Swedish aid in
this context.


Implementation of the Study


Bertil Oden has been selected as the most competent to do the study,
which should take place in Namibia between 11 and 30 of March 1991.


Oden shall during his visit collect information and discuss with
various institutions and authorHies in Namibia, relevant to the aims
of the study. These will include:
- The administration, and different ministries
- Commercial banks in Namibia
- Economists and economic research units, such as NEPRU
- Other embassies.and aid donors


Format for Reporting


The study is commissioned by SIDA and will be used within SIDA.
The report of the study should not exceed 30 pages. A first draft shall


be written before the end of the visit to Namibia. This draft shall be
presented at a seminar organized by the DCO for a selected and limited
number of persons with special interest in this field.


A new draft, revised after the discussions at the abovementioned
seminar, shall be presented to DCa before the negotiations between
SIDA and Namibia, 15 April 1991.


The final report shall be finished not later 1 1991.


43




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