Tom K Alweendo: Accelerated economic growth and job creation - the
need for a paradigm shift
Annual address of Mr Tom K Alweendo, Governor of Bank of Namibia, Windhoek,
5 November 2009.
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Ladies and gentlemen,
Thank you for attending our regular annual address. I know that we are competing for your
time with many other events. The theme of my annual address this year is on the need for a
paradigm shift, in order to accelerate economic growth and job creation. Before doing that, I
would like to give you a brief update on the state of the economy and the banking system.
As we all know the global economy went through a period of extraordinary financial instability
in 2008 and 2009. This was accompanied by the worst global economic down turn and a
collapse in trade. No country escaped the reach of this economic storm, and we were no
exception. Our export oriented sectors, notably minerals and tourism, have been especially
hard hit. Consequently, the economy is expected to contract by about 1.1 percent in 2009,
while a moderate recovery is envisaged for 2010. In part, due to depressed international
demand conditions, inflationary pressures have been largely under control. The annual rate
of inflation has declined to 7.1 percent in September. Declining levels of inflation has allowed
the Bank of Namibia to ease monetary conditions, but domestic demand is yet to show a
sustained recovery. In line with the global economic recovery, there are encouraging signs of
a recovery in the Namibian economy, but it will take a while for economic activities to reach
pre-crisis levels and become more sustainable.
With respect to the financial system, our banks remain profitable. Banks are adequately
capitalized, sufficiently liquid, and non-performing loans as a ratio to total loans remain well
below internationally acceptable standards. I am also certain that most of you have been
following the recent debate on the appropriateness of the difference between the Bank of
Namibia's official interest rate and the commercial banks' average lending rates.
At the heart of the debate is whether the interest rate differential is a correct reflection of the
risk commercial banks undertake to intermediate between the savers and borrowers.
We do agree that commercial banks, just like any other business, need to be rewarded for
the risk they take in conducting banking business. We also believe that the reward must be
commensurate with the risk being taken. As we all know, the banking system is the main
transmission channel for our monetary policy actions. That means therefore that for our
monetary policy to have the intended effect, the transmission channel must be effective. That
is why we have started a dialogue with the commercial banks to ensure that the transmission
mechanism works effectively.
There are some who suggest that our actions in this regard are irresponsible. They accuse
us of causing financial instability. They also accuse us of chasing away potential investors.
Let me assure you that, as a regulator of the banking sector, we are well aware of our
responsibilities. In carrying out our responsibilities, we will always do so in the best interest of
Namibia. After all, financial stability is one of our main objectives and we take our
responsibilities seriously.
Let me now return to the main topic for tonight. In less than five months we will celebrate our
20th independence anniversary. Twenty years is an appropriate period to take stock of our
achievements since independence and to reflect on the way forward. Our 20th anniversary
as a sovereign nation is also symbolic in the sense that we will be exactly 20 years away
from the target date of Vision 2030. According to V2030, in twenty years from now we want
to be a prosperous and industrialized nation; and we want to enjoy peace, harmony and
political stability. More specifically, the Vision states that Namibia will be an upper income
country. That means that we should have a per capita income of at least US$17,000 and
unemployment of below 5 percent. Let us therefore pause for a moment and ask ourselves
whether we are on track towards meeting these noble objectives.
To be sure, we certainly have achieved a lot in the last twenty years and we have every
reason to celebrate our achievements. It is not an overstatement to say that we have been
the envy of many countries in the Sub-Saharan African region. Our achievements can be
grouped under three categories, namely political, macroeconomic, and social.
Political stability is an indispensable condition for sustainable economic development.
Without political stability economic development is simply not possible. We should be proud
that in a relatively short time we were able to establish a stable and mature democracy. We
have managed to build strong institutions, including independence of the judiciary, good
governance and protection of property rights. In just a few days from today, Namibians will
for the fifth time go to the ballot boxes for the presidential and national assembly elections. I
would like to wish all the political parties taking part in the elections good luck. Indeed we
have reason to celebrate.
As to macroeconomic stability we have equally been successful. Inflation has been low and
stable; fiscal policy has been prudent and sustainable; and our external balance has been
healthy over the years. Moreover economic growth has been positive, resulting into modest
gains in per capita income.
Recently the World Bank reclassified Namibia from being a lower-middle-income country, to
an upper-middle-income country. This should bolster us to want to do more. We are one of
only a few countries in Sub-Saharan Africa that has an investment credit rating. With a credit
rating, we are able to access international capital markets at relatively better terms. While we
may not need to borrow externally for now, external borrowing may be necessary during
times of crisis or when in need of additional capital to support faster economic growth.
We also have one of the highest savings rates in the world, almost comparable to rates in
East Asia. However, I remain concerned that up to now we failed to transform all our savings
into domestic investment. Over the years we wasted precious time engaging in useless
debates as how to utilise our own capital to generate higher economic growth. It is simply no
longer credible on our part to request other countries to financially assist us while we are
happy to continue exporting our own capital. This remains a challenge that we can no longer
afford to ignore.
Equally, on the social front our achievements have been many and laudable. Today there are
many more children in schools than at independence. Our national spending on education as
a percentage of total spending is among the highest in the world. More health facilities have
been constructed since independence. At least 90 percent of all Namibians have access to
safe drinking water. This is an achievement that even some of the dynamic fast growing
emerging market economies is yet to achieve. So our achievements are numerous and we
should celebrate.
While our achievements are impressive, our challenges are equally daunting. The risk is that
if we do not address the challenges facing us as a matter of priority, the gains we have
achieved thus far might be eroded.
As to whether we are likely to achieve V2030, according to our research the picture does not
look too encouraging. Indications are that on the two key goals of per capita income and
employment creation, we are not making sufficient progress. The current per capita income
is US$4,200. At the current growth rate, we project that by 2030, our per capita income will
be US$10,000. This is no near the required level of US$17,000. The message is that at the
current rate of progress, we are not getting there.
The picture does not look any better with our efforts to reduce unemployment. According to
the 2004 labour force survey, unemployment rate was 36 percent. It is a pity that the
responsible people for collecting employment statistics are not able to provide the latest
unemployment figures. This is notwithstanding the fact that unemployment is at levels where
anywhere else it will be declared as a crisis. We again project that if we continue with the
same strategies, by 2030 the unemployment figure will be much higher than the current level.
The sad thing is that the majority of the unemployed, about 60 percent, are the young
people, especially those with little education. We must realise that prolonged youth
unemployment has far reaching consequences. Youth unemployment will result into too
many shattered dreams, it leads to loss of identities, and lack of zeal for life in general. The
message is that we can no longer pretend that everything is in order.
While our economic growth has been positive, it has not been high enough to make a
meaningful impact on poverty reduction. According to the latest poverty report, 28 percent of
Namibians are classified as poor; and 14 percent are classified as severely poor. To put this
in a proper context, poor means a household of four individuals, living on less than N$262
per month. Severely poor refers to a household living on less than N$185 per month. Let us
for a moment pause and reflect on what it means to be in this category. It could well mean
that the person cannot feed herself; it means she cannot provide her child with the necessary
education; and she cannot afford a decent shelter. International experience has shown that
the best way to permanently address poverty is not through social safety nets, but through
sustained and high economic growth. Once again, the message is that we need to act now.
Having realised that, at the current rate, we are not likely to achieve V2030 objectives, what
must we do. I do not pretend to have all the correct answer but all I know is that we, all of us,
need to do something fast. Let me, however, share with you few ideas.
A number of indicators suggest that we have been successful at managing our economy at
the macro level. Where we do not do so well though is at the micro level. For example, the
cost of doing business is perceived to be too high; research and development necessary for
innovation is lacking; and there is a severe deficit of skills. I would like to advance two other
possible reasons why our growth have been sluggish and without job creation.
Because of the many social challenges dating back to the legacies of apartheid, we followed
a balanced approach to economic development. This means that we decided to develop all
economic sectors at the same time. The results of this strategy are less successful than what
we have hoped for. While it is true that we have made progress, when compared to faster
growing and dynamic economies we have fallen behind.
Given the size of our domestic economy, our economic policy must, out of necessity, be
more outward looking. We cannot rely on internal consumption and the only way is to adopt
an export-led economic development strategy. With the exception of this current year, world
trade has been growing at an exponential rate and the size of the world market has
increased manifold. This provides an opportunity for small open economies to benefit.
However, to be able to compete in the world market, we need to produce sufficient quantities
at the right price and quality.
Specifically, I would like to suggest that we adopt a targeted approach towards economic
development. Resources, financial and human, should be targeted towards economic
sectors with high potential for growth and job creation. Our recent research indicates that the
sectors with the highest potential for faster growth and job creation are transport
infrastructure, tourism and agriculture. Therefore, we would like to suggest that relatively
more resources should be channelled to these sectors over the next ten years. If we do this
in a correct manner, the economy could grow at close to 7 percent per annum, which is more
in line with what is required to meet Vision 2030.
I am aware of earlier planned interventions that were abandoned because they were thought
to be too expensive. Let me say here that I do not want to give an impression that the
proposed intervention will be cheap. While it is necessary to consider the cost of intervention,
we should do so in relation to the opportunity cost of not intervening. So far our approach to
economic development has been somewhat too cautious, except that the results are not
encouraging.
In addition to a targeted approach and more government intervention, there must also be
other accompanying reforms. Here I have in mind reforms, for example, of our education
system and the labour market.
The skills deficit seems to be on the increase. It is encouraging that Government has
adopted an ambitious plan to revamp our education system. I would like to encourage
organized business to also play its rightful role in skills development. It is as if our private
sector still views skills development as an additional cost rather than an investment for the
future. We need to have a true partnership, a partnership based on mutual desire to
progress, between the Government and the private sector to address the problem of skills
deficit.
Let us also agree that the most effective way in which we can address the quality of our
education system is when education is once more regarded as a meaningful profession to
pursue. Today education is regarded as the profession of the last resort. Our research
suggests that the young people who enrol to become teachers are those who have passed
grade 12 with the lowest points. It is hardly surprising therefore that we have not been able to
produce the engineers, the scientists, and the economists that we so much need. The only
way to change this is to make teaching an attractive profession. This we can do, as a first
step, by starting to reward our good teachers and educators commensurately.
As with regard to the labour market, it appears that our labour market is too rigid,
unnecessarily adding to the costs of doing business. In this regard, organized labour should
try to look beyond the interest of their immediate constituent. What is good for the workers is
not necessarily good for the country. It does not help we protect a few jobs at the expense of
lower future unemployment. In today's globalized world, it becomes virtually impossible to
protect jobs. When job losses occur, however, there should be temporary social support to
assist the unemployed from falling below the poverty line.
One of the weakest links in the chain of our economic development cycle has been the lack
of effective monitoring and evaluation. This weakness is in part due to weak state capacity,
which is in turn linked to lack of skills and sometimes lack of commitment. It is necessary to
strengthen our monitoring and evaluation mechanisms. A key reform in this regard would be
to strictly enforce accountability. There should be consequences when agreed targets are not
met and we should not entertain rewarding non-performance. What is clear is that if we fail to
improve our monitoring and evaluation structures, a more government interventionist
approach to economic development will be a waste of resources and we might as well not do
it. We also know that not doing it is not a viable proposition. The stakes are simply too high.
Ultimately development starts with all of us. As individuals, let us be aware of the great
potential that is within all of us; let us believe that it can be done; as proud Namibians let us
embrace values of hard work and sacrifice. The time is now for all of us to act; it is time to act
with conviction and also to act differently. Let us not allow our destiny to be determined for us
by events happening around us; let us be the architects of our destiny. We owe this to
ourselves and certainly we owe it to the future generation.
I thank you.