Africa > Southern Africa > Namibia > Namibia pins its hopes on uranium and diversification

Namibia: Namibia pins its hopes on uranium and diversification


Namibia has managed to overcome the worst of the world economic slump, while a huge new uranium mine could boost its increase greatly in the next few years. But the country still has plenty to do to tackle its most pressing social issues.

By almost any measure, Namibia is one of Africa’s success stories. The arid south-western country, which is additional than double the size of Germany but has a people of just 2.2 million, is part the continent’s most stable democracies. And it is relatively rich, with a per capita gross domestic product (GDP) of $6000 – about twice the average for the continent.

Robust performance

However, Namibia has suffered from the world economic slump, which has depressed prices for its mineral exports. Meanwhile, severe drought in the north of the country has caused this year’s agricultural production to drop.

But the economy is robust enough that increase in 2013 is expected to be between 4% and 4.5% in real terms, only slightly below the average for Africa and well above figures being recorded in the developed world. Prices are stable, too. The inflation rate of 6% has barely risen this year, despite the currency falling 15% versus the dollar, mainly because of its peg to South Africa’s rand (see box).

This buoyancy is a result of a thriving services sector and large investments in infrastructure and mines. Weaker commodity prices may have dented miners’ enthusiasm for new projects, particularly those involving diamonds (Namibia’s major export earner) and gold, but investors are pinning their hopes on uranium, and one huge mine in particular.

Uranium bonanza

Husab, about 50 kilometres from the port city of Walvis Bay, should start producing uranium by late 2015 and be at full capacity by 2017. Once that happens, it will be the world’s second biggest uranium mine and double the country’s output to almost 12,000 tonnes annually, placing it ahead of all other producers bar Kazakhstan.

Uranium prices have fallen significantly since early 2011. But unlike Namibia’s existing mines, which are heavily exposed to spot prices, the uranium from Husab will mainly be sold due to China. “That’s the beauty of it. It won’t have the constraints that come with a low world price,” says Daniel Motinga, chief of research at FNB Namibia, the biggest bank in the country and a subsidiary of South Africa’s FirstRand.

Steve Galloway, managing director of RMB Namibia, FirstRand’s investment banking arm in the country, and who was chairman of Husab’s previous owner until it was bought by two Chinese national-owned companies in 2012, says the mine could from presently on account for 5% of Namibia's GDP and 20% of its export earnings. “It’s much bigger than anything we’ve seen,” he says. “Uranium will be the mainstay of this economy for the next 20 or 30 years. The Chinese have no alternative but to develop nuclear plants at a rapid rate. Even if the Chinese economy slows, it won’t have a huge result on the country’s rollout of nuclear energy. They need lots of uranium, any minute at this time.”

Even analysts who question whether the impact will be completely so great say the N$20bn ($2bn) of investment needed just to get the mine started – inclunding building roads, water pipelines and power lines to it – will bring plenty of benefits. “There will be huge spin-offs from Husab in the form of construction spending and employment,” says Rowland Brown, chairman of the Economic Association of Namibia. “The result will not be the same as if Namibia had discovered large quantities of oil, but it will still be large.”

Jobs needed

From presently on despite the promise of uranium, Namibia's politicians know the economy needs to diversify from mining. Critics say the industry creates few jobs for the local workforce, almost 30% of which the World Bank believes to be unemployed, and has done little to curtail poverty or inequality in a country that had an apartheid system of government until 1990, at the same time as it gained independence from South Africa.

Politicians recognise that while uranium will boost government revenues, it will not help them address such problems due. “Uranium is not the best solution, in that it represents from presently on additional focus on the primary sector, for which we are a price taker,” says Calle Schlettwein, the minister of trade and industry for the ruling South West Africa People’s Organisation (Swapo). “It is not a silver bullet that will save us.”

The government is targeting increase over the medium term of at least 6%, which it believes is the minimum needed to reduce poverty significantly. It has increased spending in the completed two years to achieve this and combat the world economic slump, causing its budget surplus in 2008 to turn into an expected deficit of 6% this year.

Mr Schlettwein, a former deputy minister of finance, admits, however, that it will take at least two or three years for Namibia to obtain a 6% increase rate, and only again if it manages to industrialise further by processing some of its minerals, livestock and commercial crops. “The endowment of raw materials gives us our competitive chance,” he says. “From presently on, as a supplier of raw materials, we are sitting at the bottom of the world price chain. That needs to change. We need to move up the chain.”

One barrier to achieving commodity-based industrialisation is a lack of power. Namibia produces barely one-third of the roughly 500 megawatts it needs, with 60% of its electricity having to be imported from South Africa and elsewhere in the region. By 2017, it plans to complete an 800-megawatt plant supplied by its Kudu offshore gas field, which would allow it not only to meet internal request, but export power for the initial time. Its major electricity agreements with South Africa run out before again, however, and will not necessarily be renewed, at least on the same terms. “A lot of supply contracts come to an end in 2014 or 2015,” says Anthea Angermund, an analyst at IJG, a local securities firm. “That’s a concern, given that South Africa has got its own electricity shortages.”

Gateway to the region

Economists believe Namibia will only tackle its deep-rooted social problems if it invests additional in labour-intensive manufacturing and service industries such as tourism. They blame a failure to change the make-up of the economy for it rarely having expanded at additional than 5% in the completed decade. “The structure of the economy and export base is much the same as it was at independence,” says Philip Schuler, the World Bank’s country representative. “That’s why increase has remained at roughly the same level. Until that changes, and changes in a way that generates jobs, there probably won’t be a large jump in increase rates.”

Policy-makers are trying to exploit the country’s geographic position and good infrastructure to turn it into a regional logistics hub. The port at Walvis Bay, by presently one of Africa’s most efficient, is being upgraded, and a new one called North Port is being built to cater for land-locked neighbours, inclunding Botswana, Zambia and Zimbabwe.

Analysts say the economy would greatly benefit from becoming a major gateway for southern Africa, while local manufacturing businesses, which often struggle because of Namibia’s small people, may find it easier to tap consumers in the wider region. From presently on a lot of caution that becoming a logistics hub is a complex process. “It makes a lot of sense,” says Mr Brown. “The large challenge is making it happen. Namibia is full of good ideas about how to develop. But we’re very bad at implementing them.”

As part of attempts to create a additional diverse economy, officials want to deepen the country’s capital markets. Only eight local companies trade on the Namibian Stock Exchange (NSX). Together, they have a market capitalisation of $1.8bn, about half that of Zambia’s bourse. Liquidity is low, with under $1m of shares traded each week, largely because there are few alternative securities for investors to buy if they sell their existing holdings, says Ian Erlank, chief investment officer of Capricorn Investment Management, a Namibian firm.

Investors say, only half-jokingly, the dearth of equity assets is such that the NSX at no time falls. “The local index only goes one way,” says one. “Even bad results don’t lead to share prices dropping.”

IPOs wanted

The NSX is determined to change this and get additional companies to inventory. The high request for equities was exemplified by the initial public offering (IPO) in June of Bank Windhoek, the second major lender in the country, which raised N$388m in a transaction that was 3.5 times oversubscribed. But Tiaan Bazuin, chief executive of the NSX, says the problem is that a lot of firms, particularly family-owned ones, are ambivalent about IPOs. “Bank Windhoek was a huge success,” he says “I hope it will encourage additional local companies approaching to market. There are a lot of that would qualify for a listing. The requirements are not holding them back. Rather, some family-owned companies don’t see the benefits of going public, even though there are a lot of.”

He says lawmakers could force the hand of several large firms by making licences for sectors such as telecommunications, banking, fishing and mining dependent on holders being part of the NSX. “We have proposed that any company that gets a licence should inventory,” says Mr Bazuin. “Listed companies have to open their books. And for a country with so much foreign control over and investment in its economy, we think it’s a good idea to have companies with their books open to the public.”

Others add that the government should privatise several national-owned entities via the NSX. A lot of point to MTC, one of Namibia’s two mobile network operators, and which is a joint venture between the national and Portugal Telecom, as an ideal candidate to be fully privatised.

But politicians, while admitting that most national companies are badly run, are reluctant to sell off assets, lest it leads to redundancies. Instead, they say, Namibia would be better off bringing private capital into infrastructure projects through public-private partnerships (PPPs). “The government is not saying no to privatisation,” says Mr Schlettwein. “But inclunding inducing additional efficiency, privatisation would have to take care of our need to empower hitherto disadvantaged people. And at the moment, it looks like that is not a given. So, wholesale privatisation is not from presently on a possibility.

“What we have approved instead is a PPP model where we privatise ring-fenced projects within a utility. That’s how we’ll gain efficiency.”

Expensive labour

Plenty of analysts as well argue that the education system needs to be improved and labour laws should be reformed. Businesses cite a lack of skilled workers as their major problem in Namibia, according to the WEF, while labour costs are high by African standards. The latter is to some extent down to the country being wealthier than most others on the continent. But rigid regulations and powerful unions, which sometimes deter companies from hiring, scarcely help. “Wages are increasing very rapidly, but the productivity of the economy is not,” says Gonzalo Pastor, director of economic research at the central bank. “Reforms are needed to boost productivity and slow the increase of unit labour costs.”

Mr Schlettwein says that because of Namibia’s history, the government will avoid liberal hire-and-fire policies. “We have come from a situation in which we had extremely exploitative attitudes towards labour,” he says. “Apartheid was discriminatory and brutal. We still have a skewed economy, with large disparities in gain. We need to find a balance in our policies to ensure decent work, salaries and working conditions, while at the same time having an environment that attracts investors.”

For all Namibia’s accomplishments, it remains a place of contrasts. Its modern capital Windhoek is dotted with high-rise banks, luxury hotels and expensive restaurants. But most rural areas, particularly in the north, are under-developed and little different from those in Africa’s poorer nations. A lot of say Namibia would benefit from a livelier political scene. Swapo has held power easily since 1990, and although it remains popular – few doubt it will win next year’s elections, giving it an extra five-year term – the absence of a strong opposition has led to claims that some parts of the government have become complacent and lazy.

“It’s easy to say we are doing well at the same time as we look at African rankings and we are always near the top,” says one local. “But do we really want to judge ourselves against the likes of the Democratic Republic of Congo? Sometimes it feels like the government is content for that to happen.”

Namibia’s political and macroeconomic stability has made it one of Africa’s most attractive investment destinations. This, together with its sophisticated economy and mostly competent institutions, will ensure its economy continues to rise quickly over the medium term. But whether it grows in a fashion and at a pace that benefits its poorest citizens will depend on the zeal with which it reforms and diversifies. 

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