‘NEEEB nothing but business grab’

Jo-Maré Duddy – Enacting government’s latest attempt at empowerment legislation will have drastic and far-reaching consequences for the country, ranging from investor and capital flight to an employment and skills drought and even risking the peg of the Namibia dollar to the rand, a local think tank has warned.

The scope of the potential interference of the latest version of the New Equitable Economic Empowerment Bill (NEEEB) is “so dramatic that the legislation is all but a full-scale ‘business grab’ by government”, the Economic Policy Research Association (EPRA) says in a report.

The 44-page document is an extensive analysis of the legal and economic impact of the new NEEEB. A copy of it will land on president Hage Geingob’s desk, as well as on those of all ministers, EPRA says.

At the centre of the bill, shrouded in uncertainty, is power: the power to state authorities to withhold licenses, permits and authorisations for economic activities, irrespective of whether private entities do business with government or not.

The current NEEEB holds the ownership and management of private entities “hostage” by the “wide-scoped interference in the most fundamental parts of business”.

“The breadth of the legislation means that for all businesses operating in the country, government has absolute control over their fate with undisclosed and potentially ever-changing regulations,” EPRA says.

“All in all, the effect of NEEEB is the enslaving of the private sector at the unrestrained discretion of government,” EPRA says.

Investment

In addition to the general abuse of power that NEEEB will enable, there are wide-ranging economic implications, most notably around investment and all that flows from it, EPRA says.

Namibia is already a relatively investor-unfriendly jurisdiction, “with a plethora of challenges pertaining to over-regulation and inefficiency - from the number of days it takes to open a business (66 days), to the ability to claim back tax, to time taken to pay tax, to processes and time required to attain licenses”.

“By adding vast layers of bureaucracy, forcing management and ownership structures that may well be sub-optimal for businesses and requiring large additional business expenditure (such as on compliance) - to name but a few - the legislation will reduce the return on invested capital available to investors,” EPRA says.

Profitable businesses are critical to an economy and NEEEB will put profit at risk for many businesses, the think tank says.

“Without profit, private capital, however large or small, and whatever its geographic origin, does not invest.

“Without investment, goods and services are not provided. Without businesses with goods and services to provide, no employment can be provided.

“Without employment, businesses, and goods or services to consume, tax cannot be levelled. Without tax, government does not exist.

“Without all of these, human development cannot take place,” EPRA elaborates.

“Legislation that adds costs to business, reduces profit, increases risk and uncertainty while undermining property rights for investors, means that only the most profitable, least risky or most naive investment takes place,” the association warns.

Policy shift

Namibia has already begun to feel the withdrawal of investment.

Over the past decade there has been a notable shift in policy and a clear ideological drift towards a more overtly government-controlled economy, EPRA says.

“This has seen the introduction of more interventionist policy from government, as exemplified by the controversial NIPA [Namibia Investment Promotion Act] and different versions of NEEEB, as well as several other detrimental policies such as the sheep marketing scheme (which decimated the local industry), the additional conditions imposed on mineral exploration licences introduced in 2015 (which dramatically decreased exploration activity), and regulation 13 (previously 28) of the Pension Fund Act that allowed the GIPF [Government Institutions Pension Fund] to allocate pensioners money to be invested by a small number of preferred funds in unlisted investments (greenfields) and high risk projects,” EPRA says.

The effect of Namibia’s policy environment has resulted in not only reduced net direct investment, but in 2019 it turned negative, meaning Namibia recorded net direct investment outflows, or disinvestment, EPRA continues.

“This is a clear message to policymakers that we are doing something wrong, and has severe implications on the macroeconomy.”

No jobs

Not only will NEEEB hinder employment creation, it will also encourage a skills flight, EPRA believes.

Should NEEEB become law, it will add huge costs to especially small enterprises, which account for a significant portion of paid employment. These business are marginal, given their size alone, says EPRA.

“There is no guarantee, comparable legislation or valid and reliable research findings that NEEEB can or will improve the lives of the more than 364 000 people [according to 2018 data by the Namibia Statistics Agency] who suffer the indignity of unemployment,” EPRA says.

“With unemployment [33.4% in 2018] already at worryingly high levels, particularly for the youth, increased unemployment as business close down or move elsewhere will result in another generation left behind – a further great injustice to those who have been left behind by one administration after the other,” EPRA continues.

This will only serve as a further barrier to reducing inequality, they say.

Skills, as much as capital, are required for an economy to grow. EPRA warns that NEEEB will lead to a brain drain. Anecdotal evidence suggests that many skilled Namibians, white and black, have already upped their roots in search of greener pastures over recent years, they say.

“While capital moves quickly and with relative ease, skills tend to be sticky. Moreover, while the outflow of capital is a worrying leading indicator, the departing of skills is a long-term crisis.”

Growth

Namibia has exhausted most of its tools to lift Namibia out of the recession and ensure sustainable recovery.

The highly indebted consumer, job losses due to the recession and low wage adjustments mean household consumption won’t be able to drive the economy in the foreseeable future.

“Add to this legislation that will cause businesses to close, less local production and higher costs of doing business, and further job losses can be expected,” EPRA says.

Despite having the third highest tax-to-GDP ratio in the world, government still spends between N$8 billion and N$10 billion a year more than the revenue collected - a highly unsustainable situation, according to EPRA.

Government has to stay on its fiscal consolidation path and can’t stimulate the economy.

“Add to this legislation that causes fewer people to be employed, fewer businesses to exist, and less profit to be made and large revenue reductions can be expected.”

Net exports could theoretically be improved either through reduced imports or increased exports.

“The former is currently happening as a result of weak household demand in the country, while the latter is likely to move in the opposite direction over the next two years, as mineral output falls or commodity prices soften, and as agriculture exports come under further pressure as a result of second-round effects from the drought and the impact of climate change.”

‘Silver bullet’

Namibia’s only “silver bullet” to economic growth therefore is investment, EPRA says.

“Without investment, we will not see a recovery in employment and household incomes, and thus will not see material recovery in personal income tax, VAT and corporate taxes. This will keep government under revenue pressure, particularly from domestic sources.”

Government spending will likely remain under pressure until Namibia sees investment recovery.

“In order to suitably increase exports and decrease imports, while improving living standards, we need investment. We are not going to produce more goods to sell to the rest of the world without investment, and we are not going to reduce our dependencies on imported goods without investment,” EPRA says.

Currency peg

NEEEB presents a very real risk to the currency peg, EPRA believes.

“The reason for this is simple: NEEEB not only discourages investments, but it will also encourage disinvestment, emigration, and people seeking to relocate their assets elsewhere.

“Disinvestment and the offshoring of assets will immediately result in an outflow of international reserves – and from the account that traditionally boost reserves.”

EPRA says this could easily force a currency decoupling, “which would be catastrophic”.

In an effort to address this risk, EPRA expects government to turn to capital controls in the relatively near future.

“This will be the death toll for the economy – no money comes into an economy that it cannot be easily taken out of.”

As Namibia imports most of what it consumes, the country will continue “to burn hard currency on imports”, EPRA says.

“The only alternative is that we reduce imports in the short term, which would mean a dramatic reduction in the standard of living in the country. This would chase skills and capital away even more, which would in turn result in increased unemployment, reduced government tax revenue and fewer exports,” EPRA says.