Coronavirus and the World Economy
The coronavirus has arrived in the most remote place of the World and 213 countries and territories are affected. Namibia has currently 42 203 cases and 492 deaths. South Africa have currently 1 536 801 cases. The latest cases and deaths are the following:
Table 1: Coronavirus cases – 03 January to 21 March 2021
|Region/Country||Cases03 Jan||Cases2 Feb||Cases16 Feb||Cases01 Mar||Cases21 Mar|
|China||87 117||88 594||89 788||89 912||90 099|
|Europe||19 867 286||25 123 464||26 570 303||28 066 750||31 112 327|
|Africa||2 777 596||3 571 207||3 664 643||3 747 852||4 035 460|
|North America||21 505 518||27 709 333||29 144 627||30 119 373||31 412 643|
|Rest of the World||40 864 891||47 626 517||50 206 999||52 742 253||56 799 511|
|Total||85 102 408||104 120 115||109 676 360||114 766 140||123 450 040|
There is an increasing trend in the number of cases since the 12th of February. The US remains on top of the list with reported 30.48 million cases and 554 871 deaths. Only 3.2% of the reported cases and 4.0% of the deaths are on the African continent. The number of newly reported deaths shows an increasing trend since 27 February, with a lag of three weeks after the increase in cases.
Table 2: Coronavirus deaths – 03 January to 21 March 2021
|Region/Country||Deaths03 Jan||Deaths02 Feb||Deaths16 Feb||Deaths01 Mar||Deaths21 Mar|
|China||4 634||4 636||4 636||4 636||4 636|
|Europe||472 906||612 444||658 961||699 603||744 263|
|Africa||66 481||91 909||98 613||101 873||110 097|
|North America||374 458||474 898||519 514||547 774||577 514|
|Rest of the World||927 281||1 070 080||1 136 644||1 190 751||1 285 792|
|Total||1 845 760||2 253 967||2 418 768||2 544 637||2 722 302|
 North America is Canada and the US
The African continent reported 4 035 460 cases and 110 097 deaths. There are only 1 941 044 cases reported in the SADC region and 60 174 deaths. South Africa is dominating SADC with 79.2% of the cases and 86.6% of the number of deaths. South Africa also dominates the African continent with 38.1% of the cases and 47.3% of the deaths. Many African countries are underreporting and some countries are not reporting any new cases and deaths, like Tanzania since May last year.
Table 3: Coronavirus cases and deaths in the SADC region – 03 January- 21 March 2021
|SADC country||Cases03 Jan||Cases01 Mar||Cases21 Mar||Deaths03 Jan||Deaths01 Mar||Deaths21 March|
|South Africa||1 088 889||1 513 393||1 536 801||29 175||49 993||52 082|
|Zambia||21 582||79 002||86 273||394||1 098||1 178|
|Mozambique||18 968||59 350||66 064||168||641||743|
|Namibia||25 116||38 845||42 203||215||424||492|
|Zimbabwe||14 491||36 089||36 662||377||1 463||1 510|
|Botswana||14 805||28 371||35 493||42||310||458|
|Malawi||6 712||31 945||33 216||192||1 044||1 093|
|DRC||17 998||25 913||27 468||595||707||726|
|Madagascar||17 767||19 831||22 275||262||297||345|
|Angola||17 608||20 807||21 696||407||508||526|
|Eswatini||9 711||17 014||17 283||227||652||665|
|Lesotho||3 206||10 491||10 535||65||292||309|
|Seychelles||297||2 618||3 770||–||11||16|
|Total||1 258 187||1 884 788||1 941 044||32 150||57 471||60 174|
Czechia replaced Belgium on top of the list with the number of deaths per population and Andorra has the most cases.
Table 4: Worst affected countries according to deaths and cases
|Country||Deaths/1M pop.||Total cases/1M pop.|
|Andorra||1 461||148 422|
|South Africa||870||25 680|
Source: Compiled from Worldometers data
The trend in the Namibian reported number of cases of Covid-19 experienced an increasing trend from the beginning of February with a sideways movement since 20 February. This is visible from the 3 day moving average (graph below).
Graph 1: The Namibian Covid-19 cases
With an estimated world population of 7.8 billion in 2020, the total number of 123.5 million cases is 1.58% of the world population and the number of deaths is 0.035%.
The World economy is improving and the Baltic Dry Index (The Baltic Dry Index provides a benchmark for the price of moving major raw materials by sea) surged 16% in the third week of March and it was the strongest gain since September 2020. The world economy is improving.
Table 5: % change in USD- selected international commodity prices
|Winners for Namibia|
|Losers for Namibia|
|Energy: Brent oil||-1.24%||24.38%|
Source: Trading economics. 21 March 2021
The commodity prices relevant to Namibia declined in the last three weeks, accept the price of lead. Oil prices decreased in the past month by -1.24%. The exchange rate has strengthened and the N$ is currently trading 14.75 to the US Dollar and 17.57 to the Euro.
The 2021/22 Budget
The theme of the budget is “Boosting Resilience and Recovery”, an appropriate topic or theme within the Covid-19 experience. The Minister want to transform the economy by strengthening public finances, reduce inequalities, create jobs and eliminate extreme poverty. The four policy themes are mentioned for the last six years in each budget speech, demonstrating a certain resilience of repetition of policy themes or – from a different perspective – a resilience of policy failures. Total projected revenue for 2021/22 is N$ 52.07 billion and total projected expenditure N$ 67.95 billion with a total budget deficit of N$ 15.9 billion.
Table 6: Budget analysis:
|GDP estimate in million at market prices||178 940||174 979||184 778|
|Tax revenue||54 705||52 239||48 512|
|Other||3 720||3 218||3 553|
|Total revenue||58 425||55 457||52 065|
|Total expenditure||-67 343||-72 105||-67 950|
|Total budget deficit||-8 918||-16 648||-15 885|
|As % of GDP||-5.0%||-9.5%||-8.6%|
|Public debt||100 399||109 476||130 060|
|As % of GDP||56.1%||62.6%||70.4%|
It is projected that total expenditure declines by 5.8% and total revenue also declines by 6.1%, more than expenditure. The estimated budget deficit is N$ 15.9 billion or 8.6% of GDP. The Minister announced also certain tax changes:
- A reduction in the non-mining corporate tax rate, more detail will be announced in October 2021.
- The sale of sanitary pads will become zero rated.
- 15% VAT on fees of asset managers registered under the Stock Exchange Control Act.
- 10% withholding tax on dividends paid to Namibians whilst ensuring that dividends are not paid more than once.
- Increase the deductibility on pension, retirement and educational policy contributions from N$ 40 000 to N$ 150 000.
- Strengthening of the administration of freight tax provisions as prescribed.
- Improve the tax administration on withholding tax on services.
- Review the withholding tax on interest from unit trust funds.
- The increase in excise duties increased sin taxes
Tax changes that were not addressed in the budget are the long awaited changes in the personal income tax brackets, the last time they were changed was in 2013 to an N$ 50 000 threshold and in the meantime inflation over the years has put pressures on low income groups. The accumulated inflation since 2013 was 40.5% and thus a threshold of N$ 70 000 or higher would be more appropriate.
In 2014 it was mentioned by the Minister of Finance that a different tax regime for small business (SME’s) will be investigated, but no announcement was made yet. Many countries introduced successfully lower tax rates for small business to boost entrepreneurship, business growth, innovation and employment. The importance of an appropriate SME policy should not be overlooked given the high unemployment rate in Namibia. Benchmarking Namibia against some progressive countries will demonstrate the current weaknesses of our policies regarding job creation.
Allianz Research and Euler Hermes did international research on the business climate for SME’s and they found that the main obstacles/challenges for SME growth are administrative and regulatory burdens, access to finance, shortage of skilled staff, rising costs (labour costs, regulations, taxes) and competition. They took six components (tax policy, financing, export opportunities, red tape (ease of doing business), labour market flexibility and competition. The research benchmarked 13 countries according to the six components and concluded that the world’s best business climate for SME’s is in Canada; followed by Hong Kong, United States, Netherlands and Singapore.
Table 7: Benchmarking Namibia’s business climate for SME’s
|Tax policy SME||9%||8.25%||19.8%||20%||17%||14.8%||32%|
|Tax rate corporate||23%||16.5%||21.0%||25%||17%||20.5%||32%|
 Alliance Research (2019). Why do we look at the business climate for SME’s?
 Heritage Foundation on Economic freedom
 Ease of doing business Index by the World Bank, a high score means high economic freedom
 World Economic Forum. (2019) Competitiveness Report, a high score means high labour flexibility like Singapore with a score of 79.8
 World Economic Forum
 Unemployment rate in %, The Economist, February 2020.
 Reinhart, C. M. and Rogoff, K. S. (2010), “Growth in a Time of Debt”, American Economic Review, Vol. 100.
 Padoan, C. P., Sila, U. and van den Noord, P. (2012), “Avoiding debt traps. Fiscal consolidation, financial backstops and structural reforms.” OECD Journal Economic Studies. Vol. 2012/1.
In benchmarking the business climate for SME’s in Namibia, one can deduct where the problems or obstacles lie. The countries had on average an unemployment rate of 3.8% compared with the unemployment rate of Namibia at 34%, before the Covid-19 economic meltdown. Namibia is not competitive, lacks labour mobility, has not enough economic freedom, red tape and ease of business is a burden and the tax policy is not attractive. Namibia’s economic policies are not business friendly and thus an obstacle for SME’s and Start-Ups – the business climate has to improve if we want to create jobs.
Comparing Namibia’s tax policy regarding our neighbouring countries provides us with an indication of our competitiveness regarding tax policy and especially corporate tax which impacts on the cost of doing business.
Table 2 below demonstrates that Namibia’s corporate tax rate is not competitive and above the African average and the Global average. The average corporate tax for SME’s in the top 5 countries regarding SME business climate is 14.8% whilst in Namibia it is 32%.A remarkable difference of 17.2%.
Table 8: Corporate tax rates – Namibia is not an attractive investment destination
|Country or region||Corporate tax|
|Top 5 countries on SME Business Climate||14.8%|
Source: Trading Economics
To restart the Namibian economy and at the same time improve the SME business climate, Namibia should consider reducing its corporate tax rate to 28% and introduce a different tax rate for small and medium enterprises at 18%.
Funding the deficit
The Minister did not provide any detail of how the budget deficit of N$ 15.9 billion will be financed; he only indicated that approximately 70% of the funding will come from the domestic market. In July last year Namibia applied for an N$ 4.13 million from the IMF under the RFI (Rapid Financing Instrument) and the African Development Bank offered N$ 5.0 billion under GERSP (Governance and Economic Support Programme). The economic appraisal reports were submitted to the respective boards last months and the Ministry of Finance is expecting an answer soon. Treasury was also silent on the redemption of the USD 500 million Eurobond at the end of October this year.
Can Namibia avoid a debt trap?
At the turn of the 21st Century the World Bank and IMF decided (HIPIC Programme) under the Development Committee that billions of debt be written off for countries in Sub-Saharan Africa. This created fiscal space for many countries and economic growth resumed. In the last years the debt to GDP ratio of SADC countries is on the rise again and some countries have to reschedule their debt payments again or are in default. This calls for a reflection of public debt in development and the question arises when a country is facing a debt trap, meaning that higher debt has a negative correlation to economic growth and eventually default like Zimbabwe, Greece or Argentina.
Reinhart and Rogoff argued in a paper titled “Growth in a Time of Debt” that high debt creates investor uncertainty, deter investment and innovation and have a negative impact on economic growth. Various empirical studies in OECD countries conclude that the debt threshold is close to 85-90% of GDP. This means that debt beyond the 90% level becomes harmful for economic growth and a country is caught in a debt trap. Developing countries have a lower threshold; depending on the bond yield in the respective countries and debt beyond 60-70% of GDP is normally already an indication of a debt trap in making. Comparing the debt/GDP ratio of some selected SADC countries gives an indication of how fiscally vulnerable the region has become:
Table 9: SADC countries Debt/GDP ratio
Source: Trading Economics
The debt to GDP ratio of Namibia is about 70%, meaning that Namibia is caught in a debt trap already. Another indicator of a debt trap is statutory expenditure as percentage of total revenue. If statutory expenditure exceeds 10% of total revenue a country is in fiscal difficulty.
Graph 2: Statutory expenditure as percentage of total revenue
It is projected that statutory expenditure will be 16.5% of total revenue in 2021/22. The estimated statutory expenditure is N$ 8.5 billion, funds that could have been used to fund necessary capital projects – but unsustainable spending in the past is catching up with us. Past consistent fiscal imbalances (budget deficits) caused our current fiscal misery. The following graph depicts the budget deficits in the last years:
Graph 3: Budget deficits are too high and on average -6.2% of GDP in the last 12 years
The Maastricht criteria are that budget deficits should not be more than 3% of GDP and in Namibia it is more than double. Consistent high budget deficits lead to a rise in public debt as the next graph illustrates:
Graph 4: Rise in public debt since 2010
It is projected that public debt will reach N$ 130 billion in 2021/22 and in 2010 total public debt was N$ 13 billion, a ten times increase. Namibia is clearly on an unsustainable fiscal path and has to reduce the budget deficits even further. Fiscal consolidation and reducing the budget deficit should receive full political support. The focus should be on reducing public spending even further, reform SOE’s and improve investor confidence. Sustainable job creation should be on top of the agenda.
Compiled by: Rainer Ritter
21 March 2021