On the back of local and foreign travel restrictions, the hospitality industry recorded a large contraction of Overall, GDP is expected to have contracted by 7. Going forward, the growth outlook is subject to significant uncertainty given the unknown profile of the pandemic and likelihood of further restrictions in activity if additional infections waves materialize. The pandemic mostly affected already vulnerable people, which threatens to widen social gaps further and increase already extremely high inequality.
Since its independence in , Namibia had achieved notable progress in reducing poverty, halving the proportion of Namibians living below the national poverty line to Typically, female-headed households, the less educated, larger families, children and the elderly, and laborers in subsistence farming, are particularly prone to poverty. Severe drought conditions experienced in constrained agricultural output and led to a sharp decline in harvests.
The reduction in precipitation also affected the broader economy through lower electricity and water generation, with repercussions on industrial production. These developments, along with lower diamond and mineral production due to reduced global demand and falling prices, in a context of much-needed fiscal consolidation, have created challenging conditions for growth.
Progress toward reducing inequality has been slow and as a result, Namibia remains one of the most unequal countries in the world. The consumption Gini index declined from The weakening of growth in the last few years combined with the COVID shock further put at risk social development progress. The World Bank and the government are currently jointly conducting a diagnostic to identify the binding constraints to the process of poverty reduction which will set a foundation for the successor strategy, the second full WBG framework.
The Systematic Country Diagnostic, which identifies the most important challenges and opportunities a country faces, is being finalized, and will guide the development of a new CPS.
It has 2. It is classified as a lower-middle-income country [ 2 , 17 ]. Yet Namibia has one of the most unequal income distributions on the African continent, with a Gini coefficient of 0. Unemployment estimated at Most raw material commodities are exported in unprocessed or semi-processed form, and many consumer goods are imported.
The largest part of the economic contribution from agriculture is from relatively large, commercial farms, but traditional subsistence farming remains crucial for supporting a large share of the population. An important structural feature of the economy is the positive current account balance offset by a deficit on the capital and financial account. This reflects a chronic excess of savings over investment in the economy, thereby making Namibia a net exporter of capital.
This means that, unlike the situation in many other developing countries, Namibia is not capital-scarce per se; if interesting investment opportunities are available, the country has funding available through its own domestic savings. This means that there is scope for policies to support the development of key sectors once these have been identified. Unlike in the past, where the government attempted to develop all sectors, sector identification and selection is now paramount.
The sectors selected for the new growth strategy are manufacturing, transport, logistics and mineral processing. These are perceived to be sectors in which the country has a comparative advantage as well as growth potential. The country is also busy finalizing an Investment Bill that aims to help attract both foreign and domestic investment in key economic sectors.
However, these sectors were mainly singled out as important for economic development based on consultations with stakeholders; no major assessment has been undertaken thus far in terms of a key sector analysis. Thus, an analytical exercise in identifying key sectors for the Namibian economy could help ensure that the new development approach to be adopted is grounded in economic reality.
By way of an input—output table, backward linkages can be identified using a standard Leontief inverse [ 13 ] while forward linkages can be identified using a Ghosh inverse [ 5 ] or, alternatively, using the Leontief inverse as well. There is some debate among practitioners about which approach to use for forward linkages see e. Lenzen [ 12 ] provides a useful overview of the pros and cons of the various approaches; we follow the approach that Lenzen actually uses in that paper for his own analysis, but note that his discussion can also be interpreted in favor of using other approaches.
In this study, we use a sector input—output table developed from a recent social accounting matrix SAM; see the discussion in Sect. Sectors for which both these indicators are greater than 1 are referred to as key sectors: they have higher-than-average linkages both backward and forward, and thus have greater effects on the rest of the economy than most other sectors. However, it is also of interest to know whether or not these effects on the surrounding economy are widely dispersed among other sectors.
If the effects are concentrated in one or a few sectors, there is a risk that bottlenecks in those sectors might reduce the impact of such effects, so that changes in the key sectors do not have the anticipated overall effect on the economy. If a sector has normalized coefficients that are lower than 1, it means that its backward and forward linkages, respectively, are more widely dispersed in the economy than those that pertain on average.
High values, on the other hand, indicate that the sector interacts with only a few other sectors in the economy. Thus, key sectors with widely dispersed effects are those with higher-than-average forward and backward linkages which are also dispersed more widely than average. Rueda-Cantuche et al. The upper left corner of Table 1 contains key sectors with widely dispersed backward and forward linkages throughout the rest of the economy.
Moving downward in the table, we find sectors with less widely dispersed backward linkage effects on the rest of the economy and, at the bottom, sectors with no or limited overall backward impacts. Similarly, moving to the right, we first find sectors with less widely dispersed forward linkage effects, and then sectors with no or limited forward linkage effects. Notably, these definitions identify sectors with higher- or lower-than- average linkages and diffusion.
Given the highly unequal distribution of income and high unemployment in Namibia, it is also of interest to examine whether the forward and backward linkage effects are different when one considers effects on employment or on labor income rather than on output per se.
In the size-unweighted case, the results show how much impact a marginal change in a sector would have on employment and on labor income, respectively. In the size-weighted case, the results show the current importance of each sector as a whole in terms of overall employment and labor income in the economy, respectively. The Namibian SAM has 32 commodity sectors, including three dummy sectors for own real estate services, direct foreign purchases by Namibians, and direct domestic purchases by foreigners.
There are 30 activity sectors, including two dummy accounts for own real estate services and for foreign tourism. As regards factor accounts, five exist for income to skilled labor, income to unskilled labor, mixed income to commercial agriculture, mixed income to communal agriculture, and capital income, respectively. There are nine institutions, comprising six household categories, non-profit organizations, enterprises, and government. In the Namibian SAM, subsistence agriculture produces a composite own-consumption food product, all of which is provided to people working in that sector.
This was identified as a limitation by the researchers compiling the SAM ibid. There is in fact also some commercial activity in the subsistence farming sector, but it is not captured very well by the current economic statistics. Apart from subsistence agriculture, informal economic activity is not included in the SAM. The transformation was done mathematically see [ 22 ], for the methodology used rather than by using sector-specific data.
For the employment multipliers, data from the labor force survey were used [ 15 ]. The Ministry of Labour reports on formal employment only, which means that the informal sector—again, apart from subsistence agriculture—is excluded, both in the SAM and in the labor force data.
For the labor income multipliers, the income data from the SAM for unskilled and skilled labor were simply used, as well as the mixed income accruing to people active in traditional subsistence farming. Tables 3 through 8 depict the results of the key sector analyzes described above. If one looks at the weighted analyzes, which show the current importance of various sectors in the Namibian economy, there are few surprises.
Mining, Manufacturing of beverages and other food processing and Government services are crucial for overall output in the economy. Traditional subsistence agriculture and Government services are key sectors for both labor income and employment.
Mining is a key sector for labor income, while Commercial agriculture: animal products is a key sector for employment. The results partly reflect how large all of these specific sectors are rather than the linkages that they create with the rest of the economy. The unweighted analysis, which shows the effect that marginal changes in sectors would have on the overall economy, exhibits a more complicated picture. Not surprisingly, given the dualistic nature of the Namibian economy, the choice of metric is important for those sectors identified as key in the unweighted analysis.
When a traditional output metric is used, a range of manufacturing sectors and a few service sectors are identified as key, with both backward and forward linkages, and many of the remaining manufacturing and service sectors are identified as having strong linkages in at least one direction.
On the other hand, when labor income is used as a metric, the subsistence agriculture sector where any change in production will, by definition, translate almost completely into a change in income and consumption for the people involved in the sector , fishing, and a few highly-paid, labor-intensive manufacturing and service sectors are the only ones identified as key sectors with large linkage effects on the economy.
Finally, when employment is used as a metric, the low-wage, labor-intensive agricultural sectors come out as the only key sectors. If one focuses on the output-oriented analysis, the results indicate several key sectors where increased activity could have important linkage effects on the economy.
Of those identified as key sectors with widely dispersed effects, two are service sectors. One is transportation which is important for the economy not only because it draws on a wide range of other sectors for its inputs, but also because such services are a vital input to almost all economic activity in this sparsely populated country.
Inflation was on a downward trend during the —20 period, reflecting steady decline in housing prices and transport costs. The fiscal deficit was estimated to widen to The current account deficit narrowed from 3. The economy is projected to grow by 2. But the economy still faces substantial risks and challenges in the short to medium term. For instance, if the pandemic continues, the revival of critical sectors such as tourism, agriculture, and retail and wholesale trade would be slower than anticipated.
Furthermore, sluggish global economic growth would hold down exports and foreign direct investment inflows.
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