Wednesday 12 May 2021
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Barriers to Foreign Direct Investment in Namibia

The Africa Free Trade Area Agreement was launched last March. The African Free Trade Area has 1.2 billion consumers and a combined consumer spending of USA $666.3 trillion.
All member states of the African Free Trade Area are competing to attract foreign direct investment to create industries, promote investment in infrastructure and enhance regional integration.
Many countries have created Special Economic Zones which provide incentives to foreign investors to put up manufacturing enterprises. Is Namibia gearing up to attract foreign direct investment and benefit from the Continental Free Trade Area?
The Namibia Investment Act, No.9 of 2016 appears to disadvantage Namibia as far as attracting foreign direct investment is concerned.
The Act gives the Minister responsible for Trade wide powers which may discourage anyone wanting to invest in Namibia.
These powers include a) the requirement for a foreign investor to enter into a joint venture with locals; b) that the foreign investor should create conditions for the advancement of persons who were socially and economically disadvantaged by Apartheid; c) that an investor should devise mechanisms for redressing social and economic imbalances including gender based imbalances; d) that an investor should promote research and development; and e) that the Minister may impose further conditions related to the improvement of the economy and develop benefits in the public interest. These are onerous conditions any investor foreign or local will not be able to meet. Take, for example, the requirement for equity participation.
Say, a foreign investor brings in N$ 500 million.
A local investor has to match that investment with more than N$250 million to secure 51 percent equity. Few local investors will be able to put on table such an amount.
Similarly, the requirement for redress appears that foreign investors are being punished for the sins they never committed. Foreign investors normally deploy technologies which were developed by parent companies or bought abroad. The requirement for investors to promote research and development is superfluous.
In any case, if a company develops an innovative way of production such innovation is protected by intellectual property regime.
In a paper titled, “Trade Policy Framework for Namibia” (2016), the United Nations Conference on Trade and Development (UNCTAD) advised Namibia to adopt a facilitative trade policy rather than a coercive one.
The facilitative trade policy aims at targeting multi-national companies which wish to access regional markets via trade agreements such as SADC, TFTA, CFTA and AGOA.
The strategy further aims at integrating local producers into value chain of multi-nationals as well as building competitive service infrastructure such as telecommunications, energy, transportation and finance.
Government should further focus its attention to key drivers of growth and investment in manufacturing. Landry Signe of Brookings Institution identified crucial drivers for growth in manufacturing as human capital, talent and productivity; cost of doing business; supplier networks; and domestic demand.
The supply of competitive labour entails the adjusting of education curricula to ensure that skills are adapted to market demand.
It further means building of capacity for entrepreneurship as well as the promotion of science, technology, engineering and mathematics in the education system.
Productivity would further be enhanced by vocational education and on the job training. Where skills are in short supply the country should be flexible to allow inward migration of skilled labour.
The cost of doing business shall be reduced by the provision of quality infrastructure such as efficient port service, reliable power supply and good roads. Stable macro-economic policies and less bureaucratic restrictions shall also enhance a country’s attraction to foreign investors. Corruption is a barrier to investment. It should be fought against.
Availability of quality production inputs as well as specialized machinery and equipment in a country are likely to attract investors.
A country may source foreign inputs for its own production through backward integration strategies. Such inputs should be cost effective.
As far as local demand is concerned, Namibia is a small market. The Africa Free Trade Area gives the country an opportunity to benefit from the Continental market. This enables the country to create the economies of scale which will make Namibian products competitive.
It is imperative therefore that there is an urgent need to relook the Namibian Investment Act. The country should push through investment- oriented reforms as it competes for foreign direct investment.
Populist trade policies will not help the country to industrialize as required by Vision 2030. Namibia should learn lessons from countries such as Ethiopia and Ruanda.
The country should create Special Production Zones for manufacturing. The overall goal should be the creation of employment for the youth.
The current high levels of youth unemployment are a threat to social and political stability.

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