Thursday 15 April 2021
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Government to create conditions for households to save and invest in local economies

An editorial in The Namibian newspaper of Friday, 2August 2019, has raised an important issue about the role of Small and Medium Enterprises (SMEs) in the economy. The editorial argued that the SMEs should be placed at the centre of economic revival. The majority of, our aspiring business- men and women, are not likely to secure financing for their small and medium enterprises. They are, however, the ones who operate at local economic level. The SMEs face formidable challenges in rising capital and to access technology.
Capital in Namibia is very expensive. Currently Namibia’s lending rates are around 10.25 percent.
Even the bank, which is dedicated to development, the Development Bank of Namibia, charges repo plus 3 percent. That is a lending rate of 9.75 percent. This is not affordable to an ordinary start-up business, especially during these difficult economic times. If the SMEs are going to benefit from debt financing, they will have to have solid savings.
For a household to save there must be enough income where disposable money may be saved. This option is not available to many households who are struggling to pay rent or mortgage, utilities and other costs. For the middle- income earners Namibia personal tax rates are above 30 percent. With such high tax rates even the middle- income earners find it difficult to save.
The situation is further compounded by the fact that many saving instruments such as Money Market and Unit Trust offer around 7 percent return on investment. If one borrows at around 10 percent rate one is left with the gap of 3 percent. It will take therefore a long time for a household to accumulate enough savings to offset the cost of borrowing.
During the just ended Namibia Economic Growth Summit, the Government announced a number of measures aimed at making Namibia a favourable destination for foreign direct investment. These include the review of both the Namibia Investment Act and the Procurement Act; the review of the visa regime; the implementation of public-private partnership and many others. Government should at the same time put in measures to assist small and medium enterprises. For example, the Bank of Namibia should consider lowering the repo rate.
The fear that making the money affordable will spur inflation is far- fetched. Not every- one has an appetite for borrowing. For a long time, inflation has been below, 5 percent. Recently the South African Reserve Bank lowered its repo rate by 0.25 percentage points.
The economy needs the contribution of the SMEs, as the Namibian newspaper puts it: “…if we are going to see a long-term sustainable improvement of the economy.” The big infrastructure projects whether in energy production and transmission; water desalination and others will be completed at a certain time. They will not solve long-term unemployment in the country. They are important in short-term. In the long run the SMEs will provide business opportunities and employment to people.
They have a potential to contribute to economic revival. Perhaps the country needs to organise a mini summit targeting players in SMEs sector to hear their needs.
For a small business to graduate into a medium enterprise or a medium enterprise to become a big business there are several challenges to addressed. The SMEs should have access to affordable capital.
They should be assisted to acquire technology. They should have access to inputs. They should be helped to market their products and services. Probably the failed SME Bank was expected to play such roles.
The SME Bank is no more. The SMEs are now orphaned. They need a dedicated institution to promote their businesses. Some of them especially in tourism want to link up with big players in the sector.
Gondwana announced their intention to construct a leisure facility near Omuthiya. Here is a great opportunity to promote cultural tourism in the area. Local tourism operators could benefit from Gondwana establishment to introduce tourists to local folkways, food and culture.
Similarly, those who pledged to construct houses could link up with small contractors for them to gain more experience and grow their businesses.
The idea is to provide opportunities for SMEs to leverage into the value chains of established businesses. In this regard, the SMEs need information as to how to leverage these value chains. Established businesses would also need to know the capacity and capability of the SMEs. This will create a win-win situation.
In the meantime, the Namibian Nation should commend Mr Johannes !Gawaxab and his High Level Panel for organizing the successful Namibia Economic Growth Summit. The Summit uplifted the national spirit of overcoming the economic challenges facing the country. This should be the start of a dialogue on the challenges facing the Nation. Next time we would like to witness a social dialogue among the employers, workers and Government for the purpose of finding common grounds on critical issues facing the country.
During the challenging times the Nation should make the required sacrifices and work as a team to overcome such challenges. We would like to witness a social contract among the economic players which should create stability and certainty in short and medium term.

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