Practical ways to create employment in Namibia

By Prime Focus Reporter
December 2013/January 2014
Prime Business

 

 

The good Lord devised Ten Commandments to make the world a better place. Woodrow Wilson put forward 14 points as a blueprint for world peace that was to be used for peace negotiations after World War I. In a country plagued with high unemployment, Sakaria Nghikembua the Managing Director of Mutual & Federal Namibia and Executive of the Old Mutual Group, presented his “Four Point Plan” on practical ways to create employment in Namibia at the Economic Association of Namibia held recently. So practical and tangible is his plan that we give you the full details of his presentation.

 

•If it was ever easy to create jobs and eliminate unemployment, the Einsteins of this world would already have created a solution which could be activated at the press of an electronic button. The fact that we still have no definitive  inventions to deal with unemployment means that this is not an easy challenge to tackle. So we need to approach unemployment - or conversely employment creation – with a sense of realism and practicality.

 

•I am therefore not here to provide a panacea for all our unemployment ills. What I intend to do is share a few thoughts – fully aware that they will not be picture-perfect – on how we can create jobs in Namibia; and hopefully contribute to this necessary discussion in our country.

 

•Unemployment remains a perennial problem in our country and probably represents the single biggest challenge we face as a nation. We know that our economy has grown steadily over the past 22 years – with GDP growth having averaged between 4% and 5% annually over that period. At the same time, however, unemployment has risen from about 19% in 1991 to current levels of 27%. This means two things: (i) that the GDP growth rate has not been sufficient to create enough jobs to reduce unemployment, and (ii) that some of the GDP growth we have seen over the past two decades has not been job-creating in nature. So to some extent we have experienced what is commonly known as ‘job-less’ growth. So our unemployment challenge stems from structural problems in our economy. We need to eliminate the structural bottlenecks so that we free up the economy and enable it to grow at annual levels of between 8% and 12%.

 

•Furthermore, the unemployment challenge in Namibia cannot be discussed in isolation. Such discussion must happen in the context of the huge socioeconomic inequalities we have, as well as the Vision 2030 imperative.

•To deal with these bottlenecks, I want to advance a focus on four key areas – without negating the importance of the other sectors of the economy:

 

(a)Education & Skills Development

The latest labour force survey demonstrates that unemployment falls as education levels increase. This means that we need to continue spending more of our public funds on education and skills development. I know Government is already spending quite a substantial portion of its annual budget on education and the scope for a dramatic increase in the education budget – given all the other priorities we have – may be limited. What I do advocate is that we sustain the expenditure on education at the historic high levels for at least the next 17 years but with some adjustments.

 

These adjustments include a proposal that we spend more of the education budget on creating additional capacity in vocational skills education, increasing the uptake of students in vocational training centres, enhancing the quality of vocational education and promoting and enforcing vocational skills development early on in the school curriculum. Vocational education is what will create sustainable jobs for Namibia. The second adjustment would relate to our prioritisation of the tertiary-level courses which we fund through public coffers. Without minimising the importance of any field of study, I’d propose that we prioritise the fields of study that directly support Vision 2030. And we need to be deliberate about this choice.

 

(b)Accelerated Investment in Public Economic & Social Infrastructure

This talks to accelerated and well-coordinated investments in infrastructure such as schools, hospitals, health centres, roads, electrification, water infrastructure, housing, etc. Public infrastructure is critical because:

It facilitates economic activities, contributes to growth and ultimately to development

It directly and indirectly improves living conditions and welfare

It creates the potential for the creation of sustainable jobs to maintain and upgrade such infrastructure in time

The issue is not whether we have the money – or can source the money – to implement these projects, but rather whether we are willing to establish the right public-private partnerships to execute these projects. Currently, public infrastructure projects are largely funded by the public budget through annual allocations. This implies limited capacity-creation and continued structural bottlenecks.

 

The solution would be to source most of the money Government needs for these projects from the market in bulk; tackle the backlogs through a combination of skills from the public and private sectors; and free up the economy now to enable it to grow at required levels in years to come. The private sector should not only provide commercial funding to Government. I suggest they also second skills to these public projects as part of their own contribution to growing the economy. At the end of the day, the private sector will also benefit immensely from the result growth.

 

(c)Agriculture – Primary & Value Addition

I have one fundamental idea that revolves around using commercial irrigation agriculture as the core of employment creation in Namibia. I envision a strategy based on the following pillars:

 

(i)Create a Commercial Entity on a public-private partnership basis. This company will be co-owned by Government and Commercial investors, with an option for Government to exit after a 10-year period. The company should be fully staffed with professional business leaders and agricultural experts, at the appropriate levels, and should be accorded full managerial independence. In mitigation, the shareholders’ agreement must be clear about what is expected from the Board; and the latter must have clear and adaptable performance targets with management and a robust consequence management process in place.

 

(ii)Existing Green Scheme projects to be integrated into this company and new projects to be started. This would create critical mass and allow for current production to be commercially focused. Ensure sufficient start-up capital is provided to the business so as to avoid a perpetual epileptic ride for the company.

 

(iii)Guarantee a captive output market for the produce of this company for a 10-year period.Government must guarantee this company a ready market. This can be achieved by ensuring that the army, the police, prison services, hospitals and schools do not buy any agricultural produce from any other source, except in cases where the Namibian Agricultural Company does not yet produce these products. And this rule must be in place for at least 10 years, where after the company would have achieved critical mass, production efficiencies and managerial prowess that would allow it openly to compete in the market.

 

(iv)Provide infant industry protection to this company through tariff discrimination on selected agricultural imports. This would ensure that this company is not out-competed unfairly by foreign suppliers in the open Namibian market while it is still in its infancy. I would suggest that Government also require that local supermarkets and fresh-produce retailers and wholesalers acquire at least 60% of their stock from the local agricultural company.

 

(v)Add value to the basic produce.Production at the project sites must be based on irrigation and the technology mix must be such that it allows for labour-intensiveness in significant parts of the production process. I would advocate for setting up of a secondary industry as part of this company’s development, to feed off this primary production. This way, value-added products such as tomato sauce can be produced; beans, corn and other vegetables can be tinned and marketed in the local, regional and even international markets.

 

Namibians will have jobs and incomes, poverty will be reduced, businesses will boom – thereby creating further indirect jobs; the tax base will broaden and Government will have more funds to spend on social and facilitative physical infrastructure. Namibia will truly become an upper middle income country and better – and not the highly-skewed, high-unemployment upper middle-income country that it currently is.

 

(d)Small & Medium-sized Enterprises (SMEs)

SMEs represent the future of any economy and are to any economy what children are to society. Regrettably, the discussion about SMEs in Namibia is too often misconstrued to refer to hawking. “How can we grow our economy on the basis of Kapana?” people frequently and bravely ask me. SMEs cut across all sectors of the economy.

 

They are in manufacturing, general service provision, tourism, financial services, food and beverages, transport, agriculture, retail and so on. They are small businesses that not only provide jobs today, but will provide more jobs in future when they have become corporates. I wish to share with you some enlightening facts that demonstrate the value of SMEs to economies:

•The most successful developing country over the last 50 years, Taiwan, is built on a dynamic SME sector. This strategy has produced record-breaking growth and relatively low levels of inequality during this period.

•South Korea, another Asian tiger, demonstrated that economic inequality can fall significantly as the weight of the SME sector rises.

•Colombia’s ‘golden age of growth’ during the late 1960s and throughout the 1970s – driven by the SME sector – coincided with a marked decline in urban inequality.

•What this demonstrates is that SMEs have the ability to deliver strong employment growth and reduce inequality because they tend to employ at the bottom-end of the economic chain.

•For decades, Japan was the most successful industrial economy in the world, also relying heavily for its success on SMEs.

•What is less well-known is the fact that 99% of all European Union businesses are SMEs. They provide two out of every three private sector jobs and contribute more than half of total value-added created by businesses in the EU; 9 out of 10 EU SMEs are actually micro enterprises – on average employing two employees per enterprise. So micro enterprises are the backbone of the EU economy.

•Over 99% of the total number of enterprises in China are classified as SMEs. They contribute 60% of GDP, represent over 65% of exports, contribute about 50% of fiscal revenues and provide 75% of urban and rural employment.

 

•In Namibia, over 100,000 people are employed by SMEs, whilst SMEs create over 16,000 new jobs annually, compared to roughly 4000 created by big business annually. Thus SMEs create four times more jobs annually than corporates although the incomes from SME jobs may be relatively lower than those associated with corporate jobs. And this is all happening in an environment that is sub-optimally supportive of the SME sector. With the right support, I submit that we could enhance the SME sector’s job-creating potential at least six-fold. Focus areas for me would include:

Proper Incubation of SMEs

Research and Development in support of SME growth

Training and Development for SMEs – owners and employees

On-going coaching and mentoring for SMEs

A favourable tax regime for SMEs – the rest of nature seems to be against them

More favourable funding terms – which Government should seriously facilitate.

 

•These efforts can only be led by Government. I do not prescribe a format, but I do have an invitation to Government to review comprehensively  all its efforts in supporting SMEs at the moment and radically consolidate them into a more robust, innovative and friendly service offering to entrepreneurs for the overall benefit of employment creation, economic equity and long-term peace and stability. It is only Government that can make this SME initiative take off. The private sector tends to be too focus on the next 12 months.

•At the end of it all, all corporates started at some point as SMEs.PF