A plan by Namibia, among the world’s most economically unequal nations, to better distribute wealth among its citizens may end up the way neighbouring South Africa’s has — benefiting an elite minority.
The nation is working on a law that will require all businesses to be at least a quarter owned by “racially disadvantaged people.” While only about 6% of Namibia’s 2.5 million citizens are white, they own most enterprises. This is a legacy of white-minority rule that South Africa imposed when it controlled Namibia from World War I to 1990, with black people being disenfranchised and displaced.
Critics of South Africa’s policy, including the biggest labor-union federation, say it has failed to redress the inequalities because it focuses on increasing black ownership of companies rather than raising education standards to match a skills shortage, and has benefited a small number of wealthy individuals. Proposals by Namibia, the world’s biggest marine-diamond producer, are similar, which could hamper investment and growth in an economy that’s contracted every quarter since March last year.
The plan “has caused much unease among white business owners and heightened investment uncertainty,” Gerrit van Rooyen, an analyst at NKC African Economics in Paarl, South Africa, said in an emailed response to questions. Both governments have to “create incentives to boost employment and stimulate investment. Black economic empowerment cannot succeed without job creation and wage growth.”
The New Equitable Economic Empowerment Framework Bill outlines six areas to increase black citizens’ participation in business, including developing people’s skills and providing financing for those disadvantaged by inequality to buy stakes in companies.
The Namibia Chamber of Commerce and Industry wants the focus on economic ownership scrapped, saying it will result in capital flight. It also calls for a rethink on employment equity, because it requires “formal racial classification and promotes racial polarization; blames white racism, brushes over complex causes of interracial inequality,” the NCCI said in its response to the proposed law.
The chamber suggests the bill should target “only the needy and disadvantaged,” and that selection criteria be based on “loyalty, restraint and goodwill and not on greed, tokenism and discrimination.” Namibia ranks alongside South Africa and Lesotho among the world’s most unequal societies in terms of distribution of income, according to Gini coefficients compiled by the CIA World Factbook.
The Law Reform and Development Commission is revising the bill and doesn’t yet know when the new version will be ready, Yvonne Dausab, the body’s chairwoman, said.
The current version of the plan has helped see Namibia, the world’s fifth-biggest uranium producer, lose its spot as Africa’s second-most attractive jurisdiction for mining companies to invest in, based on policies, to Botswana, the Fraser Institute’s 2016 survey of 2 700 firms worldwide shows. Zimbabwe, which enacted legislation a decade ago that required all foreign or white-owned businesses to sell or cede 51% ownership to black nationals, is ranked last.
On June 19, Fitch Ratings kept its assessment of Namibia’s foreign-currency debt at the lowest investment grade, saying the draft empowerment law represents a “modest risk” to the business and investment climate as uncertainties remain about what will ultimately be approved as legislation.
Almost two months later, Moody’s Investors Service cut its rating of the country’s debt to junk, citing a “material” decrease in the country’s fiscal strength, with public debt reaching 42% of gross domestic product from 26% when the company first assigned a rating in 2011. It has the assessment on a negative outlook, which means the next move could be another cut, saying that a change of investment sentiment is among risks to the rating.
Besides the empowerment law, Namibia is proposing legislation that will limit foreign ownership of land, and it has signed an investment promotion act that will reserve some business activities for black Namibians, Van Rooyen said.
“The government seems to be shifting towards nativist and protectionist policies, which typically discourages foreign investment and impedes economic growth,” he said.
© 2017 Bloomberg