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Exclusive interview with Namibia's Minister of Finance

Avatar of inke inke - 30. November 2017 - Economics

Namibia's Finance Minister Calle Schlettwein. (Photo: Brigitte Weidlich)

Namibia’s economy is recovering after tight fiscal measures were put in place. Gondwana Collection Online had the opportunity for an exclusive in-depth interview with Minister Calle Schlettwein, also about his career. 

Question: Your grandfather came to Namibia, the former South West Africa in 1896 from Germany, who started the gardens at Warmquell, still visible today. He started farming near Kamanjab in 1903. The farm is still run by your family. When did your own political awakening start?

Answer: It was a gradual process. At the two private schools I attended in Karibib and Windhoek, I had open-minded teachers who provided different perspectives. After school I took a gap year, working on our farm as an ordinary farm labourer. My parents thought it was a good experience to show me how life as an ordinary farm worker would be. Unbeknown to my parents, who were entrenched as privileged community in the apartheid system, my gap year turned out to be a very decisive, important and positive experience for me. I got to know my fellow farm workers and their situation better, being treated and paid like them. I gained understanding with regard to the unjust and undignified treatment farm workers were subjected to. In fact we became friends. 

Later on I enrolled at the University of Stellenbosch in South Africa for a Bachelor in Science degree. There was a strong group of Namibians studying there. Through the involvement in progressive students’ organizations and the influence of, amongst others Professor Gerhard Tötemeyer, we were exposed to liberal ideas. We learnt that there were deliberate efforts to free all Namibians, to rid us from the oppressive apartheid regime. We were awakened and became active in the SWAPO Party’s politics. It was a gradual process. The brutality of oppressive forces became clearer and we saw our surroundings with completely different eyes. 

During university holidays back in Namibia we met [SWAPO members like], Danny Tjongarero, and Nico Bessinger. After returning home in 1980 I was a lot in contact with Nico Bessinger and (Chief) Hendrik Witbooi, Marco Hausiku and Nathaniel Maxuilili. In 1984 I joined SWAPO. I worked for the Department of Water Affairs as hydrologist.

Q: Didn’t that land you in trouble with Water Affairs?

A: It had its consequences working for the government then. I was classified as ‘security risk’, I was not allowed to attend certain meetings and was prohibited from going to certain infrastructure. This treatment was not too harsh for me as I was in the environmental field.

Q: Your career took off after independence…

A: …On 21 March 1990 Namibia became independent. President Sam Nujoma approached me through Foreign Minister Theo-Ben Gurirab and Environment & Tourism Minister Nico Bessinger whether I was prepared to become permanent secretary (PS) at the Ministry Agriculture, Fisheries, Water and Rural Development, which I accepted with gratitude. It was a big Ministry 1990 with two permanent secretaries. My responsibility was fisheries and water. Vilho Nghipondoka was the second PS. 1991 I moved as PS to the newly created Ministry of Fisheries. Thereafter, for about three years I held the same position at the Youth & Sport Ministry, but was transferred to the Labour Ministry in 1996 and remained there until 2004. In March 2004 I moved as PS to the Ministry of Finance. In 2010, President Hifikepunye Pohamba nominated me as Member of Parliament and appointed me as Deputy Minister of Finance. In December 2012 I was promoted to Minister of Trade & Industry. In March 2015 President Hage Geingob appointed me as Finance Minister.

Q: With a Master’s degree in Science, how did you find the youth and labour portfolio?

A: I enjoyed Youth & Sport a lot. It was all completely new, I found it fascinating! We did many good things: we started the national soccer team, the “Brave Warriors”. We brought them to rank 69 on the FIFA world ranking list. They qualified for the first time for the African Cup of Nations, this was exciting! We drafted the Youth Policy and started youth centres in different parts of Namibia, really fascinating! 

At the Ministry of Labour I got exposure to labour issues and the ILO (International Labour Organisation). It was really a sharp learning curve for me: how important social justice is in the labour field, how labour legislation should be made fair. I gained insight how tripartite negotiations should be structured, I learnt about occupational health and safety. We implemented the recommendations of a commission of inquiry on farm labourer wages and their rights. Out of that resulted the minimum wages for farm labourers in 2003. I was fortunate enough to be involved in the drafting of the Affirmative Action (in Employment) Act. These were really concrete things I always wanted to do to improve livelihoods. 

Q: Turning to Namibia’s economy – 2016 and this year have been very difficult, but we all survived, how will 2018 be? 

A: The term “survive” is quite correct! What happened during 2016 was a ‘perfect storm’ fueled by the following events: we were exposed to an accumulation of impacts on our small and open economy. These were: drought in Namibia, commodity prices crash, which knocked down the mining sector. At the same time we experienced very serious currency volatility, our currency – which is pegged to the South African Rand - depreciated significantly, consequently import prices increased. 

Our debt increased so much so that our previous policy of expanding public expenditure for development and consequent debt take up caused us to run out of fiscal space. We had no space to borrow more or earn more. Revenue [earnings] came under pressure due to reduced income for Namibia from the Southern African Customs Union (SACU). We were in a very precarious situation. 

Loss of growth

In the years before 2016 the expansive nature of the national budget made the economy get used to the attitude ‘money is not a problem; a lot of money is available’. To break that attitude we had to start a very steep budgetary consolidation in 2016. We had to stop the bus - it was going into the wrong direction. We succeeded. This had consequences of course. Positively spoken, we saved the macro-economic stability, but we lost growth. The loss of growth had negative ripple effects on the economy. Jobs were lost, some sectors like construction where companies had benefited from boom times, realised now depending on public money exposed them. They ran out of jobs and money. Consumption by consumers declined, the drought was not over, the economy started to stutter. Rating agencies gave Namibia a negative outlook end of 2016. The government had a cash flow crisis: our bills and bonds were not subscribed anymore. We started to struggle with cash management because liquidity dried up. 

Economy improves

Fortunately we managed all that. We got out of the liquidity crisis in the first quarter of 2017. The government could pay some of outstanding invoices, which had accumulated mainly due to fiscal indiscipline and an inability to adjust to the 2016 budget consolidation. The payment of outstanding invoices injected N$3 billion into the economy. This relieved some of the consumption pressures and growth losses. Commodity prices improved, we had better rains during 2016-2017. Agriculture picked up this year, the new Swakop (Husab) uranium mine started production. We are bottoming out and the green shoots of our economy are noticeable, we expect an economic growth of 1.8 percent for 2017. 

Q: Did the government not take on too many projects in the past few years?

A: There was a significant over-commitment of the government’s ability to fund all the envisaged infrastructure projects. These were the expansion of the Hosea Kutako International Airport (HKIA) worth N$7.9 billion; the Kudu gas power project (N$9 billion), the Neckartal dam (N$3 billion), the Walvis Bay harbour container terminal (N$3 billion) and the oil storage for Walvis Bay (N$4.5 billion). In addition we took up major road projects like the Windhoek-Okahandja dual carriage way, the southern bypass for Windhoek and the dual carriage airport road to the HKIA for another N$ 3billion to N$4 billion. [Total approximately N$31.5 billion].

We had a serious over-commitment at hand and we had to manage it. The Kudu project was put in an offside position; we discontinued the airport expansion, mainly due to contractual wrongdoings. We had to take up additional borrowings to continue projects we had started like the R4 billion loan from the African Development Bank, which also improved our foreign reserves. We took a Cabinet decision that office blocks for Ministries, which are actually dead capital and are not contributing productively to the economy, would be slowed down. If we had not decided on all these measures, we would have been in a serious defaulting position. 

Q: Will the government tighten the fiscal discipline to avoid unpaid invoices for instance?

A: Yes, consequences will come, the Treasury has started ‘firing its first shots’. Ministries are issued with monthly treasury authority warrants, that is a cash flow management tool aimed at avoiding over-commitments and we brought back the existing obligation to submit quarterly financial reports.

Moody’s downgrade

Q: The international rating agency Moody’s downgraded Namibia on 11 August 2017. You made it clear to them during a meeting in London in September why the government thinks the downgrade was unjustified. Fitch downgraded Namibia in November. What is the way forward? 

A: We must see to it that Namibia gets back to investment grade. However, rating agencies have their opinion and they are not the alpha and omega. I don’t want to diminish their importance but in 2016 we had to balance between a consolidation that would have completely satisfied rating agencies with very severe consequences for our real economy, or a less drastic approach with less harmful effects on the real economy. The former would have seen significant job losses and retrenchments. The education and health sectors would have had to be rolled back instead of being maintained. 

We decided to mellow the consolidation, as long as our expenditure to the GDP ratio is on a decline and our deficits are reducing and our debt stock is stabilising at now 42 percent to GDP. So, we showed rating agencies that we are moving in the right direction, albeit at a slower pace. During the London meeting we explained this to them. They said they agreed with our policy stance, that it was not wrong. They also said they had to stick to their yard sticks and thus by their rating. I can understand that. 

Common Monetary Area

Namibia is paying back its debt and is capable of doing it. Namibia is stronger now than a year ago. Either the rating agencies were behind the curve or there is another reason why they downgraded us. There may however be one important reason: the Common Monetary Area (CMA), in which South Africa is perceived as the anchor economy. Namibia is part of the CMA. If that anchor economy is in trouble, the logic I think is that smaller economies latched on to it cannot have a better rating. To a certain extend we are paying collateral damage. The South African Rand experiences and with that the N$, serious volatility currently, so much so that it has the reputation of the most volatile currency. 

New Developments

Q: What new financial policies, developments and laws are in the pipeline?

A: The envisaged semi-autonomous Revenue Authority (RA) will be up and running by 2019. It is a complex process as we must do a human resources audit. We promised that no officials in the Ministry would lose job. We will also make sure that the new authority will have a significant capacity improvement, we can’t rush these processes. There are currently systems developed for the RA like an e-platform, so taxpayers can submit their tax returns electronically and receive their assessments online, payments will also be online. This will save lots of manual labour and reduce possible exposure to corruption as it removes human error and discretion. 

Also, our Public-Private Partnership (PPP) unit is almost up and running. The regulations for the PPP Act are close to finalization. The long-awaited Financial Institutions Management (non-banking financial institutions) (FIM) Bill is completed and will be tabled in Parliament early next year.

Q: What about the envisaged presumptive tax for small and medium enterprises?

A: Some 35 percent of Namibia’s economy is informal, ranging from one-person enterprises and startups to medium sized companies. Those that have the ability to pay taxes need to be taxed. It will be a flat rate against turnover, since it is not difficult to determine their turnover. We see too many sizable enterprises living next to the tax man, this is not fair. It is difficult to rope cash-based businesses into the tax net; that is why the presumptive tax will come. A Bill is currently being drafted and it will be brought to the parliament in 2018.

Q: Will the government list some State-owned Enterprises (SOE’s) on the stock exchange?

A: This is being discussed. Some percentages of the government’s 100-percent ownership could be shed while retaining control and gain efficiency involving the private sector. Perhaps SOEs like Namibia Wildlife Resorts (NWR) and the Windhoek Country Club hotel could be listed, including the telecommunication SOEs like Telecom and MTC. Evaluation of them will start from 2018 onwards, but these are complex issues. We will not list them all at once, but rather in a staggered way, if at all.

Q: When will the infrastructure fund and the venture capital fund be operational? 

A: We aim for the infrastructure fund to be launched in December. It will be run by the Development Bank of Namibia. We are investigating where the venture capital fund will be hosted. In parallel the mentoring and evaluation mechanisms must also be put in place.

Q: Is there a sovereign wealth fund on the cards like in Angola and Botswana?

A: We had that debate. Our argument is that a fund of that nature needs to be funded, de facto parking money there for later use. We argue that it is more beneficial for the economy to utilize the money for development now rather than parking it in an SWF. Maybe the argument holds that Namibia would have had milder fiscal slowdown if an SWF had been in place, but on the other hand our development expenditure would have been lesser with consequential lower economic growth. Also, we do not have oil like Angola, a natural resource with proceeds in access of budgetary requirements. We are mulling the idea however, to create some financial buffers.

Many thanks for the interview. 

By Brigitte Weidlich

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