Capital Inefficiency is Hindering Namibia’s Macroeconomic Growth

Namibia’s economic growth is significantly hampered by capital inefficiency, which results from the misallocation of financial resources.

Despite a GDP of approximately N$261 billion in 2023 and a population of about 3.2 million, the nation struggles to fully harness its economic potential because of ineffective capital distribution.

This can partly be attributed to regulatory frameworks and institutional practices overseen by bodies such as the Namibia Financial Institutions Supervisory Authority (Namfisa).

These institutions have faced criticism for their role in perpetuating suboptimal capital allocation.

Effective capital allocation is vital for stimulating economic growth and ensuring resources are utilised in the most productive manner.

In Namibia, however, capital often flows into sectors with limited long-term growth potential, rather than into areas with the highest potential returns.

For instance, the mining and tourism sectors contribute approximately 20% of Namibia’s GDP, the financial sector – which has seen notable expansion – but represent only about 5% of GDP.

This disparity indicates a misalignment between capital deployment and sectoral growth potential.

STRATEGIC APPROACH

To address this, Namibia needs a more strategic approach to capital investment.

A key area for potential growth is renewable energy.

In 2023, investments in renewable energy in Namibia amounted to only 0.3% of total national investments.

This is in stark contrast to global trends, where renewable energy investment reached a record N$23.4 trillion in the same year.

By redirecting capital towards renewable energy and other high-growth sectors, Namibia can leverage global investment trends to foster sustainable development and enhance economic resilience.

The role of the national budget is crucial in shaping the investment landscape. Namibia’s budget for 2023 was around N$149.4 billion.

Effective deployment of this budget could create an environment conducive to private sector investment.

For instance, increased allocation towards infrastructure development, such as improving transportation networks and digital connectivity, could significantly enhance Namibia’s attractiveness to investors.

Countries like Botswana have seen economic improvements by investing in infrastructure and diversifying their economies.

Another significant barrier is the lack of comprehensive feasibility studies.

A 2023 report by the Namibia Investment Centre said only about 30% of new projects are supported by detailed feasibility studies.

A lack of thorough planning often results in project failures and wasted resources.

In contrast, countries with robust investment climates require detailed feasibility studies for major projects, which improves the chances of project success and efficient resource use.

LOOKING AHEAD

In addition, optimising the management of Namibia’s natural resources is essential for improving capital efficiency.

The mining sector, which contributed approximately 10% to GDP in 2023, is an area where better resource management could result in major economic benefits.

To overcome these challenges, Namibia must adopt a comprehensive strategy that includes regulatory reforms, improved investment processes, and enhanced strategic planning.

Collaboration between the government, private sector, and regulatory bodies is essential to create an environment that supports effective capital allocation and fosters economic development.

In conclusion, capital inefficiency is a major obstacle to Namibia’s macroeconomic growth.

We can enhance our economic prospects by addressing regulatory issues, investing in feasibility studies, and optimising resource use.

Adopting a strategic approach to capital allocation and improving investment practices can unlock the country’s economic potential and contribute to sustainable development.

• Gideon Kapuka is a researcher, writer and business consultant; gideonkapuka5@gmail.com