The vast southern African country of Namibia is often perceived as a proxy for its neighbour South Africa. Its fortunes have in the past been closely tied to those of South Africa, having historically been occupied by the country. Despite the fact Namibia officially achieved independence from South Africa in 1990, the two countries continue to be seen as politically and economically interlinked.

So when South Africa’s economy entered the doldrums in 2009, contracting by 0.9% according to the African Development Bank, international investors watched to see if Namibia would fall as its neighbour had. Although Namibia’s economy contracted by 0.5% in the same year, its rebound has been greater and more sustained than South Africa’s. While South Africa is expected to grow by just 2.8% in 2013, the African Development Bank expects Namibia will outperform it and achieve 4.2% growth, increasing to 4.3% next year, primarily on the back of its diamond and uranium exports.

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Strong macroeconomics

Namibia’s economy may be highly exposed to South Africa’s, but minister of trade Calle Schlettwein maintains that Namibia’s strengthening macroeconomic framework will enable it to weather potential headwinds in a more sustained manner. “We have a similar monetary area [to South Africa] and we have therefore experienced similar effects,” says Mr Schlettwein.

“The weakening of the South African rand, which is pegged to the Namibian dollar on a one-on-one basis, has weakened [our currency]. But Namibia is very well placed. We are beating the trend, even in our own region. We can state that we have maintained macroeconomic stability over the past 23 years, and we have maintained a good track record with regards to our political stability and safety.”

Namibia’s mining and construction sectors, which collectively represent 14.5% of GDP, have continued to grow, enabling the country to maintain a solid growth rate in 2012. Namibia's government, which moved swiftly to stabilise the economy with a stimulus package to boost GDP in 2009, is perceived as progressive and proactive in its FDI policies, especially when compared with regional counterparts such as Zimbabwe. But the perennial worry is that Namibia has not done enough to diversify its sources of growth, with its focus on the lower end of the minerals and commodities value chains.

“The main vulnerability is that we rely on the primary sector, more specifically mining,” says Mr Schlettwein. “If we want to sustain even higher growth rates, which are necessary to adjust the sharp discrepancies in income distribution, then we need to industrialise in both the non-renewable and renewable [sectors]. Our challenge is to restructure the economy to achieve that.”

Middle ground

Namibia may be one of the few sub-Saharan African economies to have attained middle-income economy status, but it has consistently been sliding down the ranking of the World Economic Forum’s (WEF) global competitiveness index. Although Namibia’s rail, road and port infrastructure is ranked as relatively interconnected – particularly when benchmarked against other sub-Saharan African countries – the WEF notes that it is still insufficient to cope with the country’s growth. In addition, Namibia’s educational system is seen as ill-equipped to serve the needs of international investors who wish to recruit local talent for their operations in the country.

Mr Schlettwein maintains that it would be unfair to overstate Namibia’s weaknesses. “[The WEF index] is a half truth because the slippage is a relative level,” he says. “We started at a high level and we did not slip relative to ourselves – it is just that others reformed faster. We are still in the top five of Africa’s most competitive economies, which is not bad.” Although institutions in other African countries are developing quicker, Mr Schlettwein says that they still trail Namibia’s higher institutional standards.

A plan in progress

Pointing to the government’s Fourth National Development Plan, Mr Schlettwein says that the country has been implementing measures that will improve doing business in the transport, logistics, tourism, agriculture and manufacturing sectors. Mr Schlettwein says this plan will not only implement more FDI-friendly policies, such as creating a one-stop shop to help foreign investors, but his ministry will also ramp up its infrastructure spending to ease logistical bottlenecks.

“We have started the Business and Intellectual Property Authority, which will be a one-stop centre of all [company] registrations, and it will coordinate aspects such as work permits, land availability and so on,” says Mr Schlettwein. “We have also increased the resources we allocate to infrastructure. Our seaport is destined to be a regional gateway for the landlocked Southern African Development Community countries, and we have offered dry dock facilities to neighbouring states. They have already been taken up by Botswana, the Democratic Republic of Congo and Zambia.

"In spite of being a very small and open economy, we managed to beat the trend of the global economy and we are doing well. I have a positive outlook for the economy this year.”