NamÔÇÖs low population limits manufacturing growth
The manufacturing industry remains the sector that has seen very slow growth, which can largely be attributed to Namibia’s small population, Namibia Chamber of Commerce and Industry Chief Executive Officer Tarah Shaanika told The Villager.
During the third quarter of 2015, the manufacturing sector recorded a sharp contraction of 10% on a year on year basis with the recent poor performance in the sector driven by a huge reduction in diamond processing (estimated 75.2%), as well as high double-digit declines in textiles, chemical products, meat processing, non-metallic minerals and metal fabrication.
Speaking to The Villager Shaanika said that the other contributing factor in the slow growth is the fact that manufacturing depends a lot of volumes.
“The more you produce, the less costs per unit and the more competitive price you can offer to the market. Namibia has a very small population and therefore a small market, which is one of the main reasons why manufacturing would be challenging in a market like Namibia. It would be difficult to compete against manufacturers in larger markets like China or even South Africa, especially those already well established,” Shaanika said.
Shaanika, however, added that this should not be the case, as there are opportunities for niche products which can be manufactured in Namibia competitively.
He said this with reference to the Growth at Home strategy, which he believes can boost local manufacturing. Additionally, Shaanika said tools to boost growth in the sector also include the Infant Industry Protection (IIP), which is a tool that is provided for in the Southern African Customs Union (SACU) agreement to enable smaller economies of Botswana, Lesotho, Namibia and Swaziland (BLNS) to develop industries in the wake of existing and powerful manufacturers in South Africa.
“IIP cannot just be enforced by the Government on any sector but must be applied for by infant producers. It is up to companies in Namibia who feel that they need protection against imports to apply for IIP. The Growth at Home Strategy uses the existing market which currently consumes products from other countries to switch to locally manufactured products. It provides an opportunity for a good beginning and once you supply the local market, you can then pursue other possibly larger markets and begin to benefit from volumes,” he said.
The Namibian economy is currently facing huge challenges such as water and competitive electricity supply. Some companies such as those in the food and beverage industries are severely affected by water shortages in the central areas.
The NCCI CEO noted this “could have also contributed to a slow growth and don’t forget the strike in the fishing industry which halted production for almost three months.”
“Government has done its first task and that was to ensure that IIP clauses are included in both SACU as well as the EU - SADC Economic Partnerships Agreement. We in the private sector should now make use of such provisions to secure IIP for our businesses which are manufacturing in Namibia. For IIP to apply to more sectors in Namibia, we should submit applications for more sectors. It is up to us to submit applications to secure IIP,” Shaanika said.
Sharing the sentiments of Shaanika is the Manager of Research and Development at the Namibia Agricultural Union (NAU), Wallie Roux saying that one of the most important factors responsible for the slow growth is economies of scale.
“Namibia has a small local market and since manufacturing requires large financial investments, there is always a risk of return on investment. Furthermore, not all raw materials are readily available in Namibia (or sometimes not in sufficient quantities); hence these need to be imported. If these are sourced for example regionally, it puts Namibia in a comparative disadvantage with reference to the cost of inputs. Add to this the high costs of electricity and water, and the risk of return on investment increases. One solution would be to access export markets. However, it would be hard to penetrate export markets from a comparative disadvantage production basis,” Roux told The Villager.
Roux further emphasised on the importance of government support for growth in manufacturing. Roux said that in the instance of the milling industry in Namibia, the importation of maize and wheat flour is prohibited, thus securing the milling industry from outside competition. However, he added that such steps become more difficult with drive towards regional integration within the Southern African Customs Union (SACU) and the Southern African Development Community (SADC).
“What needs to be comprehended about IIP is that it comes with a cost to the local consumers (local consumers thus contribute to the development of an infant industry). Note that the government only reacts to applications for IIP from the private sector. Up till now only four local industries applied for IIP, namely broilers, dairy, pasta and cement. Also note that IIP, if granted, is for an industry and not a specific company (hence more than one company within an industry can benefit from IIP, as was the case with pasta - Namib Mills and Bokomo)” he said.
He further said that given the economies of scale, it is very difficult to establish (infant) industries in Namibia adding that one solution would be to become a player in cross-border (regional) value chains. “Despite being one of the approved agenda points of SACU, this was not yet implemented to date,” he said.
The Minister of Finance, Calle Schlettwein said that government is working on measures to provide protection to infant industries by creating limiting imported commodities, especially for those products that the country is manufacturing in large quantities or volumes, such as the pasta and dairy products.
“However, we cannot completely cut out imports as we have to be on par with price inflation, because once there is only one form of product, the prices of such goods will become very expensive, putting a strain on the consumers,” he said.