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Infrastructure fund not long term

by Kelvin Chiringa

Treasury’s intervention plan to resuscitate the struggling construction sector is the best hard pressed finance minister Calle Schlettwein can do, but experts have questioned its sustainability in the long term. 

In his mid-year-budget review, minister Calle Schlettwein said he is going on with the establishment and operationalization of the Infrastructure fund at the Development Bank of Namibia (DBN), with the initial size of N$2.5 billion.

“It is definitely not a long term sustainable intervention but it is a short term attempt to reduce the worst,” visiting professor at Cape Town University Henning Melber says.

Schlettwein’s fiscal consolidation, although hailed as a daring and brave decision ever taken by a minister of finance, has been frowned upon by certain political big wigs as anti-growth.

His guillotining of developmental projects which are the cash cow of private sector, catapulted construction into a crush last year which dragged down the entire economy into a recession.

The economy had contracted by 2,7 percent in the first quarter of 2017 compared to a 4,1 percent growth recorded in the same quarter of 2016.

By July of this year, the number of building plans approved by the municipality had contracted by 6.2% year-to-date (YTD) to 2050 units, compared to a contraction of 27.5% YTD in July 2016.

Month on month, building plans approved contracted further by 31.5%.

Melber says Schlettwein’s infrastructure fund idea comes at the opportune moment and is the right step in the right direction.

“Infrastructure projects can be drivers of employment and economic growth. If done well, with a feasible business case, it could unlock further economic growth,” PSG Head of Research Eloise du Plessis said.

She adds, “So infrastructure is important and I regard the best way to execute it is through bankable developments where the private sector is also involved in the funding.”

She says this gives an extra layer of oversight and due diligence in order to keep costs under control and to get the best return on investment.

Du Plessis is convinced a N$2.5 billion capitalisation of the fund is well-advised.

“This is most likely the best the finance minister is able to come up with given the dire situation of the state's fiscal predicament. It is an effort to limit the damage and might come at least to the rescue of some local companies (and their workers) - assuming that tenders are not awarded to North Koreans or Chinese or any other foreign companies,” Melber says.

The Villager sent questions to the Development Bank of Namibia (DBN) which has been entrusted with this fund but its senior communications manager Jerome Mutumba was not available to respond at the time of publication.

This publication wanted to establish how this fund would operate and the process through which companies would follow to be legible up-takers of the fund.