LESOT~
1. INTRODUCTION
3.6 PERFORMANCE OF THE LEADING SECTORS
3.6.1 Agriculture Growth, Constraints and Prospects
Agriculture is the largest employer, supporting directly or indirectly some 70 percent of the population. It is also the second most important sector in terms of contribution to exports with a 12 percent share. Extensive stock farming is the dominant agricultural activity, accounting for 65 percent of the total annual beef output of 77,000 tonnes that is exported mostly to the Republic of South Africa (World Bank, 1991). Agriculture and rural development only account for a modest proportion of total public expenditure in Namibia. However, it is important to consider this expenditure and it's effectiveness because of the importance of the sector to the economy, and the dependence of so many of the poorest citizens of Namibia on agriculture.
Agricultural exports (mainly live animals, hides, skins and WOOl) account for about 7-8 percent of the total value of merchandise exports and 15 percent meat and meat products are added. The contribution of the agricultural sector to Namibia's GDP remains, however, relatively modest at only about 8 percent. Because of improved climatic conditions and firmer prices during 1993, the real value added in total agriculture grew by 2.9 percent, compared with a growth rate of 3.5 percent in 1992. The 2.9 percent growth in 1993 is a combination of a 3 percent expansion in commercial agricultural output and an estimated 2.5 percent increase in subsistence agricultural output. Due to . the drought in 1992, the real value-added growth rate in that year was, of course somewhat boosted by emergency marketing and also by government's drought assistance (Economic Review, 1994).
In 1992, probably in an attempt to recuperate the herd after the drought, both cattle and small-stock marketing showed strong increases in response to the drought, with respective volume increases of 9 and 23 percent. Initially the result of late rains necessitated enhanced marketing, which saw a firmer marketing effort, and total numbers rose by almost 10 percent. However, during the latter half of 1993 it was primarily reflected by stronger average
export prices (Economic Review, 1994). In the mid-1990s, agricultural output continued to be dominated by the commercial sector, which contributed 66.5 percent to the total output in 1996, while subsistence farming contributed 31.5 percent. Its contribution to GDP in 1996 stood at 9.4 percent. This was primarily due to livestock producers rebuilding their herds after the serious droughts of 1994/95 and 1995/96. It can be seen from figure 3.4 that the agricultural contribution to was fairly stable during the 1980s and 1990s.
Figure 3.4: Agriculture contribution to GDP
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9J'O 9J0:> Rl<::l Rl" Rl'" Rl".J Rlb< Rl~ RlX> ~
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Source: World Bank, 1999.
-+-Agriculture, value Added (% ofGDP)
Land of good quality is a major growth constraint to agriculture, at least with present technological knowledge. Although vast and relatively unpopulated, two major deserts flank Namibia and the land between them is not prime agricultural land. Water is the other major growth constraint. Irrigation potential is probably limited to about 32,000 hectares, of which 18,000 hectares are in communal areas. Owing to evaporation, surface water is extremely limited, and the underground water is dropping. Communal agriculture, which contributes only 15.4 percent to overall sectoral output and which has grown slowly, offers more hope. Extreme inequalities in the distribution of resources and access to marketing channels and services, have marginalised the vast majority of communal farmers and their potential contribution to sectoral output and sectoral growth (World Bank, 1991).
Key actions to realise these prospects may include the following (i) integrating the northern farmers into the national market by opening distribution channels in the north and providing extension, and veterinary services to communal farmers, (ii) improving the road network in the north for transporting inputs
and produce to and from the communal areas, (Hi) relaxing transport regulations and (iv) emphasising the production of high-value crops.
3.6.2 Fisheries Growth, Constraints and Prospects
Fisheries is the second most important industry in Namibia after mining. It reached its peak in 1968 and 1969 with a total catch of fish meal 45,000 tonnes of fish oil and 4 million cases of canned fish. The fishing industry's contribution to GDP expressed in terms of constant (1975) prices dropped continuously from N$8.1 million in 1978 to N$7.2 million in 1979 and to N$6.8 million in 1980. The sector is currently the major contributor to economic growth (i) the value of exports of fish is growing at over 20 percent annually, (ii) the contribution of fisheries to GDP is increasing, having doubled from 3.9 percent in 1991 to 7.6 percent in 1994, (iii) the sector has generated around 6000 new jobs since 1991. After a relatively moderate increase of 5 percent in real value added in fishing during 1991, a notable improvement was recorded during 1992 with real value added increasing by an impressive 38 percent. This is ascribed to the greatly enhanced catches of pelagic fish species together with a considerable increase in the landings of hake (Economic Review, 1993).
The real value added of the fishing industry continued to make considerable progress during 1993, with the growth rate increasing from 23 percent in 1992 to 37 percent in 1993. The higher growth in fishing in 1993 than 1992 was . the result of improved catches of both pelagic and demersal fish species, whose respective volumes were 8 and 11 percent above the level in 1992.
Foreign trawlers in Namibian waters that led to collapse of the pilchard have illegally exploited the resources. While there were several peripheral factors, two major setbacks can be identified. The first was the licenSing by the South African government of two fish meal factory ships in the late 1960s. The second was an abrupt cessation of research at a critical moment in the mid- 1970s. The main product of this exploitation, the very dense pelts, were exported to China, Europe and Northern America (Kaakunga, 1990).
After the near collapse of the pilchard resources in 1980/81 and the closure of the four fish processing factories. a very strict and conservative policy was initiated with regard to the utilisation of the marine resources. including adherence to a six-month catching season. This brought about a slow but steady recovery of the resources with a Total Allowable Catch (TAC) set in 1982 at 30.000 metric tonnes. Special opportunities exist in taking advantage of the qualities of the labour at Walvis Bay in serving fishing vessels and the fisheries sector generally. a position enhanced by the reintegration of Walvis Bay into Namibia. Walvis Bay is developing into the most important fishing base in the South East Atlantic. It is one of the biggest fishing processing centres in the world in a way that seems likely to make it increasingly favoured as a base for vessels operating beyond Namibia and for processing catches from waters outside the Namibian Exclusive Economic Zone.
Figure 3.5: Fisheries contribution to GDP
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Year Source: Central Bureau of Statistics, 1999.
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Fisheries' share in GDP1
After good improvements in fishing output between 1991-993. the growth in has slowed markedly. and in 1996 fish processing output actually shrunk.
The total catch had fallen to 495,000 tonnes. the lowest since 1990, and with virtually no pilchards caught the onshore canning industry was forced to lay off half its workforce. However, although white fish activities have continued to expand in 1996 hake catches fell by 10 percent to 117.000 tonnes. Since 1994 export of mainly semi-processed hake to the principal market, Spain have exceeded the value of canned fish exports. The industry faces continuing problems in the short term owing to unfavourable conditions, which caused the virtual disappearance of the pilchard from Namibian waters in
1995-1996. The government slashed the pilchard T AC by more than two- thirds to catch fish in Angolan waters. But in 1996 the T AC was halved to 20,000 tonnes. In terms of contribution to GDP, it can be seen from figure 3.5, that the sector's share in GDP in the 1990s has been increasing and reached a high level of N$361 million in 1998 from N$129 million in 1991.
In 1997, oceanic conditions improved and surveys showed a strong recovery in stocks, with the exception of mackerel. This enabled the government to raise TACs for pilchard and hake sizeably for 1998, and a 25 percent increase in hake landings was recorded during the early part of 1998 season over 1997.
Table 3.8: Total Allowable Catches, 1997 -1998 (tonnes)
Species 1997 1998 % Change
Pilchard 25000 40000 60.0
Hake 130000 165000 26.9
Horse mackerel 3500000 300000 -14.3
Crab 2500 2000 -20.0
Rock lobster 260 260 0.0
Source: EIU. 1998-99.
At independence the government had proclaimed a 200-km exclusive economic zone (EEZ), and banned fishing by foreign trawlers except for those chartered by Namibian quota-holding companies. The government maintains a strict conservation regime by setting annual total allowable catches (TACs) for the main species- pilchard, hake mackerel, crab and rock lobster in line with regular fish biomass surveys. New exploitation rights providing entitlement to annual quotas by licensees were awarded in 1994, with most of the formerly South African-controlled companies being restructured to bring in Namibian partners. The sector continues to be attractive to investors over 400 applications which were received for replacement four-year rights at the end of 1997, although only 20-25 were to be awarded.
3.6.3 Mining Growth, Constraints and Prospects
Mining is the backbone of the Namibian economy. Over the past 15 years on average it has accounted for:
76 percent of export earnings 38 percent of tax revenues 31 percent of GDP
18 percent of cash wage earning
18 percent of gross domestic fixed investment (World Bank, 1995) Real value added in the mining and quarrying sector declined during most of the 1980s, falling about 27 percent in that period. Mining's relative contribution to GDP also decreased, from 43.6 percent in 1980 to 31.7 percent in 1989, principally as a result of two factors: depletion of high-grade diamond deposits - which affected the production of diamonds and the imposition of economic sanctions against the Republic of South Africa - which affected the demand for uranium. As a result of diamond depletion, the average carats content fell from 9 to 5 carats per 100 tonnes. Consequently, overall carat production fell by 50 percent, from 1.6 million in 1980 to 0.8 million in 1990 (World Bank, 1991).
The mining sector also experienced a sharp decline in its contribution to Gross Domestic Fixed Investment. At 1980 prices, investment dropped from N$112.4 million in 1980 to N$70.6 million in 1989. During 1982-1986, investment in the sector was only N$15 to N$ 40 million a year. The drop in . investment activity resulted principally from depressed mineral prices and economic uncertainty. The 1988-1989 turnaround was caused by an improvement in the prices for minerals/metals. The industry's combined real value added rose by 1.6 percent during 1992, markedly lower than the increase of 8.3 percent recorded during 1991. Although a cut in the diamond export quota was introduced during September 1992, diamond production for the year as whole was still almost 22 percent above that of 1991, which followed a 53 percent increase in diamond output 1991 (Economic Review, 1993).
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Figure 3.6: Mining Sector contribution to GDP
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Minerals' share in GOPi I
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Year
Source: Central Bureau of Statistics, 1999.
During 1993 the real value added by the mining industry fell by almost 20 percent, with the output of diamonds alone registering a decrease of 28 percent. The background to the slump in diamond output is the reduction in producers' delivery quota towards the end of 1992 in response to the recession in the world diamond market, which in turn led to the downscaling of production at the beginning of 1993. In spite of heavy production losses in 1991 and 1993, precipitated by an oversupplied market from Eastern Europe, uranium output held up quite well with only a mild output decrease of less than 1 percent being recorded during 1993. Copper, iead and zinc output fell by about 5.1 and 25 percent respectively, while in the precious category the output of gold and silver was respectively 6 and 18 below their 1992 levels (Economic Review, 1994).
Mining output rose at a reduced rate of 4 percent in 1996 from 5.8 percent in 1995. This growth was achieved because other mining and quarrying activity increased by 6.7 percent, while diamond output rose by only 2.9 percent.
Compared with the previous two years, growth in the mining industry slowed down considerably, declining from 10.5 percent in 1994 to 4 percent in 1996.
The mining sector recorded a decline in output in 1998. The sector's production declined by an estimated 4 percent. The major contributing reasons were adverse external factors and the closure of the Tsumeb Corporation Limited (TCL) mines.
Table 3.9: Production of Ke~ Minerals, 1997 ltonnesl Output % Change on Value (US$m) % Change
1996 on 1996
Diamonds 1415 2.0 552 1.8
Uranium oxide 3425 18.7 115 16.2
Gold (kg) 2433 11.1 27 0.0
Silver 43 2.4 6 -14.3
Copper, blister 22000 6.3 42 16.7
Zinc, 745600 7 25 47.1
concentrates
Source: EIU, 1998-99.
Prospecting expenditure increased to N$118m in 1996 but fell back to N$97m in 1997. Offshore diamonds, gold and base metals are the main exploration targets. Diamonds, of which over 95 percent are exceptionally fine gem quality, are mined onshore in Diamonds Area One, north of Oranjemund and inland along the Orange River by Namdeb Diamond Corporation, in which government and De Beers Centenary became equal partners under a 1994 agreement which also rationalised the diamond tax system (EIU, 1998/99). The development of proven underwater mining technology, mainly, but not exclusively by De Beers, and the diamond industry's high profitability in the past decade, have made extracting stones from the middle continental shelf carats and although the stones are smaller between 0.30 and 0.50 carats, they are dominantly gem. By 2000 output was projected to be more than double to 2.25m carats annually, mostly from an expansion in De Beers Marine's (DBM) large-scale operation at depths of over 100 metres in a 600- sq-km area mined under contract to Namdeb. This alone would boost annual export earnings by some US$200m. However, overall diamond employment will decline, as offshore operations are far less labour-intensive than onshore extraction.
After almost halving in 1991-1992 because of weak prices, uranium production from the large but low-grade Rossing mine recovered in 1996/97 to around 70 percent of the operation's 4500 tonnes rated capacity to meet
higher delivery commitment. However, renewed price falls led to the delaying of further output increases. Another setback to the sector was the decision in April 1998 by Gold Fields Namibia (GFN) to liquidate Tsumeb Corporation, (a wholly owned subsidiary and a major base metals producer which operates Namibia's only copper and lead smelter) owing to accumulated losses. The mining activities have expanded into the offshore diamond riches. De Beers Marine (DBM) carries out this expansion's large-scale operation. Given the 95 percent gem content of offshore output, additional export value of at least US$150 million is expected (EIU, 1999).
However, overall diamond employment is expected to decline, as offshore operations are far less labour-intensive than onshore extraction. Total offshore reserves are estimated at 1.5bn-3bn carats and the high quality of stones more than offsets a low average ore grade and small size between 0.30 and 0.50 carats. De Beers has spent over US$500m on developing deep-water mining technology since confirming the presence of large deposits on the middle continental shelf at depths of over 100 metres in the earlier 1990s.
As deposits are generally small and widely scattered, some cannot be readily exploited. The opening of new mining priorities calls for the most up-tO-date technologies and vast amounts of risk capital, while water, power, labour and transport facilities must be secured. The political uncertainties that have persisted for many years have acted as further constraints. The present . policies already provide the economic environment to attract the high-risk investment capital required to find and develop new mines. It would help, however, if the government were to undertake a marketing programme to
"sell" the country to outside investors. A key element of this marketing effort would be the formation of a private sector-oriented policy, which inter alia, will include a clear investment code guaranteeing the safety of foreign direct investment and a reasonable inducement package (s).