The Outflow of Capital from the Namibian Economy Part 2

By Lazarus Sheefeni Uaandja

LET us talk about the Foreign Investments Act (FIA), its incentives and related tax benefits offered to investors and add some meat to working definitions of trade liberalization and transnational corporations. Both internationally and locally, the FIA is cited as a “cornerstone of Namibian investments” in providing “liberal foreign investment conditions” since its enactment in 1990.

Twenty-nine years down the line, do the liberal foreign investment conditions still hold water? Are they attractive and responsive to preferences, needs and wants of investors, the Namibian workforce, good working conditions, human capital skills development, as well as adherence to and meeting the expectations of Namibia’s human rights and labour laws?

Let us first lay out FIA’s investment provisions, as follows:

• Liberal foreign investment conditions;

• Equal treatment of foreign and local investors;

• Openness of all sectors of the economy for foreign investment;

• Full protection of investments, and

• Granting of Certificate of Status Investment (CSI).

The CSI’s importance to investors is that it provides:

• Preferential access to foreign exchange to repay foreign debt, royalties, remit branch profits and dividends, as well as proceeds of sale of enterprises;

• Right to retain abroad all part of foreign exchange earnings from exports, and

• Right to international arbitration in the event of disputes with the government, as well as payment of just compensation without undue delay and in freely convertible currency.

The Namibian government would grant CSI to an investor provided the investor had met the following conditions:

• The foreign investment should be an amount of at least N$2 million;

• Foreign investment in a Namibian enterprise should not constitute less than 10% of its share capital;

• Contribution to Namibia’s development objectives;

• Foreign investment should contribute to the economy in terms of employment opportunities, provision of training for Namibians, use of raw-materials and locally produced goods;

• Potential for earning foreign exchange, and

• Positive impact on the environment.

As incentives beneficial to Namibia-based manufacturing activities to effect value-addition through processing of Namibia’s minerals, fish and agricultural products and – mindful of the fact that currently local products are mostly exported in raw forms – government would grant the following incentives to Namibian-based entrepreneurs investing in manufacturing activities:

• Exemption from VAT on purchase and import of machinery and equipment;

• Factory buildings written off at 20% in the first year and the balance at 8% for ten years;

• Export promotion allowance of 25% is deducted from taxable income;

• Deduction of incentives from training and production wages of between 25% and 75%;

• Deduction of 50% of cash grants for direct cost of approved export promotion activities; and

• Corporate tax abatement of 50% for five years and phasing out of abatement over the following ten years.

• All over the world EPZs offered competitive appetizing incentives to investors. In Namibia, the incentives EPZ offers are:

• EPZ companies do not pay corporate tax, VAT tax, stamp duty and transfer duty;

• Enterprises can set up any place in Namibia where it suits their interests, there is no geographical limitations;

• EPZ companies are authorized to hold foreign currency account in local banks, and no foreign exchange control;

• Industrial facilities are provided by the Ministry of Trade and Industry, as well as Offshore Development Corporation (ODC) at economic rather than commercial rates;

• Investors’ facilitation services are fast and free of charges, and are provided by the ODC and the NIC; and

• Eligibility for EPZ status would dictate that enterprises must engage mainly in manufacturing for export outside Southern African Customs Union (SACU). Sale of up to 30% of production on the local market may be allowed upon request. Other re-export operations allowed include repackaging.

In this respect, the above-listed provisions paved the way for some of the full-scale mega whooping investment inflows from international markets into the Namibian market, punctuated through dictums of trade liberalization.

Yet many Namibians have expressed an outcry about the flight or outflow of money transferred from the local economy to international markets; they especially regularly mentioned China, or simply put: “the Chinese”, as well as other traditional markets from which Namibia had received volumes of foreign investments in the past.

Below, let us look at what pundits say trade liberalization is all about. It is said to be the enabling internationally acceptable instrument or vehicle by which transitional investments would be made anywhere in the world, including Namibia.

According to Investopedia, trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. These barriers include tariffs, such as duties and surcharges, and non-tariffs, such as licensing rules and quotas, as well as the removal or reduction of restrictions, such as on repatriation of declared dividends.

Webster’s New Universal Unabridged Dictionary says implicit in trade liberalization is generosity, liberality, munificence, absence of narrowness or prejudice in thinking; impartiality; broad-mindedness, etc.

By and large, experience had it that trade liberalization had brought, on the one hand, well-paying jobs, know-how, technology transfers, wealth and economic growth, and competitiveness mostly explicitly and implicitly driven by best corporate governance practices.

On the other hand, trade liberalization had brought on a loss of unskilled jobs, demise of local businesses and collapse of national economies due to pressures and austerity measures brought to bear on some nations that had not thoroughly prepared for trade liberalization.

For simplicity, let us define what a transnational corporation (TNC) is in line with our discussions.  According to Biersteker (1978) and, a TNC is “any enterprise that undertakes foreign direct investments, owns or controls income-gathering assets in more than one country, produces goods or services outside its country of origin, or engages in international production.”

Most South African, American, British, German, French, Japanese, Spanish, South Korean and Chinese companies doing business in Namibia are TNCs, to mention but a few, irrespective of whether or not such TNCs are registered Namibian companies so long as their parent companies would remain in their countries of origin.

When it comes to repatriating money as part of declared dividends from Namibia to countries where transnational corporations have their parent companies headquartered, it would be obvious that almost all transnational corporations had been sending money out of the Namibian economy. The amounts of money each TNC would repatriate from Namibian economy to its respective country would ordinarily vary, based on its proportional shareholding percentages in the operating TNC.

Namibians, as board members and top executives at managerial level lead most TNCs operating in Namibia. Institutionally and on a rare positive stroke some increasingly love the jobs they do at such TNCs because they seemingly find passion in what they do. They train and develop the workforce into leaders, they identify talents and put such talents to productive use in increasing optimal work input, as well as output in highly areas of specialization.

As to how much decision-making powers would vest in most Namibians leading such TNCs in practical terms, this would be left to future financial and investment historians.  Also, some TNCs have Namibians co-shareholders, although in many cases the Namibians hold meager shareholding interests in such TNCs, usually based on raised funds from commercial funding instruments.

While it would be commendable that most investment benefits empower an increasing select few Namibian board members, top managerial executives and shareholders working for and co-owning TNCs, as would accrue from Foreign Direct Investment in Namibia, more work needs to be done for such investment benefits to reach the indigent people living in mostly rural areas.

(Edited for brevity.)