Investing in Namibia: Potential & Pitfalls
- Investment Desk
- Oct 28, 2024
- 7 min read
Updated: Dec 13, 2024
Namibia’s lack of skilled labor and overburdened public sector, together with a climate crisis that has plunged the country into a drought are just a few challenges that act as significant obstacles to sustained growth. Yet, beneath these challenges lies immense potential—an untapped wealth of rare earth minerals, expanding oil prospects, and a strategic location primed to become a logistics hub for Southern Africa. Could Namibia’s next chapter be one of economic transformation, or will structural challenges continue to limit its growth?
Namibia’s recent economic performance was stronger than expected, driven by the mining sector and investments in the exploration of oil. The economy grew by 4.2% in 2023, down from 5.3% in 2022 and Namibia’s economic growth is projected to moderate to about 3.1%in 2024 before accelerating to 3.8% in 2025-26. Household consumption growth is expected to rebound from weak levels in 2023, benefitting from monetary policy easing and lower inflation, which is projected to slow down to 4.6% in 2024.
Namibia is blessed with an abundance of natural resources and the country’s growth is propelled by its key industries including agriculture, mining and tourism. The country has a resilient agricultural sector, with a significant proportion of the population relying on it for their livelihoods however, the mining industry is the backbone of the country’s economy. The wealth created by the mining sector allowed Namibia to become an upper middle-in come country (UMIC) category in 2008 with per capita incomes reaching a peak of US$ 6,370 in 2015. Since 2016, however, growth has declined steadily and the economy fell into recession until 2020, exposing the vulnerability of Namibia’s economic growth model to external and climate shocks. In 2019, the economy contracted 0.9 percent, and it further contracted by 8.5 percent in 2020 due to external shocks arising from commodity demand and price volatilities and from drought.
Despite the country’s recovery in recent years, its growth may be limited due to the sensitivity of key sectors such as agriculture and tourism, to the current climate crisis. Just this year, the Namibian government declared a nationwide state of disaster due to a severe drought. However, the country has a wealth of natural resources with current and emerging sectors that have the potential to push the country to the next level.
The mining sector including gold, uranium, diamonds, zinc, lithium, copper and cobalt is the backbone of the Namibian economy, in terms of contribution to GDP (16.2% of total GDP in 2023), government revenue and foreign exchange earnings. According to the World Nuclear Association, Namibia is the world’s third-largest producer of uranium oxide. With the revival of nuclear power around the world, demand for uranium is bound to increase in coming years. Namibia also has rich deposits of critical minerals, including lithium and cobalt, used in clean energy technology which is a growing industry in the fight against climate change. Extraction of other critical rare earth elements, such as rubidium and cesium (used for spacecraft and medicine), is also taking place.
The rising demand of these minerals is expected to drive the economy’s growth in coming years. In fact, in 2022, Namibia uncovered the country’s largest-ever find of Rare Earth Elements (REEs) on a farm in north central Namibia. With a proven ore body of 579 million tons and a cut-off grade of 0.02 to 1.00 percent of REE-bearing materials, prospects seem highly positive. There are opportunities for companies that provide equipment and services to mining operators as well as companies able to provide value-addition to the raw minerals. In addition, the government has implemented policies to attract more investment in the sector, in an effort to create additional employment opportunities and stimulate economic growth and as part of the country’s firm stance on adding value, the Ministry of Mines and Energy announced in June 2023 that Namibia had decided to ban the export of unprocessed lithium. Therefore, opportunities exist to introduce new consumer goods and to expand manufacturing for both local and international markets.
Another industry that is posed to propel the Namibian economy is the oil industry. In 2022, Namibia announced the discovery of sizeable quantities of offshore light oil (with associated gas) in the Orange Basin. It is expected that the country will exploit 11 billion barrels of oil and 2.2 trillion cubic feet of natural gas reserves, possibly becoming a top 15 global oil producer by 2035, unlocking an unparalleled new stream of revenue for the Namibian government. Some analysts have made bold predictions that the Namibian economy will double by 2040, and that Government could earn more than USD 3.5 billion (approximately NAD 53.5 billion) annually in royalties and taxes at peak production from oil finds.
The Government of Namibia plans to co-develop a sustainable upstream oil and gas sector, increase exploration activities, improve production infrastructure development, and up-skill the workforce to meet the demands of the labor market. The new industry has already started to contribute to the Namibia’s economy through exploration which helped the economy grow by 4.2% in 2023, as mentioned above.
Namibia seeks to promote its logistics sector and become a regional logistics hub, connecting its landlocked neighboring countries such as Botswana, Zambia and Zimbabwe. The port at Walvis Bay, which is closer to markets in Zambia, Zimbabwe, Botswana, and Angola as compared to the South African ports, completed its expansion in 2019. The expansion increased the port’s capacity from 350,000 TEU (twenty-foot equivalent units) per year to 750,000 TEU, enabling the country to position itself as a gateway to the 345 million people in the broader Southern Africa market and beyond.
The country is connected to its surrounding markets through road networks such as the Trans-Caprivi Highway, now known as the Walvis Bay-Ndola-Lubumbashi Development Corridor, which provide a fast and comfortable road link between the Walvis Bay port and countries including Botswana, Zambia, Zimbabwe, and the Democratic Republic of Congo. In 2024, the Zambian government ratified an agreement to connect Walvis Bay to DRC through this road, allowing Namibia to take a step closer to becoming a regional logistics hub.
The above sectors have the potential to propel Namibia’s economy and present business opportunities for those seeking to invest in the country. However, the country faces certain persistent challenges hinder the progress and development of the country and the economy. As an upper-middle-income country, Namibia faces limitations in accessing concessional resources, which are critical for development. This classification has reduced the country’s ability to secure large-scale financial resources necessary for its growth. For example, Namibia received only SDR 183 million from a global allocation of SDR 650 billion—a figure far too small to meet the country's pressing development needs. This lack of adequate financial support from the global financial system is a major concern and highlights the need for more equitable distribution of resources to support developing economies like Namibia.
Historically, public investment has been a key driver of Namibia’s growth. As of 2019, the public sector employed over 100,000 people, making it the largest employer in the country. However, the public wage bill, which accounted for around 44% of public spending and doubled between 2012/13 and 2017/18 due to job regrading and salary increases, has placed significant strain on the national budget. This fiscal pressure has left the government with limited capacity to create new public sector jobs or engage in large-scale public investment projects. As a result, the country increasingly depends on the private sector to generate employment and drive economic growth.
However, the Nambian private sector itself faces significant challenges that hinder its expansion. The country’s unemployment rate is high and was worsened by the economy fallout of the COVID-19 pandemic. Youth unemployment is especially concerning as many young Namibians are unable to find work and despite the high unemployment, there is a critical shortage of skilled labor. This particularly applies to fields such as digital technology, science, engineering and mathematics as the skills that were taught in education systems do not match those in demand in the private sector. This makes it difficult for many young citizens to get jobs and transition into the workplace and when it comes to foreigners, obtaining work permits for the country, (especially for those with critical skills that are unavailable locally) is a complex and time-consuming process, further hindering private sector growth.
Many sectors in the country are dominated by State-Owned Enterprises (SOEs) which limit competition and create an uncompetitive environment as they benefit from preferential access to resources such as finance and land, while also enjoying legislative monopolies. This creates an uneven playing field, leaving little room for new businesses to thrive, stifling entrepreneurship and private sector growth. The private sector also grapples with issues related to government regulations, crime, market access and productivity. These challenges increase the cost of doing business, particularly for small enterprises who struggle to access affordable financing.
Despite these challenges, there has been some effort made to lessen major constraints in the private sector and promote growth in the economy. The government has embarked on policy initiatives aimed at small and medium enterprise (SME) development through the approval of the SME Policy and SME Financing Strategy. Additionally, the country offers significant opportunities to business that seek growth in high-potential sectors (such as those mentioned above), and those with regional ambitions can leverage the country’s strategic location to access the broader Southern African Development Community (SADC) markets. Therefore, despite its hurdles, Namibia presents potential investors with a promising business environment.
Resources
5. Namibia Country Report 2024 | Reon Capital
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