Trade Assessment: Namibia and Angola

Explanation and prediction about Namibia current and future trade patterns
Kahuika; Stork; v. Krosigk; Shilimela
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Authors: S. Kahuika; C. Stork; V. v. Krosigk; R. Shilimela
Namibian Economic Policy Research Unit
Windhoek, 2004
Soft cover, 21x29 cm, 95 pages


Executive Summary

Trade theories highlighted in the study are central in offering an explanation and prediction about Namibia current and future trade patterns. The Ricardian theory, which is oldest among those highlighted in the study, maintains that the differences in production costs among countries are at the heart of international trade. Whereas on the other hand, Heckscher-Ohlin theory highlights the importance of relative factor abundance, arguing that as long as countries are differently endowed with different quantities of factors, trade would take place between different countries and such trade would be beneficial to all involved. Both of these theories refer to basic factors of production and not to advance factors.

Therefore, according to Michael Porter, lack of development of advanced factors is at the core of declining terms of trade of many primary product exporters, whereas, those countries which have successfully development and implement policies to develop advance factors of production have actually succeeded in improving their terms of trade. Despite its close economic and financial associated with RSA and EU, poverty levels of the people of Namibia as well as the economic structure have remained at levels that are not commensurate with resource endowment of the country. Therefore, as a way to improve the standard of living of the people of Namibia, the Government has come to the conclusion that SME development, among other policies measures would constitute a major instrument on addressing poverty and unemployment. Very elaborate strategy has been propounded. This strategy is encapsulated in the 1997 SME Policy and Strategy. Furthermore, there are additional policy instruments, such as White Paper Industrial Development of 1992, which is said to have been recently revised, but not yet officially accepted. In addition, there is the EPZ, NDP2 and the Vision 2030.

All these are instruments meant to guide Namibia's industrial development and should significantly contribute to export development of the country, as Namibia's development is inextricably dependent on export markets. Considerable work has gone into trade facilitation, promotion, and product development activities, through development assistance, especially by the European Union. In addition to development assistance in trade, development assistance has been forthcoming in the area of SME development from both EU and the USAID. Given the perceived role SMEs can play in alleviating poverty and creating much needed jobs, continued financial and technical support to this sector is important. It is important because the sector has to become involved in foreign trade, which had hitherto been the exclusive domain of big enterprises. In fact SMEs should become incubators for production innovation and process improvement. Given the role of the foreign trade sector in Namibia, it would be very important that the Ministry of Trade and Industry, other sector Ministries and agencies and private sector associations and chambers are appropriately resourced. Another vital element in this regard is the development of vocational and advanced training and the ability to innovate in products that would advance Namibia trade across its borders.

The planned establishment of the National University of Technology could be a major development in developing advanced factors of production, which would spur and sustain Namibia's competitiveness in the globally competitive and liberalising trading environment. Namibia's foreign trade has a strong focus on a few countries of the EU (UK, Spain, Netherlands, France, Belgium, Italy and Germany) and South Africa, with the former constituting over 50% and 7% of total Namibian exports and imports respectively, whereas the latter constitutes about 26% and 86% of total Namibian exports and import respectively. There is therefore little trade between Namibia and countries and regions outside those mentioned above. It must however be noted that some RSA exports to Namibia are actually re-exports. Namibian exports are characteristically based on its natural resource endowment of mining, fisheries and agriculture. Only in recent years, especially after 1990 has Namibia embarked upon a deliberate drive to increase manufacturing which had largely been neglected by the former regime.

Despite concerted efforts on the part of GRN to build up export capacity in non-traditional products, very little change has taken actually taken place, until Ramatex has started its operations less than a year ago. This massive investment of over N$ 1.0 billion is set to make a major change to the composition of Namibia's manufacturing, which has hitherto been dominated by fisheries and meat products. The important question is whether Namibia would be able to attract investment of similar magnitude in other sector as well, as so have an export-oriented and more diversified manufacturing sector. Namibia is part of various regional integration schemes, and bilateral and multilateral agreements on trade and co-operation. These regional integration schemes and agreements include; SACU, SADC, COMESA, Cotonou Agreement and AGOA. The agreements and schemes have been central instruments in Namibia's attempts to diversify trade away from traditional export destinations and import origins and to facilitate fundamental structural economic transformation in the national economy.

One of the most recent instruments to promote trade between Namibia the developed world has been the AGOA. This instrument constitutes a major breakthrough, where the USA government gave qualifying countries duty-free access in addition to GSP access many developing countries have for over 2000 different products. AGOA adds over 1000 products for qualifying Sub-Saharan countries to imports products duty-free into the US market. There are two important qualifications to benefit from duty-free access under the AGOA. These are; (i) products to be imported under AGOA should be import sensitive for the US economy and (ii) products to be imported should not have been transhipped through qualifying Sub-Saharan country by a third non-qualifying country. Under AGOA 1, Namibia would not have qualified due to its higher annual per capita GNP, which exceeds US$ 1,500. However, under AGOA II, Namibia has now been included in the list of Less Developed Sub-Saharan African countries, which can benefit from the Special Rule on Apparels and Textiles, which allows LDC qualifying countries to export apparels duty-free to the USA. Therefore, as a result of this concession, Ramatex Textile Namibia (Pty) Limited is able to export its products duty-free to the USA.

Because of the narrow nature of Namibia's export portfolio, it would appear that Namibia would not derive significant benefits from this instrument, the exception being the massive exports from Ramatex Textile Namibia (Pty) Limited in Windhoek. Although, Namibia's exports to the EU and RSA are largely composed of products derived from primary and natural resources of Namibia, for Namibia to increase benefits under AGOA, composition of exports will have to change. Export potential for other products such as leather products, table grapes, dates, semi-precious stones must be considered, at least for short to medium term, allowing long term change over to manufactured exports. On the import side, Namibia mainly relies on RSA, from which it sources over 80% of its total imports. Namibia imports consumer goods (food and clothing, machinery, vehicles etc). Quite clearly, this level of reliance on one single import source is indeed very dangerous and national security would be in jeopardy.

Namibia has therefore to have two strategies on the import side, i.e. limited import substitution in areas where Namibian industries are likely to be competitive and diversification of import sources to other countries. Although, the process of diversification of import sources is slow, looking at imports from countries, such as China and Zimbabwe would suggest that Namibia is succeeding, albeit in a very small measure with diversifying its import sources. This process would not be easy, as Namibia's integration into RSA economy has now been deepened with the new SACU Agreement and imminent SACU-USA FTA agreement. For trade within SADC, there is wide range of policy, structural, infrastructure and capacity related issues hindering trade within SADC. These issues would have to be addressed at SADC level. As for Angola, its economy is very dependent on oil production and exports, with oil contributing over 90% to foreign currency earnings and 60% to GDP. All other sectors, especially the manufacturing has all but come to a standstill as a result the civil war which lasted for close to 30 years, with devastating effects on economic and social infrastructure and general economic development of the country.

Angola, which has one of the best climatic conditions for tropical and semi-tropical crops, has been a net-importer of food, while it used to be self-sufficient in food. In addition, the country also had a developed light-manufacturing sector. Massive cash inflows from oil sales has come to result in a situation where the current government appears less inclined formulated and implement policies which would urgently address underlying economic problems of the country. It would appear that oil proceeds are spent unwisely on maintaining inefficient and largely corrupt bureaucracy. Business environment in Angola is very difficult due to lack of appropriate laws and regulations and lack of capacity of institutions, which could support business and entrepreneurial development in Angola.

As far as trade with Angola is concerned, Namibia exported goods worth of over N$ 2.5 billion between 1997 and 2001, of which 9.3% were re-exports. As Angola revives its economy, and as its industrial production comes on stream, it would be vital for Namibian exports to change in content and quality, if Namibia has to maintain and increase its market share in Angola in the future. It would be important for Namibia, in the medium to long term not only to expand its market share with its current exports but also to diversify its industrial production structure as well. With such diversification and increase in exports, Namibia's long-term relationship with Angola, even with revived economy would have been secured. Therefore, the future assistance must be focused on product development, enabling Namibia to produce goods, which would be needed by the reviving Angolan economy. Without necessary changes in the structure of the Namibian exports to Angola, imports from Brazil, Portugal and South Africa would seriously threaten Namibian long-term export opportunities to Angola.

Even countries such as Zambia and Zimbabwe may actually present a serious long term threat to Namibia's export opportunities to Angola, with their more diversified economic structure. Main problems identified in the reconstruction process of Angola would be in such as areas as physical infrastructure, policy and legislative framework, bureaucracy and red type and corruption. In the short to medium term, efforts would have to be made to ensure that the business environment is improved to allow transparency and predictability. This would be done through formulation, promulgation and enforcement of business friendly pieces of legislation and building of business support institutions with required institutional capacity and resources. Apart from exports of products, Namibian businesses stand to benefit from forming joint-venture operations in Angola with Angolan partners. This would be particularly true for the regions bordering Namibia, where Namibians may have both geographical and cultural advantages. Given the magnitude of the need even in the southern provinces, Namibia would be well advised to concentrate its efforts on these provinces. As part of process to reinvigorate trade and business relations between Namibia a number activities are to be recommended. These include, among other things, trade and co-operation agreement, exchange of commercial counsellors, closer cultural ties, promulgation of business friendly legislation and policies in Angola, more active participation of Namibia in trade fairs and exhibition in Angola, especially in the southern provinces.

Table of contents:

Executive Summary
Table of contents
List of Figures
List of Tables
List of abbreviations

1. Background
2. Terms of Reference
2.1. General Objectives
2.1.1. Specific Tasks
3. Methodology
4. Introduction
5. Theory of Foreign Trade
6. Namibia development goals and objectives
6.1. Vision 2030
6.2. NDP2
6.3. Goals and objectives of the Directorate of the International Trade.
6.4. The White Paper on Industrial Development 1992
6.5. Export Processing Zone Regime
6.6. 1997 SME Policy and Program
6.7. Namibia's Trade Development and Promotion Strategy
6.7.1. Trade Policy and External Relations
6.7.2. Export Promotion
6.8. Donor support for trade development, facilitation and promotion
6.9. Small & Medium Enterprises and Foreign Trade
7. The Namibian Foreign Trade
7.1. Export products
7.2. Export destinations
7.3. Import products
7.4. Import source countries
8. Namibia's Trade Relations and Policies
8.1. African Growth and Opportunity Act (AGOA
8.1.1. Namibia and AGOA
8.1.2. Challenges phasing Namibia and its SSA beneficiaries in AGOA
8.2. Namibia - Zimbabwe Preferential Trade Agreement (PTA) 1993
8.3. The SACU Agreement
8.4. The Southern African Development Community (SADC
8.5. The Common Market for the Eastern and Southern Africa(COMESA)
8.6. The COTONOU Agreement
9. Angola:
9.1. Overview: Political Economy
9.2. Angola's Economical Environment
9.2.1. The Informal Sector
9.2.2. Poor State of Angola's Infrastructure
9.2.3. Financial Implications for Businesses
9.2.4. Angola's Oligarchy of Importers
9.3. Public Services, Regulations, Laws
9.3.1. Angola's Customs Services
9.3.2. Import Regulations in Angola
9.3.3. Angola's New Investment Law
9.3.4. Registration of a Company
9.3.5. Angola's new land law
9.3.6. Taxes
9.3.7. Banking and Financial Matters
9.3.8. Transport Matters
9.3.9. Business Service Organizations (BSOs)
9.3.10. Donor involvement in Angola
10. Trade Profile: Namibia-Angola
10.1.1. Trade per Border Post
10.1.2. The current situation at the Oshikango border post
11. Market Entry Strategies
12. Namibia's Positioning for Doing Business in Angola
12.1. Namibia's Competitors
12.2. Namibia's Weaknesses and Threats with Respect to Exports
12.3. Namibia's strengths and its opportunities
12.4. Access to sea transport
13. Prospects for Namibia
13.1. Advertising and promotion
13.2. Reconstruction of infrastructures
13.3. Training centres......
13.4. Tourism
13.5. Agriculture and agro-processing industry
13.6. Civil construction
13.7. Mining
13.8. Construction material
13.9. Special technical services
14. Key capacity and policy constraints for non-SACU SADC infra-regional
15. Conclusions
16. Recommendations
Bilateral Trade and Investment Agreement
Focusing on the southern provinces of Angola
Exchange of Commercial Counsellors between the two countries
Other measures could include
Development services sector in Namibia
17. References.
18. Appendices
18.1. Namibia's trade with Angola, 1997 - 2001
18.2. List of interviews
18.2. I.Namibia
18.3. Angola Data Profile
List of Figures
Figure 1: Angolan trade balance with Namibia in million N$
Figure 2: Namibian imports and exports in N$ million)
Figure 3: Trade with Angola in million N$
Figure 4: Commercial vehicles entering and leaving Namibia via Oshikango
Figure 5: Individual travellers entering and leaving Namibia via Oshikango
List of Tables
Table 1: Top 20 Domestic export products 1997-2001
Table 2: Growth of Namibian exports (value) 1999-2002
Table 3: Top 20 countries Namibia imports from (1997 until 2001
Table 4: Transport costs in US$ per ton
Table 5: Top 10 import products, 1997- 2001
Table 6: Top 10 exports products (FOB value), 1997-2001
Table 7: Top Exports in terms of Growth
Table 8: Exports (FOB value) to Angola in N$
Table 9: Exports in % of total exports to Angola by boarder post or customs
Table 10: Import CIF Value
Table 11: Imports in % of total imports from Angola
Table 12: Top 20 exports via Oshikango to Angola in N$ FOB value for period
Table 13: Data Profile for Angola.

List of abbreviations:

ADB Africa Development Bank
AGOA Africa Growth and Opportunity Act
AIA Industrial Association of Angola
APPCIL Associacao Agropecuaria Commercial e Industrial da Huila
BRI Import Permit
CBI Cross Border Initiative
CBS Central Bureau of Statistics
CET Common External Tariff
COMESA Common Market for Eastern and Southern African Countries
DRC Democratic Republic of Congo
EU European Union
EPZ Export Processing Zone
FILDA International Fair of Luanda
GRN Government of Republic of Namibia
HS Harmonised System
IMF International Monetary Fund
LDCs Least Developed Countries
MFN Most-favoured nation treatment
NDP 1 Namibia Development Plan 1
NDP 2 Namibia Development Plan 2
NPC National Planning Commission
NTBs Non-Tariff Barriers
PTA Preferential Trade Agreement
RISDP Regional Indicative Strategic Development Plan
RCSA Regional Centre for Southern Africa
SACU Southern Africa Customs Union
SADC Southern Africa Development Community
SMEs Small and Medium Size Enterprises
SMP Staff Monitored Program
SPS Sanitary and photo-sanitary measures
WB World Bank
WTO World Trade Organisation
USAID United States of Assistance for International Development
UNITA Union of Total Independence of Angola