Namibia’s SMEs, the Untapped Sector

“The SME sector is the backbone of an economy as it provides employment and income opportunities for a large number of people” (Namibia Trade and Industry Minister Immanuel Ngatijizeko, 2005).

The small and medium enterprises (SME) sector in Namibia is a force to be reckoned with. According to studies made in 2004 and 2005 (Stork et al and Arnold et al), SMEs in Namibia contributed approximately 12% to GDP and employed about 20% of the workforce in 2004. To further emphasize the significance of this sector, a study conducted by Namibia’s Labour Resource and Research Institute (LaRRI) for the Joint Consultative Council (JCC) in 2002, concludes that SMEs were expected to provide 60,000 jobs and forecasted to add 16,500 more annually, as opposed to 3,000 to 4,000 additional job contributions by large corporations.

In 1997, the government of Namibia institutionalized its support to SMEs through a policy document entitled “Namibia: Policy and Programme on Small Business Development.” The government further recognized the sector’s contribution to the country’s socioeconomic growth and development by emphasizing it in its Second National Development Plan (NDP2) and Vision 2030. However, despite well-articulated and well-documented plans of support, the sector continues to face challenges inhibiting its growth.

This article looks deeper into the SME sector in Namibia, its structure today and how it has progressed over the years following the 1997 policy framework. The article will further identify and evaluate actions taken by the Namibian government and the private sector to address constraints faced by local SMEs. Finally, the article will conclude with strategies the country needs to undertake in order to achieve the sector’s growth potential.

Overview of Namibia and its Economy

Namibia is home to 2.117 million people (April 2011, IMF World Economic Database), with slightly above 10% living in its capital and primary business center, Windhoek.  After Mongolia, Namibia is the second least densely populated country in the world. The economy is dominated primarily by industry – mining, agriculture, forestry and fishing – and is the largest employer in Namibia. However, the tertiary industry, which includes wholesale and retail, hotels and restaurants, transport and communications, public administration and defense, supercedes the primary sector as the largest contributor to the country’s GDP. According to the UNDP Namibia Economic Review for 2007, the tertiary industry contributes 59% to GDP, followed by the primary and the secondary industry (manufacturing) at 22% and 19% respectively.

Namibia’s economy is closely linked to South Africa, its main trading partner. 85% of Namibia’s imports are from South Africa, and its currency, the Namibian dollar (N$), is pegged to the South African Rand at one-to-one. Other trading partners include the UK, US, Spain, Japan and Germany. Namibia is also a member of the Southern African Customs Union (SACU). Through its revenue sharing arrangement, SACU provides significant contributions to the country’s annual revenues.

Due to a recovery in the mining sector, particularly in diamond and uranium activities, Namibia’s economy grew by 4.2% in 2010, following a contraction in 2009. It implemented strict fiscal management from 2005 to 2008, which helped the country shield itself from the global economic crisis (African Economic Outlook 2010). Despite prudent structural changes, the country continues to face numerous socio-economic challenges that may hinder progress. Unemployment is at its highest, with slightly more than half of the population jobless. The country also faces excess mortality as a result of HIV/AIDS, widespread poverty and a high shortage of skilled labour.