Assessment of policy options to reduce the impact of commodity price volatility on the Namibian economy

Thumbnail Image

Date

2022

Authors

Mutimili, Adriana Ndalinosiso

Journal Title

Journal ISSN

Volume Title

Publisher

Abstract

Namibia is considered a mineral-dependent country because the country’s mineral commodities exports constitute about 50 percent of the country’s total tangible exports. This makes the mining industry a significant contributor to the Namibian national revenue and gross domestic product. Unfortunately, the industry’s contribution to the Namibian revenue has been inconsistent over the 19 past years (2000-2018). In 2007, the total tax paid to government by the industry was N$1.7 billion whilst the contribution in 2009 was only N$1 billion; a significant 41 percent drop. In 2013, the total tax paid to government was N$ 0.9 billion this increased to N$ 3.5 billion in 2018, a significant 74 percent increase (Chamber of Mines of Namibia, 2020).This inconsistent contribution is mainly attributed to the intrinsic volatility of mineral commodity prices, which makes the Namibian economy vulnerable due to the economy’s dependency on minerals. It was therefore the aim of this research to find suitable policy options which can lessen the impact of commodity price volatility on the Namibian economy. To achieve this, the research analysed five policy options which are commonly used to reduce the impact of commodity price volatility. The requirements, advantages, and disadvantages of each policy options were reviewed. Also, a strength, weakness, opportunities, and threats (SWOT) analysis of the Namibian economy was conducted. To evaluate the five policy options, a multicriteria decision-making analysis approach was done using four criteria which are acceptability, cost, practicality, and effectiveness. The policy options’ requirements, advantages, and disadvantages together with the Namibian economy’s SWOT analysis were inputted into a matrix. Finally, the policy options were ranked according to the criteria. The research found that revenue management and revenue insurance were the top two policy options suitable for the Namibian economy. The research recommends that the Namibian government implement these policy options. The research also recommends possible operational frameworks for the top two ranking policy options for four core Namibian minerals selected for analysis. The frameworks require the Namibian government to use adequate reserves and SBI metrics to determine an economically viable year to set up a sovereign fund. The insurance scheme insures the core minerals identified using their contribution to mineral exports. The contribution to the sovereign fund and insurance scheme to be activated when the mining industry surpasses the budgeted revenue by 26 percent. The 26 percent is the average amount by which the actual revenue surpasses the budget revenue for the period that was under study (2000-2018). The withdrawal from the sovereign fund is to be activated when the actual revenue from the mining industry experiences a shortfall from the budgeted amount by 26 percent. The withdrawal condition for the insurance scheme was made specific to each mineral, where a withdrawal was activated when the current year’s total export value for the minerals experience a shortfall lower than the average percentage change in the value of mineral exports when compared to the previous year’s export value.

Description

A research report submitted in partial fulfilment of the requirements for the degree of Master of Science in Engineering to the Faculty of Engineering and the Built Environment, School of Mining Engineering, University of the Witwatersrand, Johannesburg, 2022

Keywords

Citation

Collections

Endorsement

Review

Supplemented By

Referenced By