2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

Openness to, and Restrictions Upon, Foreign Investment:

The Government of the Republic of Namibia (GRN) is committed to stimulating economic growth and employment through attracting foreign investment. The Foreign Investment Act of 1990 is the primary legislation that governs foreign direct investment in Namibia. The Ministry of Trade and Industry (MTI) is the governmental authority which is primarily responsible for carrying out the provisions of the Foreign Investment Act.

Under the Foreign Investment Act, the Ministry established the Namibia Investment Center (NIC). The NIC serves as Namibia’s official investment promotion and facilitation office. It is often the first point of contact for potential investors. The NIC is designed to offer comprehensive services that range from the initial inquiry stage through to operational stages. The NIC also provides general information packages and advice on investment opportunities, incentives, and procedures. The NIC is also tasked with assisting investors minimize bureaucratic “red tape” by coordinating work with government ministries as well as regulatory bodies.

The NIC is also responsible for screening all potential foreign investments. The NIC does not follow a formal review process, but it does evaluate the credibility of potential investors, their business presentations, and gauges the potential economic benefit to the country. The NIC’s decisions are forwarded to the Minister of Trade and Industry for final approval/rejection.

The Namibian Competition Commission (NaCC), established in 2009 under the Competition Act of 2003 is charged by the Ministry of Trade and Industry with reviewing mergers (foreign and domestic) to safeguard and promote competition in the Namibian market. See the section on Transparency of the Regulatory system for more information on the Competition Commission.

The Foreign Investment Act guarantees equal treatment for foreign investors and Namibian firms, i.e., fair compensation in the event of expropriation, international arbitration of disputes between investors and the government, the right to remit profits and access to foreign exchange. Investment incentives and special tax incentives are also available for the manufacturing sector.

The Registrar of Companies in the Ministry of Trade and Industry is responsible for managing, regulating, and facilitating the formation of businesses. The Registrar’s office encourages investors to seek professional advice from legal practitioners, auditors, accounting officers, or secretarial firms when registering their businesses. The Namibian Embassy in Washington provides a guide to registering a business which can be found at: Register a Business

Other laws that impact foreign investors include the 2004 Companies Act and the 1998 Close Corporation Act. These laws provide the legal framework for the establishment of business entities. The 2004 Companies Act went into force on November 1, 2010. For information on changes to and the impact of the new Companies Act, see: Namibia Deloitte Report

Foreign Ownership Restrictions

While the Foreign Investment Act stipulates that foreign investors should be treated the same as Namibian investors, the Act acknowledges that the government has the right to impose restrictions. Most restrictions have to do with land and natural resource rights and government contracts (tenders). For example, the government requires local participation before issuing licenses to exploit natural resources and has implemented additional restrictions in the case of certain “strategic minerals”.

In 2011, Cabinet declared uranium, diamonds, gold, copper and rare earth metals as strategic minerals. The declaration aims to make the Namibian Government and the people of Namibia meaningful participants in the mining sector by granting a State owned company the right to own all new licenses issued for the exploration and mining of strategic minerals. While others may be formed, the current company, Epangelo, is authorized to enter into joint ventures with other parties for exploration and/or development. Renewal of existing licenses will not be affected.

The Land Reform Act regulates the acquisition of agricultural land by foreign nationals. No foreign national is allowed to acquire agricultural land without the prior consent of the Minister of Lands.

Government Tenders

Government transactions, including the procurement of goods and services, are to be coordinated through the Tender Board of Namibia (http://www.mof.gov.na/tender.htm). The board comprises representatives from various government ministries appointed by the Minister of Finance. The Government is required by law to publicize calls for tenders in the local media and the Namibia Government Gazette. Although the primary aim of the tender board is to ensure that tenders are awarded to the best bid in an open bidding process, the procurement policy of Namibia does permit preferences according to certain socio-economic goals and strategies. Beneficiaries of these preferences are not exclusively restricted to the historically disadvantaged or Namibian citizens but are reserved for individuals and companies domiciled in Namibia. In addition, the Tender Board may exempt procurements from the tender procedures if they are valued at less than $N10,000, or the Board finds good cause to deem it impracticable or inappropriate to invite tenders.

The board generally requires that companies are registered with the Ministry of Trade and Industry and that are in good standing with the Department of Inland Revenue (the tax authority) and the Social Security Commission.

Independent Ratings on Namibia’s Investment Climate

Independent ratings confirm that Namibia enjoys a relatively positive investment climate. The World Bank ranked Namibia 78th among 183 countries in its 2012 Doing Business report. Namibia has seen a steady decline in its rankings since 2007, when it was ranked 42nd among the 175 countries evaluated. For the 2012 report, Namibia received its lowest rankings for , registering property, trading across borders and starting a business. The World Bank reported that Namibia requires on average 10 procedures and 66 days to start a business. Registering property takes on average 7 procedures and 39days, and the process costs 13.7 of the property’s value. It takes 9 documents and approximately 29 days to export a product and while it takes 7 documents and 24 days to import an item (trade across borders), according to the World Bank.

In September 2011, Moody’s assigned Namibia its second credit rating (in addition to a previous Fitch rating) of Baa3/stable. In December 2011, the Fitch Ratings service once again issued Namibia a long term foreign currency rating of BBB-, consistent with the ratings Fitch has issued since 2005. For more information go to: http://www.fitchratings.com (Logon required)

In 2005, the Southern Africa Global Competitiveness Hub (or Trade Hub), funded by the U.S. Agency for International Development (USAID), at the request of the MTI, conducted an Investor Roadmap Study for Namibia. The study identified 51 recommendations to improve administrative, regulatory, and procedural issues that could have a potential positive impact on the attractiveness of Namibia to foreign direct investment (FDI). In 2010, the Trade Hub conducted a follow-up audit to review progress on implementing the recommendations identified in the 2005 Investor Roadmap. The audit determined that 16 recommendations had been implemented, and 24 others were pending. To view the findings of the audit see: Investor Roadmap Audit Report

Foreign Investment in the Namibian Stock Exchange

Foreigners must pay a 10% non-resident shareholders tax on dividends; however there are no capital gains or marketable securities taxes. As a member of the Common Monetary Area, the Namibia Dollar (denoted as N$) is pegged one-to-one with the South African Rand.

Infant Industry Protection

The dairy and pasta industries have enjoyed infant industry protection since 2003 under the terms of a provision in the Southern African Customs Union (SACU) Agreement. This means the government charges up to 40 per cent import tariffs on imported Ultra High Temperature (UHT) milk products and pasta. This protection is valid until 2012 and 2014 for milk and pasta respectively.

Index/Ranking

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

TI Corruption Index

2011

Score 4.4 | Ranking 57 of 183

Heritage Economic Freedom

2011

Score 62.7 | Ranking 73 of 179

World Bank Doing Business

2012

78 of 183

MCC Govnt Effectiveness

2009

0.55 (90%)

MCC Rule of Law

2009

0.59 (73%)

MCC Control of Corruption

2009

0.64 (87%)

MCC Fiscal Policy

2009

1.3 (75%)

MCC Trade Policy

2009

88.4 (100%)

MCC Regulatory Quality

2009

0.18 (67%)

MCC Business Start Up

2009

0.928 (34%)

MCC Land Rights Access

2009

0.571 (13%)

MCC Natural Resource Mgmt

2009

78.16 (29%)

Conversion and Transfer Policies

The Foreign Investment Act of 1990 offers investors meeting certain eligibility criteria the opportunity to obtain a Certificate of Status Investment (CSI). A “status investor” is entitled to:

· preferential access to foreign exchange to repay foreign debt, pay royalties and similar charges, remit branch profits and dividends;

· preferential access to foreign currency in order to repatriate proceeds from the sale of an enterprise to a Namibian resident;

· exemption from regulations which might restrict certain business or categories of business to Namibian participation;

· right to international arbitration in the event of a dispute with the government; and

· payment of just compensation without undue delay and in freely convertible currency in the event of expropriation.

To obtain a CSI, an investor must apply to the Ministry of Trade and Industry. The investor’s application must demonstrate the extent to which the proposed investment will:

· contribute toward Namibia’s development objectives;

· utilize Namibian labor and natural resources to contribute to the economy;

· assist in the advancement of socially, economically or educationally disadvantaged Namibians;

· make provisions for equal opportunities for women; and,

· likely impact the environment, and the proposed measures to mitigate adverse environmental consequences.

Non-status investors are subject to exchange controls under the South African regulations applicable to the Common Monetary Area (CMA) – South Africa, Lesotho, Swaziland and Namibia.

There is no limit on investment transfers by corporations to other countries. The Bank of Namibia processes applications. Non-residents may access local credit up to 200 percent of their total shareholders’ investment to finance foreign direct investments in Namibia. The banking system is modern and closely tied to the South African system. Three of the four local commercial banks are subsidiaries of South African banks. All local commercial banks handle international transactions and trade financing. Banking fees and charges are among the highest in the world.

The Bank of Namibia (BoN) must approve all loans originating from foreign lenders no matter how the loan is denominated. To approve a loan the BoN reviews the loan agreement between the two (foreign and local) parties. The documentation is provided by the local commercial bank in which the loan funds will be deposited. The BoN usually responds within three days.

Loans may be denominated in local or foreign currency; however interest rate caps on foreign loans are contingent on the currency denomination. The South African Rand (ZAR) is viewed as local currency.

Interest rate caps on foreign originating loans:

· Foreign originating loans denominated in a foreign currency may not exceed LIBOR + 200 basis points.

· Foreign originating loans denominated in a local currency (ZAR or N$) many not exceed the local prime rate + 300 basis points.

· These caps are determined by the Common Monetary Area

The BoN requires that the principal payment on a foreign originated loan may not be shorter than 6 months. The BoN must approve the principal payment prior to the transaction. The BoN essentially reviews that the principal payment is in line with what was in original loan agreement. The local commercial bank handling the principal payment provides the requisite documents to the BoN. The BoN usually responds within 3 days.

The BoN does not review interest payments. In other words, commercial banks can transmit interest payments without the BoN's review. The BoN has never faced a situation in which it restricted a loan repayment. Foreign currency reserves have, to date, always been sufficient to cover foreign loan payments. The CMA and thus the BoN is moving toward relaxing the controls on foreign loans (i.e., no longer requiring approval).

Expropriation and Compensation

Government expropriations are rare. According to the Foreign Investment Act, foreign investors who have received a Certificate of Status Investment (CSI) are entitled to “just compensation without undue delay and in freely convertible currency” if the government expropriates the investor’s property. Furthermore, the courts are generally independent and uphold contracts.

The primary mechanism for land reform that the government continues to pursue is a “willing buyer-willing seller” program, which is rooted in Namibian law – specifically the Land Reform Act of 1995. In 2003, this Act was amended to allow the expropriation of property in the public interest subject to the payment of “just” compensation and in accordance with legal procedures. Landowners have the option to challenge the Government, including the price offered for expropriation, through the court system. As in other Southern African countries emerging from apartheid, land reform is at the forefront of public debate. The land reform process draws criticism for the slow pace of acquiring commercial farmland and resettling Namibia’s landless.

Under its land reform program the government has attempted the expropriation of “unproductive” agricultural land from both domestic and overseas (primarily German) landowners. In 2005, the only year in which the Government took such action, the GRN expropriated four farms. The High Court of Namibia on March 6, 2008 made its first ruling on the legality of expropriation under the land reform program. The Court ruled the program was constitutional but found that the Ministry of Lands and Resettlement’s administration of the expropriation process had violated Namibian law on several grounds. As a result of the ruling, two farms were returned to their owners, while the GRN compensated in full the absentee owners of the other two farms.

Dispute Settlement

The Foreign Investment Act allows for the settlement of disputes by international arbitration for investors that have obtained a Certificate of Status Investment (CSI). The CSI must also include a provision for international arbitration. The Act stipulates that arbitration “shall be in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law in force at the time when the Certificate was issued” unless the CSI stipulated another form of dispute resolution.

There is no domestic arbitration body. Investors without a CSI that encounter a dispute will have to address their dispute in the Namibian courts, or the court system which has jurisdiction according to the investor’s contract. The Namibian court system is independent and is largely perceived to be free from government interference. Per the Criminal Procedure Act of 2004, foreign court judgments may be accepted if a bilateral treaty is in place.

Namibia’s legal system, based on the Roman Dutch Law, is similar to South Africa’s legal system. The system provides effective means to enforce property and contractual rights. The Company’s Act of 1973 governs company and corporate liquidations while the Insolvency Act 61 of 1936 governs insolvent individuals and their estates. The Insolvency Act details sequestration procedures and the rights of creditors. A new Insolvency Amendment Bill was passed in 2005 but has not yet been signed into law.

As the “one-stop-shop” for investors, the NIC should be the body that first learns of an investment dispute between a foreign investor and a domestic enterprise. The NIC has never received a report of an investment dispute.

Namibia signed but has not ratified the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.

Performance Requirements/Incentives

Namibia does not impose performance requirements as a condition for establishing, maintaining, or expanding investments on foreign investors. The requirements in place are mostly imposed as a condition to access tax and investment incentives. For example, to benefit from incentives in a planned export processing zone, investors are required to export a certain percentage of the finished product. There is no legal requirement for investors to purchase from local sources. However, for certain industries, there are local content requirements to exempt final products from duties under the Southern African Customs Union (SACU).

Incentives

Incentives are mainly aimed at stimulating manufacturing and attracting foreign investment to Namibia and promoting exports. To take advantage of the incentives, companies must be registered with the Ministry of Trade and Industry (MTI) and the Ministry of Finance. Tax and non-tax incentives are accessible to both existing and new manufacturers. The MTI has developed a brochure titled Special Incentives for Manufacturers and Exporters which is available from the Namibia Investment Centre (NIC). Namibia has also established an Export Processing Zone (EPZ) regime that offers favorable conditions for companies wishing to manufacture and export products for regional and international markets (see section Foreign-Trade Zones/Free Ports).

The Ministry of Trade and Industry is reviewing the Foreign Investment Act. According to government sources, the impetus to change the act is the desire to provide domestic investors with the same incentives afforded foreign investors. Government is also contemplating expanding incentives beyond the manufacturing sector to service industries (primarily hospitality and tourism).

Import Permits

The Ministry of Trade and Industry requires import permits for products entering the country. Products subject to non-automatic import licensing are medicines, chemicals, frozen and chilled fish, meat including game, live animals, genetic materials, pornographic materials, controlled agronomic products, controlled petroleum products, firearms and explosives, diamonds, coins, gold, and other minerals, works of art which have been in Namibia for more than 50 years, and almost all second-hand goods, including clothing and motor vehicles. In practice, the Ministry of Trade and Industry does not issue licenses for used clothing imports.

Most non-agricultural imports only require a permit issued by MTI. However, depending on the agricultural product, additional documentation may be necessary. The Namibian Agronomic Board issues permits for the import, export, and transit of controlled agronomic crops such as wheat, wheat products, corn, and corn products. Agronomic crops and derivatives and plants and plant products also require a phyto-sanitary certificate issued by the Ministry of Agriculture, Water and Forestry (MAWF). Retailers of fruits, vegetables, and other crop products must purchase 27.5 percent of their stock from local farmers. The Namibian Meat Board regulates the import and export of live animals (cattle, sheep, goats and pigs) and derivative meat products. Importers of these products must demonstrate compliance with the country’s animal health standards by obtaining a veterinary import permit from the Directorate of Veterinary Services. The import of wood and lumber products requires permits from the MAWF.

Namibia is a party to the WTO Agreement on Import Licensing.

Black Economic Empowerment and Affirmative Action

The government actively encourages partnerships with historically disadvantaged Namibians. Although the Government does not have a codified Black Economic Empowerment (BEE) program, the Ministry of Labor and Social Welfare’s Equity Commission requires all firms to develop an affirmative action plan for management positions and to report annually on its implementation. In November 2011, the Prime Minister tabled the “New Equitable Economic Empowerment Framework” which aims to create conditions in which the distribution of income becomes far more equitable than it is at present. It is not clear whether this policy will be approved and implemented. Namibia’s Affirmative Action Act strives to create equal employment opportunities, improve conditions for the historically disadvantaged, and eliminate discrimination. The commission facilitates training programs, provides technical and other assistance, and offers expert advice, information, and guidance on implementing affirmative action in the work place.

In certain industries the government has employed different techniques to increase Namibian participation. In the fishing sector, companies pay lower quota fees if they operate Namibian-flagged vessels that are based in Namibia, with crews that are predominantly Namibian. The Minister of Mining and Energy has made clear that prospective mining companies must “indicate and show commitment to empower previously disadvantaged Namibians” in their applications for exploration and mining licenses.

Work Permits

The lengthy and administratively burdensome process of obtaining work permits is among investors’ greatest complaints in Namibia. Although the government cites the 51 percent unemployment rate as its motivation for a strict policy on work permits, generally Namibia does not yet have the available skills capacity to fill the jobs which foreigners seek (see Labor Section).

Right to Private Ownership and Establishment

The Namibian Constitution guarantees all persons the right to acquire, own and dispose of all forms of property throughout Namibia, but also allows Parliament to make laws concerning expropriation of property (see above) and to regulate the right of foreign nationals to own or buy property in Namibia. There are no restrictions on the establishment of private businesses, size of investment, sources of funds, marketing products, source of technology, or training in Namibia.

Real Estate

Foreign investors can purchase and own land in Namibia. There is an exception related to agricultural land. Due to Namibia’s ongoing land reform and resettlement process, legislation restricts non-resident foreigners from purchasing agricultural farmland. Some stakeholders have called for the expropriation of agricultural land owned by non-resident foreigners (so-called absentee owners). However, to date, the government has not engaged in any significant expropriation of farmland.

Protection of Property Rights

The Namibian legal system protects and facilitates acquisition and disposition of property such as land, buildings, and mortgages. All deeds of sales are registered with the Deeds Office. Property is usually purchased through real estate agents and most banks provide credit through mortgages. The Namibian Constitution prohibits expropriation without just compensation.

Namibia is a party to the WIPO Convention, the Berne Convention for the Protection of Literary and Artistic Works, and the Paris Convention for the Protection of Industrial Property. Namibia is also a party to the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks and the Patent Cooperation Treaty. Namibia is a signatory to the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty.

The responsibility for IPR protection is divided among three government ministries. The Ministry of Trade and Industry oversees industrial property and is responsible for the registration of companies, private corporations, patents, trademarks, and designs. The Ministry of Information and Communication Technology manages copyright protection, while the Ministry of Environment and Tourism protects indigenous plant varieties and any associated traditional knowledge of these plants. In April, 2010 the Ministry of Trade and Industry tabled the updated Industrial Property Bill, which proposes to establish an Industrial Property Office to handle the administration of patents, marks and designs. However, parliament has not yet passed the bill.

The Ministry of Information and Communication Technology has drafted amendments to the Copyright and Neighboring Rights Protection Act of 1994 with the aim of bringing it in line with the TRIPS Agreement and the WIPO treaties. The amendments also aim to improve standards of IPR protection and include new aspects such as satellite, traditional knowledge and folklore issues. The new amended act has however not yet been passed. Two copyright organizations, the Namibian Society of Composers and Authors of Music (NASCAM) and the Namibian Reproduction Rights Organization (NAMRRO), are the driving forces behind the government’s anti-piracy campaigns. NASCAM administers intellectual property rights for authors, composers and publishers of music. NAMRRO protects all other intellectual property rights including literary, artistic, broadcasting, satellite, traditional knowledge and folklore.

Transparency of the Regulatory System

The Competition Act of 2003 establishes the legal framework to “safeguard and promote competition in the Namibian market.” The government, through the Competition Act, has designed a legal and regulatory framework that attempts to safeguard competition while boosting the prospects for Namibian businesses as well as recognizing the role of foreign investment. The act is intended to promote:

· The efficiency, adaptability and development of the Namibian economy;

· Competitive prices and product choices for customers;

· Employment and advancement of the social and economic welfare of Namibians;

· Expanded opportunities for Namibian participation in world markets;

· Participation of small enterprises in the economy by ensuring a level playing field; and

· Greater enterprise ownership particularly among the historically disadvantaged.

The act established the Namibia Competition Commission (NaCC) which was officially launched in December 2009. The NaCC has the mandate to review any potential mergers and acquisitions that might limit the competitive landscape or adversely impact the Namibian economy. The Minister of Trade and Industry is the final arbiter on merger decisions and may accept or reject an NaCC decision. Any investor can file an appeal with the MTI but there is no formal process. In 2010 the NaCC approved some mergers by foreign buyers and rejected the merger of two cement companies. In 2011, the roles and authorities of the Ministry and the NaCC came under question in the Namibian courts in the proposed merger between Walmart and South African Massmart. A decision is expected in spring 2012.

In many sectors, a relatively effective and transparent regulatory system exists. In 2000, the government established the Electricity Control Board (ECB), which is responsible for regulating the energy sector. The Namibian parastatal responsible for providing electricity, NamPower, currently enjoys a virtual monopoly. Though procedures for the establishment of Independent Power Producers (IPP) exist, to date no power purchasing agreements of note have been concluded. However, the ECB’s core function is to regulate electricity generation, transmission, distribution, supply, import and export within the country. The ECB’s vision is for Namibia to have a competitive and transparent electricity market. As regulator, the ECB is responsible for recommending to the Minister of Mines and Energy which companies or entities should receive licenses.

In October 2009 President Pohamba signed into law a new Communications Act replacing the Communications Commission Act (Act 4 of 1992). The 2009 act also amended certain sections under the Posts and Telecommunications Act, 1992 (Act 19 of 1992). Advocates of the new act argued it was needed to level the playing field for all telecommunication operators and improve competition. Many implementing regulations are not yet in place.

Under the act, the Communications Regulatory Authority of Namibia (CRAN) replaces the Namibian Communication Commission (NCC), which only had limited regulatory authority. Civil society groups argue that the new act does not provide the CRAN enough regulatory independence. Such groups note that the Minister of Information and Communication Technology alone may appoint the CRAN Chairperson and Vice-Chairperson, and that the Minister must concur on the prescribing of any new broadcast licenses. The state-owned Namibian Broadcasting Corporation (NBC) - which transmits TV and radio services - is exempted from licensing procedures enumerated in the act. The act also contains intelligence gathering (intercept) provisions which civil society groups have argued violate civil liberties and the Namibian constitution. To comply with the intercept provisions, telecommunications companies could be saddled with many technical burdens and significantly higher costs, critics argue. Note, however, that these provisions have to date never been implemented.

The Bank of Namibia (BoN) regulates the banking sector. In 2010, the BoN rejected a bid by South Africa’s ABSA Group to acquire a 70 percent stake in Capricorn Holdings, the parent company of Bank Windhoek. The BoN argued that the ABSA’s acquisition would make all banks foreign-owned, as Bank Windhoek is the only bank in Namibia that has majority domestic ownership. As all other banks in Namibia are South African-owned the BoN also argued that permitting the merger would have exposed Namibia to “single country risk” and would make the “banking system more susceptible to cross-border shocks through the risk of contagion.” In November, the BoN granted a provisional license to SME Bank Namibia Limited, a majority government owned banking institution that the GRN wishes to use to help provide better access to financial services for small and medium Namibian enterprises.

The Namibia Financial Institutions Supervisory Authority (NAMFISA) regulates non-banking financial institutions. The authority aims to reduce financial crime through developing and implementing effective regulatory systems.

Efficient Capital Markets and Portfolio Investment

There is a free flow of financial resources within Namibia and throughout Common Monetary Area (CMA) countries of the South African Customs Union (SACU) which include Namibia, Swaziland, South Africa and Lesotho. Capital flows with the rest of the world are relatively free, subject to South African exchange controls (discussed above in Conversion and Transfer Policies). The Namibia Financial Institutions Supervisory Authority (NAMFISA) registers portfolio managers and supervises the actions of the Namibian Stock Exchange (NSX) and other non-banking financial institutions.

Although the NSX is the second largest stock exchange in Africa, this distinction is largely because many South African firms listed on the Johannesburg exchange are also listed (dual listed) on the NSX. The government has also introduced investment incentives to attract mutual funds and foreign portfolio investors that have energized emerging stock markets elsewhere in the developing world. By law, Namibia’s government pension fund and other Namibian funds are required to allocate a certain percentage of their holdings to Namibian investments. Namibia has a world-class banking system that offers all the services needed by a large company. Foreign investors are able to get credit on local market terms.

There are no laws or practices by private firms in Namibia enabling incorporations to prohibit foreign investment, participation or control; nor are there any laws or practices by private firms or government precluding foreign participation in industry standards setting consortia.

Competition from State-Owned Enterprises (SOEs)

While Namibian companies are generally open to foreign investment, government owned enterprises have to date generally been closed to all investors (Namibian and foreign). State Owned Enterprises (SOE – also known as parastatals) include a wide variety of commercial companies, financial institutions, regulatory bodies, educational institutions, boards and agencies. Generally, employment at SOEs is highly sought after because their remuneration packages are not bound by public service constraints. Parastatals provide most of the essential services such as telecommunications, transport, water, and electricity. The following are the most prominent commercial SOEs:

· Air Namibia (Air carrier)

· Namibia Airports Company (Airport management company)

· Namibia Wildlife Resorts (Tourism)

· Namport (Maritime Port Authority)

· Nampost (Postal and courier services)

· Namwater (Water sanitation and provisioning)

· Roads Contractor Company

· Telecom Namibia (Fixed-line telecommunications)

· TransNamib (Rail company)

· NamPower (Energy generation and transmission)

The government owns a host of other enterprises, from media ventures to a fishing company. In December 2009, the Minister of Mines and Energy inaugurated Epangelo Mining, a wholly government-owned mining company. Parastatals own assets worth approximately 40% of GDP and most receive subsidies from government. In certain industries, SOEs have been perennially unprofitable and have only managed to stay solvent because of government subsidies. In industries where private companies compete with SOEs (i.e., tourism, fishing, communications, etc) SOEs are sometimes perceived to receive favorable concessions from government.

Foreign investors have participated in joint ventures with government in certain sectors (i.e., mobile telecommunications and mining). The Government sold a 34% share in 2006 in its state-owned mobile phone company, MTC, to Portugal Telecom. However, a U.S. business criticized the process for a lack of transparency and unfair bidding practices designed to favor one party. NamDeb, a 50-50 partnership between the government and DeBeers has mined Namibia’s land-based diamonds since 1994. There has been some debate on whether to list parastatal companies on the Namibian Stock Exchange (NSX), but there are no plans to do so in the near future.

The 2006 State Owned Enterprises Governance Act, which has yet to be fully implemented, requires each SOE to submit an annual business and financial report to its portfolio minister at least three months prior to the beginning of each financial year. With important exceptions, very few SOEs have consistently provided such annual reports. This Act has established a Cabinet Committee called the SOE Governance Council consisting of the Prime Minister, the Minister of Finance, the Minister of Trade and Industry, the Attorney General and the Director General of the National Planning Commission which will be tasked with developing common principles of good governance and a common policy framework. This Council also will approve the appointment of board members. To date, the Cabinet Minister whose portfolio includes oversight of a particular SOE nominates the SOE’s board members but must get Cabinet approval before the board member can be officially appointed. Chief Executive Officers (CEO) report to the board and senior management report to the CEO’s. In most cases, SOE’s can make business decisions without consulting government. In May 2010, Parliament approved the Governance Policy Framework on SOEs. This framework requires that performance agreements be signed between all SOEs and Government. All chief executives and chairpersons of boards will be required to enter into five-year performance agreements with Government.

Namibia does not have a Sovereign Wealth Fund (SWF). The Government Institution Pension Fund (GIPF) is a pension fund established to provide retirement and benefits for employees in the service of the Namibian Government as well as institutions established by an Act of the Namibian Parliament. According to the GIPF, it represents 61% of the Namibian retirement funds industry.

Corporate Social Responsibility

There is a general awareness of Corporate Social Responsibility (CSR) in Namibia amongst the business community, although there is little research to show that Namibian consumers choose to trade with firms based on their CSR programs. Most large firms including SOEs have well defined (and publicized) social responsibility programs that provide assistance in areas such as education, health, environmental management, sports, and Small Medium Enterprise (SME) development. Many firms include their Black Economic Empowerment (BEE) programs within their larger CSR programs. Firms operating in the mining sector – Namibia’s most important industry – generally have visible CSR programs that focus on education, community resource management and environmental sustainability, health, and BEE. Many Namibian firms have HIV/AIDS workplace programs to educate their employees about how to prevent contracting and spreading the virus/disease. Some firms also provide anti-retroviral (ARV) treatment programs beyond what may be covered through government and private insurance systems.

Political Violence

Namibia is a stable multi-party and multi-racial democracy. The protection of human rights is enshrined in the Namibian constitution, and the government generally respected those rights. Political violence is rare, but there were some political confrontations and violent incidents in 2008 and 2009 between supporters of the opposition Rally for Democracy and Progress (RDP) and pro-government SWAPO party members. Nevertheless, damage to commercial projects and/or installations as a result of political violence is considered unlikely. State Department’s 2010 Human Rights Report for Namibia provides additional information on incidents of political violence in the country.

Corruption

Transparency International’s 2011 Corruption Perceptions Index ranked Namibia 57 out of 178 countries.. A score of 10 reflects a “highly clean” and 0 reflects a “highly corrupt” nation. Namibia scored 4.4 just behind South Africa’s score of 4.5. Only five sub-Saharan African countries (Botswana, Mauritius, Cape Verde, Seychelles and South Africa) ranked higher.

There are no international or regional “watchdog” organizations operating in the country.

. The Namibian Government passed the Anti-Corruption Act in May 2003, appointed the director and deputy director of the resulting Anti-Corruption Commission in October 2005, and launched the opening of the office in 2006. The Commission attempts to complement civil society’s anti-corruption programs and support existing institutions such as the Ombudsman's Office and Attorney General. Anti-corruption legislation is in place to combat public corruption. Some critics charge that the ACC narrowly interprets its mandate and focuses on minor cases. The ACC has countered that it requires additional funding in order to properly fulfill its mandate. The ACC receives 700 to 900 reports of corruption per year, but less than 10 percent are deemed pursuable. In a nationwide survey commissioned by the ACC and released in December 2011, corruption was listed at the second most important development challenge facing Namibia (12.8 percent, after unemployment at 39.6 percent). Just over half (54 percent) of respondents rated corruption as “very high”, although relatively few professed a personal experience with corruption.

Namibia has signed and ratified the UN Convention Against Corruption and the African Union’s African Convention on Preventing and Combating Corruption. Namibia signed the Southern African Development Community’s Protocol Against Corruption.

Bilateral Investment Agreements

Namibia has ratified reciprocal investment promotion and protection treaties with Switzerland, Malaysia, France, Germany, the Netherlands, Cuba, Finland, Spain, Austria, Angola, Vietnam, Italy. China and the Russian Federation have signed investment agreements with Namibia, but the agreements have yet to be ratified. There is no bilateral investment agreement and no bilateral tax treaty between the United States and Namibia. In 2008, SACU (of which Namibia is a member) signed a Trade, Investment and Development Cooperation Agreement (TIDCA) with the United States of America, and work continues in pursuit of a Free Trade Agreement between the United States and SACU.

As a member of the Southern African Customs Union (SACU), Namibia will be a beneficiary of SACU’s free trade agreement with the European Free Trade Association (Iceland, Lichtenstein, Norway, and Switzerland) currently awaiting signatures and is part of negotiations for trade agreements with Mercosur (Argentina, Brazil, Paraguay, and Uruguay). SACU plans to extend its free trade network to the EU, China, Egypt, India, Kenya, and Nigeria. Namibia also has an FTA with Zimbabwe that was finalized in 1993.

The Southern African Development Community (SADC) negotiating bloc have agreed on an interim Economic Partnership Agreement (EPA) with the European Union, but Namibia remains the only country which has not yet ratified it.

OPIC and Other Investment Insurance Programs

The United States Government has had an Investment Incentive Agreement with the Government of the Republic of Namibia since 1990. Under the agreement, the Overseas Private Investment Corporation (opic) is the USG entity that provides political risk insurance and credit facilities to qualified u.s. investors in Namibia. In June 2005, OPIC approved a $25.2 million credit facility for Lazare Kaplan International Inc. (LKI) to enhance the operations of NamGem Diamond Manufacturing Company Ltd. (NamGem). OPIC also has invested in Helios Sub-Saharan Africa Fund which in turn invested in Africatel Holdings(“Africatel”). Africatel, a subsidiary of Portugal Telecom Group, owns 34% of Namibia’s largest cell provider MTC, while the government owns the remaining 66%.

Namibia is also a member of the World Bank’s Multilateral Investment Guarantee Agency (miga), which performs a similar function. MIGA has so far not issued any guarantees for investment, but Namibia has been an active beneficiary of MIGA's technical assistance services.

Labor

The Namibian Constitution allows for the formation of independent trade unions to protect workers’ rights and to promote sound labor relations and fair employment practices. Namibia has ratified six of the International Labor Organization’s fundamental conventions. Businesses operating within the EPZ are required to adhere to the Labor Act.

While there is a pool of qualified workers in varying professions in Namibia, there is a shortage of specialized skilled labor. Employers often cite labor productivity and the shortage of skilled labor as one of the biggest obstacles to business growth. This shortage appears to be linked to weaknesses in Namibia’s education sector. The 2012 World Economic Forum, Global Competitiveness Report ranked Namibia 113th out of 139 countries in the Higher Education and Training category, and 114th in the Health and Primary Education category. Additionally, that report identified “poorly educated workforce” as the most problematic factor for doing business in Namibia (selected by 16.9 percent of respondents).

The Government offers manufacturing companies special tax deductions of up to 25 percent if they provide technical training to employees. The Government will also reimburse companies for costs directly related to employee training under approved conditions.

The 2007 Labor Act, which entered into force in November 2008 contained a provision that prohibited the hiring of temporary or contract workers (“labor hire”), but the provision was ruled unconstitutional by the Supreme Court. In late 2011, the Government tabled in Parliament amendments to the Labor Act introducing very strict regulations with respect to the use of Labor Hire, and defining the “user” of temporary workers as their legal employer, under a triangular employment relationship. In addition the amendments place strict limitations on short-term employment contracts. These amendments may effectively make the use of labor hire non viable. The amendments have yet to be gazetted and implemented.

Foreign Trade Zones/Free Ports

Foreign firms enjoy the same investment opportunities as local companies. There are no free ports in Namibia, although NamPort, the national port authority, is considering establishing a free port distribution center at Walvis Bay. Botswana, Zambia and Zimbabwe have concluded agreements to establish dry ports for the clearance of goods destined to their countries; however, to date, only Zambia has begun construction.

Export processing Zones (EPZ)

Companies with Export Processing Zone (EPZ) status can set up operations anywhere in Namibia. There are no restrictions on the industrial sector provided that the exports are destined for markets outside the SACU region, earn foreign exchange, and employ Namibians. EPZ benefits include no corporate tax, no import duties on the importation of capital equipment or raw materials, and no VAT, sales tax, stamp or transfer duties on goods and services required for EPZ activities. Non-residents operating in an EPZ may hold foreign currency accounts in local banks. The Government also provides grants to EPZ companies for training programs to improve Namibian workers’ skills and productivity.

The Offshore Development Company (ODC) administers the country’s Export Processing Zone (EPZ) regime. However, ODC has been at the center of a 2005 corruption scandal involving the loss of 100 million Namibian dollars (approximately 10 million USD) in investments. ODC maintains that it is financially stable and is negotiating repayment; however, to date, the funds remain unaccounted for

Further information on ODC and EPZs is available at: http://www.mti.gov.na/subpage.php?linkNo=16

For more information on investment incentives: http://www.mti.gov.na/subpage.php?linkNo=22

For information on Namibia’s Walvis Bay port EPZ managed by the Walvis Bay EPZ Management Company, please click: http://www.wbepzmc.iway.na

Foreign Direct Investment Statistics

The Bank of Namibia (BoN) maintains statistics on foreign direct investment in Namibia which it shares with the United Nations Conference on Trade and Development (UNCTAD). UNCTAD estimates that in 2010, FDI stocks were equivalent to 45 percent of GDP, and FDI inflows represented 34 percent of gross fixed capital formation.

Value of FDI Inflows

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Year

USD

(Millions)

FDI as Percent of GDP

FDI as Percent of Gross Fixed Capital Formation

2007

733

43.6

35.3

2008

720

39.3

33.3

2009

516

33.6

24.5

2010

858

44.6

32.2

Source: UNCTAD and BoN

Although decreased investments in Namibian equities led to a steep decline in FDI in 2009, FDI figures have rebounded in 2010 and continue to hold steady in 2011 in spite of the ongoing global financial slump. In fact, a significant jump in the third quarter of 2011 resulted in total inflows already well in excess of any previous year on record. This increase stemmed from both the “reinvested earnings” and “other capital” sub-categories. The increase under “other capital” reflects funds borrowed by Namibian subsidiaries from their parent companies, especially for capital expenditure. Outflows in portfolio investment continued to outpace inflows, however, as is usually the case in Namibia.

Composition of Direct investment in Namibia (In N$ Millions)

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2006

2007

2008

2009

2010 (P)*

2011 Q1-Q3 (P)*

Total

2618

5164

5951

4376

5865

7031

Equity capital

2948

3952

2622

275

66

145

Reinvested earnings

1019

1318

1115

1327

3555

3237

Other capital

-1349

-106

2213

2774

2244

3649

Liabilities to direct investors

244

-468

2218

2723

2012

2541

Claims on direct investors

-1594

362

-5

52

232

21

Source: BoN

*P - Provisional

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