Author: European Commission (EC) and Government of Namibia

Date: 2002

Title: Namibia-EC Country Strategy Paper and Indicative Programme for the Period 2002-2007

Original language: English

Concerning: Strategy paper made by the EC and Namibian government, outlining European aid to the country for the period 2002-07. The paper also is a thorough report on the current (2000/02) situation in Namibia, covering aspects from the economy to human rights. This document also includes the Namibian govt's reaction to the EC's comments on human rights in Namibia.

Source: EC

1. EU COOPERATION OBJECTIVES...........................................................................................2

2. NAMIBIAN POLICY AGENDA................................................................................................2

3. ASSESSMENT OF THE POLITICAL, ECONOMIC, AND SOCIAL CONTEXT...................4

3.6.1 GENDER.........................................................................................................................8

3.6.2 ENVIRONMENT............................................................................................................8

3.6.3 HIV-AIDS.......................................................................................................................9

3.7.1 POVERTY AND INEQUITY CHALLENGES..............................................................9

3.7.2 ECONOMIC CHALLENGES ......................................................................................10

3.7.3 GOVERNANCE CHALLENGES ................................................................................11

4. OVERVIEW OF PAST AND ONGOING EU COOPERATION (LESSONS AND

EXPERIENCE).........................................................................................................................13

4.1.1 COOPERATION ADMINISTERED BY THE EC ......................................................13

4.1.2 COOPERATION ADMINISTERED BY THE EUROPEAN INVESTMENT BANK

(EIB).............................................................................................................................14

4.3.1 AGRICULTURE...........................................................................................................15

4.3.2 FISHERIES ...................................................................................................................15

5. RESPONSE STRATEGY..........................................................................................................16

5.1.1 RURAL DEVELOPMENT RESPONSE STRATEGY................................................16

5.1.2 HUMAN RESOURCE DEVELOPMENT RESPONSE STRATEGY.........................17

5.1.3 COMPLEMENTARITY AND COHERENCE IN THE RESPONSE STRATEGY....18

PART B : INDICATIVE PROGRAMMME............................................................................ I

6. PRESENTATION OF THE INDICATIVE PROGRAMME ..................................................... II

6.3.1 RURAL DEVELOPMENT...........................................................................................III

6.3.2 HUMAN RESOURCES DEVELOPMENT .................................................................III

6.6.1 RURAL DEVELOPMENT.......................................................................................... IV

6.6.2 HUMAN RESOURCES DEVELOPMENT ................................................................ VI

6.6.3 OTHER PROGRAMMES............................................................................................ IX

6.8 INDICATIVE CHRONOGRAMME OF ACTIVITIES.............................................XII

Annex I: Government of Namibia’s position on the political issues raised in section 3.1

Annex II: Parameters for the review process based on the National Development Plan 2

Annex III: Goals, Strategies and Achievements under NDP1 (1995-2000)

Annex IV: ‘Namibia at a Glance’

Annex V: Namibia Donor Matrix

Annex VIa: The role of non-state actors in sustainable development and the consultations with Non-state actors in the context of the CSP

Annex VIb: Civil Society Involvement by Sector and Organisation – NPRAP

Annex VII: Abbreviations and acronyms

The Government of the Republic of Namibia and the European Commission hereby agree as follows:

(1) The Government of the Republic of Namibia represented by the Hon. Ms. S. Kuugongelwa, Director-General of the National Planning Commission and National Authorising Officer, the European Community, represented by Mr. F.J. Ortiz de Zúñiga, Head of EC Delegation in Namibia, hereinafter referred to as the Parties, held discussions in Windhoek from January 2001 to October 2001 with a view to determining the general orientations for co-operation for the period 2002 – 2007.

The European Investment Bank was represented at these discussions by Mr. Manfred Drechsler. During these discussions, the Country Strategy Paper and an Indicative Programme of Community Aid in favour of Namibia were drawn up in accordance with the provisions of Articles 2 and 4 of Annex IV to the ACP-EC Partnership Agreement, signed in Cotonou on 23 June 2000. These discussions complete the programming process in Namibia.

The Country Strategy Paper and the Indicative Programme are annexed to the present document.

The Government of the Republic of Namibia has made comments, which have been reproduced in Annex I. The country analysis of the document reflects the opinion of the EC and does not represent the views of the Government of Namibia.

(2) As regards the indicative programmable financial resources which the Community plans to make available to Namibia for the period 2002-2007, an amount of € 48 million is foreseen for the allocation referred to in Article 3.2 (a) of Annex IV of the ACP-EC Partnership Agreement (A-allocation) and of € 43 million for the allocation referred to in Article 3.2 (b) (B-Allocation). These allocations are not entitlements and may be revised by the Community, following the completion of mid-term and end-of-term reviews, in accordance with Article 5.7 of Annex IV of the ACP-EC Partnership Agreement.

(3) The A-allocation is destined to cover macroeconomic support, sectoral policies, programmes and projects in support of the focal or non-focal areas of Community Assistance. The indicative programme under chapter VI concerns the resources of the A-allocation as well as uncommitted balances of former EDFs, for which no projects and programmes have been identified under the respective National Indicative Programmes. It also takes into consideration other financing sources from which Namibia could benefit under other Community resources. It does not pre-empt financing decisions by the Commission.

(4) The B-allocation is destined to cover unforeseen needs such as emergency assistance where such support cannot be financed from the EU budget, contributions to internationally agreed debt relief initiatives and support to mitigate adverse effects of instability in export earnings. With the exception of an amount of 25 million Euro which is destined to finance the development programme identified following a request for aid under the Sysmin programme of the Lomé Convention but for which no financing decision could be taken before 31 December 2000, the B-allocation shall be triggered according to specific mechanisms and procedures and does therefore not constitute part of the indicative programme, at this stage. For the time being, only the programme to be financed under the Sysmin-allocation is included in the Work Programme.

(5) Pending the entry into force of the Financial Protocol of the ACP-EC Partnership Agreement and within the framework of the present Country Strategy Paper and Indicative Programme, financing decisions for projects and programmes can be taken by the Commission at the request of the Government of the Republic of Namibia within the limits of the A- and B-allocations referred to in this document and under the condition that sufficient resources are available in the general reserve of the 8th EDF. The respective projects and programmes shall be implemented according to the rules and procedures of the eighth EDF until entry into force of the Financial Protocol for the Ninth European Development Fund.

(6) The European Investment Bank may contribute to the implementation of the presentCountry Strategy Paper by operations financed from the Investment Facility and/or from its own resources, in accordance with Articles 3 (a) and 4 of the Financial Protocol of the ACP-EC Partnership Agreement (see sections 4.1.2 and 5.2 for further details).

(7) In accordance with article 5 of Annex IV to the ACP-EC Partnership Agreement, the National Authorising Officer and the Head of Delegation shall annually undertake an operational review of the Indicative Programme and undertake a mid-term review and end-of-term review of the Country Strategy Paper and the Indicative Programme in the light of current needs and performance. The mid-term review shall be undertaken within two years and the end-of term review shall be undertaken within four years from the date of signature of the Country Strategy Paper and the National Indicative Programme. Following the completion of the mid- and end-of-term reviews, the Community may revise the resource allocation in light of current needs and performance.

(8) The agreement of the two parties on this Country Strategy Paper and the National Indicative Programme, subject to the ratification and entry into force of the ACP-EC Partnership Agreement, will be regarded as definitive within eight weeks of the date of signature, unless either party communicate the contrary before the end of this period.

Signatures

For the Government of the                                                    For the European Commission
Republic of Namibia

The national policies for development are enshrined in the second National Development Plan 2001-6 and the National Poverty Reduction Action Programme identifies a number of strategic measures aimed at reducing poverty. The overarching objective of EC co-operation in Namibia is the reduction, and in due course the elimination of poverty. This conforms to the vision of NDP2 of sustainable and equitable improvement in the quality of life of all people in Namibia and in particular to reduce poverty. Namibia remains one of the more politically stable countries in Africa even though there has been growing concern about involvement in external conflict and more recently, strong pronouncements against minority groups, particularly the homosexual community. Namibia is a resource-based economy characterised by moderate growth between 1995-99 and an expanding government sector. It has adopted an active regional integration policy being a member of three regional groupings: Southern African Customs Union (SACU), Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA). The economy of the country shows a sharp dichotomy reflecting the legacy of apartheid years. Namibia is a lower middle-income country with exceptionally high levels of inequality and pockets of severe poverty. This has resulted in a very skewed distribution of income with the majority of poor households living in communal rural areas.

Sustainable development is centred on four themes: Poverty reduction, the HIV/AIDS pandemic, the environment and the mainstreaming of gender. The fundamental challenges facing Namibia are (i) the reduction of poverty and inequality, and more particularly the need to promote sustainable rural livelihoods (including land reform) and better levels of education and health, (ii) a governance agenda focusing on national priorities such as decentralisation, reducing government consumption and the establishment of a comprehensive land reform policy (iii) the restructuring of the economy particularly in terms of fiscal reform, the diversification of the export base and the need to prepare for greater world wide trade liberalisation.

The EC, Germany, USAID and Sweden are the largest donors and the EC is likely to gradually become a comparatively more important partner due to the phasing out of a number of donors.

Against this background and after extensive consultations among stakeholders it was reaffirmed that the focus of EC assistance will be poverty reduction and the EC has agreed with GRN on the following focal sectors: (i) Rural Development and (ii) Human Resources Development. The overall indicative allocation for the 9th EDF amounts to EURO 91 million.

In accordance with Article 177 of the Treaty Establishing the European Community, community policy in the sphere of development co-operation shall foster:

- The sustainable economic and social development of the developing countries, and more particularly the most disadvantaged among them;

- The smooth and gradual integration of the developing countries into the world economy;

- The campaign against poverty in the developing countries.

These objectives have been confirmed and reinforced in Article 1 of the ACP-EC Partnership Agreement, signed in Cotonou on 23 June 2000, which puts a priority emphasis on reducing and eventually eradicating poverty. Co-operation between the Community and Namibia shall pursue these objectives, taking into account fundamental principles laid down in Article 2 of the Agreement – especially the principle of encouragement of ownership of the development strategies by the countries and populations concerned - and such essential and fundamental elements as defined in Article 9.

In their Statement on the European Community’s Development Policy of 10 November 2000, the Council of the European Union and the European Commission determined a limited number of areas selected on the basis of their contribution towards reducing poverty and for which Community action provides added value: link between trade and development; support for regional integration and co-operation; support for macro-economic policies; transport; food security and sustainable rural development; institutional capacity-building, particularly in the area of good governance and the rule of law. The Statement also specifies that in line with the macro-economic framework, the Community must continue its support to the social sectors (health and education), particularly in order to ensure equitable access to social services.

The Treaty establishing the European Community foresees that the Community and the Member States shall co-ordinate their policies on development co-operation and shall consult each other on their aid programmes, including in international organisations and during international conferences. Efforts must be made to ensure that Community development policy objectives are taken into account in the formulation and implementation of other policies affecting the developing countries. Furthermore, as laid down in Article 20 of the Agreement, systematic account shall be taken of mainstreaming into all areas of co-operation the following cross-cutting themes: gender and environmental issues, institutional development and capacity building.

Despite the fact that Namibia is classified as a lower middle-income country in terms of its annual average per capita income, the UNDAF (United Nations Development Assistance Framework) 2001-5 has advocated continuation of the “as if LDC” status for Namibia since a considerable proportion of Namibia’s people have been historically disadvantaged and are still in a very vulnerable situation today. Moreover, Namibia has only recently gained independence and the fundamental challenge facing a young democracy like Namibia is the need to overcome the legacy of ethnic division, poverty and inequity.

In its communication on conflict prevention (April 2001), the Commission has announced its intention to focus more clearly its co-operation programmes on addressing root causes of conflict in an integrated way. In this context, the Commission will seek to incorporate specific conflict prevention (or resolution) measures into its various sectoral programmes.

The above objectives and principles and the national policy agenda presented in the next chapter constitute the starting point for the formulation of the present Country Strategy Paper, in accordance with the principle of national ownership of development strategies.

Namibia has sought to establish a comprehensive development policy and strategy process within the framework of a five-year national development plan with the application of macroeconomic and sector specific measures. The first National Development Plan (NDP1) covered 1995-2000 and set out the goals and strategies illustrated in Annex II and formed the basis for cooperation with Namibia under the 8th EDF. Achievements fell short of target mainly due to slower than expected economic growth and key problems such as the continued prevalence of poverty, the skewed income distribution and the limited capacity of the economy to create jobs.

The second National Development Plan covering the period 2001-6 was finalised in May 2001. The EC provided considerable support and was fully involved in the consultation process of NDP2. Poverty reduction was integrated in NDP2 through the National Poverty Reduction Action Programme (NPRAP). The NPRAP translates into concrete action the Poverty Reduction Strategy of 1998, which set out a broad analysis of the incidence and causes of poverty, and strategies to address it. On the basis of the NPRAP, NDP2 identifies the following strategic measures aimed at reducing poverty and unequal income distribution: (i) more equitable and efficient delivery of public services; (ii) accelerate equitable and sustainable agricultural expansion; (iii) develop options for non-agricultural income generating activities; and (iv) provide a safety net for vulnerable groups to prevent them from falling into poverty.

The CSP by focusing on Rural development and Human Resources Development revolves around key poverty reduction measures formulated in the NDP2/NPRAP and particular efforts are being made to further enhance the policy framework in these sectors.

Rural development in the NPRAP includes matters such as infrastructure and government services, employment and economic development, land tenure and private sector investment, in addition to agricultural development. The MAWRD (Ministry of Agriculture, Water and Rural Development) has a directorate which focuses on rural development and planning matters although there are a number of other ministries which engage with rural communities. GRN, supported by the EC, is developing a policy framework to guide the direction of rural development and establish a coordinated and synergistic process of action to improve the impact of poverty reduction in the rural areas.

With the Toward education for all policy Human Resource development has, since independence, been a fundamental development goal to reduce income disparities. The MBESC (Ministry of Basic Education, Sports and Culture) Strategic plan for 2001-6 has a clear policy framework which is incorporated in NDP2. The development of a policy for vocational training under a new structure, the Namibian Training Authority will be essential to help alleviate the existing critical skills shortage and create a more educated work force. This challenge is linked more broadly to the crucial importance of sustaining all levels of the economy with the necessary skills and technical and managerial training needed to allow Namibia to reach its full potential. The National Development Plan 2 can generally be analysed as follows:

i. For a country which emerged from independence only 10 years ago where Government accounts for 30% of GDP and where NSAs are relatively weak, the degree of consultation in the NDP2 exercise with NSAs and Namibian society at large is an example of true participation of all key stakeholders and ownership of the country’s development policies. However, genuine ownership will only be ensured when a continuous consultation process is put in place.

ii. Whereas NDP1 represented a reflection on development issues as perceived by line Ministries, NDP2 has made an improved effort to integrate cross-cutting issues which affect sustainable development in each chapter and has specific chapters dedicated to national developmental priorities such as regional development, poverty, HIV/AIDS, gender, income distribution, governance, food security, environment, Information technology, civil society and decentralisation.

iii. The NPRAP should make it possible to identify complementarities between measures to be taken in different sectors. It offers the prospect of providing support towards key elements of the Poverty Reduction Strategy, whilst maintaining a dialogue with GRN on the broader NDP2 framework. It will also permit the monitoring of development assistance impact in terms of poverty reduction.

iv. Ultimately, the strategic value of NDP2 and particularly the setting of priorities will be measured against the linkage with the rolling MTEF (Medium term expenditure framework) covering the period 2001/02-2003/4.

v. However, in terms of organisation structure, the National Development Plan still follows the functional organisation of the line-ministries responsible for the issues in question. This leads to difficulties in prioritising strategies and programmes and identifying potential trade-offs between different programme interventions.

vi. Whereas NDP2 sets ambitious targets in terms of economic growth and poverty alleviation and new developments in the mining sector (Skorpion mine and Ongopolo mine) look promising, it recognises “mammoth challenges still lie ahead.” Namibia is indeed confronted by a number of constraints and challenges: regional conflicts, the impact of trade liberalisation, the HIV/AIDS Pandemic and unresolved issues such as land reform, the new fisheries policy and decentralisation. This raises questions about the realism of some of the indicators in NDP2 and may have an impact on the joint assessment of performance in the context of the 9th EDF.

Namibia gained independence in 1990 after a liberation struggle with South Africa lasting 23 years. Through its policy of reconciliation, Namibia has demonstrated that a peaceful path from conflict to co-operation is possible.

An important feature of Namibia’s first independence decade has been commitment to good governance, including a commitment to sound public administration and transparent accountability. Namibia is ranked 30th out of 90 countries in the Transparency International Corruption Index, which makes it the second best performing country in Africa after Botswana. Corruption in the public sector, while limited, has been on the increase and a committee to combat corruption has been formed and new anti-corruption measures are foreseen in 2001.

In the 1990s, with respect to human rights Namibia was among the most advanced in Africa. The Namibian Constitution incorporates the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and provides for an Ombudsman. The Constitution also makes provision for an independent judiciary, the principles of democracy, rule of law, an independent electoral commission as well as other checks and balances to ensure good governance. Namibia is party to most international treaties which protect human rights.

Against this positive background, there have been some developments since the late 1990s which the EC has noted with concern. These include:

• Pronouncements against minority groups such as, inter alia, the homosexual community.

• Criticism by Members of Government against the judiciary and foreigners.

• Namibia generally has shown commitment to media freedom and freedom of expression over the past years. However, recently the Government decided to ban Government purchase and advertisement in an independent newspaper.

• Namibia’s involvement in the conflicts in Angola and the DRC and with the secessionist movement in Caprivi have led to the disruption of civil life in Kavango and Caprivi, reports of human rights violations and increased budgetary allocation to military expenditure.

The Government of Namibia’s position on the above issues is presented in Annex I.

The important issue of land tenure has gained sensitivity since the events in Zimbabwe during the first half of 2000. More than 70% of Namibia’s population depends on agriculture and 85% of commercial land is white owned. The land reform debate focuses on two issues: (i) the redistribution of commercial farmland, which is mostly owned by white farmers, and (ii) the allocation of individual land rights and the establishment of an effective land administration in the Communal Areas.

Namibia is currently undergoing a complex process of economic, social and political transformation, which is pivotal to the future of the country. The challenge is how Namibia will respond to these pressures and its ability to pursue its path toward sustainable development in ways that deepen democracy and ensure high standards of governance.

Against this background, the political situation should not be seen in isolation but closely associated in economic recovery.

Namibia is a lower middle-income country. Although the relative importance of mining has declined, it continues to play a critical role in the economy as a major source of foreign exchange and of government revenue (Diamonds alone accounted for 10.6% of GDP in 1999).

Economic performance since Independence has been characterised by two distinct periods. From 1990 to 1994 GDP growth was robust averaging 4.9% and allowing for modest increases in real GDP per head. In fact this was a considerable improvement compared to the average real growth rate of only 1.1 % achieved during the decade before independence. By contrast 1995-99 was a period of more modest real growth averaging 3.8 %, below the NDP1 projected annual growth of 5%. This slower than planned growth was one of the reasons which precluded achieving the economic development targets set out in the NDP1 as given in Annex III.

Part of the reduced growth is due to special circumstances such as drought, reduced fishing quotas, the closure of the largest copper mine and the fall in world demand and price of Uranium. However, the modest economic growth also reflects a worrisome underlying trend: productivity in Namibia's economy as measured by Total Factor Productivity (TFP) is falling; thus, for every unit of capital invested smaller increments of output are achieved in return. Fundamental issues underlying this productivity decline include: the large share of GDP consumed by Government; the inadequate skills level of the labour force, and the gradual shift to high-cost deposits in Namibia's mining industry. Added to this are labour costs which are increasing faster than the rate of inflation.

The consequence of these developments has been that for a greater part of the period after independence, internal investment has lagged behind domestic savings. At an annual average of 25% of GDP for the period 1991-9, the saving rate ranks amongst the highest in Sub-Sahara Africa, whereas gross fixed capital formation hovered around 21% for the period, causing a steady outflow of capital from Namibia, and a matching current account surplus. Compared to other low middleincome countries, whose average investment hovered around 27% in 1999, investment was on average almost 6 percentage points lower than its counterparts.

Unemployment has risen steadily since independence. It went from 32.9% in 1994 to 34.5% in 1997, according to the last Labour Force Survey of 1997. In all likelihood this is an underestimation of the extent of the problem.

Because the Namibian dollar is pegged to the South African rand, the inflation rate is almost identical to that of South Africa and in recent years has been influenced by the fall in the value of the rand on the international currency markets. Namibia's inflation has been decelerating progressively, from a peak of 18% in 1992 to an annual average of 8.3% during 1995-99. The average annual inflation rate rose to 9.3% in 2000 (Consumer Price Index).

As a result of Namibia being a partner in the monetary union with South Africa, it cannot apply an independent monetary policy and has only very limited influence on monetary developments. Economic policy instruments are therefore limited to fiscal policy. The overall fiscal performance covering Government’s revenue and expenditure has caused some concern over the last years.

In terms of public expenditure management, Namibia has a relatively sound system in place, compared to other developing countries. However, the weak implementation of budget guidelines and treasury instructions undermines the budgetary system. This is recognised by GRN and the introduction of the MTEF (Medium Term Expenditure Framework) in 2001 is designed to improve allocation of resources to key priorities and the financial planning of line ministries by increasing predictability of resources.

A further problem regarding expenditure is related to the size of the civil service which has continued to increase from 57,500 in 1991 to 71,000 in 1999, representing about 1/6 of employment in the cash-sector. The wage bill over the period 1995 to 2000 accounted therefore for about 50% of total government expenditure and is considered to be economically unsustainable in the long term. Government is aware of the size of the civil service and the implementation of the key measures within NDP2 with regards to “commercialisation” of the public sector will be essential to introduce the required changes.

The level of public expenditure has led to an aggregate budget deficit of 3.7% between 1995-1999, a level over the 3% target under NDP1. Although Namibia enjoys an enviable external debt structure with foreign debts amounting to only 10% of GDP after Namibia was able to write off its historical debts vis-à-vis South Africa, its total debt stock has increased dramatically over the last years to about 23% of GDP.

Thus, considering Government’s fiscal policy and outlook, it is questionable whether Namibia will be in a position to remain below the ceiling of 2.9% budget deficit set for the years 2002/2003 and 2003/04 in order to keep total debt below a level of 25% of GDP. There is a risk the level of the deficit could become unsustainable in the longer term. Even to achieve the budget deficit target of 3.3 % set for the entire NDP2 period (2001-6), the Government would have to introduce tighter budgetary expenditure restrictions, implement public sector reform, pursue its privatisation efforts and review its tax system.

The Namibian social structure is strongly dualistic. This is both a consequence of the country’s colonial past and the dominant role of the mineral sector. It has resulted in a very skewed distribution of income as indicated by a Gini coefficient1 of 0.67, the highest recorded value in the world. It is also reflected in Namibia’s ranking in other development indicators. Thus, while Namibia ranks 75th in terms of GDP measured at PPP (Purchasing Power Parity), it ranks 115th in terms of Human Development Index. This discrepancy in ranking between income and human development is a reflection of the country’s Apartheid past, when the education and health systems were not developed to the level one would expect in a country of ‘middle income’ status. This is characterised by the fact that 70% of GDP is generated by the 5% white population and the remaining 30% of GDP by the non-white population.

Thus, even more than other “dual” economies, Namibia is in reality two societies in one. A more equitable distribution of income, the elimination of rural-urban income disparities and variations between regions and racial groups remain among Namibia’s fundamental challenges. This is exemplified by the agricultural sector: 4000 commercial farmers own about 6300 commercial farms representing 52% of the agricultural land. On the other hand, about 70% of the indigenous population (980,000 people), do not own land and occupy 48% of the agricultural land.

A similar dualism occurs in education. Although the Afrikaans, German and English speaking population account for only 13% of the population of 15 years and above, the share of students with secondary and tertiary education is 30% and 64% respectively while the indigenous language speaking people make up 90% of the population and represent only 32% of students in tertiary education.

The rate of HIV infections is having a major impact on poverty with a considerable social cost to the poorest income groups. This cost comes from the loss of productivity of sections of the working population and the increasing number of children who are orphaned.

1 The Gini-coefficient measures income inequality, a value of zero indicates absolute equality and a value of 1 absolute inequality.

Poverty in Namibia has a number of dimensions: The UNDP Human Poverty Index (HPI) measures the proportion of the population deprived of certain standards. According to this index 23% of the population still suffer from severe poverty with some regions reaching more than 35%. 47% of Namibian households were relatively poor and 13% were extremely poor in 1994 based on food consumption2. However, consumption alone does not determine the quality of life. In 1998, 12% of children were deemed to be underweight and 29% of the population did not reach the age of 40 (health poor). Furthermore, 19% of adults (over 15 years old of age) were illiterate (education poor). These dimensions of poverty are often interlinked.

Government has devoted considerable resources since independence to the social sectors to tackle poverty. At the Copenhagen Summit for Social Development it was decided that 20% of the national budget should be devoted to social programmes. Since independence Namibia has allocated almost double this percentage to Education, Health and Social Services.

NDP2 considers a number of strategies for curbing inequality. In addition to its fundamental priorities of basic education and primary health, it is committed to strengthening the social safety net (e.g. social pensions and child maintenance), a balanced tax system and to address the critical issue of land tenure. However, it is difficult to find the public resources to expand these schemes and the PRS proposes that programmes should be better targeted and more efficiently managed.

Growth should also be made more inclusive of the poor and the political dimension of the fight against poverty should be addressed with a view to achieve greater equity by focusing not only on increasing income or access to social services, but also on the allocation of assets and wealth (including land) and the implications of tax policies for equity. The NPRAP points out public resources do not appear to be available for funding high level services across all regions. An alternative approach is needed through the definition and estimation of costs and budgets for a nationally applicable standard of services. Therefore identifying specific shortcomings in the delivery of public services is one of the key challenges.

Namibia has been exporting raw products with low value added to economies with processing capacities and as a result the composition of Namibia’s exports (1999) was as follows: Diamonds 29% of total exports, fish almost 24%, services 21%, uranium 9% and manufacturing 10%.

Namibia ’s major export markets in 2000 remained the European Union, particularly Spain, the United Kingdom and France, who as a group accounted for about 60% of the total value of exports compared to 27% for South Africa.

The largest components in imports were food, beverages, machinery and transport equipment, with South Africa accounting for 85% of the total value. South Africa’s share of Namibia’s imports has exceeded 80% since 1993. Throughout the 1990s Namibia, in the framework of the Lomé Convention, has registered a growing positive trade balance (EURO 354 million in 1999) with the EU.

On the multilateral scene, Namibia has centred its attention on agricultural commodities where it is taking an ambitious approach of urging developed countries to provide greater market access to agricultural products, including reduction of tariff escalation and uniform standards and the elimination of anti-dumping and trade distortionary policies. On non-trade issues, Namibia is seeking application of the principle of transparency (measurable and quantified values) and is in need of capacity building support to deal with these matters.

2 HPI components are: non-survival beyond 40 years of age, illiteracy, underweight children, no water supply, no health services of poor households. GRN classifies a household as being ‘relatively poor’ if it devotes over 60% of its expenditure to food and as being ‘extremely poor’ if such expenditure exceeds 80%.

GRN attaches great importance to regional integration for a small economy such as Namibia. Namibia is a member of three regional economic groupings, namely Southern African Customs Union (SACU), Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA).

SACU is an important vehicle for Namibia’s regional integration and coupled with the CMA (Common Monetary Area), represents the deepest integration arrangement providing for duty free access, low transaction costs, significant contribution to the revenue and relief from having to operate an independent customs service. On the other hand, the customs union has led to polarisation of industries in South Africa and a “price escalation” effect due to the Common External Tariff fixed by South Africa3.

The fact that Namibia is also in COMESA illustrates the complexity of overlapping regional arrangements. Together with Swaziland, Namibia benefits from derogation due to the fact that it is in a common external regime under SACU4. In addition to the economic rationale, Namibia’s position has reflected the Pan-African premise that the various regional trade blocs will subscribe to a trade regime that is continental in scope as evidenced in Namibia’s active role in the launch of the African Union in May 2001. In terms of market potential the SADC market offers Namibia greater prospects with an estimated combined GDP of US$ 176 billion and current imports from SADC representing 83% and exports 38%. (However, if one excludes South Africa, trade with SADC becomes more marginal).

Namibia is not only affected by the impact of liberalisation of Agreements of which it is part, but through its membership of SACU it will also feel the impact of the Trade, Development and Cooperation Agreement (TDCA) between the EU and South Africa. The TDCA has raised concerns about revenue loss5 from customs revenue channelled through SACU and increased competition and Namibia could be in need of trade support measures.

Since Independence in 1990, the Government has taken significant steps to promote gender equality and the empowerment of women. The Namibian Constitution includes a number of provisions which guarantee the status of women. However, these provisions remain untested against many of the outdated laws from the pre-independence period. Women’s participation in decision-making has increased considerably since independence. A Ministry of Women Affairs and Child Welfare (MWACW) was established in the year 2000, and 19% of the Members of Parliament are currently women. Nevertheless, women remain under-represented in leadership positions, particularly in the private sector.

The gender-related development index for Namibia is 0.62 (ranking Namibia in 96th place among 174 countries, in the medium human development category). Compared to Sub-Saharan African countries, Namibia is above average (ranks 6).

In a country considered the driest south of the Sahara, there are severe environmental constraints to development. The overwhelming feature of Namibia’s environment is the low fertility of the soil and the scarcity and unpredictability of rainfall. This is further aggravated by overgrazing, pressure on land and population growth; desertification continues to be a problem in Namibia.

3 Fixed by the Boards of Tariffs and Trade (BTT) which is a South African statutory body

4 Under this derogation Namibia does not extend trade preference to its COMESA partners though enjoys preferential access into the COMESA market.

5 According to an IDS/BIDPA study the total losses on Government revenue for Namibia would be in the range of 8.6% to 14.1%.

Despite the fact that Namibia faces considerable environmental constraints to development, her clean environment allows production of high quality meat and fish and her biodiversity, wild habitats and unspoilt scenery are a good base for tourism. Indeed the sustainable use of natural resources offers one of the major ways to diversify economic activity.

The foundations of Namibia’s environmental policy are included in NDP2, which explicitly recognises the constraint of promoting economic growth while ensuring the equitable and sustainable utilisation of resources and a number of strategies establish the institutional framework for sustainable renewable resource management.

The proportions of the HIV/AIDS pandemic are one of the key challenges facing Namibian development. Due to the historic isolation of Namibia and South Africa during the eighties, the HIV/AIDS pandemic started later in these countries than in neighbouring Zambia, Zimbabwe and Botswana. It is estimated that overall life expectancy will dramatically decrease from 60 in 1991 to 40 by 2006 and more than 118,000 children will be orphans as a result of HIV/AIDS by 2006.

Table 2 Summary of the main HIV/AIDs indicators:

HIV has become a major macroeconomic variable in Namibia, impacting on labour supply, human capital and savings as well as resulting in increased poverty. An IMF report estimates that 5% of GDP per capita will be lost by 2010 if HIV/AIDS infection is not contained.

The process of behavioural change has been slow and the HIV epidemic progresses at an alarming rate. Prejudice and stigmatisation within society make it problematical for people to seek support and it remains very difficult to address the pandemic.

The success of the multi-sectoral strategy embodied in the country’s second Medium Plan will be essential to overcome these constraints.

More than 10 years after the post independence transition and a policy of National Unity, Namibia finds itself at a crossroad. Although continued growth has been achieved, concerns have been growing about the deteriorating fiscal situation, rising unemployment, the legacy of poverty and a political system and institutions which are still maturing.

The resultant development challenges can therefore be grouped around three distinct themes: the need to reduce the high incidence of poverty and widespread inequality; the economic transformation of the country; the need for a governance reform agenda.

The negative consequences of not moving forward with such reforms can be expected to be severe in terms of poverty reduction, economic growth and the quality of public services and ultimately pose a severe strain on government and its democratic institutions.

The economy remains dualistic and Namibia has not been able to address disparities inherited at independence. There is therefore a need, firstly, to reduce the high incidence of poverty and widespread inequality in the rural areas, secondly to foster more rapid human resource development across society and thirdly to improve the health status in Namibia.

GRN-EC produced a report in April 2001 that shows the majority of people in rural areas are poor, have difficulties to achieve food security, encounter major obstacles to improve their well being and struggle to adapt in a changing environment. Government can be expected to come under increasing pressure to demonstrate progress in stimulating additional employment, and in improving the quality of life in the communal areas. Given the limited potential and absorption capacity of agriculture, new income opportunities will have to be created in the rural economy.

The land reform process should improve the living conditions of households in both communal and commercial areas and be part of a broad, medium term poverty reduction strategy which includes efficient land use and where possible feasible production targets. However, there is still no integrated policy framework to guide the direction of rural development.

In the light of this concern, GRN, supported through the RDSF study by the EC has involved a number of Government ministries as well as civil society, regional councils and local authorities to look at rural livelihoods and establish a sustainable rural development strategy.

Since independence, the Namibian Government has declared education a prime development priority, allocating over 25% of the national budget to it. With 95.2% of the children aged 7-13 now attending school, the quantity battle has been won. However two challenges remain: to improve the quality of education (school drop out rates are high with only 5% of the population completing grades 11-12 and repetition is 25%) and to expand access to higher levels of education and training.

If primary education is not addressed satisfactorily, progress cannot be made in expanding access and achievement at higher levels of education and training. The probability of falling back into illiteracy is high for those who drop out. Inadequate policy linkages between basic education and vocational training systems mean that only a limited number of school leavers have the option of formal vocational training. Vocational training is the backbone of socio-economic transformation and development. However, the current training system remains fragmented and uncoordinated.

Government is in the process of developing sector strategies based on the Presidential Commission report. These concern Basic Education’s strategic plan and the setting-up of a Namibian Training Authority. The move towards a Sector Wide Approach should further facilitate the development of an integrated framework.

The Government recognised at independence that the majority of Namibians were living without access to modern health care and adopted a framework to make health services more equitable, accessible, cost-effective and comprehensive. In spite of positive achievements since independence particularly in primary health care, health status has been slow to improve and in some important areas is showing a decline. Life expectancy and mortality rates for children and mothers have deteriorated, primarily as a result of AIDS (life expectancy as dropped from 60 in 1991 to 50 in 2000). It is estimated that over 20% of the health budget currently is currently directed towards the management of AIDS. Thus the management of disease control programmes and the effective tackling of poverty is expected to suffer. In addition, the incidence rates of both tuberculosis and malaria can be expected to rise further.

The leading causes of illness and death in the country are diseases that are preventable through behavioural changes and require a multisectoral approach and a better understanding of social and cultural factors.

Namibia will face significant challenges in sustaining economic growth and in ensuring fiscal sustainability.

Implementation of the MTEF (Medium Expenditure Framework) from 2001 will be an important challenge since it should improve allocation of resources to priorities, thereby minimising the cost of misallocation of resources and linking budgeting with the strategic objectives of government planning so as to achieve the national objectives set out in NDP2.

However, the MTEF only concerns budget formulation. A reform exercise of the whole budget process in Namibia needs to be undertaken in order to address issues such as budget implementation and control (improvements and enforcement of existing rules and procedures), thus ensuring a credible fiscal policy.

Furthermore, on the revenue side GRN has indicated in NDP2 that whilst the introduction of VAT has been an important step in providing a broader tax base, its intention is to undertake a comprehensive review of the overall tax system, including tax incentives, burden and distribution. This is all the more important since the reformulation of the SACU revenue formula and the general trend towards greater trade liberalisation will entail a decrease of revenue from traditional sources.

The constraints for the private sector are three fold: (i) the limited size of the Namibian market; (ii) the low productivity of labour combined with the high unit costs of unskilled labour (highest in Sub-Saharan Africa with the exclusion of South Africa); (iii) lack of technological know-how, access to credit and financial and technical management skills.

Namibia is attempting to jump-start a real industrial transformation in order to attract investment by establishing vital infrastructure, credit facilities and incentive programmes. In 2000 Government launched a Special Industrialisation Programme to increase productive activities particularly in the manufacturing sector. Moreover, GRN also needs to enhance opportunities in the non-formal sector and strengthen interaction between the education system and key players in the labour market by further developing the vocational training system, skills development programmes and credit guarantee schemes. A more conducive environment will also have a direct impact on investment.

The establishment of the Namibian Standards Institute and the consolidation of the Export Processing Zone are important steps in this direction.

Namibia will need to start preparing to exploit the opportunities for greater trade liberalisation in the context of the new WTO round and closer regional integration with SACU, SADC and COMESA. Furthermore, preparations for an EPA with the EU will begin prior to most other ACP countries given the fact that the TDCA Agreement between the EU and South Africa implies that while negotiating for an EPA, the BLNS will have to consider the time frame of the TDCA. The change in relative prices resulting from greater liberalisation is expected to encourage economic growth and investment. However, Namibia will need to restructure its more vulnerable sectors and will experience a reduction in tariff revenue. Hence, it will be essential for Namibia to make strategic choices in the regional economic integration process and introduce provisions to minimise the impact of adjustment and diversify the revenue base.

Namibia is a young democracy and its democratic traditions and institutions are still evolving. Governance in the strict sense, related to standards of administration and corruption has not been of major concern in Namibia. However, Namibia does face wider governance challenges in particular with regard to such key issues as the public administration agenda and land reform. Furthermore, in Namibia’s case, democratisation implies not only enhancing national level democratic institutions, but also reinforcing the role of the newly democratically elected regional and local governments.

Government decentralisation and a greater emphasis on local accountability can be expected to play a critical role in diffusing pressures and in bringing responsibility for delivery of public services closer to the people. However, there is a real risk it might result in declining services and standards of public administration, unless the many constraints hampering decentralisation are addressed. At the central level, the Decentralised Policy Implementation Committee has still to become functional and there is an absence of human and material capacity in regional offices. Although a policy is in place with regard to decentralisation and some Ministries have adopted the Ministerial Action Plans, the absence of an integrated action plan on decentralisation has hampered overall progress.

For effective implementation of these prospects, there will need to be considerable institutional change at the national, regional and local levels.

Namibia faces considerable challenges in cutting back the role of the state. NDP2 has considered the need to review Government involvement in parastatals and GRN has adopted a position of partial privatisation, favouring outsourcing and some forms of private sector equity and/or operational participation in parastatals. This approach could alleviate some of the short-term costs of privatisation, but ultimately, a more long-term privatisation strategy should be developed to achieve gains in efficiency for the private sector, facilitate the economic empowerment of Namibians and provide revenue to finance NDP2. The Privatisation Task Team set-up by GRN will have the important role to develop a privatisation strategy and accompanying legislation and to put in place a strong programme of state divestiture. Such a programme would need to be put into the context of private sector development and the need to open up investment and create new employment opportunities.

Public service employment has expanded by 50 % since independence, which is significant particularly in view of the country’s population and the dimensions of the economy. Without public service reform, and more effective control over the wage bill, it is probable that maintenance spending and public investment will be increasingly squeezed. Public administration reform will need to address the issues of the overall size of public service and the reform of public pay structures. Despite recognition of the problem and expressed commitment, a reduction in the number of civil servants in the near future will not be a simple goal to achieve. GRN is, in fact, likely to face increasing pressure from particular groups, such as the demobilised former soldiers, to

recruit more (unskilled) staff.

An important issue dictated not only by economic considerations but also social and political pressures, is land reform. As a result, it is considered as one of the fundamental issues on the Government's agenda. The impact of the resettlement programme through the willing seller/willing buyer principle has been limited thus far. Government has generally under spent the N$ 20 million allocated annually to this endeavour and resettlement programmes have so far proven too costly.

However, in December 2000, GRN decided to acquire about 10 million hectares of land for N$ 1 billion for redistribution and resettlement within the next five years, to establish a National Land Use Policy for Namibia, and to introduce a land tax to finance the acquisition of land. These initiatives could provide renewed impetus to land reform. Land reform in the more fertile communal lands in northern Namibia is being addressed in the Communal Land Reform bill, including the question of illegal fencing. Despite these decisions, no action aimed at formulating a coherent Land Use Policy is as yet discernible. This can be attributed to two key factors:

i. Government capacity in terms of financial and human resources is limited.

ii. The need to pursue the efforts by the Ministries concerned to coordinate action plans and expertise to cope with this highly complex issue.

It will be essential for Government, supported by the donor community, to address these issues and

implement the recommendations of the National Land Conference of 1991.

Prior to independence, EC assistance to Namibia was funded from various budget lines and mainly channelled through NGOs. In the period immediately following independence, Namibia received assistance amounting to € 32 million from two exceptional budget lines. Namibia acceded to the Lomé Convention in December 1990, becoming the 69th ACP State and has benefited from a National Indicative Programme under the 7th and 8th EDF amounting respectively to € 50 and € 52 million. Under the 7th EDF co-operation concentrated on three focal sectors (Agriculture, Health and Education) while under the 8th EDF, the EC has supported the following sectors:

Education 28%

Agriculture and rural development 28%

Productive sectors (tourism + trade and investment) 28%

Outside focal sectors 16%

The EC has also provided € 40 million Sysmin resources under the 7th EDF.

A Country Strategy Evaluation (CSE) was undertaken in November 2000 to look at the relevance, effectiveness and impact of EC assistance under the 8th EDF and to make recommendations for the preparation of the new strategy.

The CSE has provided an indicative assessment of the experience in each sector against five criteria:

Agriculture Private sector Education Minerals

Relevance to EC objectives ++ + ++ -

EC Track record in the sector + 6 - ++ +/-

Relationship with relevant Government

department ++ +/- ++ +

Scope for additional donor support + +/- + +/-

Extent to which EC is the lead donor ++ - + +

Ratings: ++ very high, + high, + - medium, - Low, -- very Low

The main conclusions of the study are that the sector programmes in agriculture, education and health (7th EDF) were highly relevant for poverty reduction, while the creation of an appropriate policy environment in the productive sectors was substantially relevant. Assistance to policy development in agriculture, as related to trade, policy support to the Ministry of Trade and Industry and support to tourism development were relevant to integrating Namibia in the regional and world economy. The study also highlighted the need to stimulate economic activities outside the traditional (agriculture and mining) sectors.

The programme7 registered considerable success in three of the four focal sectors (agriculture and rural development, education and health). Aspects of assistance to the productive sectors would need improvement. A key conclusion of the evaluation is that the single most important factor contributing to the success of EC assistance to Namibia has been the relatively high quality of Namibia’s public administration. This has allowed assistance provided by the EC to be fully integrated into the Government’s own programme and has ensured a high degree of accountability of EC technical assistance to the ministries to which they are attached. A well-resourced public service has also meant that recurrent financing has been available to sustain initiatives supported by the EC.

6 Further to this positive assessment made by consultants, Commission services consider that the EC has a 'very high track record' concerning the support provided to the agricultural sector; and that, in order to sustain this level of performance, it will be necessary to ensure a continued strong staff capacity in the EC Delegation to follow this sector and the closely related complex land reform issues.

7 Performance is measured against the global objectives of EC assistance namely poverty alleviation good governance, gender equality and environmental sustainability.

Under the two Financial Protocols of the Lomé IV Convention the Bank has signed commitments for a total of EUR 138.2 million, a figure largely exceeding the indicative amounts envisaged at the time, comprising EUR 127.3 million on the Bank’s own resources and EUR 10.9 million on Risk Capital Resources.

The large majority of the above resources were made available for the financing of basic infrastructure projects in the water, power, telecoms, port and municipal infrastructure sectors. Besides the infrastructure sector EIB’s other main pole of support in Namibia has been the financial sector. In addition to its direct lending possibilities the Bank has developed the “Global Loan” mechanism to cover those companies and promoters which are too small to be handled directly by EIB. Funds are thereby channelled via Bank of Namibia to four private sector commercial banks providing under the title of “Private Sector Global Loan” a source of medium to long term finance at fixed interest rates in Namibian Dollars as well as (under the PSGL II scheme) in foreign currencies. This type of funding is still not readily available in Namibia and thus assists private sector companies to further develop productive activities, thus contributing to the creation of employment and foreign exchange earnings. Subprojects supported under the PSGL scheme so far largely concerned the tourism sector which is considered as one of the success stories of the country.

Finally the Bank has also funded the productive sector directly through two loans for the establishment and expansion of the Okapuka Tannery. This has allowed the promoter Meatco to substantially deepen its production process and to develop a high standard leather industry thereby favourably comparing to the previous exports of largely untreated hides.

On a per capita basis Namibia has been the largest recipient of donor support among the countries of Sub-Sahara Africa (SSA). ODA was US$ 108 per person in 1998 compared with an average of US$ 21 for SSA as a whole. In relation to national income, this difference is less marked. Aid to Namibia, at 5.8% of GNP, compares with an average of 4.1% for SSA, but is significantly below levels of assistance to a number of lower middle-income countries. The NPC (National Planning Commission) has a central role in donor co-ordination and its capacity to optimise the flow of aid at central level should be strengthened.

Namibia has a large number of co-operating partners comprising 16 multilateral agencies and 26 bilateral donors. During 1998 approximately 50% of development assistance flows financed the social sectors, about 17% natural resources and agriculture and 16% communication and transport8.

A number of instruments are used to enhance donor co-ordination from a NPC data base on donor financed programmes to the exchange of Country Strategies, evaluations and project documents. Government-led sector co-ordination has varied from full consultation in the case of education and training to more limited co-ordination in other areas. The EU AID co-ordination group has been active in discussing ways and means to enhance operational co-ordination Donor sectoral division of labour is undertaken on an ad hoc basis and to the extent possible through existing sector working groups (education and health).

Annex IV shows the range of sectors supported by the main donors according to the Development Strategies set out in the Cotonou Agreement. In the social sectors, the lion’s share is taken by Human Resource Development where all key donors including the EC are involved in Basic Education support. A number of donors are however planning to phase out. For Higher Education and Vocational Training the EC is the lead donor. For Health, whilst Finland is the only donor involved in health sector policy dialogue (EC has phased out after the 7th EDF), there is a disparate and at times uncoordinated number of donors involved in the HIV/AIDS sub-sector.

8 UNDP Cooperation Report 1993-98

In the area of private sector support Germany, the EC and USAID are the most important donors. A number of donors (EC, UK, France and Germany are the main ones) have been funding projects in support of agricultural research and extension. The EC is the lead donor and is orienting donor support towards developing rural livelihoods. Spain is the only donor currently involved with land reform. Compared to other countries in Sub-Saharan Africa the transport and communication network is relatively efficient and the main players in this area are Germany and Sweden. The EC has also contributed to this sector through SADC regional funding. In important crosscutting issues such as public sector reform, good governance and decentralisation, the Scandinavian countries (Finland and Sweden) and the Netherlands have taken the lead.

There are visible signs that important members of the donor community are presently reconsidering the extent of their future involvement in Namibia. Some donors (Denmark, Norway and the UNDP) have already downscaled their involvement. Others (USAID, Finland, UK, Netherlands and Sida) have indicated that they have similar plans for the future. With the expected fall in assistance levels over the next five years, overall EC support will remain at similar levels and is hence likely to assume greater importance, despite restricting the sectors of co-operation.

In Namibia, linkages between Development policy and other Community policies occur primarily in the field of trade, agriculture and fisheries. Trade aspects are covered in sections 3.5 (External environment) and 3.7.2 (Economic challenges) whereas this section takes into account agriculture and fisheries.

The current process of CAP reform across a number of sectors, involves moving away from a system of price support to a system of direct aid to farmers. EU beef prices are set to decline by 20% in 2003. The CAP reform may hence reduce the income earned on Namibian beef exports to the EU under the Cotonou beef protocol. The agriculture sector in Namibia will have to develop a strategy to take into account these developments in EU beef prices.

Namibia benefits currently from specific provisions in the Cotonou Agreement for the import into the EU of beef and grapes from Namibia. For beef, Namibia has been allocated a quota of 13 000 tonnes per year. Protocol 4 to Annex V of the Cotonou Agreement, which deals with beef and veal specifies that duties be reduced by 92% for qualifying quantities of beef and veal from the ACP.

Under Article 1 of Annex V of the Cotonou Agreement a duty free quota of 900 tonnes per annum for seedless grapes will continue to be extended to the ACP countries (only utilised by Namibia so far). Namibia currently exports over 5 000 tonnes per annum, a number that is likely to increase considerably in the next five years.

After five years of negotiations (1995-2000) between the EC and Namibia, and extensive consultations with its interested industry, GRN decided not to pursue further discussions on the EC proposals for a EC/Namibia fisheries agreement. However, Namibia benefits considerably particularly when compared to South Africa from duty free access granted under the Lomé Convention. The value of exports to the EU was 1.5 billion N$ in 2000, which represents approximately 61% of total fisheries exports.

Namibia has agreements based on its own national requirements and has managed to increase the contribution of the fisheries sector to economic and social development. The sector contribution to GDP has increased from 5.4% in 1990 to 11% in 2000. EU private sector investment in the area has made a significant contribution to the growth of the sector. The outlook is for a further phase of expansion in the Namibian industry, with scope for roughly doubling the value of the sector’s output in the medium term.

However, a new “Namibianisation” policy in 2000 has raised concerns particularly with regard to the linkage between exploitation rights and the need to have Namibian joint venture partners, which might threaten continuity in the fisheries sector and reduce overseas private investment significantly.

The above analysis of trade, agriculture and fishery trends shows that Namibia will have to be prepared for further liberalisation, a more conducive environment for investment and an open, outward development path in order to acquire better access to global markets. The proposed response strategy (Rural development, Human resources development and trade and regional integration) reinforces the integration of other Community policies with the development cooperation policy.

The priorities for co-operation have been jointly defined on the basis of the following criteria:

• Response to the medium term challenges

• Clear complementarity with other donors and with EU Member States in particular

• Relevance to poverty reduction and employment creation

• Convergence with key priorities under NDP2

• Existence of a structured sector policy dialogue and sufficient capacity within the relevant line Ministries

• Lessons derived from past experience as reflected in mid-term reviews and evaluations

• Potential spill-over of support to the regional level in particular in the context of the EPA.

• EC and NAO capacity to manage and monitor programmes.

• Potential capacity of NSAs to participate in the areas of cooperation

Taking into account these aspects, the fundamental priority of EU-Namibia co-operation will be support to rural development. The rural development clearly extends well beyond agriculture and takes into account relevant economic and social sectors which have a bearing on rural areas. Directly linked to this approach, the Community’s second focal area will be sustaining Human Resources Development.

HIV-AIDS will be addressed through both focal sectors as the main cross cutting issue. These sectors of support have also been identified in the Country Strategy Evaluation (CSE) as areas in which EC assistance has performed better and where there is a strong case for continued support. Together with interested EU Member States, the EC and GRN have launched two ongoing studies for a Rural Development Strategic Framework (RDSF) and for a SWAP (Sector Wide Approach) in education and training.

Crosscutting and complementary issues to the focal sectors are related to trade and regional integration and the enhancement of institutional capacities of GRN. 9th EDF resources for the 2001-7 horizon are in line with 7th and 8th EDF support, though there has been an attempt to enhance the focus of EC aid by limiting core support to two sectors and limited support to complementary issues (compared to more than 10 financing agreements covering 5 sectors under the 8th EDF).

In order to contribute to poverty reduction, the EC’s primary focus under the 9th EDF shall be rural development. The key considerations for this choice are that:

• Poverty in Namibia is primarily a rural phenomenon with 85% of consumption-poor households located in rural areas.

• Decentralisation and land reform are central challenges for rural development and Government requires donor assistance to implement the necessary reforms.

• Previous successful EC support has been focused on the rural areas and there are opportunities to extend and build on this support. Since Namibia’s independence the EC has been the largest donor providing support to the Ministry of Agriculture, Water and Rural Development and in the context of the rural development strategic framework is the lead donor in the policy dialogue.

• The Namibia-EC Rural Development Strategic Framework focuses on rural livelihoods and while the development of agriculture is emphasised, the wider range of rural income opportunities will be addressed, streamlining the national policies of NDP2 and catalysing donor support in an integrated framework. This includes supporting economic diversification, new income generating capacities and SME development.

• There is complementarity with the priorities of the NPRAP for the development and diversification of the agricultural sector towards other areas. It takes into account of the need to treat the land issue in the context of the wider rural development constraints.

• The rural development response strategy will be complementary to the activities identified by other donors including support to the land issue. The EC will associate relevant donors in the design of its support programme and its implementation.

The key requirements to foster rural livelihoods include improvement of productive and rural social services, economic diversification of poor rural households, the land issue and support to the decentralisation process in rural areas.

Land will be a central issue to social-economic development because of the rural base of the majority of households. The issue will be addressed as a critical determinant for the ability of the poor to accumulate assets, sustainable resource use, land agricultural productivity, financing of local government and the development of financial markets.

Non-state actors such as the private sector, trade unions, NGOs and CBOs may provide value added in the rural development focal sector, especially where governmental structures are not represented or only weakly present.

It will be essential to mitigate the impact of HIV/AIDS on rural livelihoods since death and migration will reduce the total population in rural areas. The knock-on effects in terms of a reduced labour force, increased household expenditure on health and a consequent higher dependency ratio will have to be taken into account.

The choice of support to Human Resources Development is based on the following considerations:

• Since the Transitional National Development Plan and in subsequent development plans (NDP 1 and 2) education has been stressed as central to Namibia’s economic development. Poverty reduction, employability, the strengthening of the democratic process and greater equity in income distribution remain a major rationale for investment in education.

• The movement towards a Sector Wide Approach is motivated by the conviction that it would provide greater and more sustainable benefits. The SWAP should support the development of services, which are responsive to the need of the poor.

• This sector offers the best opportunities for sector support. A strategic plan 2001-2006 is in place for basic education and a MTEF has been established during 2001. The EC can benefit from lessons learnt from the ongoing sector programme of Sida, UK and the Netherlands.

• The EC is the main donor working with both Ministries of education and is playing a key role in emphasising the need to move towards a SWAP. With GRN and other interested donors (Sida, DFID, Netherlands) the EC is launching a study which should provide an overall framework for donors to jointly support the sector. The leverage of EC aid could catalyse support from other EU donors who were planning to phase out.

• The EC is the lead donor regarding the Ministry of Higher Education, Employment Creation and Technology and one of the main donors with regard to basic education. The expected withdrawal of three significant donors from basic education (the Netherlands, the United Kingdom and USAID) increases the relative importance of EC sector assistance and reinforces the justification for continued assistance. EC and Sida shall be the lead donors in the SWAP.

• The Ministry’s Basic Education’s Strategic Planning Advisory Group (SPAG) where the key donors and relevant Ministries ensure sector co-ordination is the most effective Government led co-ordination process in Namibia.

• There has been positive experience with previous EC assistance in education and training as evidenced by the 2001 Mid-term review of the ongoing programme. The challenge will be to move from a ‘project approach’ to a SWAP.

The SWAP will consider the entire sector (pre-primary, primary/basic, secondary, tertiary, technical and vocational training) and its necessary interaction with the private sector. It should take into account the issues of accessibility (access, enrolment and equality of opportunity, especially gender issues), effectiveness (quality plus relevance), efficiency (results in relation to inputs), financial and institutional sustainability. The Community will support priorities within an overall sector framework as set out in such Government policy intentions as the Strategic Plan 2001-6 and the future Namibian Training Authority. Targeted budgetary support under the conditions of Article 61.3 of the Cotonou Agreement will be considered wherever possible.

SWAP will take into account key crosscutting issues such as the impact of HIV-AIDS on learner and teachers, the role and linkages with the private sector and other NSAs (University, Vocational Training Centres, Community Skills Development Centres etc.), girls education (access, retention and enrolment) and the decentralisation of the education system. In the perspective of a growing convergence of education and training, vocational training and skills development are a central part of core cross-sectoral strategies for pro-poor growth rather than a sub-sectoral activity, particularly in the light of broader economic trends. The SWAP process should involve all social partners at all levels of the system.

A middle-income country like Namibia faces considerable constraints to meet the challenges of globalisation in particular capacity gaps in trade policymaking, the complexities of its regional integration arrangements and a weak link between public and private sector. Therefore, complementary to the two focal sectors, the EC will provide limited support to Trade and Regional integration and will sustain the initiatives of DG Trade, the EIB, the EU private sector decentralised instruments, and where possible the complementary initiatives of EU MS taking the lead in this sector. This type of assistance needs to be considered in view of the following factors:

• The Namibian Government will have to prepare itself for decreasing revenue and create an enabling environment for regional and international trade, particularly in the context of the EPA with the EU. Trade policy support is an area where the Community has a unique comparative advantage vis-à-vis the EU Member States and is currently the only donor supporting this area. Possible areas of support are provided in the indicative work programme attached hereto (section 3). Existing funds for regional integration (RIP, TDCA funds) and all ACP funds for trade policy promotion may be complemented by national funds.

• GRN and the EC recognised through the DIAGNOS private sector development identification mission that the private sector will need to become more competitive and diversify its export basket by enhancing the manufacturing base. The EU-ACP Partnership Agreement through its emphasis on the role of non-state actors and the resources available under the Investment Facility provides new opportunities for the private sector to access resources in order to enhance the private sector’s capacity to adapt to a changing economic environment. The EC will provide resources on a limited scale for targeted technical assistance that will facilitate utilisation of the new private sector horizontal instruments (Investment facility, CDE, Proinvest, EBAS, ESIP) and support initiatives of EU Member States.

The EC will provide capacity building support to the National Planning Commission and other key ministries in four pivotal areas: Development planning, donor co-ordination and management of aid as well as the planning capacities of line ministries, including the Ministry of Finance. This is a cross-sectoral programme which should step up the efficiency and impact of EC aid by strengthening the partners’ institutional capacities in line with the EC’s Development policy. Areas that will be considered for support are indicated in section 4 of the indicative work programme.

In accordance with applicable procedures and subject to the availability of funds, Namibia may also be considered for funding under EC budget lines including in particular the following :

• B7-7020 Democracy and Human Rights: Namibia is still a young country and it is essential to monitor elections, engage in civic and voters’ education, and respect of human and rights and democratic principles need further encouragement

• B7-6200 Environment – To support vulnerable communities such as the San and the Himba ethnical minorities, protect the environment and promote sustainable development in rural areas in close co-ordination with EDF assistance in the rural development focal sector.

• B7-661 Anti-personnel Mines – Mainly to support demining activities (mines awareness, surveying, mapping, mine clearance) in Kavango and Caprivi.

• B7-6000 NGO Cofinancing – Demand led capacity building and support to NGO initiatives both within and outside the areas of co-operation. Synergies with EDF programmes will be sought wherever possible and due consideration will be given to the value added of NGO initiatives.

• B7-6212 HIV/AIDS and Population related operations – Considering the high incidence of HIV/AIDS in Namibia, it is of utmost importance that the country benefit from the budget line to enhance public-private partnerships.

NSAs were consulted for the elaboration of both NDP2 and the CSP, for the programming of the focal sectors in the context of regional workshops, and will be involved in the implementation of projects in the focal sectors in areas that concern them and where they have a comparative advantage. A maximum of 1 million € will be provided to reinforce their capabilities with regard to organisation and representation, and for the establishment of consultation mechanisms both among NSAs and with GRN. The eligibility criteria for NSAs to benefit from 9th EDF resources are mentioned in Article 6 of the Cotonou Agreement and an ongoing study and a series of workshops will refine the specific criteria for eligibility of non-state actors to EDF resources.

Annex Va outlines the role of NSAs in sustainable development and the manner they were consulted throughout the CSS process. Annex Vb illustrates areas where NSA involvement is foreseen based on the NPRAP.

The contribution of the EIB to development finance co-operation will be the provision of long-term financial resources other than grants, to assist in promoting growth in the private sector and in helping to mobilise domestic and foreign capital for this purpose. The support will be in the form of risk capital from the Investment Facility (IF) or as loans from EIB’s own resources.

The objective of enhancing private sector development can be achieved by financing investment initiated by the business sector, including small and medium size enterprises; and by intervening in favour of commercially viable public or privately owned infrastructure projects, which are a sine qua non to establish an economic framework conducive to the expansion of the private sector.

However, within this broad framework and the general development strategy for Namibia, interventions by the Investment Facility will be essentially responding to market opportunities. This implies that the scope for programming of IF resources is very limited.

Considering the specificities of Namibia’s economic situation as well as EIB’s past experience in the country, EIB will continue to focus on three main areas of intervention. First, financing of infrastructure projects in the water, power, transport, telecommunications and municipal infrastructure sectors. The emphasis will be to help to support projects which are not only

financially and technically feasible and environmentally acceptable but also economically viable, the latter being the main criterion for long term sustainability. As in the past the Bank will take a particular interest in the promoter and the sector concerned being organised in a sustainable manner with appropriate participation of the private sector. Second, close co-operation with Namibian financial institutions to support small and medium scale enterprises through global loans. Subject to the usual banking criteria it will be an aim to increase the number of financial instruments and widen the range of intermediaries. Third, direct funding of large individual projects, where the Bank can contribute value added in the technical and/or financial structuring of the investment. These projects will be carefully selected in areas where Namibia has comparative advantages.

The approach of the EIB in supporting investments in Namibia will be demand driven. Therefore, the extent to which EIB will be able to commit resources to the Namibian economy will largely depend on the macroeconomic framework and on the business environment, itself largely determined by the economic policy of the Government of Namibia.

Based on the cooperation strategy presented in Part A and in accordance with the provisions of Article 4 of Annex IV of the Cotonou Agreement, the indicative programme has been drawn up in a series of tables and comments presenting the intervention framework for the focal sectors, the indicative commitments and expenditure schedules and a detailed activitybased schedule (chronogramme) for all identified programmes or projects during a two year rolling period.

Several financial instruments will be used to finance the implementation of the EC-Namibia cooperation strategy. The following is an indication of their mobilisation as presently envisaged.

1. EDF 9, envelope A (€48 million)

This envelope is to cover long term development operations within the Country Strategy. The indicative allocation of this envelope to the elements of the strategy is proposed as follows:

- Rural Development: up to a maximum of 60% (plus funds available under the Sysmin allocation - see below)

- Human Resources Development: up to 30%

- Other programmes (capacity building for development planning and support for nonstate actors, contributions to trade and regional integration, etc.): up to a maximum of 10%.

2. EDF 9, envelope B (€43 million)

This envelope includes €25 million available under the SYSMIN allocation (pending request under the 8th EDF) for the financing of a programme presently being prepared. It is presently envisaged that these funds may be used in support of the rural development focal sector strategy, as recently requested by the Government.

The remainder of this envelope will be used to cover unforeseen needs as indicated in the Cotonou Agreement, Annex IV, Article 3,2 (b).

Apart from the above-mentioned financial instruments, of which the A-envelope is the main programmable basis for the Indicative Programme, the 9th EDF includes also the “Investment Facility” as a financing instrument managed by the European Investment Bank (see details in Part A, chapter 5). The Investment Facility does not form part of the Indicative Programme.

3. EC budget lines could be used to finance specific operations, in particular for environmental and natural resources conservation, support to democracy and human rights initiatives, demining activities and HIV/AIDS related operations. Finance from this instrument will, however, be decided in accordance with the Commission's procedures for the budget line concerned and will depend on availability of funds.

The following framework objective shall be pursued: reduction of rural poverty and of unequal income distribution.

The major interventions foreseen (with the objective to foster rural livelihoods) are support to agriculture and livestock productivity improvement, diversification of on and off farm income generating activities, strengthening of community social safety nets, mitigating of HIV/AIDS, contributing to an appropriate framework for sustainable land use through land tenure arrangements and support to the decentralisation process.

The major policy measures to be taken by the Government to ensure a successful implementation of the response strategy in this sector are the finalisation and approval of a Rural Development policy and the setting up of a structure to manage rural development, including the land issue.

The following framework objectives shall be pursued: to improve primary and basic education as a whole (literacy, informal training) with priority given to girls’ education and enhance the effectiveness of the Vocational training system, linked to both informal and formal employment. The major interventions foreseen will enhance access to and quality of education, provide opportunities for lifelong learning, improve the knowledge and skills of teachers and trainers, develop appropriate infrastructure, reduce the spread of HIV/AIDS among stakeholders and develop a comprehensive system of skill development and technical competence.

The major policy measures to be taken by the Government to ensure the successful implementation of the response strategy in this sector are the costing and prioritising of the strategic plan and the setting up of the Namibian Training Authority.

The indicative programme does not foresee macroeconomic support. However, in the light of current needs, it may be decided to reallocate funds from other headings in the indicative programme to this type of support. Such a decision may be taken by specific agreement between the Chief Authorising Officer and the National Authorising Officer or in the context of an operational, performance or ad hoc review.

An indicative percentage of maximum 10% will be reserved for the following purposes:

• Capacity building for development planning;

• Institutional capacity building support for non-state actors;

• Contributions to trade and regional integration;

A reserve for insurance against possible claims and to cover cost increases and contingencies IV

The following areas will be considered for support:

• Assistance to deal with the fiscal impact of the TDCA and the EPA. This may include support GRN policies of fiscal and public sector reform, customs training etc.

• Supporting trade policy development through providing a facility for studies and targeted technical assistance through support, inter alia, of the International Trade Directorate in MTI. This should include enhancing the capacity of Namibia to adopt domestic policy stances and implementing WTO Agreements – reform of the tariff structure, legislation for standards, licensing and sanitary and physiosanitary facilities and TRIPS (Trade Related Intellectual Property Rights), take into account the new trading environment e.g. Investment, competition and trade facilitation and enhance Namibia’s capacity to comply

with international standards.

• Preparing the necessary structural changes for the EPA. These will focus on trade specific areas (tariffs, customs, TRIPs, labour standards, competition, environment etc.) and macroeconomic reform (exchange rate, finance, social policies, etc.).

• TA to co-ordinate and render more effective EC horizontal instruments for private sector support and sustain the initiatives of EU MS.

Assistance shall be complementary and coherent with the Intra-ACP “Capacity building in support of Economic Partnerships” amounting to EURO 20 million and the “Economic integration programme to the BLNS - Phase I” amounting to EURO 6 million.

The following areas are being considered:

a) Training of the newly recruited staff of the National Planning Commission, the Bank of Namibia and the Ministry of Finance and planning staff of line Ministries as well as from Non-State Actors.

b) Strengthening the link between planning and budgeting, in particular the Public Sector Investment Programme and the annual budget.

c) Enhancement of NPCS efforts in donor co-ordination and the (sectoral) monitoring of donor support programmes.

d) Continuous support to the NDP2 exercise particularly to monitor its implementation and linkages with regional planning, the PSIP (Public Sector Investment Programme), the PRAP (Poverty Reduction Action Programme) and Vision 2030. This should also enable to monitor progress under the 9th EDF CSP.

e) Effective management of EDF resources in the context of the 9th EDF. The 9th EDF will entail new tasks such as the follow-up of the rolling programming mechanisms, the relationship with NSAs (Non-state actors) and the need to develop the NPCs capacity in project planning, implementation and evaluation as well as budget management should be considered.

f) Facility to develop the programming and policy functions of line Ministries and capacity of NAO and line Ministries to prepare 9th and 10th EDF projects.

g) Facility that will contribute through seminars, work shops, cultural initiative and publicity / information activities to increased understanding and awareness of development issues, opportunities and areas of mutual interest as defined in the CSS of EDF 9.

h) Enhancing the capacities of NSAs.

* Funds available under the Sysmin allocation (pending request under the 8th EDF) may be also used in support of rural development.

Title 2001 2002 2003

Annex I: Government of Namibia’s position on the political issues raised in section 3.1

Annex II: Parameters for the review process based on the National Development Plan 2

Annex III: Goals, Strategies and Achievements under NDP1 (1995-2000)

Annex IV: ‘Namibia at a Glance’

Annex V: Namibia Donor Matrix

Annex VIa: The role of non-state actors in sustainable development and the consultations with Non-state actors in the context of the CSP

Annex VIb: Civil Society Involvement by Sector and Organisation – NPRAP

Annex VII: Abbreviations and acronyms