A 2013 Cost and Benefit analysis on the recently scrapped manufacturing incentives revealed that the incentive was skewed in favour of large foreign firms.
This was said by acting deputy executive director of the Namibian Investment Centre, Michael Humavindu last week.
According to Humavindu, during the 2012-13 period, the ministry of trade contracted a consultant to review Namibia’s incentives regime.
“A cost-benefit analysis (CBA) found that our regime was focused on large foreign manufacturing and exports only,” he revealed.
The incentives did not only exclude local investors such as small manufacturers, but the CBA also found that they failed to incentivise the participating companies to add value to transform the country’s economy.
“The findings also showed a low sensitivity to the incentives framework by companies and that the Exporting Processing Zone (EPZ) regime had a negative CBA outcome,” said Humavindu.
He added that responsible entities failed to monitor and consistently evaluate the progress of the regime in place, which resulted in very little information on incentivised investments.
“Thus the overall investment framework, not only the EPZ, was found to be defective and in need of wholesale change,” he stated.
The move by the Ministry of Finance and that of trade to scrap the incentives through the amendment to the Tax Income Act, attracted condemnation from organisations such as Team Namibia and the Manufacturing Association of Namibia.
Team Namibia said the move will make the manufacturing sector less attractive to investors.
The promoter of local goods urged the government to consult manufacturers more before the incentives expire, and advised the government to do research and benchmark from other countries on different practices that can stimulate value addition.
Humivandu conceded that the Namibian incentive frameworks does not always have a clear eligibility criterion.
Asked if the government is punishing emerging manufacturers due to the failure of the EPZ companies, Humivandu said the current work is part of an ongoing project to revise and revamp the whole incentive regime of Namibia.
“While Namibia’s recent unwelcome classification as a tax haven was propelled by the EPZ regime, such an event should not be suppressed as the government attempts to make every manufacturer pay for EPZ,” he said.
He added that “rather the bigger picture is of revamping the whole incentives’ regime to ensure transparency, accountability, and equality of access”.
DOMINATED BY DIAMOND POLISHERS
Humavindu also explained that the decision to dump manufacturers was not only CBA empirics, but also for institutional, organisational and accountability purposes.
He said since its inception in 1995, over 138 entities were certified to operate as an EPZ, but by 2011 there were only 20 enterprises, most of them in diamond cutting and polishing.
“The policy decision is therefore not only driven by CBA outcomes but also various institutional and accountability requirements as the overall Namibian incentives regime is deficient in many parts,” explained Humavindu.
Humavindu gave assurances that the envisaged Special Economic Zone (SEZ) regime will take the lessons learnt from the failed regime.
He elaborated that SEZ will also be more closely aligned to the national vision as espoused in key documents such as Vision 2030, the fifth National Development Plan, the Harambee Prosperity Plan, Namibia Industrial Policy and the National MSME Policy.
SEZ will also be primed to ensure alignment to priority sectors as outlined in the Growth at Home Execution Plan of Namibia’s industrial policy, he added.
He said the ministry of trade will finalise the draft SEZ national policy and draft bill before the end of this year.
During a meeting last year one of the players in diamond polishing companies revealed that they need EPZ status with its incentives to compete against countries such as India.
The polisher said that more investors in diamond polishing want to enter the market but cannot do so because the government will not give them EPZ status.