Review of the International Economic Situation during NDP1

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Chapter 1: Review of the International Economic Situation during NDP1.

1. Introduction
1. The objective of this chapter is to present general information on the relevant economic activities, and on the main trading partners of Namibia, and to provide some insights on the possible future development the activities. The objective forms one of the key aspects of NDP2, which sets out to articulate Namibias future economic development. 2. The arrangement of this chapter therefore, reflects the economic structure of Namibia, more precisely in two areas. The country exports mainly to the European Union. Its other trading partners are Asian and African countries, and the USA. However it imports almost exclusively from South Africa. Therefore, it is crucial to analyse how the economies of those regions may evolve in the future, so that plausible assumptions can be made on Namibias development potential regarding its exports, and the cost of development in terms of imports. Namibia exports mainly raw materials, such as minerals and fish, and imports mostly equipment. However, it does not control the prices and volume of its exports. The international markets do. Consequently, it is crucial to analyse everything what are the growth potential of current exportable Namibian goods, and what could be the impact of a higher growth path on imported goods, hence trade balance. 3. As far as international relations are concerned, the major issues facing the Namibian economy are: The current positive economic growth in the USA as well as in Europe can provide substantial gain to Namibia. Nevertheless it would be presumptuous to assume that this growth will be sufficient to pull Namibian economy up, as what happened during the financial crisis in Asia and Russia in 1997-8. The sharp increase in oil price since 1999 puts additional pressure on Namibia, but one should keep in mind that it is unlikely that this price is going to remain that high throughout the life span of NDP2. It could however, substantially contribute to the worsening of the trade balance, but only in the short term. The economic situation in Zimbabwe has had an influence on the whole of Southern Africa, especially in South Africa itself. The great uncertainty on the policy that will be implemented in South Africa contributed to the weakness of the Rand affecting the trade balance. Since export prices are
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determined by international markets, and that the Namibian dollar is still pegged to the South African Rand, Namibia won't gain in terms of price competitiveness whenever the Rand decreases. Therefore, trade balance in nominal terms, will decrease as the Rand depreciates. The growth recovery of the Namibian economy will mechanically lead to a sharp increase in imports, and therefore put additional pressure on the current account. Hence, it is worth noting at this stage that a decrease in the current account balance should not be viewed as a sign of un-sustainability, as the building of domestic productive capacities would necessarily lead to an increase in imports of equipment goods. 4. This chapter has no analytical goal regarding the Namibian economy. That task is done in chapter 2. Moreover a complete analyse of the world economic situation would require much more than this chapter and is well documented in many publications of the international organisations. Nevertheless, it is quite appropriate to present some general and brief guidelines on the probable paths that countries, regions, goods and prices relevant for the Namibian economy could follow. Therefore, this analyse has to be viewed as basic background required to understand how Namibia may interact with its economic environment. 5. The rest of the chapter is organised as follows: The first section of the chapter describes some major aspects of the European Union, USA, Japan and South East Asia; The second section discusses the main trends in Southern Africa; The third section discusses the international market of minerals and raw materials; and The fourth section discusses international finance.

2. World Output performances

6. World output for the period under consideration (year 1995-1999) continued to grow, even though the growth was not constant. 1997 was characterised by the East Asian financial crisis that began in Thailand and spread first to Indonesia and Korea, then to Russia and Latin America, and eventually to every region of the world. As a result, output growth declined sharply in 1998 from an average growth of almost 4% to 2.5% as compared to the previous three years. Evidence of a strong rebound in the global economy has continued to accumulate in the course of 1999 when global growth reached 3.3% , and is estimated to register 4.2% in the year 2000, exceeding the pre East Asian financial crisiss value. Much of the improvement resulted from a faster and strong recovery in the Asian economy. However, anti inflationary policies (tight monetary policies) may halt growth in the United Stated and hence recovery both in Western and Asian countries.
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Table 1.1: Annual percentage change in real GDP (1995-2000)

World Advanced Economies United States European Union Japan Other Advanced Economies Developing Countries Countries in transition 1995 3.6 2.7 2.7 2.4 1.5 5.0 6.1 -1.4 1996 4.1 3.2 3.6 1.7 5.0 4.2 6.5 -0.6 1997 4.1 3.3 4.2 2.6 1.6 4.5 5.8 1.7 1998 2.5 2.4 4.3 2.7 -2.5 0.9 3.2 -0.7 1999 3.3 3.1 4.2 2.3 0.3 5.4 3.8 2.4 2000 4.2 3.6 4.4 3.2 0.9 4.9 5.4 2.6

* 2000 are projections, source: IMF World Economic Outlook 2000

USA
7. The United States has not been affected by the crisis of the 1997 enduring a steady growth all along the 1995-1999 period. The economy has continued to expand rapidly with output growth increasing from 2.7% in 1995 to 4.2% in 1999. The main driving force behind the growth has been the continued confidence of the private sector in both increasing consumer demand and business investment. Real wage gains and a strong appreciation in equity markets have been the other factors that have contributed to the expansion of the USA economy. This growth in the economy has resulted in an increasing external deficit since tight monetary policy has kept inflation down. However, it is unlikely that inflationary pressure will continue to be contained given the strong global recovery. 8. Unemployment levels in the United States continued to decrease reaching the level of 4.2% in 1999; such a low level of unemployment was last recorded in the 1960s. 9. During 1999, inflation rates in the USA remained 2% in spite of the higher oil prices and strong labour market. This positive development was due to a number of factors such as lower international commodity prices, increased global competition, higher productivity, prudent fiscal spending and attentive monetary policy. 10. Since mid 1999, the USAs Federal Reserve Bank has tightened its monetary policy by raising interest rates. Likewise, the Canadian Central Bank also hiked its interest rates by the end of 1999. The increased interest rate in the latter was aimed at narrowing the interest-rate spread relative to the former.

European Union
11.The European Union1 countries have shown mixed signals for the period 19951999, probably due to a delayed response to the slowdown in world demand caused by the financial crisis of 1995 and 1997. The slowdown in the European economies materialised in 1996; in the last quarter of 1998 and in the first quarter of 1999. Individual country performances have been rather uneven across the region, partly due
1

The European Union comprises of the following countries: France, Germany, Italy, United Kingdom, Austria, Belgium, Denmark, Finland, Greece, Ireland, Luxembourg, Netherlands, Portugal, Spain, Sweden.

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to different impacts of the world crisis. France and the United Kingdom grew much more than expected during the period while growth in Germany and Italy was much weaker. However, diversity of growth performances however also resulted from the policies undertaken to enter the new monetary union. The continuing process of convergence within the Euro Area2 suggests that the recovery is gaining momentum. Consequently, unemployment in the European Union has declined to below 10%, the lowest since 1992. 12. By 1996, nearly all advanced countries had stable prices with an average consumer price inflation of 2.4%; only four countries (Italy 5.1%, Greece 8.8%, Israel 11.2% and China 5.4%) had inflation rates above 5 percent. In Europe this could be seen as efforts by member countries of the European Economic and Monetary Union (EMU) towards macroeconomics convergence before the introduction of the Euro currency. This is because inflation rate for 1997 in the EU was 2.1%, less than the 1991 figure when the EMU treaty was signed, and lower than at any time for the past three decades. 13. With the introduction of the Euro currency in early 1999, inflation rates in the European economies were projected to decline further. However, the Euro has continued to depreciate against the US$ since its introduction. Coupled with the increased oil prices and other non-oil commodity prices, the phenomenon has resulted in an increase in inflation rate in the second quarter of 1999, making inflation reduction for the year 2000 unlikely. 14. Efforts by member countries of EMU towards macroeconomics convergence before the introduction of the Euro currency also depicted converging interest rates beginning in 1996 onwards. Nominal and real interest rates decreased rapidly in the run-up to the introduction of the Euro in January 1999. As a result, short-term nominal interest rates are today equal among member countries, yet real interest rates are much lower in the faster growing economies due to higher inflation rates.

Japan and South East Asia

15.In Japan, the Asian crisis hit an economy whose nascent recovery had already stalled. After four years of stagnation, its output growth had reached 5% in 1996. In 1997 domestic factors determined a loss of momentum with a sharp reduction of growth output (1.5%). Domestic concerns coupled with the Asian crisis caused a drastic reduction of growth output in 1998; However, in the first half of 1999 GDP rebounded reversing the 2.5% contraction experienced in 1998, while forecasts for the year 2000 projected a 1% increase in the output. The recovery has had effects mostly on the dynamic component of government expenditure, and on the net export with private consumption remaining weak. This presents some doubts on the effectiveness of the Japanese recovery. In fact, despite its depreciation, the yen rose in 1999, (over 10% in the period July 99 - March 2000), hence prompting the need to continue directing monetary and fiscal policies towards encouraging domestic demand.
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The Euro Area countries are France, Germany, Italy, Austria, Belgium, Finland, Ireland, Luxembourg, Netherlands, Portugal, and Spain.

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16. The other Asian economies belonging to the advanced economies group have been able to come out from the financial crisis which originated in the region with signs of recovery much stronger than anticipated. The newly industrialised economies recovering from the -3.6% decrease in real GDP output registered in 1998 to 6.6% in 1999. The Republic of Korea has been outstanding with a GDP growth rate of almost 11% in the 1999. This recovery was projected to continue into 2000. Expansionary macroeconomics policies, financial restructuring and an improving external environment have supported the recovery. The positive growth momentum has been spread among the whole region and is also the main component of the recent general world output growth. In particularly, in most crisis hit countries private consumption has picked up as response of policies stimuli; consumer confidence; and as domestic demand recovered, regional trade links were reactivated and export expanded thereby generating a cumulative effect on the world economy. 17. Negative signs have instead emerged from the Asian economies where job losses have accelerated since early 1998 both in Japan and in the newly industrialised countries. In Japan the unemployment rate has increased from 3.1% to almost 5% during the 1995-1999 period, while in the most representative of the NIC such as South Korea there has been a staggering increase form 2.2 to almost 7% during the same period.

3. South Africa
18. South Africa was experiencing serious foreign exchange market pressures in the recent past, largely as a result of contagion from other emerging market economies, but also because of an adverse reaction by investors to the authorities' response to these pressures during May-June 1998. Starting in July, the authorities kept monetary policy consistently tight, refrained from intervention in foreign exchange markets to defend the currency, and maintained fiscal policy on course. As a result of these policies and of an improved global environment, the authorities regained investors' confidence, which led to a resumption of capital flows. 19. The authorities have taken advantage of the improvement in market conditions since the fourth quarter of 1998. They have gradually reduced the repurchase rate from a high of 21.9 percent in September 1998 to 11.8 percent, and the net open forward position of the Reserve Bank (NOFP) from its high of US$23.2 billion in October 1998 to US$11.1 billion at end-February 2000. Following a depreciation of 18 percent against the U.S. dollar, the Rand remained mainly within a range of R 6.00R 6.20 during 1999. While headline inflation fell from 9.0 percent in December 1998 to 2.6 percent in January 2000, core inflation has remained at around 8 percent. 20. There were clear signs of a cyclical recovery in economic activity, as quarterly rates of real GDP growth rose continuously during 1999, reaching 3.6 percent (annualised, seasonally adjusted) in the fourth quarter. However, the decline in formal private sector employment continued during 1998 and 1999, and the official unemployment rate, which was 22 percent in 1997, most likely increased further.
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21. The stabilisation of market conditions was also underpinned by a strengthening of the public finances. The overall budget deficit of the national government was reduced from 3.8 percent of GDP in 1997/98 (April-March) to 2.3 percent in 1998/99, about 1 percent of GDP below the original budget estimate, mainly as a result of higher-thanprojected revenue. In addition, stronger expenditure management led to a turnaround in the overall balance of the provinces from a deficit of 0.9 percent of GDP in 1997/98 to a surplus of 0.4 percent of GDP in 1998/99. Thus, the overall deficit of the general government declined from 5 percent of GDP to 2.1 percent. For 1999/2000, the deficit of the national government was projected to be 2.4 percent of GDP, over of 1 percent of GDP lower than the original budget estimate. 22. During NDP1 a significant worsening in the Terms of Trade could be observed, from an index of 100 in 1995 to 137.5 in 1999. This means that the price of imports rose more sharply than the price for exports, an immediate reflection of the continued devaluation of the Namibian Dollar during NDP2. Related to this trend, was the sharp increase in the trade deficit ratio (net of imports and exports of goods and services in relation to GDP) as from 6.2% in 1995 to 11.7% in 1999. The increase appears to have levelled off with a slight decrease from 1998 to 1999 of 0.2%. 23. The year 1999 showed a recovery in the external accounts. The current account deficit fell from 2.5 percent of GDP in 1998 to 1.7% in 1999. The financial account of the balance of payments also improved, on account of the increase in portfolio investment following the return of investor confidence, the change in domicile of three large multinational corporations from Johannesburg to London, and a number of foreign currency bond issues by the government. Total external debt declined from US$39.2 billion in 1997 to US$38.8 billion in 1998 (29.1 percent of GDP). 24. Progress has been made on structural reforms. As a result, South Africa has been implementing a free trade agreement with the EU since the beginning of 2000. In addition, the Southern African Development Community (SADC) trade protocol has been agreed upon, and is expected to come into effect this year. Final, the privatisation exercise gained momentum following the sale of 20 percent of South African Airways in June 1999, and implementation of the measures to create employment arising from the October 1998 Presidential Jobs Summit has begun.

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4. World Trade and Commodity Prices

Minerals
25. Trade generated by the European economies is expected to be particularly strong; Namibias high value exports (beef, grape, and processed fish) could benefit from such a situation. Prices of the major primary commodities for the period under review reached their lowest value since 1993; the slight improvement in 1997 was immediately offset in the following year. Due to the recovery in the global demand price of some commodities (especially mineral, ores and metals) during 1999, prices rose to levels not observed in the previous three years. Prices of agricultural commodities on the other hand continued to decline especially the price of many categories of foodstuff, tropical beverages, vegetable oilseed and oil. Table 1.2: Average annual metal prices 1995-1999
Metals Copper US$ metric tonGold -US$ tray ounceLead -US$ metric tonSilver -US$ tray ounceUranium (restricted) US$ pound Uranium (unrestricted) US$ pound Zinc (US$ metric ton) 1995 1996 1997 1998 1999 2936 2297 2277 1653 571 384 388 330 294 279 630 774 623 528 503 5,20 5,19 4,97 5,52 5,22 11,32 15,50 12,09 10,41 10,20 8,37 14,02 10,57 9,01 8,25 1030 1025 1321 1023 1076

Source: The Camber of Mines of Namibia Annual Report 1999

26. After reaching their highest level in the first quarter of 1997 oil prices have sharply declined to a low of US$ 10 per barrel. By the end of 1999, the price of oil had risen to US$ 27 per barrel. However, the impact on the world economies should be less destructive than in 1974; furthermore the effect of the oil price hike will be different in the advanced countries and in the oil depended emerging and developing countries. While production in the former countries, is less dependent on oil (use of less energy-intensive technologies), production in the latter is based on intensive energy consumption.

Primary products
27. Despite the rebound in the prices of industrial metal and minerals as well as ores, it is not expected that the future demand (and consequently, prices) will substantially increase. In some case (copper) the flattening in the demand for base metals in the industrialised western economies will offset increase in demand from other regions while in other cases (lead, copper) alternative materials will keep prices down. 28. Because the EU is one of Namibias major trading partner, the expected increased trade, particularly in the European economies; is likely to have beneficial effects on Namibias high value agricultural products (beef, grape, and processes fish).

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Oil prices
29. The effects of increased oil prices differ in the advanced countries, and in the oil depended emerging and developing countries (including Namibia). This is because production in the former is less dependent on oil (less use of energy-intensive technologies), whereas production in the latter is based on intensive energy consumption. This implies that production will become expensive, resulting in higher prices, thus affecting consumers in the latter.

5. Financial issues
Exchange rates
30. From August 1997, monetary conditions in Europe started supporting recoveries; this was possible because currencies under European exchange rate mechanism (ERM) weakened against the U.S dollar and the pound sterling. 31. The Asian financial crisis which started in the second half of 1997 lowered the currencies and asset values to levels lower than the pre-crisis in countries involved. 32. The crisis had varying negative impact in the industrialised countries through the following channels: Trade and financial links with the crisis economies; economys initial position, such as the already weaker position of Japan. By the end of the Australian dollar depreciated against the currencies of other industrialised countries as a result of the crisis. In the advanced economies of Asia, namely Korea and China, currencies also depreciated. The other channel was through developments in foreign exchange and financial markets. This is because financial flows were redirected towards mature markets. As a result equity markets improved significantly in many countries, and the US dollar gained more value. 33. The impact of the Asian crisis was felt in Namibia mainly through the effects of the confidence crisis affecting foreign direct investments; of pressures on international commodity markets; and of an accelerated speculative attack on currencies in emerging markets, including the South African Rand. 34. The beginning of European Economic and Monetary Union (EMU) (with a common currency, the Euro) on January 1,1999 signalled the economic, monetary and political ties within Europe. The European System of Central Banks (ESCB) which is made up of ECB and the national central banks (NCBs) designed and implemented the monetary policy in the Euro area. The primary objectives of the Euro currency are to maintain price stability, with the inflation target of 0-2 % per year; sustainable growth; fiscal sustainability; high employment; strong convergence of economic performance and solidarity among member countries.

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35. The introduction of EMU presented two major issues, which revolves around asymmetric disturbances. Firstly, countries under EMU no longer use their respective national monetary policies to achieve exchange rate stability. They now consider the international differences in the transmission mechanism for monetary policy that requires longer time period to develop uniformity that is needed. This implies that a countrys abilities to deal with symmetric shock hinges largely on each economys structural flexibility. Secondly, there has been a change in the geographical orientation of monetary policy. 36. The Euro started strongly with a high value of $1.19 in January 1999, but lost value greatly during the course of the year, reaching a level below parity by the beginning of December. The depreciation of the Euro during the first half of the year (1999) could be attributed to the cyclical position of the Euro-zone economies vis--vis the US, as well as unfavourable yield differentials. The other variations during the end of the year depicted market uncertainties related to the timing of the reversal of these fundamentals. 37. Overall, the introduction of the Euro currency has had positive results on economic growth in the region. Cross-border merger and acquisition activity has increased due to the fact that exchange risk between member countries has been abolished. This has resulted in increased competition in the region. Another positive aspect is that of greater source of funds for firms since they now can issue Euro denominated bonds.

Capital Markets3
38. International capital markets experienced some of the worst financial market turbulence (in the post-war period) in the recent past. The turbulence of the last couple of years have highlighted concerns of the operations of an increasingly integrated international capital markets. Issues of concerns are the fast pace and the magnitude whereby turbulence in markets spillover across nations, the boom-bust swings in international capital flows. 39. The Asian economic crises, of 1997/1998, which began in Thailand initially only impacted the South East Asian region, then it spread to other emerging markets (like South Africa) and eventually to the industrialised economies. However, the negative spill -over did not last long. In fact even up to July 1998, mature financial markets in Europe and the United States had generally been immune to the spillovers from the Asian crises and remained buoyant.

It is the market for long term company loan capital (money borrowed by companies for fixed periods of time by the issue of fixedinterest financial securities) and share capital (normally share in the profits of the company) and government bonds (is a financial security issued by government as a means of borrowing long term funds. Bonds are typically issued for periods of several years. In addition to their role as a means of borrowing money, the monetary authorities use government bonds as a means of regulating the money supply. E.g. If authorities wish to reduce the money supply they can issue bonds to the general public thereby reducing liquidity of the banking system as customers draw cheques to pay for these bonds). The capital and money market (which provides short-term funds) are the main sources of external finance to industry and government. The financial institutions involved in the capital market include the central bank, commercial banks, the saving investing institutions (insurance companies, pension funds, unit trusts, and investment trust companies) issuing houses and merchant banks

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40. Prices in equity markets in the majority of the industrialised countries recorded strong gains while government bond yields continued to decrease and investor confidence was generally positive. Unfortunately the picture started to change during the second half of 1998 due to a combination of different factors: Poor performance of the Japanese economy (one of the largest economies in the world) increased negative view of global economic outlook. Larger than expected output falls in crises hit Asian economies. Russias unilateral debt restructuring in August 1998 and subsequent decision to allow the rubble to devalue set off the alarm bells in the mature financial markets. The Russian crises resulted in more turbulence in mature markets than the Asian crises. This can be ascribed to the fact that Russias unilateral restructuring was sudden, whereas the Asian crisis developed more slowly. The Russian crisis had the effect of reducing the liquidity on the international capital markets and it also led to capital outflows from emerging markets (IMF: 1999). Long term Capital Management (LTCM), which is among the biggest hedge funds in the world, nearly collapsed in September 1998, and this set off a domino effect resulting in losses for many investors in the financial markets (Finance & Development: 1999).

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Box 1.1: Lessons from the Asian financial crisis. Capital flow of the 1990s differed from that of the 1970. The Capital flow of the 1970s was more of syndicated bank loans, whereas the capital flow of the 1990s was largely FDI or portfolio flows (bonds and stocks). The Asian crisis happened in summer (October 1997). The crisis started in Thailand. For the period 1985-1995, Thailand received capital flows of about 52% of GDP i.e. 12 % of GDP each year. This happened because of the push-factors i.e. money was pushed by lower interest rate in the industrialised countries to the developing countries. Two important lessons from the crisis: Need to look at policies aimed at combating capital inflows, more especially macroeconomic overheating. Financial opening. Three questions need to be answered, namely, why opening, when, and how to open (Montiel 1998). Financial opening is important because it makes controls less effective, and also the fact that it creates benefits for the domestic economy i.e. increases national wealth and gives domestic residents access to gains from portfolio diversification. Most important is how to open? Fischer and Reisen argue that: Fiscal control is needed first. Because without it, you get financial repression. Need to establish and deepen domestic money market and securities markets, to permit sterilisation of capital inflows and outflows. Need to develop the domestic banking system. This means enforcing competition to enhance efficiency in the financial sector; strengthening of prudential regulation and supervision, establishment of legal and accounting systems so as to cope with systemic risks. Financial opening should itself be sequenced: Liberalisation of FDI and Trade finance should come first. These are important for development. Fiscal consolidation essential because it is needed to do without revenues from financial repression; needs to cope with bad loan problems in reforming financial sector. Next, implement measures for improved bank regulation and supervision. This should be done early because it takes time. After macro stability is achieved, institutional mechanism is in place and bad loan problem is resolved, then free domestic interest rates. This is essential so that over-intermediation is not a problem. With high-yielding domestic instruments in place and no debt-overhang problem to trigger capital flight, can liberalise capital outflows. Complete domestic financial reform (free interest rates, remove bad loans, lower reserve requirements). Now permit entry of foreign banks. With increased bank competition due to free entry, credit market integration from competition, with banks exercising independent credit judgement after resolution of bad loan problems, prudential regulation preventing distress borrowing, and lowered interest rates from stabilisation, can open up to shortterm capital inflows.

41. Apart from the turbulence in international capital markets, developed financial markets were greatly influenced by continued dramatic differences in macroeconomic performance and policies across the major advanced countries, especially the continued strong growth of the American economy relative to Japan and the European economies. The world wide movement towards a low inflation environment plus the problems of the emerging markets, particularly as regards to their banking systems,
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also combined to impact the financial markets (Finance & Development: 1999). 42. However timely intervention by numerous central banks made it possible to avert a global crisis. Capital markets in the industrialised economies started to stabilise during the latter stages of 1998. Furthermore, even though sentiment started to worsen again early in 1999 when Brazil decided to stop trying to defend the Brazilian real after several months of pressure, the negative effects of this crises did not impact capital markets as badly as was feared and the spillover to other nations did not last long. 43. The economic climate started to improve as it became evident that the Asian crisis economies are starting to recover, and Japan initiated steps to deal with the problems that are facing its banking sector and to stabilise its economy. Furthermore the largest economy in the world (the American economy) continued to show strong performance. In addition on the structural side, other developments like the progress towards European financial integration (with the recent merger of the London and Frankfurt stock exchanges) and with the successful launch of the Euro (beginning of 1999) occurred. Notwithstanding these positive developments, the financial markets still remain fragile as clearly demonstrated by the recent (April 2000) fall of the technology heavy share index, (the NASDAQ), which was triggered by the judicial decision going against Microsoft (one of the worlds leading company in computer technology). 44. The most recent crises was characterised by the rapid drying up of liquidity in international capital markets and turbulence on a wide range of mature markets which all appear to have been out of proportion to the factors that triggered them (Finance and Development 1999, 32). 45. Private capital flows slowed down during the 1980s and increased significantly during the 1990s. Net official flows of aid or development assistance have decreased greatly since the 1980s. The nature of private flows has also changed, with direct foreign investment as the main component. 46. Distribution of FDI inflows and outflows into selected SADC countries (ml dollars); 1995-1998. Table 1.3: Distribution of FDI inflows and outflows
Inflows
Country Africa Angola Botswana Mozambique Namibia Zambia Zimbabwe 1995 4145 472 70 45 153 97 118 1996 5907 181 71 73 129 117 81 1997 7657 412 100 64 91 207 135 1998 7931 396 168 213 96 222 444 1995 454 -2 41 -4 13 1996 -26 -1 -1 -22 51

Outflows
1997 1418 -1 -4 28 1998 511 -1 1 -2 9

(Source: World Investment Report 1999)

47. The fact that the poorest countries of the world have experienced declining trend of foreign direct investment and other private capital flows, as well as limited ability to
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compete in the export market could be highlighting the fact that these countries are casualties of the process of globalisation. Taking into account the few selected SADC countries, Zimbabwe recorded the highest FDI inflow ($ 444 million) in 1998; on the other hand Namibia had the lowest FDI inflow of $ 96 million. These differences could be due to the size of the economy and capital markets in these countries. With regard to FDI outflow, again Zimbabwe had the highest figure of FDI outflow ($ 9 million). Perhaps this could be a reflection of the instability of the capital market in Zimbabwe.

6. Conclusion
48. An important aspect of globalisation is that of world economic integration. World economic integration in real sense implies the convergence of polices. Most important is that both the private and public sector production will need to be internationally competitive. This is essential since the globalised economy has the ability to capitalise on policy shortcomings. This increases the risk that a poor country may become isolated from the global economic system. 49. The experience of the twentieth century has shown that it is costly and harmful for poor countries to withdraw from globalisation. In the 1970s and 1980s, a number of countries in Africa and Latin America suffered from resource misallocation, financial instability, hyperinflation and poor growth as a result of inward-oriented, protectionist economic policies. A number of countries in east Asia moved from being the poorest countries of the world to the most dynamic, largely because of benefits (such as access to integration with the world market) from outward-oriented, growth-oriented policies. This underscores the fact that poor countries can experience rapid growth rate as a result of benefits from globalisation through increased direct investment access to financial institutions and higher export growth. In addition to the East Asian countries, a number of developing countries such as Botswana, Mauritius, Senegal, Vietnam and Uganda have also benefited greatly from globalisation. 50. One of the consequences of globalisation is its impact on the factors of production such as capital and (skilled) labour mobility. The mobility of these factors of production can in turn affect fiscal policies negatively or positively. Large capital flows, for example, can cause economic imbalances, which might require responses from both monetary and fiscal policies. The East Asian financial crisis of 1997 is a case in point. The East Asian financial crisis of 1997 underlines the fact that globalisation increases a countrys economic opportunities and also enhances economic policies and institutions to deal with risk and effects of external shocks. Put differently, globalisation offers both opportunities and risks (that result from volatile capital movements, as well as risks of social, economic, and environmental degradation resulting from poverty).

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51. Globalisation is a process, and there are pros and cons to it. It will be up to Namibia to proof whether or not it is able to cope with the fast changing international environment and globalisation. Smart partnerships between Namibian companies, between the public and private sectors in Namibia, and in joint venture partnership or other form of business co-operation with foreign companies are an essential ingredient to a Namibian response to globalisation.

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