INEQUALITY IN SOUTHERN AFRICA: AN ASSESSMENT OF THE SOUTHERN AFRICAN CUSTOMS UNION COUNTRY BRIEF: NAMIBIA1 Namibia is the second most unequal country in the world, with inequality in per capita consumption about 45 percent higher than the average for upper-middle-income countries. The country has made little progress in reducing inequality in recent years. The main sources of inequality are inequality of opportunity and disparities in factor markets, with the legacy of apartheid playing a significant role and access to jobs and land being severely constrained and uneven. High spending on transfers and social services partially mitigates unequal outcomes, although social transfers could be better targeted. Moving forward, Namibia needs to: (a) improve access to quality services to promote equality of opportunities across races and disadvantaged groups; (b) enhance conditions for private job creation, including by reducing barriers to entrepreneurship and self-employment, and by enhancing access to productive assets (skills and land); and (c) continue investing in the capacity of social protection systems to respond to shocks, especially in view of the growing climate-related risks, while improving targeting of safety net programs. A. Inequality is high and stagnant Namibia is the second most unequal country in the Inequality has not been reduced much in recent years. world, behind only South Africa among 164 countries in Between 2004 and 2015, Namibia’s Gini coefficient changed the World Bank’s global database of Gini coefficients, which very little, declining by just 2.3 Gini points from 61.6 to 59.3. measure inequality of per capita consumption (or income, This is among the slowest rates of progress in SACU. depending on the country). Figure 1. Inequality has fallen but remains relatively high a. Regional comparison of Gini coefficients b. International inequality comparison 70 68.40 68.77 80 South Africa, 2018 65 66.96 66.52 60 Namibia, 2015 61.60 Botswana, 2015 60.50 Eswatini, 2016 60 Lesotho, 2017 Gini coefficient 59.30 40 Gini coefficient 55 53.20 51.80 54.90 50 20 50.90 45 45.10 0 Countries ordered from lowest to highest Gini 40 Lesotho Eswatini Botswana Namibia South SACU Africa Region* Around 2001 Latest estimate Source: World Bank 2022. Note: Panel a presents the Gini coefficient of consumption for the whole SACU region, based on the earliest and latest rounds of household surveys from member countries. 1 This brief is largely drawn from a SACU regional report on inequality prepared by the World Bank and co-authored by Victor Sulla, Precious Zikhali, and Facundo Cuevas. The report uses the framework highlighted in Box 1: World Bank. 2022. Inequality in Southern Africa: An Assessment of the Southern African Customs Union. Washington, DC: World Bank. 1 B. A lack of education and jobs and the legacy of apartheid drive inequality Inequality in Namibia, as in South Africa, is rooted in Differences in educational attainment are a key their shared legacy of apartheid. The common story driver of inequality, especially post-secondary or tertiary is one of incomplete transition after apartheid. The main attainment. Disparities in higher education, which is key to legacies of the long colonial rule and racial segregation are human capital accumulation, contribute about 45 percent stark divides in income and opportunities by race, including to overall inequality. Average levels of human capital severe disparities in access to basic services. Such structural remain low—the World Bank’s Human Capital Index (HCI) inequalities are powerful barriers to progress. Progress in estimates that a child born in Namibia in 2020 would on reducing gaps in endowments and opportunities has been average reach only 44.6 percent of its potential productivity slow, even though most forms of legal and institutional as an adult. discrimination have been replaced by progressive policies based on the principle of equality. Figure 2. Decomposition of inequality a. Contribution of selected factors to inequality (%) b. Breakdown of the contribution of selected factors to inequality, percentage points 60 57.5 0.2 Gender -0.1 Demographics 4.7 Hh Size 6.3 Age 10.2 15.1 42.6 -1.4 Secondary -0.7 40 Education Primary-1.4 3.1 Contribution to Inequality Post-Secondary 55.8 44.7 27.1 Industry -0.8 -0.0 Labor 1.0 Participation 8.5 21.3 market 14.0 Skills 18.7 20 15.2 14.2 13.2 Urban -0.5 0.1 Location Region 13.1 8.9 9.4 0 20 40 60 0 Contribution to Inequality Demographics Education Labor market Location 2004 2015 2004 2015 Source: World Bank 2022. Note: Panel (a) reports the contribution (%) of spatial, demographic, education, and labor market factors to overall inequality. Panel (b) disaggregates the contribution of each of these four factors into its various subfactors. Disparities in employment outcomes are the second occupation type (such as senior managers, professionals, most important contributor to inequality. Differences and clerks), which reflect skills differences, contribute in labor market attributes (labor force status, industry of most to inequality. This is followed by labor force status employment, and occupation type) account for 27 percent (whether people are employed or not), which is growing in of overall inequality. Their role has increased since 2004 importance. The third attribute, “industry in which people against the backdrop of poor economic and labor market work”, does not seem to be significant. performance. Among these attributes, differences in C. Inequality and the cycle of income generation It is useful to analyze the process of household during childhood, such as gender, race, location, parental income generation to identify the sources of high and education, and family wealth; these differences create persistent inequality. The first step focuses on the pre- expected inequalities in income distribution even before income distribution, which is the inequality of opportunity people interact with factor markets. The second component that arises from differences in circumstances at birth and looks at the primary income distribution—how inequality 2 is affected by access to factor endowments (or assets), Finally, the fourth component relates to the tertiary income such as education, skills, land, and capital, as well as their distribution—the disparities that remain after accounting use and returns from interaction with markets. The third for the role of social services (such as education, health, and explores the secondary income distribution, assessing how infrastructure). inequality is influenced by taxes and government transfers. Box 1. Framework to assess sources of income and consumption inequality The SACU regional inequality report uses an innovative framework built around the process that underlies household income generation to identify sources of high and persistent inequality. The framework is organized into four sequential components, presented in Figure 3. Figure 3. Framework to assess sources of income and consumption inequality Pre-income distribution: Inequality of opportunity Arising from circumstances at birth or family backgroung (including gender, race and parental education). Primary income distribution: Inequality of pre-tax income Influenced by differential access to, use of, and returns to assets (such as education, labor, land and capital). Secondary income distribution: inequality after taxes and transfers Affected by the structure, implementation capacity and incidence of fiscal policy. Tertiary income distribution: Inequality after social services Resulting from the provision of and access to public services (such as health, education and infrastructure). Source: World Bank (2022). High inequality of opportunity Children face stark differences in life prospects Children from low-income households tend to grow depending on their circumstances at birth and during up without access to key services, which reduces their early years. Inherited circumstances—such as their opportunities later in life and so perpetuate gender, age, growing up in an urban or rural area, and inequalities. Region of residence and living in urban areas parental characteristics—account for 22.4 percent of are important because of their association with access to inequality in consumption per capita.2 Region of residence services. Children raised in lagging regions and rural areas and living in urban areas account for almost all inequality of are deprived of access to services that are critical for their opportunity, overshadowing circumstances such as gender development, such as water, sanitation, and electricity at and age. home, as well as early childhood care and education. 2 Unfortunately the effect of race could not be analyzed because of a lack of data. Therefore, this figure should be taken as a lower-bound estimate of inequality of opportunity. 3 High inequality is underpinned by very limited socio- last three decades, but land reform remains a critical economic mobility. Namibia shows the highest association concern. By 2018, Namibians of European descent owned between parental and children’s earnings in SACU. The about 70  percent (27.8  million hectares) of the country’s intergenerational elasticity of earnings for working young 39.7  million hectares of commercial farmland, whereas people is 0.58, about 30 percent above the SACU average. black Namibians owned only 16 percent.3 The higher the elasticity, the more likely income patterns are to persist, which means intergenerational mobility is Taxes and social spending play an important lower. role in reducing inequality Inequities in access and returns to productive Taxes and transfers significantly contribute to lower inequality. Driven primarily by high spending on education assets (labor and land) and health services, complemented by progressive personal A lack of job creation and skills mismatches hamper income tax and social assistance programs, Namibia’s the ability of disadvantaged households in urban areas fiscal interventions help reduce inequality. Without social to generate income, and so limits the reduction in transfers and social spending, inequality would be about 13 inequality. Unemployment remains high, at 20.3 percent Gini points higher. This redistributive fiscal impact is among of the labor force in 2020, and is almost twice as high for the highest in the world, at least among countries in which young people. Disparities in labor market outcomes stem comparable studies have been done. from bottlenecks that limit the capacity of firms to create The impact of social assistance could be increased with jobs and from barriers that constrain the ability of workers better targeting. The social assistance system comprises to access such jobs. Although many factors are at play, one a mix of categorical, means-tested, and geographically stands out: having post-secondary and tertiary education targeted programs. Since 71 percent of spending is on is vital both for getting a job and for getting better wages categorical programs, this limits its capacity to reduce once employed. inequality. The two main programs are the old-age grant High wage inequality fuels overall inequality. Given and the child grant. Most of the benefits in those programs the limited number of skilled workers, returns to post- accrue to nonpoor households. Redirecting resources secondary education are high, which in turn increase towards lower-income households would have a larger wage disparities. The gender wage gap is also substantial: effect on inequality without requiring additional resources. among people with similar education, backgrounds, and The social protection system was swiftly mobilized occupations, men earn on average 29 percent more than to respond to the COVID-19 crisis. The pandemic has women. wrought unprecedented socio-economic challenges Land ownership has historically been unequal. The across the world. The social protection system responded highly skewed land distribution, rooted in historical with the relatively swift introduction (by April 2020) of an discrimination against black Africans, underpins unequal emergency income grant to people who had lost their outcomes in rural contexts. Various land restitution and income in the pandemic and who did not already benefit redistribution programs have been implemented in the from other social grants. D. Policy considerations to accelerate the reduction in inequality Improve access to quality services to promote equality programs and improving basic education at all levels, in of opportunities across races and disadvantaged terms of both enrollment and learning outcomes. Early groups. Spending on social services is high by childhood development initiatives offer a particularly cost- international standards, but results are often below those effective area of action. Investing in young children in their of other countries with similar development levels. The first 1,000 days has lifelong implications and could help policy agenda could focus on elevating the quality of break the intergenerational cycle of unequal chances. public education and health services, improving basic Consider better targeting of flagship social assistance services such as electricity, and addressing coverage gaps programs. The old-age and child grants provide important for certain groups (such as black Africans) and locations benefits to low-income households, representing a (such as townships and rural areas). In education, the focus significant share of their expenditure. Tweaking their design should remain on enhancing early childhood development 3 Land statistics are based on Namibia Statistics Agency (2018). 4 and eligibility rules to reduce transfers to high-income inequality-reducing impact of this option, low-skilled households could increase the impact of these grants on entrepreneurs could be supported with business skills, inequality without requiring additional fiscal resources. socio-emotional competencies, and grant financing to address constraints that go beyond the regulatory Revitalize employment creation and remove barriers framework. to jobs for disadvantaged populations. Although the structural reform agenda aims to resume a path of growth Continue strengthening the responsiveness of the and employment generation in the economy, removing social protection system to shocks, with attention barriers to self-employment and entrepreneurship and to climate risks. The system demonstrated its adaptive strengthening programs to boost employability will help capacity to weather the COVID-19 crisis. Going forward, as alleviate the lack of job opportunities. Relaxing regulatory part of the strategy for adapting to growing climate risks, constraints and simplifying legislation could help boost ongoing investment is needed in the responsiveness and entrepreneurship, self-employment, and small businesses, efficiency of the system for horizontal and vertical expansion. all sectors with untapped potential. This could help get This would allow it to reach new affected populations people working, as it does in other developing countries, (horizontal expansion) and/or increase support to existing instead of staying unemployed, becoming discouraged, beneficiaries (vertical expansion). Digital technologies and and depreciating their human capital. To enhance the mobile payments could support such initiatives. References World Bank. 2022.  Inequality in Southern Africa: An Assessment of the Southern African Customs Union. Washington, DC: World Bank. 5