Research

# Key Sectors of the Namibian Economy

Michael N Humavindu13 and Jesper Stage2*

Author Affiliations

1 Namibian Competition Commission, Windhoek, Namibia

2 Department of Social Sciences, Mid Sweden University, Sundsvall, 851 70, Sweden

3 Department of Economics, Umeå University, Umeå, Sweden

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Journal of Economic Structures 2013, 2:1  doi:10.1186/2193-2409-2-1

 Received: 26 March 2012 Accepted: 10 December 2012 Published: 4 January 2013

This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

### Abstract

The present paper presents key sector research for the Namibian economy, based on input–output and Social Accounting Matrix (SAM) analyzes. The analyses were derived from a Namibian SAM for the 2004 period, using 28 economic sectors. We find that mining and government services are currently key sectors. Some manufacturing and services sectors have important linkages in terms of output effects, whilst for employment and income effects, the agriculture sector is paramount. The results obtained are useful for policy purposes in terms of identifying those sectors where interventions are likely to have the greatest impact on the Namibian economy.

JEL Classification: C67, L16, O21, O55.

### 1 Introduction

The purpose of this paper is to determine the key productive sectors for the Namibian economy. The principal concern with a key sector analysis is the identification of economic activities that exhibit the largest amount of interdependence with the rest of the economy. Such interdependence is usually measured through either backward or forward linkages. Backward linkages pertain to the dependence of a given economic activity on inputs produced from other activities, whilst forward linkages relate to a given economic sector’s role in supplying inputs to other sectors.

The overall concern with the identification of key sectors is their usefulness in economic development strategy. Since key sectors have high backward and forward linkages with the rest of the economy, investment in these sectors is expected to enhance economic development prospects [6,7,14].

Despite the usefulness of identifying key sectors, especially for development planning, key sector analysis has not been widely used in developing countries in recent years. Indeed, most recent studies have been in developed countries. Part of the reason for this low level of use is perhaps the considerable data requirements: even a basic key sector analysis requires an input–output table, which is only compiled every ten years or so (if at all) by most developing countries. In addition, more extensive analyzes such as the one presented here require employment data, which are often lacking in developing countries. Moreover, many developing countries are capital scarce and cannot easily support investment in key sectors even if such sectors are identified, making them less interesting from a policy perspective. However, key sector analysis remains a useful tool in those countries where the necessary data and the necessary funding are available. This study presents the first set of key sector analyzes for the Namibian economy.

### 3 Data

The main source of data for this analysis was the Namibian SAM for 2004 [8] developed by researchers at the Namibian Economic Policy Research Unit (NEPRU). The Namibian SAM has 32 commodity sectors, including three dummy sectors for own real estate services, direct foreign purchases by Namibians, and direct domestic purchases by foreigners. There are 30 activity sectors, including two dummy accounts for own real estate services and for foreign tourism. As regards factor accounts, five exist for income to skilled labor, income to unskilled labor, mixed income to commercial agriculture, mixed income to communal agriculture, and capital income, respectively. There are nine institutions, comprising six household categories, non-profit organizations, enterprises, and government. And finally, there is a Savings/investment category and a Rest-of-world category. A list of the economic sectors in the Namibian SAM is provided in Table 2.

Table 2. Namibian economic sectors

In the Namibian SAM, subsistence agriculture produces a composite own-consumption food product, all of which is provided to people working in that sector. Thus, there are no forward linkages from this sector except through the food recipients’ consumption, and there is no interaction with the other food sectors. This was identified as a limitation by the researchers compiling the SAM (ibid.). There is in fact also some commercial activity in the subsistence farming sector, but it is not captured very well by the current economic statistics. Apart from subsistence agriculture, informal economic activity is not included in the SAM.

The SAM was transformed into a symmetric, , activity-based input–output table with 28 domestic activity sectors and a dummy own real estate services sector, a dummy tourism sector, and a dummy sector for petroleum-based fuels as additional sectors. The transformation was done mathematically (see [22], for the methodology used) rather than by using sector-specific data.

For the employment multipliers, data from the 2004 labor force survey were used [15]. The Ministry of Labour reports on formal employment only, which means that the informal sector—again, apart from subsistence agriculture—is excluded, both in the SAM and in the labor force data. For the labor income multipliers, the income data from the SAM for unskilled and skilled labor were simply used, as well as the mixed income accruing to people active in traditional subsistence farming.

### 4 Results and Discussion

Tables 3 through 8 depict the results of the key sector analyzes described above. If one looks at the weighted analyzes, which show the current importance of various sectors in the Namibian economy, there are few surprises. Mining, Manufacturing of beverages and other food processing and Government services are crucial for overall output in the economy. Traditional (subsistence) agriculture and Government services are key sectors for both labor income and employment. Mining is a key sector for labor income, while Commercial agriculture: animal products is a key sector for employment. The results partly reflect how large all of these specific sectors are rather than the linkages that they create with the rest of the economy.

Table 3. Key sector analysis in terms of output, not weighted by sector size

Table 4. Key sector analysis in terms of labor income, not weighted by sector size

Table 5. Key sector analysis in terms of employment, not weighted by sector size

Table 6. Key sector analysis in terms of output, weighted by sector size

Table 7. Key sector analysis in terms of labor income, weighted by sector size

Table 8. Key sector analysis in terms of employment, weighted by sector size

The unweighted analysis, which shows the effect that marginal changes in sectors would have on the overall economy, exhibits a more complicated picture. Not surprisingly, given the dualistic nature of the Namibian economy, the choice of metric is important for those sectors identified as key in the unweighted analysis. When a traditional output metric is used, a range of manufacturing sectors (and a few service sectors) are identified as key, with both backward and forward linkages, and many of the remaining manufacturing and service sectors are identified as having strong linkages in at least one direction. On the other hand, when labor income is used as a metric, the subsistence agriculture sector (where any change in production will, by definition, translate almost completely into a change in income and consumption for the people involved in the sector), fishing, and a few highly-paid, labor-intensive manufacturing and service sectors are the only ones identified as key sectors with large linkage effects on the economy. Finally, when employment is used as a metric, the low-wage, labor-intensive agricultural sectors come out as the only key sectors.

If one focuses on the output-oriented analysis, the results indicate several key sectors where increased activity could have important linkage effects on the economy. Of those identified as key sectors with widely dispersed effects, two are service sectors. One is transportation which is important for the economy not only because it draws on a wide range of other sectors for its inputs, but also because such services are a vital input to almost all economic activity in this sparsely populated country. The second service sector with widely dispersed effects is financial services. Like transportation, financial services are a key input to many economic activities. However, perhaps more unexpectedly, the latter services constitute a sector that uses inputs from many other sectors.

As regards the manufacturing sectors identified as key sectors, those with widely dispersed effects—both forward and backward—draw on raw material inputs from the domestic economy. The goods produced are then used both as intermediate inputs and as consumer goods.

Key manufacturing sectors with less widely dispersed backward effects are those that sell their products to a broad range of other sectors—hence the widely dispersed forward effects—but whose main input from the domestic economy is the use of transportation and retail services to distribute their products. Sectors with widely dispersed backward effects but with limited or no forward effects are mostly those that draw widely on domestic inputs but sell mainly to export markets or to tourists visiting Namibia. Thus, transport and communications, identified as a sector for policy support, is indeed a key sector, according to our analysis.

Manufacturing has also been identified for policy support. Our analysis indicates that there is scope for more selectivity and targeting of individual manufacturing sectors rather than the entire range of manufacturing activities.

The special role given to mineral processing in policy documents is, however, not supported by our analysis. On the other hand, traditional agriculture, which comes out as a key sector according to most of our analyzes, has not been identified for policy support.

A few cautionary notes are in order at this point. The Namibian economy is highly trade-dependent, and even those sectors which are identified as having stronger-than-average linkages to the rest of the economy may be relatively weakly linked in absolute terms. In addition to this, since the Namibian economy is fairly small, and several of the key sectors identified here are small subsets of it, many sectors consist of only a few companies. This means that the entry of a single new company or the exit of an old one could change the structure of a sector enough to shift it from one category in the analysis to another. It also means that if a sector were to expand rapidly, it is uncertain whether the domestic markets would be sufficient to provide the additional inputs needed, or to absorb the additional output. In practice, constraints in other sectors might create problems—especially for those sectors identified as having multiplier effects, albeit only on a few other sectors.

Nonetheless, as long as one is contemplating interventions that are either relatively limited in scope or that will unfold over extended periods of time, key sector analysis can help identify interventions that are likely to have the greatest knock-on effects in respect of other sectors in the Namibian economy. Even in an economy as trade-dependent as Namibia’s, for policy purposes it is useful to identify the specific sectors where interventions are likely to have the greatest overall effect on the economy. Key sector analysis can contribute to that goal.

### Appendix:  Notation Used in the Paper

A Leontief matrix of input coefficients

Spending on inputs from sector j as share of sector i’s overall expenditure

B Leontief inverse

Coefficient of Leontief inverse

Average multiplier

Average forward multiplier of sector i

Normalized forward multiplier of sector i

Forward multiplier of sector i, weighted by its share of overall factor income

Forward multiplier of sector i, weighted by employment or labor income

Forward multiplier of sector i, weighted by employment or labor income and by share of overall factor income

Average backward multiplier of sector j

Normalized backward multiplier of sector j

Backward multiplier of sector j, weighted by its share of overall net final demand

Backward multiplier of sector j, weighted by employment or labor income

Backward multiplier of sector j, weighted by employment or labor income and by share of overall net final demand

I Identity matrix

n Number of sectors

Forward coefficient of variation of sector i

Normalized forward coefficient of variation of sector i

Backward coefficient of variation of sector j

Normalized backward coefficient of variation of sector j

Total revenue and expenditure of sector i

Z Matrix of monetary flows in the economy

Sector i’s spending on inputs from sector j

Sector j’s share of overall net final demand

Sector i’s share of overall factor income

### Competing Interests

The authors declare that they have no competing interests.

### Acknowledgements

Financial support from Formas through its COMMONS programme, from the Jan Wallander and Tom Hedelius foundation, and from Elforsk is gratefully acknowledged. The authors are also grateful for constructive comments from two anonymous reviewers on an earlier version of this paper. The usual disclaimers apply.

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