## sipea2025092

## Source details

**Canonical URL:** [sipea2025092](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025092.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025092.pdf.md)
- [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025092.pdf.json)

---

### Introduction
- Real GDP per capita growth in Namibia has slowed in the last decade and now lags behind other resource-intensive countries and the broader SSA region.
- Namibia ranks 2nd globally in income inequality (based on the Gini index).
- Key 2023 labor market statistics:
  - Unemployment rate: 36.9 percent (54.8 percent among youth) in 2023 (based on the 2023 labor force survey (LFS)).
  - Mineral sector contribution to GDP: 13.6 percent in 2023.
  - Mining sector employment: about 1.4 percent of the population (based on 2018 labor force survey).
- Political and policy context:
  - The SWAPO party pledged to create a quarter million jobs (absorbing approximately 24 percent of the labor force) in the next five years by investing over N$85 bn (nearly 30 percent of 2024 GDP) in priority projects.
  - Government is already the largest employer, limiting scope for further public sector employment expansion.
- Opportunity and risk from oil and gas:
  - Ongoing oil and gas exploration (and potential production) offers opportunities for growth and job creation but presents risks of worsened labor market outcomes if benefits are not broadly distributed.
  - Local content policies can increase local procurement and spillovers but must avoid creating obstacles to investment.

### Unemployment Landscape
- Data and methods:
  - Analysis based on four rounds of national labor force surveys (2012, 2013, 2016, and 2018) using ILO definitions; surveys are household-based and not panel data.
- Spatial patterns (2018 LFS):
  - Unemployment highest in Khomas (includes Windhoek), Erongo, and Omaheke.
  - High informality in northern rural agriculture regions: Omusati, Ohangwena, and Kavango West.
  - Youth NEET rates were 41-49 percent in Kunene, Omaheke, and Karas.
  - Migration: largest share of workers migrate from Ohangwena and Omusati to Khomas; Erongo and Karas show net outflow due to limited employment opportunities.
- Temporal and cohort dynamics (2012–2018):
  - Between 2012 and 2018 Namibia experienced a structural shift from agriculture to services.
  - Commodity price shock of 2015 caused contraction in mining and reallocation of workers from manufacturing and services back to agriculture and subsistence.
  - Young workers:
    - Probability that a young person in the labor force would be in employment fell by 11 percentage points between 2012 and 2018.
    - Probability of being unemployed or discouraged from looking for a job increased by 20.4 percentage points between 2012 and 2018.
    - Among employed youths, probability of being in the informal sector rose by 18.4 percentage points between 2012 and 2018.
    - Young people in TVET or higher education: only 5.4 percent.
  - After the 2015 shock:
    - Younger cohorts continued to increase probability of working in services.
    - Older cohorts pivoted back to agriculture.
    - Increase in subsistence employment was sharpest for the youngest cohort.

### Service Sector Labor Productivity
- Employment and productivity trends (1995–2018):
  - Employment in services increased between 1995 and 2018, but labor productivity in services showed no improvement.
  - Sectoral dynamics: mineral extraction is capital-intensive and creates limited direct employment but stimulates employment in supporting manufacturing and services.
- Shift-share decomposition (1995–2018):
  - Method: Aggregate labor productivity decomposed into within-sector and between-sector effects following de Vries et al. (2012), McMillan et al. (2014), and Diao et al. (2018).
  - Findings:
    - Within-sector productivity growth for services was negative, indicating reallocation of resources toward less productive firms in services.
    - Between-sector productivity was positive, reflecting movement of labor from lower-productivity agriculture to higher-productivity services.
  - Interpretation:
    - Service sector appears to hire youth primarily because they are willing to work at lower wages rather than because of high skills.
    - Resources are not allocated to relatively more productive firms in the services sector, consistent with weak real GDP per capita growth.

### Conclusion and Policy Recommendations
- Summary of challenges:
  - Slowing real GDP per capita growth, persistently high unemployment, and very high inequality.
  - Resource-intensive sectors contribute significantly to GDP but are capital-intensive and limited in direct employment creation.
  - Stark regional disparities: urban unemployment vs. rural informality.
  - Services sector has absorbed labor but with declining within-sector productivity.
- Strategic priorities and policy recommendations:
  - Address skills mismatches and skill gaps:
    - More recent data are needed; the last skills audit is from 2006 and is extremely outdated.
    - Crucial first step: collect new data on skill mismatches and gaps.
    - On the supply side, national education and TVET system should develop a strategy to train workers with requisite skills and qualifications to foster stronger linkages between the mining sector and the local economy.
  - Balance local content and investment climate for oil and gas:
    - Oil and gas is highly capital-intensive and requires complex specialized technology, limiting linkages to the domestic economy.
    - Overly ambitious local content targets could cause supply bottlenecks.
    - With passage of a local content policy bill, careful implementation is essential to strike a balance between attracting FDI and ensuring tangible benefits for the local economy.
  - Implement a comprehensive and consistent labor market strategy:
    - Address youth unemployment, skill mismatches, and skill gaps through greater policy alignment.
    - Strengthen education and TVET systems.
    - Implement a balanced local content policy.
    - Prioritize infrastructure and reduce regulatory barriers to enhance labor market resilience and economic diversification.
- Long-term objective:
  - Shift toward a more diversified and dynamic economy to reduce dependence on the extractive sector and ensure oil exploration benefits are broadly distributed to avoid exacerbating inequality and unemployment.

### Reallocation of Social Spending: Botswana example
- Finding: Botswana spent almost half of its social spending on tertiary education.
- Policy implication: Redirecting public funding from tertiary education to vocational training and various social programs could help improve social protection’s ability to reduce poverty and inequality (IMF Selected Issues. Paper No. 24/287).
- Recommendation (implied): Rebalance social spending toward programs and training that more directly target poverty reduction and inequality mitigation.

### Industrial linkages: definitions and examples
- Backward linkages:
  - Definition: Supplying input to the local economy through technology transfer, local ownership and control, and local employment opportunities.
  - Example elements: technology transfer; local ownership and control; local employment opportunities.
- Forward linkages:
  - Definition: Processing output before exporting.
  - Example: Establishment of refineries (processing output) before exporting.

*Source: sipea2025092*

### Section 1

### Namibia: Labor Markets and Resource Dependence — Section 1

### Introduction
- Real GDP per capita growth in Namibia has slowed in the last decade and now lags behind other resource-intensive countries and the broader SSA region.
- Namibia ranks 2nd globally in income inequality (based on the Gini index).
- Key 2023 labor market statistics:
  - Unemployment rate: 36.9 percent (54.8 percent among youth) in 2023 (based on the 2023 labor force survey (LFS)).
  - Mineral sector contribution to GDP: 13.6 percent in 2023.
  - Mining sector employment: about 1.4 percent of the population (based on 2018 labor force survey).
- Political and policy context:
  - The SWAPO party pledged to create a quarter million jobs (absorbing approximately 24 percent of the labor force) in the next five years by investing over N$85 bn (nearly 30 percent of 2024 GDP) in priority projects.
  - Government is already the largest employer, limiting scope for further public sector employment expansion.
- Opportunity and risk from oil and gas:
  - Ongoing oil and gas exploration (and potential production) offers opportunities for growth and job creation but presents risks of worsened labor market outcomes if benefits are not broadly distributed.
  - Local content policies can increase local procurement and spillovers but must avoid creating obstacles to investment.

### Unemployment Landscape
- Data and methods:
  - Analysis based on four rounds of national labor force surveys (2012, 2013, 2016, and 2018) using ILO definitions; surveys are household-based and not panel data.
- Spatial patterns (2018 LFS):
  - Unemployment highest in Khomas (includes Windhoek), Erongo, and Omaheke.
  - High informality in northern rural agriculture regions: Omusati, Ohangwena, and Kavango West.
  - Youth NEET rates were 41-49 percent in Kunene, Omaheke, and Karas.
  - Migration: largest share of workers migrate from Ohangwena and Omusati to Khomas; Erongo and Karas show net outflow due to limited employment opportunities.
- Temporal and cohort dynamics (2012–2018):
  - Between 2012 and 2018 Namibia experienced a structural shift from agriculture to services.
  - Commodity price shock of 2015 caused contraction in mining and reallocation of workers from manufacturing and services back to agriculture and subsistence.
  - Young workers:
    - Probability that a young person in the labor force would be in employment fell by 11 percentage points between 2012 and 2018.
    - Probability of being unemployed or discouraged from looking for a job increased by 20.4 percentage points between 2012 and 2018.
    - Among employed youths, probability of being in the informal sector rose by 18.4 percentage points between 2012 and 2018.
    - Young people in TVET or higher education: only 5.4 percent.
  - After the 2015 shock:
    - Younger cohorts continued to increase probability of working in services.
    - Older cohorts pivoted back to agriculture.
    - Increase in subsistence employment was sharpest for the youngest cohort.

### Service Sector Labor Productivity
- Employment and productivity trends (1995–2018):
  - Employment in services increased between 1995 and 2018, but labor productivity in services showed no improvement.
  - Sectoral dynamics: mineral extraction is capital-intensive and creates limited direct employment but stimulates employment in supporting manufacturing and services.
- Shift-share decomposition (1995–2018):
  - Method: Aggregate labor productivity decomposed into within-sector and between-sector effects following de Vries et al. (2012), McMillan et al. (2014), and Diao et al. (2018).
  - Findings:
    - Within-sector productivity growth for services was negative, indicating reallocation of resources toward less productive firms in services.
    - Between-sector productivity was positive, reflecting movement of labor from lower-productivity agriculture to higher-productivity services.
  - Interpretation:
    - Service sector appears to hire youth primarily because they are willing to work at lower wages rather than because of high skills.
    - Resources are not allocated to relatively more productive firms in the services sector, consistent with weak real GDP per capita growth.

### Conclusion and Policy Recommendations
- Summary of challenges:
  - Slowing real GDP per capita growth, persistently high unemployment, and very high inequality.
  - Resource-intensive sectors contribute significantly to GDP but are capital-intensive and limited in direct employment creation.
  - Stark regional disparities: urban unemployment vs. rural informality.
  - Services sector has absorbed labor but with declining within-sector productivity.
- Strategic priorities and policy recommendations:
  - Address skills mismatches and skill gaps:
    - More recent data are needed; the last skills audit is from 2006 and is extremely outdated.
    - Crucial first step: collect new data on skill mismatches and gaps.
    - On the supply side, national education and TVET system should develop a strategy to train workers with requisite skills and qualifications to foster stronger linkages between the mining sector and the local economy.
  - Balance local content and investment climate for oil and gas:
    - Oil and gas is highly capital-intensive and requires complex specialized technology, limiting linkages to the domestic economy.
    - Overly ambitious local content targets could cause supply bottlenecks.
    - With passage of a local content policy bill, careful implementation is essential to strike a balance between attracting FDI and ensuring tangible benefits for the local economy.
  - Implement a comprehensive and consistent labor market strategy:
    - Address youth unemployment, skill mismatches, and skill gaps through greater policy alignment.
    - Strengthen education and TVET systems.
    - Implement a balanced local content policy.
    - Prioritize infrastructure and reduce regulatory barriers to enhance labor market resilience and economic diversification.
- Long-term objective:
  - Shift toward a more diversified and dynamic economy to reduce dependence on the extractive sector and ensure oil exploration benefits are broadly distributed to avoid exacerbating inequality and unemployment.

*IMF Selected Issues Paper SIP/2025/092 — Section 1*

### Section 2

### Section 2

### Reallocation of Social Spending: Botswana example
- Finding: Botswana spent almost half of its social spending on tertiary education.
- Policy implication: Redirecting public funding from tertiary education to vocational training and various social programs could help improve social protection’s ability to reduce poverty and inequality (IMF Selected Issues. Paper No. 24/287).
- Recommendation (implied): Rebalance social spending toward programs and training that more directly target poverty reduction and inequality mitigation.

### Industrial linkages: definitions and examples
- Backward linkages:
  - Definition: Supplying input to the local economy through technology transfer, local ownership and control, and local employment opportunities.
  - Example elements: technology transfer; local ownership and control; local employment opportunities.
- Forward linkages:
  - Definition: Processing output before exporting.
  - Example: Establishment of refineries (processing output) before exporting.

*Source: sipea2025092 - Section 2*

---


_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025092.pdf_