Abstract
This paper provides an overview of the short-term household-level effects and the national policy responses in Namibia to the rapid acceleration in food prices in 2007/2008. Price increases are found to have disproportionately affected low-income households, who have higher relative shares of food expenditure and whose own-production was reduced due to crop failures, and urban households who rely relatively less on in-kind consumption and more on cash purchases. Drawing on the literature on tax incidence and welfare dominance the paper further assesses the potential distributional and poverty reduction effects of the ‘zero-rating’ of the VAT for basic food items that was introduced by the Namibian government to mitigate the impacts of the food crisis. The results show that the VAT reform only led to a small and statistically insignificant improvement in the highly unequal distribution of consumption expenditure in Namibia. An illustration is provided of how a more effective way to reduce poverty and shield the poor from the worst impact of the crisis is through the existing system of cash transfers.
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Notes
The 2003/2004 NHIES was carried out between September 2003 and August 2004 using a nation-wide and stratified two-stage cluster sample of 10,920 households with a 90% response rate (National Planning Commission 2007a). Background variables, household features, consumption of infrequent expenditures, and other data were captured separately and detailed records were kept of household consumption and expenditure using daily record books over a four week period. A previous round of the NHIES was carried out in 1993/1994. Results reported in this paper are scaled using sampling weights.
Prices for the CPI prices were collected from more than 650 retail outlets in 8 localities throughout the country (National Planning Commission 2008). Before February 2005 the CPI only covered the capital city of Windhoek.
Expenditure quintiles are computed taking into account differences in household composition using the standard scale for adult equivalence employed by the Central Bureau of Statistics, see National Planning Commission (2007a).
Child maintenance grants are paid to low-income single parent households in the amount of N$200 for the first child and N$100 for each additional child up to a maximum of 6 children. A grant of similar structure is also paid to children in foster care.
There is a difference between exempting an item from VAT and zero-rating it. Under zero-rating the producer is able to claim a rebate on taxes on intermediate inputs.
Nevertheless longer-term challenges related to fiscal sustainability remain notably in terms of the country’s high reliance on revenues from the Southern African Customs Union (SACU). One set of estimates suggest that over the next decade Namibia’s SACU receipts could fall by 30 to 60% in real terms depending on the degree of trade liberalisation and associated impact on customs duties, which make up the main component of the revenue pool (Flatters and Stern 2006). Against such an outlook improving the tax administration, diversifying revenue and improving the efficiency of public spending, becomes imperative.
In the computation of the VAT payments we have relied on the NHIES classifications by including all food cash purchases (except those zero-rated where applicable) and all non-food purchases, thus assuming that these are all cash purchases, but excluded expenditure categories on housing such as rent and utilities (but we have included material costs for maintenance, repairs and security), education, payments for domestic workers, fuel and costs related to residential communication, which are either zero-rated or exempt.
For this part of the analysis we have relied on the software Distributive Analysis/Analyse Distributive (DAD 4.4) available from: http://132.203.59.36/DAD/index.html.
The method for testing the difference between the two concentration curves is based on Davidson and Duclos (1997).
These items are in order of average annual expenditure by households in decile 2–5: Maize meal/grain/samp; Beef; Sugar, all types; Bread; Frozen fish; Cooking oil; Rice; Soft drinks; Fresh fish; Mahangu meal/grain/samp; Powdered soup; Chicken; Local home-made brew, all types (ombike, tombo, kashipembe); Beer/ales/ciders; Breads, cake flour (all types); Macaroni, spaghetti, noodles; Fresh milk; Potatoes, English; Sweets; Tea; Bottled/tinned fish; Goat meat; Traditional sour milk; onion; Tomatoes; Salt; Coffee; Dried fish; Vetkoek; Fruit juice and squashes.
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The views expressed in the paper are those of the author and do not represent UNDP. In preparing this paper I have benefitted from discussions with Jean-Yves Duclos, Abdelkrim Araar as well as colleagues at the Bank of Namibia and the Central Bureau of Statistics. I am also grateful for comments from two anonymous reviewers.
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Levine, S. The 2007/2008 food price acceleration in Namibia: an overview of impacts and policy responses. Food Sec. 4, 59–71 (2012). https://doi.org/10.1007/s12571-011-0160-1
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DOI: https://doi.org/10.1007/s12571-011-0160-1