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5. Raising tax levels to increase fiscal space is a difficult option for the Government. According to Doing Business data, the VAT in Namibia, now at 15 per cent, is higher
than in Lesotho 14 per cent, South Africa 14 per cent and Botswana 10 per cent, though lower than in Mozambique 17 per cent. Corporate income tax, too, is among
the highest in the southern part of Africa.
8.4.2. Lessons learnt
Lesson 1 Namibia is a good illustration of the circumstances in which countries with moderate
macroeconomic and fiscal performance often find themselves. None of the macroeconomic factors usually associated with the creation of fiscal space are in any way outstanding.
Production grew at a moderate rate and was not transformed into a higher level of fiscal revenue, as was expected. From a macroeconomic standpoint, average economic growth
was far below the dynamic rates of countries such as Botswana and Mozambique, where average GDP growth exceeded 8 per cent per year. In addition, the Government decreased
its participation in the economy and by 2008 the level of taxation and expenditure was considerably lower than in 1991, just after Independence. Nonetheless, the Government
was able to generate a fiscal surplus in the second half of the 2000s, an indication of the highly prudent fiscal policy pursued in recent years, which has expanded fiscal space.
Lesson 2 Namibia did not benefit from huge ODA flows to complement social investment with the
possible exception of HIV programmes and its external debt did not experience a significant downward shift.
Lesson 3 The evidence indicates that the creation of fiscal space for social protection was the result
of what one might call “implicit fiscal space creation”, meaning that the allocation of resources for social protection objectives grew, but fiscal revenue and government
expenditure remained at much the same level or actually declined. The increased share of social security expenditure is thus the result of re-allocating funds from non-priority to
priority sectors without altering the level of spending. This mechanism is complemented by other options such as the establishment of social insurance programmes.
Lesson 4 Despite the limited availability of resources, Namibia has performed well in terms of social
protection budgets and initiatives. With the exception of housing allocations, all the major headings of social expenditure health, social insurance, social assistance, education
enjoyed a bigger share of GDP and internal public expenditure. Key programmes such as the old-age pension and the social insurance schemes report high levels of coverage among
the target population and this has clearly improved the living standards of the Namibian people, as reflected in the relatively low incidence of poverty compared with their
neighbours.
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9. South Africa: Social protection for integration
9.1. Country profile
With a territory of 1,221,037 square kilometres, the Republic of South Africa is located in the southernmost part of the African continent. The country shares boundaries with
Namibia, Botswana and Zimbabwe to the north, with the Atlantic and Indian oceans to the south and west and with Mozambique and Swaziland to the east. South Africa is a highly
diverse nation with eleven official languages and a large number of ethnic groups. Politically speaking, the nation is a constitutional democracy in the form of a
parliamentary republic.
The total population of South Africa was 48.5 million in 2010 figure 65, of whom 50.7 per cent were female, 34.8 per cent were children under 15 years of age and 7.1 per cent
were over 65 years old. Between 1960 and 2010 the population grew at an average annual rate of 2.1 per cent, but in the last decade this annual rate declined to 1.2 per cent and since
2007 has been less than 1 per cent.
Figure 65. South Africa: Total population 1960-2010
Source: UNFPA, 2010.
Projections for the next 15 years point to a steady increase in the share of over 65 year olds in the total population; by 2025 one in every ten South Africans is expected to be in that
age group figure 66, a 55.8 per cent increase over the figure today.
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Figure 66. South Africa: Population pyramids, 2000, 2010 and 2025
Source: US Census Bureau, 2010.
From an economic standpoint, the performance of the South African economy has not been outstanding. Between 1961 and 2010 the economy grew at an average rate of 3.2 per cent
per year, or 1.2 per cent in per capita terms. The economy was the object of strong and
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periodical cyclical downturns that greatly limited its expansion. By 2002 GDP per capita was 16.3 per cent lower than in 1980, and in six of the 22 years between 1981 and 2002 the
GDP growth rate was negative. After 2002, however, the economy experienced a period of recovery except during the financial crisis of 2008 and 2009 which allowed the country
to double the GDP per capita figure 67.
Figure 67. South Africa: GDP per capita in US, 1960-2010
Source: World Bank, 2010.
South Africa suffers from a chronic fiscal deficit. During the 2000s government revenue averaged 26.2 per cent of GDP while expenditure accounted for 29.5 per cent of total
production; as a result, the deficit averaged 3.3 per cent of GDP figure 68. Both aggregates, revenue and expenditure, experienced an upward trend during the decade, but
revenue grew at a faster rate, especially after 2005, and thus helped to reduce the fiscal gap. Between 2000 and 2007 the share of revenue in GDP grew by 5.2 percentage points;
expenditure, on the other hand, increased by only 2.8 percentage points. Most of the Governments revenue is derived from income tax, and roughly one-third of total revenue
comes from indirect taxes, mainly VAT.
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Figure 68. South Africa: Fiscal revenue and expenditure, 2000-2008
Source: World Bank, 2010.
One of the most important features in terms of the creation of fiscal space has been the significant reduction in debt service and overall public debt. Total public debt fell from
49.5 per cent of GDP in 1996 to 29.5 per cent in 2009, with a marked decline in domestic debt. As a result, total debt service is now only a quarter of the 1997 level in terms of
exports figure 69 and roughly two percentage points lower in GDP terms. This has allowed the government to increase spending without incurring additional deficits.
Figure 69. South Africa: Total debt service as a percentage of total exports, 1994-2008
Source: World Bank, 2010.
