Foreign direct investment (FDI) in Namibia

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI flows to Namibia accounted for USD 945 million in 2022, compared to USD 697 million one year earlier. At the end of the same period, the total FDI stock stood at USD 7.8 billion, representing around 63.6% of the country’s GDP. The sectors that have been attracting the most FDI in Namibia include mining, tourism, agriculture, and infrastructure development. In particular, the country's mining sector has been a major recipient of FDI, with foreign investors attracted to the country's abundant mineral resources, such as uranium, diamonds, zinc, copper, and oil, which attract the majority of FDI. China has made significant foreign investments, especially in Namibia's uranium mining sector. Similarly, South Africa has made considerable investments in the diamond mining and banking sectors, while Canada has invested in mining of gold, zinc, and lithium. Spain and Russia have investments in Namibia's fishing industry. Additionally, foreign investors from the United Kingdom, the Netherlands, the United States, and other countries have invested in oil exploration, while Namibia's renewable energy sector is also attracting investments, with projects including biomass, solar, wind, and battery storage, along with a USD 10 billion large-scale green hydrogen project scheduled for completion by 2026 (UNCTAD). According to the Namibia Investment Promotion and Development Board, the country received USD 770 million in FDI inflows in the first half of 2023.

Namibia’s business climate is generally positive. The country has implemented a range of policies to attract foreign direct investment, including the Investment Promotion and Protection Act (IPPA), which provides a legal framework for FDI and aims to protect foreign investors' rights; the One-Stop-Shop Investment Center that provides a streamlined process for investors to obtain permits, licenses, and other regulatory approvals; tax incentives (e.g., reduced corporate income tax rates for new investments in priority sectors, such as manufacturing, tourism, and agriculture); etc. Property rights are constitutionally guaranteed, but the parliament can legally expropriate property and regulate the property rights of foreign nationals. In a context of high inequalities, debates over land redistribution and economic empowerment are increasingly popular. Labour regulations are relatively flexible, but the labour market lacks dynamism and the workforce is small and not highly skilled. Nonetheless, Namibia benefits from significant mineral resources, fisheries, good transport infrastructure, a stable democracy, and enforcement of commercial regulations is fairly effective and consistent. There are no overarching mandatory restrictions on foreign ownership; however, certain sectors, particularly the natural resources sector, may necessitate joint ownership between a local and foreign firm. Additionally, government procurements often stipulate a variable percentage of local ownership. Potential barriers to FDI in Namibia include the nation's relatively small domestic market, elevated transport expenses, high energy costs, and a restricted pool of skilled labor. While corruption exists, it is not pervasive: Namibia ranks 59th out of 180 on the 2023 Corruption Perception Index, 96th among the 132 economies on the Global Innovation Index 2023, and 96th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Namibia

Strong Points

Strong points of investing in Namibia include:

• Stable democracy and strong adherence to the rule of law
• Relatively developed road infrastructure
• Affordable construction permits (and allowances for investors in the manufacturing sector)
• Preferential access to the Southern African Development Community (SADC) market
• Duty-free access to Southern African Customs Union (SACU)
• Duty-free access to the European Union for a wide range of manufactured and agricultural products (as part of the Cotonou Agreement)
• Duty-free and quota-free access to the United States (under the Africa Growth and Opportunity Act (AGOA))

Weak Points

Weak points of investing in Namibia include:

• The government's willingness to raise state ownership of mining assets in the industry (mining being the most lucrative and attractive industry for foreign investors)
• Limited domestic market and low population density
• Time-consuming, costly and cumbersome business setup process
• Low regional competitiveness (due to high import and export costs)

Government Measures to Motivate or Restrict FDI

Incentives apply equally to domestic and foreign investors, and include the following:

• Tax incentives for registered manufacturing enterprises – Companies that meet certain criteria may qualify for the following incentives (which may not increase or create an assessed loss):
– An additional income tax deduction of 25% of employment costs and approved training costs in respect of employees directly involved in a manufacturing process
– An additional income tax deduction of 25% for specified export marketing expenditure
– An additional income tax deduction of 25% for certain land-based transportation costs for the first 10 years of registration
– For exporters of goods manufactured in Namibia, an allowance equal to 80% of taxable income derived from the export of manufactured goods (excluding fish or meat products)
– An 8% annual capital allowance on qualifying buildings and
– An exemption from import duties on the importation or acquisition of manufacturing machinery and equipment, subject to ministerial approval.
– The Minister of Finance’s 2018/2019 budget speech announced his intention to phase out manufacturing allowances. Further discussions will be conducted before any changes will be made.

• Export Processing Zones (EPZs) – EPZ enterprises qualify for total relief from income tax, VAT, customs and excise duties, stamp duty and transfer duty (but not employment related taxes and WHT). Requirements for EPZ status include conducting a manufacturing activity and exporting at least 70% of the manufactured goods outside the Southern African Customs Union (SACU). The Minister of Finance’s 2018/2019 budget speech announced his intention to repeal the EPZ Act, with a “sunset” clause for entities that have EPZ status. The EPZ Act would be replaced by a Special Economic Zone Act; no further details were provided.

• Capital allowances – For buildings used for the purposes of trade, 20% of the construction cost may be written off in the first year of use, and 4% may be written off annually over a 20-year period (the 4% allowance is increased to 8% for certain manufacturing buildings, and the write-off period is reduced to 10 years). A general three-year write-off period applies for fixed assets other than buildings (e.g. plant, machinery, equipment, aircraft and ships), with an accelerated write-off period for certain expenditure relating to mining operations and farming operations.