Tax incentives and foreign direct investment: The Namibian experience.

Abstract

This study poses a general question of whether or not foreign direct investment (FDI) inflows have come to Namibia because of the tax incentives offered to foreign investors; and thus whether or not offering such incentives has been beneficial to the country. To answer this question and as dictated by the availability of data, the study reviewed the FDI inflows into Namibia and attempted to assess the benefits and costs through an investigation of related indicators and making inferences. Use has been made of secondary data and sources while a survey of foreign investors was also administered, though this yielded a very low response rate. The study found that the abundance of natural resources in Namibia might have been the key driver in attracting FDI. The tax incentives offered as well as other factors that usually determine the prevailing investment environment of a country might have played a complimentary role. Other factors include investors’ trust in the country’s economy, the functioning of government and availability of good infrastructure, which are important considerations for investors when selecting a location for their investment. While the investment environment of Namibia is generally sound, the study suggests that it be perfected by closing the gaps that have been identified through assessments such as those by the World Doing Buiness and World Competitiveness Reports of the World Bank. The paper also identifies the need to align the fiscal incentives framework with national aspirations as set out in the country’s fourth National Development Plan (NDP4) and Vision 2030 so as to ensure a coherent national framework that facilitates the achievement of national objectives. Periodic reviews of fiscal incentives policies are also important to redirect investment incentives to deserving sector and/or projects when necessary.