Economist warns of infrastructure investment sustainability

(Contributed Photo of Floris Bergh)

By: Hertha Ekandjo

Capricorn Group’s chief economist, Floris Bergh, recently addressed concerns regarding the sustainability of large-scale infrastructure projects in Namibia.

Bergh emphasized that while infrastructure development is crucial, the financial challenges associated with these investments remain a serious concern.

Speaking at the recent budget discussion in Windhoek, Bergh noted that the need for robust infrastructure is a global theme, with countries like the US, Europe, South Africa, and now Namibia all recognizing the importance of developing critical infrastructure. However, he cautioned that Namibia may face significant hurdles in financing such projects.

“Infrastructure is now the keyword in all of these countries because suddenly everybody woke up and saw that infrastructure is crumbling,” Bergh said.

He acknowledged the urgency to build ports, roads, and airports.

“But I am unfortunately pessimistic about infrastructure as a be-all and end-all solution,” he added.

Bergh pointed out the cost overruns in some of Namibia’s past infrastructure projects, such as the Neckertal Dam, which was originally budgeted at three billion Namibian dollars but ended up costing nearly six billion. While the dam is operational, Bergh expressed concerns over the lack of follow-up development, citing the project as an example of how infrastructure projects often fail to deliver on their full potential.

He also highlighted concerns about the government’s ambitious SMIP plan, which is budgeted at 87.5 billion Namibian dollars over five years.

“That’s about 17 billion per annum, which is more than the current deficit in our national budget,” Bergh pointed out.

“How is that going to be financed? Are we simply going to borrow more?” he questioned, expressing doubt over the feasibility of borrowing such large sums annually without risking macroeconomic instability.

Bergh raised further concerns about Namibia’s economy’s ability to support the borrowing needed to finance these projects, noting that Namibia’s current deficit for the year is between 11 and 13 billion Namibian dollars.

“Borrowing another 17.5 billion per annum will not lead to macroeconomic stability. The market cannot carry that,” he warned, emphasizing the importance of sustainable fiscal policies and careful planning.

As a banker and economist, Bergh reflected on the broader implications for credit ratings, stating that investors and credit rating agencies will closely scrutinize the government’s ability to manage its finances and infrastructure projects.

He called for a balanced approach to infrastructure investment, one that considers the country’s long-term financial sustainability.