Namibia

Overview

The Republic of Namibia is over 825,418 square kilometres in size, about four times the size of the United Kingdom, and is located in the southwestern region of the southern African subcontinent. Namibia is bounded to the west by a 1,500 kilometre Atlantic coastline, to the north by the Republics of Zambia and Angola, to the east by Botswana and to the south and south-east by the Republic of South Africa.

Namibia is sparsely populated with an average of two inhabitants per square kilometre. The ethnically diverse population was estimated in 2005 to be two million, some 300,000 of whom live in and around Windhoek, the country's capital city. The official language of Namibia is English, although Afrikaans is the common language spoken by most of the population. German and a number of indigenous languages are also spoken.

Politics and Government

The Republic of Namibia is one of the most politically stable, well-developed countries in Africa. It is a multiparty, multiracial democracy, with a president who is the head of state and elected for a five-year term. The President appoints a Prime Minister and Council of Ministers. Mr. Sam Nujoma, leader of the South West Africa People's Organization (SWAPO), was President from Namibia's independence until 2005. In November 2004, citizens elected Minister of Lands, Resettlement and Rehabilitation, Hifikepunye Pohamba, as the next President. Mr. Pohamba was inaugurated in March 2005.

Upon obtaining its independence from South Africa in 1990, the country has established a constitution that provides for a bicameral parliament. The lower chamber comprises a National Assembly of 72 members and the upper chamber gives representation to the various regional councils. General elections are held every five years and regional elections every six years. The constitution also provides for private ownership of property and protection of human rights and civil liberties. The constitution places firm restrictions on the power of the executive and guarantees the basic freedoms of thought, speech and the press, and of religion and of association. Such freedoms are guaranteed by a bill of rights and are non-derogative. The constitution further states that Namibia should have a mixed economy and encourage foreign investment. Justice is administered by an independent judiciary system acting through open courts. The judicial structure in Namibia largely parallels that of South Africa and comprises a Supreme Court, the High Court, and lower courts.

Economy

Namibia's economy relies heavily on international trade, with imports and exports totalling more than $1.4 billion and $1.3 billion, respectively, based on 2004 estimates. Major exports include diamonds, copper, gold, zinc, lead, uranium, beef, cattle, fish and karakul pelts. As a result of its diverse wildlife and attractive landscapes, the country also has a significant tourism industry. In 2004, the GDP was an estimated $14.8 billion and inflation was recorded at 4.2%.

The Namibian government's policies have been designed to promote foreign investment in mining and mineral exploration for diamonds and other resources. The mining industry plays a vital role for the country contributing approximately 7% of the GDP in 2003. Namibia has introduced the Foreign Investment Act (Act 27 of 1990), which affords protection to foreign investment and introduces an Investment Centre within the Ministry of Trade and Industry in order to streamline and encourage foreign investment into Namibia. Foreign investors are guaranteed the right to international arbitration of disputes between investors and the government, the repatriation of funds and interest invested in Namibia and the right to remit profits and access foreign exchange.

In 1993, Namibia became a signatory to the General Agreement on Tariffs and Trade, and the Minister of Trade and Industry represented Namibia at the Marrakech signing of the Uruguay Round Agreement in April 1994. Namibia has been a member of the World Trade Organization since its creation in 1995.

Exchange Controls

In Namibia, companies that are 75% or more foreign-owned are subject to certain exchange controls. Exchange control is administered by the Bank of Namibia under powers delegated to it by the Minister of Finance and the Treasury, in whom responsibility for this matter is vested.

Mineral Licence Regime

In Namibia, all mineral rights are vested in the state. Based on German colonial mining legislation, mineral rights are owned by the state and the rights are passed to private persons or bodies for prospecting, exploration and mining in the form of licences, grants or concessions. At present, Namibian law concerning mineral rights is governed by the Minerals (Prospecting and Mining) Act of 1992 ("Namibian Mining Act"), which came into force on April 1, 1994. In 1999, the Namibian government also promulgated the new Diamond Act, which was implemented on April 1, 2000. New Mine Health and Safety Regulations are awaiting promulgation, and the Minerals (Prospecting and Mining) Act of 1992 is under review in the context of a published minerals policy intended to facilitate and encourage the private sector to evaluate and develop mineral resources.

The Mining Rights and Mineral Resources Division in the Directorate of Mining administers all applications for and allocation of mineral rights in Namibia. There are several types of mining and prospecting licences, including:

Non-Exclusive Prospecting Licence – Valid for 12 months, this licence permits prospecting non-exclusively in any open ground not restricted by other mineral rights. Prospectors must furnish the Mining Commissioner with details on all samples removed from the licence area.

Reconnaissance Licence – This licence allows regional remote sensing techniques, is valid for six months (renewable under special circumstances) and can be made exclusive in some instances. A geological evaluation and work plan needs to be submitted to the Mining Commissioner.

Exclusive Prospecting Licence – This licence can cover an area not exceeding 1,000 square kilometres and is valid for three years, with two renewals of two years each. Two or more exclusive prospecting licences can be issued for more than one mineral in the same area. A geological evaluation and work plan (including estimated minimum proposed expenditure) are a pre-requisite prior to issuing this type of licence.

Mineral Deposit Retention Licence – This licence allows successful prospectors to retain rights to mineral deposits that are currently uneconomical to exploit. The licence is valid up to five years and can be renewed subject to limited work and minimum proposed expenditure.

Mining Licence – This licence can be awarded to Namibian citizens and companies registered in Namibia. The licence is valid for the life of mine or an initial period of 25 years, renewable up to 15 years at a time. Applicants must have the financial and technical resources to mine effectively and safely.

In order to undertake exploration, a prospecting licence is granted by the state. On completion of a feasibility study and the finding of a viable mineral resource, a mining licence is granted by the state. The granting of such licences is dependent upon the applicant having certain qualifications, including mining, financial and technical capabilities, as well as on a rehabilitation program being presented and an agreement to pay royalties.

The Namibian Mining Act imposes a liability on the holders of licences of mining claims for the pollution of the environment or other damages or losses caused. The Namibian Minister of Mines and Energy may reserve certain areas of land from prospecting and mining operations at any time if the Minister deems it necessary and expedient in the national interest or for the protection of the environment, but subject to existing rights. Prior to the issuance of all licences, with the exception of non-exclusive prospecting and reconnaissance licences, applicants are required to complete an environmental contract with the Ministry of Environment and Tourism. Environmental impact assessments must be made with respect to air pollution, dust generation, water supply, drainage/waste water disposal, land disturbance and protection of the local ecology. The Namibian Mining Act also requires, as necessary, an environmental management program including an environmental impact assessment indicating the extent of any pollution of the environment, as well as an estimate of any pollution likely to be caused by prospecting or mining operations before they are carried out. If any pollution is likely to be caused, an environmental management plan indicating the proposed steps to be taken in order to minimize or prevent such pollution must be prepared. A revised environmental management plan must be filed as circumstances change.

Tax Regime

The standard corporate tax rate in Namibia is a flat tax rate of 35%. Mining companies are taxed at a rate of 37.5%, while diamond mines are effectively taxed at 55%. Allowable tax deductions for mining companies are as follows:

Exploration expenditure is carried forward to the year of commencement of production and deductible in that year.

• Further exploration is immediately deductible.
• Development expenditure is carried forward to the year of commencement of production.

Such accumulated development expenditure is then written off over three years, commencing in the first year of production.

Development expenditure thereafter is written off over three years commencing in the year in which the expenditure is incurred.

Rehabilitation expenditure is expenditure actually incurred and, if approved by the Minister, is deductible.

There is no taxation on local dividends from companies and distributions from close corporations paid to residents, but dividends accruing to foreign residents are subject to a non-resident shareholders' tax or withholding tax. The percentage of withholding tax applicable to a dividend is determined according to factors such as the existence of double tax agreements with countries where the foreigners reside and the percentage of effective shareholding. It is usually assessed at 10%.

Capital gains in Namibia are not taxable, and although municipalities and similar local authorities levy rates and taxes based on the valuation of immovable property in order to cover municipal expenses, these are not material.

A royalty tax is payable on the sale of minerals, at a rate of between 0% and 5%. The royalty tax rate for any particular mine is determined by the Minister of Mines and Energy. Royalties to the State Revenue Fund are payable on exports of certain rough or semi processed minerals as follows: up to 10% on rough and uncut precious stones, up to 5% on rough or unprocessed dimension stone and up to 5% on any other mineral which can be economically processed in Namibia. In addition, it has recently been reported that Namibia is considering the introduction of a royalty tax that would apply to non-diamond mining operations.

Miga Insurance

Namibia is a party to an agreement with the World Bank's Multilateral Investment Guarantee Agency.