Namibia: Still Bullish on Fishing

UNCLAS SECTION 01 OF 07 WINDHOEK 000021

SENSITIVE
SIPDIS
AF/S PHAEDRA GWYN

E.O. 12958: N/A
TAGS: ECON FWS NMFS WA
SUBJECT: Namibia: Still Bullish on Fishing

Summary




1. (SBU) Fishing is one of Namibia's top industries, contributing
between three and seven percent of GDP since 1990, and about 20
percent of export earnings. The fishing industry is trying to
diversify both its markets and its products. The Namibian
government (GRN) has been largely successful in sustainably
managing its fisheries. The GRN has had mixed results with its
program to "Namibianize" the fishing industry which has been
dominated by foreign (mostly Spanish) companies. Government
incentives to increase Namibian participation have resulted in a
proliferation of fishing companies and an overcapacity in onshore
processing but they have also created jobs for previously
disadvantaged (black) Namibians. In addition, some black Namibians
have become wealthy by acquiring fishing quotas and either
exploiting their quotas themselves or "leasing" their quotas to
other companies. End Summary



Contribution to Economy




2. (U) According to the GRN national accounts, fishing is Namibia's
third largest industry behind mining and agriculture. The industry
has contributed between three and seven percent to Namibia's GDP
since independence in 1990. In recent years, fishing's
contribution to GDP has declined in real terms. The latest (2004)
labor force survey stated that 3.3 percent of working Namibians
(between 12,000 and 14,000 people) are directly or indirectly
employed in the fishing sector. Government sources state that an
additional 400 foreigners work in the sector. Approximately 90
percent of Namibian fish caught are exported, representing 20
percent of export earnings.




3. (U) The past two years have been difficult for the industry. In
2008, fishing generated 3.2 billion Namibian dollars (USD 420
million at today's exchange rate). The fishing sector suffered
from high input (primarily fuel) prices in 2008. The sharp
reduction in fuel prices seemed to bode well for the industry in
2009, but the strengthening of the South African Rand (to which the
Namibian dollar is fixed 1:1) against the Euro eroded the
industry's margins. The industry suffered a further blow when the
water system of Namibia's fishing capital Walvis Bay collapsed in
the first quarter of 2009. Without fresh water, fishing companies
could not get steady supplies of ice, critical for both fishing
vessels and on-shore processing.



Table 1: Fishing Industry Revenues

(Constant 2004 Prices) N$ millions




Year

Fishing And On Board Processing

On-Shore Processing

Total


2000

1,620

623

2,243


2001

1,558

654

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2,212


2002

1,528

647

2,175


2003

1,681

852

2,533


2004

1,564

763

2,327


2005

1,434

723

2,157


2006

1,308

494

1,802


2007

1,059

640

1,699


2008

1,003

616

1,619

Source: Central Bureau of Statistics



Table 2: Fishing's Contribution to GDP

(2004 Base Year)




Year

Fishing And On Board Processing

On-Shore Processing

Total


2000

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4.71%

1.81%

6.52%


2001

4.48%

1.88%

6.36%


2002

4.19%

1.77%

5.96%


2003

4.42%

2.24%

6.66%


2004

3.66%

1.79%

5.45%


2005

3.28%

1.65%

4.93%


2006

2.79%

1.05%

3.85%


2007

2.14%

1.29%

3.44%


2008

1.96%

1.21%

3.17%

Source: Central Bureau of Statistics





Namibia's Seafood Products

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4. (U) Marine fish are the bulk of Namibia's seafood products. The
Ministry of Fisheries and Marine Resources (MFMR) breaks down its
wild marine species into the following categories:



Pelagic Fish - Surface dwelling pilchard, tuna, sword and shark

Midwater Fish - horse mackerel, juvenile hake

Demersal Fish - hake and monk fish

Deep sea Fish - orange roughy

Crustaceans - rock lobster, crab

Other species - mullets, seals, guano and seaweed




5. (U) Horse mackerel is the species that is caught in the largest
volumes, but hake is the most commercially valuable fish resource
comprising 26 percent of the fishing industry's earnings. The hake
industry is also the largest fishing industry employer. There is
also a fledgling aquaculture sector with approximately a dozen
commercial mariculture (oysters and abalone) farms based in Walvis
Bay and Luderitz. The GRN has also promoted small fresh water fish
farms as a means to support poor rural communities. To date most
GRN-supported farms have grown less than a ton of fish per year,
considerably less than commercial farms in neighboring SADC
countries (primarily South African and Zambia) that can produce
several thousands of tons per year.



Foreign Investments




6. On January 21, Spain announced a Euro 950,000 donation to the
Namibian Fish Consumption Promotion Trust to encourage the local
consumption of fish in rural areas. Minister of Fisheries and
Marine Resources Abraham Iyambo stated the funds would be used to
train Namibians in the handling, marketing, and promotion of fish,
as well as to establish new fish shops in the north of the country.
Over the years, Spain has supported the Inland Aquaculture Center,
Namibian Standard Institute, and scientific research activities.




7. During the same week, Vice Minister of Agriculture Niu Dun led
China's first delegation to Namibia to discuss bilateral
cooperation in the fishing sector. In a meeting with Minister
Iyambo, China reportedly offered Namibia student and information
exchange programs as well as approximately USD 2 million for
aquaculture development.



Diversification Needed




8. (U) Europe is by far the most important market for Namibia's
fish exports, and Spain is the dominant European customer. Spain
receives over 70 percent of Namibia's hake. Fishing companies have
embarked on a market diversification strategy over the past two
years. Two senior representatives at hake companies told Econoff
that they are now shipping less than 40 percent of their product to
Spain. Previously, their Spanish customer would resell to Dutch,
Portuguese, and Italian clients. Now the two companies have cut
out the Spanish middleman and are earning higher margins on their
sales.




9. (U) Companies are also focusing on product diversification.
Fish processers are increasingly trying to expand their product
lines into already prepared (primarily breaded) products.
Processors with excess capacity have struck deals with fishing
fleets that trawl the seas as far away as the Argentine coast.
Econoff visited a seafood plant that was processing calamari caught
in waters near the Falkland Islands.

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10. (U) Mariculture - primarily oysters - is another area that
traditional fishing companies are eyeing for expansion. Namibian
oysters reach market size in half the time of oysters in other
parts of the world and according to experts taste significantly
better than oysters grown elsewhere as well. Great taste and
faster time to market should result in a mariculture boom, but
oyster and abalone farmers argue that lack of access to high value
markets like the U.S. (due to the lack of a qualified food lab),
and a risk averse financial sector are their greatest challenges.
Oyster farmers currently ship to South Africa and Asia (primarily
China and Singapore). Commercial farmers admit their business is a
high-risk proposition, but claim their rewards are commensurate.
The risks were quite evident in 2008 when a prolonged and severe
red tide event wiped out most of Namibia's oyster crop. Companies
that survived 2008 state they are better equipped should another
prolonged red tide threaten their crop again. Banks however, which
were already quite leery of lending to oyster farmers, have become
even more hesitant to lend since 2008. An alternative form of
capitalization has come in the form of buyouts as some more
deeper-pocketed fishing companies - looking to diversify - have
acquired commercial oyster farms.



Potential for Trade/Business with United States




9. (U) Industry representatives from both hake and oyster companies
told Econoff that they are keen on penetrating the U.S. market.
Econoff suggested to INFOSA, (a SADC fishing industry advisory body
that is part of the Global FISHINFO network and partners with FAO
GLOBEFISH),and MFMR representatives that they consider sending a
mixed public-private delegation to the Boston Seafood Show in March

2010. Seafood sales (depending on the type of product) could be an
area where Namibia could further exploit the benefits available
under AGOA. However, one obstacle to exporting shellfish to the
United States and EU has been the lack of a local biotoxin testing
facility. The Ministry of Trade and Industry (MTI) has budgeted 38
million Namibian dollars (USD 5 million) over the next three years
to add a biotoxin testing laboratory at the Namibian Standards
Institute (NSI). Although there are incentives against
significantly automating onshore fish processing (companies that
employ more Namibians are generally afforded larger quotas),there
might also be export opportunities for U.S. equipment
manufacturers.



Fisheries Management




10. (U) The MFMR is responsible for enforcing the GRN's fisheries
policies. The GRN is credited with reasonably managing the fish
stocks it inherited from the apartheid regime, which had been
vastly depleted by 1990. The GRN actively controls its exclusive
economic zone (EEZ) and has not shied away from seizing foreign
vessels found to be illegally fishing the EEZ. In the early 1990's
many Spanish ships were seized, and their crews were frequently
detained until requisite fines were paid.




11. (U) The MFMR, through its surveys and stock assessment program,
establishes its annual Total Allowable Catch (TAC) for each marine
species. The TAC for any given species is designed to allow for
the maximum sustainable yield (MSY) - a delicate balance between
maintaining adequate fish stocks and maximizing the landings
available to fishing companies. The MFMR divides each TAC into
quotas for individual companies known as rights holders. While
industry insiders are generally positive on how the MFMR
establishes the TAC for a particular species, some argue the TAC is
allocated to too many rights holders, thus diminishing
efficiencies.



Namibianization of the Industry




12. (U) Prior to, and shortly after, independence, foreign (mostly

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European) companies dominated the Namibian fishing industry. Since
1992 the government has introduced measures to achieve greater
Namibian participation (also known as Namibianization),especially
by previously disadvantaged Namibians, in the fishing industry. The
MFMR's authority to issue quota rights and the costs (or levies)
associated with quota rights is the primary tool the GRN has used
to boost Namibianization. The GRN has chosen to grant a large
number of small quotas to allow Namibians who cannot afford to pay
for a larger quota fees access to the fishing industry.




13. (U) The MFMR can (and does) consider Namibian ownership when
issuing quotas. The MFMR charges significantly lower quota levies
to companies that have over 51 percent Namibian ownership, operate
vessels that are majority Namibian owned, fly the Namibian flag,
and employ 90 percent or more Namibians. The difference in levy
charges between Namibian and foreign vessels has increased over the
years, and in some cases foreign vessels pay three times that of
Namibian vessels. Firms with greater Namibian ownership are also
granted longer quota rights. Firms that are 90% Namibian owned can
obtain 10-year rights, while a majority foreign-owned firm (without
significant investments in onshore processing) would only be
entitled to 4-year rights.




14. (U) To increase Namibian employment in the fishing sector, the
government has also implemented a number of incentives to promote
onshore processing. Initially, the government granted rights
holders substantial rebates on their quota levies if they processed
fish on shore. Today, the MFMR requires companies to allocate up to
70 percent of their rights to onshore processing (versus shipboard
processing). The government also encourages onshore processing as
a mechanism to boost "value addition." There were concerns that the
fishing industry was frequently sending whole (unprocessed) fish to
foreign markets where "middlemen" were making profits on the
processing of Namibian fish. Majority foreign-owned firms can
obtain longer quota rights (similar to Namibian firms) if the
foreign companies invest in onshore processing plants that provide
significant employment opportunities (i.e., over 500 jobs) to
Namibians.




15. (U) The proliferation of rights holders, incentives for
Namibian companies and vessels, and the rules and incentives that
promote onshore processing have led to expanded employment
opportunities for Namibians, but it has also resulted in over
capacity throughout the industry. While Namibianization has
resulted in more Namibian-owned companies, foreign companies still
dominate the industry as minority shareholders. There are some
(five) fully Namibian ventures (100% Namibian ownership and
control). The more common model is that Namibian partners have a
controlling equity stake (51 percent or more),but foreign
(generally Spanish) partners still control the day-to-day
operations. A small venture with a rights holding may be nothing
more than a few Namibian investors who have formed a company to
obtain a fishing quota. Such firms may not actually have their own
vessels, processing facility, or trained workforce. As quotas are
not legally transferrable, many larger companies (with foreign
investors) feel compelled to partner with smaller firms -- to have
access to the smaller companies' quotas -- to make their operations
economical (i.e., decrease the likelihood of equipment
underutilization).




16. (U) MFMR officials have acknowledged to Econoff that
Namibianization has not met all the objectives that government set
out for it. Reducing the number of rights holders might allow for
consolidation in the industry and thus perhaps greater efficiency
due to economies of scale, but it could also crowd out smaller
Namibian players, warn MFMR officials. Larger "fully" Namibian
businesses would like to see their quotas increased, and some have
minimized automation at their processing facilities to employ more
Namibian workers. MFMR officials remarked to Econoff that Namibian
companies that truly invest in the industry - both in equipment and
employment - will be looked upon favorably by the Minister when
quotas are reviewed.



Comment

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17. (U) It is unlikely that the GRN will abandon or radically
change its "Namibianization" policy any time soon. The policy has
clearly had mixed results. Industry consolidation including the
concentration of fishing quotas and processing capacity might make
the industry more efficient (and therefore profitable),but it
would likely lead to less overall employment. Large numbers of
smaller companies that are less mechanized ensure that more
Namibians find employment from the fishing sector. Furthermore,
the large number of fishing quotas serves as a form of Black
Economic Empowerment (BEE). Critics argue that BEE partnerships
that buy fishing quotas only to "lease" them to larger firms enrich
a select few Namibians but do not benefit previously disadvantaged
Namibians on a large scale. Other incentives under the
Namibianization program, however, appear to have resulted in
greater employment opportunities for black Namibians. Regardless,
of what one feels about Namibianization, Namibians appear to still
be bullish on fishing. The Namibian Stock Exchange's (NSX) most
recent public offering was for Bidvest Namibia a company that
derives two thirds of its net profit from fishing. The company
raised USD $49 million. End Comment.
MATHIEU