A review of poverty and inequality in Namibia

Abstract

This report presents an analysis of poverty and inequality in Namibia based on the expenditure data from the 2003/2004 Namibia Household Income and Expenditure Survey (NHIES) conducted by the Central Bureau of Statistics. The main analytical purpose of the report is to establish a new set of poverty lines for Namibia based on the Cost of Basic Needs (CBN) approach, which has become part of the poverty monitoring standard among the Southern African Development Community (SADC) and most developing countries. Poverty lines are particularly useful for drawing of poverty profiles, examining the determinants of poverty and guiding policy interventions aimed at poverty reduction. The process of setting the new poverty line can be split into two major stages. First, using the NHIES data for households with low consumption expenditure, a food basket is determined based on actual consumption patterns of low income households. Second, taking into account non-food requirements in addition to food needs, two poverty lines are established for poor and severely poor households where consumption levels per adult equivalent are lower than N$ 262.45 and N$ 184.56, respectively. Then by using these definitions the incidence of poor and severely poor households are computed at 27.6 percent and 13.8 percent, respectively. Compared to the poverty line used previously by the Central Bureau of Statistics, which was based on a simple relationship between the food expenditure and total expenditure, the impact of the revised methodology for setting the poverty lines is practically unchanged for poor households (previously estimated at 27.8 percent). However, the incidence of severely poor households is almost three times higher under the new poverty line (previously estimated at 3.9 percent). Sensitivity tests show how the new poverty lines are quite robust to small changes in specification while the analysis provides further evidence as to the classification of high expenditure households as poor or severely poor under the food-share method. Using the new CBN-based poverty lines, the study presents a detailed poverty profile of Namibia. This profile shows that poverty status in the country is closely correlated with a series of social, demographic, geographic and economic features of households. Multivariate analysis confirms that poverty levels in Namibia are higher for instance among households that are female-headed, based in rural areas and have one or more children. These results underscore the potential for poverty reduction through targeting of policies and interventions. Consumption expenditure is positively correlated with the education levels of the head of household. The higher the level of education, the higher the levels of consumption expenditure and the more likely the household is to be classified as non-poor holding other factors constant. These results underscore the centrality of strengthening the education system, especially expansion in access to secondary education, as an important part of the national poverty reduction strategy. Relying on pension as a main source of income is associated with lower levels of consumption expenditure and a higher probability of poverty compared to other income sources. One way of explaining that pensions are inadequate to lift households above the poverty line is that households that rely on pensions as their main source of income are generally larger than other households. In other words, a greater number of people depend on the pension for their livelihood than merely the pensioner. This type of information is important to consider when determining the appropriate levels of social transfers and assessing their impact on poverty. Differences in poverty levels also prevail according to administrative regions: the Kavango and Ohangwena regions not only have the highest levels of incidence of poverty but they are also home to the largest shares of poor households. These findings suggest the potential for greater geographical targeting of anti-poverty programmes and for ensuring that the benefits of the economic growth process accrue more favourably to these and other disproportionately poor regions, when relevant policy interventions may be considered. The analysis further reveals how unequal the consumption expenditure patterns are in Namibia. The 10 percent of households with the lowest levels of expenditure account for just over 1 percent of total expenditure in Namibia. The 10 percent of households with the highest expenditure account for more than 50 percent of total expenditure. Stated in another way the wealthiest 10 percent in the country have consumption levels that are 50 times higher than the poorest 10 percent. The Gini coefficient, which is the standard summary measure for inequality, is 0.63 and with great variation according to various background variables such as sex, age, main source of income and administrative region. A comparison with countries for which comparable data is available suggests that the level of inequality in Namibia is among the highest in the world. Additional measures of inequality are introduced in order to deepen the understanding of inequality in Namibia. Notably, a generalised entropy index is used for a decomposition exercise that reveals how in general inequality in Namibia is the product more of inequality within different social groups rather than of inequality between them. Nevertheless, between-group inequality is sizeable especially when the population is arranged by main language spoken and educational attainment. Moreover, the analysis introduces two measures of polarisation, which quantify the extent of the concentration of expenditure among distinct groups. These results suggest that in addition to being among the most unequal societies in the world, Namibia is also among the most polarised. The report highlights a range of methodological aspects in the establishment of the poverty line for Namibia and documents the technical steps involved. However, while the process has been pursued with the greatest possible methodological rigour, eventually the setting of any poverty line necessarily involves an element of subjectivity as to where exactly the cut-off points in the distribution are put. Moreover, poverty is a dynamic phenomenon of multiple dimensions, which goes beyond money-metric measures such as income and consumption, which has been the main focus of this report. The analysis presented in this report must therefore not be regarded in isolation but as part of a broader effort that relies on quantitative as well as qualitative approaches to contribute to the understanding of poverty in Namibia as an important basis for designing effective interventions to improve the welfare of Namibians. Additional analysis also needs to be carried out on the NHIES data to facilitate comparability with an earlier survey, study trends over time in poverty and inequality, finalise the analysis of the income and nutrition data, as well as more indepth analysis of regional aspects of poverty prevalence.