Documentof
                                                TheWorldBank

                                         FOR OFFICIAL USE ONLY




                                                                                           ReportNo: 39195-NA




       INTERNATIONALBANKFORRECONSTRUCTIONAND DEVELOPMENT

                                       INTERIMSTRATEGYNOTE:

                                   AN ENGAGEMENT FRAMEWORK

                                                        FOR

                                       THE REPUBLIC OFNAMIBIA

                                                  FOR FYO8-09




                                                  April 25,2007




SouthernAfrica CountryDepartment1
Africa Region


This document has a restricted distribution and may be usedby recipients only inthe performance of their
official duties. Its contents may not otherwise be disclosed without World Bank authorization.

                                                                    FOR OFFICIAL USEONLY


                                   REPUBLICOF NAMIBIA
                                  INTERIM STRATEGY NOTE

                                  CURRENCYEQUIVALENTS
                                   Currency Unit = NamibiaDollar
                                           US$1 = N$7.5
                                        (as o f March 30,2007)

                                  WEIGHTS AND MEASURES
                                            Metric System

                                           FISCALYEAR
                                          April 1-March31




                             ACRONYMSANDABBREVIATIONS

C M A              Common Monetary Area
DPL                Development Policy Loan
E T S P            Education and Training Sector Improvement Program
GDP                Gross Domestic Product
SACU               Southern African Customs Union
SADC               Southern African Development Community
ODA                Official Development Assistance
HIV/AIDS           Human Immunodeficiency Virus/ Acquired Immunodeficiency Syndrome
SWAP0              SouthWest Africa People's Organization
GEF                Global Environment Facility
IDF                Institutional Development Fund
IFC                InternationalFinance Corporation
IMF                InternationalMonetary Fund
MIGA               Multilateral Investment Guarantee Agency
FIAS               Foreign Investment Advisory Services



                Vice President:                 Obiageli KatrynEzekwesili
             Country Director:                  RitvaReinikka
           Task Team Leader:                    Eugenia Marinova


This ISNwas producedby a core team includingEugeniaMarinova(TTL), PreetiArora, Dennis de
Tray (Consultant), andLilia Burunciuc, underthe overall guidance o f Ritva Reinikka. Helpful
guidance and advice was providedby Tevfik Yaprak (OPCS). The team benefitedfrom the inputs and
comments o f the Bank-wideNamibia country team, as well as the Government ofNamibia: the
NationalPlanning Commission Secretariat, the Ministryof Finance andthe Bank ofNamibia.


 This document has arestricted distribution andmaybe usedby recipients only inthe performanceoftheir
 official duties. Its contentsmay not otherwisebe disclosedwithout World Bankauthorization

                                                                     FOR OFFICIAL USE ONLY


                                           TABLE OF CONTENTS


            I. NamibiaToday                                                                       2

            11.    Lookingto the Future-KeyChallenges                                             7

            111.   GovernmentStrategyandDevelopmentObjectives                                     8

            IV.    WorldBankGroupActivitiesto Date                                                9

            V.     A Frameworkfor Engagement                                                     10

            VI.    Workingwith DevelopmentPartners                                               12

            VII. RisksandCreditworthiness                                                        13

            VIII. Conclusion                                                                     14


             Figures
             Figure 1:            Growth since independence                                       2
             Figure2:             The structure of the economy                                    2
             Figure 3:            Sources of growth                                               3
             Figure4:             Gini coefficients-Namibia andresourcerich countries             5
             Figure 5:            SACMEQ reading and mathematics scores in2000                    6

              Tables
              Table 1:            Key Economic Indicators                                         4

              Boxes
              Box 1:              Namibia's DevelopmentPartners                                   13

              Annexes
              Annex 1:            Namibia InterimStrategy Note: Results Indicators                15
              Annex 2:            Country FinancingParameters                                     16
              CAS Annex A1:       Namibia at a Glance                                             19
              CAS Annex B2:       SelectedIndicators of Bank Portfolio Performance and Management 22
              CAS Annex B3:       IBRDProgramSummary                                              23
              CAS Annex B3:       IFC and MIGA Program                                            24
              CAS Annex B4:       Summary of Non-lending Services                                 25
              CAS Annex B8:       Operations Portfolio (IFC)                                      26
              CAS Annex B8:       Operations Portfolio (IBRD/IDA)                                 27




This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not be otherwise disclosed without World Bank authorization.


                             INTERIM STRATEGY NOTE:
                 AN ENGAGEMENT FRAMEWORK FORNAMIBIA

      I n thepast severalyears the Government of Namibia has signaled an interest
      in Bank supportfor its development agenda. Thisfirst-ever strategy note sets
      out a framework for strengthening the Bank Group's engagement with
      Namibia over the next two years. At the end of thisperiod the Bank and the
      Government will discuss the possibility of preparing a full Country
      Partnership Strategy. This note also serves as a background for the
      presentation to the Board of Directors of the first IBRD operation in the
      country - a proposed Development Policy Loan (DPL) in support of the
      Namibia Education and TrainingSector Improvement Program (ETSIP)).


1.       Namibia i s a middle-income country whose considerable successesrest on a strong
multiparty parliamentary democracy that delivers good economic management, good
governance, basic civic freedoms, and respect for humanrights. At independence in 1990,
Namibia inherited a well finctioningphysical infrastructure and a market economy, coupled
with richmineral resources anda relatively strongpublic administration. The South West
Africa People's Organization (SWAPO) Government put these assets to good use to
produce a decade and a halfo f economic growth andpolitical stability. However, the social
andeconomic imbalances o fthe apartheid system also left Namibia with a highly dualistic
society. The structure of the economy has madejob creation andpoverty reduction
difficult, and inequality unacceptably high,key challenges that are at the top o fthe
Government's development agenda.

2.       Although Namibiajoined the InternationalBank for Reconstruction and
Development (IBRD), the International Finance Corporation (IFC) and the Multilateral
Investment Guarantee Agency (MIGA) shortly after it became independent in 1990, the
Bank Group's engagement has been limiteduntilrecently to occasional analytical and
advisory activities and grants financed under the Global Environment Facility (GEF) and
InstitutionalDevelopment Fund(IDF). Inrecent years, however, the Government's interest
inthe Bank's services, especially more in-depth economic andsector work andtechnical
assistance, has increased.

3.       The framework discussed inthis document takes as its starting point Namibia's own
development policy andnational agenda as set out in Vision 2030, the country's blueprint
for its future, andthe National Development Plans. It also recognizes the Government's
leadership inshaping the country's future. The approach therefore focuses on a flexible
business model, instep with the Government's budget anddecision-making processes, that
emphasizes analytical and technical assistance. Engagement will be along three avenues: (i)
continued work inestablished areas o f collaboration-education,   skills training and the
environment-where      the Bank's track recordis good andthe Government's interest clear;
(ii) provisionofservicesavailabletomembercountriesaspartoftheBank'sdiagnostic
    the
work; and (iii) new analytic work and technical assistancebased on a collaborative process
o fpriority setting.

                                                    I.NAMIBIA         TODAY

 4.       Namibiansare rightlyproud o fthe transitiontheyhavemade from colonialrule to
 independence. The SWAP0 Government has taken major steps toward addressing previous
 imbalances by puttinginplace an appropriate legislative framework and policies. Following
 the November 2004 elections, Namibiasignaled its emergence as a stable democracy when
 President Samuel Nujoma, after leading the country for 15 years, handedpower to President
 Hifikepunye Pohamba.

  5.      Namibia i s a leading advocate o fregional economic integration. Namibiai s a
 member o f the Southern African Development Community (SADC), Southern African
  Customs Union(SACU) andthe Common Monetary Area (CMA), and is part o f several
 regional programs that aim to facilitate trade and sharingthe benefits o fjoint management
  o fresources, such as the Trans-Kalahari andTrans-Caprivi Corridors, the Southern Africa
  Power Pool, and the Zambezi River Basin Agreement.

TheNamibianeconomy

  6.      Namibia i s a small open                                         Figure1:Growthsince independence

  economy closely linkedto SouthAfrica.                       10


  With a 2006 per capita income o fabout                              I\
                                                               8        k
                                                                                GDPpm<hliurmid*.I
  US$3,000, it i s classified as a lower                                                                      Avmap ODPpontL
                                                                                                                   Lpp0.1ms
                                                                                                                      1                 h        A
                                                               6
  middle-income country. Namibia has                             pa......-.... .........,,.... ....................................... ...................
  experienced steady growth, moderate                          1



  inflation, strong external surpluses and                     I


  low indebtedness over the past several                       0

  years as a result o f generally prudent                      I
  fiscal policies, a stable political
  environment, a fairly developed                              1


  infrastructure, and a strong legal and                       6


  regulatory environment.

  7.       Economic growth since                                         Figure 2: The structure of the economy

  independence has been good, if                                 1

  somewhat volatile, averaging 4.3 percent
  per annum, and sufficient to increase per
  capita income inmost years (Figure 1).                      `O 1
  Much ofthe recent volatility ingrowth
  can be traced to spurts indiamond
  production in2004 and2006.

  8.       Overall, the economy is
  dominatedby the service sector, public
  andprivate (Figure 2), which accounts


1The Government has expressed concern that the classification as a middle income country hinders its ability to tap
concessional financing, particularly inthe social sectors.


                                                          2

  for around 60 percent o f overall
  output' and for much o f its growth                                    Figure 3: Sources of growth
  (Figure 3). The miningsector's                         8 0

  share inthe GrowthDomestic                             6 0
  Product (GDP) peaked at 14percent
  in2002 andhas averaged about 9                         4.0


  percent since then.3 The share o f                     2.0

  secondary sectors, inparticular                        0.0
  manufacturing, has remained
  virtually unchanged, andits                            -2 0
                                                                  2001      2002     2003      20b4        2005     2006
  contribution to growth i s modest.                         Mlnlng and Quarrylng Agricultureand Fishing 0 Industry Services1
  Efforts to diversify the economy




  9.       Namibia's strong record o fmacroeconomic stability since independence i s based in
  parton a credible pegto the SouthAfrican Randthrough its membership inthe Common
  Monetary Area.4 The peg has linked Namibia to South Africa's inflation targeting
  framework. As a result, inflation trends inNamibia follow closely the trends inSouth
  Africa. The average annual inflation fell from 11.3 percent in2002 to 2.3 percent in2005, in
  line with the appreciation o fthe rand and declining food prices. In2006, inflation increased
  to an estimated 5 percent with the depreciationo f the Rand(Table 1). Inthe last few years,
  the Bank o fNamibiahas matchedthe interest rate increases bythe SouthAfrican Reserve
  Bank,liftingrates by2 percentagepoints in2006.

  10.      With its currency pegged to the SouthAfrica Rand, fiscal policy is the only
  macroeconomicpolicy instrument available to Namibia. Namibia's fiscal situation has
  strengthened significantly inthe past two years. The fiscal deficit dropped from 7.5 percent
  o f GDP in2003/04 to an estimated 0.7 percent in2005/06 due to more effective revenue
  collection and a windfall inSACU' revenues, as well as a decline inspending. However,
  there have not been any significant shifts on the expenditure side. Although the wage bill
  and transfers to numerous parastatals account for about 60 percent o ftotal Government
  spending, there is little enthusiasm to tackle these politically challenging reforms given the
  highlevelo funemployment. A State-Owned Enterprise Governance Act was approved in
  2006. Ifimplemented successhlly, the Act would enhance the Government's ability to
  monitor state-owned enterprises, help improve their governance and performance.




 Within services, trade, transport andfinance accountfor aroundhalfof sectoraloutput.
Namibia is a primary source of gem-quality diamonds in the world, is the fourth-largest exporter of non-fuel minerals in
Africa, andthe world's fifth-largestproducer of uranium.
The CommonMonetaryArea members are Lesotho,Namibia, SouthAfiica and Swaziland.
SACU members:Botswana,Lesotho,Namibia, SouthAfrica and Swaziland.


                                                          3

                                     Table 1. Key Economic Indicators



                                                 2003   2004    2005   2006  2007    2008   2009
                                                                             projection
GDP at constant 1995 prices (annual % change)       3.5   6.6     4.2    4.6   4.8      4.6    ? ?
                                                                                               J. I
GDP per capita (US$)                             2,253  2,792   2,984  3,157 3,373   3,611  3,778
Consumerprice index (periodaverage)                 7.2   4.1     2.3    5.0    5.6     5.0   4.5
Export volume (annual % change)                     6.3  27.4    -1.5    6.1    7.6     5.9  -3.9
Import volume (annual % change)                     5.2    6.6    4.6    4.8    5.0     4.8    3.8
Currentaccountbalance(Incl. official transfers)     5.1    9.5     7.2  13.9  13.0      8.4   4.3
Gross PrivateInvestment(as YOof GDP)              22.8   19.0    20.8   21.0  21.4    21.8   22.0
Gross PrivateSaving (as % of GDP)                 35.6   34.9    32.3   37.8  37.9     36.3  32.9
Broadmoney (annual % change)                        9.6  16.2      9.7  20.0  19.2     18.6  18.3

Revenueandgrants(FY as % ofGDP)                   28.3   31.0    33.0   36.0  34.7     31.1  31.1
   Of which : SACUreceipts                          8.8  11.4      9.9  14.9  12.9      8.6    8.2
Expenditureandnet lending(FY as YOof GDP)         35.8   34.4    33.7   35.9  35.5     34.8  34.3
   Of which : personnelexpenditure                14.9   14.8    14.9   15.0  15.1     14.9  14.7
              capital expenditureandnet lending     5.7    5.3     4.3   6.1    6.1     6.0    6.0
Primarybalance(-deficit)                           -5.0   -0.7     2.2   3.1    1.8    -1.2   -0.7
Overall governmentdeficit includinggrants          -7.5   -3.4    -0.7   0.1   -0.8    -3.6   -3.2
Public debt outstanding/GDP                       29.7   34.2    31.7   28.7  26.2     26.8  28.9

Reserves(U.S $ mn)                               318.9  352.7   315.9  395.6 461.9   475.8  520.5
Reserves(months ofimports)                          2.0    1.7     1.4   1.6    1.7     1.7    1.7
Exchangerate(periodaverage)                         7.6    6.4     6.4   6.8


11.      Namibia's current account surplus remains strong, averaging 6.5 percent o f GDP
from 2002-2005 and reaching an estimated 14percent o f GDP in2006. Exports account for
almost 40 percent o f GDP, with diamonds and other minerals accounting for close to 60
percent o ftotal exports. South Africa is the main trading partner. Namibia's manufactured
exports-mainly        processed meat products (beef, small stock and game) and processed fish
and lobster-go       to the European Union, United States and Japanesemarkets. Imports
consist predominantly o f consumption items and intermediate as well as capital goods,
mostly from South Africa. Namibia's trade deficit of about 6 percent of GDP since 2002
has been offset by highcustoms revenue transfers andpositive net balances from the
services andincome accounts. However, the positive current account balance has been
accompanied bypersistent largecapital outflows, as financial institutions investedheavily
inSouthAfrica. Thishaskeptreserves at relatively low levels-about            two months o f
imports between 2002 and2006.

12.      Namibia's public debt management has beenprudent. In2004/05 public debt stood
at 33.8 percent o f GDP and i s projected to drop to 24.8 percent in2007/08, below the
Government's target o f25 percent. At the end of 2005/2006 fiscal year, Namibia's total
external debt stood at 5.2 percent o f GDP, lower thanmost other Sub-Saharan African
countries. The bulk o f external debt (80 percent) i s denominated inEuro and South African
Rand.The Randdebt doesnotrepresent any exchange rate risk due to Namibia's
membership inthe Common Monetary Area.


                                                  4

13,      The generally good growth andmacroeconomic picture i s overshadowed by three
worrying and related features o f the economy: the lingeringhighlevels o fpoverty; high
unemployment; andthe country's unequal distribution o fwealth andincome. While poverty
has declined since independence, it remains high at 27 percent.6 Unemployment, at nearly
the third o fthe labor force, i s especially prevalent among those with little or no skills, andi s
a major cause o fpoverty. The overhang o f apartheid i s also seen inNamibia's income
distribution-with          a Gini coefficient o f 0.6 it is amongst the highest inthe world (Figure 4).



                                                          Figure 4:

                                             Gin1Coefflclentfor SelectedCountries



                 Namibiac
             SouthAfnca c
                  Mexicoy
                 Malaysiay
               Camemon c
         Iran,Islam Rep c
               Venezuela c
                  Nigenac
            Tuhmenistan c
      Tnnidadand Tobagoc
               Azerbaijanc
                  Algena c
                   Egypt c
               Indonesia c
       Russian Federationc
              Kazakhstanc
                  Ukrainey
                  Noway y

                          0         0.1            0.2            0.3              0.4               0.5             0.6    0.7
                                       Source:2006 World DevelopmentReport.Data for Namlbia Is from the 200304 NHIES.



Medium-TermOutlook

14.       The medium-terneconomic outlook for Namibia is encouraging, andprospects for
growth are good ifNamibiacontinues to pursue strong macroeconomic and structural
policies. For 2007 andbeyond, growth is expected to stabilize at 4 to 5 percent andto be
relatively broad-based, with manufacturing, tourism, and miningas key drivers. A key
questionis whether this growth will be able to absorb the largepool o f low-skilled
unemployed workers.

15.       Nevertheless, being a small open economy, largely concentrated inthe mineral
sector, Namibia i s vulnerable to external shocks. Changes inexport prices and external
demand as well as possible shocks spill-over, particularly from neighboring South Africa,
can have a significant impact on Namibia's external andfiscal balances. Moreover, fiscal
revenue i s likely to fall inthe medium term, as SACU receipts decline with the
establishment o f the SADC Free Trade Area and Customs Union on the horizonby 2008

A household is considered poor ifit spends 60 percent or more on food.


                                                            5

 and2010, respectively. The Government ismindfulo fthese risks that could leadto rising
 fiscal deficits andworsening o fthe currently comfortable public debt situation. To minimize
 them it faces the challenge o frapidly implementing its fiscal stability strategy, including: (i)
 optimization o f revenue collection through improved tax enforcement; (ii)                       reorganizationof
 the InlandRevenueDepartment; (iii)              improvements inaudit capacity; and (iv) realignment
 o fpublic expenditures. The Government i s already taking steps to address some o f these
 issues by earmarking part o f current SACUwindfall revenues to reduce the public debt and
 bybetter targeting o fexpenditures. Inview o fthe social challenges, the Governmentis
 rightlystressing the pro-poor orientation o fits interventions.

Namibia's Social Context

 16.     Namibia has made great progress inaddressing some o fthe structuralproblems
 resultingfrom the dual economy it inherited at independence. Access to basic education has
 become more equitable andprimaryhealth care coverage is more widespread. Namibia's
 commitment to its people is evident inthe fact that it is among the top 10 countries
 worldwide inshare o f GDP spent on education, and second only to SouthAfrica on the
 continent inper capita expenditures on health. Country-wide immunization campaignsY7
 coupled with parallel strengthening o fthe overall public health infrastructure, yielded a
 significant reduction inthe infantmortality rate between 1990 and 2005 (from 60 to 43 per
 1,000 live births). The Government has improved access to safe water and sanitation; it has
 laid the foundation for gender parity, and launched programs to protect the country's
 environment andnatural resources. Namibia i s also one o f very few countries inSub-
 Saharan Africa that maintains a social safety net for the elderly, the disabled, orphans and
 vulnerable children, andwar veterans, and has a Social Security Act that provides for
 maternity leave, sick leave, andmedical benefits.

 17.      Despite these advances, Namibia's human development indices place it 125thout o f
 177 countries surveyed in the 2006 Human Development Report. Although Namibia i s on
 track to meet some o f the Millennium Development Goals (environment, gender equality), it
 will bechallenged to meetpoverty, education, andhealth, especially HIV/AIDS,goals.

 18.      One o f the clearest signs o f
 Namibia's apartheid legacy i s its poor             Figure 5: SACMEQ Reading and Mathematics Scores in
 educational outcomes. Despite its                   2000

 middle-income status and significant
 resources spent on education,
 Namibia ranks lowest among its peers
 inSADC instudent performance on
 reading andmathematics (Figure 5).
 Low academic performance in
 general education leads to problems
 intertiary education, including
 exceptionally low university
 completion rates (20 percent in
                                                     Source: SouthernAfrica Consortium for MonitoringEducational Quality
A testimony to the commitment to address urgent issues is the very successful polio vaccination campaign in2006.


                                                        6

 science, 35 percent inhumanities, 44 percent ineducation). Since education i s a primary
 weapon inNamibia's battle to reduce inequality, raising educationquality i s a top priority.

                           11. LOOKING THEFUTURE-KEYCHALLENGES
                                            TO

  19.      Namibia's track record over the past 17 years i s very good and its prospects for the
 future are bright given the stable economic performance, good regulatory framework, and a
 robust private sector. A recent Investment Climate Assessment shows a relatively favorable
 incentives andtax regime, highfirmproductivity, and good indicators for doing business:
 Namibiaranks 42ndo f 175 countries and third inAfrica on the ease o f doing business.'
 Similarly, the financial, banking and insurance sectors are stable. But critical challenges
 remain. Among these:

          Will the growth translate intojobs? While the Namibian economy has enjoyed robust
         growth, it has not produced enoughjobs to keep up with an expanding labor force. In
          1993,67 percent o f the labor force was employed. Thirteen years later, this figure
         slipped to 63 percent. Highunemployment has also increased the numbers o f
         discouragedjob-seekers who have left the labor force.g Findinga growth path that will
         createjobs i s the Government's number one priority.
          Will the education system create needed skills? Unemployment inNamibiais
         primarilyaphenomenon amongthe unskilled and low skilled, withjoblessness among
         those with post-secondary education almost non-existent. Despite considerable
         investments, the education sector i s not producingthe skills requiredto meet the needs
         o f the growing service and manufacturing sectors. Improving education outcomes i s
         centralto lowering unemployment, reducing inequality, andmeeting the country's
         goal o fbecoming a knowledge society by 2030.
          Will the currentpattern of growth reducepoverty and inequality? Poverty and
         inequality inNamibia are partlydue to differentials inurbanand rural growth. Mean
         income for urban areas is about twice that o f rural areas. Rural areas account for 60
         percent o f the households and 65 percent o f the population, but only 38 percent o f
         total income. To deal with poverty and inequality, growth strategies will have to
         reduce urban-rural income differences, or accommodate migration from rural to urban
         areas.

          WillNamibia overcome the challengeposed by HIV/AIDS? HIVprevalence shows a
         welcome decrease (down to 19.7 percent o fthe adult population in2005, from 22
         percent in2003) but remains a serious threat to development. Addingto the HIV
         challenge, Namibia has one of the highest tuberculosis prevalence rates inthe world.
         A health system that has the capacity andresources to deal with these twin epidemics
         is essential.



                          ~




 DoingBusinessReport2007
 Finding economic growth that responds tojobs is a key public policy challenge, IPPR Economic Outlook, February2007,
by CaliciousTutalife andDanielMotinga,www.ippr.org.na.



                                                       7

                    111. GOVERNMENT              STRATEGYAND DEVELOPMENT                     OBJECTIVES

  20.        The Government o f the Republic o fNamibia i s committed to stimulating economic
   growth, reducingpoverty and income inequalities, and improving the living standards o f its
  people to the level o f a developed country by 2030. The country's hopes for the future are
   captured in Vision 2030, a long-term development agenda preparedthrough a broad
   consultativeprocess. Vision 2030 describes a future Namibiawhere "prosperity, harmony,
  peace andpolitical stability" are achieved through progress ineducation, science and
   technology, health including the fight against HIV, sustainable agriculture, peace and social
  justice, and gender equality.

   21.       Vision 2030 i s to be realizedthrough a series o fNational Development Plans." The
   thirdNational Development Planfor 2007-2011is currently under preparation.

   22.       Inlinewiththe long-termcommitment to reducingpoverty, the Government is
   making additional resources available to improve education and skills training, including
   better access to schooling o f marginalized groups, such as the San, and conditional cash
   transfers to schools that ensure a successful completion o f general education o f orphans and
   vulnerable children. The most recent budget and Medium Term Expenditure Framework
   also acknowledge that growth to date has not generated enoughjobs, andthat future growth
   must do so.'' Highyouth unemployment is being addressed by the provision o f an
   additional 3,000 places inthe National Youth Service.'* The Government i s also expanding
   the roll-out o fanti-retroviraltreatment andthe program for prevention o fmother-to-child
   HIVtransmission inrural andremote areas.13

   23.       Pro-growth policies are focusing on stimulating the use o f communal lands, for
   example, through the Green Scheme, which aims to develop some 20,000 hectares o f
   irrigated agriculture inajoint venture between Government, commercial, and small holder
   farmers, andthrough the aquaculture development scheme.l4Several infiastructural
   projects for improving road andrail networks are planned inorder to improve access to
   marketscountry-wide and linkNamibia to neighboring SADC countries, namely Botswana,
   Zimbabwe, Zambia and Angola. A substantial portion o fthis year's increase inrevenues
   has been earmarked for scaling up development programs.




lo National Development Plans are 5-year development plans with national, sectoral and regional policies, goals, objectives,
strategies and targets. The objectives o f the second National Development Plan (2001-2006) are to: (i)reduce poverty; (ii)
create employment; (iii)promote economic empowerment; (iv) stimulate and sustain economic growth; (v) reduce
inequalities in income distribution; (vi) reduce regional development inequalities; (vii) promote gender equality and equity;
(viii) enhance environmental andecological sustainability; and (ix) combat the further spread o f HIV/AIDS.
I' Statement for the 2007/08 Budget, presentedby Hon. Saara Kuugongelwa-Amadhila, Minister o f Finance, March 15,2007,
www.mof.gov.na
'*TheNationalYouth      Service was originally established in 1999 as an ambitious job creation scheme designed for thousands
o f school leavers who did not qualify for further study. The purpose o f the non-mandatory National Youth Service has been
to provide skills training to young people outside o f the formal education system.
l3 The Government has set an objective o f putting 50,000 HIV-positive individuals on treatment by 2009, which i s attainable,
though shortage o f qualified staff (nurses, pharmacists, physicians) canjeopardize the achievement o fthis objective.
l4Diverse coastal and freshwater resources are well suited to fish and shellfish farming and have potential for increase.



                                                              8

 24.      Although Namibia scores relatively highon governance, as measuredby the World
 BankInstituteWorldwide Governance indicators andthe 2006 CorruptionPerceptionIndex
 o f Transparency International(55 out o f 163 co~ntries),'~improved governance i s highon
 the Government's agenda. To back up its policy o f zero tolerance o f corruption, Namibia
 established an Anti-Corruption Commission in2005 to investigate instances o f corruption,
 bribery, the use o fpublic resources for private benefit, andrigged tenders.

                         Iv.    WORLD BANKGROUP          ACTIVITIES TODATE

 25.      Inthe earlyyears afterNamibiajoinedtheWorldBankGroup, anumberof
 analytical and advisory activities were undertaken, somejointly with the Government,
 focusing on the country's dual economy legacy, the development challenges it faced, and
 potential areas for Bank support. However, this analytical work didnot always leadto
 tangible outcomes, inpart because it addressed an agenda not driven by the Government's
 priorities and, inpart, because there was insufficient follow up on the side o fthe Bank.
 Attempts were madeto prepare investmentoperations (ineducation, private sector
  development, water management, and decentralization), but none o fthese efforts ledto
  actual projects.

  26.     Lately, interactionwith the Bank has improved, particularly inthe education sector.
  This was the result o f a long-term effort that started with a Bank study onthe constraints
  andchallenges faced bythe education sector.16This analyticalwork guidedthe formulation
  o f a sector reform program adopted by the Cabinet. Working with 13 international and 15
  national partners, the Bank team assisted inthe preparation o f a 15-year strategic plan
  (2005-2020) to improve education and training (the Strategic Plan for the Education and
  Training Sector Improvement Program) and the first five-year (2006-201 1) implementation
  program. Thisjoint effort generated considerable external concessional financial support for
  the education program.

  27.     Another successful area o fBank assistance i s environmental management andnature
  conservation which has ledto two ongoing GEFprojects: Integrated Community-based
  Ecosystem Management Project, andNamibian Coast Conservation and Management
  Project. The first program supports a community-basednatural resource management
  approach to the sustainable use o fnatural resources andprotection o fbiodiversity through a
  mix o fpolicy, legal, financial andinstitution-building instruments. The secondproject
  supports the country's efforts to implement an integratedcoastal zone management
  framework to address planning, investments and management gaps for the increasingly
  populated, economically attractive, and environmentally uniqueand vulnerable Namibian
  coast.

  28.     As anIBRDcountry, Namibia does not qualifyfor Multicountry AIDS Program
  funding. Incoordinationwith other development partners, the Bankhas beenproviding
  limitedassistance through anIDFgrant to foster a partnership amongkeyplayers for


l5SACUcomparison: Botswana- 37; SouthAfrica- 51; Lesotho-79; Swaziland- 121.
l6Namibia Human Capitaland KnowledgeDevelopmentfor Economic Growth withEquity,AfricaRegionHuman
Development WorkingPaperSeries, No 84,2005.



                                                  9

 implementingthe nationalmedium-termplanfor HIV andAIDS (2004-2009). Namibia
 benefits from technical assistance from the Global AIDS Monitoring and Evaluation Team
 andfrom capacitybuildinginitiatives providedto middle income countries inSouthern
 Africa.

 29.       The IFC has been involved insmall investments: a fisheries project (Pescanova), and
 an equity investment inthe country's first indigenous life insurance company (Namibia
 Life). An IFC loan also helpedthe construction o f a 110-room Best Western hotel in
 Northern Namibia. Onthe technical assistance front, IFC worked with the Namibian
 Agronomic Boardto raise trust funds for a feasibility study o f a cotton ginning industry.
 MIGAhas not been active inNamibia.

 30.       As dialogue has expanded inrecent years, the Governmenthas signaled increased
 interest inthe Bank's menuo fnon-lending services, although it is quick to make clear that
 knowledge services should be separated from development finance.

                             v. AFRAMEWORK            FORENGAGEMENT

 31.       The framework outlined below builds onNamibia's development agenda andthe
 challenges the country faces and focuses on a flexible, country-driven business model
 designed to be instep with the Government's budget and decision-making processes. The
 elements o fthis framework are designed to give the Government a better sense o fwhat the
 Bankhas to offer andofthe value o fthe differentinstruments available. The proposed
 framework builds on the work undertaken inrecent years and identifies three levels o f
 engagement.

 32.       First,continuework inestablished areas ofcollaborationwhere the Bankhasa
 good track record and Government interest is clear: education and the environment.
 Education, training and skills development will continue to be at the center o fBank
 activities. Bank support will be provided through two proposed Development Policy Loans
 andwill focus on: (i) development o f specific policies and instruments to implement
                        the
 sector reforms; (ii) implementation o f these policies; and (iii)   buildinginstitutional capacity
 required for effective implementationo f sector r e f o r m ~ . 'The work i s expected to further
                                                                  ~
 improve access to schooling to previously disadvantaged groups; help improve teacher
 competencies to deliver better education and enhance professionaldevelopment, and set
 performance standards for school managers. Activities will be undertaken to reorient the
 vocational training system toward skills buildingfor better employability, as well as to
 strengthen the response to HIVthrough the education system. This work i s inline with the
 Bank's Africa Action Plan's flagship goal o fbuildingskills for competitiveness ina global
 economy. A draft memorandumo funderstanding betweenthe Government and
 development partners designates the Bank as the leadtechnical agency andthe European
 Union as the leadcoordinatingpartner for the Education andTraining Sector Improvement
 Program.



"ThefirstDPLisscheduledforBoardpresentationsimultaneouslywiththeISN.ThesecondDPLisexpectedtofollowin
about one year.


                                                 10

  33.       Support to the environment will include a third small GEF project-a                               pilot
 partnership for sustainable landmanagement currently under preparation-and                                      a country
  environmental analysis through a public environmental expenditure review, which i s
  underway.

  34.       Second, provide services available to member countries as part of the Bank's
  diagnostic work, and buildon recently completed fiduciary and analytic activities. As
  part ofits analytic and advisory services the Bank carried out several diagnostic studies for
  Namibia, producing a Foreign InvestmentAdvisory ServicesMIGA Study on Investment
  Incentives, a Public ExpenditureTracking Survey inbasic education and health, anda
  Financial Sector Assessment Program (jointly with the IMF).Inaddition, a Country
  Economic Report and an Investment Climate Assessment are underway. The Bank will seek
  Government guidance on how best to use this analysis, as well as possible follow-up
  diagnostic work, to help meet the country's challenges, including creatingjobs, spreading
  the benefits o f growth widely, andimproving the efficiency o fpublic spending. Follow-up
  work could include additional analysis inhighpriority areas such as access to finance for
  small businesses inurbanand remote rural areas, the role o f the informal sector, as well as
  support for implementation o f Government policies inimprovingthe incentive regime and
  other aspects o fthe business environment.

  35.       A Public ExpenditureandFinancialAccountability'8 assessment ofNamibia's
  public financial management systems suggested only marginal fine-tuning o f the fiduciary
  system. Basedon this analysis, the Government, inassociation with the Bank and other
  development partners (particularly the European Union), agreed to carry out a
  comprehensive Country IntegratedFiduciary Assessment, which will integrate the
  diagnostic processes o f a Public Expenditure Review, a Country FinancialAccountability
  Assessment, and a Country Procurement Assessment Report.

  36.       Namibia can also benefit from the Southern African regional initiatives, such as the
  Zambezi River Basin Agreement.IgFor Namibia inparticular, long term water security and
  the development o fhighvalue added agriculture (especially the Green Scheme) depends in
  largemeasure on a successful implementationofthe Zambezi River Basin Agreement.

  37.       Third, respondto various requests by Government agencieswithin an agreed
  framework. Government departments and agencies have expressed interest inobtaining
  technical support from the Bank insuch areas as the roll-out o f the e-government strategy,
  strengthencapacity for the Bank o fNamibia, and the development ofin-house capacity in
  debtmanagement, macroeconomic modeling andforecasting. The Bank would liketo
  continue its assistance insupport o fHIV/AIDS programs. The specific activities for Bank
  assistancewill be determined through a semi-annual planningmechanism as discussed
  below.


  The Public Expenditure and Financial Accountability was commissioned by the European Union and completed in2004.
  Namibia i s part o f the study carried out inJune 2006 for the eight countries sharing the Zambezi River Basin ("Zambezi
River Basin: Sustainable Water Resources Development for Irrigated Agriculture"). The water resources o f the Zambezi
River are crucial to each o f the eight riparian countries' aspirations for agricultural sector growth and poverty reduction, as
well as growth in other economically important sectors, such as energy, and water supply.




                                                              11

38.     With the client inthe driver's seat and a limitedadministrative budget,the Bank's
main challenges are to stay focused and deliver value. Usingthis window o f opportunity to
buildaproductive andlastingpartnership withNamibia, inthe next 24 months the Bank
will strive to:


  0   Strengthen communications and coordination. For that, a mechanism for consulting
     with the Government willbe established to identifypriority areas for support, andto
      seek guidance on Bank involvement incoordination with other partners or
     complementingtheir interventions, keeping inmindthe country's implementation and
      absorptive capacities.

  0   Work with external development and local partners and counterparts to design the
      scope and nature o fproposed analytical and advisory work, and discuss practical
      applications andbenefits to be derived from analytical exercises for the country. This
      collaborative approach would aim to strengthen local capacity and eventually leadto
      developing ajoint research program.

  0   Seek ways to familiarize Government officials with Bank instruments, particularly
      those related to knowledge, available to middle-income countries.

  0   Ensure that the Bank's proposed interventions are consistent with the client's needs
      andtightlymanage the Bank's program to maintain focus and effectiveness.

39.     Giventhe nature o f engagement andthe period coveredbythe Interim Strategy, the
development o f a full-fledged results matrix was not possible. The expected outcomes o f
the Bank's engagement efforts and o f its interventions are presented inannex 1.

40.     The work program under this engagement will be set out insemi-annual business
plans to be agreed with the Government. Specifically, ajoint Bank-Government committee
representing the key partners (the National PlanningCommission, Ministryo f Finance, and
Banko fNamibia) will determine the analytical andtechnical support to beprovidedand
suggest possibilities for future engagement.

                       VI. WORKINGWITHDEVELOPMENT               PARTNERS

41.      Since the principle o fpartnershipi s central to achieving Vision 2030, Namibiai s
interested inincreased cooperation with development partners. This has become more
urgentinrecent years as official development assistancehas declined, evenas foreign
expertise and financial support continue to play a significant role inthe country's
development agenda (see box 1).

42.     The Bank's experience with the education dialogue has demonstrated that it can
work effectively with a large number o fpartner institutions, bothbilateral andmultilateral.
The partnershipwill continue particularly with the International Monetary Fund(ina
follow-up to the FSAP),with the European Union (mainly on the education sector reform
andCountry IntegratedFiduciaryAssessment), the African Development Bank(on
governance), andwith the United Nations family (on HIV/AIDS,education sector reform,


                                             12

andpoverty monitoring). The opening of a Public Development Information Center at the
Polytechnic o fNamibia with several international and local institutions i s a concrete
expression o f the partnership spirit inNamibia. The Center will be open to the public and
will provide access to the Bank's data andknowledge productsto a wider audience.


                                Box. 1 Namibia'sDevelopmentPartners

 In2003 NamibiareceivedN$668million(US$lOO million) inOfficial Development Assistance, about 6
 percent o f Government revenues. The assistance came inthe form o f free-standing technical cooperation,
 investment-related technical andproject assistance, food aid, and emergency relief. ODA is projectedto
 fall in2007/08 as many partners move to a regional approach for providing support to Southern Africa's
 middle-income countries.

 The European Unionis Namibia's largest donor (land reform, education andruralpoverty reduction),
 followed by Germany (land reform, rural development and infrastructure) and the UnitedStates
 (HIV/AIDS, basic education, community-based natural resource management, democracy and
 governance, employment creation and enterprise development). Followingthe President o f China's visit
 to Namibia, a N$30 million (US$4.5 million) grant for projects and an interest-free loan for the same
 amount are expected. The biggest recipient has beenthe education sector, with over 20 percent o f ODA
 since 1990.

 Namibia has recently become eligible for the MillenniumChallenge Account and is expected to receive a
 grant up to US$300 million for five years.

 Supportfor thefight againstHIV/AIDS. Namibia was selected as a focus country for the United States
 President's EmergencyPlan for AIDS Relief in2003. Since then more than US$125 millionhas been
 provided through this channel alone. Namibia received an additional US$128 million through the Global
 Fundto Fight AIDS, Tuberculosis andMalaria, o fwhichUS$105 millionwas earmarked for HIV/AIDS.

 Although there are no regular donor roundtables, the UnitedNations Development Programhas ledthe
 coordination process. The Bankworked closely with the UnitedNations Development Programto
 support the Government inorganizing a successful Roundtable Pledging Conference for the Education
 andTraining Sector Improvement Planin2006.

 Source: Development Cooperation Report 2003104,National Planning Commission


                               VII. RISKSAND CREDITWORTHINESS

43.      Namibia's track record o f good economic management suggests that country risk i s
minimal and manageable duringthe period coveredby this framework. Namibia's sound
economic performance andmoderate level of external indebtedness is reflected inits
investment grade of BBB-rating assigned by Fitch inDecember 2005. This rating was
affirmed with a stable outlook inNovember 2006. Given this the credit risk to IBRD
presented by the envisaged program appears minimal. This i s predicated on the
continuation ofprudent economic policies and implementationo fmeasures to mitigate the
mediumterm risks already outlined.

44.      A successful implementationofthe activities under the fkamework, particularly
support to the education sector reform, and delivering on a country-led program with a




                                                  13

limitedoperational budget are critical for the Bankto establish itselfas a credible and
reliable development partner.

                                   VIII. CONCLUSION

45.    This interim engagement strategy will provide the Government and the Bank Group
withthe foundation for a long-term knowledge partnership. Interimprogress will be
measured on a regular basis through a mechanism agreed to bybothparties. The program's
ultimate success will be assessedby the degree o f future collaboration betweenthe Bank
Group andNamibia.




                                            14

               Annex 1.NamibiaInterim StrategyNote:ResultsIndicators

          ExpectedOutcomes:                                     OutcomeIndicators:

StrategicElement: Education and TrainingSector Improvement Program


Equitably expanded access to quality post- Six new senior secondary educationand training schools
basic education and training               created inthe poorest regions of the country.


Improvement of education quality           Percentage of learners who complete lower primary
                                           education having acquired core skills and competencies is
                                           increased from 20% to 45% (2009 target).

                                           Reduction inaverage repetition rate for basic education from
                                            15.5% to 13% (2009 target).


StrategicElement: Environmental Management and Nature Conservation



Improved local, regional and national      Proportion o f local, regional and national institutions
capacity for sustainable land management   applying sustainable landuse management techniques i s
                                           increased as a result ofthe GEF project (baseline to be
                                           established during 2007).

StrategicElement: Policy Dialogue and Analytical and Technical support

Deepenedpolicy dialogue with               Regular Bank-Government semi-annual businessplanning
Government counterparts for building a     meetings heldand agreement on the work programreached.
long-term knowledgepartnership
                                           Increased demand for Bank analytical and advisory services.




                                               15

                          Annex 2. Namibia:CountryFinancingParameters

The countryjhancing paranzeters for Naniihiu set out below have heeii upproved b-y the Regional Vice
President, Afiica Region, and are being posted on the Bank's internal website.

               Item                Parameter                     Remarks/Explanation
A. CostSharing. Limitonthe         upto 100%       While continuing to emphasize borrower
proportion o f individual                          commitment and ownership o f individual projects,
project cost that the Bank may                     the Bank would retain the option o f financing up to
finance                                            100percent o fproject costs. However, specific
                                                   arrangements would be determined for individual
                                                   projects, taking into account project specific
                                                   considerations. Inpractice, counterpart fbndingwill
                                                   be encouraged andBank's financing share inmany
                                                   projects is expected to be less than 100percent.



B. Recurrent CostFinancing.        N o country-    No country-level limit on Bank financing o f
Any limitsthat would apply to       level limit    recurrent costs is proposed. On a project byproject
the overall amount o frecurrent                    basis, the Bankmay finance recurrent costs after
 expenditures that the Bank                        carefbl consideration o fthe sustainability o fproject
may finance                                        achievements and implied future budgetary outlays
                                                   within the overall context o fNamibia's aggregate
                                                   fiscal position andprospects.
 C.Local Cost Financing. Are            Yes        The requirements for local cost financing are met.
 the requirements for Bank                         The Bank can therefore finance local costs inany
 financing o f local expenditures                  proportions required by individual projects.
 met, namely that: (i) financing
 requirements for the country's
 development programme
 would exceed the public
 sector's own resources (e.g.,
 from taxation and other
 revenues) and expected
 domestic borrowing; and (ii)
 the financing o f foreign
 expenditures alone would not
 enable the Bankto assist inthe
 financing o f individual projects
D. Taxesand Duties. Are               None         Namibia's taxes are considered reasonable. Hence,
 there any taxes and duties that                   the Bank may finance the costs o ftaxes and duties
 the Bank would not finance?                       associated with project expenditures. At the project
                                                   level, the Bankwould examine whether taxes and
                                                   duties constitute an excessively highshare o f
                                                   project cost andwill make any necessary
                                                   adjustments duringproject preparation.


                                                16

                            CountryFinancingParametersSupportingNote

Cost Sharing

1.      Namibia's ownership andcommitment for its development programme i s strong. As
discussed under the ISN document, the Bank's strategy takes as its startingpoint, the strength o f
Namibia's own development policy andnational agenda, and its vision for its future. The
framework also recognizes the Government's leadership inmeeting the challenges o f high
unemployment, poverty and inequality. Public expenditures are highat about 30 - 35 percent o f
GDP. Capital expenditures account for about 20 percent o f total public expenditures. These
expenditures are financed domestically. External loans for specific projects not included inthe
budget but accounted for inthe MTEF amount to an additional two percent o f total expenditures.

2.      Government ownership i s essential and will continue to be emphasized. The Bank's
financing share inindividual projects would be determined ina manner which supports
government ownership o fprojects, andon that basis counterpart funding by Government will
generally be expected in all projects. Further, inview o f the fact that HIV/AIDS will
increasingly exert pressure on public finances, enhanced flexibility i s warranted for some
projects. Therefore, while continuing to emphasize client commitment and ownership o f
individual projects, the Bankwould retain the option o f financing up to 100percent o fproject
costs, particularly those relating to sustainable development.

RecurrentCosts

3.       Over the past few years, recurrent expenditures have accounted for about 85 percent total
public expenditures inNamibia(excludes externally financed loans that are not included inthe
budget).Currently, inNamibia, Bank finances limitedrecurrent costs inthe GEFprojects inline
with the existing policy. Increased financing o frecurrent costs does notjeopardize fiscal or debt
sustainability as recurrent costs are well integrated into the budgetpreparation and execution
processes*'. It has a comprehensive and well functioning budget system prepared within the
MTEFwith inter-ministerial participation. A Public Expenditure andFinancial Accountabilitg       '
assessment o fNamibia's public financial management systems suggested only marginal fine-
tuningo fthe fiduciary system.

4.       Given the Government's commitment to its development agenda andits good track
record o fpublic finance management, we envisage no difficulties for the government to finance
recurrent costs after Bank exits. N o country-level limit on Bank financing o frecurrent costs is
proposed. On a project by project basis, the Bank may finance recurrent costs after careful
consideration o f the sustainability o fproject achievements; and implied future budgetary outlays,
within the overall context o fNamibia's aggregate fiscal position andprospects.




2o See Paragraphs  12 and 42 ofthe ISN.
2'See Paragraph 35 of the ISN.


                                                17

Local Cost Financing

5.      Financingrequirements for the country's development programme exceed the public
sector's own resources (from taxation and other revenues) and expected domestic borrowing.
Despite moderate growth and sound economic management, Namibiafaces serious challenges to
development as it tries to diversify the economy and create more employment which can be
sustainable and reduce poverty and inequality. These challenges include increasinghealth costs
relatedto HIV/AIDS as well as loss o fproductivity,volatility inthe diamond sector and a large
and growing public sector. These challenges are likely to put additionalpressure onpublic
finances going forward andjustify the support for Namibia's development programme.

6.      The local cost component o f envisaged investment lending i s expected to be significant.
Therefore, the financing o f foreign expenditures alone would not enable the Bank to assist inthe
financing o f individual projects. The two requirements for Bank financing o f local costs are
met, andthe Bankmay finance local and foreign costs inthe proportion required for individual
projects.

Taxes and Duties Financing

7.      Taxes andduties have been assessedas reasonable andthe Bank may therefore finance
taxes and duties associated with project expenditures. At the project level, the Bank would
consider whether taxes and duties constitute an excessively highshare o fprojects. Changes in
tax and customs andor related exemptions could trigger a review o f this parameter. Major taxes
andduties are summarized below.

                    Item                                   Tax rates (range)

Company Tax                                    35% for nonmining companies
                                               37.5% for all miningexcept diamond
                                               miningcompanies
                                               50% o ftaxable income plus a surcharge o f
                                               10%for diamond miningcompanies
Value-added Tax                                The standard rate is 15% but there are zero-
                                               rated exempt items
Customs Tariffs                               IThe common ad valorem rates have 39
                                               bands rangingfrom zero to 55 percent




                                               18

                                                                         CAS Annex A I
 Namibia at a glance                                                                                            .                              9/14/06

                                                                                      Sub-       Lower
Key Development Tndlcators                                                         Saharan       middle
                                                                     Namibia          Africa    income           Age dlrtrlbutlon,2005
(2005)                                                                                                                                          Female

Population, mid-year (millions)                                           2.0           741      2,475           70.74
Surface area (thousand sq. km)                                           624        24,265      39,946           8044
Populationgrowth (%)                                                      1.1           2.1         1.o
Urban population (% of total population)                                   35             35        50           50-54
                                                                                                                 40-44

GNI (Atlas method, US$ billions)                                          6.1           552      4,746           30.34

GNI per capita (Atlas method, US$)                                      2,990           745       1,916          20.24

GNi per capita (PPP, international $)                                   7,910         1,961       6,313          10-14
                                                                                                                   w
GDP growth (%)                                                            3.5           5.3         6.9               20        I O       0      ( 0       20
GDP per capita growth (%)                                                 2.4           3.1         5.9                                percent

(most recentesffmate, 2000-2005)

Poverty headcount ratio at $1 a day (PPP. %)                               35 '           44
Poverty headcount ratio at $2 a day (PPP, %)                               56                                    Jnder-5 mortalityrate (per 1,000)
                                                                              a           75
Life expectancyat birth (years)                                            47             46         70
Infantmortality (per 1,000 live births)                                    47           100          33          2w 1
Child malnutrition (% of children under 5)                                 24             29         12
                                                                                                                 I50
Adult literacy, male (% of ages 15and older)                               67                        93
Adult literacy,female (% of ages 15and older)                              63                        65          I W
Gross pnmary enrollment, male (% of age group)                            100             99        115
Gross pnmary enrollment, female (% of age group)                          102             67        113           50


Access to an improved water source (% of population)                       87             56         62            0
Access to improved sanitation facilities (% of population)                 25             37         57                     1880    1885   2wo    2m


                                                                                                                      ONamibla        USubSaharan Ahica

Net Aid Flows                                               1980        1990          2000        2005 '
                                                                                                                                                             I
(US$ millions)
Net ODA and official aid                                        0         121           153         179          jrowth of GDP and GDP per capita (%)
Top 3 donors (in 2004):
  United States                                                            14             10         34
  Germany                                                                  10             24         33
  Spain                                                                    0               1         11

Aid (% of GNI)                                                 0.0        5.1            4.4        3.1
Aid per capita (US$)                                            0          67             61         69

Long-Term Economic Trends
                                                                                                                                               00
Consumer pnces (annual % change)                                                                                      80           e5
                                                                                                    2.3
GDP implicit deflator (annual % change)                        0.5        4.3          10.7         2.0              -+-GDP            -GDP       Der caDita

Exchangerate (annual average, local per US$)                   0.6        2.6            6.9        6.4
Terms of trade index (2000 = 100)                             112          93           100         97
                                                                                                                   1980-90     1990-2000      2000-05
                                                                                                                          (average annualgrowth %j
Population,mid-year (millions)                                 1.o        1.4            1.9        2.0                   3.5          3.0          1.4
GDP (US$ millions)                                         2,169        2,350         3,414       6,126                   1.3          4.0          4.6
                                                                          (% of GDP)
Agncuiture                                                   11.2        11.7          11.0         9.9                   1.9          3.6          1.4
Industry                                                     55.6        36.0          26.4        31.7                   0.0          2.4          7.3
  Manufactunng                                                 9.2       13.6          11.1        13.5                   3.7          2.6          6.1
Services                                                     33.0        50.2          m.7         56.4                   3.6          4.5          4.3

Householdfinal consumption expenditure                       44.2        51.2          57.1        49.6                   1.3          5.0         -1.1
General gov't final consumption expenditure                  17.4        30.6          28.6        23.4                   3.7          3.3          0.9
Gross capital formation                                      30.6        33.7          19.5        25.5                  -3.2          6.9          9.6

Exports of goods and services                                76.9        51.9          45.6        46.3                   0.7          3.6          7.2
Imports of goods and services                                71.1        67.4          51.2        45.0                   0.5          5.4          1.4
Gross savings                                                26.9        34.6          27.7        39.7                  -1.9          6.1        11.5


Note: Figures in italics are for years other than those specifled. 2005 data are preliminaryestimates. ..indicates data are not available.
a. Country poverty estimate is for 1993. b. Aid data are for 2004.

Development Economics, Development Data Group (DECDG).




                                                                                    19

                                                                                                                                                     Namibia

Balanceof Paymentsand Trade                            2000        2005               1Governance Indicators, 2000 and 2004
(US$ millions)
Total merchandiseexports(fob)                          1,324      2,067
Total merchandiseimports(cif)                          1,317      2,332                 Voice and accountability
Nettrade in goods and services                          -103       -221                         Politicastability
Workers'remittancesand
 compensationof employees(receipts)                         9        16                       Regulatoryquality

Currentaccount balance                                   352        434                              Ruleof law
 as a % of GDP                                          10.3         7.2                    Contmlof corruption

Reserves,includinggold                                   262        316                                          0     25           60        75       1w

                                                                                                2004               Country'spercentilerank (0-100)
CentralGovernmentFinance                                                                      02000                  h,gher values !m@ybenw mtmgs


(% of GDP)                                           2000/01 2005/06                   Some: KaUfmann-KTaay-MaStNlm,Wodd Bank
Revenue                                                 33.1       33.0
  Tax revenue                                           30.2       30.1
Expenditures                                            34.7       33.7             Technology and Infrastructure                             2000     2004

Overall balance                                          -1.4       -0.7            Pavedroads(% of total)                                    13.6      12.8
                                                                                    Fixed lineand mobilephone
Highestmarginal tax rate (%)                                                          subscribers (per 1,000people)                            101      206
  Individual                                              36         35             Hightechndogy exports
  Corporate                                               35         35               (% of manufacturedexports)                                1.9      2.9

                                                                                    Environment

                                                                                    Agriculturalland(% of landarea)                             47       47
External Debt and Resource Flows                                                    Forest area (% of landarea, 2000 and 2005)                 9.8       9.3
                                                                                    Nationallyprotected areas (% of landarea)                    ,.     13.6
(US$millions)
Total debt outstandingand disbursed                          ..     851             Freshwaterresources per capita(cu. meters)                         3,066
Total debt service                                                                  Freshwaterwithdrawal (% of internalresources)                ....    4.9
HlPCand MDRl debt relief(expected;flow)                     -          -5
                                                                                    CO2emissionspercapita (rnt)                               0.92       1.1
Total external debt (% of GDP)                                        21
   Public                                                              5            GDP per unitof energy use
   Private                                                            16              (2000 PPP $ per kgof oil equivalent)                    11.1       9.9

Foreigndirect investment(net inflows)                                               Energyuse percapita (kg of oil equivalent)                 544      635
Portfoiio equity(net inflows)



                                                                                     (US$ rni//ions)

Private Sector Development                              2000       2005              IBRD
                                                                                      Total debt outstanding and disbursed
Time requiredto start a business(days)                       -        95              Disbursements
Cost to start a business (% of GNI per capita)                      18.8              Principalrepayments
Time requiredto registerproperty(days)                       --       28              interestpayments

Ranked as a majorconstraintto business                                               IDA
  (% of managers surveyedwho agreed)                                                  Total debt outstanding and disbursed
    n.a.                                                                              Disbursements
    n.a.                                                                              Total debt service

Stock market capitalization(%of GDP)                      9.1        6.8             IFC (fiscalyearj
Bank branches (per 100,000people)                            ..      4.5              Total disbursedand outstandingportfolio                    9       11
                                                                                        of which IFC own account                                 9       11
                                                                                      Disbursementsfor IFCown account                            1         0
                                                                                      Portfoliosales, prepaymentsand
                                                                                        repaymentsfor IFCownaccount                              1        2

                                                                                     MlGA
                                                                                      Gross exwsure
                                                                                      New guarantees



Note: Figures in italicsare for years otherthan those specified. 2005 data are preliminalyestimates.
..indicates                                                                                                                                           9/7/06
            data are not available. -indicates observationis not applicable.

DevelopmentEconomics, Development Data Group (DECDG).



                                                                              20

Millennium Development Goals                                                                                                           Namibia


Withselected targets to achieve between 1990and 2015
(esfnnafe closest fo date shown, +/- Zyears)


Goal 1: halvethe rates for $1 a day poverly and malnutrltlon                                        1990       1995             2000      2004
 Povertyheadcountratioat $1 a day(PPP, % of population)                                                        34.9
 Povertyheadcountratioat nationalpovertyline (% of population)
 Share of incomeor consumptionto the poorestqunitile(%)                                                         1.4
  Prevalenceof malnutrition(% of childrenunder5)                                                     26                           24

Goal 2: ensure that chlldren are able to complete prlmaryschoollng
  Primaryschool enrollment(net, %)                                                                                                74        74
  Primarycompletionrate (% of relevant age group)                                                                74               85        61
  Secondaryschoolenrollment(gross, %)                                                                45                           59        58
 Youth literacyrate (% of peopleages 15-24)                                                          87                                     92

Goal 3: eliminate gender disparity In educatlon and empower women
  Ratio of girls to boys in primaryand secondaryeducation(%)                                        108                          105       104
  Women employed in the nonagriculturalsector (% of nonagriculturalemployment)                       39          44               49        51
  Proportionof seats held bywomen in national parliament(%)                                           7          18               22        27

Goal 4: reduce under4 mortality bytwo-thirds
  Under-5 mortalityrate (per 1,000)                                                                   86         77               69         63
  Infantmortalityrate (per 1,000 live births)                                                         60         55               50         47
  Measles immunization(proportionof one-yearolds immunized. %)                                        57         68               69         70

Goal 5: reduce maternal mortallly bythree-fourths
  Matemai mortalityratio (modeledestimate, per 100,000live births)                                                               300
  Birthsattendedby skilledhealthstaff (% of total)                                                   68                           76

Goal 6: halt and beglnto reversethe spread of HIWAIDS and other maJordiseases
  Prevalenceof HIV (% of populationages 15-49)                                                                                            19.8
  Contraceptive prevalence(% of women ages 15-49)                                                    29                           44
  incidenceof tuberculosis(per 100,000people)                                                        260                                   717
  Tuberculosiscases detected under DOTS (%)                                                                      22               84         88

Goal 7: halve the proportlon of peoplewlthout sustalnable accessto bask needs
  Access to an improvedwater source (% of population)                                                 57                                     87
  Access to improvedsanitationfacilities (% of population)                                            24                                     25
  Forestarea (% of total landarea)                                                                  10.6                          9.8      9.3
  Nationallyprotectedareas (% of total land area)                                                                                          13.6
  CO2 emissions (metrictons percapita)                                                               0.0         1.o              0.9      1.1
  GDP per unitof energyuse (constant2000 PPP $ per kg of oil equivalent)                            12.3       10.3              11.1      9.9

Goal 8: develop a global partnershipfor development
  Fixed lineand mobile phoneSubscribers(per 1,000people)                                              38         50              101       206
  Internetusers (per 1,000people)                                                                      0           0              16         37
  Personalcomputers (per 1,000people)                                                                            12               40       109
  Youth unemployment(% of total laborforce ages 15-24)                                                         31.7              44.8


    iducatlon lndlcators (%)                              Measles lmmunlzatlon (Ohof I-year olds)       CT Indicators(per 1,000 people)

                                                          100


                                                            75                                                                       n

                                                           50


                                                           25

           1888       2000        2002      2w               0
                                                                    (880    (885  2000    2w                   2000          2002     20M
        +Primary        net enrollment ratio

        -Ratio       of girls to boys in primary8               ONamibia      OSub-Saharan Africa               0Fixed+nvbile subscribers
                secondary education                                                                             rn Internet users



Note: Figures in italicsare for years other than those specified...indicatesdataare not available.                                       9/7/06

DevelopmentEconomics,DevelopmentData Group (DECDG).




                                                                                21

                                                 CAS Annex B2
         Selected Indicators* of Bank Portfolio Performance and Management
                                                  As of 03/22/2007



Indicator                                                 2004           2005        2006          2007
Porifolio Assessment
Numberof Projects Under Implementationa                        1             1           2             2
Average ImplementationPeriod (years)                         0.1           1.I         1.5           2.2
Percentof Problem Projectsby Number a,                       0.0           0.0         0.0           0.0
Percentof Problem Projectsby Amount                          0.0           0.0         0.0           0.0
Percentof Projectsat Risk by Numberas                        0.0           0.0         0.0           0.0
Percentof Projectsat Risk by Amount                          0.0           0.0         0.0           0.0
Disbursement Ratio(%) *                                      0.0           7.9        10.1           8.3
Porifolio Management
CPPR during the year (yedno)                                  No           No          No            No
Supervision Resources(total US$)                           20.0          20.0        45.0           40.0
Average Supervision (US$/project)                            0.0           0.0         0.0           0.0


                                                 Since FY           Last Five
Memorandum Item                                  80                 FYs
Proj Eva1by OED by Number
Proj Eva1by OED by Amt (US$ millions)
% of OED Projects Rated U or HU by
Number
% of OED Projects Rated U or HU by Amt



a. As shown in the Annual Reporton Portfolio Performance(exceptfor current FY).
b. Average age of projects in the Bank's country portfolio.
c. Percentof projects rated U or HU on developmentobjectives (DO) and/or implementation progress (IP).
d. As defined under the Potlfolio Improvement Program.
e. Ratioof disbursementsduring the year to the undisbursedbalanceof the Bank's portfolio at the beginningof the
year: Investment projectsonly.
* All indicatorsare for projectsactive in the Portfolio,with the exceptionof DisbursementRatio, which includes all
active projects as well as projects which exited during the fiscal year.




                                                        22

                                     CAS Annex B3
                                IBRD Program Summary
                                      As of 03122l2007

Proposed IBRDllDA Base-Case Lending Program

Fiscal year  Proj ID                                     Strategic Rewards Implementation b
                                                 US$(M)       (H/M/L)       Risks (H/M/L)

  2007       Education & Training DPL-1          7. 5            H               M

  2008       Education & Training DPL-2          7.5             H               M

             TOTAL                               15.0


H = High
M = Medium
L = Low




                                          23

     Namibia IFC-CASand
                      Annex B3 (IFC & MIGA)
                        MIGA Program, FY 2004-2007

                                      2004 2005 2006 2007


IFC approvals (US$m)                  0.00

Sector (YO)


Investmentinstrument(%)


MIGA guarantees (USSm)                0.00




                            24

                                            CAS Annex B4
                               Summary of Non-lending Services
                                             As of 03/22/2007

Product                                     Completion FY  Cost (US$OOO) Audiencea  Objectiveb

Recent completions

PETS (IDF)                                  FY05                200          G, P, D    KG, PS
Decentralization(PHRD)                      FY05                627                     KG, PS
HumanCapital and Knowledge Dev.             FY05                350                  KG, PS, PB
FSAP                                        FY06                200                         KG
Investment IncentivesStudy (FIAS/
MIGA)                                       FY07                 40             G,P         KG

Underway
Country EconomicReport                      FY07                250          G, B, P    KG, PS
CENPEER                                     FY07                 15               G          PS
InvestmentClimate Assessment                FY07                 33             G, P        KG
HIV/AIDS(IDF)                               FY08                499             G,P  KG,PD,PS

Planned
Public DevelopmentInfo Center               FY08                 15           G, PD         KG
ClFA                                        FY08                 25          G, D, B        KG
Ext.&Applic. of PAMS Framework              FY08                 10               G          PS
HIV/AIDSTA                                  FY08                 45             G,P          PS
InvestmentClimate Follow-up                 FYO8-09              20             G, P         PS
FSAPlROSCfollow-up                          FYO8-09              20               G     KG, PS
E-Governance                                FYO8-09              30             G, P    KG, PS

a. Government,donor, Bank, public dissemination.
b. Knowledgegeneration, public debate, problem-solving.




                                                  25

                          CAS Annex B8 (IFC)

                                 Namibia
                            Statementof IFC's
                        Held and Disbursed Portfolio
                             As of 07/31/2006
                          (In US Dollars Millions)

                                Held                     Disbursed

FY
Approval   Company    Loan Equity Quasi Partic Loan Equity Quasi Partic
           Namibia
     1997 Life          0     0.8       0        0     0  0.8     0  0
           Namibia
    2001 Life           0    0.81       0        0     0 0.81     0  0
     1996 Novanam     0.36     0        0        0  0.36   0      0  0
     1998 Novanam     0.57     0        0        0  0.35   0      0  0
    2002 Novanam      8.01     0        0        0  4.55   0      0  0

    Total Portfolio:  8.94   1.61       0        0  5.26 1.61     0  0


      Approvals Pending Commitment
                      Loan Equity Quasi Partic




                                       26

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  8


MAP SECTION


                                                                                                                                                                                   IBRD 33453R


                                                                                          NAMIBIA

                                                           SELECTED CITIES AND TOWNS                                                 TRUNK ROADS

                                                           REGION CAPITALS                                                           MAIN ROADS

                                                           NATIONAL CAPITAL                                                          DISTRICT ROADS

                                                           RIVERS                                                                    RAILROADS

                                                                                                                                     REGION BOUNDARIES

                                                                                                                                     INTERNATIONAL BOUNDARIES



15°S                                                       15°E                                                                 20°E                                                  25°E




                                                      To                       A N G O L A                                                                            Z A M B I A
                                                  Lubango



                                                  OSHANA                    OHANGWENA

            Kunene                                                           Oshikango
                                                     Uutapi       TI   Oshakati                                                                                                               Lusaka
                                                                                                                                                                               Katima
                                                                             Ondangwa                                                                                                               oT
                             Opuwo                                                                          Okavango            Rundu                                   KongolaMulilo
                                                                                 OSHIKOTO                                                   Bagani

                 N                                        OMUSA                                                   K AVA N G O
                                                                             Etosha                                                                                           CAPRIVI
                     a                                                        Pan
                        mSesfontein                                                                                                                                                       To
                                                                Okaukuejo                     Tsumeb
                                                                                                                                                                                         Maun
                          i                                                       Mts.                                 Omatako


                            b                                                          Otavi         Grootfontein

                                D       K U N E N E                          Ulavi                                                 Tsumkwe

20°S                                                                           Outjo        O T J O Z O N D J U PA
                                   e                                                                                                                                                    20°S
                                                     Khorixas
                                     s                                               Otjiwarongo
                                        e                                                                                    Eiseb
                                                                      Kalkfeki              Okakarara
                                           r                    Brandberg
                                            t Ugab                                                                Epata
                                                          Uis   (2,606 m)                                                                                      To
                                                                             Omaruru                             O M A H E K E                             Livingtsone
                                                     E R O N G O
                                                                                        Okahandja                                                                 B O T S W A N A
                                                                         Karibib


                                    Swakopmund                           WINDHOEK                                  Gobabis
                                                                                  K H O M A S                                                        To
                                                                                                                                                   Gaborone

                                            Walvis Bay
                                                                                 Rehoboth                               K a l a h a r i
              ATLANTIC                                                                         Kalkrand              Aranos
                                                                                                             Stampriet            D e s e r t
                OCEAN                                           NH  A R D A P                                          Nossob

                                                                             Maltahohe              Mariental
                                                                 a
25°S                                                              m                                                                                                                      25°S

                                                                   ib                           Fish
                                                                     D                                   Keetmanshoop
                                                           Luderitz   es e r     Bethanien



                                                                                  K A R A S                      Great
                                                                                                                 Karas                      To
                                                                                                                                         Kimberley
     0      50     100 150 200 Kilometers                                   t                                     Mts.
                                                                                                            Grünau
                                                                                                                 Karasburg               To
     0           50         100          150 Miles                                                                                     Gaborone              NAMIBIA


                                                                      Oranjemund                     Orange

This map was produced by the Map Design Unit of The World Bank.                                                   S O U T H
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any                                     To           A F R I C A
endorsement or acceptance of such boundaries.                                                        Bitterfontein
                                                                 15°E                                                          20°E


                                                                                                                                                                                      MARCH 2007