17 March 2017

Namibia: Bloated Executive Salaries Fuel Inequality

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JUST HOW lavish the pay and perks of political office bearers and parastatal bosses are was definitively established to some extent this week.

And the emergence of this information was always going to cause uproar, especially as the President reminded Namibians over the weekend of prevailing economic hardships, and as society continues to grapple with stubborn wage and wealth inequalities.

It is against the backdrop of these inequalities that the salaries of politicians and those of state-owned enterprises' bosses have to be assessed.

Some basic facts first: Namibia's GDP is about N$64 000 per person (capita), while according to the Namibia Statistics Agency (NSA)'s 2014 labour force survey, the average Namibian's monthly salary is ±N$6 600, or ±N$80 000 a year. The averages distort the fact that well over 50% of Namibians' wages are below N$2 500.

Also, according to the NSA, the extreme poverty threshold is N$389 per month (±N$4 800 per annum), while the poverty threshold stands at N$521 per month (±N$6 250 per annum), and based on these amounts, about 18% of Namibians live in poverty (but the real figure would be much higher as the thresholds are ridiculously low).

The minimum wages of the tens of thousands of domestic workers, security guards and the lowest skilled construction workers (many thousands of whom have now lost their jobs) fall somewhere between N$1 500 - N$2 500 per month, or between N$18 000 and N$25 000 per annum.

Considering these figures, it is evident that the President, and most of the parastatal bosses he compared his salary package to on Tuesday, earn in a day what the average poor Namibian spends on basics in a year. At the same time, the average political office bearer (ministers and MPs) earns roughly 10 times the Namibian GDP per capita.

Ministers' and presidential special advisers' pay packages are roughly 12 times the average annual Namibian salary, while the President and vice president earn around 20 times the average wage. According to the figures released this week, some parastatal bosses make about or over 25 times the average wage earnings.

The President, vice president and all of the parastatal bosses earn in the region of 80-90 times the minimum wages of domestic workers, security guards and the lowest skilled construction workers. And all of them earn more than 100 times the old age-pension of N$1 200 per month or N$14 400 per annum.

When viewing all this, the obvious question to ask is, of course, are such pay packages really justified?

While there is no objective way of establishing the performance and productivity levels of political office bearers and parastatal bosses, just about all ministerial portfolios and the majority of state-owned enterprises are characterised by deep-seated governance failures and gross under-performance. This is indicative of the fact that state sector pay packages, whether at the lowest or highest levels, are not linked to performance or productivity.

Considering the general state of the SOE sector, and against the backdrop of the examples used by President Geingob, with the notable exception of two or three, parastatals in general are underperforming and clearly poorly managed. In light of this, CEO or executive compensation is clearly not linked to performance or productivity growth.

Thus, given the poor state of overall governance in the SOE sector, it is evident that mostly average executives are receiving above average pay for doing a mediocre job at best. It can be reasonably concluded then that just about all of the pay packages highlighted by the President are excessive and, one could say, arbitrarily inflated.

The end result for Namibia, given the state of governance in the public sector (including parastatals), is that the pay and perks of political office bearers and parastatal bosses are not cost-effective, and the levels of compensation are unsustainable as they are disconnected from performance and economic growth.

While President Geingob was trying to illustrate that his salary, and those of his Cabinet, were not excessive in comparison with those of SOE executives, all he has done is illustrate what has been suspected for a long time: bloated salaries are normal for the top of the state structure.

So, what can we conclude from all this in the context of pervasive income and wealth disparities and inequalities?

Well, we must surely conclude that the state sector remuneration policy for political office bearers and senior executives in the SOE sector is actually fuelling income and wealth inequalities in society.

Simply put, Namibia's economy is skewed to cater to the small percentage of high-income earners (±10%) at the expense of the majority, who are low-income earners, and for whom the cost of living is unbearably high. The general high cost of living in the country is in some respects a reflection of an unbalanced economy, in which businesses and traders aim to make high profits off a few transactions, precisely because generally low income levels and a small population have no muscle to force traders to push volumes at lower cost.

And the impacts of this wage and wealth inequality are visible in Namibian society right now: For we have low levels of social mobility, public trust and civic participation; the prevalence of poor health amongst the poor; along with high levels of property and violent crimes; and ultimately, political and economic instability.

Taken collectively, that's the price we pay for high salaries for a few, and wealth inequality.

- Frederico Links is editor of Insight Namibia magazine, an access to information activist with the ACTION Namibia Coalition and a research associate with the Institute for Public Policy Research.

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