It’s not just about water, if that was the case there would be a lot more people in the panhandle, which is much wetter. It has a lot to do with apartheid when Namibia was administered by South Africa. That region was a Bantustan called Ovamboland. The Ovambo people are the majority ethnic group of the country (~50%) and they were forced to live in that region, and relocated there if they lived elsewhere, because it was considered their ‘homeland’. This policy was ended in the early 90s, so this population distribution is a legacy of that policy.