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Namibia: Are We At the End of Free Market Principles?
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Namibia Economist (Windhoek)
OPINION
11 April 2008
Posted to the web 11 April 2008
Daniel Steinmann
Windhoek
It must be with considerable concern that policymakers in Africa are watching events as they unfold in so-called developed economies.During the week, crude oil hit a new historic high at just over US$106 per barrel. Despite recent significant fluctuations, commodities continue to surge keeping the Johannesburg Securities Exchange at an unprecedented extended run above 30 000 index points on the Allshare index. Inflation seems to be out of control, and South African interest rates, out of sync with the First World, just went up another half a percent.
Locally, I found it difficult to contain my joy when the Bank of Namibia had the guts to keep the bank rate on hold. Still, we have to be realistic, prime rates in SA are still lower than in Namibia. Prime in SA will now go to 15% while local banks stubbornly stick to a Namibian prime of 15.25%. Why that is so escapes all logic, but that is the way things are and have been for many years.
The one economic indicator everybody tracks is inflation. Whether the ordinary citizen has loans and mortgages or not, inflation bites in the pocket in a very direct way. And this bug seems to be just as resilient as the price of crude.
All in all, I think we are facing very tough times, at least up until August this year when the new financial cycle in the US and Europe kicks in. Only after that shall we be able to discern the direction of the world economy.
Meanwhile, consumers in Namibia are faced with a continuing deterioration in the purchasing power of their disposable incomes. Transport and food constitute almost half of what the lower income bracket spends in a month and both will continue to be affected by exorbitant fuel prices and rising inflation. To top it all, there is a likely chance that our electricity may go up by as much as 60% before the end of the year.
There is no escape, at least not in the short term.
As things are panning out now, a serious appeal for some form of relief in terms of oil and food, presents itself to our government. Conventional economics want us to believe that any form of government subsidy distorts the balances in the market and must be avoided at all costs. Yet if I consider the massive subsidies producers of agricultural commodities enjoy in Europe and the United States, I am beginning to question the validity of market conventions. Here we are faced with a looming fuel crisis and a looming food crisis and not because of availability or demand but simply because financial markets where free-market principles are gospel, are going haywire. On top of that, our currency is linked to an economy whose lustre seems to be fading by the day.
It certainly makes it very difficult, if not downright impossible to design and implement real-life strategies that will make the government's broad pro-poor umbrella policy effective or even realistic.
Some time back I quoted an oil industry expert who said his long-term view is one of stable production and lower energy prices. I questioned the logic of that statement then and I still wonder where this stability will come from. The same applies to food. Five years ago nobody realised the massive impact of bio-fuels on food production but we have now come to the actual point where this unique distortion has a direct effect on millions of Africans who no longer can afford their basic staple, maize.
I am not critical of the expansionary budget we received a month ago, but I warned against counting the chickens before they have hatched. I remain convinced that if we were not approaching an election year, we would have had a significantly different budget. Be that as it may, the reality is our government, from a policy point of view, is now facing much tougher financial conditions than when the budget was drafted. I am convinced that inflation and fuel prices are eroding our policy options by the day. Considering the effect and cost of the flood in Owamboland, it has added its bit to put pressure on planning and expenditure.
I agree that there are mechanisms other than subsidies to support the broad pro-poor policy, but I am also afraid with every external shock over which we have little or zero control, our options are becoming more limited by the day.
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I realise there is no quick fix or easy solution, hence I caution again. Hold the horses just that little longer until later in the year. Only once we have a clearer indication which way our finances are going, would I suggest that we bring into effect the budget votes. In the meantime, zero-rating a spread of consumables in terms of VAT, temporarily, will go a long way to make life bearable for thousands of people.
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| Copyright © 2008 Namibia Economist. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections -- or for permission to republish or make other authorized use of this material, click here. | |||||||||||||||||||||||||||||
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