allAfrica.com: Namibia: Mobilizing National Savings to Buffer Economic Slowdown and Boost Growth (Page 1 of 2)

Namibia: Mobilizing National Savings to Buffer Economic Slowdown and Boost Growth

Following several years of solid global growth, a combination of developments has cast a dark cloud over prospects for the remainder of 2008 and 2009.

These include the ongoing global credit crisis, record high global energy and food prices and worries over potential inflation pressures stemming from the rise in commodity prices.

The IMF's recently released updated forecasts predict that global economic growth will slow to about 3,7 per cent in both 2008 and 2009 from around 4,9 per cent in 2007.

These developments do have negative consequences for Namibian exporters and will lead to a reduction in our economic activity.

Rising global inflation continues to cloud prospects beyond 2008.

Should commodity prices continue to rise and/or inflation generally escalates further, central banks around the world may have no choice but to tighten policy further.

Such an outcome will ditch any hopes of a global recovery in 2009 and make the current slowdown more acute and extended.

The outlook for 2008 and 2009 is much less favourable.

The combination of slower global growth, the high interest rate environment, higher inflation and the petrol and electricity crisis will likely mean that real Namibian GDP growth will be around 3,9 per cent in 2008 from 4,7 per cent in 2007.

The Bank of Namibia has contributed significantly to ease the challenges faced by consumers by keeping rates unchanged on two occasions.

This is indeed the correct approach as inflationary pressures are not money- nor demand-driven but rather, caused by exogenous factors.

The Bank of Namibia will have little choice but to follow suit should the South African Reserve Bank hike interest rates in June, as the second round inflationary pressures, inflation expectations and arbitrage opportunities do require some management.

The Namibian consumer has been under pressure from higher interest rates, surging fuel and food prices and is also staring huge electricity tariff hikes in the face at present.

It is common knowledge that repossessions of houses (mortgages), furniture and vehicles on hire purchases are on the increase and that most commercial banks are strengthening their collection units and re-financing assets for clients.

As a result we expect consumer spending growth to slow both this year and next year.

Capital formation, however, should continue to grow strongly as government's capital spending drive gathers momentum.

With local inflation likely to rise further in the near term - higher wage demands to follow almost certainly - and expected to fall only slowly through 2009, local interest rates will remain elevated for an extended period and may rise even further over the remainder of 2008.

Rates are unlikely to fall before deep into 2009 as monetary authorities will want to ensure inflation is on a clear downward trend before cutting rates.

This is unlikely to be evident before mid-2009.

Stormy and challenging economic times lie ahead and it is imperative that the recent decision by the Namibian Government to mobilise national savings to boost economic growth be implemented and supported.

This policy intervention stands to contribute to job creation, poverty alleviation, stemming capital outflows, cushioning against current economic hardships, and mitigating against the impact of monetary accommodation - a decision to keep interest rates unchanged Globally, many countries mobilise national savings to stimulate economic growth and pension funds, in particular, are known for supporting governments developmental goals.

There is nothing unconstitutional about it, nor is there any reason to postpone the implementation thereof, as these policy recommendations were announced in July 2004 for the first time.

Granted, the decision may disturb certain comfort zones and vested interests - however, the Minister of Finance should be applauded for following through on this bold decision.

* AMENDMENTS TO REGULATION 28 AND REGULATION 15 Regulation 28 and Regulation 15 of the Pension Funds Act and the Long Term Insurance Act enables retirement funds and long-terms insurers ('Investors") to invest a minimum of 5% of its total assets in unlisted investments to be phased in as follows: - a minimum of 2% from 01 January 2008 to 31 December 2008 followed by , a minimum of 3.5% by from 01 January 2008 to 31December 2009 and a minimum of 5% from January 2010 onwards.

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