A NUMBER of readers have asked me to share my views on whether the global financial crisis would lead to a worse-than-expected impact on the Namibian economy, and what the future looks like.

The current global financial crisis, undoubtedly the worst financial crisis since the 1930s, has tested the strength and resilience of many economies around the globe. The financial crisis, which began last year as an isolated and sector specific problem in the US sub-prime residential markets, has now spread into a global financial disaster.

Even though Namibia looks better positioned to weather the storm than many countries, it is clear that no country will be entirely spared the effects of the crisis.

As the spill-over from the crisis begins to trickle down to other countries, the Namibian government implemented counter-cyclical policies and programmes to provide support to the local economy. There are a number of reasons to remain reasonably optimistic about Namibia's economic future.

How does the current financial crisis affect Namibia?

The current financial crisis affected Namibia in the following possible ways.

First: There was financial contagion and spill-overs for stock markets in emerging markets. The Namibian and Johannesburg stock exchange dropped by more than 40 percent since the beginning of this year. While many Namibians may not hold shares directly on the stock exchange, all those who belong to a pension fund, or hold an insurance policy are exposed to these losses.

With the exception of the GIPF, which is a defined benefit pension and benefits are guaranteed by employer, most employees in Namibia belong to a defined contribution pension fund, where the risks of losses are borne by the employees. For example, if you retire or resign from your job now, your pension payout will have reduced by more than 40 percent compared to what you would have received beginning of this year.

Should you find yourself in this situation, it is advisable to negotiate with your employer to delay your retirement or the payment of pension benefit until the market recovers.

Second: Trade and trade prices - Growth in the global economy has increased commodity imports and pushed up the demand for copper, oil and other natural resources, which has led to greater exports and higher prices. Slowdown in global growth will have knock-on effects on Namibia's exports.

Third: Foreign direct investment (FDI) inflows have come under pressure. While Namibia enjoyed record increase in FDI over the past two years especially in the mining (uranium) industry, this is coming under pressure.

A number of projects in the mining sector are being put on hold due to decline or collapse in mineral prices and also difficulties in finding cheaper funding due to the credit crunch. The implication is that some mining companies will close and retrench workers, resulting in loss of income for many Namibians.

Fourth: Commercial banks have become cautious in advancing credit due to high risks emanating from economic contraction and may not be able to lend as much as they have done in the past. The Namibian economy is very much dependent on circulation of credit and slowdown in advancement of loans to the economy puts breaks to economic activities especially in sensitive sectors such as retail and property market.

Fifth: Foreign aid budgets are under pressure because of debt problems and weak fiscal positions in advanced economies such as the US, the UK and other European countries and therefore funding for projects in Namibia will be reduced.

The Government's response to the financial crisis

Active management of oil volatility: The Namibian government has been very proactive in managing the impact of the global financial crisis and eventually minimising its negative effect on the economy. Petrol and diesel are major inputs in the production process, and carries a high weight in the consumption basket of Namibian consumers. When oil price skyrocketed to more than US$100 per barrel justifying substantial increase in fuel prices, the Government used its energy fund reserves to subsidise the price of both petrol and diesel and therefore ensuring that fuel prices remain affordable to many Namibian consumers and companies.

In addition, the Government was very quick in reducing fuel prices in line with the decline in world oil prices, and by actively managing fluctuations in oil prices, the Namibian government minimised the full negative impact of the global financial crisis.

Inflation and interest rate management: Realising the magnitude of the global financial crisis, the Namibian government used both fiscal and monetary policies to ensure that the shocks from the crisis that could have damaged the economy severely was absorbed and neutralised quickly. The Bank of Namibia deviated from a monetary policy rule dictated by currency union and kept interest unchanged while the anchor currency country South Africa kept on raising interest rate. By keeping interest rate unchanged the cost of servicing mortgages and other loans were kept low. In addition, the Government scrapped value-added tax on essentials items.

Accessibility to credit/loans: The major problem facing the global economy is the inability of banks to extend credit/loans. The Government of Namibia decided years ago to close the funding gap so that those Namibians who cannot borrow can now have access to funding. Effective from this year, the Government introduced legislation that forces both pension and insurance companies to invest at least 5 percent of their total assets in unlisted companies, starting with a minimum of 2 percent this year and increasing to 5 percent in 2010.

With the introduction of this legislation, billions of funds will be available for on-lending and the biggest pension fund in the country, GIPF, has already put out a tender for interested institutions to manage these funds for them. The funding will include financing micro-enterprises and individuals who are unable to acquire funding from conventional financial enterprises, equity funding for start-ups and expansions and entrepreneurial and business training. As from next year you should be on the lookout for these funding opportunities, it is an opportunity in a lifetime not to be missed.

Millennium Challenge Account (MCA):

The Government of Namibia recently signed an agreement with the US government for a grant amount of N$3 billion to be used in funding of projects in education, tourism, agriculture, mainly communal farming. This grant came at the right time, and its injection into the economy will help boost economic activities and help minimise the impact of the global financial crisis. In order to benefit from the MCA, you need to be well-organised as a community, and have project proposals in line with MCA requirements ready.

While regional government will assist in securing funds for each region, the onus is on the community to come up with viable projects and it is time that communities organise themselves, acquaint yourself with how the MCA will work and take advantage of this opportunity.

Based on latest global indicators, I believe that the US economic cycle has already passed its slow point. Thus, the severe economic slowdown still expected in Europe will be partly compensated by stronger demand from the US, supported by expansionary fiscal and monetary stimulus globally. Domestic demand in Asia will continue to support a soft landing in Asia, and the current fall and roll over in commodities will provide a significant boost to Asian economies.

Namibia with its strong internal drivers for growth, may escape the worst consequences of the global financial crisis. Amendments to regulation 28 will ensure that more funds are available to the local economy, while the introduction of the MCA that will release N$3 billion on the local economy will serve as a major boost to the economy.

Bank of Namibia may start reducing interest rates as early as next year, and with the combination of expected expansionary government budget early next year, the Namibian economy will, in all likelihood, remain resilient and emerge in good shape once the crisis is finally over.