10 January 2018

Namibia Remains in Recession - Melber

ANALYST Henning Melber says Namibia remains in a phase of recession as its expected GDP growth is below the population growth.

This means it is in net terms in a decline, and a number of negative factors have remained effective in contributing to such a limited, sobering performance of 0,6% for 2017.

"This is despite a more optimistic prognosis earlier on by both the President and the finance minister. These include the fiscal constraints of the state, having to reduce expenditure for public works and other infrastructural investments (capital expenditure) for the sake of paying outstanding bills, and regaining fiscal prudence while maintaining the unsustainable high public sector wage bill (current expenditure)," Melber stressed.

He added that to correct the imbalances does not happen overnight, but is a longer process, during which state expenditure is hardly able to stimulate the economy. Moreover, the weakening of the ZAR also added to the burden of increased debt services for loans in valuta as a result of the exchange rate.

"While the weak currency stimulated exports, it added costs to imports. On balance, this also restricted productive investments. As another end-result, unemployment continued to increase," he stated.

Melber noted that the drought and its devastating impacts, including the closing or scaling down of economic activities such as the construction sector and beverages because of water shortages, seem to be over. Assuming that Namibia receives good rains again, the agricultural sector (both commercial and communal farming) will finally pick up and regain some strength.

"[It] seems some positive recovery has already been recorded for 2017. This will impact in a good way on living conditions and the economy. It also seems that with the outcome of the ANC congress, the rand regained some strength as currency, which eases the debt burden and credit services a bit. This might set more funds free for the state to invest in stimulating the economy. Much depends on the allocations in the SA budget presented in a few weeks," he added.

Furthermore, Melber stressed that any prognosis remains a bit speculative, seeing the continued vulnerability of Namibia's economy, not least because of resource dependency.

Commodity prices on the world market (and the demand for Namibian raw materials) will as always play a role, not least because of the high reliance on mineral exports.

He added that not all sectors would be able to improve against the backdrop of the ailing fisheries sector, and the overdue moratorium on the fishing quota for pilchards for the next few years.

In addition, Melber voiced concern that tourism as a growth sector also depends on the purchasing power of foreign tourists, and the perception of local security for visitors.

"These are all variables which cannot reliably predict the impact on the results. Finally, the strength or weakness of neighbouring economies - in particular Angola and South Africa - will also directly affect Namibia's economy," he stated.

It also remains to be seen to which extent Namibia's dented image abroad, caused amongst others by the controversy over North Korea, the downgrading to junk status by credit ratings agencies, and the - if only by accident - inclusion in the European Union list of tax havens, can be restored to gain investors' confidence and attract foreign direct investment to add to growth and employment.

"Tax policy will be another factor which can directly impact on economic stimuli. Much remains to be seen, not least as regards to the implementation of stricter policies to curb embezzlement, the misappropriation of public funds, waste of money by state-owned enterprises and related matters, which all are integral parts of (not so) good governance," Melber said.

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