In the latest Sub Saharan Africa Outlook – conducted by RMB Global Markets Research - Namene Kalili, Research Manager, Strategic Marketing and Communications at FNB Namibia contributes towards the sector on Namibia, highlighting various financial aspects including GDP, inflation, monetary and fiscal policy.
On the topic of GDP, Namene states, that the Namibian economy remains under pressure as low commodity prices along with adverse climatic conditions decelerate growth. Water-intensive sectors, such as beverage and meat processing, have begun to close production facilities in response to water restrictions. Headwinds are mounting across all sectors and growth is expected to decelerate to 3.1% in 2016.
Kalili explains: “The decline is most severe in the agricultural, mining and construction sectors. Water shortages are constraining growth in the former two sectors while the completion of several projects will see construction activity slow. Employees in most of these sectors stand to see income growth ease as wage inflation moderate, headline inflation rises and interest costs go up further. Along with a slowdown in credit demand, the outlook for household spending is therefore not rosy at all.” He, however added on a positive note, that economists expected a mild economic recovery in 2017 as the agricultural, mining and manufacturing sectors recover and investments into water and energy begin to pick up. Government investment into rail, road, energy and water infrastructure should contribute toward an improved economic performance from 2017 onwards. The economy should breach 5% growth by 2018.
Regarding inflation Kalili revealed that the annual inflation rate increased to 7.0% y/y in July as processed food and beverage prices rose unexpectedly. Food inflation increased by 1% m/m after sharp increases in dairy, sugary products, prepared foods, non-alcoholic beverages and prepared water. He added: “Further inflationary pressure stemmed from housing inflation after a recent spate of water, energy, and property tax adjustments. Rising utilities are likely to trigger second round inflation in the rental category. Being the largest single contributor to the inflation basket, housing and utilities inflation will keep overall inflation upwardly sticky for the next year.”
Vehicle inflation accelerated in line with new vehicle prices, while under recoveries across all
regulated petroleum products triggered a 30 to 50 cent increase in domestic pump prices. “We maintain our inflation outlook at 7.0% by year end, moderating to 6.6% by the end 2017.”
When looking at the monetary policy, the report highlights the fact that although the Bank of Namibia expects inflation to trend above 7%, and even after FX reserves contracted sharply, it kept interest rates unchanged at 7%. The decision was necessitated by the weaker growth outlook with mounting downside risks. “The current account deficit has begun to widen as increased net government payments and slower FDI inflows resulted in FX reserves having to finance the deficits. Therefore, reserves came under renewed pressure and have resultantly dropped to N$19bn or 2.4 months’ import cover,” Kalili clarified.
Lastly it states in the report that – regrettably - the government is in no position to implement countercyclical fiscal policy. Falling SACU revenues and a slowing economy have depressed government tax revenue. Therefore, debt to GDP is estimated at 40%. This has increased the need to contain government expenditure even further — a challenge which is being tested by additional public teachers wage demands. “As the government scrambles to mothball non-essential development projects, we expect the country’s sovereign credit rating to come under, increasing pressure in the medium term, especially when taking into account the recent drop in FX reserves,” concludes Kalili.