Namibian economy performs well despite global downfall James Cumming, CFA - Simonis Storm Securities

Last year, the local economy grew by five percent, which favourably compares to the 2011 growth of 4.8%, according to preliminary reports from the Namibian Statistical Agency (NSA).

If it wasn’t the European financial crisis, then there were the never-ending bailouts. The crises negatively impacted on our exports to that region – especially our meat, grapes and diamonds. In short, 2012 was a difficult year in many respects.

Current negotiations over the Economic Partnership Agreement (EPA) with Europe have heightened uncertainty. Global demand for uranium has subdued amidst international political and social concerns over the safety of nuclear power following the Fukushima disaster.

Our uranium industry has borne the brunt of its low commodity prices as a result of the diminished demand. Production at the Trekkopje mine, for instance, has been suspended while other mines have been finding it difficult to operate profitably.

On the positive side, Namibia Poultry Industries (NPI) started production towards the end of 2012 while the development of the Usab mine also commenced in earnest. Once in full production, Usab mine will add five percent to our annual gross domestic production (GDP) and 20% to our export value.

Meanwhile, the Chinese economy has not experienced the expected hard landing and has thus begun to accelerate growth after a insignificant slowdown.

China’s growth means greater local demand for commodities. Namibian commodity producers are therefore set to benefit from greater demand and, most likely, higher international prices.

The United States of America’s economic recovery is tentative but we should begin to feel its positive effects.

This year will have its challenges - many of the economic developments which came to the fore in 2012 will continue, with the looming drought to worry about.

Farmers, unable to feed their livestock, are already feeling the pinch because recent auction prices for live animals have fallen drastically as farmers attempt to offload excess livestock.

At the start of the next rainy season, farmers are likely to experience a shortage of supply while restocking their land, pushing prices up again. Businesses supplying goods and services to the agricultural sector may see a drop-off in business too. The Government will most likely introduce a drought relief programme of some sort to assist those worst affected.

Strained supply of potable water is likely to lead restrictions of new housing provision and industrial development in major urban areas. Lower water levels in the perennial rivers will reduce our ability to generate hydro-electricity. As a result, NamPower will need to resort to more expensive electricity generation alternatives. We may eventually see the increase in costs being passed through to the end users.

South Africa, a major trading partner, continues to experience sluggish growth, which is likely to persist over the next few years. The lack of economic growth in SA is balanced out by improving economic conditions in the sub-Saharan region, giving Namibia the opportunity to increase exports to the region and capitalise on its port, road and rail infrastructure.

The Minister of Finance, in her most recent budget speech, announced a strong social budget with the aim of consolidating fiscal stability, creating jobs, diversifying the economy and addressing social imbalances.

Corporate taxes for non-mining companies was reduced. Personal income tax cuts were availed across the board, which will increase consumer’s spending power.

The tax cuts will come to a total of about N$1.2b and will translate into approximately N$4b of additional economic activities due to the multiplier effect. State pensions were increased to N$600 per month, giving pensioners and their dependents the much needed financial boost.

Interest rates are currently at all-time lows. However, inflation has been edging up and is near Bank of Namibia’s upper comfort limit – combined with strengthening economic growth, we are unlikely to see further interest rate cuts. Should inflation start to persistently breach this upper limit, we may see the central bank attempting to address it.

Credit extension to the private sector remains strong. Lending to the corporates has also been moderated over the last few months but lending to households has continued to grow – especially for mortgages, which is mostly driven by the strong property market. The number of vehicles sold is also being moderated and has thus lead to a drop in installment credit given to the private sector.

We have a small open economy, a well developed financial sector, a good regulatory framework and sought after resources. With global economic growth in general gaining momentum, our economy will benefit from improved demand for our raw materials and products – and therein lies the opportunity for Namibia; to leverage off this increasing demand by adding value to our commodities rather than exporting them raw. PF