Bank of Namibia (BoN) Deputy Governor Ebson Uanguta has confirmed that the country’s overreliance on the mining sector and proceeds from the Southern African Customs Union (Sacu) for survival is fast becoming history, following Government’s deliberate policy to broaden the economic base.
Mining has been a key contributor to State coffers for many years, both through royalties and taxes, while Sacu finances more than 30% of the domestic budget. The extractive sector also contributes about 14% to the Gross Domestic Product (GDP).
“Namibia has been diversifying its economy away from the mining sector by expanding other economic sectors, in particular in the secondary sectors such as construction. But in 2014, mining and quarrying activities only contributed 11.6 percent to the country’s GDP, clearly indicating that the reliance on mining activities has become a theme of the past,” Uanguta explained. He also squashed fears that the country is facing a liquidity crisis.
“The biggest challenge which we became aware of most recently which impacts banking institutions and their international or counterparty relationships came about with the introduction of new laws by the United States of America, which has implications for all foreign banking institutions, including those in Namibia”, he noted.
He emphasised that the Namibian economy performed much better than the South African economy in the past financial year. The two countries are intertwined financially, with the Namibian dollar pegged at the same rate with the South African Rand. While Namibia is continuously looking for avenues to improve its own domestic economy, she relies heavily on importing consumables and basic goods from neighbouring South Africa.
“Namibia is a small, open economy, which trades mainly in the export of commodities such as diamonds, uranium and other minerals. Given that structure, when key trading partners’ economies slow down, Namibia’s exports will be affected, and this is not an exception in the case of South Africa.
The Namibian and South African economies are connected through trade as well as through regional integration initiatives such as SACU,” Uanguta stated, adding that when the South African economy slows down, it will have negative implications through the trade channel.
Besides South Africa experiencing a slow growth, Uanguta argued that the Namibian and South African economies have been on two divergent growth paths. For instance, Namibia recorded an impressive growth rate of 6.4 per cent in 2014, while South Africa only managed to grow by 1.5 per cent.
Although, the South African economy slowed down, Namibia imported close to 70 per cent of its goods from that country, while only 16 per cent of local goods were exported to that country, creating a rather heavy trade deficit.
“During the first nine months of 2015, the overall liquidity position of the banking industry averaged N$3.0 billion, in comparison to N$3.2 billion and N$2.8 billion respectively over the periods 2014 and 2013. The liquidity levels of the banks have therefore been within the normal ranges,” he said.
The effects of increasing the supply of credit to finance household and government borrowing has also benefited from domestic financing, and this has reduced excess liquidity in the local financial markets over time.
“Government formulates a Borrowing and Deficit Financing Strategy in line with its borrowing needs and risk parameters, and the government sourced funding from the domestic market for up to 50 per cent of the FY2015/16 fiscal year’s domestic financing needs,” Uanguta says.
While the domestic capital market claims to be less liquid to support domestic borrowing needs, capital continues to flow out of the country to seek investments in foreign markets.
The Namibian economy remains a net exporter of capital, and thus this market has enough liquidity.
“The government issues instruments of various maturities to the public. At any point in time, the public’s appetite for instruments of different maturities can vary. Sometimes the preference would be stronger on instruments with shortterm maturities, while at other times they will prefer long-term maturities’ instruments”, he continued.
Uanguta is also aware that Government is likewise strengthening its domestic tax collection, broadening the tax base and introducing new tax categories in order to further reduce the reliance on SACU revenues.
“Some of the measures envisaged by Government include tax reform efforts as well as awareness campaigns to encourage citizens and corporates to start seeing honouring tax obligations as an essential and necessary service.
The Government is also in the process of introducing a Revenue Agency with the aim to ensure efficiency in revenue-collection,” he continued.
He then reiterated that efforts need to be concentrated on cutting down the heavy borrowing from households. The Deputy Governor is worried with continued borrowing which is aimed at financing non-productive activities.
“I need to make it clear that those lending/borrowing and financial intermediations in general are essential to support economic activities […] Borrowing utilised to finance entrepreneurship and other productive activities is a welcome development, as it has a multiplier effect in the economy.
What is being discouraged, however, is the use of borrowing to finance unproductive luxury goods, which are fuelling imports, and thus exerting pressure on the current account balance and international reserves," Uanguta added.