The nation breathed a sigh of relief when the Governor of the Bank of Namibia informed the nation that the currency peg arrangement was still beneficial to the country. Indeed so, the nation was overcome by a sense of relief when local economist/analysts announced the immense benefits of a weak currency in terms of the millions of Namibia dollars the mining sector and tourism industry will bring to the economy. However, the question that both of these comforting messages failed to address is that for whom will these millions be directed. Will these millions (wind-fall revenue) address the real issues facing the nation i.e. poverty. How will the weak currency support the war on poverty? Unfortunately, the war general (Government) is yet to pronounce the strategy going forward in the midst of the currency falling off the cliff. The nation waits!
The weak currency benefits some, but poor will suffer
During the past few weeks, the nation was inundated with messages from local analysis on how the weaker rand will help exporters and eventually boost the economy. While this would be an ideal situation, unfortunately the reality is, unless a weaker currency is accompanied by wide ranging reforms of business environment – any benefits to the exporters will be undone very quickly and the rest of the economy, mostly the poor, who are the majority, will be left to foot the bill. With Namibia’s high income inequality, extreme poverty, high unemployment, amongst other challenges, export revenue will be just numbers on the balance of payment statistics. Namibia needs to embark upon a number of reforms – better and affordable transport, improve productivity, connectivity etc. for the export revenue to make meaningful benefit to the nation during these trying times.
While it’s indeed true that a weak rand will help exporters and increase tourism, the reality is that a country needs a strong industry base to produce and have the things to export. Namibia clearly lacks the industry base, strong enough to export and reap the benefits of a weak currency. Namibia is a net importer, and the trade deficit is disappointingly huge, this simply means that Namibia imports more – a lot more than it exports, period! With the current downfall of the rand, the only export that Namibia will be making, will probably be the Namibian dollars that will be leaving the country – capital outflow, as the richer hedge their liquid assets (placing their money outside Namibia) from further devaluation.
The poor get poorer
While the exporters do a little tap dance all the way to the banks, question remains is - what does a dollar in the hands of an ordinary citizen buy within the country? Inflation and higher interest rate that are definitely expected to increase a situation which will cause havoc to the already struggling masses of this country. Rising inflation will erode majority workers’ wages faster than their wages can increase. This is where war on poverty should really intensify. If all the revenue from exporters and tourist does not get filtered through to the poor masses, they will slip further into poverty, and once there, the prospects of lifting themselves out of poverty become zero to none.
Rand: weak inflation shield
The rand has proven to be a weakest link in shielding South Africa from inflation, let alone another country like Namibia as has been widely believed. Unless Government embarks on radical policy reforms – including exchange rate policy – getting inflation back under control will be a painful and difficult exercise. The consequences of a free-fall rand – to which Namibia is pegged, will be severe. Namibia’s economy will shrink in dollar terms. Government will not be spared as all foreign debts denominated in other currencies other than rand will expand/grow. The most frightening of all will be the loan guarantee and loan servicing statistics/numbers. Government’s war on poverty will be compromised as there will be less money to spend on social benefits due to skyrocketing cost of servicing these debts which have ballooned due to a weak rand.
High indebtedness of the masses will result into low savings rate – meaning the local masses will have less and less capital to acquire property in Namibia. Agricultural land, prime property and local businesses all becomes susceptible to more foreign ownership as the local masses get priced out of the market. Whoever owns the most resources has more power and control over decisions and policies. The less Namibians own and control resources, the less power and control they have over the affairs of their own country.
This article is compiled by Standard Bank’s Manager of Economics and Market Research Mally Likukela.