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Sunday 20 January 2019
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Growth revisions signal start of marked slowdown

Screen Shot 2016-08-19 at 11.17.21 AMThe Namibian economy faces significant downward pressures. Signs of a down trend were confirmed by growth figures released last week by the Namibia Statistics Agency.  Growth was revised down to 5.3% for 2015, from an initial reading of 5.7% and much lower than the 6.5% posted in 2014.Mirroring the crippling drought conditions across the country, and the Southern African region, coupled with the outbreak of food and mouth disease in the northern communal area in 2015, “Agricultural production” fell sharply.  Production contracted by 10.3% in 2015, having recovered by 11.1% in 2014 from the devastating drought of 2013. While still in negative territory at -0.3%, “Mining production” rebounded from the 6.3% contraction recorded in 2014.  The marked improvement in mining can be attributed to the ramping up of production at B2Gold’s Otjikoto gold mine and Weatherly’s Tschudi copper cathode mine.  Gold and copper production increased by 163.4% and 37.4% in 2015, respectively, compared to 20.8% and 3% posted in 2014.

The solid performance of metal ores was offset by a fall in diamond production.  The continued slowdown in the global economy, particularly in major markets for diamonds, led to a slump in global diamond production. Last year, De Beers cut its production and lowered prices in a response to the weak market fundamentals for diamonds.The “Construction sector” which has anchored growth the past few years, slowed to 33.7% in 2015, from 42.9% recorded in 2014.  With water supply remaining a challenge, as well as the real danger of Windhoek running out of water soon, the outlook for construction activity is very cloudy.

Water restrictions, tariff increases, the slowdown in government capital expenditure and the completion of several major construction projects will constrain activity in the sector. Amid the economic woes in Angola, another key driver of growth, the “Wholesale and retail sector” recorded a slump in growth in 2015. Growth slowed to 5.7% in 2015, from 14.6% in 2014.The oil price plunge induced a sharp slowdown in Angola, leading to a massive slowdown in retail tourism, particularly trade in the northern regions.  With oil prices set to remain depressed for longer, Angola’s economic meltdown is expected to continue and will inhibit growth in the domestic economy.

‘Outlook shrouded in uncertainty, mainly to the downside’
Although the growth figures surprised to the upside and overshot our estimate of 4.5% for 2015, the reading confirmed the economy’s marked slowdown and points to a downward trend in economic activity going forward. The downside risks that the Namibian economy faces at the moment cannot be overstated, and they are mounting.

In summary, some of the factors that we see constraining growth are:
The fall in water supply, and with the restrictions in place, remains the biggest downside risks to the growth profile.Households will continue to feel the pinch in the short- to medium-term, given the poor economic backdrop. Rising inflation and higher debt servicing cost will seriously erode disposable incomes.The mounting policy uncertainties will weigh heavily on investor sentiment and negatively impact foreign direct investments.

The contractionary economic backdrop in South Africa also poses risks to the outlook for the domestic economy.The tighter monetary conditions and higher interest rates, will also add to the muted growth outlook, while fiscal policy will turn much less stimulatory.

*Written by Suta Kavari, Investment Strategist at Capricorn Asset Management, part of the Bank Windhoek Holdings Group




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