According to its report on the impact of the Rand depreciation on Namibia’s terms of trade released yesterday, a weakening rank will help to ease pressure on the country’s current account. The fluctuation of the exchange rate impact the country’s terms of trade in two ways. When the Rand strengthens, Namibia is able to import more goods for every export made and when the Rand weakens, Namibia must export a greater number of units in order to match its imports. “A situation that has plagued Namibia in the past.” The report questioned at what level of output Namibia would become a net-exporting economy and when the Rand will be favorable for Namibia to become a net exporter, especially from a mining sector perspective.
“Firstly it is clear that the cost of Namibian imports are more sensitive to exchange rate fluctuation than the export revenue: 0.84 for imports and 0.79 for exports,” the report noted. It added that: “This is partly because the country imports mostly soft commodities(food), while its exports are mainly dominated by hard commodities(industrial inputs). As such, inflation in Namibia is highly imported from international markets.”
“This imbalance mix of Namibian imports in relation to exports exerts pressure on the current account, particularly during the periods of currency depreciation. There is thus a strong investment case to be made about increasing Namibia’s export capacity to commensurate for the extra import costs incurred due to a lost in its currency value,” according to the report.
Simonis Storm said considering the trade deficit of N$39 billion registered at the end of 2015, annual exports need to grow by at least 67% for Namibia to become a net-exporting economy. As to when the Rand will be favorable for Namibia to become a net exporter, especially from a mining sector perspective.
The report said: “Namibia export profile is highly characterized by hard commodities, which are traded in USD. This makes the weaker Rand more favourable for Namibia’s export sector and also for rebalancing the current account. “Therefore, if we consider the 2015 import and export levels (N$ 97.2 and N$ 58.2 billion, respectively) as a benchmark, the ideal exchange rate that would warrant a positive trade balance should be at least 1.7 times the prevailing exchange rate ( ZAR 14.07/USD). This would bring it to R23.91/USD.”
While this may seem unrealistic to attain given that imports are more sensitive to exchange rate fluctuations than exports, the firm said the best possible policy option at this point in an attempt to achieve a positive trade balance would be to position Namibia as an export hub for both industrial and consumer goods.
“In the absence of a strong export base, Namibia’s GDP growth would continue to be mainly driven by Government and Consumer spending, a situation that is not sustainable in a costly borrowing environment.”