While the spectre of an imminent recession and the corresponding gloomy forecasts for the next year seem to have passed us by, as two of the three major international ratings agencies have not down-graded South Africa investment to junk status, only 11.9% of respondents in the annual Namibia Economic Outlook by Simonis Storm Securities expect the Namibian economy to grow in the coming year, while 66.1% expect it to slow down in the coming year.
Last week, ratings agency Fitch changed the SA’s status from stable to negative but joined Moody’s in keeping their ratings unchanged, which SA finance minister Pravin Gordhan says shows the resilience of the economy.
A similar percentage of respondents (64.4%) expect interest rates and, thus, inflation to rise during 2017, placing more pressure on the consumer and the economy as a whole. Showing a deep trust in the economy, 61.7% of respondents do not believe that Namibia will need to be bailed out by the IMF, despite falling Government revenue (particularly SACU revenue) and rising levels of indebtedness.
All in all, this shows that the Namibian economic and commercial sectors are fully aware of the challenges facing the country during the next year, but remain cautiously optimistic.
This can, to some degree, be attributed to the rather drastic pruning shears Calle Schlettwein wielded in his mid-term budget review when he cut expenditure by almost N$6 billion. In general, monetary policy in Namibia will follow that of South Africa closely. During 2016 Namibia hiked interest rates once by 25bps while SA hiked by 50bps to 7.00%. In South Africa, the economy remains gloomy with GDP revised downward to 0.5% form 1.0% at the end of 2016.
Simonis Storm expects inflation to continue its upward trend in 2017 before it moderates in 2018 with the average for 2017 to be 6.8% and 2018 to be 6.1%. In South Africa, the South Africa Reserve Bank (SARB) expects inflation to average at 6.4%, 5.8% and 5.5% in 2016, 2017 and 2018, respectively. We expect oil prices to rally marginally in 2017 thus pushing up transport inflation in both SA and Namibia.
The finance ministers of both Namibia and South Africa announced additional taxes, most of which it is believed, will be announced by March 2017.
Inevitably, this will feed through to Namibian inflation, as the country imports approximately 60% of its consumption from the southern neighbour.
During the coming year, the consumer will remain under severe pressure (PSCE shrinks) and GDP growth is expected to be 2.5% in 2016 compared to 5.3% in 2015, with two rate hikes of 25bps at each half of 2017 in Namibia and one hike in SA.
Despite repeated warnings, Namibia’s appetite for debt continued to increase in 2016 despite consolidation measures by the Government at the budget statement in February 2016.
That, of course, being the underlying principle of the expected two interest rate hike in order to bring expenditure on debt under tighter control. Government expenditure continued to be the main driver of GDP. This led to Government debt to GDP bridging the 35.0% threshold to 40.0% in September 2016.
Simonis Storm expects Government debt to GDP to be at 43.6% at the end of 2016. During the Mid-term budget review, the debt to GDP ratio is expected to rise to 42.4% by 2016/17, before it reduces to 41.3% by 2017/18. Furthermore, total debt grew by 706% over the last 8 years to N$62.0bn by September 2016.
Both Foreign debt as a % of GDP and Total debt as a % of GDP has grown above the 7.0% and 35.0% targets, respectively.
The recent Invest In Namibia drive by government and the presidential visits to France and the UK should stimulate investor appetite for more FDI, but it remains to be seen if the general stimulus results in more than just a blip on the investment graph.
As the bill for S&T still is heading towards the billion N$ a year barrier, the MTEF has committed to weed out unproductive spending such as travel allowances, vehicles, maintenance expenses and office furniture. There is little government can do to further curb expenditure without compromising effective public service delivery. A slowdown in trade, particularly from a South African perspective would translate into a further decline in SACU revenues, which has been Namibia’s main source of budgeted revenue. The main concerns facing the commercial sector at this moment are, among others, the rising cost of utilities and the sustainable supply of water. Windhoek literally running dry by the end of fiscal 2016/17 has huge implication for the construction industry and unless the rainfall over the next few months is positive and better than average, this sector and all ancillaries will suffer in the new year. Fully 75.5% of respondents in the SS survey expect capital expenditure in Namibia for 2017 to be lower.
The City of Windhoek has since implemented a water saving measure of 40.0%. The annual exodus to holiday areas and the northern home areas should also contribute to a significant saving over December and January. A challenging year lies ahead of Namibian industry as well as the Namibian consumer.
Belt-tightening and conscious expenditure curtailment will, however, see us through