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Friday 18 January 2019
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The perfect economic storm

The local economic climate is somewhat subdued as uncertainties-particularly the heightened unemployment risk in the country, combined with pressure on economic growth continue to take its toll.
Namibia’s economy – for so long one of the shining lights in southern Africa– has slowed drastically of late amid economic policy uncertainty and high unemployment. However, its prospects are still strong and a further embracing of stringent economic policies is proving to be a real cause for enthusiasm.
There are however early signs that indicate that the economic storm that continues to suffocate the country is subsiding. These include capital inflows, liquidity recovery, rain, commodity price increases, higher SACU receipts and higher mining output projections for the remainder of the year.
Disruptive forces that could derail the country’s plans to turn around the fortunes of the economy, according to Cirrus Capital co-founder Rowland Brown, include money leaving the country through import payments, capital flight and portfolio flows.
Brown highlighted that economic policy uncertainty could further dampen the economic prospects of the country.
He said this while delivering a public talk on “Financing the Future-Namibia’s Financial and Economic Future” hosted by Namibia Scientific Society earlier this week.
While government spending-especially on the civil service-has come under question in recent years, Brown said such spending should only be questioned if it was directed towards non-productive areas.
“Most of the money spent was relatively consumptive. And as we know, government does not build a big number of productive assets, although some parastatals do. There has been investments made into offices for ministries but those are not productive assets,” he said.
Brown had his reservations as far as the cost to create the jobs is concerned.
“Creating jobs is not the big issue, the cost at which those jobs are created is what matters most. We need to move towards redirecting spending towards productive things that can drive the economy towards producing our own products at competitive levels,” he said.
PSG Namibia Analyst and Equity Strategist, Eloise Du Plessis, also had reservations regarding the role of government when it comes to job creation.
She feels the money pumped into economy to create jobs could have come from the private sector. There are over 100 000 civil servants.
“Currently, their[private sector] money is on the sideline but if policies were conducive the private sector could have created much more and better jobs in the private sector than the civil service,” she said.
With Namibia having the fourth highest fourth highest civil service wage bill as a percentage of gross domestic product(GDP) globally,
Namibians feel the bloated civil service is not yielding returns on the N$25 billion salary bill. Du Plessis is worried that “at this stage government is more focused and putting effort into performance management contracts signed by ministers as a measure to monitor progress.”
“Anyone who worked in the private sector knows that performance management contracts is a difficult route to go with as far as monitoring is concerned. I feel what we have at the moment is a numbers and productivity problem. If you look at the phenomenal turnaround at the Ministry of Home Affairs and Immigration you see that change is possible if you use a targeted approach, these[home affairs] are the situations that give me hope to say that things can change,” she said.
According to Du Plessis: “The country needs targeted interventions, like the improvement of company registration processes which is underway and the E-justice system that was introduced. If we can make gains in targeted areas the economy will be boosted.”
On the civil service, Brown said government is employing too many people and stated that government has somewhat become the employer of last resort for those who do not find employment in the private sector.
“Education and defence are highest employers in government, and you can see that the average wage of those two is higher than the police and prison services, Incentives must be aligned to productive areas to get better performance and to lure skills. There is a lot of deadwood at mid-level positions in government, if you can flush them out you can make a big difference because they are the ones those that force young people to move up the ladder,” Brown said.
Some of those in attendance also wanted to know how the infamous New Equitable Economic Empowerment Framework(NEEEF) will affect investment in the country.
Brown said he is hopeful that the final document will be inclusive.
“Consultations are taking place and people are looking for ways to embrace its[NEEEF] objectives without the negatives, this entails ensuring that everyone has the same type of opportunities to do business whether black or white,” he said.
The mooted framework resonated deeply in the minds of investors, creating great uncertainty over the future of doing business in Namibia and this uncertainty will surely not fade overnight.
Responding to a question on housing prices when one of the attendees asked about widespread concerns that housing prices in the country are expected to drop drastically, similar to the 2012 levels, and the subsequent effect such a drop could have on the economy, Du Plessis was quick to point out that “house prices have run too much during the last five years and there is need for correction.”
“Any correction will do, people[estate agents and homeowners] must understand that they made money for too long, they must learn to negotiate now and they must know that profits can go down. For too long there was no negotiations, I know it is not fun but we had good years, we need to be in this together and compromise,” she said.
On his part, Brown said housing part has a big effect on economy, especially banking sector.
“Almost half of their[banks] loan books are in the form of mortgage bonds, but I am sure that they can survive with a 25% property price correction. Of course a massive house price correction is a concern over the long term,” he said.
According to Brown, the demand for houses in the upper end is weakening while there is a slowdown in the middle class segment because of the rent control measures being mooted.
He however cautioned that “we have to increase the housing stock to avoid destroying the incentives that comes with investing in buying houses.”




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