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Thursday 18 July 2019
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Economic recovery draws mixed reaction

Economists have weighed in on the recent pronouncement by the Presidency that the Namibian economy was on an upward trajectory saying the current positive indicators are merely used to predict the future health of the economy whereas the real indicators remain unchanged. These remarks come just days after President Hage Geingob pronounced that the actual state of the economy was better than it was being projected in the media.

 
Chief among the points to back the sudden economic recovery, Geingob pointed to the good rainfalls and the bumper harvests projected in the agriculture sector. The President also put his head on the chopping block and promised that all outstanding invoices will be settled by end August.
Responding to questions sent by The Patriot, economist Mally Likukela said the Presidency used “lead indicators” to predict the future health of the economy.

 
This is to say, the indicators used by the Presidency do not necessarily reflect the real picture of the current state of the Namibia economy.  According to Likukela, if lead indicators are supported and nurtured properly, they can lead to a recovery in the economy, something that is always not guaranteed.

 
“In this case, the green shots and signs of recovery that the Presidency talked about, if supported they could lead to a recovery because they provide a strong environment in which to launch a recovery plan,” said Likukela.
Likukela was quick to note that, the more reliable “lag indicators” (gross domestic product (GDP), consumer price index (CPI) and unemployment) remain unchanged. As a result, the local economy is still in a weak state which makes it premature to tell whether the “green shots will have a positive impact” on the economy or not.

 
According to Investopedia, a lag (lagging) indicator is a concept in economics that refers to a financial sign that becomes apparent only after a large economic shift has taken place. Therefore, lagging indicators confirm long-term trends of the economy, but they do not predict them. Some general examples of lagging indicators include the unemployment rate, corporate profits and labour cost per unit of output.

 
When asked what type of information the government could have availed to make Monday’s statements more credible, Likukela briefly retorted: “[The state should have provided]the lag indicators which are more reliable since these are numbers that follow an event or events.  They are used to confirm a certain pattern or trend, and so they form a fundamental basis for making a conclusion whether an event has indeed happened or is happening. Data sets such as GDP, inflation, unemployment make up the core macroeconomic framework of the economy.

 
The last of such indicators are the quarterly (GDP), monthly inflation and the yearly labour force survey.” More so, another bone of contention is the fact that Namibia has recorded four successive quarters of negative growth. In economics, negative growth refers to shrinking gross domestic product (GDP). This has created doubt among certain quarters, who question how the economy has suddenly recovered as announced by the Presidency. However, Likukela was quick to note that some of the “leading indicators cited by the President does indicate that a recovery could occur, but it is too soon to tell.”

 
“The current recession could be longer and deeper on account of austerity measures that will further depresses demand. Pursuing fiscal consolidation while the economy is weak hurts the economy more. Instead of helping [the economy] it makes the deficit worse. As unemployment rises and corporate profits shrinks, so does the tax revenues. What is needed right now is for government to start spend more but wisely,” he noted.

 

Additionally, Likukela warned that Namibians should approach the said economic recovery cautiously as it could prove deadly in the longer run.
He said: “The light we are see might not be the end of the tunnel but an on-coming or approaching train which could crush us, so we need to be absolutely sure that it is indeed the end of the tunnel. This is a metaphor for us to consider and evaluate the economy by using the right data set or indicators.”

 
Frans Uusiku, a Simonis Storm economist, agrees with the Presidency’s sentiment, he expects the recovery to happen at a slower pace as government revenue squeeze lingers. “We[Simonis Storm] are satisfied with the coverage and depth of information provided. The President touched on a wide spectrum of economic, social and governance issues, which we believe are real-time developments. We view this as a reflection of an expected upturn of the agriculture and mining sectors as well as the tourism sector that is expected to support domestic demand for goods and services,” Uusiku noted.

 
Asked what needs to happen to boost the economy further, he said: “We believe that the service sector, particularly tourism and logistics holds greater potential for growth that could extend beyond our borders.  It is thus crucial that more investment should be attracted into this space. We also believe that building a knowledge economy through aggressive investment in vocational and entrepreneurial training would put our economy on a sustainable growth path.”
Uusiku does not view the pronouncement on the country’s economic recovery as a political one, saying it is a reflection that government’s revenue squeeze has eased following stronger inflows from SACU and a secured loan from African Development Bank.  “This would mean that the outstanding invoices for government service providers will be honoured, thereby supporting domestic spending and growth.”




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