Namibia is probably not heading for a catastrophic economic collapse, but economists are worried that further sluggishness and slow growth are still a threat to the country’s ‘junk-rated’ economy.
Namibia’s economic outlook is extremely uncertain but the consensus is that the country is likely to experience stagnant GDP growth and will have to wait at least three years for the economy to fully recover, according to the International Monetary Fund(IMF). And that is if everything goes really well.
But economists maintain that economic growth will remain constrained, a move that could further escalate unemployment in the country.
The country has managed to maintain its macroeconomic stability despite being downgraded to junk status during 2017 by Fitch and Moody’s ratings agencies respectively.
Treasury admits that this was a tough year for the country, but the optimism for 2018 remains intact.
“This was a tough year. Of course the highlights were the budget itself, the credit ratings and how we managed to pull through as a country, this tells me that we weathered the storm. The achievement of the year is not that things went from bad to good, but the fact that we caught a serious down slide,” said finance minister Calle Schlettwein this week during an interview.
He added: “After the ratings we can proudly say we are in a slightly better spot compared to last year this time, we can now look forward to better growth. We can also say that we did not neglect the real economy and the needs of the people. That was our priority instead of chasing the targets of the ratings agencies. The positive movements in the economy are starting show and that makes me a satisfied man.”
Schlettwein said the resolve to maintain the country’s macroeconomic stability, institutional architecture and pro-people governance model shows that Namibia is on the right track.
But despite Schlettwein’s optimism, recent indicators of real economic activity are worrying.
The domestic economy is expected to remain weak, according to the central bank. This is mainly due to deeper than expected contractions in sectors such as constructions, retail and wholesale as well as slower growth rates for manufacturing, electricity and water and the public sector.
Bank of Namibia however expect anticipated growth in uranium mining, wholesale and retail trade, transport and communications sector to boost the country’s growth to 2.2 percent next year and 3.1 percent in 2019.
Namibia’s productivity growth is diverging from global growth and the country risks falling further behind its peers. This would be to the detriment of the poor, for whom a growing economy is necessary for jobs, and a sustainable system of social grants.
For now, says BoN, low uranium prices are a key threat to the domestic outlook.
Slow growth among some of the key trading partners and challenges associated with fiscal consolidation also pose a threat.
According to the IMF, the global upswing in economic activity is strengthening, with global growth projected to rise to 3.6% in 2017 and 3.7% in 2018. But the recovery is not complete as growth remains weak in many countries, and inflation is below target in most advanced economies.
In South Africa, Namibia’s biggest trading partner, growth is projected to remain stagnated below 1.0% in 2017 and 1.1% in 2018, despite more favorable commodity prices and strong agricultural production.
“Political uncertainty will continue to drag consumer and business confidence,” said local stockbrokerage firm, Simonis Storm in its 2018 economic outlook.
According to the firm, Namibia is stuck in structural problems such as high unemployment (specifically, youth unemployment), shrinking private sector, over regulation of many industries, excessive increase in overall debt and lack of skills that is a drag on economic growth and widening the income distribution.
“We only foresee a turn-around once Government takes a firm stand on fiscal consolidation and policies that are pro-growth. We believe that fiscal discipline need to be exercised. We revised GDP for 2017 to -0.3% from 0.5% previously estimated and project GDP at 2.2% and 2.4% in 2018 and 2019, respectively. Our downward revision was prompted by a continuous slowdown in the construction sector,” said Simonis Storm.
Simonis Storm warned that the construction sector will remain a drag on GDP as government reduced the budget for capital expenditure.