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Monday 21 January 2019
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Economic recovery unlikely in 2019

Sentiments from economists are that an economic recovery in 2019 will not need quick-fixes and populist interventions, but political will, which the ruling administrative needs to strongly bolster.
But be that as it may, economists say there is little hope in a recovery since signs of the government taking a hands-on approach are not clearly visible or well articulated.
Economist Mally Likukela said prospects for economic recovery in 2019 are gloomy and what will appear to be some form of recovery is actually unhinged GDP growth that will emanate from increased government spending in line with the upcoming national election activities.
Once that artificial growth has cooled off, Likukela says the economy will slip back deeper into recession.
Subsequently, this unhinged GDP growth could bring about a recession deeper than the current recession.
On top of political will and the need to show commitment to transformative policies and ensure effective implementation of programs, Likukela recommends that 2019 should be the year government pulls up its socks.
“Government should avoid recycling ineffective executives in SOEs and government offices, and hold non-performers accountable for poor performance.
Also, it needs to remove unnecessary bureaucratic red tapes to attract investors, pursue investor’s friendly policies and win back investors’ confidence in the country,” said Likukela.
Amongst the key risks painting a deemer picture for 2019 includes possible fiscal slippage as the public debt to GDP is assumed to be over 50% already, weak implementation of economic policies and deliberate departure from national priority documents such as the Harambee Prosperity Plan (HPP) and NDP5.
Consequently, the continued vulnerability to external shocks and anticipated decline in SACU revenue.
“There is very little hope for foreign direct investments due to a combination of retroviral policies and uncertainty of government sticking to its commitment as far as investor’s interest protection is concerned. Case in point is the NEEEF, land conference resolutions.”
Likukela also highlighted the business environment which will continue to be investor unfriendly due to mainly corruption and heavy bureaucracy that have dramatically increased the cost of doing business.
Sharing the same sentiment is Cirrus co-founder Rowland Brown who says Namibia is a country in trouble and while the country’s challenges are certainly not insurmountable, their redress requires a number of tough decisions, many of which revolve around the budget.
Brown is of the opinion that for a number of years public funds, allocated through the budget process, have provided a bastion for large-scale rent seeking.
This is to say that through public expenditure, particularly, there is a large portion of the Namibian economy that is consuming or costing more than it is producing.
While this can be sustained in the short-term (in Namibia’s instance largely through debt increases), over the long term, it becomes unsustainable.
He says this rent seeking takes many forms, including an oversized and often inefficient civil service (the fourth/fifth most expensive civil service relative to GDP in the world), excessive military spending (the 12th highest to GDP in the world), a number of poorly run and inefficient state-owned enterprises and procurement middlemen who are often adding little value but driving up prices.
Brown adds that corruption, excess regulation and no-skin-in-the-game regulators, buildings and vanity projects with no hope of generating a return on investment are just but a few other causes of rent-seeking activities.
“All of these rent-seeking activities require financing from somewhere, and in many instances, the funding has come about as a result of a process of collecting revenue from the industrious activity of employed persons, corporates and similar, as well as from debt issuance.
However, with each dollar that is redirected to rent seeking activity, economic inefficiency is introduced, and potential long-term growth is lost,” he said.
“For Namibia to recover from the current economic environment and return to a positive long-term growth trajectory, many of these inefficiencies need to be addressed.
However, this requires hard decisions from policy makers, which decisions are neither politically popular nor expedient.”
At the epicenter of Namibia’s fiscal problem is the utilization of funds, and the efficiency thereof.
Without the extensive rent-seeking, Brown is of the opinion that the Namibian government could easily achieve greater developmental outcomes for the majority of the Namibian people, with the same funds.
“Much of the resolve of Namibia’s fiscal challenges rises and falls in the ambit of political will.
It is political will that will bring about substantive expenditure changes away from rent-seeking towards productive activity and economic growth.
However, without substantial political will, fiscal slippage, particularly in the areas of the wage bill, defence spending and SOE bailouts, will be inevitable,” he adds.
Brown recommends that government throws its weight behind the component of investment adding that while it is perhaps understandable that positive policy for the already relatively wealthy is counter intuitive for some, it is this accumulation and deployment of capital that causes an economy to rise, taking with it the living standards of its people.
“It is thus vital that Namibia turns away from populist propaganda-style policies towards positive investment policies for growth.
It is only through measures such as this that household spending can grow sustainably once again, that government revenue can do the same, and that exports can be increased and inputs reduced,” said Brown.
He highlighted that the ruling party has ample support to push through policies that are positive for the country long term, even if unpopular in the short term.
However, government is currently making it harder for itself to achieve these changes, in that as poor policy bites, unemployment rises, as does the voter base’s desire for quick-fix, populist, interventions.
“The longer we wait, and the more dire the local environment becomes, the more difficult it will be to turn the economic slump around.”
To wit, Alex Shimuafeni speaking on 13 December 2018, the Namibian economy is in recession for the 10th consecutive quarter  as he announced that the economy contracted by -0.8% in the third quarter of 2018.




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