By Kelvin Chiringa
Namibia’s major growth driver, mining posted a weak performance in the first quarter of 2019 as overall economic growth slumped by -2%.
According to Cirrus Securities, this is the largest quarterly contraction since the start of Namibia’s depression.
The firm noted that contractions in real value addition have been recorded for eight of the last 12 quarters, when Namibia’s descent into hitherto uncharted economic territory began.
“The weaker performance of the mining industry in this first quarter, after two years of strong growth, has unmasked the stark reality that growth has not yet returned to the Namibian economy.
As things stand there does not appear to be a catalyst to spark real growth, and it seems likely that the mining sector will not be able to mitigate poor growth elsewhere in 2019 like it has in 2017 and 2018,” said Cirrus.
This has reinforced pessimism that the nation’s fiscal metrics could worsen.
According to Cirrus, there is potential for spending beyond the initial budget tabled this year, for instance brought about by factors such as the drought, upcoming elections, or the need to bail out SOEs.
“There is also the likelihood of disappointing outturn in revenue collection, given the weak economy, thereby possibly leading to a wider-than-anticipated budget deficit.
Should GDP growth not meet forecasts, as well as the risk of overshooting expenditure and under-collecting on revenue, the result could not only be a wider deficit but also an increase in the debt-to-GDP ratio quicker than has been anticipated. This is not to say that this will happen, but these risks do exist,” the firm said.
A look at sectorial performance
The economy’s largest employer, agriculture declined by 6.7%, a sure sign of how deep the drought has hit it and further weaknesses in future growth have been anticipated.
This has thrown employment prospects in disarray, in the medium term outlook.
The size of the national herd has also been cut while prices on the market remain weak.
Cirrus warns that with fewer livestock in general, and young cattle in particular, there is likely to be underperformance from this aspect of the sector going forward.
“There is no quick fix or silver bullet, but rather the systemic ailments need to be addressed. Growth is unlikely to be sparked by Government or households, whose incomes are constrained and have very little room (if any) to increase their expenditure – at least in a manner that is not more detrimental long-term.
“Namibia’s net exports (i.e. exports less imports) are seeing some slight improvement, however this is more the consequence of falling imports (as the result of pressures on disposable incomes) rather than marked improvements in our exports.
In addition to this, the majority of our exports are made up of primary commodities (minerals and ores, live animals, and processed fish) – a sector whose growth prospects are lower, coupled with concerns of a growth slowdown in China (the largest consumer of commodities),” said Cirrus.
Fishing has performed better but at a measly 1.1% after posting a contraction of 1.3% and 10.8% growth in the final quarter of 2018.
“Mining and quarrying has been the unsung hero of the past two years. After contractions in 2014, 2015 and 2016, exceptional growth of 13.5% in 2017 and 23.6% (preliminary) in 2018 for the Mining sector sheltered the overall GDP growth figures from the full extent of the downturn across other sections of the economy over those same years,” noted Cirrus.
However, mining underperformed by 1.1% which is a huge contrast from the strong growth of 13.4% in Q1 2018 and 5.7% in Q4 2018.
Cirrus notes that this is the first contraction for this sector since mid-2016, but looking ahead, there is a high possibility that mining output will not surpass the 2018 figures, and thereby poses a very significant downside risk to GDP growth.
Manufacturing (3.6% compared to 0.5% in Q1 2018)), and Electricity and Water performed well (2.7%) but Construction continued to weaken (27.8%).
Increased capital expenditure by Government (possible given the large allocation to the Development Budget in FY2019/20) or increased investment from the private sector/foreign investors (less likely given the weak macro-environment and anti-business policy direction and rhetoric in Namibia), will pick the sector up, Cirrus said.
According to Cirrus, poor rainfall and therefore low river levels, will see Ruacana produce less electricity and thus Namibia will need to import more to meet domestic demand (despite an overall decrease in electricity sales in the first quarter).
“A protracted weak macroeconomic environment does not bode well for electricity sales, as there is likely to be less productive activity. Despite all this, there is potential to kick start growth.
Namibia is a relatively small economy, not just in regional terms, but also globally. Because of this, we need to attract relatively little investment by global standards in order to make a significant positive impact domestically.
However, in order to do this we need to nurture an environment that not only attracts investment, but also ensures it willingly remains here.
This would require broad, macro reforms such as reduced bureaucracy, work permit reform (to make it easier to import requisite skills), policy certainty, and a less burdensome tax regime, amongst other pro-investment policies.
This was captured succinctly in a quote by Walter Wriston: “Capital goes where it is welcome and stays where it is well treated.”
Given the lack of domestic catalysts, should Namibia not be able to attract the much-needed investment required, the outlook for the economy remains one of low growth for years to come,” Cirrus noted.