By Megameno Shikwambi
Finance minister Calle Schlettwein has this week painted a darker picture in the distressed economy citing that government coffers were so tight that salary increases for 2019 were impossible. His proposals for economic reform however got bashed by a leading political analyst, as “useless for Africa.”
Schlettwein said the fundamental fiscal situation was that Namibia’s expenditure was exceeding revenue, and that productivity in both the public and private sector was declining and so is investment.
The minister proposed that what is needed for a recovery is improved investment flows (foreign direct investment and domestic investment) and the resulting transformation from a consumption-led growth model to investment-led growth.
“Additional expenditure as result of demanded salary increases remains unaffordable and will add pressure on the already difficult situation. Expenditure must now be directed to assist vulnerable sections of our society during the prevailing drought and to create productive capacity and jobs,” said the minister.
However, political analyst, Ndumba Kamwanyah countered the minister, bashing his proposals as unworkable in the Namibian context and reduced them into mere “old and tested policy prescriptions.
They don’t work and never worked for Africa. This is because they are fundamentally rooted in trickle-down economics. Focusing on FDI and domestic investments by corporations is a top-down approach to economic growth, and never reaches the bottom,” he said.
Kamwanyah told the minister that what is needed was “middle-out economics through policy prescriptions that makes the middle class strong and increase their buying power.
This we can do by focusing on the creation of middle class jobs as opposed to low-bottom jobs; investment in social infrastructure and tax cuts. We pay too much tax in this country, that almost everything we consume and use is taxed,” said the Unam based academic.
The minister has already been on record stating that growth in the economy for 2019 can only come by with a small margin but not after urgent reforms are implemented.
Schlettwein took to social media this week where he seemingly took a shot at the Namibia National Teachers’ Union (Nantu) and Namibia Public Workers Union (Napwu) which are said to be demanding a salary hike for teachers this year.
The Teachers Union of Namibia (TUN) has so far indicated to The Patriot that they are preparing to negotiate for a double digit increment this year.
The good, the bad and the ugly
Analysts at Simonis Storm have said credit extended to house-holds so far remains the biggest component of Private Sector Credit Extension (PCSE), and that the current slow growth indicates the lack of consumer confidence in the economy.
“Meanwhile, the growth in credit extended to corporates, especially through mortgage loans, could suggest new building and construction activities in the short term.
However, the rise in overdraft facilities can be attributed to corporates trying to meet their working capital requirements in this dire economic environment,” said Indileni Nanghonga, a junior analyst at SS.
The Bank of Namibia (BoN) has also released the money and banking statistics for May 2019.
Private Sector Credit Extension (PSCE) rose by 8.3% year on year to N$99.4bn, which is the highest growth rate over the last 26 months.
The corporate sector (11.2% year on year) contributed largely to the rise in PSCE as demand for commercial property loans and other loans and advances extended to the retail sector, increased.
“Our view is that the current construction activities (flats and houses) in Windhoek have boosted the demand for commercial property loans,” said Nanghonga.
Credit extended to households, which accounts for 59% of total PSCE, increased by 6.4% year on year to N$58.4bn in May 2019.
Growth in credit extended to households has been increasing at a slower pace since 2016 and the 6.4% recorded in May remains below a 10.5% long term average.
Household borrowing is being dragged down by less borrowing through mortgage loans (6.9% year on year), instalment credit (-5.9% y-o-y) and overdraft facilities (3.7% year on year).
However, borrowing through personal/commercial loans and credit cards rose by 23.9% in May 2019, indicating an incessant strain on the consumer.
Other loans and advances (personal/commercial loans and credit cards) which usually accounts for 9% of household credit extension is currently registering 12.4%.
Further increases in its size of household credit extension could soon become unsustainable.
Figure 2 shows an increase in money supply (M2) to 11.7% in May 2019.
The increase was ascribed to a rise in both net foreign assets (NFA) and domestic claims, particularly claims on the private sector in the form of loans. The upside in M2 is not enough to suggest an uptick in economic activities.