Impact of External Factors on Namibia

PESA Editorial - Namibia - 1Q2017/18

In 2014 Namibia’s biggest exports where diamonds, Uranium, copper cathodes and fish. While most of its imported goods where from South Africa, which were worth USD 4.8 billion1. In that same year it also exported goods worth USD 778 million to South Africa. Both countries are members of SACU and South Africa remains Namibia’s biggest trading partner. Namibia’s primary imports from South Africa include vehicles, pharmaceuticals, cement, petroleum and petroleum products. The magnitude of trade between these two countries indicates how greatly South Africa’s economy impacts that of Namibia. An economic downswing in South Africa will inevitably lower its consumption of imports and eventually affect Namibia’s export revenue.

 

On a state visit to South Africa in 2012, the then President, H. E. Pohambas, signed a Bi-National Commission (BNC) agreement2. This agreement manages the bilateral relationship between Namibia and South Africa. The BNC agreement comprises economic, defense and security, diplomatic and social committees. This agreement further solidified the ever deepening relations between the two countries. Namibia’s trade activities are governed by the trade policies of regional and international organizations of which the country is a member3. At present, Namibia does not have a written trade policy. Its own trade policy would offer a blueprint for the trade trajectory the country wishes to follow and give uniformity in trade agreements in which it takes part.

 

Namibia’s total public debt increased by 1% from FY2013/14 to FY2014/15. During FY2013/14, the country’s total debt was about 26% of its GDP4. Foreign debt at end of FY2013/14 was N$678 million (approx. USD 53.0 million) and the exchange rate of the US dollar to the Namibian Dollar was 10.56990 (1/04/2014), compared to the current exchange rate of 13.40049 (3/31/2017). The country’s foreign debt was 38% of its total debt at the end of FY2013/14, indicating an increase in total debt as a result of the exchange rate movement. To better manage exchange rate risk, the country needs to lessen its foreign borrowings and also effectively enforce remedial measures to decrease its total debt. One of the remedies that the government has adopted is to ensure that government debt does not grow faster than nominal GDP.

 

At the end of the fourth quarter of 2016, the country’s current account stood at N$-7.5 billion (approx. USD 587.1 million). While its financial and capital accounts were N$1.8 million (approx. USD 140 million) 5. Hence the country had a negative balance of payments at the end of the fourth quarter of 2016. The negative balance of the current account indicates that the country imported more than it exported. Further strides still have to be made in terms of domestic investment, if import products are to be produced in the country. This would be a starting point to work towards a positive balance of payments and further improve the country’s GDP. The exchange rate also plays a part in determining the size of the current account. Higher import prices are a result of an exchange rate depreciation, and therefore drive the current account further into negative territory. This reiterates the need to increase local investment in order to produce more products locally.

 

During FY2013/14, public debt was N$4.8 billion (approx. USD 375.4 million) 6. This shows that the government’s total expenditure was more than its revenue during the mentioned financial year. This deficit had to be financed through domestic and foreign debt. Therefore, continuing deficits further increase the country’s debt. An increase in public debt means that the government’s loan repayments also increase, hence decreasing the government expenditure after loan repayments. In simple terms, more public debt means less money available for the government to spend in the future.

 

SADC’s Harmonized Consumer Price Index shows that Namibia had monthly inflation rates of less than 1% from April 2016 to January 20177, December 2016 being the exception. Normally low inflation rates are associated with low economic growth. This indicated that more still has to be done to boost the country’s economic growth, and in turn, this will help better address the social ills facing the country.

 

Unemployment and poverty due to drought are some of the challenges that Namibia has to overcome. The country enjoys relative political stability, compared to its regional neighbors, including South Africa, Zimbabwe and Lesotho.

 

Current Affairs Update

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FNB Namibia Acquires EBank and PointBreak

As of 30 March 2017, FNB Namibia Holding took full ownership of EBank and PointBreak. This was after the relevant authorities had approved the acquisition. The ownership of PointBreak will bolster FNB Namibia’s investment management services division, as PointBreak is well established and possesses a wide pool of private and corporate clients. While the acquisition of EBank will give FNB access to the less affluent population of the country, due to EBank’s business model of providing affordable banking services. FNB Namibia therefore has a competitive edge over other commercial banks and this further solidifies its position in the Namibian banking sector.

 

Bank of Namibia Introduces Loan Value Ratio to Ease Domestic Property Market Demand

Last month the Bank of Namibia introduced the Loan Value Ratio (LVR) policy, which is aimed at protecting home buyers from the risk associated with the property market volatility. The policy requires non first-time home buyers to settle a portion of the property value while the rest will be paid by the financing institution. This will lessen the number of home buyers and reduce demand in the property market. The reduced demand will curb property price increase, to some extent, and therefore offer some protection to consumers against the property market price volatility.

 

NamPower Signs Electricity Supply Deal with Eskom

NamPower and Eskom have entered into a new five year agreement that will see the South African power utility continuing to supply the country with 200MW of electricity. The payment to Eskom is not fixed, as the South African energy regulator may adjust electricity tariffs during the tenure of the agreement. The country faces uncertainty over energy costs and this will prove to be a budgeting challenge. The dependence of Namibia on South Africa for electricity is an indication that the country needs to invest heavily in the energy sector. This investment will not only save Namibia the cost of importing energy, but will also contribute to growth and create employment.

 

Namibian Civil Servants Get 9% Wage Increase

The government of Namibia has announced that civil servants will get a salary increase of 9%, as of 1 April 2017. In economic terms, the increased income means that people may be encouraged to spend more, leading to an increase in inflation. This may force the central bank to increase interest rates, increasing the cost of debt and discouraging people from taking further loans. Namibia is seen as stable country. The rise in interest rates would lure international investors, therefore boosting the economy.

 

China and Namibia Strengthen Bilateral Ties

On his visit to Namibia, China’s deputy minister of Foreign Affairs, Zang Ming, announced that the Chinese government was to donate N$40 million (USD 3.1 million). The money is intended to help Namibia combat the food crisis that had been caused by the recent drought in the country. This gesture follows Chinese donation of 4 000 metric tons of rice to Namibia, last year. China is one of Namibia’s biggest trading partners and its donations will further improve bilateral relations between the two countries. This will help open new trading opportunities and future sharing of resources between the two countries.

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1 The World Bank
2 South African High Commission: Windhoek, Namibia
3 United Nations Conference on Trade and Development
4 Bank of Namibia
5 Bank of Namibia
6 Namibian Ministry of Finance
7 South African Development Community


 

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