Positive drivers outnumber restrictive impairments
Namene Kalili, Senior Manager Research and Development, FNB Namibia Holdings said in the RMB Global Markets Research Sub-Saharan Africa monthly outlook that the prospects for the Namibian economy remains positive as the country ramps up infrastructure, investment and commodity production. “Improved transport networks and electricity generation, coupled with increased port and water storage capacity, should allow the country to better its position as an efficient and reliable logistics hub in the region,” noted Kalili. “Moreover, economic activity looks set to benefit from a significant increase in commodity exports as production commences at Swakop Uranium, Skorpion is expanded and volumes at B2Gold are ramped up.”
He is of the opinion that growth in the short term is supported by strong household consumption, moderate job creation, income growth, lower inflation and robust credit extension. Regarding the trade deficit he adds that this has widened by 41.9% during the second quarter after export earnings fell by 39%, which underscores Namibia’s vulnerability to commodity markets after diamond revenues fell by 7%.
“GDP is expected to lift meaningfully over the next two years, driven by increased investment and exports. However, electricity shortages, low export commodity prices and rising inflation pose downside risk to the economic outlook,” Kalili cautioned. On the topic of inflation Kalili noted that the annual inflation rate for July 2015 increased to 3.3% from 3.0% in June. The rise was attributed to increases in the price levels of food and non-alcoholic beverages, which consequently pushed up prices in the hospitality categories. “Rising utility and fuel costs are expected to push inflation from the current low levels to 4.5% by year-end and reach 5.1% in 2016,” he added.
Policy rates moved sideways as the central bank waits to ascertain the impacts of the two rate hikes earlier this year. “As mentioned, household consumption has remained robust, evidenced in private consumption growth of 12.8% in 2014, accompanied by an associated increase in imports of 15.7%. Such high levels of imports, particularly of luxury vehicles, suggest that higher interest rates are needed to help curb domestic demand and thereby narrowing the current account deficit. The next interest rate hike of 25 basis points is expected around October.”
Kalili concluded by saying that the government continued to implement its expansionary budget to tackle persistent inequality, unemployment, education, health care and decent housing. Although the fiscal deficit was estimated at 3.2% of GDP — its seventh straight annual shortfall — it’s likely that the deficit will print lower after suboptimal capital budget implementation as the rail rehabilitation stalled and the mass housing scheme has been replaced with a more ambitious mass land servicing programme. “We expect the government to successfully implement the remaining infrastructure programmes which includes port expansion, Kudu gas, Neckertal dam and new road construction.”