When economic narratives turn into gospel, it is very difficult to break out of the restrictive frame of mind
“In 2018, the domestic economy posted a contraction of 0.1 percent, showing that economic activities remain suppressed, however, when compared to the previous year (2017) of negative 0.9 percent, this indicate a slow recovery in activities. The main industries driving this weak performance in GDP were the Secondary and Tertiary industries.”
This quote comes from the National Statistics Agency when it released the preliminary national accounts at the end of March. By now, everybody is familiar with what it says but it gained a new perspective when the IMF’s mission to Namibia said earlier this week that it expects the Namibian economy to contract mildly again this year.
Now, I do not know what their definition of “mildly” is but if it is true that the economy contracted by only one tenth of a percent last year, it begs the question how more “mildly” can one go. If the economy contracts by 0.2%, it is no longer so mildly although I assume that two tenths of a percent would still be regarded as mildly by any normal person.
This may sound like a bit of semantic hair-splitting, but unfortunately, it is not such an innocent debate.
Let’s first revisit the NSA stats. In 2010 the preliminary national accounts indicated a 2009 contraction of 1.1%. This was later revised upward to about -0.6% and still later, through a series of adjustments that were never explained, it eventually transpired that the economy grew 0.1%. This is the reason why so many analysts today simply copy (and believe) the ubiquitous statement that the Namibian economy contracted in 2017 for the first time since Independence. It is simply not true, and had the analysts a slightly longer memory span, they would immediately spot the anomaly.
Similarly, 2016 4th quarter NSA stats posted a very slight growth, but it was still positive. Sort of like a blip in the then accumulating back to back contracting quarters. This was in turn revised downward, resulting in the now popular narrative that we have had 11 negative quarters, back to back.
At this juncture, I must just point out that some NSA statistics are compiled over the calendar year and some, especially those macro stats pertaining to government finances, over the fiscal year. These two do not coincide hence one often encounters seemingly inexplicable discrepancies which can only be normalised if one goes back to the relevant individual quarters, recalculate the indices and then compare apples with apples.
So where does this lead us today? There is every probability that the NSA will themselves go back to the drawing board, add more data, and then do their own recalculations. So, it may eventually turn out that the 2017 contraction could have been more severe, or less severe. It does not matter and we will only know around August this year.
It may also turn out that last year was not a recessionary year after all. If the official contraction is only 0.1%, additional data and synchronising quarters in the various metrices, may just pop out a positive answer. Again, we do not know.
The more interesting aspect, and hopefully one based on rational analysis, is the IMF’s take that 2019 will be mildly negative. This observation opens up all sorts of speculation, not merely those base on which dictionary you choose.
If the contraction is again 0.1%, it implies this year will be exactly like 2018. This is hardly possible since there are significant moves in retail and in construction, which have already surfaced in the available data. Also, a 0.1% contraction is a compound contraction on the 0.1% of last year and the 0.9% of 2017, taking us over -1% in just three years. Suddenly, if it were true, it is no longer such a minor decrease.
I think what it boils down to is why the IMF expects the recession to continue versus why the Ministry of Finance and the Bank of Namibia, at this point, expect a small positive growth.
The IMF cites the impact of the drought while the minister cites the continued impact of his overweight civil service. Both agree that if diamond production decreases it will have a major impact on the fiscus, which is true. But I suspect these assumptions are based on the closure of the Elizabeth Bay mine, forgetting that onshore diamond mining has been waning for almost two decades. Whatever is lost onshore will be more than adequately replenished by what is retrieved from the sea, and in this regard, Namdeb was very proud when they announced the arrival of the SS Nujoma in June 2017, which they said is expected to increase production by half a million carats.
Furthermore, agriculture’s contribution to GDP is minute, typically less than 4.6% so its macro impact is small. It is far more important for other reasons pertaining to food security and employment.
If this starts to sound like spaghetti in a bowl, it is because it is. We have cultured a certain (negative) narrative since November 2016 when the finance minister slammed on the brakes, and we have not been able to cast our view and our understanding of economic dynamics beyond this limiting horizon.
I personally believe the economy is not nearly in as bad a shape as the narrative proclaims, but the problem with narratives is that once they are believed by a sufficiently large number of people, they tend to morph into gospel. What I do believe is correct is the IMF stating that the economy is rebalancing. How long this process takes is really not known. It is not a forecast, merely an observation.
I fully realise there is not much we can do to change the drought – that is beyond our powers, but there is a lot we can do to change people’s attitudes. After all, everybody is feeling the effect of the recession, so it is almost a national malaise.
There are so many individuals working on so many solutions that it is inconceivable that we will not see some tangible results leading to a return to economic growth.