3rd Quarter Economic Review: Do we have the mettle to steer clear of the abyss?
By Bruce Hansen
MD, Simonis Storm Securities.
It has been an eventful 2020 with the outbreak of the COVID-19 pandemic and all the subsequent news and actions and still, its outcome is uncertain as many countries have slowed reopening and some are reinstating partial lockdowns to protect the vulnerable as the pandemic continue to spread.
The global economy is expected to contract less severely than anticipated in June. This is mainly attributed to the massive fiscal and monetary interventions we have seen in major economies. China is projected to grow by 1.9% instead of 1% and remains the only major economy with a positive outlook.
Expect a long, tough climb back to pre-COVID-19 levels as the economy will continue to face stumbling blocks and periodic resets.
The Namibian economy contracted by 11.1% in the second quarter 2020 due to the COVID-19 caused lockdown of most industries for a couple of weeks. Since the second quarter of 2016, the Namibian economy has faced eleven quarters of negative GDP growth with seven quarters showing some positive growth.
Most sectors contracted with double-digit figures resulting in GDP in constant prices falling back to levels last seen in the first quarter of 2013 – N$32,025 million.
The Bank of Namibia released its updated Economic Outlook for 2020 and 2021 in August 2020. The outlook for this year confirms the hit the economy suffered from the COVID-19 related measures, such as lockdowns, curfews, and travel bans.
The expected contraction by 7.8% will be the most severe contraction in independent Namibia’s history.
Growth expectations are still tough to make given the uncertainty of the extend, impact and path of the pandemic. Ongoing partial lockdowns, the size thereof and funding of targeted interventions will all impact growth forecasts. The IMF’s 2020 outlook for global economic growth is -4.4% and OECD’s -4.5%.
We maintain our 2020 GDP estimate of -8.4% for Namibia despite the lifting of lockdown measures and the 2Q20 GDP outcome. We anticipate a rebound in 2021 given the base effect but remain extremely cautious of existing domestic stumbling blocks (SOE reform, SME development, and other structural reforms) not being removed expeditiously. We expect more moderate growth in 2022.
The immediate future of the Namibian economy remains murky as we battle the twin evils of COVID-19 and a severe recession. A fine balance must be struck between implementing measures to adequately arrest the COVID-19 impact and identifying and implementing measures to support near-term growth.
Raising funds for these growth-enhanced strategies will include a combination of increasing domestic debt, dipping into local reserves/savings and bi-lateral/multi-lateral funding. Herein lies the other balancing act in that we must demonstrate that the measures taken, will yield the desired result to service the resultant interest and repay the debt effortlessly.
Care should be taken to deploy the additional debt in revenue producing sectors/projects, high return infrastructure projects, education, and health.
The exercise in the fish quota auction and the switch auctions, from shorter to longer dated bonds, are some of the measures Government has executed to start tackling these complex matters. Notably, this year, has seen the appointment of key individuals – the Minister of Finance, the Governor of the Bank of Namibia, the Minister of Justice and the Special Economic Advisor and the person to be appointed to the newly created Namibia Investment Promotion and Development Board which will fall under the Presidency.
These appointments are all positive – the test will be to allow them to carry out their mandate of returning Namibia to a growth trajectory. We express the hope that mistakes of the past will not be repeated.
Using the past as a steppingstone we must conquer our inability to identify, assess and execute initiatives (and there are already solutions on the table), administrative ineptness, lack of monitoring and review and accountability.
The speed of decision-making and action have become more critical to prevent us from falling further into the abyss. Now, more than ever, we require someone to unite and galvanize the nation.
Bruce Hansen Managing Director at Simonis Storm.