Households distressed as cost of living rises on the back of inflation and energy prices
By Josef Kefas Sheehama.
The most likely short-term outlook remains a continuation along the current path of economic stagnation and slow deterioration of Namibia’s prolonged economic crisis that started in 2016.
The Electricity Control Board approved a 7.30% tariff increase effective 01 July 2022 to ensure sustainable electricity at affordable tariffs. The Namibia Power Corporation imports about 67% of power from neighbouring countries to meet domestic electricity demand.
The higher costs come at a time when banks’ interest rates are rising, and fuel and food prices have increased tremendously. Rising interest rates are the result of the Bank of Namibia’s persistent raising of the Repo rate at its last two Monetary Policy Committee meeting.
The energy supply crisis is another factor pushing up household bills. This is exacerbated by supply chain disruptions, both globally and in South Africa, which have contributed to push up prices for goods. The cost of living crisis will deepen inequality in Namibia and yet no political party is talking seriously about addressing the enormity of this challenge by fixing our broken social safety net.
Furthermore, I am afraid that the City of Windhoek might increase the water bill causing people to be disconnected from their water supply if they are in arrears. I am talking here about people in genuine distress, who do not have the money to pay their bills. It is unclear how long the cost of living crisis will last.
It helps to be aware of all the challenges that are coming and how much they will cost you, so you can take steps to budget and protect your finances. There’s no way to avoid the increase, but it pays to be aware of upcoming changes in prices so you’re not caught unawares. This has the largest effect on poorer families because they tend to spend a larger proportion of their income on essentials.
The rise in energy prices has a huge effect on discretionary spending after households have paid their rent or mortgages, food bills and utilities such as water. This rise in prices is considerably higher than the increase in average earnings. Inflation is clearly something that bites on people’s household income. Employers are unlikely to compensate their staff for this extra and might well limit pay rises, if given at all.
Moreover, what should you do? One option is to fix your mortgage now, so you lock in current rates and avoid any future interest rate rises. Consider your heating and electricity use when spending more time at home as this could push up your electricity bill, especially for all those cups of tea. Don’t be tempted to leave your TV on standby or your phone and laptop plugged in when they’re fully charged if you’re at home all day.
Overall, for the temporary reduction of levies imposed on fuel products, the signs are positive despite uncertainty caused by the Ukraine war and inflationary pressures. So, it is crucial to avoid complacency and ensure the opportunity of this windfall is not missed. There are still many risks to the outlook, including the knock-on effects of a global economic slowdown should rising prices and conflict persist.
Additionally, as inflation rises, it erodes the spending power of your hard-earned cash. So it’s important to make sure your money is working hard for you. But it’s almost impossible to find a savings account to beat inflation at the moment. Everyone’s going to be hit, and it will feel like a big squeeze for everybody. It’s going to feel like a catastrophe for lower-income households if nothing changes.
It is quite interesting to see that Namibia is importing electricity from its neighbouring countries such as South Africa, Zambia and Zimbabwe, which has similar climate conditions. I strongly believe that the prices of electricity will rise due to this lack of electricity production and dependence on foreign imports. Furthermore, if electricity production is not supported with alternative renewable sources such as wind, solar and biomass energy, these type of problems are inevitable.
Moreover, green hydrogen will be one of the largest economic opportunities. The preferred bidder, Hyphen Hydrogen Energy, is set to start production in 2026. The Zambian and Namibian governments are expected to sign a Memorandum of Understanding for the construction of a Gas and Oil pipeline from Windhoek to Lusaka. There are hopes of creating renewable electricity, both for export and as an alternative to imported coal power from South Africa. Namibia believes that, by making renewables the cheapest and most attractive option during the bidding, the system creates an incentive to switch to low-carbon technologies, stimulates investments and reduces the need for state subsidies.
Energy consumption per capita of a country is regarded as an important indicator of economic development. In today’s world, energy is not only considered to be a production input but is also regarded as a strategic commodity that constitutes the basis for international relations and shapes the world economy and politics. Due to the rapid depletion of oil reserves with each passing day, it is thought that this problem can be mitigated in the short term and completely solved in the long term, provided alternative energy sources are mobilized.
The political response must obviously focus on the very poor but many middle-income household will also struggle a lot with rising bills. In fact, the whole country is going to feel squeezed throughout 2022 and low-income households are going to struggle most to deal with that. Also, when inflation gets too hot, the government might shift to a contractionary fiscal policy. These measures, such as hiking interest rates and increasing the cost of borrowing, could slow economic activity and depress standard prices.