Namibia to avoid single country concentration risk
By Josef Kefas Sheehama.
Namibia is an upper-middle-income country. It relies on mining, agriculture, and fishing. Uncertainty may remain, but it can be transformed into planned uncertainty, with no surprises and with contingency plans in place.
The Covid-19 pandemic and the ongoing, Russian invasion of the Ukraine, and rising tensions between China and the United States have highlighted the importance of economic independence.
The Namibian economy remains integrated with the economy of South Africa, as about 70% of Namibia’s imports originates from there. This implies that any adverse financial and economic developments in South Africa, have an immediate impact on the Namibian economy. For a truly diversified economic development, Namibia will need to understand and solve our unique challenges.
And so, the old proverb — ‘Don’t put all your eggs in one basket’ has once again shown its relevance. The whole world is talking about cutting single-country dependence and here lies an opportunity for Namibia. We see that countries want to reduce single-country dependence for their own interests. Conversely, if imports fall sharply but exports increase, this may indicate that the domestic economy is faring better than overseas markets. This is the level for which Namibia should strive. Therefore, in general, a rising level of imports and a growing trade deficit can have a negative effect on one key economic variable, which is a country’s exchange rate, the level at which the domestic currency is valued versus foreign currencies.
The negative effects of geopolitical uncertainties on South African macroeconomic variables affect the current position of the Namibian economy due to the Namibia Dollar and the South African Rand being closely linked at parity.
However, if we do a comparison to Botswana versus Namibia and South Africa’s economies, Botswana has the strongest economy, GDP grew by an estimated 4.1% in 2022, mainly driven by diamond exports and domestic demand. In the coming years, the country’s economy should continue to grow, with GDP growth expected to reach 4% in 2023 and 2024. Investment in the mining sector and the rebound of the prices of hard commodities (diamond, copper, and nickel) should contribute to this performance. Botswana has always maintained a conservative fiscal policy with low levels of foreign debt and, although general government debt increased to an estimated 21.3% [of GDP] in 2022 following a large fiscal response to the COVID-19 pandemic, Botswana’s debt is still substantially lower than its neighbours. In 2023, the debt-to-GDP ratio is expected to decrease to 19.6%, with the phase-out of pandemic measures, and decline further in 2024, to 17.9%.
Therefore, Namibia should take a stand on its own feet. If Botswana did it, Namibia can do it.
Additionally, we can’t rely on South Africa for almost everything. We need to ask ourselves why we can’t produce our own. As a country, we cannot afford to depend on other countries. The Namibian economy has been experiencing economic uncertainties like high inflation, high unemployment rate, high exchange rate, depreciation, low investment, and negative growth. Namibia must reduce its commodity dependence, which may expose it to volatile markets. We need to understand that concentrated trade relationships may create levels of risk beyond the appetite of the country, for instance, if policies restrict flows between countries, and it may make sense to spin off or divest such flows while pursuing new domestic markets.
If we have a clear-eyed view of concentration, lawmakers can calibrate effective strategies and reimagine, rather than retreat from, global footprints. This is not only about managing risk. A transparent and up-to-date understanding of concentration, combined with the right measures to manage interdependencies, can be a source of competitive advantage.
We must demonstrate thoughtful management of concentrated exposures and be more resilient in a changing world. Rising geopolitical and geo-economic tensions are some of the most urgent risks the world faces in 2023 while worsening international relations are hindering a collective will to tackle these concerns. The escalating geopolitical tension between superpower countries is threatening security. It is also increasingly likely that these attacks will escalate from mostly low-sophistication and temporarily disruptive to sophisticated and destructive, as part of a broader hybrid warfare strategy against the superpower countries. Hence, concentration prompts questions about whether to diversify or decouple.
Moreover, when a country’s economy is not diversified and relies heavily on elementary products, it puts itself at the mercy of international market prices. When prices go down, employment, exports, and government revenue suffer. In other words, putting too many eggs in one basket renders the country vulnerable. Addressing the challenges posed by single-country economic concentration is central to meaningful efforts to achieve economic independence, from reducing poverty and fostering equality to protecting the country and preserving peace.
To better understand the true impact of single country economic concentration, monitoring goes a long way to shed light and break cycles of underdevelopment. Single-country economic concentration is stubborn, but it is not a sentence for underdevelopment. Whether natural resources are a blessing or a curse depends on how a country uses and manages them. The very investment needed to diversify the economy is curtailed, and efforts to break away from single-country economic dependence are thwarted. This is the vicious cycle in which many countries are trapped.
Therefore, depending on what happens, the most significant effects on the global economy may manifest themselves only over the long run. The crisis is also contributing to a reassessment of the global economy’s structure and concerns about self-sufficiency. Confronted consciously and strategically, this crisis could become an opportunity to break out from single country concentration and create the pillars of an economic system focused on a vision of long-term sustainability and shared prosperity for generations to come.
To this end, it emerged that despite being an open economy, the Namibian economy is largely dependent on a single country economy – South Africa. Namibia should establish its own turnover ceilings for opening the assessment procedure for single-country economic concentrations, taking into account the objectives of our economic policies.
Finally, economic independence is a very dynamic procedural adjustment to take into account the economic interests of the country as well as the evolutions registered on regional and global levels.