Effects of Trade Openness and Industrial Value Added on growth
By Josef Kefas Sheehama.
In this article, I will analyse the current dynamics among exports, imports, and gross domestic product (GDP) to evaluate the challenges facing economic growth in Namibia.
Exports and imports play pivotal roles in Namibia’s economy, and understanding how they influence trade openness and industrial value-added is essential for sustainable economic growth. Namibia’s open economy heavily relies on international trade, making effective trade policies crucial, particularly given the limited fiscal space available to policymakers.
Moreover, in the quest for economic resilience, we are navigating a landscape of persistently high commodity prices, a trend that emerged during the pandemic. While Namibia has experienced rising inflation, it has generally managed to revert to its target as supply shocks receded. However, global spillovers continue to impact core inflation, with energy prices, exacerbated by sanctions, imposing significant costs on the economy, affecting both consumers and businesses.
Namibia recorded relatively GDP growth rates, averaging an annual rate of 3.52% to 4.56% from 2021 to 2022. The Bank of Namibia anticipated GDP growth to slow down in 2023, mainly due to weaker demand in both global and domestic economies. It is not all doom and gloom, and the good news is that there is light at the end of the tunnel.
Namibia performs better compared to many countries. This impressive economic performance was attributed mainly to political stability, favourable terms of trade, and solid public investment. The Bank of Namibia anticipated that the real GDP growth is projected to moderate downwards to 3.3 percent in 2023, from 4.6 percent registered in 2022. Besides the weak demand, high base effects from the diamond sector, which expanded by more than 45% in 2022 have a dampening impact on 2023 growth. Hence, structural transformation of the economy also slowed down during this period.
The weak growth that characterized the Namibian economy has been blamed largely on external shocks and structural weaknesses in the economy. Despite these challenges, there remains optimism about the country’s economic prospects.
The high level of economic openness raises questions about the relationship between exports and economic growth, with considerations of asymmetry and sector specificity. Although limited research has explored this relationship in Namibia, the importance of trade, trade liberalization, and trade openness on economic growth is evident.
Policymakers must stay informed about the factors influencing economic growth and the potential impacts of their policies. The Namibia Chamber of Commerce and Industry (NCCI) addressed these issues through the inaugural State of Business Address in June 2023, focusing on policies related to ease of doing business, job creation, poverty reduction, and industrialization. However, many business owners still express frustration with policy effectiveness and service delivery.
To promote trade openness in Namibia, incentivizing specialization in commodity production and capacity-building programmes can boost export volumes and boost diversification. Additionally, prioritizing the service sector and implementing policies to stabilize capital flows can contribute to economic stability.
To reverse the potential negative impact of trade openness on economic growth, stakeholders and policymakers should focus on increasing the production and export of secondary commodities while reducing imports. Diversifying exports, adding value to existing products, and exploring new foreign markets can help reduce trade deficits and stimulate economic growth.
Industrial value is another key factor positively influencing Namibia’s economic growth. Allocating more resources to the industrial sector can enhance industrial value added to GDP and further contribute to economic growth.
Overall, achieving these objectives requires commitment from the government, institutional bodies, policymakers, and all stakeholders in the Namibian economy, who must work collaboratively to implement and sustain prudent strategies.