By Business Reporter
SMALL and medium-sized enterprises (SMEs) play an important role in any economy and contribute substantially to income, output and employment and the waning global demand has created a particular need for a special focus on SMEs in order to sustain the domestic consumption led growth.
With the global economy continue facing persistent risks ranging from the UK’s Brexit aftermath to China’s economic re-balancing scene, Namibia must intensify efforts to foster a conducive environment for SMEs to thrive so that they can help shield the economy from going down with the waning global demand. The stimulation of SMEs will compound domestic consumption. The gloomy global outlook presented by the Bank of Namibia in its latest economic outlook that translates into weak external demand presents an opportune moment for Namibia to increase focus on promoting responsive and comprehensive SME policy packages which will help boost the domestic demand from SMEs as a means to sustain the economy under these difficult economic times.
Gloomy global outlook
The Bank of Namibia’s recently released economic outlook affirmed the gloomy global outlook which translates into weakening external demand for Namibian exportable products. Namibia relies heavily on the mining sector for its export earnings while agriculture and tourism bring in an average 16 percent of Gross Domestic Product (GDP) combined. Mining, which is by far the fattest cash cow for the country, brings just above 16 percent in export earnings with latest statistics showing that the extractive sector brought about N$8.7billon dollars’ worth of foreign currency. This condition leaves the economy at the mercy of the external demand and leaves the country vulnerable to changes thereof. With the world gross domestic product expected to grow by only 3.1 percent and 3.4 percent in 2016 and 2017, respectively with little prospect for a turnaround in 2016 promotion of SME driven consumption thus become crucial. In this challenging time, a comprehensive policy package aimed at boosting SME growth is urgently needed to boost domestic consumption and counter the negative impact of the waning demand from external consumers and reduce vulnerabilities.
Construction sector losing steam
Focus on SMEs-led domestic consumption to anchor growth will become even more necessary in view of projected contraction (-7.5 percent and 3.5 percent in 2016 and 2017) in the construction sector– the sector that has underpinned growth for the past few years. The Bank of Namibia has projected that activities in the construction sector will slow down as the construction boom driven by large projects particularly in the mining sector comes to completion. Furthermore, public infrastructure will be limited as Government attempts to adhere to the fiscal consolidation path. In this regard, an SME friendly package is crucial to ensure that the SMEs that have become an integral part in the supply chain of these large corporations continue to drive growth and moderate the contraction. Although SMEs may not generate as much money as large corporations, they are a critical component of and could be a major contributor to the strength and resilience of the local economy against external adversaries.
SMEs to support resilience in the wholesale and retail trade
Although growth in wholesale and retail trade is expected to slowdown in both 2016 and 2017 according to the Bank of Namibia, it is expected to retain a respectable growth of about 6.6 percent in 2016 and 6.8 percent in 2017, respectively. Considering that this is the playing ground for many SMEs, any policy support aimed at providing a conducing environment for SME will certainly make material impact on boosting SME contribution to domestic consumption led growth and ensure economic resilience.
Domestic demand catalyst for Harambee Prosperity Plan (HPP)
Domestic consumption led growth driven by thriving SMEs is the ultimate demand – which will propel Namibia to the realisation of it long-term development goals. While attempting to achieve the HPP and Vision 2030 goals it is crucial that Government attach greater significance to expanding domestic consumption base, especially SMEs driven consumption. This is crucial due to the practical fact that external demand which have for long supported growth is considerably waning and global risk lingers on. Our country’s economic growth has long been powered, in the main, by external consumption which at the moment remains low.
(This article is compiled and written by Standard Bank’s Manager of Economics and Market Research Mally Likukela)
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