By Hilary Mare in Ongwediva
ACCORDING to Simonis and Storm Securities (SSS), the fluctuation of the exchange rate impacts the country’s terms of trade in two different ways and when the ZAR strengthens, Namibia is able to import more units of goods for every export the country makes whilst on the other hand when the ZAR weakens, the country must export a greater number of units in order to match its imports – a situation that has plagued Namibia in the recent past.
In a report titled, ‘Namibia’s terms of trade vulnerable to exchange rate (ZAR/NAD) fluctuations’ Frans Uusiku an economist with the institution reiterated that it is clear that the cost of Namibian imposts are more sensitive to exchange rate fluctuation than the export revenue: 0.84 for imports and 0.79 for exports.
“This is partly because the country imports mostly soft commodities (e.g. food), while its exports are mainly dominated by hard commodities (e.g. industrial inputs). As such, inflation in Namibia is highly imported from international markets. “This imbalance mix of Namibian imports in relation to exports exerts pressure on the current account, particularly during the periods of currency depreciation. There is thus a strong investment case to be made about increasing Namibia’s export capacity to commensurate for the extra import costs incurred due to a lost in its currency value,” he said.
All things being equal, and considering the trade deficit of N$39.0 billion registered at the end of 2015, annual exports need to grow by at least 67 percent for Namibia to become a net-exporting economy.
“Regarding the question on Namibia export profile being highly characterised by hard commodities, which are traded in USD, this makes the weaker ZAR more favourable for Namibia’s export sector and also for rebalancing the current account. Therefore, if we consider the 2015 import and export levels (N$ 97.2 and N$ 58.2 billion, respectively) as a benchmark, the ideal exchange rate that would warrant a positive trade balance should be at least 1.7 times the prevailing exchange rate ( ZAR 14.07/USD). This would bring it to ZAR 23.91/USD. “While this may seem unrealistic to attain given that imports are more sensitive to exchange rate fluctuations than exports, the best possible policy option at this point in an attempt to achieve a positive trade balance would be to position Namibia as an export hub for both industrial and consumer goods. In the absence of a strong export base, Namibia’s GDP growth would continue to be mainly driven by Government and consumer spending – a situation that is not sustainable in a costly borrowing environment.
“Henceforth, we believe that the positive production outlook of the Namibian mining sector, particularly in respect of gold and uranium, is likely to benefit from a weaker Rand, and, therefore, help to ease pressure on the current account,” said Uusiku.
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