… As major sectors look to recover in the last quarter
By Hilary Mare
THE mining sector is expected to rebound strongly in the last quarter of 2017, while increasing its share of the economy to 13 percent, after having plummeted to below this mark between 2013 and 2016.
The mining sector’s share of the economy declined from 13.2 percent in 2013 to 11 percent in 2016, in part due to the collapse in commodity prices and the disruption of mining activities, such as diamond production.
“This (the breaching of the 13 percent threshold) is supported by an upturn in uranium and diamond production, and is by extension due to the stable commodity prices. We thus believe the mining sector, together with the agricultural and tourism sectors, will carry the economy in 2017,” Simonis and Storm Securities trainee analyst, Indileni Nanghonga, told Confidente this week. “We also expect a continued firm economic recovery in the agriculture, tourism and manufacturing sectors.” In its latest economic report for quarterly economics and fixed income (4Q2017), titled ‘Emerging Economies on the Growth Frontier’, the firm said it expects the mining sector to rebound strongly by 21.4 percent in 2017, owing in part to an expected increase in diamond and uranium production.
“This is also consistent with the incoming quarterly GDP data,” the report acknowledged.
The mining and quarrying sector registered a decline of 6 percent in real value-added terms in 2016, compared to a contraction of 4.9 percent recorded in 2015. This was the highest decline since a -31.7 percent decrease in 2009.
The mining industry generated N$28.85 billion in revenue during 2016, up from N$25.28 billion in 2015.
“We expect this to increase further to N$29.2 billion in 2017, as diamond and uranium production increases. Henceforth, the mining sector remains an important generator of government revenue. In 2016, Namibia Chamber Mines members paid a total of N$3.2 billion in taxes and royalties, a 15 percent reduction from the N$3.76 billion paid in 2015. According to the chamber, the decline was largely as a result of the reduced diamond output. This amount, however, excludes PAYE, which totalled N$844 million and dividends of approximately N$1 billion. This brings the total contribution by the mining sector to government coffers to roughly N$4.9 billion,” states the report. Diamonds accounted for 59.6 percent of total mining activity in Namibia in 2016. The diamond mining subsector contracted further by 9.6 percent in 2016, compared to a 4.1 percent contraction in 2015.
The Namibia Statistics Agency (NSA) cited in the 2016 national accounts that this was due to the low production of carats registered in 2016, owing to the loss of production days, which stemmed from the maintenance of a vessel. The production capacity is thus expected to increase in 2017 to normalised historic levels. Current monthly diamond production is trending above its seven-year average, suggesting a much better production outlook for this subsector. This would also mean that its royalty contribution to government will improve, as diamond sales increase. Royalties represent 10 percent of diamond sales (turnover).
Despite low global demand and depressed commodity prices, the uranium mining subsector registered a strong real growth rate of 13.6 percent in 2016, compared to a decline of 18.1 percent recorded in 2015. This performance is attributed to an increase in the production volume of uranium. Husab Uranium started production in December 2016 and has a targeted production volume of 15 million lbs U3O8 per year. “We expect higher growth in the uranium subsector, as Husab starts exporting in the fourth quarter of 2017. Husab Uranium is expected to ramp-up to full production in 2019, which will significantly boost mining’s contribution to GDP by approximately 5 percent. We do, however, see the depressed uranium price as presenting a significant risk towards our bullish view on the uranium sector,” the report further states.
Meanwhile, production at the Skorpion and Rosh Pinah mines remain stable (trending above historic averages), despite the fact that their mining lifespans are expected to lapse in the coming year.
However, details on the exact date of expiry remains sketchy at this point, while some pundits are indicating that these contracts are likely to be extended cumulatively on an annual basis, depending on the mining climate.
Recently, Finance Minister, Calle Schlettwein, highlighted that as for the remainder of the year and for 2018; in particular, the country will see scattered green shoots budding on the economic landscape. a
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