…A closer look at a cautiously optimistic 2018 outlook
By Hilary Mare
THE Namibian economy has endured one of its most precarious states, from a perfect storm in 2016 and 2017, to resurgent growth prospects this year going forward.
Following an estimated contraction of 0.8 percent in 2017, government projects a moderate recovery rate of about 1.2 percent this year and further strengthening to levels above 3 percent over the medium-term.
Recently, Finance Minister Calle Schlettwein indicated that except for uranium, commodity exports are benefiting from price improvements and new mining activities for mineral, such as lithium and tin.
“We expect final consumption demand to remain moderate in the near-term, given a largely neutral policy stance. In this environment, investment injections in the real and services sectors of the domestic economy are critical to lifting growth prospects. Activity in the agricultural sector remains firm, thanks to better rainfall over the past two years. The construction sector is bottoming out of a protracted contraction and so is the wholesale and retail sector, whilst the current account balance and the international reserves are significantly better than two years,” he said, adding that better nominal GDP numbers and revenue outturn for the past fiscal year, relative to targets, support fiscal benchmarks and the implementation of the budget.
“As you are aware, the essence of the 2018 budget is to provide for a targeted growth stimuli and resource realignment from operational consumption to capital investment budget within a generally consolidative fiscal stance, and we are pressing ahead with project-financing arrangements by the budget and financial institutions, such as the African Development Bank (AfDB). These reassuring realisations and policy interventions are consistent with the policy stance to work towards regaining our investment grade sovereign credit rating and stabilise growth in public debt at no more than 45 percent of GDP,” Schlettwein added.
However, in the midst of this optimism it is worth noting that first quarter gross domestic product (GDP) in 2018 contracted by 0.1 percent. Although the economy is still experiencing a recession, a -0.1 percent is an improvement from -0.4 percent during the same period last year and -1.5 percent in that last quarter of 2017.
The Namibia Statistics Agency (NSA) revised their fourth quarter GDP contraction from 1.0 percent to 1.5 percent mainly because newly available data revealed an underestimation of the contraction in electricity and water production by 13.5 percent. The average annual GDP growth rate, however, remained -0.8 percent in 2017.
Under this pretext, Capricorn Asset Management has affirmed that it can hardly be expected that huge leaps in economic growth will be attained this year and that some sectors which had recorded high growth rates in 2017 were recovering from extremely low bases in the first place and a similar observation can be made about the recent turnaround in the construction sector.
“In the absence of the drought and with on-going activity in uranium production, agriculture and mining can be expected to expand moderately. For now construction should be supported by the same factors (i.e. government spending and completing buildings) which brought that sector out of recession.
“A significantly improved business sentiment since the last quarter of 2017 as well as low inflation should bolster an expansion in the wholesale and retail trade sector. Given the strong 3.9 percent global growth projection, it is possible that hotels and restaurants might see an increase in traffic from tourists and as the demand for exports picks up, our ports should see more activity giving the transportation sector a boost.
“On the other hand, our skepticism concerning the magnitude of growth stems from the escalation in protectionism which would hike import costs and stifle exports and export related activity. Then there’s a risk right at home – fiscal consolidation – which despite being necessary has the offshoot of adversely impacting several tertiary sectors and even construction in the secondary sector,” the asset managers said last week.
Imperatively, the primary sector’s abysmal first quarter can be traced to slow growth in agriculture and mining and shrinkage in fishing output. Agriculture came down from 16.5 percent growth in the first quarter of 2017 to a mere 1.4 percent during the same period this year. A decline in crop production from 15.8 percent to 10.9 percent contributed to the slowdown in agriculture but the main cause was a surge in cattle exports to Namibia’s northern and southern neighbours.
The negative growth of the fishing sector is attributed to a drop in deep-water landings which was intensified by higher fuel costs and an unfavourable foreign exchange rate. As for mining, growth fell from fourteen percent in the first quarter of 2017 to 4.7 percent this year due to declining production of zinc, lead, gold, marble and granite. Furthermore, value added by diamond mining also decreased to 4.6 percent (previously above 10.0 percent) during this period as a result of producing relatively lower carats. Uranium production turned out to be the light at the end of a mining tunnel having grown 56.3 percent thanks to activity at the Husab mine.
For a change the secondary sector recorded positive growth on average while overall the primary and tertiary sectors contracted. Construction emerged as the unlikely hero among the secondary sub-sectors having registered a growth of 23.7 percent compared to – 36.9 percent last year and – 13.5 percent the year before. Government expenditure on construction and value of buildings completed grew by 36.6 percent and 104.5 percent respectively.
Manufacturing contracted by 2.1 percent and value added by electricity and water declined to 1.9 percent from strong growth rates of 3.9 percent and 16.0 percent respectively. Growth in the manufacturing sub-sectors of leather, meat processing and beverages was positive but unfortunately it was not strong enough to offset contractions in non-ferrous metals and non-metallic minerals. Similarly electricity’s contraction weighed the growth of that sector down despite an almost 40 percent growth in the production of water.
Last and indeed least, the tertiary sector experienced the slowest growth during the first quarter of 2018. Only the transport and communications as well as wholesale and retail trade showed improvement, the remaining tertiary sectors were worse off in first quarter of 2018 than in the corresponding quarter of 2017. Hotels, financial intermediation services and real estate grew by -5.3 percent, 1.4 percent and 1.1 percent respectively from 3.3 percent, 1.8 percent and 2.6 percent respectively. Public administration, education and health all experienced contractions however this is understandable in light of contractionary fiscal policy outlined in the 2018/19 budget.
Offering some reprieve, the director of the Economic Association of Namibia, Klaus Schade, said that the quarterly data is preliminary and based on a smaller sample than the final annual national account data and should therefore be treated with some caution.
“Final quarterly data for the first three quarters in 2017 showed a stronger economic performance than the initial data. In contrast, revisions to the fourth quarter data 2017 showed a stronger contraction than initial data suggested – 1.5 percent instead of 1.0 percent. But this figure might still be up for change.
“The first quarter data for 2018 suggest that the construction sector is bottoming out. Real value added increased to N$1,2 billion, which is better than in any quarters during 2017. This could be good news for the labour market, since the construction sector is labour-intensive and hence growth is expected to result in job creation.
“This in turn would support the wholesale and retail trade sector, since additional jobs create additional income and hence additional spending power. Events beyond our control can dampen growth prospects during the remainder of this year. The ‘trade war’ started by the USA resulted in retaliatory measures by China, the EU and India. Quarterly oil prices have reached the highest levels since the fourth quarter 2014. Both events can result in a drop in demand, production and eventually commodity prices that are going to affect Namibia,” he said last week.
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