By Jade McClune
DEBT levels are rising and donor funds dwindling. There needs to be greater and urgent emphasis on using domestic sources of finance to boost economic activity in the country, the Development Bank of Namibia’s Simeon Kahona told the Erongo Economic Conference here last week.
To boost economic development and strategic local infrastructure projects, DBN had offered around N$7.7 billion in loans and advances to businesses by March 2018; and over N$8 billion by August. In total, DBN loaned out N$14 billion for local investment since 2005, half of which went to the Erongo region, Kahona said.
Speaking at the same conference, First Rand analyst Namene Kalili said despite the lack of sufficient water infrastructure and the need for more reservoirs to sustain growth at the coast, he observed that Erongo region has had consistently higher economic growth rates than the rest of the country over the past two decades, but that growth was “fizzling out”.
Kalili argued that “government can’t produce growth anymore, and bemoaned the fact that the country was sending its savings and investments abroad, noting that N$23 billion left the country this year that could have been productively invested locally. Household savings have meanwhile fallen to below zero.
He said the Q2 numbers confirmed that the country has been in nine quarters of recession. National accounts confirmed a slight deepening of the recession and growth forecasts have been revised downwards to 0.9 percent. The rating agencies have also affirmed their views on Namibia’s economic outlook: Fitch rates Namibia BB+ with a stable outlook; Moody’s has a Baa3 negative outlook.
Inasmuch as car sales are a general indicator of economic activity and growth, he noted that car imports to Namibia have fallen from 3000 per month to 800, and that the trade imbalance is still growing as currently “for every six dollars of export, we import ten dollars’ worth.”
He said despite the economic downturn, there were some “green shoots” in that global growth has started to rise to 3.7% and this should provide some “good tailwinds” to lift Namibia out of the downturn. He said positive developments in Botswana, Zambia would also benefit Namibia, while the rise in oil prices would strengthen Angola’s position with positive spin-off effects for her neighbours.
Some key growth drivers in recent months have been the mining sector, electricity and water utilities and construction, Kalili said, but growth was lagging in manufacturing, wholesale and retail, trade and fishing. He expected limited growth in mining, manufacturing, health and utilities in the immediate future.
He said “inflation is starting to moderate” and that interest rates were expected to rise in South Africa in November from near zero at present, and further predicted that Namibia would follow in December to avoid the Namibian repo rate falling below SA’s repo if SA hikes rates again in January.
The process of fiscal consolidation whereby government spending is being reduced, as well as consumer indebtedness (20 percent of household income goes to debt-servicing), low spending power and disposable income, and a lack of business confidence, acted as “drags on economy”, he remarked.
He also noted that government expenditure exceeds its income and that N$25 billion of debt “would mature” in the next 12 months. In the period 2021-25 the Eurobonds also need to be repaid. Ideally, government should consolidate its debt position, but that the low-growth scenario makes it difficult he said.
In response to a question from Confidente about the rapidly rising debt profile of the country, Kalili said debt is not necessarily a bad thing, provided it is used to finance productive expenditure and critical infrastructure rather than for consumption and operational expenses.
Kalili also expected a major drop in revenue from the Southern African Customs Union (SACU) in the coming period and argued that as a result of all these factors economic growth would be hard to come by in the current economic climate. He expects the recession to last “six lean years, with two gone and four to go”.
Confidente. Lifting the Lid. Copyright © 2015