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NAMIBIAN ECONOMIC UPDATE
Emerging from the deepest economic contraction on record, Namibia’s economy grew by a modest 2.4% in 2021. The recently released first quarter (Q1) data from the Namibia Statistics Agency (NSA) shows that Namibia’s Real Gross Domestic Product (GDP) grew by 5.3% y/y in Q1 of 2022. The data further shows that Namibia has now experienced four consecutive quarters of growth on a year-on-year basis. This is unsurprising given the depressed base set during the Covid-19 pandemic and poor economic performance during the half-decade preceding the pandemic. Overall output in Q1 is expected to have been in line with Q1 2020, the last pre-pandemic first quarter, and 2.6% down from Q1 2019.
The moderate growth recorded in 2021 followed the unprecedented contraction of 7.9% in 2020, the largest in Namibian history. It is easy to forget, however, that 2020 followed four years of economic stagnation in which two of the three annual contractions experienced since independence were recorded. The compound annual growth rateexperienced between 2015 and 2021 was -1.1%, indicating that the Namibian economy was shrinking, even as the rest of the world continued to grow. This period of stagnation followed a period of rapid growth between 2010 and 2015 during which the compound annual growth rate reached 5.2%, well above the 4.1% compound annual growth rate experienced from independence to 2010.
During Q1 of 2022, 14 of the economy’s 17 sectors expanded. Most notably, mining and quarrying drove nearly half of the growth (contributing 2.2 percentage points of the 5.3% growth figure) on the back of strong commodity price growth over the preceding 12 months. Wholesale and retail trade, historically one of the largest contributors to GDP, only contributed 0.1 percentage points to GDP growth. This is the first Q1 growth in wholesale and retail trade since Q1 2016. Similarly, the construction sector continued to struggle, recording a contraction of 7.5% y/y in Q1. The sector has been posting annual contractions in output every year post 2015, and thus the further slowdown in activity recorded in Q1 2022 is reflective of the difficulties in the sector not yet alleviating despite a low base.
The Bank of Namibia currently expects the domestic economy to grow by 3.4% in 2022, with overall growth expected to be driven primarily by diamond mining and the manufacturing sector. Q1 2021 was the last quarterly Covid-19-induced contraction with subsequent quarters posting economic growth off the low base. The base for Q2 to Q4 2022 is thus higher, and growth from this base is likely to be a better reflection of the annual GDP growth we can expect for the year. Even if the central bank’s forecast holds true, the Namibian economy would still be 2.4% smaller in real terms than it was at the end of 2019, which already followed multiple years of stagnation.
It is our view that the only component in the GDP equation (Personal Consumption + Private Sector Investment + Government Spending + Net Exports) that can sustainably drive growth is investment. Low revenue growth and large budget deficits mean that government is not currently in a position to drive economic growth. This is also evident in the fact that the development budget expenditure is only half of government’s own target. Distressed consumers are also not able to spur growth and will be in an even weaker position to do so going forward in the rising interest rate environment. Namibia currently runs a trade deficit and while increased output from the mining sector and a weaker currency might reduce this deficit, it is only with meaningful investment into export sectors or import replacement sectors that such a reduction can be maintained. Thus, domestic and foreign direct investment are key to reviving the Namibian economy going forward.
In order to stimulate investment, one simple tool remains – that of policy. Investment-friendly policy is crucial to negate some of Namibia’s inherent competitive challenges such as a small domestic market, shortage of skills, water scarcity, etc. Investment-friendly policy is also necessary to unlock some of Namibia’s comparative advantages such as geographic location, mineral resources, fish resources, tourism potential, etc. Policy can make Namibia an attractive destination for foreign investment, and being a small economy, even a very small amount of foreign investment by global standards will go a long way.
Danie van Wyk - Head: Research
