THE TROUBLE WITH TRADE
M
uch has changed in the last 18 months. Namibia’s trade balance, the difference between its imports and exports, has not. Global supply chains froze overnight. Supply bottlenecks formed around the world as ports shut down to control COVID-outbreaks, the Suez Canal was rendered temporarily impassable and lockdowns set off a sea-change in global consumption habits. Through it all Namibia’s trade balance remained constant. The figure looks broadly the same now as it did in 2014. Since imports and exports tend to rise and fall together, a trade balance is not so much a dynamic measure of economic performance but rather a structural characteristic of a nation’s economy. A trade deficit may sound ominous, but it says little about the macroeconomic trajectory of a nation if viewed in isolation. The Gross Domestic Product (GDP), the most widely accepted proxy for prosperity, is the sum of national consumption, investment and government spending less the difference between exports and imports. A widening trade deficit, where imports are growing faster than exports, in an economy where GDP is growing rapidly is generally balanced
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out by increases in investment and fixed capital formation. Not all countries can export more than they import, and a country that has a negative trade balance may also have a populace that is spending healthily, attracting foreign investment and seeing meaningful government benefits. Trade deficits do not preclude prosperity. However, a growing trade deficit in an economy that is contracting, or experiencing low growth, is more of a problem. Namibia has run a trade deficit throughout the year. This was also the case in 2020, at the bottom of what was a 4-year recession, as it was in 2015 after years of sustained growth. Namibia has a structural trade deficit: we import most of what we consume. In the years prior to 2015 the trade deficit mattered little. Foreign direct investment flows brought money into the country and contributed to rapid GDP growth. But now, in 2021, the year after the formal economy shrank by 8.5% and with the country mired in a low growth environment, a wide trade deficit is more of a cause for concern. If the economy shrinks it must follow that either consumption is decreasing, government spending is faltering or investment is drying up. If the trade deficit outweighs the sum of all foreign investment and other capital flows into the country, then Namibia’s foreign
