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NAVIGATING NAMIBIA'S ECONOMIC CROSSROADS
As Namibia approaches the end of a decade marked by stagnant GDP growth, we invite you to reflect with us on the present economic climate, the factors that have brought us here, and where we might be headed. While we make no predictions, we aim to extrapolate some loosely held expectations about the future from past trends to gain insight into what the coming years might hold.
Namibia’s economy is expected to grow by approximately 3.1% in 2024, marking the fourth consecutive year of growth following the Covid-19 pandemic downturn. National Accounts data also indicates that 2023 was the first year in which the real economy meaningfully exceeded the size it reached in 2015. The eight-year period between 2016 and 2023 serves as a case study in the detrimental effects of procyclical monetary and fiscal policies in an economy heavily reliant on cyclical commodities. During the boom years of 2010 to 2015, fiscal policy became overly expansive, often resulting in investments in unproductive infrastructure. This was compounded by loose monetary policy and a favourable commodity cycle that attracted significant foreign direct investment. These factors converged to produce a period of rapid growth.
However, when global monetary policy tightened following low interest rates (induced by the global financial crisis) and the commodity cycle turned against Namibia in late 2014, it became clear that fiscal budgets had become unsustainable. To maintain these expansive budgets, large amounts of debt were required, without the ability to further increase overall spending. The end of expansive fiscal policy coincided with the downturn in the commodity cycle and modest interest rate hikes, effectively halting Namibian real GDP growth by mid-2015. Without the tools of fiscal or monetary policy to stimulate further growth, Namibia entered a prolonged period of stagnation, which deepened with the Covid-19 pandemic, pushing the country into a recession.
Since 2019, just three industries – mining and quarrying, electricity and water, as well as information and communication – have driven the bulk of Namibia’s economic recovery. These are the only industries to have outpaced pre2015 growth rates over the past four years. If we assess the positive contributions to real GDP during this period (taking into account negative contributions from other sectors), mining and quarrying alone have accounted for over 78% of Namibia’s total GDP growth between 2019 and the end of 2023. Meanwhile, industries such as manufacturing, construction, and financial services have yet to recover to their pre-pandemic levels in real terms. This underscores the uneven nature of the post-pandemic recovery, where headline growth figures conceal significant struggles in large sections of the economy.
We provide this historical context to offer insight into the current economic climate. While we lack recent labour force data, it is reasonable to assume that unemployment is higher now than it was in 2015. The average Namibian has not seen a meaningful improvement in quality of life, as reflected in real GDP per capita, which has also declined from 2015 levels. Rolling droughts over the past decade have placed immense pressure on the many Namibians who still rely on agriculture for their livelihoods. On the ground, economic conditions are far from fully recovered.
That said, the outlook is not entirely bleak. On the contrary, there is a great deal of excitement surrounding Namibia’s future. The country has recently garnered international attention, especially regarding its oil, gas and green hydrogen potential. These nascent industries are poised to capitalise on Namibia’s natural endowments. Recent oil discoveries by major players such as Shell and TotalEnergies have heightened interest in the Orange Basin’s potential for petroleum production. Further discoveries by Portugal’s Galp Energia have only added to the anticipation of things to come.
Green hydrogen production represents another headlinegrabbing possibility for future prosperity. Strongly supported by the government, this industry has garnered much interest due to the decarbonisation potential of the technology. As a manufacturing process, it promises to provide Namibia with much-needed employment opportunities and foreign direct investment. Although it remains difficult to conclude how soon the technology will be cost-competitive, Namibia is ideally positioned to harness its abundant solar and wind resources – among the best in the world – to test the potential of green hydrogen as part of the global energy transition. What is more certain is the need for an enabling policy environment in which the oil, gas and green hydrogen sectors can be allowed to establish themselves. Of particular importance is Namibia’s local content policy, through which the government aims to ensure that the economic benefits of oil and gas production are appropriately shared between the country and the investors developing these projects. As we approach the national elections later this year, it is critical that the right balance is struck in the policy environment.
As discussed earlier in this article, the urgency to capitalise on opportunities for economic progress is perhaps greater now than at any point since Namibia’s independence. While there has been significant progress in living standards since then, much remains to be improved. The next ten years could be the country’s best yet, but achieving this will require a substantial effort from Namibia’s policymakers to ensure that current opportunities are fully seized and not allowed to slip away.
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