Nam weathers global storms
After contracting by 1.1 percent in 2009 due to the impact of the global economic crisis, the Namibian economy recovered strongly, growing by 6.6 percent in 2010 and 4.9 percent in 2011.
The strong growth was boosted by stimulus measures implemented by the government as of 2009 and the high commodity prices arising from improved global demand for mineral products.
Real GDP growth, however, (was) expected to slow down to around 4.7 percent in 2012, reflecting the strong performance in mining and construction activities in spite of the downside risks created by the faltering global economy.
The agriculture and forestry sector (excluding fishing and hunting) contributed 4.2 percent to GDP in 2011. It performed poorly in 2012, growing by less than one percent, compared to 8.5 percent in 2011.
Growth was held back by the slowdown in livestock production, which contributes over half of agricultural output. Cheaper meat substitution and competition from Botswana beef caused cattle exports to South Africa to decline and was the main cause of the poor performance of the livestock sub-sector.
On the other hand, improved rainfall and favourable harvest conditions led to strong crop yields in 2012. Access to land, however, continues to be a major challenge to boosting rural agricultural productivity.
Output in the mining and quarrying sector is estimated to have increased by almost nine percent in 2012 after contracting by 8.5 percent in 2011.
The growth in mineral production is attributed to a recovery in both diamond mining and uranium sub-sectors.
Diamond mining activities registered strong growth due to increases in onshore mining production following the reopening of the Elizabeth Bay mine, while offshore activities benefited from the reinstatement of an offshore mining vessel that was discontinued in 2009.
The expansion of uranium mines in 2012 (including the Langer Heinrich Mine) led to a recovery in uranium production following a sharp fall in 2011. This provided a boost to other mining and quarrying activities.
Uranium prices, however, remained depressed in the aftermath of the Japanese Fukushima I Nuclear Power Plant disaster, resulting in a third of uranium mines being put on care and maintenance for about two years.
Mining and quarrying contributed 9.5 percent to GDP in 2011 (diamond production accounted for 7.2 percent of GDP) and provided over half of Namibia’s exports in 2010.
The manufacturing sector is estimated to have expanded by almost 3.3 percent in 2012, compared with about one percent in 2011.
Investment outlays for refurbishments and extensions of plants undertaken in 2011 led to an uptake in the production of beverages and dairy products.
A growing export market, the resumption of cement exports to Angola and the commissioning of a new poultry farm – which has applied for infant industry protection, in line with the 2002 SACU Agreement – have also bolstered the sector. It contributed 12.1 percent to GDP in 2011.
The construction sector was the main driver of domestic growth in 2012.
It is estimated to have expanded by eight percent, buoyed by increased government spending on public works through the Targeted Intervention Programme for Employment and Economic Growth (TIPEEG) and increased investments in real estate development (eg, shopping, hotels and apartment complexes).
TIPEEG, which was rolled out by the government in March 2011, seeks to address Namibia’s high unemployment rate by creating and retaining more than 100 000 job opportunities over a three-year period, starting in the 2011/12 financial year.
It will cost R14.6 billion, with the money spent on infrastructure and other public works programs targeting agriculture, tourism, transport, sanitation and housing.
The construction sector’s contribution to GDP has risen from two percent in 2000 to nearly four percent in 2011.
The service sector registered a strong growth rate of 5.4 percent in 2012.
The wholesale and retail trade sector is estimated to have grown by four percent in 2012, slightly higher than in 2011, mainly reflecting improved consumer spending.
The transport and communications sectors also expanded by about four percent, consistent with the overall performance of the economy, especially mining and manufacturing.
Against the backdrop of global economic uncertainties emanating from the euro area debt crisis, the hotel and restaurant industries recorded a growth rate of less than two percent in 2012.
European tourists are the main source of growth for the sector.
All in all, the service sector contributed nearly 56.5 percent to GDP in 2011.
With regard to expenditures, credit extended to the private sector remained strong and grew by about 13.9 percent during 2012, up from 11.3 percent in 2011. The private sector took advantage of the prolonged low interest rates that prevailed in the country in 2012.
The Bank of Namibia (BoN) expressed concerns about the sustained expansion in credit, particularly relating to non-productive installment credit for individuals, which may end up putting unnecessary pressure on the country’s international reserves.
In spite of this, after keeping the Repo rate unchanged at six percent since December 2010, BoN decided to reduce the rate by 50 basis points to 5.5 percent in August 2012.
The high rate of spillovers from weakening global economic conditions made this easing of monetary policy necessary to further shore up domestic economic growth.
Namibia’s growth prospects for the medium-term remain favourable.
GDP growth is projected to remain moderate at about 4.2 percent per annum in 2013/14 due to the deteriorating prospects of the global economy.
Medium-term growth prospects depend crucially on the expansion in construction activities in the context of TIPEEG and increased diamond and uranium production, supported by additional investments in infrastructure.
Reforms to further improve the business environment are also needed.
Exploration activities currently underway for new mineral resources (including oil) should contribute to growth in the natural resource sector and strengthen the favourable outlook.
The faltering global economy and its impact on commodity demand and prices pose substantial downside risks to the positive medium-term outlook. If the global economy does not improve, the investment plans on which Namibia’s favourable growth prospects partly depend could be scaled back.
Other risks to medium-term growth prospects include lower SACU revenues relative to the pre-crisis period, weather-related shocks and industrial action potentially spilling over from South Africa.
Namibia’s growth prospects also continue to be negatively affected by the country’s massive poverty, high unemployment and inequality, as well as by infrastructure bottlenecks.
• This article has been excerpted from the African Economic Outlook 2013: Namibia