Namibia’s commodity-dependent economy is contracting as environmental and geopolitical pressures increase. Can the authorities turn the situation around? Jason Mitchell reports.


For the past three years, Namibia’s economy has been battered by a perfect storm, consisting of the country’s worst drought in decades, low commodity prices and the lacklustre economic performance of its southern neighbour South Africa. 

Thanks to such factors, the country’s economy has been contracting since late 2016. And while the Bank of Namibia has forecast a return to growth in 2019, weaker forecasts for the country’s all-important mining sector, together with ongoing concerns about South Africa’s economy, have made others more pessimistic. 

With a landmass more than double the size of Germany and a population of about 2.5 million, Namibia is one of the world’s most sparsely populated countries, with only Mongolia having a lower population density.

Largely reliant on mining and agriculture, Namibia witnessed major economic expansion in the 5% to 6% range annually between 2011 and 2015, thanks for the most part to high commodity prices. Growth plummeted to 0.6% in 2016, according to the International Monetary Fund (IMF), as prices fell, with the economy entering recession in 2017.  

“The economy is undergoing a rebalancing process and has been contracting,” says Geremia Palomba, the IMF mission chief for Namibia, who visited Namibian capital Windhoek at the end of May to conduct the fund’s 2019 Article IV consultation. “In 2018, real gross domestic product [GDP] declined for a second consecutive year, as past economic stimuli dissipated, and the government continued consolidating to stabilise public debt dynamics.”

Numbers down

The Namibian economy contracted by 0.9% in 2018 and by 0.1% in 2017, according to IMF data. About 33% of the country’s economically active population is unemployed, according to the Namibia Statistics Agency, although this represents a 0.6% fall since 2014. 

The fall in the country’s mining receipts has been accompanied by a decline in agriculture. President Hage Geingob, who represents the left-wing Swapo Party and has been in power since March 2015, declared a state of national emergency in May, owing to the severe drought that many regions of the country have suffered since 2013.

The drought is affecting 23 arid and semi-arid counties and pockets of other areas. Farmers in some regions have already started to lose their livestock. The worst affected regions include Kunene in north-west Namibia, close to the border with Angola, and Omaheke, extending to the west of the Kalahari desert and bordering Botswana. 

Dairy farms in the Hardap Dam area north of the town of Mariental, in south-central Namibia, are on the verge of closure because of the dam’s low water level.

“Domestic economic activity slowed down during the first four months of this year,” said Ipumbu Shiimi, governor of the Bank of Namibia since 2010, in the bank’s June 2019 monetary policy statement. “Inflation remained stable, while private sector credit extension growth rose marginally during the same period. 

“The slowdown was reflected in sectors such as mining, agriculture, construction and wholesale and retail trade. Similarly, the manufacturing, tourism and electricity sectors also displayed declining activity during the first quarter. Going forward, the domestic economy is projected to remain weak in 2019.”

IMF forecasts

The IMF expects Namibia’s economic growth to mildly contract in 2019, before turning positive in 2020 and gradually reaching a long-term rate of about 3%, held back by low productivity and declining competitiveness. The downside risks to this outlook include lower-than-expected revenue from the customs and excise pool of Southern African Customs Union (Sacu) – consisting of Botswana, Lesotho, Namibia, South Africa and Eswatini – and fiscal slippages that would undermine the government’s efforts to bring the deficit down. The IMF estimated inflation to be 4.3% in 2018 and is forecasting 5.2% for 2019. 

Namibia has run a budget deficit since 2010, and this is expected to widen to N$10.7bn ($756m) in the 2019/20 financial period – equivalent to 5.9% of GDP – according to Namibian stockbroker Simonis Storm Securities (SSS). Foreign debt servicing accounts for N$6bn of the total annual budget.

General government gross debt, meanwhile, climbed to an estimated 51.6% of GDP in April 2019, compared with 47.1% in 2018, according to the IMF.  

“If the economic downturn prolongs, we continue to project lower revenue in the coming years,” said SSS in a recent research note. “This is on the back of increasing job losses (lower income and value-added tax revenue), closure of companies (lower corporate taxes), and continuous reliance on volatile Sacu receipts.” 

Klaus Schade, an economic analyst and current director of the Economic Association of Namibia, strikes a more optimistic tone. “While we are facing regional and global headwinds, we can stimulate our economy by strengthening investor confidence through increased policy certainty, support to our own businesses through increased local procurement by the public and private sectors, and targeted interventions,” he says.

Action plans

Key challenges facing Namibia include identifying specific policies to deliver fully the government’s fiscal consolidation plan and to roll out structural reforms to boost long-term growth, according to the IMF.

“The authorities’ consolidation plans strike a balance between stabilising public debt and supporting the economy, but several actions are needed to deliver this outcome,” says Mr Palomba. “Immediate measures should be taken to contain the fiscal deficit during the 2019/20 financial year within the budget limits, as spending pressures are rising.” 

The government’s policies should focus on rationalising high costs, particularly wage bills and transfers to public entities, he adds.

Namibia’s mining industry is also deeply concerned about proposed tax reforms. In March, the Namibian government announced plans to stop royalties from non-diamond mining companies from being tax deductible, and to increase the export levy for certain cut stones to 15% from 2%.

Mining is one of the few bright spots in Namibia's economic picture. It contributes 14% to the country’s GDP and grew by 22% in 2018 and by 13% in 2017, according to the Namibia Statistics Agency. A jump in uranium and diamond production by 64.8% and 13.7%, respectively, was behind the strong performance. Minerals account for 52% of the country’s exports, according to government figures. 

Southern heat

In addition to its own domestic woes, Namibia’s economy faces further risks from its exposure to its southern neighbour South Africa, not least the 1:1 peg between the Namibian dollar and the South African rand. 

South Africa experienced a technical recession in late 2018, with the economy contracting by 3.2% during the first three months of 2019, according to Statistics South Africa. 

“The South African slowdown is worrying, for it significantly cuts across all important and major sectors, and that negative growth is most likely to blow over on our side since our economies are deeply integrated,” said Namibian finance minister Calle Schlettwein in a press conference in early June.

Economic experts say systemic issues behind South Africa’s downturn are of the most concern for Namibia, including the country’s poor investment environment, exchange rate fluctuations, and the mounting worries about electricity giant Eskom. The power provider is expected to report a R20bn ($1.41bn) loss for the 2018/19 financial year that ended in March, according to South African energy analyst Chris Yelland. 

Uncertainty rules

Namibia relies heavily on South Africa for many goods and services, and its larger neighbour is its biggest trading partner. Imports from South Africa stood at N$49bn in 2018 and exports at N$15bn, according to the Namibia Statistics Agency.

“Nothing defines uncertainty more than back-to-back negative growing quarters,” says Dylan Mukoroli, a managing partner at Social Chapter Consulting, a Namibian social development consultancy. “Nothing fuels uncertainty more than not knowing what’s planned to steer the economy around. Namibia’s relatively small economic muscle is greatly influenced by what happens outside the country’s borders. 

“There exist certain differences between uncertainty in South Africa and Namibia, but the aftershocks remain the same. South Africa’s policy directives and economic woes greatly affect Namibia’s ability to mitigate its own economic struggles. The Common Monetary Area that pegs the Namibian dollar to the rand has brought problems, just as much as it brought some good times.”

He adds that significant issues in South Africa – including land expropriation without compensation, national elections and debt-ridden state-owned enterprises – are deterrents to economic growth in that country, and as such will have important implications for Namibia’s economy.


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