Windhoek
The outlook for the Namibian economy remains positive as the country ramps up its infrastructure, investment and commodity production. This is according to a forecast by Namene Kalili, Senior Manager Research and Development at FNB Namibia Holdings.
“Improved transport networks and electricity generation, coupled with increased port and water storage capacity, should allow the country to better its position as an efficient and reliable logistics hub in the region,” noted Kalili. “Moreover, economic activity looks set to benefit from a significant increase in commodity exports as production commences at Swakop Uranium, Skorpion is expanded and volumes at B2Gold are ramped up,” he says in the RMB Global Markets Research Sub-Saharan Africa monthly outlook.
He added that growth in the short-term is supported by strong household consumption that benefitted from moderate job creation, income growth, lower inflation and robust credit extension. Regarding the trade deficit, he remarked that this has widened by 41.9 percent during the second quarter after export earnings fell by 39 percent, which underscores Namibia’s vulnerability to commodity markets after diamond revenues fell by 7 percent.
“GDP is expected to lift meaningfully over the next two years, driven by increased investment and exports. However, electricity shortages, low export commodity prices and rising inflation pose downside risks to the economic outlook,” Kalili cautioned.
Kalili says the annual inflation rate for July increased to 3.3 percent from 3.0 percent in June and the rise was attributed to increases in the prices of food and non-alcoholic beverages, which consequently pushed up prices in the hospitality categories.
“Rising utility and fuel costs are expected to push inflation from current low levels to 4.5 percent by year-end and reach 5.1 percent in 2016.”
Policy rates moved sideways as the central bank waits to ascertain the impacts of the two rate hikes earlier this year. “As mentioned, household consumption has remained robust, evidenced in private consumption growth of 12.8 percent in 2014, accompanied by an associated increase in imports of 15.7 percent. Such high levels of imports, particularly of luxury vehicles, suggest that higher interest rates are needed to help curb domestic demand and thereby narrow the current account deficit. The next interest rate hike of 25 basis points is expected around October,” said Kalili.
He concluded that the government continued to implement its expansionary budget to tackle persistent inequality, unemployment, education, health care and decent housing.
Although the fiscal deficit was estimated at 3.2 percent of gross domestic product — its seventh straight annual shortfall — it’s likely that the deficit will print lower after suboptimal capital budget implementation as the rail rehabilitation stalled and the mass housing scheme has been replaced with a more ambitious mass land servicing programme.