Windhoek
The economic slowdown in China has Namibia holding its breath, given that much of Namibia’s predicted 5 percent growth is in part premised on its commodities fetching good market value in China.
Namibia’s finance minister Calle Schlettwein is nevertheless optimistic that while Namibia has not been spared being infected by the Chinese economic flu, the prognosis is not very poor because of limited trade volumes between the two countries
China, the world’s second largest economy, plunged world markets into an abyss yesterday, triggering more fears of a global recession.
Compounding international concerns is the pronouncement by the International Monetary Fund head Christine Lagarde, that global growth this year would be likely weaker than previously anticipated, less than two months after the IMF cut its global forecast for 2015 to 3.3 percent.
“We are definitely impacted by the situation in China because their demand is slowing, but the volumes of trade between us is relatively small, hence so far there is no indication that [bilateral] trade is slowing,” Schlettwein said yesterday.
He said there remains space to increase trade because of the recent agreement between the two countries that allows Namibia to export its beef to China. “The volumes of dimension stones and minerals are relatively small, and they are tied into long-term contracts, so I do not think we have a big issue,” he said.
“I think if we mitigate it [market crash] early enough we will manage it,” said Schlettwein.
James Cumming, a local analyst at stock brokerage Simonis Storm Securities, opined that the current situation in China would have a great effect on emerging economies that rely on mining for economic growth.
Cumming says the slowdown in China has affected demand for commodities, which resulted in prices dropping.
“A significant manufacturing overcapacity has been created in areas as diverse as steel and solar panel production – meaning that producers of these items globally are struggling with below cost prices for their goods. An example is the steel producers in South Africa, who are facing difficult financial prospects and layoffs.”
“There have been so much stimulus and monetary support pumped into the system, that the global economy has become immune to these shots in the arm,” he said.
Cumming said the Chinese government has supported loss making and inefficient businesses through a massive amount of loans and grants, to the extent that these businesses have never had the need to reform and become efficient.
“Now that the Chinese government is unwilling/unable to support these industries, there is likely to be an upwind and some turbulence along the way,” he said.
Namibia Chamber of Commerce and Industry chief executive officer, Tarah Shaanika, said the Chinese economic woes are a reminder for Namibia to start diversifying the destination of its commodities and also to start local value addition to raw materials.
“We need to look at other markets, like the African market, for instance. Everyone, except us in Africa, sees that Africa is an emerging market but we are not doing enough to prepare for the big consumer demand,” said Shaanika, expressing particular concern over the impact of the stock markets on the demand for commodities.
“This will have a significant impact on our economic performance,” he said.
Meanwhile the Chinese ambassador to Namibia, Xin Shunkang, yesterday dispelled any fears of an economic crisis when contacted for comment. “Our economy is very good and there is no economic crisis in China. Don’t trust media reports from other countries because we are the ones who know our economy best,” said the ambassador.
International economic statistics indicate that by the end of March this year the value of trade between Africa and China stood at about US$200 million.
As with many African countries, China has been instrumental in Namibia’s growth over the years, as Chinese companies have managed to secure state contracts worth billions, specifically for the construction of roads and other national infrastructure, and for direct investments in the mining sector.
Schlettwein however disagreed with widespread speculation that China’s days as a global economic player are numbered, and maintained that China will always be a significant player in the global economy.
- Additional reporting by Edgar Brandt and Mathias Haufiku