Shihepo Kavambi
Namibia’s economic performance has evolved over time to reflect developments in the real sector. Although growth that averaged 3.3% per year since 1990 is a welcome observation, it has not been without drawbacks.
Dividing the 30 years to 2020 into five-year intervals shows that the economy had its fair share of swings in growth trends.
The 1990 – 1995 period witnessed respectable average annual real growth of 4%, driven by recovery in commodity prices and improved business & investor confidence about Namibia’s future after independence. Mining, agriculture and manufacturing made up significant portions of the economy pre-1990 and the early to mid-1990s.
In 1996 – 2000, GDP grew at a marginally slower rate, averaging 3.5% per year due to subdued output by agriculture and construction.
The economy then recovered (2000 – 2005) to record a strong annual average growth of 5%. An outlier in this period was 2004, as the growth rate peaked at 12% (the highest for Namibia since 1980) on the back of mining output, favourable commodity prices and Ramatex’s textile production.
The 2006 – 2010 period saw low and negative growth rates, with real GDP remaining depressed until 2009 on the back of the 2007 – 2009 financial crises and low output by mining, agriculture, fishing and tourism.
In 2010, a moderate recovery started and peaked in 2014. Thereafter, GDP growth has been trending downward, owing to below-par performances by the services sector, mining, construction, impact of drought on agriculture, plus effects of COVID-19.
GDP growth has moderately improved since 1990 before trending downward after 2015, and the average annual growth rate in GDP per head has failed to keep pace with the population growth rate since 2002; more people to take care of, but with less resources. The 8% contraction in 2020 is the highest for Namibia since 1980.
A look at sectoral composition shows that collectively, the agriculture and mining sectors’ annual average contribution to GDP shrank to 18% now (30% prior 1990). Manufacturing’s average annual share of GDP is now 12% (10% prior 1990). This says we have not meaningfully improved our manufacturing capability in the last 20 to 30 years. In contrast, the services sector has been gaining. On average, the services sector now accounts for 34% of the economy each year (26% pre-1990). The sector’s current contribution to GDP is 1.7 times bigger than contributions by agriculture and mining combined, making it the main driver of the economy lately. Growth in the services sector has been enabled by low interest rates aimed at stimulating economic growth.
The low interest rates incentivised consumers to take up debt until loans to the private sector (households and businesses) grew threefold to N$106bn by 2021. Households, which accounted for 60 – 65% of issued loans, mostly bought houses and other asset-based goods.
Investment in productive capital goods; machines, equipment and factories (proxied by fixed capital formation) which are catalysts for enhancing agriculture, mining and the manufacturing sector’s output, moderately grew before contracting by an average of 15% per annum since 2015. This is evidence that the private sector has not been investing in productive capital goods. The lack of investment in productive capital goods amidst growing debt, fuelling the services sector, explains the shrinkage of agriculture, mining and manufacturing’s share of GDP.
In summary, the economy has marginally been growing, but is now on a downward trend; economic growth is not keeping pace with population growth; and the economy is increasingly dependent on the services sector, which is fuelled by debt, while investment in productive capital goods is dwindling. Looked at from a different angle, this evokes a perpetual poverty challenge as debt spending on housing mortgages at the expense of investment in productive capital goods leads to low aggregate capital investment, which leads to low economic growth and increased unemployment.
With an unemployment rate above 33% (+46% for youth), it is imperative to break the above cycle, such that growth is also stimulated by productive sectors that have capacity to induce a greater employment-creation effect. Unless there is a shift in the policy focus, we will continue witnessing economic growth with limited impact on addressing unemployment and poverty.
* Shihepo Kavambi – M Com (Financial Economics & Investment Management); University of the Free State, is with Sovereign Asset Management. The full research note can be requested at info@sam.com.na