The Bank of Namibia has warned of potential economic repercussions for Namibia following the United States’ decision to suspend foreign aid to numerous countries, including those in Africa. 

BoN governor Johannes !Gawaxab, the move could significantly affect Namibia due to its currency’s peg to the South African rand and the close trade relationship between South Africa and the US.

Speaking at the monetary policy announcement yesterday he said, “We need to watch the trade relations and the exchange rate movements, and see what the impact thereof is on the Namibian economy, especially the relationship between South Africa and the US, which will have a profound impact on the Namibian economy.” 

The governor highlighted the substantial presence of US companies in South Africa, noting: “I understand there are about 600 US companies doing business in South Africa, and those companies employ about 200 000 people in SA”. 

He pointed out that trade relations between South Africa and the US account for approximately 5% of South Africa’s GDP, underscoring the significance of this economic relationship.

While acknowledging that it is too early to determine the full extent of the impact, the governor stressed the importance of monitoring the situation closely. 

“So far, there are no policies implemented; It’s too early to tell, so we need monitor how that will fit into our inflation, growth and the Southern African Customs Union (Sacu) revenue in the next few years,” he said. 

He noted the presence of “quite a lot of policy uncertainty” and the necessity for close monitoring of the situation. 

Furthermore, Simonis Storm’s (SS) recent report stated that Namibia faces a complex trade outlook in 2025, as its economy is significantly influenced by regional and global dynamics. 

“Given Namibia’s deep integration with South Africa through, economic pressures in South Africa, exacerbated by global trade disruptions and US tariff policies, could significantly impact Namibia. As Namibia’s largest trade partner, South Africa’s economic health has direct implications for Namibia’s trade dynamics,” the report notes. 

The company said a slowdown in South Africa could weaken demand for Namibian exports, particularly in key sectors like mining, agriculture and manufacturing.

The ripple-effects of US tariffs on countries like Mexico and China could indirectly affect Namibia through South Africa. If these tariffs reduce demand for South African exports, especially in metals, vehicles, and mining products, it could filter through to Namibia’s trade performance. Furthermore, a potential reduction in US aid to South Africa could dampen regional investment flows, indirectly affecting Namibia’s economic outlook.

“Currency volatility also poses a risk. The Namibia dollar’s peg to the rand means fluctuations in the rand directly impact Namibia’s trade position. A weaker rand could increase the cost of imports, raising inflation and squeezing household purchasing power. However, it could also boost Namibia’s export competitiveness, making products like diamonds, uranium and fish more attractive on global markets,” reads the report. 

Repo eases

Many Namibian consumers were yesterday given a reason to cheer after years of suffering from the financial stress of a high-interest rate environment.

This is because the central bank reduced the repo rate by 25 basis points to 6.75%.

Due to the decision made by the Bank of Namibia’s monetary policy committee, the prime lending rate at commercial banks will now be reduced to 10.50%, thereby reducing mortgage payments, which in turn theoretically provides consumers with more disposable income.

Higher interest rates result in bank loan repayments being relatively more expensive.

The repo rate is defined as the lending rate offered by a central bank to commercial banks for short-term funding requirements.

The commercial banks then pass on the repo rate in the form of higher interest rates to consumers through bank loans.

“Commercial banks are accordingly expected to reduce their lending rates by 25 basis points, bringing their prime rate to 10.50%. The newly adopted policy stance will continue safeguarding the one-to-one link between the Namibia dollar and the rand while supporting domestic economic activity,” said !Gawaxab. 

Consumers with high debt repayments at commercial banks have been crying over high interest rates that have been draining their pockets, leaving many to wonder how they will survive.

Meanwhile, independent researcher Joseph Sheehama said a rate cut was widely expected, given that inflation declined to 3.2%, and also positive international reserves. 

“Now is the time to pay off your debt more quickly. If you currently have a large amount of debt to manage, now is a good time to think about obtaining what are known as consolidation or restructuring loans. When these rates are lower, this can assist you in paying off all your outstanding debt,” he said. 

He further noted many Namibians can now afford to buy a home because lower interest rates result in lower bond repayments. 

On the other hand, people should understand that the inflation rate is the average rate of price increases for a group of goods and services that an individual uses. 

“A phenomenon known as practical bias will result from this, whereby some of the group’s items will see price increases that are higher than usual, while others won’t. Practically speaking, the price of goods should fall in tandem with the rate of inflation Unfortunately, boosting competition is the only way to solve this problem,” added Sheehama. 

Although a decrease in inflation signifies a slowdown in the rate of price increases, it usually does not signify a drop in prices, and this is the problem. 

-mndjavera@nepc.com.na