In a recent announcement, Bank of Namibia governor Johannes !Gawaxab reported a significant increase in capital outflow from Namibia, with N$14.2 billion leaving the country between
January and August 2024.
This marks a sharp rise from the N$10.6 billion recorded during the same period in 2023, reflecting a N$3.6 billion increase in net outflows.
The governor attributed this substantial outflow primarily to payments for imported merchandise rather than seeking better investment yields abroad, particularly in South Africa.
However, this growing trend
has raised concerns about
Namibia’s economic stability and long-term growth prospects.
Growing trend
Over the past five years, Namibia has experienced cumulative capital outflows totaling N$58.4 billion. According to the Bank of Namibia’s latest quarterly bulletins and economic reports on their official website, the figures for previous years were N$12.3 billion in 2020, N$9.5 billion in 2021, N$11.8 billion in 2022, and N$10.6 billion in 2023.
This prolonged trend is placing increasing pressure on Namibia’s foreign currency reserves and overall economic health.
These outflows limit the availability of capital for domestic investments, crucial for driving growth in sectors such as infrastructure, manufacturing and agriculture.
A primary risk associated with these outflows is the potential weakening of the Namibia dollar. As foreign currency reserves diminish, the central bank’s ability to stabilise the currency during periods of volatility becomes more challenging. A weaker currency could lead to inflationary
pressures, as the cost of imports, including essential goods like fuel and food, rises.
For an import-dependent economy like Namibia, this could severely impact the standard of living, with price increases affecting both households and businesses.
Ripple-effects
The impact on domestic investment is another critical concern. The continued capital flight reduces the availability of financing for local businesses and industries, limiting job creation, innovation and sector expansion.
This slow economic growth dampens investor confidence in the Namibian market, potentially leading to a further reduction in both foreign direct investment (FDI) and local entrepreneurial activities.
Moreover, the growing capital outflow could strain the government’s capacity to finance essential infrastructure projects and social programs needed for long-term development. With fewer resources available, critical projects aimed at improving water, energy and transportation infrastructure may face delays or cancellations, further stalling economic progress.
Strategic interventions
To address these challenges, policymakers need to implement strategies that reduce dependency on imports by boosting local production, thereby minimising the need for capital outflow. According to the Bank of Namibia, strengthening domestic industries, promoting export diversification and attracting sustainable foreign investments should be prioritised. Additionally, maintaining a stable macroeconomic environment and improving the ease of doing business in Namibia will be crucial in retaining capital within the country.
Reducing reliance on foreign goods and services through import substitution could also play a vital role in curbing future outflows. This strategy would involve investing in local industries capable of producing essential goods domestically, such as food production, textiles and pharmaceuticals.
Broader economic perspective
While the recent increase in capital outflow is largely driven by import payments, it also highlights broader issues within Namibia’s economic framework. Ensuring that Namibia remains an attractive destination for both local and international investments is essential for reversing this trend.
The government, in collaboration with the private sector, must focus on building confidence in the local economy through targeted policies and reforms that encourage capital retention and foster economic growth.
*Lot Ndamanomhata is a Public Management, Journalism and Communication graduate. This article reflects his views, and writes entirely in his personal capacity