The internationally dreaded coronavirus has sadly invaded Namibian borders as well. In response, the government rightly declared a state of emergency aimed at introducing measures to detect, combat, contain and minimise the spread of the virus among the population. As a result of the well-intended restraining measures taken by the government, the Namibian economy is expected to take an unavoidable hit. This article discusses a number of some of those expected impacts on the local economy.
The structure of GDP is interesting in the sense that it is only made up of five building blocks, at the big picture or macroeconomic level. The first building block involves households. The people who live in these households go to work to earn an income, which they spend on goods and services such as bread and haircuts. Both goods and services are made up of needs (essentials) and wants (luxuries).
Spending on food to keep you alive is an example of a need, while spending on a cinema ticket to enjoy the latest action movie is an example of a want (you can live without it). These are indeed uncertain times and it is, therefore, expected that households will have a serious look at their immediate and short-term budgets and only spend money on essentials during the Covid-19 crisis. In fact, activities that usually involve spending on wants such as attending music concerts for entertainment have been banned for the expected duration of the crisis. This means that household or consumption spending is expected to fall along with GDP since there is a positive relationship between the two variables.
The second building block of GDP involves businesses that are owned by shareholders who invest or commit resources in economic activities in order to make profits. The production inputs and outputs of these businesses thrive on high demand for their respective goods and services. However, since the demand for goods and services is expected to fall, the businesses are also expected to cut production or supply in order to save costs. A fall in production capacity is normally accompanied by a fall in employment.
Think of the business circumstances of a tourist lodge somewhere in the mountains of the Kunene region and the national restrictions put in place to control domestic and international travelling. It is, thus, expected that businesses will retrench workers during the Covid-19 crisis, which in itself has a negative impact on both household consumption and GDP provided that investment spending too is positively related to national income (GDP). The third building block of GDP involves the government and its big budget. The temporary closure of schools also means that the payment of water and electricity bills as well as the supply of food for hostels and other school-related accessories has been put on hold for now. Therefore, since government spending is also positively related to GDP, a reduction in government procurement results in a reduction in national income. However, the government will need to bolster the already allocated funds for fighting Covid-19 in the unfortunate event that the number of cases fails to remain low. The fourth and fifth building blocks of GDP are spending on imports and earnings from exports. Using local resources to procure foreign goods and services denotes spending on imports, while selling local goods and services to foreign markets denotes export earnings.
Spending on imports is generally expected to decline since the outbreak of Covid-19 is a global crisis and a number of international markets will not be accessible for normal business trading. On the other hand, export earnings are also expected to decline for the same reasons. GDP is, however, expected to decline, as the value of imports is more likely expected to exceed the value of exports, in line with the small local industrial capacity.
Overall, it is obvious that the Covid-19 outbreak will have a generally negative impact on the Namibian economy. In conclusion, the dynamic efforts of the government in the midst of this difficult crisis are aimed at ensuring the health of the population and no economic price can measure up to that.
2020-03-27 07:57:46 | 3 months ago