WINDHOEK – The Economic Outlook for 2020 by Cirrus Securities, a company started in 2017 with a focus on corporate advisory, capital raising and research, predicts that small businesses in Namibia are expected to remain under pressure during 2020. As a result, and depending on the severity of new government policies, Cirrus expects that many small businesses will either close their doors, or lay off further workers.
“From a small business and investment perspective, no respite can be expected in the near-term. Indeed, it appears as if Government remains determined to introduce additional taxes (dividend, taxes on trusts etc.), and while the worst-possible iteration of NEEEF (New Equitable Economic Empowerment Framework) and NIPA (Namibia Investment Promotion Act) are unlikely to be introduced, less draconian versions (but still less desirable than the already challenging status quo) can be expected. That this will keep pressure on small businesses – the core employers in the country – is undeniable. These short-sighted measures will push economic, fiscal and household recovery further from reach, as well as provide additional space for misappropriation of funds by individuals, not to mention failure to achieve their broad-based intended outcomes,” Cirrus cautioned in their Economic Outlook for 2020.
Founded by local economists, Roland Brown and Rome Mostert, Cirrus forecasts that while indicators do not suggest as disastrous a year as 2019, they point out that material recovery is also not evident.
“Our expectation in this regard is that a slight growth recovery will be witnessed, however remaining below population growth levels, and well below the growth rates required to supress the unsustainably high unemployment rate in the country. Moreover, risks remain heavily weighted to the downside and long-term indicators remain highly troublesome,” reads the Economic Outlook.
In its latest outlook Cirrus explains that the slight buoyancy expected stems from a recovery in the primary industries, following an expected 13.2 percent contraction in 2019. The firm notes that recovery is expected from the diamond mining industry, with output expected to increase by nearly 20 percent to about two million carats. At the same time, after a poor 2019 (-30 percent), uranium output is expected to see some recovery and is expected to grow 17.5 percent.
Meanwhile, the Cirrus team expects secondary and tertiary industries to remain under some pressure yet. For secondary industries, manufacturing output is likely to be negatively affected by regional infrastructure bottlenecks, most notably low dam levels. At the same time, Cirrus expects no material recovery for the construction industry in the near-term, noting that both public and private sector fixed capital formation remains low, with public and SOE construction spending sticking at very low levels.
“The tertiary industries also appear set to see further turbulent times, with the space dominated by retail consumer services and government-linked industries, both of which are to remain under pressure for the year ahead, as well as the foreseeable future should the general policy trajectory remain. The simple reason for this conclusion is that the country is experiencing a policy-induced investment revolt. As a result, the forward-looking indicators of net foreign investment, as well as fixed capital formation, look poor – suggesting that the mid-term outlook will remain weak. Without this investment, there are limited prospects for sustained material recovery of household incomes, as well as material recovery in government revenues. Thus, the best-case scenario for the near term is low growth,” read the outlook.
Meanwhile, from a public finance perspective, Cirrus stated that the risk of fiscal slippage remains elevated despite commendable efforts to contain the wage bill with below inflation (no) wage adjustments in the past year. In this regard, Cirrus remains adamant that the risk of wage bill pressure is ever-present, particularly as formal sector unemployment levels remain highly elevated while subsistence incomes have been devastated by the recent drought, thus increasing dependencies on employed community members.
“It has been reported that more positions in public health and education will be opened and funded this year, potentially increasing state employment by approximately 4 percent. However, we are told that wage increases will likely only materialise again in the 2021 financial year.”
The report continues that in addition to the wage bill, demands on the shareholder from state-owned enterprises are a material risk to the fiscal situation in the country.
According to the Cirrus outlook, this risk is dominated by Air Namibia, which runs an annual cash-deficit in excess of N$1 billion, has retained losses in excess of N$4.5 billion, is the largest government guaranteed SOE and appears on the brink of closure more often than not.
“At the same time, the student financial assistance fund, NSFAF, requires extensive funding from the state, as despite the loan-nature of most funds extended, very few of these are ever repaid. At the same time, the Namibia Airports Company and TransNamib remain fragile and (often) loss making, thus requiring shareholder support on a regular basis,” Cirrus noted.