Support of local production and manufacturing will create sustainable economic development
The coronavirus outbreak comes at a time when Namibia was already struggling to return to higher growth levels. Since 2016 Namibia has experienced an economic downturn, and indeed a devastating recession. This situation has been further exasperated by the global pandemic and efforts to contain the spread of Covid-19 and to avoid a humanitarian crisis. According to a recent Bank of Namibia Economic Outlook Update, Namibia’s Real GDP is expected to contract by 6.9% percent in 2020 before recovering to a growth of 1.8 percent in 2021.
Impact on Businesses
As many other countries world-wide, Namibia also resorted to a nation-wide lockdown in order to increase its preparedness and to slow down the spread of the virus. Sadly, the consequence of lockdown measures was either a halt or a drastic slowdown of production and economic activity.
Depending on which sector and in which region businesses find themselves, many were or are not in the position to generate any income. With a major drop in turnover, yet ongoing expenditure, some businesses are now forced to downsize; some became insolvent or might be declared bankrupt. This results in not only a loss of their productive capacity and their lack of contribution to economic growth but also indeed the loss of future revenue for Government.
Consumers Spend Differently
At the same time, a reduction of income due to underemployment or unemployment through the introduction of short working hours or retrenchment, has led to a major change of consumptive patterns. Consumers are spending less and differently, either due to not having any money at their disposal or due to fear of a possible future lack of income. Many consumers are focussing only on essential purchases, and luxuries such as eating out, travelling and personal grooming expenditure have become a low priority. Of course, due to social distancing restrictions, these services had also become less available. This has also led to a slowdown in the demand for services in sectors such as tourism, retail and other services.
Leaving the informal sector without Income
The impact of the lockdown on the informal sector and its participants would also be very devastating, who without their daily earnings, did not have any income to sustain their living. With a reduction of personal income, their food purchases have drastically reduced. As the informal sector is heavily reliant on the day-to-day income, it may well be that many needed to revert to selling their productive assets of their small businesses, especially if the N$750 grant provided by Government did not suffice to ensure provision of food and the fulfilment of other basic needs.
Decline in Trade
However, Namibia is part of the global network, and does not operate in isolation. Restrictions due to Covid-19 by some key trading partners and related consequences have had an enormous impact on Namibia, a country that is hugely dependent on imports as well as on export earnings. Supply chains are disrupted. Trade has declined drastically. The external demand for Namibian products to its top exporting destinations has diminished as those countries had to stop or slow down production as a consequence of the lockdown measures to curtail the spread of the virus, and also due to a lesser demand as a result of less consumer spending in those countries. Namibia is also affected by plunging commodity prices.
Dependency Creates Vulnerability
Over-dependency on imports puts Namibia in a hugely vulnerable position. Firstly, restriction by countries from which Namibia receives its imports can lead to supply shortages and leave Namibia vulnerable as there is no immediate replacement, either from other country sources or through import substitution measures within Namibia. For example, with South Africa’s ban on exports of pharmaceuticals, Namibia is faced with a shortage of vital medicine for its citizen. Secondly, if Namibia is heavily dependent on imports, then the country needs to be able to export on an equal measure, in order to avoid a trade deficit.
Strategise to Reduce Dependency and Increase Self-Reliance
In an environment where more people are unemployed or have a reduced income, or fear a further reduction of their income; and where the production of goods and services has diminished due to either the national lockdown restrictions or indeed due to a lesser demand for goods and services, there is less productivity and less money in circulation with the consequent constraint on Government’s revenue collection. This underscores the urgency and necessity of strategising a reduction of our dependency, of focusing on efforts that reduce this dependency and ensure that we become increasingly self-reliant, as well as engaging those that are not sufficiently part of the formal economy and especially focusing on initiatives to increasingly support our local businesses.
It is therefore important that Namibia once again looks at increasing local production, manufacturing and industrialisation so that eventually imports can be substituted to reduce dependency on external source countries or import partners. This will help to change Namibia’s position as being predominantly a producer and exporter of primary commodities and importer of value-added manufactured goods.
Namibia needs to have a detailed understanding of the products that are being imported and the respective source countries, and establish what can be made in Namibia. It is also necessary to establish how value can be added to Namibian raw materials, where available, and determine how products can be developed that are unique and customed to the needs of the local population.
Irrespective of Namibia’s production capacity, Namibia is struggling with the disadvantages of a small market. Marketing strategies would therefore be to export within the SADC region or indeed to the African Continental Free Trade Area (AfCFTA), if not to global markets. It might also be feasible for Namibian manufacturers not solely to focus on production of end products, but to see what they can produce to become part of the regional or global value chain.
Engaging the Informal Sector
Not only would local industrialisation efforts be further underpinned by the right incentives, access to finance, focus on quality and the development of markets, but also possibly by increasingly engaging the informal sector. Supporting informal businesses to become part of the formal economy can also realise Namibia’s goals of achieving structural changes, to secure a steady, reliable income for participants of the informal sector and indeed directly address the need to reverse increases in poverty as a result of Covid-19.
Need for Local Procurement
Regardless of any immediate changes of Namibia’s import-substitution and export capacity – as it will require time – now more than ever, it is critically important that Namibian consumers and institutional buyers, especially Government, support local businesses. Products and services must be bought from local businesses.
A collaborative switch in consumption patterns will not only help improve the trade balance, as the demand and price for Namibia’s commodities have been significantly affected due to the global pandemic.
It will also ensure that any money spent remains circulating in the local economy. Furthermore, this can help to alleviate unemployment, which now stands at an unprecedented all-time high. It once again can help to create local jobs, because when local businesses are continually supported, through buying their products and services, it leads to sustainable economic development, which can reduce poverty in turn. Buying local alongside the Covid-19-related economic stimulus packages offered by Government, can make a big difference.
* Bärbel Kirchner is the account director of Team Namibia
2020-07-30 16:07:54 | 2 months ago