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Virus uncertainty a risk for domestic growth 

2020-08-25  Maihapa Ndjavera

Virus uncertainty a risk for domestic growth 

Maihapa Ndjavera
 
Risks to domestic growth are currently dominated by the Covid-19 pandemic, with uncertainty over how fast economic activity will regain lost ground, the Bank of Namibia said in its economic outlook for August. 
 Other risks to domestic growth and outlook include the persistently low international prices of Namibia’s export commodities and climatic swings. 
 “Risks to domestic growth are dominated by ongoing travel restrictions and lockdowns in many countries, including Namibia, restricting business activities and causing disruptions to supply. Other risks include the persistently low international prices for uranium,” the central bank said.
 According to the bank, the low international prices for uranium have already squeezed margins of local mines, as their long-term supply contracts started to run out. The central bank, however, said a recent increase in the US dollar spot price of uranium and a weakening of the exchange rate might provide some relief in this regard. 
 The volatile international prices of some of Namibia’s other export commodities are also posing a risk. 
 According to the bank, uranium mining is projected to contract during 2020, followed by a mild recovery in 2021. The sector is expected to contract by 22.9% in 2020 before expanding by 8.5% and 15.4% in the following two years.   
“The sector is first and foremost grappling with existing factors that include the insufficient supply of water required for their operations and persistently low uranium prices, viewed together with the reduction in long-term supply contracts. 
This means that uranium mines are more exposed to spot prices, which squeezes their margins. 
International uranium prices have gained momentum recently on the back of tightening global supply, with demand from end-users remaining fairly steady.” 
 However, the central bank said this will most likely only benefit the local mines in about a year because prices are usually fixed in supply contracts. 
 The volumes produced during the first six months of 2020 were 18.4% lower than the production for the corresponding period in 2019, with further downward adjustments to production targets more likely. 
 The Namibian economy is expected to record its largest contraction of 7.8% in its recent history, which is induced by the devastating impact of the Covid-19 pandemic, which is felt across most sectors of the economy. 
 The Bank of Namibia stated that the domestic economy is projected to rebound by 2.1% and 2.7% in 2021 and 2022, respectively. 
During 2020, a steep contraction is expected to be driven by sharp declines in hotels and restaurants, mining, transport and storage, manufacturing, wholesale and retail trade, financial and insurance services, as well as construction. - mndjavera@nepc.com.na


2020-08-25  Maihapa Ndjavera

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