Economic studies
Namibia

Namibia

Population 2.2 million
GDP 5,041 US$
B
Country risk assessment
A4
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Synthesis

major macro economic indicators

  2014 2015  2016(f) 2017(f)
GDP growth (%) 6.5 5.3 0.1 2.9
Inflation (yearly average) (%) 5.4 3.4 6.7 6.3
Budget balance (% GDP) -6.3 -8.3 -6.3 -5.5
Current account balance (% GDP) -10.7 -12.7 -11.1 -8.1
Public debt (% GDP) 25.5 39.9 42.1 43.0

 

(f) Forecast

*Fiscal year: from April to March

STRENGTHS

  • Considerable mineral resources (diamonds, uranium, copper)
  • Tourism potential
  • Good transport infrastructure

WEAKNESSES

  • Dependence on the mining sector (almost 50% of exports)
  • Dependence on South Africa
  • Very high unemployment (28%) and high levels of inequality

RISK ASSESSMENT

 

Fragile growth recovery in 2017

Economic activity, supported by the sole primary sector, is expected to recover modestly in 2017 after close-to-zero growth in 2016 and a technical recession. After three consecutive years of contractions in the mining sector, an increase in production with the ramp-up of several mines across the country will drag the country out of recession. More specifically, higher production capacity at the Husab uranium mine, exploitation of which began in early 2017, could place the country, currently 5th world’s largest producer, on the podium (behind Kazakhstan and Canada. . Increased production at the Otjikoto gold mine and the Tschud copper mine, which both started operation in 2015, will support activity. Diamond mining is also expected to confirm the recovery initiated in Q4 2016 and confirmed in Q1 2017 after years of decline.

Meanwhile, the agricultural sector is expected to recover from the intense drought caused by El Niño in 2016, in spite of an armyworms invasion. Moreover, the development of livestock is expected to benefit from a 20 million euros support from the EU.

Nambian recovery, which is mainly reliant on the primary sector, is vulnerable to the current fragility of commodities prices. In addition, the economy, constrained by tighter fiscal and monetary policies, is expected to remain lacklustre in the other sectors of the economy. Government cuts in investment spending will impede progress on infrastructure projects, which could in turn hamper a construction sector in the doldrums. In addition, the populist proposals put forward by President Geingob and his government (an obligation for white-owned enterprises to sell 25% of their stakes to the black majority, expropriation of white landowners) as part of theNew Economic Empowerment Framework(NEEEF), could deter future foreign investment and exacerbate a difficult economic environment.

Disinflation in Namibia is expected to continue, as the effects of droughts on food prices ease and prices decline in South Africa, Namibia’s main supplier.

 

 

Decline in twin deficits

In 2016, the public deficit widened significantly as a result of the government's expansionary fiscal policy adopted in order to support growth. However, in autumn 2016, the government embarked on a process of fiscal consolidation, which should help reduce the deficit in 2017. This is because, a decline in capital spending is anticipated, while current spending will remain stable and still directed towards the key sectors (health, education…). At the same time, income related to mining exports will boost revenues. Moreover, customs duties returned to Namibia under the South African Customs Union (SACU), which contribute about a third of the country's tax receipts, will remain modest. Finally, although tax collection is not ideal, progress will start to be made once a new tax office has been established at the beginning of the 2017/2018 financial year. 

In 2017, the public debt should still exceed the cap of 35% of GDP set by the government. In essence, this is domestic debt (70%), mostly denominated in Namibian dollars and in South African Rand.

The current account deficit would narrow in 2017, thanks to higher mining exports. In particular, Namibia can rely on the expected increase in the price of and demand for diamonds (more than 29% of good exports in 2016). In addition, the economic partnership agreement, providing for duty-free and quota-free access to the European market, concluded in June 2016 between the European Union and six countries of the Southern African Development Community (including Namibia), will offer promising trade prospects. Namibian exports would keep suffering from low growth in South Africa, a crucial trading partner.. Finally with the expected slowdown in infrastructure projects, imports of capital goods are likely to be less dynamic.

In 2017, the Namibian dollar, pegged to the South African rand, will continue to be vulnerable to the downward pressure and high volatility of South Africa's currency.

 
Higher political and social risk

The Swapo, in power since independence (1990), dominates the political stage. Its candidate, Hage Geingob, was elected as president with 87% of the votes casted in November 2014, succeeding H. Pohamba who, under the constitution, was unable to stand for a third term. Meanwhile, the opposition remains split and is struggling to make itself heard. Nevertheless, with unemployment at a record level of 14.2% (in 2016), 11% of the population in extreme poverty, lingering inequalities, a still high inflation, sluggish economic growth and a possible fiscal adjustment, the country does not lack of reasons for social frustration. Popular pressure to carry out radical economic reforms (including the expropriation of white farmers) and more interventionist policies finds a particular echo with H. Geingob who will need to be re-elected leader of the Swapo at the Party Congress organized at the end of 2017.

The country remains among the best-ranked countries in Sub-Saharan Africa according to the World Bank's governance indicators. However, Namibia’s performances tend to deteriorate. From rank 74 in theDoing Business 2011,the country fell to rank 108 in the latest issue. It notably lost four ranks in the 2017 issue.

Last update: June 2017

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