Namibia Economic Outlook
- Growth sharply moderated to 1.3% in 2016 but should rebound in 2017 as the agriculture sector recovers and production from new mines accelerates.
- On-going fiscal consolidation policy measures to reduce public debt and help address the current account imbalance will need to protect growth-promoting public investments.
- The “Growth at Home” strategy for industrialisation and the policy for promoting micro, small and medium enterprises provide a strong foundation for diversification and job creation but the pace for business environment reforms needs increasing to support entrepreneurship.
After posting annual growth rates of above 5% since 2010, Namibia’s growth momentum sharply moderated in 2016. Gross domestic product (GDP) growth slowed from 5.3% in 2015 to an estimated 1.3% in 2016 as major mining construction projects ended and fiscal consolidation took hold. In 2017 GDP growth is expected to rebound to 2.5% with the recovery of the agriculture sector and the strengthening of production and exports from new mines. The mid-term outlook is positive, albeit with significant downside risks emanating from weak Southern Africa Customs Union (SACU) revenues, fiscal consolidation, soft global commodity prices, and rising housing prices and household credit.
During 2015, a prolonged expansionary fiscal stance, in the context of falling SACU revenues combined to widen the fiscal deficit to 8.7% of GDP and pushed the current account deficit into double digits at 13.7% of GDP. These deficits were financed with the issuance of the eurobond which helped to anchor foreign reserves but increased public debt to its highest levels yet. This prompted leading rating agencies to revise Namibia’s sovereign credit rating outlook from stable to negative (Fitch rating BBB; 2 September 2016; www.fitchratings.com/site/pr/1011212) in September 2016. As a result, the government had to change its fiscal policy stance and accelerated fiscal consolidation, proposing expenditure cuts of up to 2.8% of GDP in the mid-term review of the 2016/17 budget.
Inflation picked up from 3.4% in 2015 to 6.7% in 2016 driven by food and administrative price increases. In response to this, monetary policy was tightened to stem strong credit growth also linked to an increase in luxury imports, rising housing prices and household indebtedness. The Bank of Namibia (BoN) raised the repo rate to 7% in April, 2016 to align with the South Africa Reserve Bank (SARB)’s policy rate in the context of the Common Monetary Area. Going forward, the twin deficits are projected to narrow on the back of fiscal consolidation and export revenue growth.
Namibia’s policy for industrialisation adopted in 2012 and its implementation strategy the “Growth at Home” launched in 2015, lays a strong foundation for economic diversification and job creation. In its policy for promoting micro, small and medium enterprises adopted in 2016 the government recognises that a vibrant entrepreneurship culture and a conducive business investment climate are key imperatives for competitiveness and successful industrialisation. While some structural transformation has taken place and poverty has significantly declined, the majority of Namibians are still employed in low paid jobs dominated by primary agriculture. Furthermore, unemployment rate at 28.1% and income inequality (Gini coefficient of 0.572) remain high. To harness entrepreneurship that promotes value adding economic activities and creates quality jobs while reducing poverty and inequality, Namibia needs to accelerate implementation of its structural reform programme articulated in the Harambee Prosperity Plan and the National Development Plan in line with the aspirations of the 2030 Vision.