Economic Highlights of 2005


IN 2005 in general, the economy has been beset by: – Low economic growth; – Ushering in of the new government for the next five years; – Associated positives and negatives concerning economic development; – Evidence of financial crimes, corrupt activities; and, – Enactment of the Anti-Corruption Commission and appointment of two senior officials. During March 2005, a new government was ushered in on a rainy Monday morning when President Hifikepunye Pohamba tookÃÆ’Æ‘ÀÃ…ÃÆ”šÃ‚ºthe oath of office. His immediate priorities are fighting corruption and ensured economic growth. Good news … During May, Finance Minister Saara Kuugongelwa-Amadhila presented her budget speech which foresees a budget surplus by the 2006/07 fiscal year. Given current indications, she is set to do just that with expenditure containment and revenue increases from VAT (due to forensic investigations) and increased SACU receipts (due to growth in the SACU pool). Consequently, the debt levels are showing signs of a decline in 2005. As part of ensured economic development, the Bank of Namibia donated N$45-million to the newly established Development Bank of Namibia (DBN). DBN has started off on a cautionary note to ensure loan provision with a strict monitoring and evaluation strategy. In line with economic diversification efforts, Namibia Stone Processing was launched which offers a fresh breath to successful black owned initiatives in Namibia. Small Business Credit Guarantee Trust (SBCGT) transformed from a mere guarantee organization that provides loans following an extensive review of its activities. This development can lead to wider access of loan provision to SME’s in addition to the financing facility provided to banks. To ensure marketing that is in line with global best practice, Telecom rebranded its image to attract more consumers and to send an image that it is in line with international trends on communication technology. Inflation remained at a lower level for the rest of the year at around an estimated 2 percent. The drivers that kept inflation low are the imported food inflation and clothing and footwear. Exchange rates depreciated by close to 20% compared to last year at end November 2005. The mild depreciation gave a breather to the exporting sector such as the fishing sector which is reliant on fish exports. Others such as tourism fail to take advantage of the depreciating exchange rate due to high tourist prices in the country. The fishing industry started to consolidate to ensure its rightful stance in the economy as being the third export earner. The consolidation process started off in August with Novanam taking over the ailing Lalandi whitefish processors, a subsidiary of Namfish. In line with bringing banking to low-income Namibians, FNB introduced savings account Cardwise aimed at people earning between N$200 and N$500. Bank Windhoek followed suit with Easysave during the course of the year. JCC launched its BEE SME framework to ensure access to finance and overall developmental efforts of SME’s. This is a welcome development since SME’s are considered the viable sector to reduce poverty and create employment for the majority of Namibians. The effective signing of the agreement on the Kudu gas plant adds a welcoming boost to the future developmental potential of Namibia. It is on track and involves a direct investment of N$7 billion and is earmarked to start its construction phase in 2007 and its export of gas in 2009. This venture can mean a lot for the local economy and can raise GDP to around 5% on average from 2010 onwards from the current levels of around 3% on average. During November, the Pohamba administration organized a Cabinet retreat focusing on how to grow the economy that could assist in employment creation and poverty reduction. The key focus of this retreat to bring the economy back on track centered around Investment and Growth, Financing for Development, Human Resources Development as well as Land Reform and Rural Development. Namibia has increasingly strengthened its trade policy effectiveness by launching a National Trade Forum in the capital. The forum is to ensure networking and should serve as an advisory body on trade policies from a broader sphere of stakeholders concerned with trade. Namibia prepared itself well for the WTO Hong Kong talks by drafting a position paper that should aid in furthering the international trade agenda. Fitch assigned a good investment rating for Namibia as BBB-minus. This rating will improve the creditworthiness of Namibia, strengthen domestic investment opportunities and deepen the domestic capital markets. This rating will also raise the long-term growth potential of the economy, reduce capital outflows and build much needed foreign exchange reserves. To affirm its creditworthiness at firm or industry level, Nampower and the City of Windhoek were also accorded favourable ratings. Not so good news … Economic growth which was at a record high of 6% in 2004 was faced with daunting economic problems to keep the economy at a sustainable base at 6% in 2005. This is also closer to 7% on average envisioned under Vision 2030. The strong growth performance in 2004 had reversed in 2005 judging from the low but positive quarterly growth figures produced by the Bank of Namibia. According to the Bank, value added output of diamonds are estimated to grow negatively in 2005 as also indicated by Namdeb in its Annual Review Report. But the growth would be moderated by increases in output of base metals, particularly uranium, copper and zinc which are highly depended on the high growth performance from China. The uranium output will be boosted in future by the opening of the new mine Langer Heinrich near Swakopmund but only realistically in 2007. Agriculture and construction are also to grow positively and the Bank indicated during its recent press review that 2005 growth would be around an estimated 3 percent, slashed to a half percentage level compared to 2004. Namibia is increasingly realizing that some sectors in the economy are kept hostage by unscrupulous retail practices. Cases in point are the cement prices and the unfair trade practices in the northern regions by the Chinese. During 2005, cement prices declined markedly by over 50% due to the new entrants from Brazil whilst the northern indigenous business persons are increasingly complaining about unfair trade from the Chinese companies, who are mainly engaged in retail trading. During May, Namibia Wildlife Resorts and Namibia Tourism Board (NTB) as well as Fenata hinted that tourism growth in Namibia will be negative for the 2005/06 tourist season. Already statistics are showing a negative growth on account of the strength of the local currency and highly inflated tourism prices on accommodation and facilities. The corruption tailspin starts to rear its head when focus starts to beam on Avid with the firing of its investment manager. The corruption trail started to take root when it became evident that a number of high profile cases involving top level officials followed. This has implications for prudent investment rules in Namibia as well as corporate governance and ethical considerations. The anti-corruption drive therefore started to take root with the appointment of two anti-corruption commissioners during November 2005. The inflation rate although remaining lower faced the prospect of edging up in 2006 due to the fuel prices which have increased three times in succession in 2005. This is due to the fact that the oil price has reached record levels of around US$70 per barrel towards the end of August 2005. There were global factors at play that kept the oil price high such as the post-war tension in Iraq, weaker refining capacity and production disruptions due to tropical storms and hurricanes in the US and the Gulf of Mexico. Currently there are indications of oil prices receding but they are still at a higher level compared to a year ago. The fishing sector encountered employment losses through the process of consolidation. Sea workers at Lalandi were laid off although there is evidence to prove that some workers were re-hired in other fishing companies. The prudent management of the parastatals sector came under the spotlight this year and the way they managed their investments in cooperation with their asset managers. The Ministry of Finance and Namfisa worked tirelessly to advocate for better regulation and proposed measures to safeguard the public funds used for investment. To safeguard consumer protection by banks in Namibia, Parliament started to emphasize on the soundness and applicability of bank charges, fees and commissions from the banking industry. A parliamentary recommendation that this be referred to the Standing Committee on Economics has been adopted by Parliament. Black Economic Empowerment came under the spotlight through being questioned whether it really addresses what it purports to do with occurrences of “quick buck” gain through “fly by night” investment companies. These further give the necessary fuel for Government to seriously implement the overall BEE policy and law framework. The land reform process takes a step further with the introduction of the land tax. Government plans to use the money from the tax to fund the land reform programme. HIV/Aids statistics are showing signs of a decline but infection rates remain still stubbornly high at close to 20% for Namibia. – Namibia Economic Society