By Wezi Tjaronda
Inflation has increased by 1.6 percent since 2006 due to escalating food prices and an increase in international oil prices, the Bank of Namibia (BON) has said.
The average inflation rate rose to 6.7 in 2007 from 5.1 in 2006.
BON Governor, Tom Alweendo, when he presented the bank’s 2007 Annual Report, said inflation will continue to rise and Namibians will have to tighten their belts more.
“Inflation in Namibia and South Africa continues to rise and it will still rise. It might peak in a month,” said Alweendo, adding that the picture does not look good because one cannot hope that the interest rates can come down.
“The way things are happening, we will have to endure more belt tightening,” he said.
The inflation rate has increased due to an increase in food prices because of shortages arising from biofuel production, escalating production costs resulting from rise in fuel and global milk shortages.
Alweendo said this was a worrying trend as some land meant for food production was put to biodiesel production, thereby pushing up the prices of food. The implication of this scenario, said the report, is that since most of Namibia’s imports consist of consumable goods, higher food prices can have a significant impact on the country’s consumer price inflation index.
“Increased food prices could also increase headline CPI (consumer price index) indirectly, by raising non-food prices through a wage response to higher food prices and therefore contribute to a further increase in consumer prices as food products account for the bulk of the weight in the total consumption basket,” said the report.
Due to high inflation, people are also borrowing less money as reflected in credit extension to individuals, which shows a downward trend.
The bank’s estimates are that economic growth has slowed down to 3.8 percent in 2007 from 4.2 percent in 2006.
The slow down in growth is reflected in the growth of the primary industry such as mining and agriculture, which slowed down while that of fishing declined at a lower rate. This growth, however, is projected to increase to 4.7 percent this year depending on how much growth occurs in the mining sector.
“Projections for 2008 are that the economy will increase to 4.7 percent mainly supported by a rebound of the primary sector based on increased uranium production,” the report said.
Alweendo, however, cautioned that the 4.7 percent projection will have to be revised depending on the trend in the next three to four months.
Namibia’s neighbour, South Africa, to which the currency is pegged, also saw its economic growth slow down by 0.3 percent. The report says this is an indication that Namibia continues to be driven by economic developments in her major trading partners and in economies elsewhere.
Alweendo said the real gross domestic product (GDP) was broad-based as all major industries recorded positive growth unlike secondary industries, which slowed down because of lower diamond production.
This resulted from the closure of some of Namdeb’s plants and a fire outbreak at one of the diamond mining company’s plants.
Diamond mining in Namibia accounts for eight percent of total GDP and 38 percent of the primary industry output.
The secondary industries also performed well, recording a growth of 5.9 percent, which the report said was the highest growth rate since the record high 9.5 percent four years ago.
This sector is driven by manufacturing, electricity, gas and water and construction.
Bank of Namibia Governor, Tom Alweendo.