Economy Positive on Fiscal Front – BoN

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By Charles Tjatindi

WALVIS BAY

Increases in the food price and transportation have been identified as the driving force behind rising inflation globally.

According to the annual report of the Bank of Namibia (BoN) for 2007, the high and growing demand for bio-fuels has gradually worked its way onto grocery store shelves, in the prices of meat, dairy products, bread and cereals.

Increased international crude oil prices affect transportation prices. The BoN report says that the rising demands for bio-fuels, especially from fast-growing emerging market economies, and the drought that was experienced in Namibia in 2007, have been pushing up prices of raw materials such as wheat, maize and sugar.

The annual average inflation rate for 2007 was 6.7 percent – higher than the annual ave-rage rate of 5.1 percent recorded the preceding year.

The Namibian Dollar depreciated against the US Dollar, pound Sterling and Euro during the same period.

The BoN report attributed the depreciation against the three major currencies to financial turbulence that stemmed primarily from a rising wave of risk aversion towards emerging markets.

In South Africa, maize prices in recent years have hovered around R600 a tonne, and had reached R2 000 a tonne by March 2007. Although this was lower than the world price of R2 500, the report notes that expectations are that South African prices will achieve parity with international prices.

This is set to have an impact on Namibia, as most of Namibia’s imports consist of consumable goods. The higher food prices can therefore have a significant impact on the country’s consumer price inflation index.

The central bank reports that governments around the globe are seeking alternatives for the current, more expensive oil-based energy sources, looking at much cheaper bio-fuels produced from renewable organic sources such as maize and sugar crops.

This created a turnaround in the agricultural sector, as the bio-fuel industry now competes with the food industry for raw materials.

Due to the high demand for bio-fuel, farmers at the production level worldwide have a renewed economic incentive to grow crops for bio-fuel instead of food production.

This, according to the report, has started leading to reduced food production, increased food prices, and rising inflation, as the global demand for bio-fuels pushes up crop prices for wheat, maize and sugar.

As a result, food-producing companies bear the brunt more, as they find it expensive to source raw materials used in the product they sell.

Meanwhile, the annual report places Namibia in a favorable position with regard to outlook on the fiscal front. It attributes this to the first budget surplus since independence achieved by the country during 2006/07, a feat that is most likely to repeat itself during the 2007/08 financial year.

A record high surplus on the overall balance of payments and the first ever surplus on the fiscal sector, also provide for a positive outlook.

On the tertiary industries, the outlook remains positive in light of the forthcoming Africa Cup of Nations in Angola and the FIFA World Cup in 2010. This is expected to boost the number of people booking in at accommodation establishments in Namibia, due to its strategic location to both Angola and South Africa.

Certain sub-sectors in other industries, such as the secondary industries, also stand to benefit from these events in 2010. One such sub-sector is that of construction, which will be boosted through tourism related construction.
This, according to the central bank report projections, is expected to contribute a growth of 9.5 percent during 2008.

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