The DTA has warned of a clear and present danger for large-scale infrastructure and resources projects in Africa if the Chinese government is forced to disinvest or even divest completely in the continent. If this happens, says the DTA, Namibia will not escape the consequences.
The mounting concern follows developments in international markets over the past three weeks, specifically the precipitous decline in the two major stock indexes in China, the Hang Seng in Hong Kong, and the Shanghai Composite index.
“Our concern is seated in the fact that the Chinese government and Chinese parastatal companies are major development partners of the Namibian government. With some analysts predicting a so-called hard landing for the Chinese economy, projecting that growth will decline to around 5 percent, there is a serious risk to the continued involvement of China in Namibian projects,” said the DTA’s Secretary for Finance, Nico Smit, in a statement released late last week.
“It is our contention that this most recent bout of international financial stability can be attributed, in part, to attempts by the Chinese government to stabilise its own markets. From our own observations, this seems not to have happened,” remarked Smit.
China’s Hang Seng Index lost 25 percent over the past three months, and some 15 percent compared to a year ago, its Shanghai Composite Index lost almost 41 percent of its value over the past three months, and is now at the same level as November last year and Chinese economic growth has fallen from above 10 percent per annum two years ago to roughly 7.5 percent last year, and to below 7 percent this year.
“We see that authoritative international sources now estimate the total Chinese national debt to amount to 300 percent of Gross Domestic Product (GDP)… While we realise the chances of a complete divestment from the Namibian territory are extremely slim, we fear that even a moderate downscaling of Chinese involvement in local projects can have significant repercussions for the local economy,” warned Smit.
He noted that the Chinese government is the main financing and construction partner for the expansion project of the Walvis Bay harbour. “This N$3+ billion project is not carried by the Namibian government through the budget process, and were it to be downscaled or delayed, it would have a very serious impact on developing the full potential of the Walvis Bay Corridor.
“The financial burden to complete the project will then fall on the Namibian government, diluting budget allocations to other development projects, which are of higher priority. It will also be a serious blow to Namibia’s contribution to the regional integration agenda of SADC,” Smit stated.
He added that the Chinese government is the funder of last resort behind Swakop Uranium and the Husab Uranium Mine. “This N$5 billion project is by all indications running as planned, but a brief delay, or even a suspension of the project, will have a major impact on employment. Most people will say this is impossible, but until some years ago it was also thought impossible to shut down the Trekkopje Uranium project run by the French parastatal, Areva. While Areva has not completely shut down, all further development and capital investment are on hold. The same can happen at Husab,” Smit cautioned.
He further pointed out that Chinese contractors are major construction and financing partners to the Road Contractor Company for the extensive upgrade and rehabilitation of the road network in northern Namibia. Should the joint-venture company run out of funds, or the Chinese partner be unable to continue as contractor, he said, the full costs of all these road projects will revert to the Namibian government.
“The total cost for these road projects is astronomical, as indicated in the Development Programmes of the detailed Medium Term Expenditure Framework 2015/16 to 2017/18. If Chinese assistance, both funding and construction, is impaired, the Namibian government will be liable to carry the full burden for all the road network projects”.
Noting that the South African Rand breached the R14/1US$ mark for the first time ever last week, Smit said the DTA is of the opinion that the local economy is not nearly as sound as the Bank of Namibia assumed in its Financial Stability Report of June this year.
“The local economy is running on liquidity created by the Namibian government through the liberal funding available in the local capital market. Household debt is at alarming levels, and there is a constant threat of further deterioration in the trade balance.
“It is our contention that the deficit on the trade balance is largely caused by the massive importation of capital goods intended for the many large-scale infrastructure projects currently underway.
“This includes projects funded by Chinese government money. The deficit on the current account of the Balance of Payments is further exacerbated by Chinese construction companies operating in Namibia, when they repatriate profits to China,” Smit added.