HPP may require implementing agency – SSS

by Edgar Brandt

HPP may require implementing agency – SSS


An implementing agency and the careful allocation of funds may be necessary to achieve the numerous targets established by President Hage Geingob’s Harambee Prosperity Plan (HPP). This is according to Frans Uusiku, a local economist at stock brokerage firm Simonis Storm Securities (SSS).

“It is our conviction that the HPP aspires to achieve a lot over a limited time period. While we generally don’t see anything wrong with achieving so much over a short period, this may require, among others, an implementing agency, prudent mobilisation of financial resources and careful prioritisation of national development needs (i.e. water and electricity). For example, an establishment of an Inter-Ministerial Committee may be critical in this regard, to oversee the implementation of the Plan.

“Furthermore, given that this plan is purported to be action-oriented to accelerate development, we believe that it would require a multi-sectoral approach and streamlining of all national policies to get the buy-in of all stakeholders concerned,” said Uusiku in a recently released report. The report, released on Tuesday, questions whether the plan for economic advancement within the HPP is realistic.

In general, Uusiku welcomed the HPP, saying it came at a time when the economy is plagued by a water crisis, energy uncertainty, declining government revenue, looming government debt, high and increasing youth unemployment and deteriorating national infrastructures.

The ambitious, action-oriented HPP focuses on four pillars of development, namely effective governance, economic advancement, social progression and infrastructure development. “A closer review of the plan shows that there is admittedly a comprehensive recognition of the prevailing social and economic challenges. However, there still remain lingering concerns, particularly whether some targets are realistic or not,” Uusiku noted.

Commenting on the macro-economic stability targets under the HPP’s economic advancement pillar, which aims to anchor public debt to 30 percent as a ratio of Gross Domestic Product (GDP) by the end of the Harambee period from the current level of 36 percent, Uusiku noted that assuming government debt and nominal GDP grows to an estimated level of N$72.4 billion and N$254.3 billion by 2018/19, as estimated by the Ministry of Finance, it would imply that the economy needs to record at least the nominal GDP of N$ 248.3 billion at the end of the Harambee implementation period for this target to hold.

“It would also mean that, on average, the economy needs to achieve an annual nominal growth of at least 11 percent for the next four years. This may prove difficult to realise if no long-term solutions to the water shortage are implemented. The most significant contributors to GDP growth, being manufacturing (10 percent) and construction (8 percent) are highly dependent on water. The recent increase in the bulk water tariff by 10 percent and the reduction in water supply to Windhoek by 20 percent by NamWater is likely to stifle growth in these sectors,” Uusiku said.

Another HPP target is to maintain an average of three months import coverage during the Harambee period. Namibia recorded its highest trade deficit of N$39.2 billion in 2015, partly due to the drought and high import bill, which was exacerbated by the depreciation of the South African Rand against the US Dollar. Also in 2015, government experienced a critical foreign reserve problem, which prompted the Bank of Namibia (BoN) to utilise half of the US$750 million Eurobond issued in October 2015 to improve the level of foreign reserves to N$23.6 billion in December 2015 (equivalent to 3.5 times import cover).

Uusiku, however, warned that looking ahead, SSS expects the level of foreign reserves to come under pressure again in the medium-term, mainly due to a further widening of the trade deficit, triggered by a weaker Rand and persistence of the drought and low commodity prices, which imply a continuous fall in export revenue in mining, as well as government commitment towards debt sustainability, which may imply a possible standstill on borrowing from the international market to safeguard its sovereign credit rating.

The HPP also aims to maintain and improve on the country’s international credit ratings of BBB minus. Namibia’s debt-to-GDP ratio currently stands at 36 percent, above the national benchmark of 35 percent, while its peer group (including South Africa) rating of BBB- is set at 40 percent. Similarly, government debt servicing costs have increased by 20 percent year-on-year to an estimated level of N$3.1 billion at the end of the financial period 2015/16,  representing 6.3 percent of government revenue against the benchmark of 10 percent. Moreover, total interest payments for the fiscal year 2016/17 are expected to increase to N$4.9 billion, of which N$2.8 billion is on domestic debt, while N$2 billion is on foreign debt.

“We believe that the extent of Namibia’s credit worthiness and debt sustainability is not only a function of the debt-to-GDP ratio, but also a function of debt servicing costs, which is partly influenced by the size of the debt issued and the level of interest and exchange rates movements. Unfortunately, the BoN does not have control over the exchange rate and to a certain extent the interest rates, mainly because of the one-on-one peg of the Namibia Dollar to the South Africna Rand. With that in mind, South Africa’s credit rating would have an indirect bearing on Namibia’s credit worthiness, because of [the] relationship in monetary policy formulation and interest rate developments between the two countries,” Uusiku explained.

He continued that a survey of South African Fund managers by the Bank of America Merrill Lynch suggests that 92 percent now expect South Africa to lose its investment grade status in 2016. “Should it happen, government access to capital would be more difficult and expensive in SA. As such, investors would typically require higher yields. Also, contributing to the expected higher interest rates in SA would be the expectation for higher inflation of 7.3 percent by the fourth quarter 2016 as forecast by the South African Reserve Bank. These potential external forces are likely to increase government debt servicing costs in Namibia, and thus have an adverse effect on the realisation of this target,” said Uusiku.

He also commented on the target of creating a minimum of 5 000 new jobs in the manufacturing sector during the Harambee period, saying the creation of backward and forward linkages in the agro-sector is important in this regard. “However, we believe that these industries would be better able to withstand competitive pressures if reasonable support is placed on enhancing the capacity and thus the ability of local manufacturers to comply with the standards of the retail sector. For instance, through conformity assessment and adopting good agricultural practices”, he advised.

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