Focus on local SMEs to counter waning global demand – Likukela

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Standard Bank manager of economics and market research Mally Likukela

Windhoek

Small and medium-sized enterprises (SMEs) have long been described as the backbone of any economy, because they contribute substantially to income, output and employment.

Now more than ever there is a special need to focus on small businesses in order to sustain domestic consumption-led growth, says Standard Bank’s manager of economics and market research, Mally Likukela.

“With the global economy continuing to face persistent risks, ranging from the United Kingdom’s Brexit aftermath to China’s economic re-balancing scene, Namibia must intensify efforts to foster a conducive environment for SMEs to thrive so that they can help shield the economy from going down with the waning global demand.

“The stimulation of SMEs will compound domestic consumption. The gloomy global outlook presented by the Bank of Namibia in its latest economic outlook – that translates into weak external demand – presents an opportune moment for Namibia to increase focus on promoting responsive and comprehensive SME policy packages, which will help boost the domestic demand from SMEs as a means to sustain the economy under these difficult economic times,” said Likukela.

Gloomy global outlook
Likukela points out that the Bank of Namibia’s recently released economic outlook affirmed the gloomy global outlook, which translates into weakening external demand for Namibian exportable products.

He noted that Namibia relies heavily on the mining sector for its export earnings, while agriculture and tourism bring in an average 16 percent of Gross Domestic Product (GDP) combined.

“Mining, which is by far the fattest cash cow for the country, brings just above 16 percent in export earnings, with the latest statistics showing that the extractive sector brought about N$8.7 billion dollars’ worth of foreign currency. This condition leaves the economy at the mercy of the external demand and leaves the country vulnerable to changes thereof.

“With the world Gross Domestic Product expected to grow by only 3.1 percent and 3.4 percent in 2016 and 2017, respectively, with little prospect for a turnaround in 2016, promotion of SME-driven consumption thus becomes crucial.

“In this challenging time, a comprehensive policy package aimed at boosting SME growth is urgently needed to boost domestic consumption and counter the negative impact of the waning demand from external consumers and reduce vulnerabilities,” Likukela advised.

Construction sector losing steam
Likukela went on to say that focus on SME-led domestic consumption to anchor growth would become even more necessary in view of projected contraction (-7.5 percent and 3.5 percent in 2016 and 2017) in the construction sector, which has actually underpinned growth for the past few years.

The Bank of Namibia has projected that activities in the construction sector will slow down, as the construction boom driven by large projects – particularly in the mining sector – winds down.

Furthermore, public infrastructure will be limited as government attempts to adhere to the fiscal consolidation path.
“In this regard, an SME-friendly package is crucial to ensure the SMEs that have become an integral part in the supply chain of these large corporations continue to drive growth and moderate the contraction.

“Although SMEs may not generate as much money as large corporations, they are a critical component of and could be a major contributor to the strength and resilience of the local economy against external adversaries,” said Likukela.

SMEs to support wholesale and retail trade
Although growth in wholesale and retail trade is expected to slow down in both 2016 and 2017, according to the Bank of Namibia, the sector is expected to retain respectable growth of about 6.6 percent in 2016 and 6.8 percent in 2017.

Likukela noted that considering that the sector is the “playing ground” for many SMEs, any policy support aimed at providing a conducing environment for SMEs would certainly make material impact on boosting SME contribution to domestic consumption-led growth.

Domestic demand catalyst for HPP
“Domestic consumption-led growth driven by thriving SMEs is the ultimate demand, which will propel Namibia to the realisation of its long-term development goals,” Likukela said.

“While attempting to achieve the Harambee Prosperity Plan (HPP) and Vision 2030 goals it is crucial that government attaches greater significance to expanding the domestic consumption base, especially SME driven consumption.
“This is crucial due to the practical fact that external demand, which has for long supported growth, is considerably waning and global risk lingers on. Our country’s economic growth has long been powered, in the main, by external consumption, which at the moment remains low,” Likukela warned.

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