Local economy faces mounting risks – Kavari

by Staff Reporter

Local economy faces mounting risks – Kavari

Windhoek

The Namibian economy faces significant downward pressure, as signs of a downward trend were confirmed by growth figures released last week by the Namibia Statistics Agency (NSA). In their latest statistics the agency revised growth down to 5.3 percent for 2015, from an initial reading of 5.7 percent and much lower than the 6.5 percent posted in 2014.

AGRI-SECTOR
“Mirroring the crippling drought conditions across the country, and the southern African region, coupled with the outbreak of foot and mouth disease in the northern communal area in 2015, agricultural production fell sharply. Production contracted by 10.3 percent in 2015, having recovered by 11.1 percent in 2014 from the devastating drought of 2013,” said Suta Kavari, investment strategist at Capricorn Asset Management, which is part of the Bank Windhoek Holdings Group.



MINING
In an analysis of the latest figures, Kavari points out that although still in negative territory at -0.3 percent, mining production rebounded from the 6.3 percent contraction recorded in 2014.
“The marked improvement in mining can be attributed to the ramping up of production at B2Gold’s Otjikoto gold mine and Weatherly’s Tschudi copper cathode mine. Gold and copper production increased by 163.4 percent and 37.4 percent in 2015, respectively, compared to 20.8 percent and 3 percent posted in 2014,” Kavari noted.
He added that the solid performance of metal ores was offset by a fall in diamond production.
“The continued slowdown in the global economy, particularly in major markets for diamonds, led to a slump in global diamond production. Last year, De Beers cut its production and lowered prices in response to the weak market fundamentals for diamonds,” he noted.

CONSTRUCTION
Meanwhile, the construction sector, which has anchored growth over the past few years, slowed to 33.7 percent in 2015 from 42.9 percent recorded in 2014.
“With water supply remaining a challenge, as well as the real danger of Windhoek running out of water soon, the outlook for construction activity is very cloudy,” Kavari cautioned. He argues that water restrictions, tariff increases, the slowdown in government capital expenditure and the completion of several major construction projects would constrain activity in the sector.

WHOLESALE AND RETAIL
Also, amid the economic woes in Angola another key driver of growth, the wholesale and retail sector recorded a slump in growth in 2015. Growth slowed to 5.7 percent in 2015, from 14.6 percent in 2014.
“The oil price plunge induced a sharp slowdown in Angola, leading to a massive slowdown in retail tourism, particularly trade in the northern regions. With oil prices set to remain depressed for longer, Angola’s economic meltdown is expected to continue and will inhibit growth in the domestic economy,” Kavari warned.
“Although the growth figures surprised to the upside and overshot our estimate of 4.5 percent for 2015, the reading confirmed the economy’s marked slowdown and points to a downward trend in economic activity going forward. The downside risks that the Namibian economy faces at the moment cannot be overstated, and they are mounting,” Kavari stated.

INFLATION
The investment strategist advised that households would continue to feel the pinch in the short- to medium-term, given the worrisome economic backdrop, particularly as rising inflation and higher debt servicing costs seriously erode disposable incomes.
“The mounting policy uncertainties will weigh heavily on investor sentiment and negatively impact foreign direct investments.
“The contractionary economic backdrop in South Africa also poses risks to the outlook for the domestic economy.
“The tighter monetary conditions and higher interest rates will also add to the muted growth outlook, while fiscal policy will turn much less stimulatory,” Kavari said.

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