Finance Minister Calle Schlettwein says the Namibian economy has performed relatively well in the past years, in part because of sustained budgetary support to economic activities. However, for 2016, Schlettwein sees growth significantly slowing, from 5.3 percent recorded in 2015 to about 4 percent, or even lower this year.
During a recent meeting with his ministry’s staff, Schlettwein noted that the expected slowdown in economic activity is due to external as well as domestic factors which impact on the country as a small, open economy.
The external factors include low commodity prices which have come about as a result of low external demand and supply-side factors. These low commodity prices impact on production and profitability levels for the commodity-based industries of mining, fisheries and agriculture. Another external factor is the slowdown and low demand in major trading partners.
“The emerging market economies, which have been a source of growth since the global financial crisis, are undergoing tough, adjustment times. China, which is the main market for mineral commodities, is experiencing its lowest growth rate of about 6 percent. BRICS (Brazil, Russia, India, China and South Africa) economies are already in a recession,” said Schlettwein.
He further noted that the South African economy, which is the most closely linked to Namibia, is growing at a mere 0.1 percent. At the same time, Angola, which is another of Namibia’s main trading partners and a source of external demand for the country, is undergoing difficult times due to the oil price collapse.
“This is already adversely affecting our retail sector. We are thus wedged between two large neighbouring economies and trading partners which are faced with severe structural challenges. The low growth of the South African economy is a concern not only for trade, but taxes from trade, especially SACU (Southern African Customs Union) receipts,” Schlettwein stated.
Meanwhile, Sub-Saharan African economies are growing at their lowest level of 1.6 percent in the last 10 to 15 years, particularly because financial market conditions, at home or abroad, are significantly weaker. Internationally, the outflow of capital from emerging markets and developing economies have led to tighter market conditions.
On the domestic front, Schlettwein pointed out that risk factors include the severe drought, water shortages and the effects on industries that are dependent on water such as construction, beverage industries, etc. He also expressed concern about the fact that, increasingly, less liquidity is available in the domestic market which makes the financing of the budget not particularly easy.
Additional domestic risk factors include limited fiscal space, given the revised macroeconomic and revenue outlook, and structural challenges in terms of skills formation, unemployment , equalisation of income and poverty eradication.