Exports need to grow 67% for country to become a net exporter

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Providing clarity…  Frans Uusiku of Simonis Storm Securities

Considering the country’s trade deficit of N$39.0 billion, registered at the end of 2015, annual exports need to grow by at least 67 percent for Namibia to become a net-exporting economy. This is according to a report on Namibia’s vulnerability to exchange rate fluctuations by a local economist, Frans Uusiku from Simonis Storm Securities.

“The fluctuation of the exchange rate impacts the country’s terms of trade in two different ways. When the ZAR (South African Rand) strengthens, Namibia is able to import more units of goods for every export the country makes. When the ZAR weakens, the country must export a greater number of units in order to match its imports – a situation that has plagued Namibia in the recent past,” read the report.

Uusiku noted that it is clear that the cost of Namibian imposts is more sensitive to exchange rate fluctuation than the export revenue: 0.84 for imports and 0.79 for exports. He says this is partly because the country imports mostly soft commodities (e.g. food), while its exports are mainly dominated by hard commodities (e.g. industrial inputs). As such, inflation in Namibia is highly imported from international markets.

“This imbalance mix of Namibian imports in relation to exports exerts pressure on the current account, particularly during the periods of currency depreciation. There is thus a strong investment case to be made about increasing Namibia’s export capacity to commensurate for the extra import costs incurred due to a loss in its currency value,” said Uusiku.

In addition, Namibia’s export profile is highly characterised by hard commodities, which are traded in US Dollars. “This makes the weaker ZAR more favourable for Namibia’s export sector and also for rebalancing the current account. Therefore, if we consider the 2015 import and export levels (N$ 97.2 billion and N$58.2 billion, respectively) as a benchmark, the ideal exchange rate that would warrant a positive trade balance should be at least 1.7 times the prevailing exchange rate (R14.07/USD). This would bring it to R23.91/USD,” he explained.

“While this may seem unrealistic to attain, given that imports are more sensitive to exchange rate fluctuations than exports, the best possible policy option at this point in an attempt to achieve a positive trade balance would be to position Namibia as an export hub for both industrial and consumer goods. In the absence of a strong export base, Namibia’s Gross Domestic Product growth would continue to be mainly driven by government and consumer spending – a situation that is not sustainable in a costly borrowing environment,” the report noted.

“Henceforth, we believe that the positive production outlook of the Namibian mining sector, particularly in respect of gold and uranium, is likely to benefit from a weaker Rand, and, therefore, helps to ease pressure on the current account,” Uusiku noted.

 

 

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