The year 2017 did not start well for the global economy that has – until now – grown used to multilateralism while listening to the gospel of global fair trade.
If last year’s Brexit vote was a minor tremor, then the ascension of businessman Donald Trump to the United States White House is the earthquake that continues to reverberate throughout the globe, even though its aftershocks are yet to be fully measured by the implementation of the executive orders he continues signing.
The tectonic shift in global politics had African politicians and technocrat concerned to the extent that when political leaders met in Bamako, Mali to attend the 27th session of the Africa-French Summit in the first weeks of January, the issue of Western countries turning to protectionist measures was high on the agenda.
“We increasingly see geo-political shifts and the resurgence of populism and protectionist policies, which run counter to multilateralism, inclusivity, integration and globalisation,” remarked Finance Minister Calle Schlettwein on his return from Bamako.
And Africa – including Namibia – has reason to be scared. To start with the much-touted ‘African Growth’ is anchored on the pursuit of multilateral trade pacts. Africa’s quest for industrialisation would be dead in the water if European countries – emboldened by Trump’s radical executive orders for America first – would follow suit and elect rightwing parties that threaten to shut down borders.
“Africa has to increasingly optimise intra-African trade, industrialise its economies, leverage global value chains and adapt its act to cope with the emerging world order,” said the finance minister, adding that “Namibia is no exception in pursuing these policy objectives.”
Yet, Trump has an expansionary fiscal policy in mind involving major construction and infrastructural projects in the USA. This, according to some local analysts, would have been a great opportunity for industrial metal producing, emerging markets, such as Namibia.
“Unfortunately, his stance on trade is one of protectionism. Therefore, one cannot be assured of access to the US market and treaties like AGOA (African Growth Opportunity Act), might be under threat,” says Claudia Boamah, an economic analyst at Capricorn Asset Management in Windhoek.
For Namibia, who at one point in the last quarter of 2016 reportedly found herself in a liquidity squeeze, and whose optimism for 2017 is based on better trade yields with the rest of the world, the ongoing political shenanigans that fuel nationalistic trade agendas are not a good omen.
Namibia needs to record decent economic growth in 2017, not least because the 2016 economic outlook revision by Moody, from stable to negative in the last quarter of last year, put Namibia in a tight financial squeeze.
The market shunned the government bonds, because of what Schlettwein admitted was a waning of confidence in the market. And the public sector was also aversely affected, as it was expected to swallow more than what it usually does, as government tries to raise more capital to fund its budgetary requirements.
As a result the Treasury had to hold a special auction, through which it was able to raise N$3,5 billion and pay off its financial commitments, some of which were way above the 30-day period.
Actually, in economic terms, last year was not a good year. Namibia slipped into recession in the middle of 2016, although a slight improvement was recorded by the third quarter of the year, when GDP growth was -1.0 percent.
The construction and mining and quarrying industries had lagging effects on the country’s total output for the year. Meat production and exports also shrunk in light of the drought. Persistent inflation and the high cost of borrowing further stifled consumer demand, as indicated by the 15.3 percent decline in year-on-year car sales in December.
“While the local currency fared pretty well against the dollar, struggling diamond and meat exports lead to minimal net export revenues. In order to reign in the growing budget deficit the government had to reduce expenditure. While this has earned the country a stable credit rating, various sectors in the economy have withered, most notably the construction sector,” Boamah noted.
What to expect of 2017, then?
The analysts’ prediction is a mixture of good and bad. And this is the bad news: Those living on the edge or well outside their means of income are in for a hard ride. The limited economic growth does not bode well for the consumer economy, as it will most likely result in declining real disposable incomes, says Ngoni Bopoto, an investment strategist at Broadside Capital in Windhoek.
“In our opinion the greatest threats to the near-term inflation outlook are a weaker domestic currency, higher cost of housing, utilities, fuel, rates and taxes, while food prices will be partially contained by recently announced price cuts. Despite Namib Mills’ announced reprieve in food prices, it is worth noting that the cuts do not fully compensate for last year’s hikes. We also remain cognisant that inflation is coming off a high base, which may restrict the rate of change in the general price level,” says Bopoto.
“Interest rates will remain at their current already high levels and those living beyond their means can look forward to the high cost of borrowing. Conversely, those who choose to reduce consumption in favour of saving and investing can look forward to decent returns,” Boamah explained.
On the upside, Boamah opines that slight steady increases in global inflation are a likely indication that the recession is over and the worst is behind. With economic activity returning to the world, production and construction industries will demand more industrial metals, she says.
“The political uncertainty in developed markets can also be counted on to periodically boost demand for precious metals as investors seek safer alternatives. As such, one cannot conclude that the mining sector will experience large-scale layoffs.”
Boamah also notes that the government is yet to achieve its sustainable debt ratio of 35% of GDP.
“Therefore, fiscal policy in 2017 is expected to be contractionary. As such, the construction industry will experience intense pressure. Private Public Partnerships (PPPs) have come to the fore again. If they are pursued aggressively, they could mitigate the tightening fiscal policy’s effect on the construction industry,” she says.
“There is modest optimism concerning the 2017 economic outlook. We expect a 2.5% growth figure by the end of the year. So far the country has averted a credit ratings downgrade, which is invaluable if the government intends to finance its deficit by selling sovereign debt securities,” Boamah noted.
Global commodity prices are on the rise, which is good news for the agricultural sector, as the drought is ending and meat production will likely recover. Uranium prices are also looking up, which is just as well, given that the new Husab Uranium Mine in the Erongo Region has now been commissioned.
Boamah notes that Trump’s presence on the global political stage seems to be intensifying the rivalry among the major powers and that might revive the demand for uranium for weapons and energy production. And Namibia is a uranium producer.
The global supply of industrial metals is also expected to fall in light of voluntary production cuts from countries, like China. This could though translate into increased market space and higher export revenue for Namibia’s industrial metals. All things being equal, local economists tend to agree that Namibia can expect positive – although marginal – growth in 2017.
– This report was first published in New Era Weekend on February 3, 2017.