Following recent movement in economics with a Fitch ratings upgrade but also a Fraser Institute downgrade, Namene Kalili, senior research and development manager at FNB Namibia explained that the Fitch review was a rating relative to South Africa and should not be confused with sovereign ratings.
“This merely points out that default risks in Namibia are lower, but we must be mindful that SA was recently downgraded. Therefore, the latest review merely states that Namibia has a cleaner bill of health relative to the chronically ill SA economy. This should not be construed as a clean bill of health for Namibia.”
Regarding Namibia, he advised that the review was not particularly significant for Namibia. “It merely states that our bonds are healthier that the ‘sick’ SA bonds and is by no means a clean bill of health. Our sovereign ratings remain BBB-, investment grade with a negative outlook. SA foreign bonds have been downgraded to junk with a negative outlook.”
Namene added that ratings were important for a country, as they assisted investors in making informed decisions when building efficiently diversified portfolios.
“Investors rely on ratings agencies to warn them of potential risks. We must also keep in mind there are investors with high-risk tolerances, who make a living investing in risky bonds at significantly higher yields. But these investors are relatively few.”
He added that for Namibia to be positively rated in all aspects, the country needs to increase growth, decrease public debt, reduce the current account deficit, tame inflation and improve governance.
In the current tough economic climate and business environment, he said: “We believe that the economy will take longer than usual to recover from the current downturn for a number of reasons. Firstly, we are emerging from the worst drought since the eighties. Secondly, we don’t have any fiscal or monetary buffers to stimulate growth. Thirdly, high private and public debts have mopped up liquidity, an essential ingredient for growth. Finally, we have the biggest infrastructure gaps (housing, energy generation, water, rail, etc.) on record. We need to seriously address these infrastructure gaps before we can start thinking about sustainable production and export-led growth. Consequently, growth will remain depressed until 2019, while we build up savings that eventually transition into investments and then production growth.”
Namene advised that people and businesses should return to a savings culture to build the required capital reserves needed to address the infrastructure backlog. “The resulting investments will add to GDP immediately, while the sustained production will weather the growth going forward, thereby rebalancing the economy towards a production and export-led growth. This transition will build FX reserves, narrow the current account deficit, generate employment, increase the tax base, unleash multiplier effects and ultimately move the economy closer towards full capacity utilization and the president’s prosperity for all promise.”