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Loud silence as Harambee turned three

The Harambee Prosperity Plan – launched in 2016 – turned three years old on 1 April 2019. The Presidency could however not respond to questions regarding the progress of the plan saying a progress report will form part of the upcoming State of Nation Address.
The State of the Nation Address (SONA) is an annual event, in which the President reports on the status of the nation, normally to the resumption of a sitting of Parliament.
Article 32 (2) of the Namibian Constitution provides that the President must attend Parliament during the consideration of the National Budget. At this occasion, the President must also address Parliament on the State of the Nation and on the future policies of the government. He/she also reports on the policies of the previous year and is available to respond to questions.
President Hage Geingob in his foreword of the Harambee Prosperity Plan said that what is required in order for the HPP to work, “is an understanding that it is no longer business as usual.”
“We are not only required to act with more urgency to reform processes, we are also required to reform our minds and attitudes and pull in the same direction. A new culture of efficiency and accountability is critical to foster the change we wish to see,” Geingob said.
Chapter three of the plan is titled ‘effective governance and service delivery’ with sub-pillars titled accountability, transparency and improved performance and service.
An economist and social activist who chose not to be named said that the fact that there has not been any progress report on the day the plan turned three, speaks directly against the accountability provision in the plan. “There were targets set in the Harambee Prosperity Plan and there were promises made based off of these targets, the Namibian nation was requested to all contribute towards the realisation and success of this document. Whether you are part of civil society or not, the fact that you are a Namibian citizen made you responsible to doing your part in pulling together for the success of the HPP.
It is based on this that I am of the strong opinion that the government must be held accountable on the progress and achievements of the plan. Government must be in a position to tell its people where we are regarding the targets that we set for ourselves,” the economist said.
He added that it is right to ask whether the plan has failed or not, and if it did fail, what went wrong and what the way forward is, to achieve the targets.
Fellow economist Klaus Schade has said that since no progress report was published in 2018, it is not known whether all the plans were implemented or whether progress had been hampered by the lack of implementation.
The Patriot recently reported that The Harambee Prosperity Plan (HPP) has failed to better the country’s global rating for ease of business as set out in their targets and proposed strategies.
The ease of business is one of many other targets set out to contribute to the positive growth of the country’s economy and development.
The World Bank’s ‘Doing Business 2018’ report showed that Namibia was ranked 106th out of 190 countries.
Economist at Standard Bank Namibia, Naufiku Hamunime was quoted in The Patriot as saying that while Namibia was overall ranked 106 out of 190 countries for ease of doing business, the country was ranked 172 out of 190 countries for starting a business and 174th out of 190 countries when it comes to registering properties.
Former economic advisor in the Office of the President John Steytler, last year said that the HPP can be considered a success.
Steytler was also quoted as saying he does not think HHP failed, despite admitting that government was behind schedule on set targets such as poverty eradication.
A 2017 review of the HPP stated that Namibia minimally overshot its debt to GDP target by 7 percentage points.
They maintained that the progress of the plan remains on track throughout all the pillars.
Economist Klaus Schade told The Patriot that because there has been no progress report published in 2018, it is not possible to provide a comprehensive assessment on the Plan. He added that targets have not been met, such as debt-to-GDP ratio and the credit rating at BBB due to the economic slowdown, investment targets, competitiveness, provision of sanitation and housing – to name a few.
“However, Namibia has made progress in some areas, such as import coverage above 3 months, no load-shedding, expansion of the Walvis Bay harbour, intake at VTCs etc,” Schade said.
Regarding the provision of 2 500 manufacturing jobs target, Schade said that according to the Labour Force Survey 2018, slightly more than 600 jobs were created in the manufacturing sector between 2016 and 2018.
He agreed that Namibia actually dropped in the rankings of the Global Competitiveness Report published by the World Economy Forum and the Doing Business Report published by the World Bank.
“We need much more concerted efforts to improve the country’s competitiveness, since this will contribute to stronger economic growth and job creation,” the economist shared.

BoN not worried about SARB nationalisation

Central bank deputy governor, Ebson Uanguta has said that the bank is not worried about calls by South African president Cyril Ramaphosa to nationalise the partly private owned South African Reserve Bank despite the economic link between South Africa and Namibia.
Speaking at the side-lines of the monetary policy announcement this week, Uanguta said the issue of nationalisation of the SARB was theoretical and that it has no practical impact on its operations.
He emphasised that despite the rand being one of the most volatile currencies in the global economy, any move by the South Africans to claim sole ownership will not affect it, thus the Namibian dollar will not be swung.
“Nationalisation implies that the bank will have government as its sole shareholder and that is the case with many other countries. But the bank’s shareholders do not mean anything and have no influence over affairs of the SARB.”
As far as price stability and inflation targets are concerned, these are given over to treasury to handle which in turn gives the function to the central bank which will look at how these will be achieved, he added.
He also said there was no reason to laud the South Africans for attempting to nationalise because ownership remains immaterial.
In the same breath, senior local economic experts have also expressed confidence that a possible nationalisation of the SARB will not negatively impact the domestic economy or the Bank of Namibia’s monetary policy.
Although discomfort over the 2 million shares ownership at the bank was expressed by the Economic Freedom Fighters lately, calls for the nationalisation of the South African apex bank have reached fever pitch and are now at the centre of President Ramaphosa’s election campaign sloganeering.
According to available information, the South African Reserve Bank houses more than 700 shareholders from all over the world with Germans holding the highest number of shares.
“We have a situation where we have external shareholders. This has been done by a number of countries around the world.  There are some six countries in the world that have external shareholders in the bank, and we are one of them. The Reserve Bank should be owned by the people of SA, not external shareholders,” Ramaphosa said last week Thursday at a parliamentary question-and-answer session.
The potential ramifications of this on the Bank of Namibia’s monetary policy came out as a major concern soon after these utterances, considering the common monetary area within which Namibia and South Africa find themselves.
Leading economist at the Economic Association of Namibia, Klaus Schade allayed fears of the nationalisation drive stating that everything should be business as usual as long as the autonomy of the bank was ensured.
Said Schade, “Nationalisation implies that the state is the sole shareholder of an enterprise. The state is the sole shareholder of the Bank of Namibia as is the case with most central banks. What matters more than the ownership is whether the autonomy and independence of the central bank is guaranteed and whether the central bank can pursue its mandates without political interference.
In the case of Namibia and other central banks their autonomy is guaranteed. South Africa has also committed herself to an autonomous, independent central bank in the SADC Finance and Investment Protocol. A change of ownership does not imply that this independence is under threat,” he voiced. Responding to Ramaphosa’s utterances, the Mail and Guardian also emphasised that even if the SA government were to take over, the shareholder’s power does not extend to making any decisions on policy.
“When shareholders attend the annual general meetings, they have the power to elect seven non-executive directors. At these meetings, they can also discuss the bank’s annual report and the auditors’ report,” said the publication.
Trends over the years have shown that South Africa’s monetary policy stance has always influenced that of Namibia and the overall economy.
Author on economics, Dr. Ravinder Rena has echoed that the dynamic relationships of trading between Namibia and South Africa, more specifically the  volatile  nature  of the rand and interest rate have influenced consumers to absorb short-run price changes.
His latest research on the impact of South African monetary policy on Namibia discloses that a one percent  change  in  South  Africa  money  supply  or appreciation  (depreciation)  of  rand  leads  to  double  change  in  beef  price  in  Namibia.
“Due  to  the linkages between monetary policy variables and  relative  agricultural prices, it  is recommended  that agricultural policy makers  and monetary  authorities  in CMA  need to work  closely in  designing  and implementing  monetary  policy.  This is important  because  monetary  policies  meant  to  stabilise  the  economy may have less desirable impacts on farmers and consumers, especially in the short run,” he says.
The Bank of Namibia has also recently expressed that it had no plan to de-link from the South African Rand in the short to long term, further cementing the fate of the local economy to that of its southern neighbour.
Former director of research at Namibia Equity Brokers, Alfred Kamupingene also echoed the sentiment saying that the nationalisation drive may “provide some leeway to do things differently”.
“I think the nationalisation idea in principle could be a good idea in that currently there are divergences in terms of national objectives which have to be aligned,” he said.

Namibia’s ability to be a logistics hub challenged

NAMIBIA’S vision of becoming a logistics hub is too ambitious, desultory and costly, and should be reassessed, says Rainer Ritter of the Economic Association of Namibia (EAN).

Ritter made the above remarks at the launch of EANs public enterprises review, titled Namport Within the Context of a Logistics Hub in Windhoek this week. The review looked at whether Namport’s operational and financial figures are indicative of logistic hub vision becoming a reality.

Ritter, who did the analysis, said looking at the number of vessels as the main indicator of the viability of a hub, the numbers of the ships that visited Walvis Bay and Luderitz has been decreasing over the years, and puts question marks on whether Namibian ports are preferred in the region.

“There is a declining trend in vessel visits to Namibia’s two commercial ports. Port visits peaked in 2002, recording an annual 3 560 vessels while in 2017, just 2 080 ships visited both harbours, a decline of 1 480vessels per year, or 4 per day,” Ritter said.

He explained a decrease in vessel visits means low tariffs would be collected, leading to low revenue and little profit to Namport. And the country pressed with the worsening current economic climate and the repayment of the African Development Bank loan could even make matters worse. He also observed that, with the decrease in the number of vessels, handling fees and container fees have upped, compared to regional ports such as Durban making Namibian ports expensive.

“Walvis Bay container and cargo tariffs are much higher than Durban which renders the harbour uncompetitive to become a logistics hub. To improve competitiveness, the port authority should drop tariffs, and to stimulate exports it should consider lower tariffs,” he said.

The EAN series is an analysis of the performance of public enterprises on how they utilise public funds and explore reforms to eliminate wastage and harness self-sufficiency.

Ritter also said, apart from high fees, the geographic location of the Namibian ports are not strategic, as they are not close to important trade lines linking Namibia to big traders such as China, and there are such long distances between the ports and intended markets.

“With heavy investments in Angola’s Lobito port, which is much closer to many landlocked countries with export-driven economic activities such as Zambia’s copper belt, Namibia would not be able to compete,” he said.

Other challenges that Ritter named were that Namibia has a small domestic market that highly depends on investments and policies and taxation are not favourable either to attract the needed investments.

He called on the reassessment of the preferred hub policy, to ensure that it makes sense to economic times the country is facing and the future. He called for experts to be appointed to Namport’s board, for Namport to put infrastructure development to a standstill and regular comparisons and assessments are made concerning the reality of a viable logistics hub.

Projects that Ritter has called to be halted include the refurbishment of the Kransberg rail line that is expected to cost N$5,5 billion and called the N$4 billion that Namport invested in extending the container terminal as a wrong decision, suggesting it should have been done in stages. Responding to Ritter’s, Namport’s chief financial officer, Kavin Harry said, the vessel decrease is something that the shipping industry has been experiencing over the years and not only attributable to Namport. “Global shipping lines have been making losses, recording about US$5 billion dollars last year. Instead of getting many vessels as in the past, they are deploying bigger vessels and uniting cargo to cut costs, hence the decrease in the vessels,” Harry said. He went on to say ports activity is also the barometer of what is happening in the economy. “If the economy is suffering as ours is, then you should partly expect the numbers to be down, but it has no direct reflection on the tariffs inflow,” he said. The CFO added that, Namibian ports are efficient in the way the vessels are handled. “Also, Namibia is a very safe and peaceful country, and those are some of the factors that Namport is capitalising on and makes us the desired logistics hub,” he said. Harry went on to say it would therefore not be correct to say Namport is making misplaced investments because the volumes have gone down because all these factors are taken into account before investments are made. Some studies are made by international agencies and local ones, and they have indicated that Namport figures would go up. In 2012, we reached 330 000 containers, and that motivated our investments.

 

“Comparing Namibia and South Africa does not make sense. The local markets vary way too much. Incorporating the economies of scale, we should expect the numbers to vary, and that alone cannot be used to say Namport is not competitive,” Harry argued. Harry went on to say to the economists, “it is you that give us the projections that we use then you come here to say we have not invested properly, what is this?” he asked. Walvis Bay Corridor Group’s acting chief executive officer, Clive Smith, who was also present at the launch dismissed Ritter’s conclusion that no thought was put in the logistics hub vision. “There were consultations between the government and the private sector before all policies with regards to the hub were made, and regular assessments always made, and talks with the government have been made too,” Smith said.

The Corridor group, has offices in SouthAfrica, Brazil and South Africa, aimed to promotingNamibian ports and ensuring that Namibia is the connector of southern Africa to the rest of the world.
Smith also explained that the tariffs charged by Namport are competitive with peers in the region and they only seem high because Namport charges a single tariff as opposed to counterparts that have split fees. The publication on Namport’s review is available on the EANs website for downloads.

Namibia’s fiscal policy at a crossroads

The Namibian economy is at a difficult juncture when it comes to its fiscal policy since the country’s independence in 1990, which has seen government debt and deficit levels rise significantly over the years reaching critical levels of 50% of the gross domestic product (GDP) exacerbated by weak economic recovery.

Economic experts have been pressuring the government to re‐evaluate its fiscal position, spending levels and core strategies to strike a balance between adopting massive fiscal adjustments to reduce debt but also calling for additional fiscal stimulus to grow the economy and alleviate poverty.

The recently published report entitled ‘Namibia’s Fiscal Policy Analysis’ by First Capital Treasury Solutions has described Namibia’s fiscal policy as being at a crossroads because of the total government debts accumulated over the past 29 years, inelastic, non-progressive and volatile government tax revenue and narrow tax base; rise in default risk by local authorities, private sector, state-owned enterprises (SOEs) and households that may need bailouts.

The report analysed current and past fiscal positions since 1990, breaking it down to the three presidencies of President Sam Nujoma (1990 to 2005), President Hifikepunye Pohamba (2005 to 2015) and President Hage Geingob (2015 to 2019).

First Capital pronounced national savings levels as very low to support government while chances of foreign borrowings were diminishing.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy and corresponding strategy to the monetary policy through which a central bank influences a nation’s money supply.

It would appear that during the review period of President Pohamba (2005 to 2015), fiscal policy practice was at its best as Namibia enjoyed a surplus economy from 2006-2009, where government revenue rose substantially and expenditure was contained, while high government spending resulted in higher GDP growth.

According to First Capital, this fiscal stimulus was also influenced by the last five years of President Nujoma’s government, which saw Pohamba’s government inherited an economy growing at a peak of 12.3% in 2004.

“It can be concluded that under President Pohamba, fiscal policy in Namibia was expansionary with the aim of spurring economic growth and providing major infrastructure especially housing and road network,” read the report.

The report states that under Pohamba, higher average GDP growth of 5.6% compared to 4.1 during Nujoma’s presidency was achieved through high government spending, however, debt to GDP increased after reaching a low of 15% in 2009/10 to 24% at the end of his term in 2014/15.

Under Nujoma’s rule (1990 to 2005), the fiscal policy also showed some successes where GDP growth increased from an average of 1.1% (during the period 1981 to 1989) to an average growth of 4.1%, inflation and interest rate (repo rate) came down significantly (from 11 and 16) to 5 and 9%, respectively for the period 1990 to 2005.

While government expenditure rose, Nujoma’s government saw deficit as a percentage of GDP remains relatively low at an average of 3% of GDP, as per the report.

However, unemployment, poverty and income inequality remained stubbornly high due to the unchanged structure of the economy and limited and appropriate complementary policies.

In spite of that, his era is said to have achieved both macroeconomic stability objective, reduced the infrastructure backlog significantly especially in education and health through additional schools, clinics and hospitals built.

During the review of President Geingob (2015-2019), the incumbent president seems to have had the most hurdles to jump over as he inherited an economy slumping down as commodity prices declined, the mining sector contracted, agricultural sector slowed down and the economy was not generating enough revenue.

Geingob took over the economy in fiscal deficit at 6%, deficit to GDP rose significantly, government expenditure and revenue declined significantly and the economy entered recession in 2017/18.

“Unlike his predecessor who took over a booming economy and a government budget entering into a surplus, president Hage Geingob took over an economy with fiscal deficit at 6% while debt to GDP was at around 24%,” read the report.

Government revenue and expenditure increased from R1.6 and R2.2 billion respectively in 1990/91 to R56.7 and R65.0 billion respectively in 2018/19.

During Geingob’s rule, the fiscal policy stance moved from expansionary to contractionary mode and government expenditure re-prioritisation.

Both deficits to GDP and debt to GDP rose significantly under president Geingob with debt to GDP reaching 43% in 2018 and the only way to ensure the government continues to deliver services to the population was to borrow.

Since 2016/17, capital expenditure allocation has declined from 16% of total expenditure in 2015/16 to 11 and 8 % in 2016/17 and 2017/18 respectively.

The 2018/19 expenditure allocations also show that only 8% was allocated for capital expenditure, a trend to be maintained during the medium-term expenditure framework period ending 2020/21.

Over the past five years, nearly half (48%) of the budget was allocated for social expenditure, which includes education, health and welfare services, which shows that Namibia could be considered a welfare nation with high public spending, especially on education, health and transfer grants.

In spite of continuing economic uncertainties, there are signs that the Namibian economy will regain growth momentum and recover over the coming years, with a positive fiscal outlook projected for both deficit and debt to GDP projected to decline to below targeted levels, reads the report.

Local economic analyst, Klaus Schade said we would need other approaches to reduce the high wage bill, including a comprehensive review of the public sector, including offices, ministries, agencies and public enterprises.

“This would support First Capital’s call in the conclusions for increased efficiency and for maintaining current expenditure levels rather than increasing expenditure when revenue is starting to pick up again,” he added.

Budget delay raises suspicions

Delays in tabling the 2019/20 national budget have raised suspicions amongst economists, who strongly suspect that the economy might be in turmoil than widely thought.
Executive Assistant to the Finance Minister, Esau Mbako, confirmed on Thursday that the tabling of the 2019/20 fiscal year budget has been postponed to the 27th of March, the second time in as many weeks.
The tabling of the budget was initially scheduled for the 13th of this month, but was postponed to Tuesday 19 March, which has now been cancelled.
Mbako told the Windhoek Observer upon enquiry that the budget had been delayed due to scheduling conflicts in the National Assembly. He said the Speaker of the National Assembly, Professor Peter Katjavivi, had asked them to move the date of the tabling of the much-anticipated budget to the 27th of March.
Finance Minister, Calle Schlettwein, told a local daily that the tabling of the 2019/20 national budget had been moved purely for logistical reasons.
“There is nothing sinister about it,” Schlettwein is quoted as having said.
The minister added that the 27th was the “final” date.
But an economist who spoke to the Windhoek Observer on condition of anonymity said the delay in tabling the 2019/20 Budget Appropriation Bill was suspicious, adding that it does not make sense.
“What could be more important that they need to debate in the National Assembly?” the economist queried.
He said while delays in tabling the national budget were nothing new, it was rather strange that the finance ministry had delayed the upcoming budget twice for almost a month.
“If there is a very important bill that Parliament is currently seized with then the postponement makes sense, but if not then the national budget should be a priority,” the economist said.
Research Associate at the Economic Association of Namibia, Klaus Schade, told the Windhoek Observer that the postponement suggests that tough choices have to be made and that balancing the different demands and interests remains challenging.
Schade said coming up with a budget during an election year will certainly make it more challenging to introduce necessary, but painful reforms.
“However, reforms are necessary to put the country on a stronger growth trajectory in the future and regain fiscal space,” he said.
Schade said the government might wish to increase some taxes, apart from the annual increase in excise duties, or introduce new taxes in order to reduce the budget deficit.
“However, tax proposals contained in last year’s budget statements have not yet been gazetted,” he said.
He added that tax relief for low income earners would increase their disposable income and consequently their spending power, but warned that any additional taxes in the current economic climate would, unless targeting specific rent seeking behaviour, not be supportive of stronger economic growth.
Schade said due to low economic growth and lower inflation, revenue is not expected to increase significantly although Namibia could benefit from some additional SACU transfers, since transfers to the BLNS (Botswana, Lesotho, Namibia and Swaziland) countries in the latest South African budget were increased by about N$4 billion compared to the estimate a year ago.
“On the expenditure side, we do not expect major shifts although the current fiscal situation requires a clear prioritisation of growth-supportive sectors including education and health, but also on infrastructure that have a high potential to improve the country’s competitiveness and hence attract private sector investment.
“The wage bill needs to be addressed in a systematic and structured way, but it will take time to reduce the wage bill significantly. Employment in and salary levels of Public Enterprises need to be reviewed and subsidies cut significantly,” Schade further said.
Namibia’s new fiscal year starts on 1 April.

Consumption to economic growth dips

THE contribution of household consumption to economic growth declined to -4% in 2017, from a positive growth of 6% in 2016, according to statistics provided by the Namibia Statistics Agency.

The annual national accounts’ report by the Namibia Statistics Agency (NSA) showed that in 2017, private households’ consumption amounted to approximately N$121 million each for 2016 and 2017. Government consumption amounted to about N$43 million in 2017, and N$40 million in 2016.

Looking at the figures, predictions are that the figures will continue to drop if the current economic conditions remain unchanged. During 2017, private household consumption amounted to 69%, compared to 73% recorded in 2016.

Statistics also indicate that in 2017, final consumption, including that of the government, amounted to approximately N$164 million, compared to N$161 million recorded in 2016.

Titus Kamatuka, a senior statistician at the NSA, explained that the statistics show that private household consumption declined because households spent less on consumables.

Analysts who spoke to The Namibian said the high unemployment rate has to some extent affected consumption levels across the country because of reduced disposable income. Apart from the high rate of unemployment, the increase in the demand for imported goods compared to local goods has also worsened the decline.

PSG Namibia’s head of research, Eloise du Plessis, said for consumption to be stimulated, the average income of Namibians should be raised.

She added that reducing the rate of unemployment should be a priority because more jobs means more disposable income in the economy, thus increasing consumption levels.

Du Plessis noted that high consumption supports businesses as people buy consumables, hence leading to business expansion and more jobs being created.

“Stronger businesses and more jobs lead to a broader tax base for the government, and this strengthens government finances to provide supportive infrastructure,” she added.

The analyst observed that when there are more business-friendly government policies, more jobs will be created to stimulate higher consumption.

The consumption component is currently the primary driver of growth, but unfortunately due to unfriendly government policies, jobs are being lost and capital flows out of Namibia, thus reducing consumption levels, Du Plessis continued.

An economist from the Economic Association of Namibia, Klaus Schade, said the impact of private consumption on economic growth depends on whether it comes in the form of demand for locally produced goods and services, or imported goods and services.

The demand for locally produced goods and services will increase domestic production, job creation, tax payments, and could result in more investments.

The increased demand for imported goods or services results in an outflow of funds, except for the dealer margin and some other expenses, Schade said.

He added that consumption has dropped as reflected in negative growth rates for the wholesale and retail sector because of increased unemployment and economic uncertainties that result in a decline of consumer spending.

“Shop closures are another sign of the drop in spending, and the drop in demand impacts negatively on the economy since employment and profits decline,” the economist said.

Schade said consumption will increase with rising employment and salary increases.

However, if increased consumption results in rising demand for imported products, it will lead to an outflow of foreign exchange reserves.

Namibia needs to build sufficient foreign exchange reserves in order to maintain the peg of the dollar to the rand, and to meet the international benchmark of three months import cover.

Furthermore, promoting consumption over savings will leave households vulnerable to economically challenging times.

Hence, households should strive for a healthy balance between consumption and savings, which will further reduce their exposure to debts.

IJG Securities, for their part, said household consumption is heavily dependent on consumer demand and confidence.

The company added that consumer confidence is currently depressed as many Namibian businesses are retrenching employees due to the prolonged recession, which forces consumers to cut back on consumption.

“When the level of consumer spending is high, businesses will increase their output to keep up with the demand for goods and services. As a result of higher demand, businesses may expand operations, and in turn hire more employees. Higher consumption and 1emand for goods and services will subsequently drive prices up,” IJG Securities said.

The company noted that currently, household consumption is contracting, thus contributing to the recession.

No Fuel Hikes for March

MINES and energy minister Tom Alweendo last Friday announced that fuel prices will remain. The prices at Walvis Bay will be N$12,05 per litre for petrol and N$13,13 per litre for diesel for the month of March.

This is the third consecutive month that the ministry has kept fuel prices unchanged, with the minister saying in a statement the National Energy Fund will absorb the minimal over-recoveries.

Alweendo, however, said net importers of oil, including Namibia, are always at the receiving end of the global oil market, and therefore remain natural price-takers of whatever prices oil exporters set.

“That makes their respective local markets vulnerable to adverse fluctuations and shocks in the global oil market. Namibia is one of the net importers of refined oil, and although minimal, it could not fend herself off from the effects of increasing oil prices in February 2019, caused by the manifestation of oil supply politics by major oil producers under the Organisation of Petroleum Exporting Countries,” the minister said.

Since October 2018, oil prices started ticking up, making a big turn from a decreasing trend. This saw oil prices moving averages of US$58 and US$69 per barrel of refined petrol and diesel, respectively. January 2019 prices moved to averages of US$64 and US77 per barrel of refined petrol and diesel into February 2019.

The mines minister added that the exchange rate between the Namibia dollar and the US dollar strengthened during the period under review, but it was not enough to mitigate the adverse effects of increasing oil prices.

“The exchange rate moved from an average of N$14 in January to N$13,70 in February 2019. Filtered through the local market, gains recorded in January 2019 fell significantly by a margin of over 35c/l on petrol and over 60c/l on diesel. Over-recoveries per product on the basic fuel price import parity landed at Walvis Bay as at 25 February 2019 indicated a 25,953 c/l for petrol and 7,736 c/l for diesel,” Alweendo noted.

In terms of the strengthening rand, to which the Namibia dollar is pegged on a 1:1 basis, analysts The Namibian spoke to in February said it remains one of the most volatile currencies in the world, despite strengthening by a little over 7% during January 2019.

Research associate at the Economic Association of Namibia, Klaus Schade said the rand is recovering some ground lost during 2018. However, the current global climate is characterised by a number of uncertainties (trade wars, geopolitical factors, Brexit), which can lead to fluctuations in exchange rates.

“Unchanged fuel prices for February are one of the results of the strengthening of the Namibia dollar. In contrast, revenue for exports charged in US dollars and so forth will decline since exporters received only N$13,30 per US dollar on average in January, compared to N$13,87 per US dollar in December,” Schade explained.

Shelly Arnold, PSG Namibia’s research analyst said the rand is the most volatile currency on the world market, and a lot of its valuation depends on emerging market sentiments, not SA-specific factors, “which means a ‘perfect’ scenario is not really attainable.

Budget needs to address civil service and budget deficit

With the date of the tabling of the national budget confirmed for Wednesday, 13 March, 2019, economists have pointed out the bloated wage bill, under-performing public enterprises, including a review of the public sector, and the budget deficit as some of the most crucial aspects that Finance Minister, Calle Schlettwein, needs to address.

“Natural attrition does not address the real issue of a bloated civil service; trade unions demand salary increments for public sector employees and economic growth projections for 2019 do not indicate a reduction in the number of public servants. State of public enterprises and fiscal risks concerning their ability to repay debts (even public enterprises that are currently regarded as doing well could come under financial pressure); how to finance major infrastructure projects such as the expansion of the Hosea Kutako International Airport; how to reduce the budget deficit and public debts; what is being done to ensure that Namibia can repay the first Eurobond in two years,” economist Klaus Schade said these are some of the major aspects of the budget that Schlettwein needs to address.

However, Schade cautioned that reducing the wage bill cannot be done in the short-term but needs a medium-term, coherent strategy. In addition, he suggests that the privatisation or partial privatisation of public enterprises could be considered.

Schade, a research associate at the Economic Association of Namibia, further note that if domestic liquidity allows, borrowing locally should be prioritised as it excludes any exchange rate risk and it provides income locally in the form of interest payments. “Government could issue longer-term government bonds rather than short-term Treasury Bills to improve public debt management,” Schade, recommended.

Commenting on the budget deficit, Schade noted that there might not be sufficient liquidity in the local market which would force government to borrow abroad, if the budget deficit cannot be reduced.

This borrowing in turn could increase the country’s budget deficit which would most likely result in Namibia being downgraded by sovereign rating agencies, which would increase the cost of borrowing and hence statutory expenditure. A downgrade, Schade cautioned, could prevent some foreign investors from investing in the country.

“In the current economic climate, it is certainly not advisable to increase taxes, except for the annual increase in excise duties which is decided at the Sacu level. Hence, government needs to focus on controlling expenditure including subsidies to public enterprises,” said Schade.

He continued that Income Tax and Value Added Tax could come under pressure due to increased unemployment and hence reduced income and spending power.

“Revenue from diamond royalties and income tax from diamond mining companies could come under pressure due to expected subdued demand for diamonds in the two major markets – China and USA.  Likewise, Sacu transfers could come under pressure because of sluggish economic growth in South Africa compounded by recent load shedding,” Schade concluded.

Also weighing in on the expected budget, economist and Managing Director of Twilight Capital Consulting, Mally Likukela, pointed out that Schlettwein is navigating troubled waters, not of his own making.

“I would rather have him push back the date for a balanced budget than continue to cut his way to one as doing so continues to hurt the economy as it is the case right now. This year, more than ever before, his budget speech, which is expected mostly to focus on debt reduction strategies, will undoubtedly trigger politically polarized debates,” said Likukela.

He emphasised that, currently standing at more than 45 percent, the public debt has become unsustainable and he expects this to soon cause bond yields (higher interest payments) to rise and in the worst case, lead to a loss of confidence in the government, as already hinted by various rating agencies such as Moody’s and Fitch.

Then, to reduce fiscal deficits, Likukela suggests using a combination of policies at its disposal, but said a key factor is the timing of deficit reduction strategies.

“If the country is already in recession, as is the case for Namibia, it is much more difficult to reduce the deficit because fiscal consolidation can simply worsen the economic situation leading to lower tax revenues. Continuing with fiscal consolidation right now will be self-defeating. The best way to reduce the budget deficit is to aim for positive economic growth, but in the long-term evaluate government spending commitments and reduce spending to sustainable levels,” said Likukela.


Inflation pushes up food prices: EAN

WINDHOEK, 17 FEB (NAMPA) – Consumers have been paying more for food and non-alcoholic beverages as prices continued the upward trend, owing largely to the high inflation rate in January compared to December 2018.
This observation was made by the Economic Association of Namibia (EAN) in its review of the latest Consumer Price Index (CPI) released by the Namibia Statistics Agency.
The month-to-month inflation rate rose to 5.7 per cent in January 2019, up from 5.2 per cent in December 2018, while food prices increased by 6.1 per cent in January compared to 5.4 per cent in December.
Overall, the annual inflation rate dropped further to 4.7 per cent in January from 5.1 per cent in December and 5.6 per cent in November 2018.
It is, however, 120 basis points higher than in January 2018 (3.6 per cent).
In a media statement released on Sunday, the EAN said this marks the highest inflation rate in almost two years.
The main drivers of the high inflation are price increases for bread and cereals of 8.3 per cent in January after 7.9 per cent in December, and meat prices which rose slightly faster in January (3.6 per cent) than in December (3.5 per cent).
These two categories contribute almost 57 per cent to the total food price inflation.
Food and non-alcoholic beverages bear the second highest weight (16.5 per cent) in the consumption basket, as both alcohol and tobacco products contributed to the increase in the inflation rate from 5.9 per cent to 6.4 per cent for the category ‘alcohol and tobacco’.
The inflation rate for housing, water, electricity, and other services however continued to decline, reaching the lowest level since December 2015.
Prices for such services increased by 2.9 per cent in January compared to 3.1 per cent in December 2018 and to 2.7 per cent in December 2015.
Rental payments, according to the EAN, contributed 23.3 per cent to the total inflation rate and 82.1 per cent to the inflation rate for the category ‘housing etc.’
“Prices for rental payments increased by just 2.3 per cent, while prices for the maintenance of dwellings rose by 3.3 per cent in January 2019 up from 2.5 per cent in December,” the EAN statement said.
The EAN further warned that prices for basic food commodities will come under pressure in the coming months, as the current economic dry spell continue.
In addition, further price increases for alcoholic beverages and tobacco products can be expected this month with the annual increase in excise duties, the EAN noted.
The EAN further said despite upward price pressure in some categories, inflation is however, expected to remain well within the 3 per cent to 6 per cent band targeted by the South African Reserve Bank.
According to the statement, lower global oil prices contributed further to the lower inflation rate, which could positively impact some sectors.
(NAMPA)
CT/AS/HP

Fuel price decrease should not result in complacency

THE Economic Association of Namibia has cautioned consumers, oil producers and policymakers not to become complacent because oil prices are decreasing. Instead, they should continue embarking on more fuel-efficient transport, production equipment, and further move to electrical vehicles and equipment.

The EAN’s analysis comes after the mines and energy ministry on Friday announced that fuel pump prices will decrease by N$1 per litre for petrol and 40 cents per litre for all diesel grades, effective from 5 December 2018. This means fuel prices at Walvis Bay will now be at N$12,95 per litre for petrol; N$14,08 per litre for diesel 500ppm; and N$14,13 per litre for diesel 50ppm. The prices for the rest of the country will be adjusted accordingly.

In the EAN analysis released last Friday, research associate Klaus Schade said once consumers, producers, and policymakers use fuel-efficient transport, it will not only reduce Namibia’s dependency on oil imports, but would also support the country’s ‘Growth at Home’ strategy by harnessing the country’s natural resources such as solar, wind and biomass to generate electricity.

“Policymakers need to take the initiative to design a joint strategy to promote the use (and production) of electrical vehicles, not only in Namibia, but in the southern African region. Namibia and the southern African region at large are rich in lithium and cobalt, the main inputs into the production of lithium-ion batteries that power electrical vehicles. Instead of exporting the minerals as raw materials, policymakers need to design a strategy to add value to the minerals, and produce the batteries in the region,” he urged.

Schade added that the fuel price decrease is good news as it is providing the much-needed relief to Namibian producers and consumers who have to cope with the slow economic recovery and increasing inflation.

“It will ease the burden on the consumer during the upcoming festive and holiday season. The drop in fuel prices is more generous than the previous under-recoveries would have suggested. However, the current drop in oil prices highlights once more the volatility in the global oil market that is influenced not only by the performance of the global economy, but also by geopolitical factors such as the tensions in the Middle East,” the research associate added.

Mines and energy minister Tom Alweendo said fuel consumers in the country had to tighten their belts to cope with exchange rate uncertainties and the oil supply cuts introduced by the Organisation of Petroleum Exporting Countries (Opec) earlier in the year, which took full effect at the beginning of May.

“The ministry, through the National Energy Fund, is continually pulling in the same direction with the fuel consumers by ensuring that the full costs of oil supply are at no point passed on to consumers,” the minister said.

https://www.namibian.com.na/73735/read/Fuel-price-decrease-should-not-result-in-complacency