11/02/20

2019 in Review

In association with Nedbank.

The final year of the decade proved to be yet another difficult one for the nation. All indications suggest that Namibia will have seen her deepest recession in her independent history in 2019, with the first three quarters of the year showing a 2.4% contraction. However, the quarterly data are highly volatile, and while no material improvement was seen in the last quarter of the year, we do expect some slight positive revisions to the quarterly data when the final annual accounts are released. As a result, we expect 2019 growth to register -1.8%. This level of growth, well below our initial (0.8%) and mid-year revised (-0.7%) forecasts for growth in 2019, was largely influenced by poor primary industry output, both for agriculture, driven by the drought, and diamond and uranium production, both of which were lower than initially forecast.

In real terms, the economy is now smaller than was the case at the end of 2015, and only 2.6% larger than was the case at the end of 2014. However, due to population growth and a shrinking economy, on a per-capita basis, the economy is now only very marginally larger than was the case in 2012 (0.5%), some 8.9% smaller than was the case at the peak in 2015.

Namibia once again received poor rainfall, leading to the President declaring a national drought state of emergency in May 2019 – the third such declaration after droughts in 2013 and 2016. A staggering 19.8% of Namibian households relied on subsistence agriculture as their primary source of income in 2018. This means that one in every five households, who were already in a vulnerable position, would have been facing dire conditions during 2019. This is over and above the poor harvests faced by commercial crop farmers and the severe loss of livestock across the country due to the drought.

Government’s budget for FY2019/20 included some welcome surprises: no ramp up in expenditure (despite the election in November) and a large increase to the development budget. While Government was able to maintain its commitment to capping expenditure, just shy of N$1 billion was redirected from development to operational expenditure at the mid-term budget review. This has been a regular mid-year occurrence, plugging shortfalls in recurrent expenditure by sacrificing funds meant for capital projects.

Both Moody’s and Fitch, the only agencies to rate Namibia, further downgraded Namibia to two notches below investment grade. The ratings agencies shared similar rationale for their decisions, citing prolonged weak economic growth in Namibia (as opposed to prior expectations of economic recovery), ongoing fiscal consolidation, increased risks stemming from SOEs (such as Air Namibia), as well as the precarious fiscal debt situation. The agencies stated that the fiscal consolidation measures are, frankly, insufficient and the debt situation is only expected to stabilize in the middle of this decade. The International Monetary Fund also published their Article IV consultation in the second half of 2019, detailing the risks around Namibia’s disappointing economy, the danger posed by failing SOEs, and the public finance hazard.

Namibia’s property market continued facing difficulties as values dropped markedly during the course of the year, reflected in the relatively low rent price inflation recorded throughout 2019. Falling property prices and economic downturn have been a precarious combination for the commercial banks, who have seen significant uptick in their arrears and non-performing loans. In response to the troubled property market, the Bank of Namibia made downward adjustments to the loan-to-value requirements; however the impact of this will likely be too little too late.

The Economic Growth Summit took place over 31 July – 01 August 2019. At the Summit, various entities announced their pledges to invest in Namibia, totalling about N$20 billion. Similarly, some reforms were announced and several policy issues addressed, including the introduction of e-Visas, easing access to work permits for highly skilled professionals, residence visas for (wealthy) foreign pensioners, and a promise to finalise NIPA and NEEEF. However, many of the pledges declared were already in the pipeline – i.e. not new investments attracted by the Summit – and many commitments came from state-owned entities, whether Namibian or foreign. The reforms announced are insufficient to drive economic recovery, doing little to address investor confidence, reduce the bureaucratic burden on the private sector, or spur job creation.

The national parliamentary and presidential elections of 2019 are amongst the most noteworthy. Little over a week prior to these elections, the “Fishrot” corruption scandal made headlines in local and even international newspapers. This was coupled with the unexpected rise of SWAPO member Dr Panduleni Itula as an independent candidate for the presidential election, directly challenging the ruling party’s candidate. Overall, SWAPO unsurprisingly won the National Assembly elections but their support dropped to 65.5%, or 63 of the 96 seats. Opposition parties saw increased support, with the Popular Democratic Movement (formerly the DTA) climbing to 16 seats, and new faces in Parliament with the Landless People’s Movement (4 seats) and Namibian Economic Freedom Fighters (1 seat). This is the first time that SWAPO have lost their two-thirds majority required to amend the Constitution, only receiving a lesser share of the vote in the very first elections (1989). The ruling party lost much of its support in the southern, central and coastal regions. On the presidential front, SWAPO candidate and current President, H.E. President Hage Geingob fell from 87.4% of the vote in 2014 to just 56.1%. Independent candidate and challenger Dr Panduleni Itula was second best, receiving 29.4% of the vote, more than any non-SWAPO candidate in Namibia’s history.

Lastly, growth expectations for 2019 are expected to be dismal. After a referencing of the National Accounts to 2015, the average growth for the first three quarters of 2019 is -2.4%. The final quarter is unlikely to bring positive news, and not enough to negate the deep contractions in the preceding quarters. This means Namibia is on track to record a third annual contraction in four years, after the rebased National Accounts published contractions of 0.3% in 2016 and 0.1% in 2017, interrupted by paltry growth of 0.4% in 2018. Additionally, the rebased National Accounts also reported reductions in the historical figures of nominal GDP, which further worsen some of Namibia’s relative ratios, such as debt-to-GDP.