Economic Growth 2019: Off to a Slow Start?

In association with Nedbank

GDP results for the first quarter of 2019 are set to be released by the Namibia Statistics Agency on Thursday, 20 June 2019. After annual contractions in 2017 and 2018, and consecutive quarterly contractions in Q3 and Q4 2018, this release will reveal if the Namibian economy is on the road to its anticipated recovery. Although there is consensus that the Namibian economy will emerge from recession in 2019, there is variation in the extent of this expected return to growth. Most recently, the Bank of Namibia revised its 2019 forecast from 1.5% (in December 2018) to just 0.3% (in April 2019) – a downward revision of 80%.

Many of the problems that persisted through 2017 and 2018 – such as high unemployment, high household debt levels and low wage growth – remain in 2019. In the face of the anticipated return to growth, some of the high frequency economic indicators suggest that 2019 has been off to a rocky start. Vehicle sales, a proxy for consumer spending and sentiment, remain low and the uptake in credit (private sector credit extension) tells a similar story. The performance in the primary industries does not breed much confidence either. Historically the primary industries have contributed around 16%-20% to GDP, typically slightly more than the secondary industries but far below the 55%-59% of the tertiary industries. Over the past two years of recession, the primary industries posted double-digit growth – mitigating the full extent of the contractions in the secondary and tertiary industries.

The primary industries are made up of agriculture and forestry, fishing, and mining and quarrying. The extent of the drought this year will in all likelihood mean another poor year for agriculture. Growth in the fishing industry has been volatile, with reports of poor catches over recent years and the outcome of the latest quota allocations yet to be disclosed. The mining industry has played the largest role in cushioning the depth of the recessions, posting growth of 13.3% in 2017 and 22.0% in 2018. Were it not for this, the contractions in 2017 and 2018 would have been significantly deeper.

However after two years of growth, driven mostly by diamond and uranium mining, the mining sector has been off to a weaker start in 2019. Namdeb produced just shy of 2.1 million carats in 2018 – its best result in a decade and a feat not easily repeated. The first quarter of 2018 saw Namdeb produce 551,713 carats whereas the first quarter of 2019 saw 515,921 produced – a decrease of 6.5%. With plans to slowly close its land-based operations and a few years before the next vessel comes into operation, it is unlikely that 2018’s bumper production will be outdone any time soon. Diamond sales have also been off to a slow start, with 72,450 fewer carats being sold in the first quarter of this year than the same period last year.

Although the commissioning of B2Gold’s Otjikoto mine in 2015 doubled the country’s gold bullion output, Namibia is by no means a large-scale gold producer by global or regional standards. Production for the first quarter of 2019 totaled 1,449kg of bullion, the lowest first quarter volume since 2016. This is a decrease of 17.5% compared to the first quarter of 2018.

Zinc has been off to a mixed start. Production of zinc concentrate has improved, up 17.1% to 14,490t for the first three months of 2019. Namibia also produces refined zinc, and although it does so in lesser quantity, this product is significantly more valuable. Refined zinc production for the first quarter totaled 21,005t, a decrease of 4.6% from the first quarter of 2018.

Despite Langer Heinrich being in care and maintenance, first quarter uranium production is up 14.2% to 3.49 million pounds. This is likely the result of Husab continuing to ramp up production, in spite of the depressed uranium spot price. Namibia’s uranium mines need this price to be around US$35/lbs or higher, but the spot price hasn’t touched this level since late 2015.

Notwithstanding the growth in uranium and zinc concentrate production, the mining sector has had a poorer start to the year compared to last year. Coupled with the severe drought, it seems that the primary industries will not be able to mitigate weaker performance in other areas of the economy as has been the case in the past. The overall outlook for the economy is a gradual return to growth, and while this is an improvement from the contractions, the likelihood is for growth to remain low – far short of the strong growth that characterized the earlier part of the decade.