Namibia’s Mineral Buffer
The recent release of the Q2 2019 GDP figures showed that the Namibian economy shrank by 2.6% in the second quarter of this year, after a revised 2.9% contraction in the first quarter. These latest contractions are the deepest since the slowdown began mid-2016.
The main contributors to the deeper contractions this year have been Agriculture, which contracted 31.4% and 28.1% in the first and second quarter respectively, and Mining and quarrying, which contracted 1.0% in the first quarter and 20.2% in the second quarter. Several other significant industries remain in contraction, such as Construction, Wholesale and retail trade, Hotels and restaurants, Transport and communication, and Public administration. Only Manufacturing posted a strong rebound, growing 18.8% driven by most sub-sectors after an 8.7% contraction over the same period last year.
The large drop in mining output this year has had a significant impact on our growth figures. In 2017 and 2018 the Mining and quarrying industry recorded growth of 13.3% and 22.0%, respectively. Thus, despite contractions across the secondary and tertiary industries, this strong growth in mining was able to largely offset the contractions across the rest of the economy. This led to the overall growth figures showing shallower contractions than would otherwise be the case.
Diamond and uranium mines were able to increase their output significantly last year, particularly Namdeb which posted its largest output in a decade. Given the strong performance in the sector for two years, it created an exceptionally high base for real growth this year. With the ongoing closure of some of Namdeb’s land-based operations, as well as some downtime for one of the offshore mining vessels (offshore mining contributes about 70% of total carats), diamond output this year was not going to outdo 2018’s bumper year. Similarly, with Langer Heinrich going to care and maintenance halfway through 2018, the two remaining operational uranium mines would need to significantly improve their output to overcome this – however, the uranium spot price remains too low to stimulate this.
An interesting observation is to strip out the growth from mining and see what impact this would have on our growth figures. A very rudimentary instrument, but if one simply excludes mining from the recent growth figures then the contractions look a lot different. This exposes the weakness across the rest of the economy; more telling of the trouble we’ve been in over the past two years.
Investment has also been at record lows. Gross fixed capital formation as a proportion of GDP was just 12.6% in 2018, the lowest since 1987. Similarly, net FDI inflows as a percent of GDP came in at 1.5% in 2018 – the third lowest since independence.
Investment alone makes up a small portion of GDP. However, it is a vital component for the rest of the economy. Investment drives employment (job creation) and further value addition. Increased employment has further benefits – more people earning salaries results in better PAYE receipts for Government. Also, more people earning a salary means there is more money used for consumption spending, which improves VAT collections and could improve the earnings of companies where this is being spent, thereby improving corporate income tax collections.
This is one of the reasons that emphasis is placed on investment – both domestic and foreign. As has been reported, Namibia needs to improve her investment environment in order to foster this. Several proposals have been floated and some reforms have been announced, but there is still more that can be done. There are many administrative and fiscal burdens to starting and operating a business, especially for small entities. For small business owners, every hour spent on bureaucracy is an hour not spent on generating an income or growing their business. Great potential for job creation lies in smaller businesses, and we should encourage this by targeting reforms for the ease of conducting business.