Namibia

Commodity driven economy faces multiple crises

C3

SENSITIVE RISK

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD 10.267bn (World ranking 131, World Bank 2016)
Population 2.48 million (World ranking 141, World Bank 2016)
Form of state Republic
Head of government Hage GEINGOB
Next elections 2019, presidential and legislative
  • Stable democracy since independence in 1990, with successful transitions following elections.
  • Close association with South Africa through customs and monetary unions.
  • Natural resource base includes substantial diamond deposits (including offshore).
  • Manageable external debt ratios.
  • Land reform program is a policy priority and there are lingering concerns that it may yet spiral into a Zimbabwe-style land–grab.
  • Strong links with South Africa engender dependence.
  • Limited economic diversification - overinvestment in mining took its toll.
  • Small population with a high proportion of HIV/AIDS infections and limited arable land area.
  • Poverty and unemployment remain high.
  • Volatile fiscal and current accounts.

Small population, big challenges

Namibia is an upper middle income country. It relies on mining (especially diamonds, uranium, zinc, copper, lead and gold), agriculture (cattle and sheep) and fishing. Not only is the population small (2.48 mn), around 14% of it is affected by HIV. This has a high human, social and economic cost. Despite poverty reduction policies, the country is characterized by a high level of income inequality.

Low growth for longer

In 2018, Euler Hermes expects -0.5% GDP growth, a 2nd year of recession on the back of the 2016 economic deceleration. While the Namibian economy performed quite well in 2015 thanks to construction in the mining and housing sectors and expansionary fiscal policy, the picture became gloomier in the following year. A severe drought wreaked havoc on harvests, pushing up cereal prices.

As a result, inflation almost doubled in 2016&17 to about +6.5% levels. In response to water shortages, the government limited supplies, affecting households and companies in the construction sector and in the industry. Coca Cola for instance had to interrupt its cans and bottles production.

The completion of mine construction projects in 2016 weighed on the economic activity. Former overinvestment is weighing on growth for longer, since growth is not expect to really recover (+0.5% in 2019 and +1% in 2020), also weakened by poor regional prospects (growth was +0.7% in 2018 in South Africa and is expected at +1% in 2019).

Debt increased markedly

Namibia is engaged in a painful rebalancing from high current account deficits from 2014 to 2016. These deficits implied a visible increase of debt ratios: Public debt from 37% of GDP in 2015 to 55% in 2019; at the same time, external debt from 45% to 65% of GDP.

The high volatility of the South African rand is also affecting Namibia, since the two currencies are pegged. Moreover, it also seems that the hawkish stance adopted in November 2018 by the South African Central Bank will affect credit conditions in Namibia. As inflation lowered (+4.2%), the increase of the debt ratios will become more painful. Liquidity is expected to tighten since the debt due during the next year ascended to 85% of FX reserves. The import cover is still at about 4 months, but with downside risks driven by debt redemptions.

In 2017, both Fitch and Moody’s downgraded Namibia’s credit rating to junk.  The country will find it harder - and costlier - to borrow money on international debt markets. In such an environment, Namibia will have some difficulty to further diversify its economy and revenue resources. These are, along with climate disasters, sources of vulnerabilities.

A governance crisis is adding to the vulnerabilities

The World Bank’s Doing Business 2019 survey is ranking Namibia 107th out of 190 countries, a key deterioration from past rankings (54th in 2008). The ease to register property (174th) and to start a business (172nd) are the key weaknesses. Resolving insolvency is also below par (125th), a key weakness in the current recession period. The trading across borders (136th) item adds to the problems, with an impact magnified by the current low growth observed in South Africa.

The former-Marxist liberation movement South West Africa People’s Organisation (SWAPO) has been in power since independence in 1990. SWAPO now espouses broad democratic and market-oriented policies and the country has registered a period of political stability (with a smooth leadership transition, which EH expects to continue) and policy continuity. There are some concerns in relation to divides within the Swapo, putting a downside to political strength. International relations are dominated by South Africa, which acts as a political and economic regional power. Namibia maintains close links with its large neighbor and has the same kind of debates, particularly on land expropriation issues inhibiting foreign investors’ appetite for the country.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Botswana 17%
1
57% South Africa
South Africa 15%
2
10% Botswana
Switzerland 11%
3
4% China
Belgium 6%
4
3% Zambia
Zambia 6%
5
3% United States

Trade structure by product

(% of total)

Exports Rank Imports
Non metallic mineral manufactures, n.e.s. 23%
1
12% Petroleum, petroleum products and related materials
Non-ferrous metals 15%
2
10% Non metallic mineral manufactures, n.e.s.
Fish, crustaceans, molluscs and preparations thereof 14%
3
9% Road vehicles
Metalliferous ores and metal scrap 14%
4
6% Other transport equipment
Gold, non-monetary (excluding gold ores and concentrates) 5%
5
4% Non-ferrous metals

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Contact

Contact Euler Hermes

Economic Research Team

research@eulerhermes.com

Contact Stéphane Colliac

Senior Economist for Africa and France

Stéphane.Colliac@eulerhermes.com

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