SA recession bad news for Namibia

09 June 2017 Author   CHAMWE KAIRA
Namibia’s economic development plans are in serious jeopardy after the South African economy slipped into a recession, Managing Director of Twilight Capital Consulting, Mally Likukela, has warned.
South Africa fell into a recession for the first time in eight years after the economy shrank by 0,7 percent between January and March this year.
Namibia’s import bill from South Africa amounted to N$59,12 million in 2016 while exports to South Africa amounted to N$11,35 million.
Likukela said the recession in South Africa will affect the recently launched fifth National Development Plan (NDP5) and the Harambee Prosperity Plan.
“Given the proximity and deep integration of the Namibian economy with that of South Africa, a recession in South Africa will have considerable negative implications for Namibia and it has the potential to derail Namibia from the growth path it has set itself,” he said.
There are fears that Namibia could slip into recession as well following the economic down turn.
“We, hence, strongly recommend to the Government that the need of the hour is to put a brake to recessionary developments,” Likukela said.
Finance Minister Calle Schlettwein also warned in Parliament on Thursday that the economic problems in South Africa could have a negative effect on Namibia.
The South African economy accounts for about 70 percent of Namibia’s imports and 90 percent of imports in the Southern African Customs Union (SACU) area.
“Persistent low growth for the South African economy, especially the recorded contractions in manufacturing, retail trade and final consumption demand, has potential negative ramifications for the Namibian economy, SACU and CMA (Common Monetary Area) regions through trade, currency volatility and public debt as well as the external position,” Schlettwein told Parliament.
The South African rand has regained strength after an initial weakening as a result of a sovereign credit rating downgrade.
Schlettwein said as a result, the impact on Namibia’s foreign debt portfolio has remained minimal and the currency peg policy position remains relevant.
“Going forward, it may be expected that the rand might depreciate within safe levels, allowing for the exchange rate mechanisms to absorb the shocks.”
He said weak consumer demand is likely to have negative effects on exports to the South African market, thus putting some pressure on the current account and balance of payments.
“However, Namibia’s export markets are relatively diversified, which cushions the effects from a single market.”
The recession in South Africa is likely to have effects on future SACU revenues, as South Africa accounts for the large share of the contribution to the SACU Common Revenue Pool.
For the current fiscal year, Namibia’s share from the revenue pool increased to N$19,60 billion, from N$14,07 billion received the previous year.
Schlettwein said the Government has taken a cautious approach to revenue projections over the next three years, projecting only N$17,80 billion receipts from SACU during the 2018/19 financial year, about N$2 billion less than the current year.
The Government has also broadened its budget deficit financing plan to tap on the credit strength of the African Development Bank (AfDB). The potential financing plan from this facility amounts to N$10 billion, with N$4 billion for project financing and N$6 billion for general budget deficit financing over a two-year period.  “This facility has eased the tightness in public finance and shows that the budget is fully funded. Cash flows are, however, tight and are anticipated to remain so in the foreseeable future.”
Schlettwein said the N$3 billion tranche for deficit financing for this year has already been approved by AfDB and the disbursement formalities have been finalised.
The loan term for this facility is 15 years, inclusive of a three-year grace period.
“The cost of servicing the loan will be based on a three-month Johannesburg Interbank Average Rate (Jibar) interest rate, plus a margin of about 80 basis points. The rate is competitive and compares favourably with the cost of financing for similar instruments in the domestic market,” he said.
The minister said he plans to table the Namibia Revenue Agency Bill in the National Assembly soon, which will usher in the necessary reforms on domestic resources “mobilisation agenda and institutional efficiency in revenue collection and administration function”.

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