Namibia in recession – analysts
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03 April 2017 Author   Eric Nyasha Mhunduru

Local economists say that Namibia has been in recession since the third quarter of last year, as confirmed by the release of the 2016 preliminary national accounts this week, which show that the domestic economy recorded a marginal growth of 0,2 percent last year, compared to 6,1 percent in 2015. The statistics released by the Namibia Statistics Agency (NSA), showed that the drop in growth was led by a 10,4 percent contraction in secondary industries and a -2,4 percent growth in primary industries, which implied that the recession intensified over the last quarter of 2016.

The GDP growth figures were lower than the Ministry of Finance’s estimated growth figure of 1,3 percent, which analysts said implies that the Debt-to-Gross Domestic Product (GDP) ratio, as well as the budget deficit, in relation to GDP, will be higher than previously expected.

The lower growth also implies that the Finance Ministry’s estimates, regarding future revenue, may be ambitious, which would likely be viewed negatively by international ratings agencies, while the large twin deficits, in a low or no-growth environment, are generally viewed in a negative light by such institutions.

Concern was also raised over the amount of retrenchments in the construction industry, as many households depend on this income.

Fears are that this could lead to an increase in social unrest.

However, a significant number of recruitments are expected in the tourism and mining sectors, the experts said.

NSA Statistician-General, Alex Shimuafeni, said the contraction in the secondary industries was due to the construction sector that recorded a decline in real value added, of -29,5 percent compared, to the strong growth of 27 percent in 2015.

Shimuafeni said the slow growth recorded in tertiary industries was attributed to the wholesale and retail (3,4 percent), hotels and restaurants (1,4 percent), real estate and business services (2,8 percent), public administration and defence (2 percent), education (1,8 percent) and the health sectors (10,5 percent).

He, however, said that primary industries were recovering, but remained in contraction, registering -2,4 percent growth in 2016, compared to the -5,2 percent growth in 2015.

IJG Securities Head: Research, Eric van Zyl, said the growth figures were well above their estimates for both 2015 and 2016, adding that this was expected, as they saw downward adjustments by the Bank of Namibia and the Ministry of Finance, had lagged behind their own adjustments.

IJG Securities Research Analyst, Dylan van Wyk said, “Based on the technical definition of a recession (two consecutive quarters of negative growth), the country is currently in a recession. However, we believe that growth will pick up slightly this year.”

Van Wyk said further that the construction sector was estimated to have recorded a decline in real value added of -29,5 percent during 2016, and this decline was likely to continue.

PSG Namibia Analyst and Equity Strategist, Eloise du Plessis, said the preliminary growth figure for 2016 was lower than their estimation of 1,2 percent, adding that their forecast for growth in 2017 was now at 3 percent.

She said the outlook for 2017 was much-improved from 2016, mainly on the back of an expected strong performance in mining exports, as diamond production recovers, and production at the new gold, uranium and copper mines is ramped up.

“We have been in a recession since the third quarter of 2016, already, and the fourth quarter also delivered a contraction of -3,1 percent.

“Diamond production will be boosted by Debmarine’s new (sixth) diamond mining vessel, the SS Nujoma, which was scheduled to start operating in Namibian waters in December 2016.

“Swakop Uranium’s Husab Mine produced its first barrel of yellow cake (uranium concentrate powder) in December. Swakop Uranium will have a guaranteed uptake of its 2017 production, which will be sold entirely to its majority shareholder – the China General Nuclear Power Company,” Du Plessis said.

“According to the Bank of Namibia, the Husab Mine is expected to triple Namibia’s uranium output, when it reaches full production in 2018. The water-dependent agriculture and manufacturing sectors are also expected to achieve moderate recoveries, as good rainfalls have continued to bring relief from the worst drought on record.”

Namibia Equity Brokers Research Analyst, Ngoni Bopoto, maintained the company’s view that unlocking value from restructuring State assets, by injecting private capital (and by extension efficiencies), while disposing of those deemed non-core, would present a sustainable solution to fiscal concerns, among both investors and ratings agencies.

Bopoto conceded that this exercise should not be conducted in haste, and recommended that an announcement of a clear strategy to this effect be made, which would positively impact market sentiment over the near to medium-term.

“Notwithstanding continued fiscal consolidation efforts, outlined in the 2017/18 national budget, and a recovery in SACU (Southern African Customs Union) receipts, balancing the fiscus will remain a challenge, in the absence of a meaningful boost in Government revenue,” Bopoto said.

“While the lack of appetite for sovereign paper assists Government in driving its fiscal consolidation agenda, it also implies an element of perceived risk, which may contaminate rating agency views, in the absence of intentional efforts to retire debt and achieve target fiscal ratios,” he said.

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