Nam’s fragile economy boxed into a corner

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Timo Shihepo

Windhoek - Namibia’s small, open and fragile economy is boxed into a corner and despite the government’s efforts to take the country out of the current economic slump, it could take another half a decade to recover.

Despite austerity measures aimed at curbing public spending, domestic growth has remained stagnant while international investments into the economy has stalled.

This year, the country only recorded one significant international investment – the new R190 million Peugeot, Opel assembly plant in Walvis Bay – but even that is set to create only 50 jobs.

Revenue from Southern African Customs Union (SACU) has also dwindled, while public debt continues to rise.

Coupled with the weakening US dollar and low global commodity prices, the country’s economy faces a spell on the side-lines and is running out of options on how to evade the tough corner.

A recent announcement by the Namibia Statistics Agency that the country has faced 10 consecutive quarters of negative economic growth further confirms predictions that the worst is yet to come.

Economic analyst, Dr Omu Kakujaha-Matundu, said the economy is in a box because the formal sector is struggling for growth.

“There is trouble in the formal sector, as evident with the closing of some retail shops, and some uranium mines have gone on holiday (stopped working),” he said.

Namibia’s finance minister, Calle Schlettwein, who has not been denying that the country is in recession since 2016 told The Southern Times that although some sectors are struggling to record growth, others are showing positive signs.

He admitted that the retail and wholesale sectors are struggling for growth.

Schlettwein added that Namibia is easily affected by global effects due to its small open and fragile economy. As a small open and resource-based economy, with a trade to gross domestic product over 100%, Namibia is vulnerable to external shocks through the trade link.

Also, commodity price volatility exert pressure on economic activity, public revenue, international reserves and the external position.

“Equally, weak external demand in our main trade partners presents challenges for the export sector, which limits potential growth. As such, measures to improve the productive capacity of the economy as well as economic diversification are critical for Namibia to bolster resilience,” said Schlettwein.

The International Monetary Fund (IMF), which said the country risks the chance of going into an economic meltdown if nothing is done has advised the country to identify strategic policy decisions and specific measures to deliver the planned adjustments aimed at stimulating economic growth.

Moreover, the Fund encourages the government to combine expenditure and revenue measures to contain the short-term impact on growth, while safeguarding critical social and capital spending.

“There is significant room to undertake supply-side reforms to strengthen productivity and potential growth, and support job creation. This is in parallel with fiscal adjustment policies, as the government adjusts, special emphasis should be placed on strengthening the market operations of key public enterprises to improve the efficiency of the economy, and on establishing a well-structured wage policy for the public sector to better align wage dynamics with productivity growth,” last month’s report by the IMF states.

Schlettwein said he cannot tell for sure when the economy will recover but he was optimistic that the economy will eventually improve.

Namibia has also been struggling to collect tax at the desired rate mainly because of the ageing system. The finance ministry has now developed an online integrated tax administration system set to be effective in January 2019.

“At the moment, we are collecting tax as we have projected to collect from these sectors. Only the Valued Added Tax is a bit under pressure and is a little bit slow. The informal sector contributes 37% to the economy but it is not taxed. These people don’t pay tax but there are cash-based businesses in that informal sector that should at least be taxed and help grow the economy,” Schlettwein earlier told The Southern Times.

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