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Macroeconomic Framework ABBREVIATIONS EPA FTA GBP GDP GFCF HDI HRDP IMF MEF MEWG MTEF NAD NamPower NamWater NamPort NCPI NDP NHIES NHRP NSA NSX O/M/As PPP PSCE Repo rate RISDP SACU SADC SSA TAC TIPEEG US USD WEO Economic Partnership Agreement Free Trade Area Great British Pound Gross Domestic Product Gross Fixed Capital Formation Human Development Index Human Resources Development Plan (MoE) International Monetary Fund Macroeconomic Framework Macroeconomic Working Group Medium Term Expenditure Framework Namibia Dollar Namibia Power Corporation Namibia Water Corporation Namibia Ports Authority Namibia Consumer Price Index National Development Plan National Household Income and Expenditure Survey National Human Resources Plan (NPC) National Statistics Agency Namibia Stock Exchange Offices, Ministries and Agencies Public-Private Partnership Private Sector Credit Extension Repurchase rate (previously referred to as the Bank rate) Regional Indicative Strategic Development Plan Southern Africa Customs Union Southern Africa Development Community Sub-Saharan Africa Total Allowable Catch Targeted Intervention Programme for Employment & Economic Growth United States of America US Dollar World Economic Outlook Page 1 ~ta(:rt)(connmic rnme1'tork FOREWORD The \t1:1~rceconoU1ic Framework ('vH=F) is an important document in 1113'i1 serves as a prelude to tile U1L1ll1ulnational budget because it contains macroeconomic projections for the three-year Medium-Term Expenditure Framework C\'ITEF) period, In tum. these projections constitute an important basis for revenue forecasting. Furthermore. Ihe MEF highlights kev policy intervention ureas that are aimed at addressing the challenges facing the OCOnOID) by optimising upside opportunities. 111;S"Ineroeconomic Frumew ork is presented at a lil"~ \,hen the recovery of the global economy was moderate and subjected to risks emanating from fiscal challenges in the Euro Zone and US ('!Col10111ies. Ihe lucklustre performance of the global economy dunng 2010 and lOll had a negative impact the '1amibian economy and more specifically. on the e....port-driven sectors such as agnculture, fishing. mining and :ourism_ A~ a small and open economy. Namibia is exposed to gloool economic trends. 011 lhc most significant risk to tho:domestic economy is the likely decrease in export due 10 reduced demand and lower prices fur Namibia's comrnodiues, particularly diamonds and uranium. Furthermore. a weaker global economy \\;11 'mvc ~ignific.'Ml implications for government revenue in the form oL lower (ax revenue Ihc growth uncertainty in 1)1(' global economy would persist over the MTEF period, with negative ccnsequeuces fUf domestic economic performance and public revenue. I hus, the fiscal policy over the !\OITEFperiod is aimed at the consolidation of the recover) of the Namibian economy to mitigate against (he effects of g10JaJ economic (rends. Amidst the expected moderate growth of the global economy. the macroeconomic pol icy outlines reforms and interventions thaI are essential 10 enharncc Namibia's competiveness in order to address the core challenges of economic grow tho Job creation and increased income equality . '/ \j:P\'-'-\....~ , ~ SAARA'KlJ[je;ON~..LWA~STER OF FlNANCF. 1ADmtA. MP Macroeconomic Framework TABLE OF CONTENTS FOREWORD..................................................................................................................... 2 EXECUTIVE SUMMARY .............................................................................................. 5 A. INTRODUCTION ................................................................................................... 7 B. OVERVIEW OF RECENT ECONOMIC DEVELOPMENTS.......................... 8 a) GLOBAL ECONOMY ............................................................................................. 8 b) SUB-SAHARAN AFRICAN ECONOMY ............................................................... 9 c) DOMESTIC ECONOMY ....................................................................................... 10 (i) Impact of global developments on the Namibian economy ................... 10 (ii) Supply-side Developments .................................................................. 11 (iii) Demand-side Developments .............................................................. 13 (iv) Fiscal Developments ......................................................................... 14 (v) Repo rate developments ...................................................................... 15 (vi) Price developments ........................................................................... 16 (vii) Balance of Payments ......................................................................... 16 (viii) Foreign Reserves ............................................................................ 17 (ix) Exchange rate developments ............................................................. 17 (x) Namibia‟s Competitiveness ................................................................. 19 (xi) Policy interventions to enhance competitiveness ............................... 19 (xii) Economic, financial and credit surveillance....................................... 20 (xiii) Job creation .................................................................................... 21 (xiv) Poverty alleviation .......................................................................... 23 (xv) Fourth National Development Plan (NDP4) ....................................... 26 (xvi) Subsidies and transfers to State-owned Enterprises (SOEs) ............. 27 (xvii) Revision of the incentives regime ................................................... 27 (xviii) Regional economic integration ....................................................... 27 C. MEDIUM TERM ECONOMIC OUTLOOK ..................................................... 27 a) GLOBAL ECONOMIC OUTLOOK ...................................................................... 27 b) DOMESTIC ECONOMIC OUTLOOK .................................................................. 29 (i) Central (baseline) growth scenario ...................................................... 29 (ii) Supply-Side Projections ...................................................................... 30 (iii) Demand-Side Projections .................................................................. 32 (iv) Price developments ........................................................................... 34 c) OIL, FOOD AND COMMODITY PRICES ........................................................... 34 (i) Oil Prices ........................................................................................... 34 (ii) Food prices ......................................................................................... 35 (iii) Diamond and Metals ......................................................................... 36 D. CONCLUSIONS.................................................................................................... 38 Page 3 Macroeconomic Framework E. WAY FORWARD ................................................................................................. 39 ANNEX A: OVERVIEW OF DOMESTIC ECONOMIC DEVELOPMENTS ..... 40 a) Monetary and Financial Market Developments ...................................................... 40 b) Capital Market Developments ................................................................................. 40 c) Exchange Rate Developments ................................................................................. 40 d) External Sector Developments ................................................................................ 41 ANNEX B: DIFFERENT GROWTH SCENARIOS ................................................ 42 a) Upper Estimate ........................................................................................................ 42 b) Lower Estimate ....................................................................................................... 42 ANNEX C: ASSUMPTIONS FOR GDP ESTIMATES AND PROJECTIONS .... 43 a) INTERNATIONAL AND REGIONAL ASSUMPTIONS ..................................... 43 b) DOMESTIC ASSUMPTIONS ................................................................................ 43 (i) Supply Side Assumptions .................................................................... 43 (ii) Demand Side Assumptions .................................................................. 45 Page 4 Macroeconomic Framework EXECUTIVE SUMMARY The Macroeconomic Framework (MEF) was formulated during a period characterised by uncertainty in the process of global economic growth and recovery, primarily due to Euro Zone sovereign debt challenges coupled with fiscal challenges in the US and a Japanese economy still battling to overcome the consequences of the March 2011 earthquake and tsunami which culminated in the Fukushima nuclear disaster. Furthermore, the subsequent sluggish demand in these advanced economies for manufactured goods from emerging economies, particularly China, have resulted in transmission of slowing growth to many developing countries. As Namibia is a small and open economy, the lacklustre performance of the global economy has a negative impact on domestic output via trade, investment and financial linkages. The slowdown in the global economy particularly affects the export-driven sectors such as agriculture, fishing, mining and tourism. Namibia is vulnerable because it is a small, open economy The current estimates and projections indicate that restrained global growth is likely to persist until the outer years of the Medium-Term Expenditure Framework (MTEF), where after a gradual recovery could be experienced. It is expected that domestic economic growth trends will follow that of the world economy to some degree; however magnitudes of growth can be expected to differ as has been the case over previous MTEFs. Hence, domestic economic growth is expected to be lacklustre and fairly flat during the period under review. Although secondary industries are projected to register a relatively high average real growth rate of 6.0 percent over the MTEF, they account for only 19 percent of GDP, compared to 17 percent for primary industries (forecast to average 3.0 percent growth over the MTEF period) and 57 percent for tertiary industries, which are expected to expand at an average rate of 3.3 percent. The fact that tertiary industries account for a greater share of GDP than primary and secondary industries combined highlights the importance of the sector for economic growth, and also suggests that Namibia is currently successfully moving towards the Vision 2030 goal of becoming an industrialized nation. There is a need to harmonise Medium-Term Plans with the goals of the NDP4 goals are Fourth National Development Plan (NDP4) in order to address the triple growth, jobs and challenges of job creation, poverty reduction and increasing equality over income equality the Medium-Term Expenditure Frameworks of the NDP4 period. This is a formidable national challenge in that it calls for optimal resource allocation for the implementation of critical performance programmes in the selected priority sectors, namely, manufacturing, transport and logistics, agriculture and tourism. In addition, areas of weaknesses pertaining to international competitive rankings have to be addressed in order to create business operating conditions that are conducive for economic growth, job creation and development. Page 5 Macroeconomic Framework An impact assessment of the Government‟s intervention programmes towards poverty reduction remains a core challenge. However, progress has been made with regards to poverty reduction in that the proportion of the population classed as „severely poor‟ dropped from 14 percent in 2003/04 to just under 10 percent in 2009/10. The proportion classed as „poor‟ has also dropped, from 28 percent in 2003/04 to under 20 percent in 2009/10. In terms of a broader definition of poverty, Namibia‟s Human Development Index (HDI) 2011 score continues to improve, rising to 0.625 in 2011 from 0.622 in 2010. This placed Namibia‟s rank globally at 120 out of 187 countries in 2011, about mid-way in the „Medium Human Development‟ category. However, despite these improvements, poverty remains a pervasive problem in Namibia. The World Bank estimates that, based on an urban poverty line and rural vulnerability to food insecurity, at least two-thirds of the population are absolutely poor1. Moreover, the incidence of poverty is more marked in rural areas, with such regions accounting for around three-quarters of Namibia's poor. The national triple goals of job creation, poverty reduction and improved income equality can only be realized through sustainable economic growth. However, to bring about sustainable economic growth and development, deliberately devised policy interventions in carefully identified and selected areas, industries and sectors must be implemented. Growth can be realized through deliberately devised policy interventions 1 Absolute poverty is a level of poverty as defined in terms of the minimal requirements necessary to afford minimal standards of food, clothing, health care and shelter Page 6 Macroeconomic Framework A. INTRODUCTION The Macroeconomic Framework (MEF) serves as a prelude to the annual national budget formulation process and, therefore, focuses on the following important issues: Review of the past trends and recent economic developments at the global, regional and domestic level; Macroeconomic estimates and projections for the three-year Medium Term Expenditure Framework (MTEF) period. These estimates and projections are based on assumptions about the likely growth trajectory of the global, regional and domestic economies and constitute the primary basis for revenue forecasting; and MEF provides estimates and projections for the MTEF Key policy intervention areas which, going forward, are aimed at addressing challenges and structural weaknesses by optimising upside opportunities. The MEF helps to set the national policy agenda as part of the analysis for the national budget over the three-year MTEF. It also provides the private sector and the general public with an insight into the Government‟s economic assumptions that underlie its budget formulation and economic policy proposals. With this in mind, the MEF is divided into the following sections: Overview of recent global, emerging market, regional and domestic economic developments. Projection of global and domestic economic growth over the next MTEF. An overview of international competitiveness ratings. Policy interventions that will contribute to job creation, poverty reduction and alleviation of inequality through sustainable economic growth. Page 7 Macroeconomic Framework B. OVERVIEW OF RECENT ECONOMIC DEVELOPMENTS a) GLOBAL ECONOMY 1. The pace of world output growth remained subdued during 2011, Sovereign debt primarily due to the sovereign debt challenges faced by the Euro Zone, problems in Euro fiscal challenges in the US and a sharp contraction in production and Zone and fiscal private demand in Japan, compounded by sluggish demand in the challenges in the US emerging economies, notably China. Furthermore, slowing growth persisted resulted in increased unemployment and labour tensions in developed countries which, in turn, resulted in even lower output and growth. Consequently, world output registered a low growth rate of 3.8 percent in 2011 compared to a rate of 5.1 percent in 2010. (Table 1 and Figure 1). Table 1: World Output, Real GDP - Annual percentage changes Region/Country/Description 2009 2010 -0.6 5.1 World Output -3.5 3.0 Advanced Economies United States -3.1 2.4 Euro Zone -4.4 2.0 Japan -5.5 4.5 United Kingdom -4.0 1.8 Canada -2.8 3.2 2 Other advanced economies -1.2 5.9 2.7 7.4 Emerging & Developing Countries economies Central and Eastern Europe -3.6 4.6 Commonwealth of Independent States -6.4 4.8 Russia -7.8 4.3 Developing Asia 7.0 9.5 China 9.2 10.4 India 5.9 10.1 Middle East and North Africa 2.6 5.0 Latin America and Caribbean -1.5 6.2 Brazil -0.3 7.5 Sub-Saharan Africa 2.8 5.3 Angola 2.4 3.4 Namibia -1.1 6.6 South Africa -1.5 2.9 2011 3.8 1.6 1.8 1.4 -0.8 0.8 2.4 3.2 6.2 5.3 4.9 4.3 7.8 9.2 6.8 3.3 4.5 2.7 5.1 3.9 4.8 3.1 Average 2.8 0.4 0.4 -0.3 -0.6 -0.5 0.9 2.6 5.4 2.1 1.1 0.3 8.1 9.6 7.6 3.6 3.1 3.3 4.4 3.2 3.4 1.5 Sources: IMF WEO October 2012 and National Accounts 2011 2 Excluding the G7 (Canada, France, Germany, Italy, Japan, UK, US) and Euro Area counties) Page 8 Macroeconomic Framework 2. Advanced economies followed the pattern of world output with a growth rate of 1.6 percent 2011, down from the 3.0 registered in 2010. This was mainly attributed to the low growth in the Euro Zone and US as well the contraction in Japan. 3. Economic conditions in the Euro Zone remain restrained due to weakened financial conditions and falling confidence as a result of increasing sovereign debt concerns, coupled with low growth levels in several EU member states. 4. Emerging and developing economies registered relatively high growth rates of 6.2 percent in 2011 and 7.5 percent in 2010, mainly due to the robust growth rate of developing Asia, driven by China‟s growth of 9.2 percent in 2011 and 10.4 percent in 2010. 5. However, despite remaining buoyant, economic conditions in these countries weakened in 2011, mainly as a result of the moderation in export volumes due to suppressed overall global demand. Growth in China fell due to lower exports to Europe and the US and a combination of past monetary policy tightening and increased regulation of housing speculation. Emerging economies registered robust growth Figure 1: Real GDP growth, Estimates and Outlook - Annual percentage changes Source: IMF WEO October 2012 and National Accounts 2011 b) SUB-SAHARAN AFRICAN ECONOMY 6. Sub-Saharan Africa (SSA) continued to record strong economic growth in 2010 and 2011, despite the weaker global economic environment, due to the region‟s relatively limited exposure to the global economy. A SSA‟s growth was combination of favourable commodity prices and supportive mostly driven by macroeconomic policies saw regional output rise by 5.1 percent in favourable 2011 compared to 5.3 percent in 2010, lead by rapid growth in both commodity prices resource-rich countries – such as Ghana (which registered growth of 8.0 percent in 2010 and 14.4 percent in 2011) and Nigeria (growth of Page 9 Macroeconomic Framework 8.0 percent and 7.4 percent, respectively, in 2010 and 2011) – and low-income countries, such as Rwanda (7.2 percent in 2010 and 8.6 percent in 2011) and Ethiopia (8.0 percent in 2010 and 7.5 percent in 2011). Growth in South Africa, which is Namibia‟s principal trade partner, remained fairly subdued at 3.1 percent in 2011 compared to 2.9 percent in 2010. South Africa‟s growth was impacted negatively by the strain on exports posed by the Euro Zone crisis (South Africa‟s major trading partner), a high unemployment rate that reduced local demand for manufactured goods and currency weakness which weighed on net exports. 7. SA was severely impacted by the EU crisis and low local demand c) DOMESTIC ECONOMY (i) Impact of global developments on the Namibian economy 8. As a small and open economy, the lacklustre performance of the global economy has impacted negatively on the Namibian economy. The slowdown in global growth had a negative impact on Namibia‟s export-driven Export-driven sectors hard-hit by low global sectors – such as agriculture, fishing, mining and tourism – in 2010 demand and 2011. To this end, the Euro Zone‟s sovereign debt crisis had a particularly significant impact on Namibia as more than 25 percent of Namibia‟s exports in 2011 were destined for that market, while if the UK, Switzerland and Sweden (all of which continue to suffer from the fallout in the Euro Zone) are included, this figure rises as high as 55 percent. 9. In the sub-regional context, the impact on the Namibian economy was compounded by the fact that the Euro Zone is also a major trading partner for South Africa, which, in turn, is Namibia‟s single most significant trading partner. 10. At 20.4 percent of total exports in 2010, South Africa is Namibia‟s major export destination, followed by the UK at 15.1 percent, Angola at 8.0 percent and Spain at 5.8 percent. (Figure 2) Figure 2: Namibia’s export destinations – percentages 25.0 20.4 20.0 15.1 15.0 8.0 10.0 5.8 5.6 5.1 5.0 4.9 4.7 Spain Italy France EPZ US China 5.0 0.0 South Africa UK Angola Page 10 Macroeconomic Framework Source: National Statistics Agency – 2010 trade statistics 11. South Africa‟s dominance in international trade with Namibia is accentuated by the fact that 72.0 percent of Namibia‟s imports originated from that country. The other significant import figures are 5.0 percent to the UK, followed by 3.4 percent to China, 2.7 percent to Germany and 2.0 to The Netherlands. These trade statistics provides an indication of Namibia‟s exposure to the rest of the world via the trade links with South Africa. (Figure 3). With 72% of exports and 20% of imports, SA is Namibia‟s major trading partner Figure 3: Origin of Namibia’s imports – As percentages of total exports As % of total imports 5.0 3.4 2.7 2.0 SA UK China 72.4 Germany Netherlands Source: National Statistics Agency – 2010 trade statistics (ii) Supply-side Developments 12. The domestic economy performed relatively well in 2011 given the fragility of the global economy. Although not as high as the 6.6 Higher growth in 2011 was due to the percent achieved in 2010, the rate of growth of 4.8 percent seen in secondary and tertiary 2011 remains acceptable. While lower than the average growth rate industries of 5.0 percent that was achieved over the previous 10 years, the 4.8 percent growth realized in 2011 was above the 4.2 percent estimate of the Macroeconomic Working Group (MEWG) for that year. The stronger growth in 2011 was attributed to the secondary and tertiary industries which registered growth of 4.1 and 4.3 percent respectively, while primary industries recorded a contraction of 0.9 percent (Table 2). Page 11 Macroeconomic Framework Table 2: Growth Rates of Industries (Constant, 2004 Prices) – Annual percentage changes Industry 2009 Primary industries Secondary industries Tertiary industries GDP at market prices 2010 - 24.5 0.2 4.8 -1.1 2011 14.3 9.4 4.1 6.6 Average -0.9 4.1 4.3 4.8 Share of GDP (%) 16.7 18.5 56.7 -3.7 4.6 4.4 3.4 Source: National Accounts 2011 13. Primary industries (which accounted for 17 percent of nominal GDP in 2011) continue to experience significant volatility, mainly due to the heavy weighting of mining activities in the industries which are vulnerable to, inter alia, fluctuations in commodity prices, unpredictable weather (for costal mines as well as alluvial diamond mining at sea), and labour unrest. In 2009, primary industries contracted by 24.5 percent, before growing by 14.3 percent in 2010 and contracting again by 0.9 percent in 2011. Figure 2 illustrates the highly erratic growth pattern of the primary industries 14. Secondary industries recorded lower growth of 4.1 percent in 2011, compared to 9.4 percent in 2010, as a result of a significant reduction in manufacturing Low growth in the growth from 10.8 percent recorded in 2010 to 1.2 percent in 2011. secondary industries However, construction activity remained strong and grew by over 16 was due to lower percent in 2011 and, thus, helped to keep the growth of the industries growth in buoyant. Growth in construction was mainly due to an increase of manufacturing construction works carried out in the electricity and water sectors, as well as general government construction activities. Residential and commercial building activities also contributed to the construction boom as evidenced by the robust growth of 21.7 percent in 2011. Figure 4: Growth Rates of Industries (Constant, 2004 Prices) – Annual percentage changes 30.0 20.0 10.0 0.0 -10.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -20.0 -30.0 Primary industries Secondary industries Tertiary industries Source: National Accounts 2011 Page 12 Macroeconomic Framework 15. The secondary industries‟ share of GDP amounted to 19 percent in 2011. As illustrated in Fig. 4, the growth of the secondary industries is less erratic than that of the primary industries. 16. Tertiary industries recorded a marginally higher growth rate in 2011 than in 2010 at 4.3 percent, up from 4.1 percent. This was due to a strong growth rate of 8.6 percent in Education, along with growth rates of 5.1 percent in Community, Social and Personnel Service Activities, 5.4 percent in Public Administration and Defence and 5.0 percent in Financial Intermediation. The tertiary industries‟ share of GDP amounted to 57 percent in 2011. Figure 2 illustrates growth pattern of the tertiary industries is characterized by relative smoothness. (iii) Demand-side Developments 17. Final consumption expenditure (FCE) was the main contributor to Drop in private GDP, from the expenditure perspective. However, its growth decreased expenditure caused moderately to 4.2 percent in 2011 from 5.3 percent in 2010, mainly a decrease in FCE due to a significant drop in private expenditure. High household indebtedness and high levels of unemployment, exacerbated by job losses during the economic downturn in 2009, continued to weigh on consumer spending. General government expenditure increased remarkably over the same period. (Table 3). However, high base effects3 are likely to have played a role, too. Table 3: Growth of Expenditure Aggregates - Annual percentage changes Industry 2008 2009 2010 Final consumption expenditure 8.2 8.8 5.3 Private 9.0 9.7 5.6 General government 6.1 6.1 4.1 Gross fixed capital formation 7.2 -11.0 9.2 Exports of goods and services 5.2 -8.7 16.7 Imports of goods and services 9.6 4.1 2.2 Gross domestic product at market prices 3.4 -1.1 6.6 2011 4.2 2.5 9.4 0.6 0.4 2.8 4.8 Source: National Accounts 2011 18. 3 Gross fixed capital formation (GFCF/investment) registered growth of 0.6 percent of GDP in 2011 compared to 9.2 percent in 2010. (Table 3 and Figure 5). Investment activities are often sporadic and, given the size of the Namibian economy, a few large projects (or an absence thereof) can have a big impact on the overall investment growth The consequence of abnormally high or month distorting growth figures for the most recent month. low levels of growth in a previous Page 13 Macroeconomic Framework rates. Savings recorded lower growth rates of 13.4 percent of GDP in 2011, compared to 15.5 percent in 2010 and 13.3 percent in 2009. Figure 5: Growth of Expenditure Aggregates (Constant, 2004 Prices) - Annual percentage changes 20.0 15.0 10.0 5.0 0.0 -5.0 2008 2009 2010 2011 -10.0 -15.0 Final consumption expenditure Gross fixed capital formation Exports of goods and services Imports of goods and services Source: National Accounts, 2011 19. The volatile performance of exports has been reflective of the erratic performance of primary industries (See Table 3 and Fig. 5). Namibia is, to a large extent, dependent on primary industries (mainly the mining industries) for exports and is, therefore, vulnerable to fluctuations in commodity prices. 20. On the other hand, import growth has been smoother (as illustrated in Table 3 and Fig. 5), mainly due to Namibia‟s reliance on imports for consumption. Figure 3 illustrates the high correlation between final consumption expenditure and import growth. This presents a number of challenges, particularly with respect to the balance of payments, since exports cannot be relied upon to offset the impact of fairly steady import growth. Namibia is dependent on primary industries for exports (iv) Fiscal Developments 21. The Government maintained an evolving expansionary fiscal policy over the past MTEF period as reflected in the progressive expansion in public spending (N$24.9 billion in 2009/10 to N$36.6 billion in 2010/11) over the review period, translating into an average budget deficit of 4.3 percent. Expansionary fiscal policy caused an expansion in public spending Page 14 Macroeconomic Framework Table 4: Fiscal Developments for the 2009/10-2011/12 financial year (N$ millions) ITEM 2009/10 2010/11 2011/12 Average GDP 76 586 83 562 93 559 84 569 Revenue % of GDP Expenditure % of GDP Budget Balance % of GDP Total Debt % of GDP Total Guarantees % of GDP 24 017 31.4 24 914 32.5 -897 -1.2 12 910 16.9 2 634 3.4 23 375 28.0 27 253 32.6 -3 879 -4.6 13 893 16.6 2 007 2.4 29 922 32.0 36 611 39.1 -6 689 -7.1 24 700 26.4 2 538 2.7 25 771 30.4 29 592 34.8 -3 822 -3.4 17 168 20.0 2 393 2.9 Source: Ministry of Finance, 2012 22. As a result of the expansionary fiscal policy, total public debt increased to an average of 20.0 percent of GDP over the review period, rising from N$12.910 billion in 2009/10 to N$24.700 billion in 2011/12. Total Guarantees amounted to an average of 2.9 percent over the MTEF. (Table 4 and Figure 6) Figure 6: Fiscal Developments for the 2009/10-2011/12 financial year (% of GDP) 50 40 30 Expenditure 20 Revenue Budget balance 10 0 2009/10 2010/11 2011/12 -10 Source: Ministry of Finance, 2012 (v) Repo rate developments 23. The repo rate was lowered to 5.5 percent (from 6.0 percent, a rate which had been applicable since 2010) in August 2012 in order to rekindle domestic demand to mitigate the effects of weak global growth. The impact of the reduction on inflation is likely to be minimal because demand-pull inflation only constitutes less than 35 percent of Namibia Consumer Price Index (NCPI). What is of The repo rate was lowered to 5.5% from 6.0% in August 2012 Page 15 Macroeconomic Framework particular concern, though, is the increasing private sector credit as a result of the low interest environment and whether such credit is used for investment or consumptive purposes. (vi) Price developments 24. NCPI accelerated to 7.1 percent in October 2012 from 6.6 percent recorded in January 2012, bringing the average inflation for the first Average NCPI for the first 10 months of 2012 ten months in 2012 to 6.5 percent, which is significantly higher than was 6.5% (higher than the 4.7 percent average for the first ten months of 2011. High the 4.7% for 2011) inflation levels for 2012 are mainly attributed to food and transport categories and the depreciation of the Namibia Dollar. This is on account of food supply shortages as a result of industrial strikes in South Africa and the observed increase in international food prices. The strikes - which started in the mining industry and spread to the transport and logistics sectors - interrupted the delivery of products to the market. Moreover, international prices for crude oil remained high and volatile as many economies started to scale up the implementation of energy sanctions against Iran. Figure 7: NCPI and the Repo Rate - Annual percentage changes Source: Macroeconomic Working Group 2012 25. Figure 7 shows the percentage change in the NCPI since 2010 compared to South Africa‟s CPI, Bank of Namibia‟s repo rate and the SADC target for inflation. Despite the low interest rate environment, NCPI inflation has not only remained relatively low and stable and in tandem with South Africa‟s CPI but was well below the SADC regional benchmark of 10 percent over the review period. (vii) Balance of Payments 26. The balance of payments recorded a surplus in 2011 (which was a turnaround from the significant deficit of the previous year), largely BoP recorded a surplus in 2011 Page 16 Macroeconomic Framework due to a huge surplus in the capital and financial account (from a deficit during the previous year). Namibia has consistently recorded excess savings over investments as reflected by consistent surpluses in the current account. As a ratio of GDP, savings are estimated at the level of 24.0 percent in 2011 and are expected to improve slightly in 2012. (viii) Foreign Reserves 27. The level of reserves improved at the end of 2011, recording N$14.6 billion compared to N$10.2 billion at the end of 2010, a level that continued to be more than adequate to maintain the peg with the South African Rand currency and also remained above the international benchmark of three months of import cover. (ix) Exchange rate developments 28. 29. The Namibia Dollar (NAD) weakened against the US Dollar (USD) by 14.7 percent, against the Great British Pound (GBP) by 12.6 percent and against the Euro by 4.9 percent during the first ten months of 2012. This was due to positive economic developments in some of the advanced economies which contributed to the strength in the foreign currencies. NAD weakened against the USD, GBP and EUR in 2012 The depreciation of the NAD against the USD was primarily driven by GDP growth of 2.3 percent for the US in the third quarter, coupled with decreases in inflation and unemployment rates. Similarly, the appreciation of the NAD against the Euro was driven by lower inflation and the launch of the Outright Monetary Transactions (OMT)4 programmes by the European Central Bank (ECB) in September 2012, respectively. (Figure 8) 4 The OMT is aimed at buying unlimited bonds and is meant to complement the existing European Stability Mechanism program. These developments set off a relief in financial markets and, subsequently, led to the EUR’s appreciation against the NAD Page 17 Macroeconomic Framework Figure 8: Namibia Dollar per foreign currencies 16.00 Monthly Averages 14.00 US$ 12.00 British Pound 10.00 Euro 8.00 6.00 4.00 J M M J S N J M M J S N J M M J S N J M M J S Source: Bank of Namibia 30. The trade weighted effective exchange rates5, namely the Namibia The NEER and effective exchange rate (NEER) and real effective exchange rate REER depreciated (REER) of the local currency depreciated annually by 8.7 percent to annually 89.8 and by 4.5 percent to 122.8, respectively. However, the REER appreciated by 0.3 percent in the third quarter, implying that Namibian export products became relatively expensive and, therefore, lost competitiveness on the international market. (Figure 9) 5 The NEER is a trade weighted index of the nominal exchange rate of the Namibia Dollar against the currencies of Namibia’s major trading partners, viz., the Rand, Pound Sterling, US Dollar, Euro and other economies. The REER, on the other hand, takes the NEER and deflates it with the relative consumer price indices of Namibia and that of its major trading partners. Namibia’s effective exchange rate indices (NEER and REER) have been updated to a base year of 2004 to reflect its main trading partners in that year Page 18 Macroeconomic Framework Figure 9: Trade weighted effective exchange rate indices 130 Index (2004 =100) 120 110 100 90 80 70 Q1 Q2 Q3 Q4 Q1 2008 Q2 Q3 2009 Q4 Q1 NEER Q2 Q3 2010 Q4 REER Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Source: Bank of Namibia (x) Namibia’s Competitiveness 31. International competitiveness ratings offer countries an opportunity to compare their performances with those of other countries and identify areas where improvements are needed to enhance competitiveness. Enhancement of international competitiveness necessitates, amongst others, improvement of the general business environment, reduction of the cost of doing business, improvement of access to finance, increased innovation, enhancement appropriate skills development, increased labour market efficiency, improved efficiency of public service delivery, deepening of public-private sector dialogue, etc. 32. Namibia was rated highly on the World Bank Logistics Performance Index 2012 in that the country was ranked only below Botswana and South Africa in Sub-Saharan region, mainly due to the efficient transport logistics system. Overall, Namibia has been rank low on the Global Competitiveness Index (World Economic Forum) and the Ease of Doing Business Index (World Bank). Furthermore, the Namibia Business and Investment Climate Survey highlighted difficulties experienced with regard to obtaining work permits for skilled foreign nationals, general skills deficiency, difficulties with starting a business, etc. (xi) Policy interventions to enhance competitiveness 33. Sustainable economic growth can only be realized through the enhancement of Namibia‟s global competiveness. The following are, amongst others, some of the policy interventions that would enhance Namibia‟s competitiveness: 34. Industrial Policy The Industrial Policy entails a targeted approach towards industrial development by focusing on the diversification of the economy, extension of the value chain of natural Page 19 Macroeconomic Framework resources, development of the manufacturing and services sectors as well as growth of the small and medium enterprises. The Industrial Policy was tabled in Parliament in 2012. 35. A Public-private Partnership (PPP) Policy entails a long-term contract between a private party and a government agency for the provision of a public asset or service. The private party bears significant financial risk and management responsibility for the partnership. The PPP Policy has been approved by Cabinet in 2012 and was subsequently tabled in Parliament. 36. Public-private Partnership Policy PPP entails a contract between the public and private sectors National (Transport) Logistics Master Plan Plans are underway to commission a National (Transport) Logistics Master Plan to complement the corridor development initiatives and, thus, buttress Namibia‟s position as a regional transport hub for the landlocked SADC member states. Namibia was rated high on the Logistics Performance Index (xii) Economic, financial and credit surveillance 37. The IMF conducts Article IV Consultations annually in order to assess issues pertaining to member countries‟ fiscal sustainability and macroeconomic stability. To that end, the IMF‟s Article IV Consultations for 2011 affirmed the Namibian Government‟s commitment to the re-establishment of fiscal policy buffers, Reinforcement of monetary and financial stability and the buttressing of several structural reforms. 38. IMF Article IV Consultations International credit ratings A credit rating entails the expression of an opinion regarding the Credit ratings assess creditworthiness of an obligor with respect to a particular debt the creditworthiness security or other financial obligation. Over the years credit ratings of obligators have achieved wide investor acceptance as convenient tools for differentiating credit quality. A favourable credit rating lowers the cost of borrowing on the debt market and vice versa. The following ratings agencies assessed Namibia‟s creditworthiness during the review period: o 39. Fitch Ratings Fitch Ratings has affirmed Namibia‟s credit rating outlook as “stable” in December 2012 (it was downgraded to “stable” from “positive” in 2011). Fitch Fitch affirmed projects government debt at 26 percent of GDP at the end of 2012, a Namibia‟s rating as low level relative to peer rating (35 percent of GDP) and Namibia, „stable‟ in December including the sovereign, is a net external creditor (with net external 2012preciated debt at -8.2 percent of GDP) due to past current account and budget annually Page 20 Macroeconomic Framework surpluses. An expansionary fiscal policy (to support domestic demand in a difficult external environment) has led to budget and current account deficits since 2009. However, Fitch expects this trend to reverse gradually and for government debt to be at 28.5 percent of GDP by 2015, which is still low relative to the peers. o 40. Moody’s Investor Services Moody‟s Investor Services rated Namibia Baa3 with a stable outlook in 2011. The low investment grade rating reflects the Government‟s track record of responsible budget management and maintenance of low public debt as well as an investor-friendly policy framework, balanced against structural legacy challenges posed by wide income disparities, high unemployment and dependence upon the mining sector for foreign exchange earnings. (xiii) Job creation 41. Although the GDP grew by 3.4 percent on average over the review period, the economy failed to create jobs at commensurate rates. In fact, the formal economy shed more jobs 6 than it created new ones, thus, contributing to increased unemployment7. This was mostly due to the fact that the primary industries recorded negative growth over the review period because the extractive sectors are not only capital-intensive in nature but were also subjected to negative commodity price fluctuations, labour unrests, etc. 42. Economic growth with little/no job creation Targeted Intervention Programme for Employment and Economic Growth The Targeted Intervention Programme for Employment and Economic Growth (TIPEEG) was conceptualised and implementation during the 2011/2012 financial year. It is a shortterm programme designed to create short-term jobs, fast track the implementation of capital projects and render the unskilled force employable (through the encouragement of on-the-job training). A total of approximately 25 3288 new jobs were created (7 326 permanent and 18 012 temporary) under TIPEEG, with Oshana Region having created the highest number, followed by Oshikoto and Khomas Regions. (Table 5) Table 5: Employment per Region 6 Namibia Labour Force Survey 2008 At 33.8% by broad definition and 21.1% strict definition (NHIES 2009/10) and 8 TIPEEG Implementation Report for 2011/2012 Financial Year 7 Page 21 Macroeconomic Framework Region Caprivi Erongo Hardap Karas Kavango Khomas Kunene Ohangwena Omaheke Omusati Oshana Oshikoto Otjozondjupa TOTAL Permanent 526 460 597 599 657 839 445 530 289 551 605 608 620 7,326 Temporary 1 200 1 019 1 290 1 313 1 612 1 451 1 001 1 243 1 131 1 347 2 006 1 915 1 484 18,012 Total 1 726 1 479 1 887 1 912 2 269 2 290 1 446 1 773 1 420 1 898 2 611 2 523 2 104 25,338 Source: National Planning Commission 2012 43. Going forward, the targeted sectors of TIPEEG will be transferred to the NDP4 and, therefore, the programmes and projects under TIPEEG will be incorporated into and be harmonized with the medium term TIPEEG will be programmes. TIPEEG would, therefore, not be regarded as a standtransferred to NDP4 alone intervention programme but would form an integral part of the Government‟s overall strategy to create employment opportunities. 44. Having realised the potential of Small and Medium Enterprise (SME) to jointly create substantial job opportunities, the government - in collaboration with other stakeholders like the Development Bank of Namibia (credit facilities) and local authorities (for infrastructure) - continue to render support the development of these entities. The apex of such commitment is the eventual establishment of the SME Bank in December 2012. 45. Small and Medium Enterprise Development Human Resource Development Plan Namibia‟s potential for economic growth (and by implication, increased job creation) is hampered by, among others, the existence of mismatches between the supply of and demand for skilled workers, opportunity costs of unemployment, rigid labour market regulations, low labour productivity and insufficient investment in human resources development. Hence, the government formulated the National Human Resource Plan (NHRP) in order to deliberately address these and related challenges. This NHRP (which has been approved by Cabinet in 2012) outlines the gap in sectors and employment categories in order to highlight instances of undersupply and oversupply in the labour market. Page 22 Macroeconomic Framework 46. It is envisaged that the NHRP (spearheaded by the NPC) would be complemented by the Human Resource Development Plan (HRDP). The HRDP (which would be managed by the Ministry of Education), would focus on the development of skills and competencies that are required by the industry and, hence, to close the gap in the labour market. That is, whereas the NHRP focuses on skills audits and human resources planning, the HRDP would be geared towards the implementation of actual skills development/training programmes. The be formulated. The National Human Resources Plan would assess the supply/demand for labour HRDP must still Labour-based intervention measures 47. The Government established an Employment Creation Forum with the mandate to spearhead the national intervention measures aimed at increased employment creation. The Forum will operate within the framework of the Employment Creation Commission Bill which aims to promote the implementation of labour-based/intensive work; promote investment in education, training, knowledge creation and targeted human recourses development. 48. Furthermore, programmes are underway for the promotion of productivity and the introduction of the Integrated Employment Information System (IEIS) to register jobseekers and find suitable employment for them. Job seekers will be registered through the Integrated Employment Information System (xiv) Poverty alleviation 49. Namibia is one of the countries with high rates of income inequality The Gini-coefficient in the world. However, some inroads have been made on the was reduced from reduction of income inequality as reflected in the reduction of the 0.60 to 0.58 Gini-coefficient to 0.58 (National Household Income and Expenditure Survey, NHIES, of 2009/10), which is only marginally below the level of 0.60 reported in the NHIES of 2003/04. A targeted of 0.3 is envisioned under Vision 2030. 50. Reduction of income inequality Poverty reduction Progress has been made with regards to poverty reduction in that the proportion of the population classed as „severely poor‟9 dropped The „severely poor‟ dropped from 14% in 2003/4 to 10% 2009/10 9 Based on a ‘cost of basic needs’ definition of poverty. The lower bound (severely poor) identifies those whose expenditures are insufficient to meet their daily calorific requirement. The upper bound (‘poor’) indentifies those whose expenditure is sufficient to meet daily calorific needs, but are still classed as poor. The thresholds were updated between 2003/04 and 2009/10 to take account of inflation and allow for appropriate comparisons to be made. Page 23 Macroeconomic Framework from approximately 14 percent in 2003/04 to around 10 percent in 2009/10 10. The proportion classed as „poor‟ has also dropped, from around 28 percent in 2003/04 to about 20 percent in 2009/10. 51. In terms of a broader definition of poverty, Namibia‟s Human Development Index 2011 (HDI)11 score continues to improve, rising to 0.625 in 2011 from 0.622 in 2010. This placed Namibia‟s rank globally at 120 out of 187 countries in 2011, about mid-way in the „Medium Human Development‟ category. Namibia‟s HDI rank is amongst the highest in the Sub-Saharan African region, second only to Botswana. Furthermore, the HDI Report shows that social poverty (as measured by education and health outcomes) has improved in recent years, with life expectancy rising from 60 years in 2007 to 62 in 2011. Literacy rates have also shown an improvement. 52. 53. Effect of inflation on low-income earners The NCPI measures the consumption/spending patterns of „the average Namibian‟. However, in reality, consumers have different spending patterns. Therefore, a single inflation rate for the whole economy disguises important differences among different consumer groups. For this reason, a simple inflation model12 was created to illustrate the inflation faced by different income groups and different segments of Namibian society. NCPI measures the consumption of the „average‟ Namibian In this regard, Figure 10 shows that the bottom 10 percent (bottom decile13) of income earners generally faced higher food inflation than both the top 10 percent (top decile) of income earners and the average income earner. This is because the poorest in society spend a higher proportion of their income on food, which has faced high levels of inflation in recent years. 10 NHIES 2009/10 The HDI is based on health, education and per capita income statistics. See the UN Human Development Report 2011 for more detail. 12 This was done using the consumption data from the 2009/10 NHIES and then applying these consumption patterns to monthly inflation data (which is broken down by different categories of goods/services). 13 A rating, usually of performance, on a scale of 1 to 10 where 1 is best, 10 is worst, and each number corresponds to an increment of 10 percentage points. 11 Page 24 Macroeconomic Framework Figure 10: Poverty inflation analysis - Annual percentage changes 20.00 15.00 10.00 5.00 Bottom Decile 2008 -5.00 2003 0.00 Top Decile Overall Inflation Food and Beverage inflation Sources: NSA, NHIES 2009/10 and Macroeconomic Working Group 2012 54. The difference in inflation faced by different segments of society shows that the most vulnerable in society may often face higher inflation than presented by the overall NCPI. Housing for low-income earners 55. Land delivery across the country continued to deteriorate in contrast to the growing demand over the review period, a situation that causes a rise in prices. The situation has been aggravated by the local authorities‟ land auctioning system (land transactions provide an important source of revenue for these institutions), the rising middle class and the participation of non-residents in the property market. 56. Subsequently, the supply of lower priced properties continued to diminish, while upper-priced properties were selling both too slow and below asking price, over the review period (Figure 11). Generally, local property prices were on average 3114 percent higher than those in South Africa. 14 The supply of lower-priced properties diminished FNB Housing Index, August 2012 Page 25 Macroeconomic Framework Figure 11 – Index of land supply 120 100 Number of stands 80 60 40 20 Feb-12 Oct-11 Jun-11 Feb-11 Oct-10 Jun-10 Feb-10 Oct-09 Jun-09 Feb-09 Oct-08 Jun-08 Feb-08 Oct-07 Jun-07 Feb-07 Oct-06 Jun-06 0 Source: FNB Housing Index 2012 (xv) Fourth National Development Plan (NDP4) 57. The Fourth National Development Plan (NDP4, launched in July 2012) NDP4 seeks to adopted three overarching goals namely, high and sustained economic transform the growth, employment creation and improved income equality. To attain economy and create these goals, key focal sectors (logistics, tourism, manufacturing and the momentum for growth agriculture) have been identified to transform the economy and create the necessary momentum for high and sustained growth. To increase the country‟s competitiveness and crowd in private investment, government will increase investment in critical infrastructure developments in the transport, energy, water and housing sectors. 58. Although there are many basic economic development enablers, the most important ones in the context of the NDP4 are the creation of an enabling institutional environment, improvement of education and skills development (with an emphasis on vocational training) and establishment of a good quality health system. Furthermore, NDP4 focuses on the efficiency of implementation as well as monitoring and evaluating strategies for the various sector programmes. 59. The underlying principle of the NDP4 implementation strategy comprises prioritisation, assertiveness and simplicity, implying that that sectors are required to indentify, prioritise and implement programmes that would contribute towards the attainment of the three overarching goals. Such programmes have to be outlined in the sector-strategic and annual execution plans. The implementation process would be buttressed through continuous monitoring, evaluation and progress reporting systems to instil a sense of accountability among the implementing agencies. Page 26 Macroeconomic Framework (xvi) Subsidies and transfers to State-owned Enterprises (SOEs) 60. The total amount of subsidies and transfers effected to a broad range of State-owned Enterprises (SOEs) over the 2007/08-2010//11 financial years amounted to approximately N$6 billion, a substantive amount which, in terms of opportunities costs, implies the compromise of several social and economic interventions and programmes. Transfers to SOEs could have been used for other purposes (xvii) Revision of the incentives regime 61. Namibia‟s incentives regime is perceived to be overly generous, complex and subjected to abuse. To that end, the country‟s incentives regime (incentives for manufacturing and EPZ enterprises) is being reviewed for harmonisation with best international practices. (xviii) Regional economic integration 62. The SADC regional integration agenda is based on the Regional Indicative Strategic Development Plan (RISDP) that seeks to align the development priorities of the Member States by setting the framework for consistent and comprehensive programmes of long-term economic and social development policies. Several protocols are in place to provide the legal framework for co-operation among Member States, for example, the Protocol on Finance and Investment, Protocol on Trade, etc. SADC regional integration agenda is based on the RISDP 63. The combination of the implementation of the RISDP, SADC‟s Economic Partnership Agreement (EPA) with the European Union in 2014 and the introduction of the Free Trade Area (FTA) among SADC, Common Market for Eastern and Southern Africa (COMESA) and East African Community (EAC) over the same time horizon (in addition to the possible review of the SACU Revenue Sharing Formula) would have an overall revenuereducing effect for Namibia. C. MEDIUM TERM ECONOMIC OUTLOOK a) GLOBAL ECONOMIC OUTLOOK 64. Figure 12 illustrates that growth trends in the advanced economies, emerging markets and the Euro Zone will be characterised by a marginally upward trajectory over the MTEF period, with the lowest rate of growth to take place in the Euro Zone. Meanwhile, SubSahara Africa‟s growth pattern is expected to be relatively flat over the same period. 65. The outlook for the world output is relatively positive in that average growth of 4.2 percent is expected (Table 6 and Figure 12). Over the nearer term, however, downside risks that entail possible intensification of the sovereign debt crisis in the Euro Zone as well as the fiscal challenges in the USA remain elevated. Global growth presents a mixed picture in 2012 but with moderate overall growth expected. World output is expected to record average growth rate of 4.2% Page 27 Macroeconomic Framework Table 6: Outlook for the World Output, Real GDP – Annual percentage changes Region/Country Estimate Projection World Output Advanced economies United States Euro Zone Emerging/developing economies China India Sub-Saharan Africa Angola Namibia South Africa 2012 2013 2014 2015 2016 3.3 1.3 2.2 -0.4 5.3 7.8 4.9 5.0 6.8 4.0 2.6 3.6 1.5 2.1 0.2 5.6 8.2 6.0 5.7 5.5 4.3 3.0 4.1 2.3 2.9 1.2 5.9 8.5 6.4 5.5 5.4 4.3 3.9 4.4 2.6 3.4 1.5 6.1 8.5 6.7 5.8 5.4 4.4 4.1 4.5 2.6 3.4 1.7 6.1 8.5 6.9 5.7 5.2 4.4 4.1 Average 2013-16 4.2 2.3 3.0 1.1 5.9 8.5 6.5 5.7 5.4 4.3 3.8 Source: IMF WEO October 2012 66. Advanced economies are projected to grow at a low average rate of 2.3 percent over the period under review, mainly due to low overall growth prospects and a high degree of uncertainty caused by the Euro Zone sovereign debt problems, especially those faced by Greece, Spain and Italy. 67. Emerging and developing economies are forecast to continue posting robust growth over the medium term, albeit at rates that are lower than those that prevailed prior to the global economic downturn largely due to weaker demand in advanced economies. These economies are projected to grow at an average rate of 5.9 percent, driven by China’s growth that is forecast to average a high 8.5 percent. Emerging & developing economies are expected to record the highest average growth rate of 5.9% Figure 12: Global GDP estimates and projections – annual percentage changes 8 6 4 2 0 -2 2009 2010 2011 2012 2013 2014 2015 2016 -4 -6 World output Euro zone Emerging econ/developing econ Advanced economies Sub Saharan Namibia Source: IMF WEO October 2012 and The World Bank: Global Economic Prospects, June 2012 Page 28 Macroeconomic Framework 68. Sub-Sahara Africa (SSA) is projected to register a robust average growth of 5.7 percent, which is only marginally lower than the 5.9 SSA is projected to register robust percent forecast for all emerging and developing economies. Growth average growth of in SSA will be underpinned by continued strong growth in oil5.7% exporting countries, with Nigeria and Angola (the region‟s second and third largest economies) forecast to average growth of 5.4 percent and 6.7 percent, respectively, over the MTEF period. Angola‟s growth will be boosted by the commissioning of a US$9 billion liquefied natural gas project and the expected increase of oil production to over two million barrels per day. 69. However, South Africa (the region‟s largest economy) is expected to experience subdued growth over the same time frame as economic activity is weighed down by its close linkages with Europe. Although growth is projected to expand by 3.8 percent on average, persistent global uncertainties imply that downside risks remain high. Furthermore, growth prospects will be affected negatively by the industrial unrests that occurred during the latter part of 2012. 70. Beyond the ongoing problems in Europe and the US, slowing growth in China poses a risk to SSA growth, not only because of deepening trade linkages between SSA and China, but also due to China‟s increasingly important contribution to the region‟s foreign direct investment and the potential impact that the slower growth in the world‟s second largest economy could have on global commodity prices. b) DOMESTIC ECONOMIC OUTLOOK 71. The estimates and projections of the growth rates are based on a range of assumptions concerning domestic, regional and international developments. Some of these assumptions are endogenous (actions by Government that will impact on growth) while others are exogenous (factors outside Government‟s control that will impact on growth). China is increasingly gaining great importance in SSA Projections are based on a range of assumptions (i) Central (baseline) growth scenario 15 72. The central (baseline) growth scenario is based on the assumption that the current challenges and downside risks to global economy will persist unabatedly over the medium term. These risks are, inter alia, low growth in the US, coupled with high unemployment and significant fiscal debt, the Euro Zone‟s sovereign debt crisis, Japan‟s low corporate and private spending and slowing demand for exports from emerging economies, particularly from China. (Table 7) 15 This scenario is based on research, analyses and simulations of the Macroeconomic Working Group and represents the ‘most-likely scenario’. Page 29 Macroeconomic Framework Table 7: Outlook for GDP growth for the 2013/14-2015/16 MTEF – Annual percentage changes Average 2011 2012 2013 2014 2015 2016 2013-16 Actual Estimate Projections Central estimate 4.8 4.0 4.3 4.3 4.4 4.4 4.3 Source: National Accounts 2011 and Macroeconomic Working Group 2012 73. The projections in the baseline scenario (Table 7) are marginally lower than those of the MTEF for the 2012/13-2014/15 period (Table 8), which is a reflection of the expected sluggish global economic developments and their impact on the domestic economy. Table 8: Outlook for GDP growth for the 2012/13-2014/15 MTEF – Annual percentage changes Average 2010 2011 2012 2013 2014 2015 2012-15 Actual Estimate Projections Central estimate 6.6 4.2 4.4 4.8 4.9 5.0 4.8 Source: National Accounts 2010 and Macroeconomic Working Group 2011 (ii) Supply-Side Projections 74. Primary industries Primary industry is expected to record 3.0 percent growth on average over the MTEF period, mainly on the back of robust growth in the other mining and quarrying sub sector (Table 9 and Figure 13). Other mining and quarrying Growth will be driven by the is expected to grow above 10.0 percent on average, driven by growth in other mining and uranium mining as a result of the expected commissioning of the Husab quarrying suband Etango16 mines and expansion of capacities of the Langer Heinrich sector and Rössing17 uranium mines. On the other hand, diamond mining is projected to grow by only 1.7 percent on average over the same period. Table 9: Central estimate for GDP Growth by Industry – Annual percentage changes Industries 2011 2012 2013 2014 2015 2016 Actual Estimate Projections Primary Industries -0.9 4.0 2.0 3.1 2.6 3.0 Secondary Industries 4.1 6.7 7.2 6.2 5.7 4.3 Tertiary industries 4.3 3.0 3.1 3.1 3.6 3.9 GDP 4.8 4.6 4.3 4.3 4.4 4.4 Source: National Accounts 2011 and Macroeconomic Working Group 2012 Average 2013-16 3.0 6.0 3.3 4.3 16 The commissioning of Etango has been shelved pending the improvement in uranium prices. 17 Rossing’s 7-year waste-stripping programme is aimed at improving the production output by 2014. The process entails the removal of blasted rock that does not bear sufficient uranium and is, therefore, not economical to process. It is undertaken in order to ensure that the mine remains operative until its expected closure date of 2023. Page 30 Macroeconomic Framework 75. The agriculture and fishing and fish processing on board sectors are projected to grow by only 2.0 percent on average during the period under review. The slow growth in agriculture is attributed to the livestock farming subsector, which is expected to decline by 5.0 percent in 2012 due to restocking. However, the crop farming subsector is projected to maintain steady growth of 3.0 percent on average due to continued Government intervention and support through the Green Scheme. The fishery sector is expected to record an average growth rate of 2.0 percent as a result of continued sustainable quota management. Secondary industries 76. Overall growth of the domestic economy over the MTEF period is Main drivers of expected to be underpinned by the strong expansion of the secondary growth will be sector, which is expected to average 6.0 percent growth. The main the construction drivers of growth in secondary industries will be the construction and and electricity electricity and water sectors which are expected to grow by 11.9 and 8.6 and water sectors percent on average, respectively over the MTEF. The growth in the construction sector will mainly be driven by, amongst other projects, the Walvis Bay port expansion, the construction of Gecko Industrial Park 18 the Neckertal Dam and the Kudu Gas projects. 77. The manufacturing sector is projected to grow by 3.8 percent on average during the period under review, mainly driven by the other food products and beverages and other manufacturing sub-sectors which are expected to grow by 4.6 and 3.5 percent on average, respectively. Growth in the other food products and beverages sub-sector will be due to expected expansion in beer and milk production as well as the coming onto stream of a new poultry plant, while the growth in other manufacturing will be due to increased activities in diamond cutting and polishing, as well as other mineral beneficiation. Figure 13: Estimates and projections for industries – annual percentage changes 8.0 6.0 4.0 2.0 0.0 2012 Primary industries 2013 2014 Sedondary industries 2015 Tertiary industries 2016 GDP Source: Macroeconomic Working Group 2012 18 Plants for sulphuric acid, soda ash, bicarbonate, caustic phosphoric acid and TVC desalination. . Plans are afoot to develop a port for export/import of bulk commodities and a desalination plant. It is located in the Doro National Park, around 10 km to the north of Swakopmund. Page 31 Macroeconomic Framework Tertiary industries 78. Tertiary industries are expected to register a relatively low growth rate Growth will be of 3.3 percent on average over the MTEF period. However, given that driven by financial tertiary industries accounted for 57 percent of GDP in 201119, these intermediation, industries will be the largest contributor to overall GDP growth. The transport and main drivers of growth within the tertiary industries will be financial communication intermediation, transport and communication and wholesale and retail sectors, which are expected to register average growth rates of 5.2 percent, 3.8 percent and 3.3 percent, respectively. 79. The growth in transport and communication can be attributed to the commissioning of the West Africa Cable System (WACS) as well as the expected expansion of the Walvis Bay port. Meanwhile, the hotels and restaurants sector is expected to record slow growth during the MTEF period due to slow growth in the Euro Zone and, thus, limited demand for luxury goods such as holidays. (iii) Demand-Side Projections 80. 19 Following a sharp acceleration in 2012, total consumption growth is Total consumption projected to slow over the MTEF period due to an expected growth will slow substantial decline in government expenditure. Public spending is over the MTEF forecast to grow in line with inflation over the 2013-16 period, period meaning that growth in real terms will be zero. However, headline consumption will be kept buoyant by continued robust growth in private expenditure, which is projected to expand by an average 5.7 percent over the MTEF period. This will contribute towards steady total consumption growth of an average 4.3 percent over this time frame. (Table 9 and Figure 14). National Accounts 2011. Page 32 Macroeconomic Framework Table 10: Outlook for GDP Growth - Expenditure approach, percentage growth 2011 Final Consumption Expenditure Of which Private Of which Public Gross fixed capital formation Exports of goods and services Imports of goods and services GDP in constant prices 2004 2012 Actual Estimate 4.1 6.7 2.4 4.5 9.4 13.2 0.4 10.8 -4.5 4.5 2.9 4.0 4.9 4.0 2013 2014 2015 2016 4.0 5.4 0.0 9.7 4.1 6.0 4.3 4.3 5.8 0.0 10.6 6.3 6.0 4.3 Projections 4.9 3.9 6.5 5.1 0.0 0.0 3.5 8.2 5.7 6.3 4.0 4.6 4.4 4.4 Average 2013-16 4.3 5.7 0.020 8.0 5.6 5.1 4.3 Source: Macroeconomic Working Group 2012 81. Investment is projected to record strong growth over the MTEF period, following low growth of just 0.4 percent in 2011. Growth is forecast to average 8.0 percent, boosted by the construction of several large-scale capital projects such as the Husab and Etango uranium mines, the Neckertal Dam and the Kudu Gas projects. The anticipated dip in investment growth in 2015 is explained by a combination of the expected completion of the aforementioned projects and high base effects in 2014. Investment growth will be boosted by large construction projects Figure 14: Outlook for GDP Growth (constant 2004 prices) - Expenditure approach Source: Macroeconomic Working Group 2012 82. Export growth is forecast to average 5.6 percent over the MTEF period as the global economy is expected continues to recover, albeit at a subdued pace. Exports are expected to maintain steady growth over the outer of the MTEF period, mainly due to the positive outlook for the prices of Namibia‟s export commodities. 20 These are expressed in constant/real prices which take inflation into account. Hence, in current/nominal prices (without inflation), growth would be at least at the level of inflation and would, therefore, not be equivalent to zero. For example, if the average inflation rate in 2013 is 5.2 percent, then the current/nominal GDP growth rate in that year would be 5.2 percent. Page 33 Macroeconomic Framework 83. Import growth is projected to average growth of 5.1 percent over the MTEF period, although growth will be stronger during the 2013-14 period as demand for capital goods (to be imported) will be boosted by planned construction projects. Following the completion of these projects around 2014, import growth is projected to slow to below 5.0 percent over the outer years of the MTEF. (iv) Price developments 84. Going forward, inflation is expected to increase moderately over the remainder of 2012 and the beginning of 2013 before subsiding gradually from around mid-2013, that is, in line with downward projections for oil prices. International food prices are forecast to decline in 2012 before rising gradually over the MTEF period. c) OIL, FOOD AND COMMODITY PRICES (i) Oil Prices 85. Brent Crude21 futures anticipate oil prices to exhibit a steady decline Oil prices are over the MTEF period, falling below US$100 per barrel around May expected to decline 2015 due to a combination of an improved outlook for supply and a steady due to weaker situation on the demand front. However, going forward, improved supply geopolitical tensions in the Middle East (Syrian and Israeli-Palestinian outlook and weaker situation conflicts) could draw in other countries and so possibly disrupt oil supplies from a region which accounts for around 33 percent of total global supply. In addition, the weak global economic outlook that does generally not bode well for demand. (Figure 15) 86. As advanced economies are forecast to register a low average growth of 2.3 percent over the MTEF period, it will increasingly be emerging and developing economies (projected to growth on average by 5.9 percent) that will drive demand for oil. Although oil prices are likely to be well-supported over the medium term, they are expected to trend lower over the same period. 21 The predominant price benchmark outside the North American market Page 34 Macroeconomic Framework Figure 15: Oil price futures 120.00 115.00 US$/bbl 110.00 105.00 100.00 95.00 90.00 85.00 Nov-16 Sep-16 Jul-16 May-16 Mar-16 Jan-16 Nov-15 Sep-15 Jul-15 May-15 Jan-15 Mar-15 Nov-14 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Sep-13 Jul-13 Mar-13 May-13 Jan-13 80.00 Source: CME Group 16/10/12 87. On the downside, the above-outlined outlook may be negated by the likely impact of Hurricane Sandy on the supply of oil. The damage to infrastructure caused along the US East Coast (which resulted in the closure of refineries, roads and airports), is likely to diminish the supply of energy in the US (the world's biggest oil consuming nation) (ii) Food prices 88. Having posted high prices in recent years, overall food prices are forecast to decline in 2012 – despite the droughts experienced in the US and in Eastern Europe – before gradually rising again over the MTEF period. Although food prices are expected to come down from recent peaks, they are nonetheless expected to remain around historically high levels. This trend is illustrated in Figure 14 which shows an overall food price index derived from the OECD-FAO projections22. 89. Food prices are forecast to decline in 2012 before gradually rising again over the MTEF period The decline in prices in 2012 will be triggered by a combination of excess supply (as global production continues to respond to previous high prices), rebuilding of stocks and weaker demand on the back of slower global growth. However, towards the outer years of the MTEF, demand is expected to rebound and this, combined with rising production costs and growing demand for bio fuels, will keep the prices of agricultural products wellsupported over the remainder of the outlook period. (Figure 16) 22 The index is created using price and consumption data across the following agricultural commodity sub-sectors: Cereals, Oilseeds, Meats, Dairy, Sugar and Fisheries. Page 35 Macroeconomic Framework Figure 16: Food price index (2009=100) 130.0 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0 2009 2010 2011 2012 2013 2014 2015 2016 Source: OECD-FAO Agricultural Outlook 2012-2021, MoF Calculations (iii) Diamond and Metals 90. Diamonds Unlike other commodities, diamonds do not do not have a common Going forward, the benchmark and this makes price forecasting for diamonds a difficult medium-term task. However, there is general consensus that, while diamond prices outlook is are likely to remain subdued over the near-term as demand remains promising for weak against a backdrop of lacklustre global growth, the medium-term diamonds outlook is positive as constrained output is expected to struggle to match growing demand, particularly from developing countries such as China and India. 91. Uranium Uranium prices continue to suffer in the wake of the Fukushima disaster, but futures contracts are anticipating that uranium prices will gradually head higher over the MTEF period. Uranium‟s longer-term prospects remain positive as an increasing number of countries – most notably China – look towards nuclear power to fulfil their energy needs, which should result in stronger demand, going forward. (Figure 17) The long term prospects are positive for uranium Nov-16 Sep-16 Jul-16 May-16 Mar-16 Jan-16 Nov-15 Sep-15 Jul-15 May-15 Mar-15 Jan-15 Nov-14 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Sep-13 Jul-13 May-13 Mar-13 52.00 50.00 48.00 46.00 44.00 42.00 40.00 Jan-13 US$/lb Figure 17: Uranium Price Futures Source: CME Group 16/10/12 Page 36 Macroeconomic Framework 92. Copper Copper prices have experienced a meteoric rise in recent years, driven in large part by insatiable demand from China. However, prices are expected to trend down over the MTEF period as weak global growth, twinned with rising mine output, applies downward pressure on prices. (Figure 18) Copper prices are expected to trend downwards due to weak global growth and rising mine output Figure 18: Copper Prices 10000 9000 US$/t 8000 7000 6000 5000 2011 2012 2013 2014 2015 2016 Source: World Bank Commodity Price Forecast Update, September 2012 Zinc Although zinc prices are forecast23 to fall in 2012 due to weak global Zinc prices are growth, they are expected to rebound strongly over the medium term expected to rebound as some of the world‟s largest zinc mines are set to close, for example, over the MTEF due the Century Mine in Australia, plus other closures and contractions in to several supply Kazakhstan, Canada and Ireland that put a considerable strain on constraints supply. Moreover, lower prices of late have already delayed the development of new mines that are needed to replace those nearing exhaustion. (Figure 19) 93. Figure 19: Zinc Prices USc/kg 300.00 250.00 200.00 150.00 2011 2012 2013 2014 2015 2016 Source: World Bank Commodity Price Forecast Update, September 2012 23 The World Bank Page 37 Macroeconomic Framework D. CONCLUSIONS 94. The domestic economy is projected to grow at an average rate of 4.3 percent over the next three-years. However, that growth rate falls short of the NDP4 average target growth rate of 6.0 percent over the next five-year period. Thus, it would be difficult to realise the NDP4 objectives if the current growth trajectory is not raised. 95. Therefore, the strategy over the MTEF would entail the implementation of policy interventions that are aimed at the introduction of remedial measures to address structural weaknesses in the economy. Such interventions would revolve around the attainment of the priority goals identified in the NDP4, namely those of high and sustained economic growth, employment creation and increased income equality. 96. The precondition for the realisation of high and sustained economic growth is pillared on, amongst others, the unlocking of latent business potential, improvement of business operating conditions and enhancement of Namibia‟s competitiveness. E. WAY FORWARD 97. Going forward, the following key policy reform areas were highlighted to enhance Namibia‟s competiveness in order to address the core challenges of economic growth, job creation and increased income equality: 98. Industrial Policy Implementation (Ministry of Trade and Industry): To provide a policy framework for the national industrial development process to unfold in that it entails a set of intervention measures that are designed to promote or bring about structural change to the economy in order to realize desired outcomes; 99. Public-Private Partnership (PPP) Policy (Ministry of Trade and Industry): To provide a framework for the implementation of capital and skills-intensive projects between the public and private sectors. The key elements of a PPP undertaking are joint investment and shared authority, responsibility, liability and risk-taking for mutual benefit. 100. National (Transport) Logistics Master Plan (Ministry of Works and Transport): To complement the corridor development initiatives and, thus, to buttress Namibia‟s position as a regional transport hub for the landlocked SADC member states; 101. Human Resources Development Plan (Ministry of Education): To expedite the harnessing of resources for the development of the required skills and competency as outlined in the National Human Resources Plan; 102. State-owned Enterprise Reforms (Office of the Prime Minister): To expedite the reform of State-owned Enterprises (SOEs) in order to optimise their contributions to the economy and to reduce their dependence on budget transfers; and 103. Enhancement of Namibia’s Competitiveness (Ministries of Trade and Industry, Education, Labour and Social Welfare and Health and Social Services): To enhance Page 38 Macroeconomic Framework Namibia‟s business operating conditions by focusing on, amongst others, the development of the health and primary education sectors and improvements in respect of technological readiness, goods market efficiency, labour market efficiency, business sophistication and innovation. Page 39 Macroeconomic Framework ANNEX A: a) OVERVIEW OF DOMESTIC ECONOMIC DEVELOPMENTS Monetary and Financial Market Developments 104. Credit extended to the private sector remained generally healthy despite a reduction in growth at the end of 2011 as a result of significant repayments, predominantly of overdrafts, by businesses. At the end of 2011 growth slowed to 9.8 percent compared to 10.9 percent at the end of 2010. Nevertheless, corporations in the retail and construction sectors borrowed extensively, that is, in addition to the robust demand from individuals for credit in response to the expansionary monetary policy conditions that prevailed. 105. The growth in credit extended to the corporate sector slowed significantly to 5.8 percent at the end of 2011 compared to 14.1 percent at the end 2010. This growth level is the lowest seen in five years, a situation that reflects the volatile borrowing pattern of the corporate sector. The period under review was characterized by high and volatile levels of usage of overdraft facilities to finance working capital as well as construction activities over short periods of time. b) Capital Market Developments 106. Developments on the Namibia Stock Exchange (NSX) in 2011 were affected by developments in the global financial markets which were largely influenced by the implementation of unconventional monetary policies in major advanced economies in response to a number of shocks on the global economy. Thus, quantitative easing in the US and the sovereign debt problems in the Euro Zone were reflected in some of the performance indicators of the NSX over the same period. The Overall Index dropped by 29 points at the end of 2011 to close at 838.2 points compared with 867.2 at the end of 2010. Consequently, market capitalization at the end of 2011 declined to N$1.1 trillion, representing a decline of 2.5 percent when compared to the closing amount at the end of 2010. c) Exchange Rate Developments 107. The performance of the Namibia Dollar was mixed over 2011, experiencing appreciation against the US Dollar but depreciation against the British Pound and the Euro. The appreciation was largely due to uncertainty over US Government debt and political brinkmanship resulting in delays in raising the debt ceiling. The Euro‟s strengthened position was attributable to the implementation of remedial measures aimed at attempting to mitigate the effects of the debt crisis and the European Central Bank‟s prudent monetary management policies. 108. The depreciation/weakening of the Namibia Dollar has been in line with other emerging market currencies, as global risk aversion continues (and investors favour „safe havens‟ such as Germany). Page 40 Macroeconomic Framework d) External Sector Developments 109. The capital and financial account recorded a surplus of N$4.0 billion in 2011, compared to a deficit of N$2.3 billion in the previous year. The improvement arose mainly from significantly increased inflows of foreign direct investment into Namibia, a reduction in the net outflows from portfolio investment, following the issuance of the Euro bond, and substantial increases in SACU receipts. Outflows in other investment – short term, however, remained high mainly due to excess liquidity experience by the local commercial banks. Page 41 Macroeconomic Framework ANNEX B: DIFFERENT GROWTH SCENARIOS 110. The alternative estimates and projections for growth over the next MTEF are based on the following two principal scenarios (Table 8). Table 8: Outlook for overall GDP growth (2004 prices) – Annual percentage changes 2011 Upper Estimate Central Estimate Lower Estimate Actual 4.8 4.8 4.8 2012 Estimate 4.2 4.0 3.8 2013 4.4 4.3 4.0 2014 4.4 4.3 4.0 2015 Projections 4.5 4.4 4.1 2016 Average 2013-16 4.4 4.4 4.0 4.4 4.3 4.0 Source: National Accounts 2011 and Macroeconomic Working Group 2012 a) Upper Estimate 111. This scenario is based on the assumption that the current global environment and downside risks to global growth (as outlined in scenario 1) ease/moderate and that upside opportunities that are conducive for global economic recovery and growth prevail. It is, as such, the scenario that represents the „most likely best-case scenario‟. b) Lower Estimate 112. This scenario is based on the assumption that the current global environment and downside risks pertaining thereto (as outlined in scenario 1) intensify, most notably that the current deceleration of growth in China continues, possibly resulting in a hard-landing. Therefore, it represents the „most likely worst-case scenario‟. Page 42 Macroeconomic Framework ANNEX C: a) ASSUMPTIONS FOR GDP ESTIMATES AND PROJECTIONS INTERNATIONAL AND REGIONAL ASSUMPTI ONS Global output is projected to grow at a rate of 3.3 percent in 2012 and 3.6 in 2013. Global growth is forecast to remain above 4 percent to 2016. Advanced economies are projected to grow at a collective rate of 1.3 percent and 1.5 percent in 2012 and 2013, respectively. International inflation is projected to be 4.0 percent and 3.7 percent in 2012 and 2013, respectively. World trade volume is estimated to grow by 3.2 percent in 2012 and 4.5 in 2013. In general, volatility of commodity prices have been on an upward trend since 2010 and reached peak point in mid 2011 and have since been on a downward trend. Brent Crude futures anticipate oil prices to exhibit a steady decline over the MTEF period, falling below US$100 per barrel around May 2015 due to a combination of improvements in supply prospects and weak demand-side developments. The USD-NAD exchange rate is expected to fluctuate around the 8.2 mark (within the range of 7.6 to 8.8) over the MTEF period. Short term appreciation and depreciation can, however, be expected beyond these levels. For the sake of the MEF projections, the exchange rate was presumed to remain unchanged. b) DOMESTIC ASSUMPTIONS (i) Supply Side Assumptions 24 Primary Industries o Primary Industries are estimated to register a higher growth rate in 2012 than 2011 due to robust growth in the mining and quarrying sector, in particular the other mining sub-sector. o Diamond production is expected to decline due to the depletion of the onshore resources while uranium production will improve on the back of increased unit prices (over the outer years of the MTEF) and the commissioning of new uranium mines such as Husab and Etango24and increased production capacities of Langer Heinrich and Rössing mines will bode well for this sub-sector. The commissioning of Etango has been shelved pending the anticipated improvement in uranium prices Page 43 Macroeconomic Framework o Livestock farming is expected to continue to growing moderately over the medium term, however is estimated to record negative in 2012 due to restocking. Going forward, positive growth is expected. o Following a difficult year in 2011 due to flooding, crop farming sector is expected to grow moderately, mainly due to the expansion of land for crop production, the Green Scheme programme and Government‟s continued intervention and support to increase crop production and improve business capacity. o In the fishing sector, the Total Allowable Catch (TAC) for some commercial marine species was increased for 2012. Going forward, the TAC is expected to stabilise over the MTEF, leading to low but stable growth. Secondary Industries O Secondary industries are expected to perform well against a backdrop of good performance in the construction and other manufacturing sectors. O Meat processing is expected to grow over the MTEF when the new poultry farm is expected to reach full production capacity. However, livestock processing over 2012-13 will be subdued due to restocking. O The other food and beverages category is expected to perform better over the forecast period compared to the previous MTEF due to increased milk production, expansion of the Namibia Breweries into new markets. O Other manufacturing is expected to be boosted by the increased production from the Namibia Custom Smelter, increased mineral beneficiation programmes and increased production of cement as Ohorongo cement factory reaches full capacity and expands to new markets. O The electricity and water sector is expected to perform well over the medium term due to concerted efforts aimed at import substitution and energy self-sufficiency. o Construction is expected to expand over the medium term due to several large construction activities, both from the public and private sectors, such as the expansion of the Walvis Bay port, Gecko Vision Industrial Park, the Neckertal Dam and Kudu Gas projects coming on stream. Tertiary Industries O The positive performance of the tertiary industries over the past few years is expected to continue over the MTEF. O The wholesale and retail sector is expected to track overall economic development and maintain its growth due to the favourable monetary conditions that have helped to boost consumer demand and resulted in increased private consumption. Page 44 Macroeconomic Framework (ii) o The double dip recession in the Euro Zone is expected to hamper growth in the tourism sector. However, continued Government and private investments will contribute to growth over the outer years of the MTEF. o The West African Cable System will be the key driver for the expected good performance of the telecommunications sector. The recently landed high speed cable is expected to have a significant impact on the penetration of high speed internet and telecommunications, as well as reducing the price of such. o Transport and storage is expected to grow due to the expansion of the Walvis Bay port, as well as other transport and logistics activities as prioritised in NDP4. o The financial intermediation sector is expected to grow in line with the projected economic growth. Demand Side Assumptions Annual inflation is expected to average 6.3 percent in 2012 and around 6 percent over the 2013-2016 period. The total population is projected to grow at 1.9 percent per annum as per the 20012031 population projections report. The growth in private consumption is expected to continue due to low interest rates and moderate domestic growth, thus increasing the availability of credit. After several years of significant growth in spending, growth in Government consumption is expected to moderate and stay constant in real terms over the MTEF. Private investment is expected to increase, boosted by the opening/re-commissioning of several mines and other major projects such as the Walvis Bay port expansion. Government investment is expected to increase over 2012-13 mainly due to the continuation of TIPEEG but is expected to moderate over 2014-16 when TIPEEG is due to come to an end. Exports are projected to recover from 2012 due to increased domestic economic activity particularly in the mining and quarrying sector. Imports are also expected to increase due to an increase in economic activity particularly the high private and Government investments. Produced by the MEWG 2012 The Macroeconomic Working Group (MEWG) comprises membership of the Ministry of Finance, National Planning Commission, Bank of Namibia and the National Statistics Agency Page 45