Download 2015 Quarter 1 NAMIBIAN SNAPSHOT

NAMIBIAN
SNAPSHOT
2015 Quarter 1
Inflation – The Namibia Consumer Price Index (NCPI) increased by only 3.4% y-o-y during March. The month marked a ninth consecutive decline in y-o-y
inflation and the lowest headline inflation reading since early 2011. The main driver behind the decline in inflation is the easing cost of transportation (14.3%
of the NCPI) which dropped by 3.7% y-o-y during March from a decline of 2.6% y-o-y during the preceding month.
Growth – Preliminary national accounts data from the Namibia Statistics Agency (NSA) indicates that real GDP increased by 4.5% during 2014, including an
8.9% y-o-y expansion during the fourth quarter of the year. The 2014 number was lower than the preceding year’s figure of 5.1% as the secondary sector
expanded by only 4.7% (vs. 8.4% in 2013) and the tertiary sector grew at a slower pace of 6.3% (vs. 7.2% in 2013). Building activity expanded by 14.6% last
year on top of the 30% rise seen in 2013, largely as a result of mining and government spending.
National development plan – National Planning Commission (NPC) Permanent Secretary Andries Leevi Hungamo said during April 2015 that the economic
growth goals set by the country’s fourth National Development Plan (NDP4) are too high. He indicated that after the desert economy underperformed the
NDP4 goals during the 2013/14 and 2014/15 fiscal years, the NPC expects GDP growth goals of more than 6% for the 2015/16 and 2016/17 financial years to
also be too lofty. The NDP4 planned for fast economic growth in order to bring down the country’s unemployment rate to 20% by 2017. Meanwhile, after
rising from 27.4% in 2012 to 29.6% in 2013, the country’s unemployment rate declined to 28.1% last year, with a goal of 20% in three years looking unlikely.
OPPORTUNITIES
STRENGTHS
The majority of food and consumer goods purchased in the country are
Low political risk with stable trend lines suggests that the country should
imported from South Africa, signalling import-substitution opportunities.
continue on this footing over the medium to long term.
A five-year, N$223bn infrastructure development plan kicked off in early 2015 Small size and low growth rate of population, high literacy rates, and GDP per
to boost Namibia’s status as a regional transport hub.
capita relatively high among developing countries.
The real estate sector is experiencing a boom in prices and development due to Links with South Africa's economy are supported by a closely aligned legal
a housing shortage and high demand from abroad.
environment, good quality economic data, and linguistic features.
Hydrocarbon exploration continues along the coast, though results have so far Financial sector is small but well developed and regulated. The capital market
not been inspiring.
(used to help finance fiscal deficit) is deep by African standards.
VULNERABILITIES
WHAT IS BEING DONE?
Dependent on mineral exports for foreign revenues and state income. This
makes the country susceptible to international developments affecting demand
for and prices of copper, uranium and diamonds.
The desert economy’s reputation as a business-friendly country has
deteriorated in recent years, based on international surveys.
Country faces significant climate change risks over next few decades.
Groundwater recharge could fall by 30% - 70% in some areas.
More than two decades after independence, Namibian society is still beset by
unacceptable levels of inequality along the lines of gender, race, religion,
ethnicity and class, according to the United Nations.
Government is promoting tourism, transport & storage facilities, agriculture
and manufacturing as alternative investment opportunities in order to diversify
foreign revenue streams and investment interest.
The NDP4 again strives to improve the investment climate in Namibia –
though progress has been slow.
Authorities have identified the steps required to mitigate the negative effects,
including water management and infrastructural adaption.
By mid-2014 some 27% of agricultural land had been transferred to
historically disadvantaged Namibians compared to South Africa’s achievement
of only 8%.
MEGA TRENDS
Population
2,198,406 (July 2014 est.); Age 15 - 64: 63.8%
Population growth rate (%)
0.67% (2014 est.)
Life expectancy at birth
Total population: 51.85 years; male: 52.22 years; female: 51.46 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 14.3%; People living with HIV/AIDS: 245,351 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 81.9%; male: 79.2%; female: 84.5% (2015 est.)
and write)
Urbanisation
Urban population: 44.7% of total population (2013); Urban population growth: 4.2% (2013)
Population below national poverty line
28.7% (2010 est.)
Unemployment rate
29.6% (2013 est.)
Employment (% of total)
Agriculture: 31.4%; Industry: 14.4%; Services: 54.2% (2013 est.)
Labour participation rate (% of total
population ages 15+)
70.9% (2013 est.)
Business languages
English, Afrikaans, German
Telephone & Internet users
Main lines in use: 183,532; Mobile cellular: 2.54 million; Internet users: 305,578 (2013)
Sources: CIA World Factbook, World Bank, ITU, UNAIDS, Namibia Statistics Agency (NSA) & NKC Research
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Total
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Namibia
175
55
Doing Business 2015 (1 best, 189 worst)
189
88
Global Competitiveness 2014-15 (1 most, 144 least competitive)
144
88
Economic Freedom 2015 (1 most, 178 least free)
178
93
HDI Ranking 2013 (1 most, 187 least developed)
0
Source: NKC Research
187
127
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
N/R
BBB-/Stable
Baa3/Stable
Moody’s Investors Service said in a publication ahead of the 2015/16 budget speech that Namibia’s strong growth record and responsible government budget
management underpins the country’s investment-grade sovereign risk rating. The ratings agency affirmed Namibia’s “Baa3” rating in January 2014 and has
not conducted an official ratings review of the country since then. "The government has a track record of prudent debt management and has adequate debt
recording systems," commented Moody’s senior vice president, Kristin Lindow. “Continued fiscal restraint should help ensure that government debt and debt
service remain at manageable levels." The report indicated that Namibia’s rating could be upgraded if the government can maintain public debt levels while
also cutting unemployment and narrowing income equality. In turn, the rating could be downgraded if the budget deficit and government debt levels were to
increase sharply. Fitch Ratings affirmed its “BBB-” long-term foreign currency Issuer Default Ratings (IDR) for Namibia on 1 December 2014, with the next
review expected during June 2015.
Infrastructure
Diversity of
the Economy
Banking
Sector
Limited due to
Fairly diverse,
Small but
low population
currently driven developed &
density, but of
by construction well regulated
good quality
Continuity
of Economic
Policy
GDP Growth
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Stable
Moderate to
strong
Twin deficits,
should eventually
return to
surpluses
Strong
Moderate
Low but still
adequate
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Daily Trading
Volume
Namibia Stock
Exchange (NSX)
28 main board listings
including 8 primary;
7 development board
Low
N$1.286trn (main board,
including cross-listed)
Financials
N$50m
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Developed in an
African context
Reasonable
91 to 364 days (T-bills),
1 to 22 years (T-bonds)
N/a
Limited
Macro-economic overview
When the country gained independence from South Africa in 1990, it inherited well-functioning physical infrastructure for the most part. Also, the Namibian
economy remains very much intertwined with that of its much larger neighbour and is structurally dependent on its related transport and trade. Namibia’s
economic structure is a complex hybrid of old and new. It has a sophisticated, modern sector based on highly capital intensive mining activities and
commercial farming on the one hand, and a large informal sector mostly comprising subsistence farming on the other – each playing a fundamental role in the
dual-economy’s wellbeing.
The Namibian economy expanded by an average of more than 5% p.a. during 2010-14 alongside a 6.5% p.a. increase in real private consumption expenditure.
The services sector contributed three-quarters of overall economic growth (at factor cost) over the past decade. The tertiary sector includes a large tourism
industry, developed banking sector, and strong retail sector. Although the Namibian economy has a small agricultural sector in terms of value added, the
majority of Namibians are directly or indirectly dependent on farming activity for their livelihoods. In contrast, the rich mining industry employs few people.
The industrial sector is dominated by uranium and diamond mining while manufacturing activity is underdeveloped. The mining and agricultural industries
have traditionally been amongst the main drivers of economic growth in Namibia. Manufacturing sector growth has been limited due to competition from
South Africa.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
5.2%
Service/GDP
61.7%
Industry/GDP
33.1%
The Livestock Producers Organisation (LPO) has declared a state of emergency in an industry that local newspapers said (directly and indirectly) supports the
livelihoods of 70% of Namibians. LPO Chairperson Mecki Schneider indicated that this year’s drought will have a larger impact on cattle and small-stock
producers than the drought in 2013 as reserve grazing is not available. The US Agency for International Aid (USAID) reported on February 20 that a sharp
drop in seasonal rainfall over the preceding two months translated into mid-season dryness in parts of Namibia while the US’s National Oceanic and
Atmospheric Administration (NOAA) identified regions of abnormal dryness in the north of Namibia (including the Caprivi strip). The Namibian Agronomic
Producers Association (APA) expects this year’s dry-land maize crop to be around half of the tonnage seen during 2014 due to poor and erratic rainfall
experienced in the north-central areas of Tsumeb, Otavi and Grootfontein – known as the country’s Maize Triangle. The Meat Corporation of Namibia
(Meatco), the country’s largest exporter of beef, said in March that it is prepared to run abattoirs in Windhoek and Okahandja at full capacity as farmers cull
their herds due to poor grazing conditions.
Real GDP Growth & Net FDI/GDP
10.0
7.0
Source: NKC Research
6.0
9.0
5.0
8.0
4.0
7.0
3.0
6.0
2.0
5.0
1.0
4.0
3.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
The IJG Business Climate Index appears to have stabilised early in 2015 following a strong upward trend during Q4 of 2014. After rising by a cumulative 17.6
points during October, November and December last year, the overall index declined by six points in January to 161.2. Most recently, the index increased by
two points to 163.2 during February on the back of a notable rise in the investment index. For the latter, the Institute of Public Policy Research (IPPR, the
publishers of the business climate report) cited increased commercial vehicle sales and building plans approved following the seasonally slow
December/January period. Lower inflation readings were also a positive feature early in 2015 while the weakening exchange rate was mentioned as a negative
issue. The stabilisation in the IJG index during January and February 2015 suggests that the strong economic growth in October - December last year likely
continued in recent months.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
Main Imports: % share of total
2016F
Road vehicles
Electrical & electronic equipment
Diamonds
13.76
14.68
15.65
Machinery / capital equipment
11.89
12.79
13.87
Petroleum products
7.21
7.62
8.04
Electrical & electronic equipment
6.60
7.17
7.86
Main Exports: % share of total
Fish
2016F
Road vehicles
Machinery / capital equipment
Petroleum products
2014E 2015F
2014E 2015F
2016F
Diamonds
29.19
28.83
28.90
Fish
17.80
18.08
18.26
Copper (metals, ores & articles thereof)
11.69
13.81
16.14
Uranium ore
8.81
10.11
10.36
Copper (metals, ores & articles thereof)
Uranium ore
Source: NKC Research
0.0
0.5
1.0
1.5
Oil and petroleum products account for less than 8% of Namibia’s import bill and the recent slump in global energy prices will not have a major impact on the
country’s total imports of goods and services during 2015. Other factors set to overshadow the projected lower oil price when calculating the current account
balance include a further weakening in the exchange rate (on average versus 2014), higher service account payments associated with the start of the Southern
African Development Community (SADC) Gateway Port scheme, and pressure on Southern African Customs Union (SACU) revenues due to a slow South
African economy. As a result, Namibia is not expected to see an improvement in its current account balance due to changes in global oil markets. In fact, the
current account shortfall is expected to widen from an estimated 5.9% of GDP during 2014 to a projected 6.2% of GDP this year.
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Current Account & Budget Balance
(% of GDP)
0.0
0.0
-2.0
-2.0
-4.0
-4.0
-6.0
-6.0
Source: NKC Research
-8.0
-8.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
Newly appointed Minister of Finance Calle Schlettwein delivered his maiden budget speech on Tuesday, March 31. The State’s financial plans for the 2015/16
period were delivered as a “pro-poor, pro-growth budget” that is focused on: 1) inclusive economic growth; 2) reduced poverty and improved social welfare;
3) prosperity and wealth creation; and 4) strengthening results-based public service delivery. The 2015/16 budget deficit is forecast at a large 5.3% of GDP
compared to the preceding year’s tentative figure of 4.2% of GDP – Namibia is set to record its seventh straight annual fiscal deficit during the 2015/16
financial year. Considering the increase in the number of ministers within the new cabinet, it is not surprising that the State has had to continue on the path of
fiscal shortfalls. Expenditure is proposed at N$67.08bn in the coming 12 months of which the development budget (a key factor in infrastructure spending) is
planned at N$11.1bn. Outside of the development budget, the State will also make transfers to “strategic infrastructure” projects such as the Kudu gas-topower project, road and railway rehabilitation, the Port of Walvis Bay expansion, as well as the national mass housing scheme. Considering Namibia’s narrow
tax base, the Ministry of Finance is also planning a commission to investigate the “equity and effectiveness of the tax system, with the view to broaden and
deepen the tax base, improve the fairness of sharing the tax burden, while keeping in check the efficiency and competitiveness of the system and the taxpayer’s
ability to pay.”
Average CPI (% change, y-o-y)
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Source: NKC Research
2009
2010
2011
2012
2013 2014E 2015F 2016F
The Bank of Namibia’s (BoN) Monetary Policy Committee (MPC) held its first meeting of the year on February 18. Policymakers surprised with a 25 bps
upward adjustment in the repo rate to 6.25% in a bid to “contain persistently high growth in household credit, particularly that of overdrafts and instalment
credit.” The BoN indicated that overdrafts and instalment credit increased by 23.8% and 18.9%, respectively, during 2014 as part of a N$9.7bn expansion in
private sector credit. The MPC also commented after its previous meeting on December 12 that the high growth rate in overdrafts and instalment agreements
was an issue of concern. The central bank’s campaign against rapid credit growth to the private sector is driven by the fact that a significant amount of
household credit is used to buy luxury goods, thereby detracting from investment and inflating the import bill. It appears that inflation issues have been placed
on the MPC’s backburner for now.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Robert Grant – designation is Partner
Tel +264 61 387 500
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
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