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05/04/23

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Diversifying the economy would mean moving away from relying only on one or two main drivers of growth.

Jo-MaRé dUddy

The wave of social unrest that has hit especially Gauteng and KwaZuluNatal in South Africa, claiming more than 300 lives and causing damage exceeding R50 billion so far, has sparked concerns locally as Namibia is battling similar socio-economic woes.

‘We’Re dIFFeRenT’

Asked how Namibia and South Africa differ and whether Namibia was in a better position to contain a similar potential crisis, Namibianborn Prof Henning Melber from the Nordic Institute and lecturer at various other ScanNamibia this QR code to vola- Africa lthough shares a similar international academic institutions, said: “We tile cocktail of high inequality, watch James Mnyupepoverty, do not have the type of malicious political inunemployment, corruption and waning stigators we see in South Africa.” thetocountry’s trust discussing in political powers South Africa, anaHowever, he added: “Early action is crucial.” lysts are mostly optimistic frustraPolitical scientist Christie Keulder, who is readiness to bethatagrowing player https:/ /www.facebook.com tion locally will not boil over into social unrest the national investigator for Afrobarometer in the global green energy in Namibia, agreed: “We do not have the same in the foreseeable future. industry. This, however, doesn’t mean that government consistently high levels of violence and the should ignore flickering socio-economic red dynamic with regards to the ruling party and lights. its leadership is different. The level of disconAnalysts approached by Business7 agree that tent here may still be some way away from what the violence that eruptedGen. in South Africa followit is presently in South Africa, but that does not Synergi Sales Manager: Carmen Stenger Murtala Muhammed AVE • P.O. BOX 3436, Windhoek

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External shocks could weigh on growth

The Bank of Namibia projects economic growth to moderate to 3% in 2023, from 4.6% recorded in 2022. PHILLEPUS UUSIKU onetary policy tightening globally, high costs of key import items and load shedding in South Africa could weigh on Namibia’s growth prospects. The Bank of Namibia (BoN) highlighted these factors as key risks to domestic growth.

According to the Namibia Statistics Agency (NSA), the domestic economy expanded by 4.6% in 2022. The BoN projects economic growth to ­moderate to 3% in 2023, while the ministry of finance estimates the domestic economy to grow by 3.2% this year. Fin24 recently reported that the US Federal Reserve raised its benchmark lending rate by 25 basis points from 4.75% to 5% as it sought to strike a balance between curbing high ­inflation ­ and averting further upheaval in the commercial banking sector.

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Load shedding, high import costs, interest rates

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ing the jailing of former president Jacob Zuma WEEKLY was the spark which ignited a country crippled by socio-economic and political woes, exacerbated by the impact of the Covid-19 pandemBUSINESS TONIGHT ic.FOLLOW Zuma (79) was sentenced7late in June for AT 19:00 ON THEcourt FACEBOOK defying a constitutional order to giveOF evidence at an inquiry investigating high-level corREPUBLIKEIN & NAMIBIAN SUN. ruption during his nine years in office until 2018.

In addition, the South African Reserve Bank (SARB) last week raised the repo rate by 50 basis points from 7.25% to 7.75%. At the first monetary policy announcement in January, SARB increased the repo rate by 25 basis points from 7% to 7.25%. The prime lending rate in South Africa currently stands at 11.25%. South Africa’s annual consumer inflation rose for the first time in four months, edging to 7.0% in February from 6.9% in January, according to Stats SA. The South African Reserve Bank’s monetary

policy committee prefers to anchor inflation expectations close to the 4.5% midpoint of its target range of 3%-6%. Namibia has close economic ties with South Africa as the local currency is pegged to the rand. At the first monetary policy announcement for the year in February, the BoN increased the repo rate by 25 basis points from 6.75%. The repo rate in Namibia currently stands at 7%, while the prime lending rate stands at 10.75%. Inflation increased to 7.2% in F ­ ebruary from 7% recorded in January. The next monetary policy announcement is expected to take place this month.

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BUSINESS NEWS

External shocks FROM PAGE 1 Credit uptake

According to Simonis Storm, credit growth increased by 3.1% year-on-year by the private sector in February 2023, compared to 2.6% year-on- year in the prior month. Credit growth remains below the 6-month moving average, which indicates that credit uptake is on a slowing trend. Credit uptake was primarily driven by households, rising by 5.0% year-on-year in February 2023, compared to 4.9% year-onyear in January 2023. The biggest drivers of household credit growth were other loans and advances which increased by 17.8% year-on-year, and overdrafts as well ­mortgages which both increased by 2.8% year-on-year. Other loans and advances typically include credit card and personal loan debt instruments. Corporates, especially those in the manufacturing, wholesale, and retail sector, were mainly net repayers on their debt in the same month, leading only to a marginal increase of 0.4% year-on-year in ­February 2023, compared to -0.6% year-on-year in January 2023. Corporates were mainly net re-payers on mortgages which increased by 5.1% and overdrafts by 3.0% year-on-year. “Despite higher repo rates, together with rising inflation, we do see that credit uptake

is on a slow upward trend. Based on the recent short run trend in inflation, we anticipate that BoN will implement another repo rate hike of at least 25 basis points at their next meeting. This forecast is consistent with the BoN’s stance that repo rate hikes will continue until inflation rate lowers to 6% year-on-year. Inflation was recorded at 6.9% year-on-year in December, 7.0% year-on-year in January 2023 and 7.2% year-on-year in February 2023,” Simonis Storm said. IJG Securities noted that credit uptake by individuals recorded notable growth as well on the back of a N$91.8 million month-onmonth increase in mortgage loans. “While the uptick in the year-on-year growth rate is positive, it has been trending well below inflation since May 2020, meaning that we have not seen positive private sector credit extension growth in real terms for two-and-a-half years now.” In addition, credit uptake by corporates has been particularly lacklustre since June last year, with only short-term ‘other loans and advances’ and instalment credit exhibiting positive growth on an annual basis, IJG said.

Import costs

The BoN also views high costs of key import items as a key risk to growth prospects of the domestic economy. According to the NSA, Namibia’s N$10 billion import bill in January 2023 was mainly driven by petroleum oils sourced from Saudi Arabia, Malaysia and Singapore. Similarly, Namibia’s N$8.5 billion import

bill in February 2023 was also driven by ­petroleum oil, mostly sourced from India, the United Arab Emirates and Italy. Fin24 reported that major oil powers led by Saudi Arabia announced a surprise production cut of more than one million barrels p ­­ er day, calling it a “precautionary” move aimed at stabilising the market. The reductions, on top of a Russian decision to extend a cut of 500 000 barrels per day, and despite US calls to increase production, risk stoking inflation and pressure to raise interest rates. Cuts by Saudi Arabia, Iraq, UAE, Kuwait, Algeria and Oman from May to the end of the year will top one million barrels per day – the biggest reduction since the OPEC cartel slashed two million barrels per day in October. Russia, a leading member of the OPEC cartel, said it was also extending an existing cut of 500 000 bpd to the end of this year, describing it as “a responsible and preventive action”. A Saudi energy ministry official “emphasised that this is a precautionary measure aimed at supporting the stability of the oil market”, the official Saudi Press Agency said. The cuts follow a drop in oil prices triggered by jitters over the banking sector, following the collapse of US lender SVB and UBS’s hurried buy-out of troubled rival Credit Suisse, UAE-based oil expert Ibrahim ­al-Ghitani told AFP. Brent crude oil prices, trading just below US$80 a barrel late last week, should bounce to above US$80 as a result of the reductions, he said,

calling prices below $80 “unacceptable” for OPEC. Meanwhile, the ministry of mines and energy announced that fuel prices will remain unchanged for the month of April.

Load shedding

Potential spillover of electricity cuts in South Africa to Namibia could also weigh on the domestic economy. Namibia heavily depends on South Africa for imports. According to the NSA, Namibia’s import bill stood at N$8.5 billion in February 2023. During the month under review, the top five import markets for the country accounted for 75.8%, in first position was South Africa with a percentage share of 46.2%. Fin24 recently reported that South Africa posted a current-account deficit for the first time in three years in 2022 as imports ­increased and power shortages and rail constraints curbed exports, heightening the ­nation’s vulnerability to external shocks. According Simonis Storm, Namibia’s live exports decreased by 16.9% year-on-year in February 2023 due to lower demand for weaners from South Africa. Prices for live animals at auctions have been decreasing due to a decrease in demand as a result of load shedding. South African farmers struggle to slaughter live animals and retailers struggle to store finished meat products in freezers or fridges due to electricity supply disruptions. Should electricity supply issues be resolved, farmers will have excess stock to sell and so prices could drop even further, Simonis Storm said. – [email protected] 

Trade, energy, financial and maritime

China’s latest diplomatic move will extend its power Since the 1990s, China has gradually become the largest trade partner of the Arab region overall. Jose Caballero, senior economist at the IMD World ­Competitiveness Centre, examines the superpower’s rising influence.

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hina’s billions of US dollars in global investments and infrastructure projects seem to be paying off politically and economically. Just recently, Honduras signalled it is set to cut diplomatic ties with Taiwan, having been one of the few remaining countries to recognise the island as a state. This switch of allegiances would be a coup for China, which sees Taiwan as part of its jurisdiction, but also a sign of d ­ iminishing US power in Latin America, since the US is a long-time supporter of Taiwan. China’s influence seems to be everywhere. Days before Chinese president Xi Jinping flew into Moscow to discuss the Ukraine war with ­Russia’s Vladimir Putin, China had brokered a deal between Iran and Saudi Arabia. The high-profile deal sought to re-establish diplomatic, trade and security relations between Iran and Saudi Arabia in an effort to d ­ e-escalate tensions and bring more stability to the Middle East. The agreement transforms the nature of China’s involvement in the region from one purely driven by commercial interests into a security-related cooperation that can protect its growing assets and expatriate population in the region.

Commentators see the agreement as a positive step, but wonder about the influence that Iran and Saudi Arabia can have in lessening the internal conflicts in several nearby countries. This is particularly where they support rival parties, including in Lebanon, Syria and Yemen. What the deal does highlight is the rising influence that China can exert and the waning of the US’ power over the Middle East regional order.

Trading partner

Studies have shown that political instability in neighbouring countries negatively affects the economic performance of a nation by disrupting trade flows and increasing defence expenditures while lessening investment, for example, in education. Under such conditions, economic incentives can drive a peace-building process. Peacefully resolving conflicts benefits countries not ­directly entangled in the disputes. Since the 1990s, China has gradually become the largest trade partner of the Arab region overall and the top trade partner of Saudi Arabia. China’s exports to Saudi Arabia have annually increased at 15.3% year-on-year on average, amounting to US$905 million in 1995

and US$31.8 billion in 2020. Meanwhile, over the same period, China’s imports from Saudi Arabia rose from US$393 million to US$33.4 billion, an average annual increase of 19.4%. In 2019, China and Saudi Arabia signed 35 trade and investments deals.

Regional power plays

Similarly, China’s exports to Iran have increased at an average 14.7% annual rate from US$276 million in 1995 to US$8.51 billion in 2020. And its imports from Iran have also risen by 14.5% annually between 1995 (US$197 million) and 2020 (US$5.85 billion). By 2022, exports totalled US$9.44 billion and continued to grow exponentially in early 2023. Russia has recently overtaken China as the largest foreign investor in Iran, but China remains its largest oil customer. China’s main exports to Saudi Arabia and Iran include broadcasting equipment, motor vehicles and air pumps. Its main imports are crude petroleum, ethylene polymers and acrylic alcohols. In the context of the Saudi Arabia and Iran reconciliation, trade with China is likely to ­continue to follow such increasing trends. If benefits from the agreement spread to other countries in the region, China could also gain from economic relations with those countries as regional s­ tability increases. There is already some evidence of such ­positive spillover.

PHOTO UNSPLASH/YASSER MUTWAKIL

After the agreement with the Saudis, Iran is ready to expand cooperation, hopes rapprochement with Bahrain will be possible, and is willing to improve relations with Jordan and the United Arab Emirates. However it’s worth noting some ­commentators point out that previous efforts at reconciliation between Iran and Saudi Arabia were unsuccessful, while others question whether they will adhere to the terms of the agreement.

Belt and Road Initiative

As well as investing in commercial and transport infrastructure to make trade easier, the objectives of China’s Belt and Road Initiative include the strengthening of its economic leadership and the improvement and creation of free trade blocks among countries along the investment route.  – The Conversation

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BUSINESS NEWS

Resilience in the spotlight

Building a strong local economy Building resilience will require specific interventions that are most appropriate to the domestic economy, the Bank of Namibia (BoN) says in its latest annual report, released last week. Key responses, according to the central bank, must involve interventions that deal with the problem of the poor and vulnerable, interventions to respond to trade distortions through economic diversification, and interventions to rebuild fiscal policy buffers and ensure external sustainability. STAFF REPORTER

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ood and fuel price increases could lead to a substantial increase in poverty rates in Namibia. The impact of the food price increases on poverty could be particularly significant in Namibia, given that many households spend about half of their income on food. The fuel price increases are likely to have a smaller direct impact on poverty, however, because fuel is an intermediate input into most other goods and into transport services, the impact could still be great. To curb the increases of fuel prices, the mines and energy ministry in 2022, reduced levies on all petroleum products. While these measures provide temporary relief to consumers, they may not be sufficient, especially to the most vulnerable members of the society. However, more long-term measures are needed to protect the most vulnerable people in society, such as increasing grants to the elderly and those living with disabilities. The Namibian government can consider zero-rating consumer goods that are particularly consumed by the most vulnerable. A host of the consumer goods, which are presumably affected by the current global supply disruptions and increasing price caused by the Russia-Ukraine war, are already zero-rated. However, other goods that could be considered for zero-rating may include all wheat and all grain products and substitutes.

Increase income

Namibia should also look at longer-term policies designed to raise income levels and hence to reduce the vulnerability of the people who are currently prone to all shocks, and particularly to shocks involving changes in the price of food. Raising the income of the poor is the most effective long-term mechanism for reducing their vulnerability—and especially the vulnerability associated with higher prices of staple foods. This is a huge challenge that involves all fields of economic policy. For this, Namibia will need to improve the technology of agricultural production. Investments in agricultural research and the adoption of modern technology can have

­particularly high rates of return. This can be done by scaling up climate-smart agricultural practices, strengthening climatesmart agricultural research and seed systems, and supporting market, climate, and advisory services. It can also contribute to fairer competition, increased government revenues, national economic growth, and social cohesion.

PHOTO UNSPLASH/ EDGAR CHAPARRO

Formalise business

During the Covid-19 pandemic, informal ­activities picked up and became an alternative source of income to many. However, due to the informality of these businesses, Covid19 regulations did not permit them to operate as they did not meet health standards. The various authorities can assist by supporting and enabling the informal trades to achieve formal status. Namibia should also invest in rural infrastructure. Improvements in rural infrastructure raise the prices received for output from a region and lower the cost of consumption goods brought into the region and can be very effective in lowering poverty. Investments in infrastructure frequently have high benefit/cost ratios. A sound strategy is to rigorously screen potential infrastructure projects so that high benefit/cost ratio projects are identified and carried out. There is a need to support the small and medium enterprises through the formalisation of informal businesses. Formalisation is the process of acquiring formal legal status through complying with business regulations. Formalisation can help small informal businesses grow and provide greater security for workers.

Diversify

The Namibian economy is largely undiversified due mainly to an overreliance on mining and related exports. The performance of the economy has been highly reliant on mining commodity exports which tend to be volatile as they are dependent on commodity prices set at an international level.

Diversifying the economy would mean moving away from relying only on one or two main drivers of growth. – Bank of Namibia For Namibia, diversifying the economy would mean moving away from relying only on one or two main drivers of growth. This would require expanding investments in the non-mining, non-government sector and orienting these investments to be weighted towards exports rather than consumption.

Shielding the economy from external shocks through economic diversification can be achieved, either by diversifying the e­ conomic structure or by increasing export markets. Economic diversification can be defined as the shift towards a more varied structure of domestic production and trade with a view to increase productivity, creating jobs and providing the base for sustained poverty reducing growth. Growth also tends to be unbalanced in the case of mineral dependent countries or slow and ­difficult to sustain in agrarian ones. Poverty-reducing, trade-driven, growth has been particularly difficult to achieve in countries whose economies are heavily dependent upon primary commodities. However, the development and expansion for instance of diamond cutting and polishing, fish processing, beer and soft drink production, and tourism in Namibia is proof that diversification can succeed in practice.

Export markets

Another way the country can build resilience to shocks is by broadening the export markets, thereby reducing the overreliance on only a handful of countries for revenue. The recent discovery of oil and gas, including the green hydrogen project emerge as potential avenues of economic opportunity in Namibia. These discoveries could place Namibia as a potential economic player within the region and on international markets soon, as it has a comparative advantage to fully explore the arena of green energy. The tendency of commodity price booms to be more pronounced than price slumps, as witnessed over the past 50 years, underscores the importance for Namibia to save windfall revenues, through the newly established sovereign wealth fund, during good times to respond to future shocks. Namibia, which is prone to droughts, will need to look at avenues of rainwater harvesting during flood seasons to ensure sufficient water is available for agricultural products.

Self-sustainable

To cushion the economy against adverse food price increases will require that the country find ways to be food self-sustainable. Increasing irrigation is one of the inevitable ways to ensure continuous food production throughout the year. This will require rainwater harvesting during rainy season, ensuring water supply throughout the year. This will increase crop production of basic items to substitute some imports for local production. Moreover, the country may wish to look at

drought resistance crops to adapt to climate change. Similarly, the global energy crisis also remains a significant risk that must be monitored and countered. The global energy crisis, especially in Europe and Southern Africa, shows the need for the country to increase energy supply in the country, while also exploiting the diversification opportunities created by the energy situation in the Southern African Development Community (SADC) region.

Fiscal policy buffers

Creating fiscal space and enhancing government revenue is important for buffering the economy against shocks. Increasing tax revenues, rationalising spending, increasing spending efficiency, and addressing medium-term fiscal risks are necessary to increase development, social, and climate spending, while maintaining fiscal sustainability. To mitigate against potential future crises, the Namibian government will need to think of bolder and stronger transformative policies to build fiscal buffers. This will mean saving during times of economic booms and reducing non-essential spending through targeted spending efforts. To this end the Namibian authorities have created a mechanism through a sovereign wealth fund as one of the important avenues to facilitate such saving.

Productive spending

To support the stronger pro-growth fiscal policies, Namibia will need to double efforts to enhance revenue mobilisation and increase productive spending and its efficiency. Higher tax revenues, through enhanced collection methods instead of increased tax rates would support consolidation while allowing higher pro-growth expenditures. The increase in revenues should be accompanied by efforts to enhance fairness by ­reducing regressive and distortive exemptions and closing loopholes. On the spending side, better prioritisation and streamlining of current expenditure and increased efficiency of capital and social spending would be crucial for increasing p ­ roductivity and growth. Similarly, improved controls over public sector procurement and transparency over the procurement decisions will save cost and reinforce credibility. It would also improve the business environment while reducing income ­inequality and fighting poverty. Increased revenues should be saved under the sovereign wealth fund to increase long-term fiscal buffers.  – Bank of Namibia

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BUSINESS NEWS Debt has risen faster than ­national income Low- and middle-income countries’ external debt is rising faster than their gross national income, or GNI, particularly in Africa and Latin America and the Caribbean. 2010

2021 Debt as a percentage of GNI

East Asia and the Pacific

16%

18% 40%

Europe and Central Asia 23%

Latin America and the Caribbean Middle East and North Africa

46%

30% 20% 22%

South Asia Ajay Banga

PHOTO REUTERS

14%

44%

24%

Sub-Saharan Africa

43%

GNI is the total dollar value of final goods and services produced in a country plus residents income from abroad. SOURCE: WORLD BANK

Can this former CEO fix the World Bank? Ajay Banga sole ­candidate for president

Rachel Kyte, dean of the ­Fletcher School at Tufts University, sees four key roles – four “Cs” – that Ajay Banga will need to master from the outset.

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ver the past two years, a drumbeat of calls for reforming the World Bank has pushed its way onto the front pages of major newspapers and the agenda of heads of state. Many low- and middle-income countries – the population the World Bank is tasked with helping – are falling deeper into debt and facing growing costs as the impacts of climate change increase in severity. A chorus of critics accuse the World Bank of failing to evolve to meet the crises. The job of leading that reform is now almost certain to fall to Ajay Banga, an Indian American businessman and former CEO of Mastercard who was nominated by president Joe Biden to replace resigning World Bank president David Malpass. Nominations closed on 29 March 2023, with Banga the only candidate.

Advice

There is no shortage of advice for what Banga and the World Bank need to do. The G-20 recently issued a report urging the World Bank and the other multilateral development banks to loosen their lending restrictions to get more money flowing to countries in need. A commission led by economists Nicholas Stern and Vera Songwe called for a rapid, sustained investment push that prioritizes transitioning to cleaner energy, achieving the UN sustainable development goals and meeting the needs of increasingly vulnerable countries. African ministers of finance will soon come out with their own “to do” list for the World Bank, and India’s minister of finance just pulled together an expert group to consider World

Bank reform. Banga will walk into the job with these and many other to-do lists. Yet he will inherit a corporate culture that makes the World Bank Group too inwardly focused and too slow to respond. Rachel Kyte has worked for the World Bank Group and with it from the outside. She sees four key roles – four “Cs” – that Banga will need to master from the outset. From his track record and his reputation for deep thoughtfulness, Kyte is confident that he can.

The solutions to cascading problems like these cannot be managed by one institution. However, the current multilateral development bank system – the World Bank Group and the regional development banks – is disjointed at best and competitive at worst. In the past, the leaders of the development banks, the International Monetary Fund (IMF) and the World Trade Organisation (WTO) have cooperated, more or less, depending on crises and personalities, and can move fast when they need to.

Act as a CEO

The World Bank Group is a conglomerate with four balance sheets, three cultures and four ­executive boards, plus a dispute resolution arm. Lending to low- and middle-income countries is just part of its role. The World Bank Group also provides technical assistance across all areas of economic ­development and invests in and provides risk insurance to encourage companies to invest in projects and places they might otherwise consider too risky. Its ability to mobilise private-sector finance and stretch every dollar is crucial for meeting the world’s development and climate adaptation and mitigation needs. Banga will need to set clear goals for each part of the World Bank Group and get them working more effectively to help the world achieve its goals.

Collaborator

Many of the World Bank Group’s client countries are facing both mounting debt and rising costs from climate change. The high cost of borrowing can hamper developing countries’ ability to invest in needed infrastructure to grow and protect their economies, and they fear being locked out of global trade as the United States’ green subsidies in the Inflation Reduction Act and Europe’s border carbon tax may make it more difficult for them to compete.

It’s an extraordinary moment in the history of the institution, with sky-high expectations of what one leader needs to do. Rachel Kyte Dean: Fletcher School During the global financial crisis of 2008 and 2009, for example, the then-heads of the World Bank and the WTO hurried to develop trade finance facilities to support banks in developing countries as capital fled to the US and Europe. It took intense diplomacy to push wealthy countries and institutions to get money out the door to shore up businesses and trade. Success was measured not in months but in days. The new president of the World Bank will need to support more radical collaboration among development financial institutions, including pooling capital and talent, to help respond quickly to countries’ needs. It won’t be easy. Institutional rivalries run deep. But with budgets tight, there is growing

clarity that there is no choice – the capital that is already in the system is the closest at hand and can be deployed to better effect if the ­institutions are willing to adapt.

Convener

Overhauling how international finance works will require everyone to be on board – develop­ment banks, central banks, regulators, ­investment banks, pension funds, insurance companies and private equity. Banga and IMF managing director Kristalina Georgieva can settle institutional ­differences and present a coordinated face to private investors and the major lending countries, ­including China – which has emerged as the biggest holder of developing country debt – to speed up support to struggling countries. On other issues, such as nature-based solutions to climate change, building resilience and economic inclusion, the World Bank Group can bring its significant resources and skills, including data analysis, to global conversations that it has been painfully absent from for the past four years.

Champion

The world’s most vulnerable people are the World Bank Group’s ultimate beneficiaries. For those living on the front line of biodiversity loss and climate impacts, such as extreme heat, drought and flooding, the current i­ nternational financial system is proving inadequate. The World Bank Group’s management incentives are still too oriented to lending approved by the board, not the outcomes of that lending, advice and assistance. Throughout its history, World Bank leaders have been able to make rapid changes to better help vulnerable countries when they stay close to the needs of their ultimate beneficiaries and the goals that the world has set. The next president faces turbulent times. Banga’s careful listening on his campaign tour signals that he understands the complexity. It’s an extraordinary moment in the history of the institution, with sky-high expectations of what one leader needs to do.  – The Conversation