Year 2017 did not start well for the global economy that has, until now, grown used to multilateralism while listening to the gospel of global fair trade. If the previous year’ Brexit vote was a minor tremor then the ascension of businessman Donald Trump to the United State’s White House is the earthquake that continue to reverberat throughout the globe, even though its aftershocks are yet to be fully measured by the implementations of the executive orders he continue signing.
The tectonic shift in the global politics had African politicians and technocrat so concerned to an extend that when political leaders met in Bamako, Mali, to attend the 27th session of the Africa-French Summit in the first weeks of January, the issue of the Western countries turning to protectionism measures was on the table.
“We see increasingly geopolitical shifts and the resurgence of populism and protectionist policies which run counter to multilateralism, inclusivity, integration and globalisation,” decried finance minister Calle Schlettwein when he returned from Bamako.
And Africa – including Namibia – has all reasons to be scared. To start with the much-touted ‘African Growth’ is anchored on the pursuit of multilateral trade pacts. Africa’s quest for industrialisation would be dead in the water, if European countries – emboldened by Trump’s radical executive orders for America first – would follow suit elect right wing parties that threaten shut down borders.
“Africa has to increasingly optimise intra-African trade, industrialise its economies, leverage global value chains and apt its act to cope with the emerging world order,” says the finance minister, adding: “Namibia is no exception in pursuing these policy objectives.”
Yet, Trump has an expansionary fiscal policy in mind of major construction and infrastructural projects in the USA. This, according to some local analysts, would have been a great opportunity for industrial metal producing, emerging markets such as Namibia.
“Unfortunately, his stance on trade is one of protectionism therefore, one cannot be assured of access to the US market and treaties like AGOA (African Growth Opportunity Act), might be under threat,” says Claudia Boamah, an economic analyst at Capricorn Asset Management in Windhoek.
For Namibia, who at one point in the last quarter of 2016 found herself in a liquidity squeeze, and whose optimism for 2017 is based on a better trade yields with the rest of the world, the on-going political shenanigans that fuel nationalistic trade agendas are not a good omen.
Namibia needs to record a decent economic growth in 2017, not least because the 2016 economic outlook revision by Moody, from stable to negative in last quarter of last year, put Namibia in a tight financial squeeze.
The market shunned the Government bonds, because of what Schlettwein admitted was a waning of confidence in the market. And the public sector was also a tad averse because it was expected to swallow up much more than what they usually do, as government try to raise more capital to fund its budgetary requirements. As a result the Treasury had to hold a special auction, through which it was able to raise N$3,5 billion and pay off its financial commitments, some of which were way above the 30-day period.
Actually last year was not a good year. Namibia slipped into recession in the middle of 2016 even though a slight improvement was recorded by the third quarter of the year GDP growth was negative 1.0 percent.
The construction and mining and quarrying industries had lagging effects on the country’s total output of the year. Meat production and exports also shrunk in light of the drought. Persistent inflation and the high cost of borrowing also stifled consumer demand as indicated by the 15.3 percent decline in year-on-year car sales in December. “While the local currency faired pretty well against the dollar, struggling diamond and meat exports lead to minimal net export revenues. In order to reign in the growing budget deficit the government had to reduce expenditure. While this has earned the country a stable credit rating; various sectors in the economy have withered, most notably the construction sector,” noted Boamah.
What to expect of 2017, then?
The analysts’ prediction is a mixture of good and bad. And this is the bad news: Those living on the edge or well outside their means of income are in for a hard ride. The limited economic growth does not bode well for the consumer economy as it will most likely result in declining real disposable incomes, says Ngoni Bopoto, an Investment Strategist at Broadside Capital in Windhoek.
“In our opinion the greatest threats to the near-term inflation outlook are a weaker domestic currency, higher cost of housing, utilities, fuel, rates and taxes while food prices will be partially contained by recently announced price cuts. Despite Namib Mills’ announced reprieve in food prices, it is worth noting that the cuts do not fully compensate for last year’s hikes. We also remain cognisant that inflation is coming off a high base, which may restrict the rate of change in the general price level,” says Bopoto.
“Interest rates will remain at their current already high levels and those living beyond their means can look forward to the high cost of borrowing. Conversely, those who choose to reduce consumption in favour of saving and investing can look forward to decent returns,” says Boamah.
On the upside Boamah opines that the slight steady increases in global inflation are a signal that the recession is over and the worst is behind. With economic activity returning to the world, production and construction industries will demand more industrial metals, she says.
“The political uncertainty in developed markets can also be counted on to periodically boost demand for precious metals as investors seek out safer alternatives. As such, one cannot conclude that the mining sector will experience large scale layoffs.”
Boamah also notes that the government is yet to achieve its sustainable debt ratio of 35% of GDP and ratings agencies have withheld a negative outlook on condition that the debt level continues to fall.
“Therefore, fiscal policy in 2017 is expected to be contractionary, as such the construction industry will experience intense pressure. Private Public Partnerships (PPPs) have come to the fore again, if they are pursued aggressively, they could mitigate the tightening fiscal policy’s effect on the construction industry,” she says.
“There is modest optimism concerning the 2017 economic outlook, we expect a 2.5% growth figure by the end of the year. So far the country has averted a credit ratings downgrade which is invaluable if the government intends to finance its deficit by selling sovereign debt securities,” opines Boamah.
Global commodity prices are on the rise, which is good news for the agricultural sector since the drought is ending and meat production will likely recover. Uranium prices are also looking up which is just as well given that the new Husab Uranium Mine in Swakopmund has been commissioned.
The global supply of industrial metals is expected to fall in light of voluntary production cuts from countries like China. This translates into market space and higher export revenue for Namibia’s industrial metals. All things being equal, one can expect positive but marginal growth in 2017.
And the good thing is, says Boamah, Trump’s presence on the global political stage seems to be intensifying rivalries among super powers and that might revive the demand for uranium towards weapons and energy production. And Namibia is an uranium producer.