Our Domestic Products

Originally published in the Informanté newspaper on Thursday, 29 September, 2016.

Alex Shimuafeni, Namibia’s Statistician-General, released the figures for Namibia’s Gross Domestic Product this week. And the news was anything but good. For the first time since the beginning of 2013, our GDP growth was negative. Two quarter is a row would qualify as a technical recession, but luckily in Namibia’s case, it appears to be the result of external factors, and not structural problems.
But what is GDP? Gross Domestic Product, yes, but what does this mean? The IMF states that "GDP measures the monetary value of final goods and services - that is, those that are bought by the final user - produced in a country in a given period of time (say a quarter or a year).” So, in other words, it is the Gross (without deductions) products (or services) produced during a given time frame, domestically (locally). 

In other words, it is what we, here in Namibia, produce and contribute to the economy during a certain time. It can generally be regarded as an indicator of the level of economic activity that occurs.  So, for example, when using the expenditure approach to measure GDP, the formula would be GDP = C + G + I + (E – I). C would be private spending, with G being Government spending and I being investment, or business’ capital spending. E – I is net exports, or Exports less Imports. 

As mentioned, GDP is frequently used to gauge the level of economic activity. But it does have some drawbacks – namely, any unreported economic activity would naturally not be included. Black market activities, or under-the-table employment and any other illegal, but still economic, activities will not show up in these figures. Some people also like to use GDP as a measure of material wealth, when in fact it is a measure of economic productivity, and these are not necessarily related. 

In Namibia, GDP is calculated by the Namibia Statistics Agency, headed by the Statistician-General, as mentioned above, and it succeeded the Central Bureau of Statistics, who used to perform this function. They are the central statistical authority for Namibia, and collect, produce, analyse and disseminate official and other statistics in Namibia. So let us see what our Statistician-General and his armies of statisticians combing the country found. (I imagine there to be an army of statisticians. After all, why else would one need a statistician-general?)

One of the key factors to take into account when measuring GDP, is inflation. After all, if only the prices of goods increased, but not the actual amounts of goods produced, GDP should remain constant. Namibia’s GDP is calculated with base inflation being measured in 2010, and all amounts are adjusted to that base before being measured. Inflation has this year been quite high compared to last year, averaging at 6.7% in the second quarter, due to increases in the price of food due to the drought. Our net exports have improved, insomuch as we imported less and exported more, but Namibia is still running at a trade deficit of N$ 7.3 billion. In other words, we import N$ 7.3 billion more than we export. As can be seen in the formula above, any improvements here would translate to GDP growth.

Onto the specific sectors of the economy. Agriculture and Forestry had a decline of 5.2% in this second quarter – its sixth consecutive quarter of declines. It is thus evident that the prolonged drought has severely affected this sector, although it is showing some improvement due to improvements in drought management. The fishing sector showed growth of 3.3%, marginally slower, but recovering from three consecutive negative growth quarters.

Mining and quarrying declined by 13.2 % in the second quarter, mainly due to a decrease in diamond production of about 31.5%. The manufacturing sector also experienced a decline of 9.4% due to declines in non-ferrous metal production, beverage production and grain mills production – also an effect of the drought. In contrast, the electricity and water sector performed quite well, recording 25.7% growth – mainly, as expected, in the electricity sub-sector. 

But it is the construction sector that was the hardest hit by the current drought. After 10 consecutive quarters of 20% plus growth, it had slowed to near zero last quarter, and shows a decline of 19.9% in the second quarter. Hotels and Restaurants recorded a similar decline of 15.5% as well, possibly due to adverse worldwide economic conditions affecting tourism.

But it is not all bad news. Wholesale and retail trade might have slowed down, but it still recorded a 9.6% growth, driven by supermarket and furniture sales. The transport and communication sector grew by 3.5%, spearheaded by the port services sub-sector, and the financial services sector grew by 4.1%, with the banking sub-sector leading the way. 

And that, as they say, is the state of the economy. If nothing else, the Namibia Statistics Agency has highlighted the effect of the drought on our economy. At least a drought is an external factor, beyond our control, and can easily be reversed by a good rainy season, no matter how doubtful that seems. For the rest, well… I’m sure Alex Shimuafeni and his army of statisticians, armed with their laptops and loaded with Excel, will be there to tell us otherwise.

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