The Lingering Recession

Originally published in the Informanté newspaper on Thursday, 29 June, 2017.

Four Quarters. That is how long Namibia has been in the grip of our current recession. This is what the data released by the Namibia Statistics agency this month revealed. With the GDP contracting by 2.7% in the first quarter of the year, it is quite natural to be concerned. It is, however, then important that we carefully examine the data to determine the true state of the economy. Luckily, Statistician-General Alex Shimuafeni has made it easy for any concerned citizen to take look. Let us do exactly that.

Let’s start with inflation. After peaking at 6% during 2014, inflation consistently dropped on a year-to year basis until Quarter 2 of 2015, when it reached a low of 3%. Afterwards, it remained within the 3% to 3.5% range until the first quarter of 2016, when it shot up to 6%. Since then, it has climbed quarter to quarter, peaking in the first quarter of this year at 7.7%. The good news is that inflation seems to be on a downward trend, having dropped to 6.3% for the month of May.

Next, let us take a look at the different sectors of the economy. First up, Agriculture and Forestry, which grew by 10.5% in the first quarter of the year. This was driven mainly by good rainfall, which increased the hectares planted, and livestock farmers restocking their herds. The livestock sub-sector grew by 9.7%, while the crop farming subsector grew by 17%. Unfortunately, Abattoirs and butchers recorded a decline of 34.6% during the quarter. In the fishing sector, growth was only 4.6%.

The mining and quarrying sector showed strong growth of 16.8% during the first quarter. This was due to strong growth in the metal ore subsector (See last week’s Theory of Interest) of 57.5%, and the diamond subsector, which grew by 16%. The Uranium subsector is still struggling, and contracted by 14.6% during the quarter. The rest of the sector grew by 20.9%. The recovery in the diamond subsector can be attributed to the recovery in carats produced, which reached 500 000 carat again. The Metal Ore subsector was greatly boosted by zinc production, which grew by 96.1%, as well as gold, which grew by 21.7%. In the rest of the sector, marble grew by 102.9% and granite production by 14.4%

The manufacturing sector, however, recorded a contraction of 10.7%. This was driven by declines in basic metal manufacturing (down 17.6%), rubber and plastics manufacturing (down 15.2%) as well as meat processing (down 23.7%). It’s not all bad news, though, as beverages gained 7%, fish processing was up 15.3%, non-metallic mineral product production shot up 22.6% and diamond cutting and polishing saw a remarkable rise of 105.3%.

The construction sector… well, it’s not doing too well. Five consecutive quarter of declines has left this sector at less than half the size the sector was at its height at the end of 2015. In the first quarter, it showed a contraction of 44.9%, mostly due to a contraction of 50.9% in government construction. However, the value of buildings completed showed some recovery, only declining by 5.7% compared to a 33.4% decline the same time last year.

Wholesale and retail trade recorded its second quarter of decline, contracting by 7.4%. This was due to slower sales in supermarkets, and of clothing and furniture, as well as a decline in the number of vehicles sold. Vehicle sales dropped by 16.6% during the first quarter of the year, while supermarkets showed only a 0.6% increase in sales, with clothing sales growing by a low 4.2%. Hotels and restaurants also showed a decline of 9.3% during the first quarter, with room nights declining by 0.5% and bed nights flat. 

Transport and communications stayed almost flat, with growth of only 0.7% during the first quarter. This was due to port services declining by 23.6% and railway transport dropping by 14%. Telecommunications only grew by 3.5%, while road freight transport showed 1.8% growth. However, air transport showed more robust growth of 26.7%, with airport services likewise growing by 21%.

Finally, the Financial Intermediation. The sector showed a mere 0.1% growth during the first quarter, mainly due to decline in the banking sector, which contracted by 0.8% - a result of an increase in bank charges. The insurance subsector only showed growth of 0.9%, due to an increase in claims to N$ 92,509 million during the quarter.

So what is the cause of our economic discontent? It’s possible it’s simply the deflation of the ‘febezzle’. In the wake of the 1929 stock market crash, John Kenneth Galbraith presented the concept of the ‘bezzle’. Whenever embezzlement occurs, he said, there is a window of time between the crime and its discovery where the embezzler has his gain, but the one who has been embezzled from does not yet realize his or her loss – the economy has an increase in imaginary wealth, or ‘bezzle’.

Charles Munger, Warren Buffer’s business partner, expanded this concept beyond embezzling – the ‘functionally-equivalent bezzle’, or febezzle, where two parties believe they are legally creating wealth for both, when in fact there’s simply a transfer of wealth that the losing party does not yet realise. This concept is closely coupled with rent-seeking, which is defined as: “the use of the resources of a company, an organization or an individual to obtain economic gain from others without reciprocating any benefits to society through wealth creation.” 

So you get the rent-seekers, the febezzlers. Those that simply skim off the top without creating any economic gain for society. And yes, that seems to go well and unnoticed during the good times, and the febezzle in an economy builds. When the tide turns, however, the febezzle is discovered, and the taps on uncontrolled spending closes. The febezzle evaporates, and the economy suffers – and so too do we. The burden of the febezzle falls on the ordinary taxpayer that now has to subsidize all the rent-seekers of the previous years.

As a united nation we can stop this scourge. The government has started, but now the onus falls to us. We need to make sure we always add value – that we always create economic gains for not only ourselves, but our society – on both sides of all our dealings. Let us as a nation strive to eliminate the febezzle, so that we can be sure we’re not creating imaginary economic gain, but real economic growth.

The State of Trade

Originally published in the Informanté newspaper on Thursday, 22 June, 2017.

No country in the world stands independent from its neighbours. Over the last century, a web of trade has developed between countries, and it is largely responsible for the economic development we’ve seen, due to the economic theory of comparative advantage. In short, it postulates that certain economic actors can produce certain goods or services at a lower opportunity cost than others. To maximize economic output, then, it makes sense to produce that which a certain country produces at lower cost than anyone else and export it, and then import those goods which can be produced by other countries at a lower cost.

Thus, every nations imports some goods and services and exports others. These two do not always match, however, and this mismatch is called the balance of trade. The balance of trade is a large part of a country’s current account – which not only includes trade, but also capital flows in and out of an economy. Usually, countries produce a trade surplus during economic boom times, and then records a deficit during tougher times. 

Namibia, however, while seemingly experiencing an economic boom until recently, nevertheless managed to record trade deficits ever since quarter 3 of 2012, peaking at a trade deficit per quarter of almost N$ 12 billion in the second quarter of 2015. Clearly when a country consistently imports more than it exports, it effectively exports locally created wealth abroad. It is thus of national importance to examine trade numbers when they are released to see exactly where our wealth is going, and what we are getting in return. So let us take a look at the Quarterly Trade Statistics Report for the first quarter of 2017, as released by the Namibia Statistics Agency. 

In the first quarter of this year, our trade deficit was N$ 3.1 billion – down 72% from the fourth quarter of 2016, so a bit of an improvement. This is the result of N$ 20 billion in imports, versus N$ 16.9 billion in exports, both of which declined against the previous quarter, with total trade down 11.4 percent. Over the last 5 years, the trade deficit averaged N$ 6 billion per quarter, mostly due to Namibia’s demand for high-valued manufactured commodities and machinery, while all we were exporting was primary goods. 

Let’s take a look at exports and imports individually. Namibia’s largest export market, as usual, is the Southern African Customs Union, with N$ 4.8 billion exported to that group of countries, or 32.7% of our exports. In second place is the European Union, with N$ 3.5 billion in exports (23.6%), then the European Free Trade Area (basically Norway, Iceland, Switzerland and Liechtenstein) with N$ 3.4 billion in exports (23%), followed by non-SACU SADC with N$ 1.4 billion (9.7%) in exports, and finally, the Common Market for Eastern and Southern Africa (COMESA) with N$ 1.1 billion (7.5%) in exports.

When we take a look at the individual countries we export to, South Africa comes out top with N$ 3.2 billion exported to, or 19% of our exports, with Export Processing Zones another N$ 1.75 billion (10.3%), Norway at N$ 1.7 billion (10.1%), Botswana with N$ 1.6 billion (9.5%) and Switzerland N$ 1.3 billion (7.9%). Together, these 5 account for 56.8% of our exports. Export Processing Zones are areas designated by the Ministry of Industrialization, Trade and SME Development with incentives for exporting manufactured goods, and it is gratifying to see they’ve expanded this much already.

Norway and Switzerland stand out, however, and to see the truth behind those countries appearing so high on our list, we need to dig a bit deeper, and take a look at what exactly is being exported.  For Norway, 99.8% of its exports relate to vessels, which implies the SS Nujoma, Debmarine’s diamond exploration vessel, was ‘exported’ to Norway for outfitting before commissioning. We can thus hopefully expect a similarly valued import in future.

For Switzerland, we can see the majority of exports are copper ores and copper cathodes. This seems to be the result of the Louis-Dreyfus Group, based there, that via its subsidiary, Dundee Precious Metals, acquired the Tsumeb Smelter, and seems to be importing copper from Bulgaria and elsewhere to Namibia for smelting before re-exporting. Other exports to Botswana, South Africa and the EPZ area is mostly diamonds, with South Africa also importing mineral fuels and oils, live animals, fish and beverages.

In terms of imports, the SACU is by far the largest source of imports, with N$ 13.1 billion imported, or 67.8% of our imports. The EU is second with N$ 2.3 billion (12.1%) imported, then the BRIC countries with N$ 1.5 billion (7.7%) imported, COMESA with N$ 1.1 billion imported (5.6%), and Non-SACU SADC at N$ 1 billion (5.4%) imported. Taking a look at the individual countries we import from, South Africa stands at N$ 11.2 billion, accounting for 55.9% of our imports, with Botswana at N$ 1.8 billion (9.4%), Zambia at N$ 991 million (4.9%), China at N$ 939 million (4.7%) and Bulgaria at N$ 669 million (3.3%)

From South Africa, we source vehicles, boilers and most of our manufactured products as well as pharmaceuticals, as can be expected. This is the main reason the Namibian dollar cannot delink from the Rand. Botswana’s imports are mainly diamonds – most likely re-imported after processing there. Zambia and Bulgaria we import copper ore from – for smelting, as mentioned above. China, of course, also provides vehicles and boilers and manufactured products, as can be expected, seeing as their products remain quite popular here in Namibia.

Based on this quick overview then, we can see a picture emerging from the data. Quite a bit of our imports and exports can be traced to two rather large multinational companies operating in Namibia. We still do not have adequate capacity to process our own diamonds, given the diamond trade with Botswana. And we remain quite dependent on South Africa for our supply of manufactured goods. It is clear Namibia still has some way to go before we can truly stand on our own feet – but if the growth of the Export Processing zones are any indication, we are certainly on our way there.

Trumping Paris

Originally published in the Informanté newspaper on Thursday, 8 June, 2017.

Two years ago, the nations of the world descended upon Paris for a matter of grave importance to the world – the 2015 United Nations Climate Change Conference. The conference aimed to achieve a legally binding and universal agreement on climate change from all the nations of the world. Yet last week it was dealt a crippling blow by the government of the United States, when its President, Donald Trump, announced that country was withdrawing from the accords. 

This when, as a country, and as a region, we’ve been feeling the effects of global climate change ourselves over the past few years. Both Namibia and South Africa has been struggling with a drought that has only recently been somewhat offset by better rainfall, but with the US’s withdrawal, we can expect to continue to see increasing weather abnormalities that increase in temperatures globally has led to. In particular, this involves atmospheric circulation, which greatly determines precipitation, or rainfall. 

Specifically, atmospheric conditions are determined by three circular patterns of winds that determine cloud movements and rainfall. The first of these is called the Hadley cell, named after George Hadley, who explained the trade winds that blow towards the equator low in the atmosphere (where the rainclouds are), where after it heats up, and thus rises high up, cools down, and has high atmospheric winds blowing outwards from the equator. Similarly, the polar cells operate in the opposite direction. Hot air from the 60^th latitude line rises, and is blown high in the atmosphere to the poles. There the air cools down, drops, and results in low atmospheric winds blowing out from the poles, with the attendant snow storms etc. that is common near the polar regions.

The third cell, named the Ferrel cell after William Ferrel, who theorized it in the 19^th century, exists in between the polar and Hadley cell, in the sub-tropical semi-arid regions such as Namibia. This cell, however, is not a closed loop like the other cells, and depends on them. And unlike those cell that have north-south winds, the Ferrel cell is characterised by westerly winds. It is from these winds that break away from the Hadley cell, that we get our rainfall.

The increases in global temperature is causing the polar and Ferrel cells to weaken, and cause the Hadley cell to grow. In effect, this causes dry regions to become even drier, with wet regions becoming wetter, with more storms. We can already see the effect in our own experience with more prolonged droughts, as well as the drought affecting the Western Cape to the south, alongside its attendant storms that is at time of writing wreaking havoc across the City of Cape Town.

Yet the Climate Change Conference only had a stated aim of trying to limit global temperature increases to 2 °C. This in itself will still cause devastation, as that will still entail the global sea level rising between 3 and 6 meters. Even in Namibia, this will displace between 2 000 and 28 000 people along the coast. With the United States withdrawing from this agreement, temperatures could rise by 4 °C, raising sea levels by 7 to 10 meters. Along the coast, that will displace 48 000 to 56 000 Namibian citizens. 

On President Trump’s recent foreign trip, his advisors opined that “the world is not a ‘global community’ but an arena where nations, non-governmental actors and businesses engage and compete for advantage.” On withdrawing from the accords, President Trump said, “the United States will cease all implementation of the non-binding Paris accord and the draconian financial and economic burdens the agreement imposes on our country.”

The world, however, is not an arena. It is, due to cuts in funding for space programmes across the world over the past few decades, still our one and only home. Ensuring the ability of our species to survive on this planet is the ethical and moral responsibility of all. This is even recognized by the large businesses, which previously operated under Milton Friendman’s maxim that “The social responsibility of business is to increase its profits.”

Instead, corporate governance codes like the new King IV Report emphasize that any organisation is part of its society, and needs to create value for it as well – financial performance alone is not enough. It represents a move from financial capitalism to inclusive capitalism, from a short-term capital market view to a long-term sustainable capital market. Corporations are now aiming towards sustainable development which, as per King IV, involves “development that meet the needs of the present without compromising the ability of future generations to meet their needs,” and sets it as a primary ethical and economic imperative. 

The United States is currently the second largest producer of carbon emissions in the world, with just over one sixth of total global emissions coming from a country with just 4% of the world population. China, of course, is the largest producer, with just over a quarter of global emissions attributable to it. China, though, has 18.5% of the world’s population, and thus per capita its emissions are lower than the United States. Yet, through the short-sighted aspirations of the United States, it is now on China we must depend if we want to prevent catastrophic climate change. We live in interesting times.

Drug Of Choice

Originally published in the Informanté newspaper on Thursday, 1 June, 2017. 

If you had to take a guess as to which drug causes the most harm in our country, what would it be? This drug has toxic effects on the user’s organs and tissues, impairs physical coordination and cognition and affects the user’s perception and behaviour. It’s widely available, and even sold in specialized stores. This drug is alcohol – humanity’s oldest drug. 

As a species, we’ve used alcohol since the late Stone Age, about 12 000 years ago, and spread across the globe. In China, evidence was found of fermented drinks appearing 9000 years ago. Wine was first produced in Iran about 7000 years ago. In ancient Egypt and Babylon, evidence dates alcoholic drinks back 5000 years ago, with evidence in Mexico stretching back 4000 years ago and in Sudan 3500 years ago. Since then, it has become part of our culture.

In ancient Greece, wine was often served at breakfast, and it became part of the diet of most Romans. By the Middle Ages, beer was an everyday drink for most people – even nuns had an allowance of 6 pints of ale a day! As our civilization progressed, however, attitudes started to change. While moderate consumption was still viewed positively, the negative effects of drunkenness was causing concern. It was not until we could start collating large amounts of health data that we could truly start seeing the effects of alcohol use on the population. 

And so it was that we could see the cost of alcohol. Globally, 3.3 million deaths a year occur due to harmful use of alcohol, accounting for 5.9% of deaths worldwide. Even though women are more vulnerable to alcohol-related harm from drinking, the harmful use of alcohol is the leading risk factor for death for adult males. That, however, only takes into account death – not the adverse health effects that occur due to its use.

First amongst these are neuropsychiatric conditions. While one may be aware of alcohol-use disorders, epilepsy is also affected by alcohol – and not only seizures induced by alcohol withdrawal. Depression and other anxiety disorders is also associated with alcohol abuse. Next, and as well known, is gastrointestinal diseases such as liver cirrhosis and pancreatitis. Fewer people know about alcohol’s carcinogenic properties, which increases the risk for cancer of the mouth, nasopharynx, other pharynx and oropharynx, laryngeal cancer, oesophageal cancer, colon and rectum cancer, liver cancer and female breast cancer.

By now, a few people will be thinking that ‘a glass or two of red wine is good for the heart.’ However, the beneficial effect of that disappears with heavy drinking, and in fact increases the risk for ischaemic heart disease and ischaemic stroke. Regardless of one’s drinking pattern, however, alcohol has damaging effects on hypertension, atrial fibrillation and haemorrhagic stroke. This is of particular concern for Namibia, as in discussion with Dr Simon Beshir of the Windhoek Heart Centre, he stated that in the majority of his heart patient referrals, alcohol consumption could be identified as a major cause.

Furthermore, alcohol use by expectant mothers can cause preterm birth complications, or Fetal Alcohol Syndrome. Then, of course, there’s the additional effect of a weakened immune system, enabling development of infections such as pneumonia and tuberculosis. And, naturally, the injuries sustained due to alcohol’s effect on psychomotor abilities and behaviour, resulting in unintentional injuries at best, and at worst, violence and suicide. 

How does this affect Namibia? A surface-level analysis based on per-capita consumption shows that adult Namibians, on average, consume 10.8 litres of pure alcohol per year – a bit above the African average of 6. However, that does not take into account Namibia’s abstainers. A total of 48.7% of adult Namibians are life-long abstainers, with an additional 12.3% former drinkers now abstaining, resulting in 61% of the adult population being abstainers. When that is taken into account, it means that the per capita consumption of alcohol for drinkers is 27.7 litres per year. It also reveals that 37.2% of our drinking population binge-drink at least once a month.

It should then be no surprise to learn that the prevalence of alcohol use disorders is 5.1% of the population, above the regional average of 3.3%, and 2.2% of the population is dependent on alcohol, above the regional average of 1.4%. Namibia’s death rate for liver cirrhosis is 14 people per 100 000 population per year, of which 68% can be attributed to alcohol abuse. Even more glaringly, while Namibia used to be worst in the world in income inequality, we’ve managed to improve on that front, only to take on a new title – worst in the world in traffic accident deaths. Our death rate for road traffic accidents is 35 people per 100 000 population per year – and 66.1% can be attributed to alcohol abuse. 

In total, we as a country lose 153 years of life per 100 000 population due to alcohol use, and 180 healthy years of per 100 000 population due to disease and disability due to alcohol. By now, some of you are undoubtedly thinking “something should be done,” and “there should be a law!” Unfortunately, the solution is not that easy. That experiment has already been done. For 13 years, during 1920 to 1933, the United States had the Prohibition. Yes, alcohol consumption dropped – but not by as much as you’d think. At first, it dropped to about 60% of what it was previously, but as the criminal underground started supplying demand, it crept back to 80% of what it was. This provided a major financial boost to organized crime, resulting in crimes increasing by 24% while the prohibition was in effect.

In Namibia, the Self-Regulating Alcohol Industry Forum has as its main objective promoting responsible drinking, but ultimately, the solution cannot come from without. Alcohol use and abuse is, after all, not done unwillingly at the start, even if it can become uncontrollable at the end. It is we, the people and the culture, that needs to address this cost. We need to start looking critically at ourselves, and decide if this is a cost we want to bear, both personally, in the case of drinkers, and socially, as a nation. When we decide that the cost is too high, that is when we’ll start solving the problem. Not before.