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.

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