Looking Abroad

Originally published in the Informanté newspaper on Thursday, 2 November, 2017.

Here in Namibia, we’ve grown used to examining the reports released out by Statistician General Alex Shimuafeni and the Namibia Statistics Agency to gauge our economic health. Unfortunately, our own health does not paint a complete picture – the country, after all, does not exist in isolation, but is part of the global economy. Where then would we look to find out how the rest of the world is doing? Well, the World Economic Studies Division of the Research Department at the International Monetary Fund in Washington DC can help us on that front. Every 6 months, they release a World Economic Outlook to inform us as to how the world is doing, economically. 

So what does the October 2017 report reveal? Well, after struggling through most of 2016 at a paltry 3.2% growth, it appears the world economy is picking up steam again, with 2017 growth expected to be 3.6%. Central Banks across the world have begun tightening monetary policy again (raising interest rates) as growth slowly returns, but it’s not all good news. It remains problematic that not all countries are participating in the recovery, and while growth is increasing, inflation – and specifically, wage inflation – remains low. This means that the new growth is not being funnelled to the ordinary people, and economic inequality is on the increase.

So let’s dig a bit deeper into the details, starting with the so-termed ‘Advanced Economies.’ In the United States, growth for 2017 is expected to increase to 2.2%, less than expected, as President Trump’s election promised of fiscal policy expansion has yet to come to pass. Further hampering the US’s growth is its lack of productivity growth and aging workforce. In the Euro area, growth is expected to rise to 2.1% on the back of a growth in exports and smaller political risk. However, similar to the US, weak productivity growth and an aging workforce will stymie growth, alongside the problem of excessive debt still faced by some countries in the Euro area. 

In the United Kingdom, growth is expected to drop to 1.7% going forward, with the pounding taken by the Pound Sterling depressing consumption. With Brexit details not yet confirmed, future growth is also likely to be muted until the extent of the country’s relationship with the euro area is finalised. Japan is similarly on a downward path, with expected growth of 1.5%, but going forward, the country’s shrinking labour force will curtail growth. In other advanced economies, growth accelerates, however, with Norway (1.4%), Canada (3%), Australia (2.2%), Korea (3%) and Singapore (2.5%) benefitting from the recovery in global trade.

Now let’s have a look at the Emerging Market Economies. First amongst these is of course China, with growth projected to be 6.8%, well on their way to their target of doubling GDP between 2010 and 2020. However, much of this growth has been funded by debt, which has ballooned, so risks increase there as well. In the rest of Asia, the economies are doing quite well too, with India being a standout, despite still experiencing disruptions associated with their currency exchange initiative, and they’re expected to grow by 6.7% this year. 

In Latin America and the Caribbean, GDP growth is returning to 1.2% in 2017 after contracting by 1% in 2016.  Mexico leads the way in this region, even though a renegotiation of the NAFTA agreement is on the cards, and Brazil is once again experiencing economic growth as well. The biggest issue in the region is the continuing political uncertainty in Venezuela, whose economy is expected to contract by 10% in 2017. In the Commonwealth of Independent States (or Russia and the former USSR countries) conditions continue to improve, with growth in the region expected to be 2.1%. This coincides with Russia finally struggling out of its two-year recession, with expected growth of 1.8%. 

In developing Europe, growth is expected to be 4.5%, driven by a recovery in exports, and lead by Turkey (5.1%) and Poland (3.8%). In the Middle-East and North African region, however, growth is slowing to 2.6% from 5% in 2016, mainly due to a renormalization of Iran’s growth after it sped up significantly in 2016 after sanctions ended. Pakistan is expected to lead in growth, with 5.3% expected in 2017 due to investment in the Pakistan-China Economic Corridor.

Finally, our own neck of the woods – sub-Saharan Africa. By now we have good comparisons with the rest of the world to show just how we’re doing. Well, the region as a whole is expected to grow by 2.6% this year, but we have sizable differences between countries, and the big outliers are Nigeria, which is only now starting to recover from the oil price shocks of 2016, with growth for 2017 projected at 0.8%. South Africa, the other large economy, is also facing growth of just 0.7% despite recoveries in the commodities markets and agricultural exports on the rise due to good rains. However, the political uncertainty continues to sap not only consumer confidence, but growth as well. Angola, on the other hand, will grow by about 1.5% this year, off the back of a rebound in oil production, and for the rest of the region, an average growth of 3.9% is expected this year.

So what does this mean for us? When we take a step back to see the whole world economy at a glance, we can see that no one economy is without its challenges. But we can also see that every recession has a solution, with quite a few countries pulling themselves up by their bootstraps. We’ve been blessed with quite a few years of exceptional growth, and now seem stuck in a recession. But the proof is out there. If we Harambee, we too can return to solid growth.

Our National Trade

Originally published in the Informanté newspaper on Thursday, 19 October, 2017.

No man is an island, they say, but this is perhaps even more true for countries. We do not stand alone from our 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 globally since the mid twentieth century, 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 can produce 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.

To maximize economic benefit, then, 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, 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 should therefore be of great concern to us when the Statistician General Alex Shimuafeni releases trade statistics via the Namibia Statistics Agency and reveals that over the last few years ( 10 quarters ) the Namibian trade deficit has grown by 49.9% Let’s take a look at the Quarterly Trade Statistics Bulletin for the second quarter of 2017, then. 

In the second quarter of this year, our trade deficit was N$ 6.2 billion, showing a deterioration of 26.8% from the first quarter.  This is the result of N$ 20.1 billion in imports, versus N$ 13.9 billion in exports, with the drop in exports since the first quarter the leading reason for this change. Over the last 5 years, the trade deficit averaged N$ 6.7 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 38.1% of our exports. In second place is the European Union, with N$ 3.3 billion in exports (26.1%), then the European Free Trade Area (basically Norway, Iceland, Switzerland and Liechtenstein) with N$ 2 billion in exports (15.8%), followed by non-SACU SADC with N$ 1.1 billion (8.8%) in exports, and finally, the Common Market for Eastern and Southern Africa (COMESA) with N$ 984 million (7.2%) in exports.

When we take a look at the individual countries we export to, South Africa comes out top with N$ 3.1 billion exported to, or 22.7% of our exports, with Switzerland another N$ 2 billion (14.5%), Botswana at N$ 1.7 billion (10.1%), Spain with N$ 886 million (6.4%) and Belgium with N$ 758 million (5.4%). Together, these 5 account for 61.4% of our exports. Strangely, “Belgium” is the rudest word in the universe, which is "completely banned in all parts of the Galaxy, except in one part, where they could not possibly know what it means,” according to the Hitchhiker’s Guide of the Galaxy, but I digress. 

For Switzerland, we can see that 81.8% of our 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 Zambia to Namibia for smelting before re-exporting. The rest of our exports to Switzerland are, unsurprisingly, diamonds. Belgium (my apologies to sensitive intergalactic readers), mainly receives exports of Diamonds (59.8%) and Zinc (38.8%) from Namibia, while Spain is mainly a recipient of Namibian Fish, which amounted to N$ 778 million in this quarter, compared to N$ 993 million in the first quarter.

In terms of imports, the SACU is by far the largest source of imports, with N$ 13.6 billion imported, or 71% of our imports. The EU is second with N$ 2.1 billion (11.2%) imported, then the BRIC countries with N$ 1.4 billion (7.4%) imported, COMESA with N$ 1 billion imported (5.2%), and Non-SACU SADC at N$ 974 million (5.1%) imported. Taking a look at the individual countries we import from, South Africa stands at N$ 12.1 billion, accounting for 60.4% of our imports, with Botswana at N$ 1.3 billion (6.9%), Bulgaria at N$ 897 million (4.4%), Zambia at N$ 872 million (4.3%), and China at N$ 752 million (4.7%).

From South Africa, we source vehicles, boilers and most of our manufactured products as well as pharmaceuticals, as can be expected. This remains the main reason the Namibian dollar cannot delink from the Rand. Botswana’s imports are 94.5% diamonds – most likely re-imported after processing there. Bulgaria provided us with N$ 872 million worth of products from animal origin, while from Zambia we imported copper ore – 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.

The data does not paint a pretty picture, does it? Namibia is still quite dependent on exporting raw materials to fund our economy, but our growing populace wants more manufactured products than we can afford, and so our wealth is exported to the world. 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. We need to start developing our own manufacturing industries, so we can export more to cover our imports. But I guess there’s one bright spot – at least our country is not called Belgium.

Another Quarterly Recession

Originally published in the Informanté newspaper on Thursday, 5 October, 2017.

It’s been 5 consecutive quarters now that Namibia has struggled in the grip of subnormal GDP growth. The figures released by the Namibia Statistics Agency a few weeks ago confirms that fact, but luckily shows some signs of abatement. Nevertheless, with the reveal that Namibia showed a contraction of 1.7% of GDP during the second quarter of the year, we still need to examine the data carefully. Let’s examine the report that Statistician-General Alex Shimuafeni released.  

To start off, let us examine the effect inflation has had on our country. 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%, before dropping by the second quarter to 6.3%. The good news is that inflation seems to be on a downward trend, having dropped to 5.4% by August already.

So let’s take a look at the different economic sectors before taking an overall view. The Agriculture and Forestry sector is a highlight for this quarter, as it managed strong growth of 17%. This is as a result of good rainfall, which saw an increase in crop farming (and in cereal production specifically) and resulted in the crop farming subsector posting 32% growth. Livestock farming also didn’t disappoint, with growth of 12.5%, while abattoirs and butchers recorded a turnaround, showing growth of 3.9% after having posted declines in the previous quarter.  The Fishing sector, however, did not do as well, recording a contraction of 9.8%, down from growth of 4.6% during the first quarter. 

Mining and Quarrying, fortunately, showed strong growth of 25.8% during the quarter, with all subsectors showing growth. In particular, the diamond subsector grew by 33.2%, due to an increase in carats produced, while the metal ore subsector grew by 20.8% off the back of zinc production that spiked to 38.1%. The uranium subsector is still struggling, off the back of weak demand and low market prices, but for a change the subsector didn’t contract. Rather, it posted strong growth of 14.2% due to increased production as a result of the new mine that came online during the quarter. The other subsectors also registered strong growth of 31% due to marble production that increased by 75%

The Manufacturing sector also showed signs of a turnaround, with growth of 2.9% compared to a contraction of 10.7% in the first quarter. This was as a result of superior performance in several subsectors, with diamond cutting and polishing up by 37%, beverages up by 10.8% and fish processing growing by 8.5%. Unfortunately, not all subsectors did well, with chemical manufacturing and products declining by 16.2% and non-metallic mineral products down by 4.1%. The Electricity and Water sector also started to feel the effect of muted economic growth, with electricity down by 0.5% and water down by 4.2%. The sector’s overall contraction of 1.1% is due to a decrease in volumes sold to distributors, most likely as a result of usage growth slowing in line with economic growth. 

The Construction sector continues its slide downwards, now in its sixth consecutive quarter of contraction. This sector has been reduced to about 30% of its size as it was at the start of 2015, and half the size it was at the end of 2016. It’s contraction of 44.9% recorded in the first quarter has been followed with a contraction of 51.9% during this quarter, mostly as a result of government construction reducing by 83.3%. There does appear to be at least some signs of stabilization, with the value of buildings completed increasing by two-thirds from first quarter figures.

Wholesale and retail trade continues to feel the effects of the prolonged recession as it records its third consecutive quarter of decline, contracting by 8.2%. The supermarket subsector went from a small positive growth of 0.6% in the first quarter to a contraction of 0.7% this quarter, with furniture sales similarly swinging from 4.2% positive growth to an 11.6% decline. The contraction in vehicle sales increased its contraction of 16.6% in the first quarter to 24.6% this quarter. Hotels and Restaurants, however, reduced its contraction to only 3% in this quarter from 9.3% in the first quarter. 

The Transport and Communication sector showed some recovery, growing by 3.5% this quarter, with port services contracting by only 7.6% compared to 23.6% in the previous quarter, while railway transport posted positive growth of 3.4%. The Financial Intermediation sector continued to show slow growth, with only 0.9% recorded this quarter, with the banking subsector contributing 1% growth and the insurance subsector contributing 0.8%. Finally, the Public Administration, Defence, Education and Health sector still shows a decline of 2.3% due to government consolidation. The Education subsector showed growth of 1.4%, while the Health subsector grew by 0.3%. 

It is clear from the data that we’re still struggling, but there seems to be a silver lining around our dark clouds that imply that with a bit of wind, the sun can shine again on our economy. We’ve got several sectors performing admirably, with a few stragglers showing signs of a turnaround, and others that are only struggling as a result of our substandard growth, and should recover once growth returns. With a bit of hope, and a bit of luck, our economy is on the verge of lifting itself out of this recession, and it will only require our patience and support to do so. Namibia has not let us down yet – let’s not let it down either.