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Chinese cream off N$4b from Namibia

Mon, 19 September 2016 15:40
by Donald Matthys and Rodney Pienaar
News Flash

Namibia received N$1.9 billion from trading with China while in return the Chinese creamed off N$6.2 billion from the local economy in 2015 despite calls for balance of trade between the two countries.
China has overtaken other countries becoming one of the heaviest investors in the Namibian economy targeting the mining sector and the construction sector where they make billions from the public procurement system through joint ventures with locals or directly through the state owned companies.
The Chinese have heavy stakes in Husab Mine, Langer Heinrich and have been contracted to drive the billion dollar port expansion at Walvis Bay Port.
Statistics provided by the Ministry of Industrialisation, Trade and SME Development  show that the Chinese increased the income from doing business with Namibia by N$3b while Namibia’s earnings from the Chinese market was stagnant between the two years under review.
The Trade ministry also revealed that Namibia’s trade imbalance has widened to around N$40b after the country overall imported goods worth N$97.8b and exported goods worth N$58.5 billion.
Namibia’s economy struggles to maintain momentum because of global, regional and domestic headwinds forcing the demand for mining commodities to remain unresponsive.
This is despite the fact that the country has achieved an average 5.6% economic growth between 2010 and 2015. Namibia is feeling the impacts of low oil prices through the drop in demand for oil from Angola that cuts across in particular the service sectors from health, education, financial and transport services to accommodation, real estate and retail trade.
The mining sector remained the single most important sector in the economy contributing 12.5% to GDP owing to diamond mining that accounted for 72% of the mining sector’s value addition. However, metal ores showed the strongest growth in 2015 (60.0%), because the new gold mine started production.
Simonis Storm Securities analyst Purvance Heuer attributed the heavy trade imbalance to low prices for commodities worldwide. “The challenge of low commodity prices is a global one as demand is low everywhere. We have to wait for the excess supply to work itself through the system and for the global economy to pick up. We are starting to see commodity prices rise as China is already starting to show an uptick in commodity imports, but this will probably take another 18 months or so,”
Heuer attributed the weak demand as a reflection of the slowing global economy, he added that each commodity needs to be assessed separately from a demand supply perspective.
“There are currently oversupply in iron ore as China is sitting with stockpiles so that may take some time. In the diamond space there is actually high demand, but its taking slower to bring the ore to sell in the market so supply is slow. Gold mining demand is as can be seen from the rising gold price over the last 8 months. Uranium is the one area where there are various issues including geopolitical risks and recent nuclear disasters. China however is looking to build more than 30 nuclear reactors and Husab Mine will be a key beneficiary to that,” Heuer said.
Globally, industrial metals traded in a negative territory through 2015, relatively due to falling demand from China. The demand for metals further weakened when the United States Federal Reserve hiked its interest rates, while other traded commodities such as gold declined 11% in dollar terms during 2015.
Most Namibian commodities are exported to Botswana (diamonds), China and Europe (Uranium), UK and other gold refineries (gold). Iron Ore and Zinc also mostly goes to the east. Meanwhile, the mining sector attracted the largest share of investment (36.8%) during the last month.
Analyst and Head of Research at the Namibia Trade Forum, Maria Immanuel also concurred with Heuer, saying that oil influences everything when it comes to trade.
“When the consumer demand drops, so will the price. Namibia is heavily challenged because we trade largely with commodities and therefore we will be affected whenever anything negative happening with commodities,” she said.
Meanwhile, the Economy Watch August 2016 report by the Institute of Public Policy Research (IPPR) indicates that mineral exploration was at its lowest point in 2015 (N$851 million) since 2009 (N$820 million) and only roughly a quarter of the investment in 2013 (N$3.2 billion). The downward trend can to a large extent be attributed to the lull in offshore oil exploration owing to excess supply and hence low global oil prices. Mineral exploration accounted for 10.9% of total investment in 2012, but the contribution dropped to 1.7% in 2015. The bulk of investment benefited construction works (41.6%) followed by machinery and other equipment (21.1%).