Honeymoon over for Namibian dollar as Rand weakens

The tale tell signs are beginning to take a grip and it seems the honeymoon is after all over for the Namibian dollar as the Rand lost its gains this week.

Tuesday morning of this week, the Rand had lost out from R13.63 to 13.90 as news sank in of United States president Donald Trump threatening to exert more pressure on China via possible new tariffs. 

“U.S.-China trade policy tensions are certainly driving the market of late and affecting investor sentiment. We’re doing a lot more hedging of Emerging Market currencies to the USD in this environment which is also proving to be protective,” said Morgan Harting, a money manager at Alliance Bernstein in New York talking to Bloomberg. 

Whether this should be a cause for panic or not given the positives a Cyril Ramaphosa ascension to the helm of South African politics brought into the local economy, but for head of research at FNB Namibia, Namene Kalili, “We are essentially back to normal rand levels.”

“Although a weaker currency is beneficial for exports, it’s net negative for the economy, since Namibia is a net importer of goods and services, we pay more for imports when the rand depreciates, than what we make from the higher export revenues. Therefore, we would expect the trade deficit to widen, which would naturally erode our foreign reserves, which could result in higher interest rates,” he says. 

Latest data shows that South Africa continued to be Namibia’s number one import source in the first quarter of this financial year with imports amounting to nearly N$11 million.

This was followed by the Bahamas (N$3 567 million, a vessel), Zambia (N$3 561 million), China (N$1 767 million), and Botswana (N$1 281 million).

The country, in terms of commodities, imported vessels, copper cathodes, mineral fuel and oils; boilers and vehicles emerged as the most imported commodities which contributed largely to Namibia’s import bill during in the first quarter of 2018.

Consequently, the import bill rose by N$6 672 million (33 percent) to N$27 177 million compared to N$20 504 million in q1-2017.

Some analysts have already warned that the weakening currency coupled with inflationary pressures from higher fuel prices will add more downside risks to the local services sector outlook.  

Meanwhile, Investec strengthened their rand forecasts but cautioned that the domestic currency’s likely stronger path will depend on the free market reforms necessary to repair South Africa’s institutional strengths, and for these to take place as soon as possible.