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Experts call for an “economic revolution” … as economy titters on the brink

18/07/2018
by Kelvin Chiringa
News

The local economy is poised on the brink of either completely crushing down or bottoming out and experts have called for an economic revolution to bring about normalcy.

Far from the political implications of the phrase, Twilight Capital Director, Mally Likukela described this is a bold transformation of the economy by changing the manner of doing business from a traditional to a more modern approach.

Almost 12 years within Vision 2030, Namibia has no significant industries in sight and despite the vision of a knowledge based economy driven by information systems and Artificial Intelligence, access to mobile gadgets and internet remains restricted to a small population.

Speaking at an investment summit courtesy of Old Mutual Namibia yesterday, Likukela said there is a need to align the education system to global industrial needs in order to bring about the said economic revolution. 

For labour research expert, Dr. Michael Akuupa the time for closer collaboration is now and the transformation agenda and dialogue should also invite those in the labour market. 

In the meantime, at a time when the finance ministry is oozing with confidence that the storm is almost over, Capricorn Asset Management Economic Analyst, Claudia Boamah said it is still gripped in a fix. 

Said she, “Commodity prices remain unimpressive: You might say that energy prices may be an exception, however, supply limitations rather than a revival in demand can better explain that upturn. Namibia had been particularly handicapped by the plunge in uranium prices, and according to the IMF’s World Economic Outlook forecasts the best we can expect is for a peak at US$24 an ounce by 2023, a rather bleak prospect for a commodity that once traded at over four times that amount an ounce.” 

On the housing market side, a reduction of Angolan demand hit hard while retail tourism slowed down dramatically and has not recovered since, she pointed out. 

“Indeed the most recent chapter of our economic history is quite grim. Nevertheless, a country does not gain a reputation as the land of the brave without being familiar with encountering and overcoming struggles,” said Boamah. 

Meanwhile, inspite of a noted -1.2% contraction in the economy, the IMF is stuck to its projections of 1.2% this year, 3.3% next year and 3.5% in 2021. 

“Domestic forecasts, however, are considerably lower with the general consensus averaging 0.5% and 1.6% GDP growth in 2018 and 2019 respectively. The positive albeit moderate outlook stems in part from the fact that most of the factors that weighed down on the economy have diminished. The contractionary trend in construction finally reversed in quarter one of 2018. As mentioned earlier, crude oil prices have faired relatively well, stoking hope in the Angolan economy,” said the analyst. 

She expects the weakness in the housing market to continue during the course of the year, exerting significant pressure on the consumer price index leaving food, alcohol and tobacco and transport as the driving forces behind inflation. 

“Food prices have consistently risen on a monthly basis and so far, while the transport index has been volatile, global fuel prices are being forecast to stabilize above US$70 per barrel hence the expectation for the index to rise.”

“Therefore, all things being equal, our in-house forecast is for inflation to reach 4.5% by year end and average 4% for the year 2018. Inflation should rise even higher as the overall economy improves, thus we expect an average inflation or 5% in 2019,” she added. 

At the same time, interest rates will likely remain untouched with a moderate chance of being raised in 2018: “The forecasts for an improvement in growth suggest that expansionary monetary policy might no longer be necessary.” 

“Additionally, in the interest of maintaining our Common Monetary Area membership, it would not be advisable to pursue a cutting cycle while inflation is all set to increase. Furthermore, the hawkish stance of advanced economy central banks usually triggers a hiking trend within emerging markets as a defence against currency depreciation and capital flight.”

“In the absence of a currency blow-out or a sovereign credit ratings downgrade, the repo rate could be kept at a growth supportive rate of 6.75% in 2018. We can look forward to a maximum of two twenty-five basis point hike in 2019, assuming the Federal Reserve Bank maintains their outlook on US inflation,” explained Boamah. 

Meanwhile, the anticipation is that spending will be allowed to increase marginally until 2021 with priority being given to developmental projects, a plus for construction activity that had been hit hard by fiscal consolidation.

Revenue shortfalls to lower than expected SACU receipts, unbudgeted expenditure related to SOEs remain as a threat to fiscal sustainability. 

As far as credit ratings downgrades are concerned, Namibia is yet out of the woods, Boamah warned. 

If supply restrictions and disruptions continue in oil markets, she added, fuel prices are likely to rise while the import bill is expected to shoot up father than exports.

IMF forecasts are that the current account balance will be in the negative, 3.6% and -5.1% of GDP this year and the next. 

“We had it good for quite some time in Namibia, then within the space of a year we were humbled and we remain so to this moment. The trouble is during a boom, when there is expansion and growth we don’t ask why or how, we just enjoy. Then when the cycle takes a downturn we suddenly want answers,” she said. 

She advices that attention should be paid to sectorial performances during a boom which helps provide a rough idea of the true potential of various industries.