Namibian exporters have benefited tremendously from the weak South African rand in the past few months analysts have said.
Namibia is under a Common Monetary Area (CMA) and having its currency pegged to the South African rand has certain implications on the level of reserves that the Central Bank has to maintain.
First National Bank Economist and Head of Research, Daniel Motinga noted that the weakening or volatile exchange rate is benefiting exporters in the fishing and mining sectors especially against the background of fuel prices remaining relatively stable.
“There is always the risk that input cost pressures (for e.g through oil price hikes) could erode the exchange rate translation benefits on the earning side. Our view is that the weakness in the exchange rate or rather its volatility will be a strong feature this year. However, we will see it stabilising around 10.50 levels,” Motinga said.
Motinga added that, “We firmly believe that the interest hiking cycle has started. We see the first hikes for Namibia coming through around August this year. Given the weak growth in SA we are of the view that it will be a gradual hiking cycle.”
He also expects the inflation to go higher than 6% this year due to the continual increase in prices of commodities.
IJG Securities research analyst Rowland Brown also noted that the inflation difference between emerging markets and advanced economies should result in exchange rate depreciation in emerging market.
“The recent depreciation of the Rand has been more extreme than the inflation differential would suggest, driven largely by the slow reversal in quantitative easing in the US. This said, the weakening of the Rand against major currencies for more of the past 36 months has definitely been positive for the Namibian economy in general, particular for the country’s exporters,” he said.
Brown added that “An estimation of Namibia’s equilibrium exchange rate 2012 suggest that the country should have a US dollar exchange rate of around N$11, close to the current level. However, as a result of the fixed exchange rate regime, we are rarely in equilibrium, which hurts our exports and exporters, however favours imports.
“This year, the weaker than normal exchange rate should help the economy grow generally, particularly for price elastic exports such as tourism, fish and meat. However, imports will remain expensive, which can be expected to put pressure On the country’s balance of payments going forward,” he said.
Brown also stressed that “The South African Reserve Bank has a difficult balancing act on his hands, to determine a compromise between slowing growth, and increasing inflation as a result of rand weakness.
Commenting on the same issue Simonis Storm Securities (SSS) Head Researcher James Cumming noted that the current strikes in South Africa’s mining industry have gone on longer than expected and is putting on tremendous pressure on their economy.
“The last quarter the economy shrunk 0.6% and it is likely that we will see further decline this quarter, even if the strikes were to be resolved immediately. As far as we can see, the strikes have had little effect on the Namibian economy as most of our economic growth originates from within the country and largely through Foreign Direct Investment (FDI).
“The SA component of our exports is relatively small and restricted mainly to the agriculture sector. Unless there is a major event in SA that spills over to Namibia, it is likely that the strikes effect will be fairly benign,” he said