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Construction, Mining and Agric to be mainstay of economy

Tue, 13 December 2016 14:01
by Berny Baisako
News Flash

Construction, mining, agriculture as well as tourism have been identified as key sectors from which Namibians will be seeking salvation from in the next five years, research and economic analysts have predicted.

Between 2009 and 2015, Namibia recorded some of its strongest ever growth rates, with consecutive growth of between 5.1 and 6.3 percent, compounding each year over the six-year period. As such, the economy grew from an N$77.9 billion to N$108.3 billion in real terms.

The abnormally strong growth was driven by three key factors such as unprecedented levels of Foreign Direct Investment (FDI) into the country, driven by the consecutive construction of three foreign funded mines. These factors resulted in a consumption and construction boom, which saw a major expansion in the local economy. 

Speaking to The Villager research analyst at IJG Securities Jan-Hendrik Conradie said that growth slowdown is visible in a number of sectors of the local economy, stating that within the primary sectors, drought is likely to keep agricultural production low, while a decline in diamond output is likely to be partially offset by increased uranium output.

“The collapse in copper concentrate output as a result of the closure of the two copper concentrate mines in late 2015 will be offset by output from the new copper cathode mine, however little growth is to be expected,” Conradie said.

He further added that in the secondary sector, little growth is expected in manufacturing, with water supply issues in the central area of Namibia driving the possibility of reduced beverage manufacturing. 

“From a construction perspective, Namibia has already started the process of normalisation following a flurry of construction growth through 2013 and 2014. The construction of the Tschudi Copper Mine, the Otjikoto Gold Mine and the Husab Uranium Mine, coupled with enormous Government spending on infrastructure and extensive retail floor space development, drove a construction boom,” he said. 

However, construction is transitory in nature, meaning that a large spike up in growth is seen when construction starts, but a similarly large spike down is seen when construction is completed. In the tertiary sectors, the two main contributors to GDP, namely wholesale and retail trade, and public administration, both contracted in 2016, Conradie explained.

Commenting on this, Manager of Research and Development Namibia of Agricultural Union, Wallie Roux, said the fastest growing economic sector is tourism as its potential is far from fully being exploited and that it is one of the largest foreign exchange earners.

Roux noted that tourism is followed by mining sector as the industry is the largest contributors to the Gross Domestic Product (GDP), but that it is also dependent on world mineral prices.

Roux further added that although agriculture is not one of the largest contributors to the GDP, it is generally accepted that 70% of the population is directly or indirectly dependent on agriculture and this has a huge socio-economic impact.

 “Furthermore, agriculture is still the largest employer with around 29% of the labour force.  Given the drought to date and the indications of an average to above-average rainy season, agriculture will enter a phase of rebuilding the national herds.  This is a crucial recovering phase to eventually increase the sector’s contribution to national food security,” Roux said. 

 Sharing his views on the same tier, renowned economist Dr Omu Kakujaha said that besides the water woes and slashes by the government budget the construction sector is still promising as mass housing, roads and parliament construction will always continue, somewhat being driven by government projects and private investment. 

Kakujaha added that the mining sector has potential as new mines are coming on board.

 “B2Gold seems to have discovered new deposits, the application to go for the Lofdal rare earth mining and possible phosphate mining,” he said.

He also noted that agriculture is likely to support the Namibian population by providing inputs into manufacturing such as food processing. The industrial push of the next five years will increase demand for agricultural products and this will increase prices and encourage modernisation and expansion of the agriculture sector.

“Manufacturing is high on government agenda. And if it was not for the current fiscal problems, government is serious about things like Growth at Home, investment promotion, industrial parks etc. There is so much potential despite a number of challenges such as a small local market and competition from South Africa,” he said. 

While no single factor would have been likely to drive a major growth slowdown on its own, the combination of all of the above have resulted in the brakes being fast applied. As a result, the growth outlook for the current year is significantly worse than has been the case for a number of years.

Forecasts for growth in 2016 were highly varied.

However, given the factors mentioned, it is all-but impossible that Namibia will see growth in the range of that of the past six years. Despite the apparent picture of gloom, every economy in the world experiences similar cyclicality in growth, and given the enormous growth in the Namibian economy over the past half-decade, this period of normalisation is far from abnormal. Moreover, unlike the growth constraints in the economy of southern neighbours, Namibia’s current growth constraints are largely transitory, rather than structural. With Husab coming on-stream in 2017, and a number of base effects and expected improved rainfall being removed from the immediate outlook, the Namibian economy is expected to return to a path of positive growth.

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However, subsequently, the macroeconomic environment in Namibia has started to deteriorated notably, as a combination of factors have come together to dampen growth and drive imbalances within the local economy. The unwinding of historically low interest rates, lower levels of Government spending, less foreign direct investment into the country, fewer Angolan retail tourists, a reduction in diamond output, weak commodity prices, drought, water supply constraints, inflation and a high base, are the notable few.