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Namibia Holds off ÔÇÿMiddle-IncomeÔÇÖ trap

Mon, 9 February 2015 06:46
by Kudzai Chimhangwa
Business





Despite the International Monetary Fund (IMF) research identifying Namibia as one of the countries facing a challenge of Mid-income trap, the country has been able to avert its effects due to its favourable sustained growth momentum.
 The mid-income trap is a scenario where a rapidly growing economy remains at middle-income levels, with slowing growth and progress towards becoming a high-income country.
The country made improvements in its growth performance despite the knock on effects of the global financial crisis of 2009 which have affected other regional countries to date. This positive change has been spurred by a strong performance of the extractive industry and quality public expenditure among key factors.
Other countries facing the same challenge are; Botswana, Lesotho, Mauritius, Seychelles and Swaziland.
However, International Monetary Fund (IMF) Mission Chief for Namibia, Jiro Honda, said following the growth contraction of 2009, which was linked to the global financial crisis, there have been some positive changes and Namibia has gone on to improve on its growth performance.
“In view of this, Namibia does not seem to be in this category as such and we shall be assessing Namibia’s growth performance more fully in due course as part of our next Article IV consultation,” he said.
IMF researchers had recommended that returning to a period of strong growth would be necessary to achieve high-income status, with requirements ranging from deeper reforms and innovative policies to boost productivity.
The quality of public expenditure, particularly for education and economic governance was considered an important tool for supporting productivity growth.
Honda also noted that Namibia’s strong dependence on the mining sector leaves the economy vulnerable to external shocks and there is need for government to formulate methods to remain robust against such scenarios.
In 2013 alone, Namibia’s mining sector generated N$11, 3 billion of value added towards the country’s Gross Domestic Product (GDP).
However, this figure was down to 9, 3% as compared to 10, 8% the previous year according to the Namibia Statistics Agency. The decline in contribution to GDP was largely attributed to escalating input costs, depressed commodity prices and declining ore grades.
He said that the mining sector plays an important role in the economy by contributing to growth and exports, but this also exposes Namibia to external shocks.
In 2009, Namibia experienced a sharp decline in mineral production that was largely caused by reduced global demand for Namibia’s mineral products and this led to a slowdown in economic growth.
“Similar to other natural resource-rich countries that are exposed to such shocks, it is important for Namibia to maintain its resilience to these shocks,” Honda said.
Honda noted that based on information from the Namibian authorities, IMF staff expect Namibia to carry on with its robust growth performance adding that there are also significant downside risks to the near-term outlook, both from global spill overs and regional developments.
“We are looking forward to having further discussions with the Namibian authorities during our next Article IV consultation at which time we shall also update our assessments,” Honda said.
Local analyst Brian Van Rensburg of PSG Wealth Management said that although it is true that the country’s dependence on mining exposes it to external shocks, he said the sector has been one of the best globally.
“The sector has remained protected against various factors and besides performing exceptionally well despite commodity price changes, it has been very supportive of the economy over the years,” he said. He pointed out that the sector has performed well as compared to other places such as South Africa which is sensitive to global market trends.
Experts contend that while current debt levels in Africa are manageable, the consequences of the speed with which debt has been accumulated and the management of government borrowing and expenditure are causing concern.
However, Honda noted that based on assessments from the 2013 Article IV consultation, Namibia’s debt ratio has been historically low and is expected to remain within the authorities’ announced target of 35% of GDP over the medium term.