Fiscal consolidation hampers construction

Ogone Tlhage - With the tabling of the mid-term budget in 2016, steep cuts in spending were introduced to avert the potential of a downgrade by ratings agencies Moody’s and Fitch.

This came as a consequence as Namibia’s debt-to-GDP ratio spiralling upward, a point of concern for both Moody’s and Fitch.

Traditionally, Namibia had adopted a careful approach to debt as authorities placed the debt-to-GDP ceiling at 30%.

In view of low growth experienced throughout the southern African region owing to a drought, softening of metal prices and a recession in South Africa, Namibia’s good years came to a halt, forcing the ministry of finance to reassess its spending priorities.

Finance minister Calle Schlettwein said at a recent pre-budget briefing last week that this year’s budget would continue along last year’s fiscal consolidation lines.

He said the government had to make certain spending cuts.

“We admit consolidation had a negative impact on growth and employment. The interventions we undertake must stimulate growth. We are very positive fiscal consolidation was the right step,” said Schlettwein.

Rebound

Meanwhile, Standard Bank Namibia economist Naufiku Hamunime has indicated that the construction sector is not likely to rebound anytime soon.

Hamunime forecast that construction would decline marginally by 11.2% in 2018 and by 7.1% in 2019, driving down activity in the secondary industry of the economy.

“The secondary industry performed poorly in 2017, largely on account of a steep contraction in the construction sector. In the medium term, manufacturing is expected to improve while construction is expected to continue to contract,” she said in a recent presentation.

Labour unionist Justina Jonas said the budget cuts had affected the workers the most. With no end in sight to the budget cuts, she was of the opinion that more construction workers would be left jobless as construction projects dried up.

She also said that the effects of the budget cuts were now beginning to have knock-on effects in the supply chain, as companies were receiving fewer orders for material.

“The issue of the budget is affecting the workers. We do not know how long these budget cuts will last. Many workers have been retrenched and this is now also having effects on the supply side. Many companies that supply building material are now also starting to retrench,” Jonas said.

Job losses

In the last year alone, data compiled by the union showed that up to 5 000 construction workers had lost their jobs as a result of the budget cuts.

“These are the figures from last year. Even Namibian companies that have been around since before independence are now closing...” Jonas said.

The Bank of Namibia, on the other hand, said the slump in the construction sector was a correction following high growth previously witnessed in the sector.

“It is important to note that high rates of decline in construction represent a correction, following an exceptional construction boom that started in 2013. During the boom construction activity was supported by high investment in mining construction as well as by accelerated implementation of government infrastructure projects,” the Bank of Namibia said.

With budget cuts set to continue, the Bank of Namibia said construction would remain on the back foot for the time being.

“Growth in the construction sector is expected to remain depressed following the completion of major projects in the mining sector and ongoing fiscal consolidation by the government,” the central bank said.