Next year won't be 'game on' economically

Namibia this year is bracing for its deepest contraction in its history, but citizens shouldn't be soothed by positive growth forecasts for 2021: For average living standards and economic wellbeing to recover will demand “many years of relatively high, continuous growth”.

Releasing its update on the Namibian economy, forecasting growth of -8.5% in 2020, Cirrus Securities said following four years of economic stagnation - of which three were contractions – will cause real gross domestic product (GDP) to decline to levels last seen in 2013.

“Not only has value addition declined in real terms, but the population has continued to grow during this period. The result is that GDP per capita is expected to regress back to 2010 levels, and it will take several years of high growth to simply return to the 2015 peak of GDP per capita,” Cirrus says. The analysts, who forecast economic expansion of 3% in 2021, therefore believe that “growth post-2020 will be a phenomenon confined to the realm of statistics”.

“Significant damage has been done to the Namibian economy this year, which will result in a slow recovery for employment, disposable income and government revenue (from domestic sources),” Cirrus says.



'Misleading'

The relatively strong statistical rebound widely anticipated can be “misleading”, the economists warns.

“For the average Namibian, 2021 will not feel like a material improvement (barring more freedom as pandemic regulations are eased,” Cirrus says.

“What appears to be relatively high growth is simply the base effect coming into play as many sectors return to more normalised output levels (e.g. mining, manufacturing,” Cirrus clarifies. IJG Securities, who predicts economic growth of 6.8% next year, says its forecast is based on the assumption that “we see a marked increase in tourism next year”.

Simonis Storm (SS), who expects positive growth of a mere 0.6% in 2021, points out that some sectors like mining and tourism “rely overwhelmingly on global demand and hence, any recovery is linked to a recovery in demand for commodities or in the easing of travel restrictions to attract foreign tourists”.

“However, even if the latter happens it is doubtful that potential tourists will rather spontaneously embark on long-haul vacations amidst the fear of a second wave of a Covid-19 outbreak,” SS adds.



Three waves

The Covid-19 pandemic and government's response to it hit the economy in three waves, according to Cirrus.

There was the “initial collapse” in external demand for tourism and some commodities. Then a “supply shock” as the lockdown restricted companies and workers to produce.

The third wave was an “internal demand shock” as households and businesses lost income.

This lead to a decrease in consumption, which meant less production was required, reinforcing the supply shock mentioned above.

“The strict lockdown implemented early on in Namibia resulted in an abrupt supply shock, particularly in Windhoek and more so for the coast as parts of the Erongo region faced an extended hard lockdown,” Cirrus said.

They elaborated: “While many sectors of the economy were willing to produce, and demand initially remained relatively stable, the lockdown measures imposed have seen many entities unable to produce and thereafter see demand drop.

This applied to both the formal and informal sectors, as well as for goods and services that elastic and relatively inelastic.”