It will take Namibia more than a decade to return to the gross domestic product per capita level of 2019 if medium-term economic growth remains below 3% expected by the Bank of Namibia (BoN).
Worse, Namibia's income per capita will only return to 2015 levels in another decade, Simonis Storm (SS) says in their latest quarterly economic update.
SS warns that Namibia's upper-middle income country status, based on gross national income per capita, is under threat. Countries with a per capita income in the range of US$3 896 to US$12 055 fall into this category.
“We are moving further away from our Vision 2030 goal to be an industrialised (meaning high income) country by 2030,” SS says.
The analysts continue: “The writing is on the wall. We need to take the slogan 'business unusual' literally and do things quite differently in order to bring the economy and society back to where we have been before the first wave of the economic crisis hit us way back in 2016.”
In 2016, Namibia entered its first year of recession in the current cycle. According to the Namibia Statistics Agency (NSA), the country's gross domestic product (GDP) per capita dropped by nearly 9% from 2015 to 2019. Real gross national income per capita fell by nearly 8% over the same period.
In its economic outlook released in August, the BoN forecast annual economic growth of 2.1% and 2.7% in 2021 and 2022 respectively, following an estimated contraction of 7.8% this year.
SS describes the central bank's outlook over the next two years as “worrying”.
“At the expected growth rates of 2.1% for 2021 and 2.7% for 2022, it will take more than another year to be back at the GDP level of 2019 and another year (2024) to reach the level of 2015,” SS says.
The analysts point out that per capita income has contracted since 2015 and will not recover much with the anticipated economic growth rates, since the population is growing at about 1.9% annually.
“Based on these growth rates it will take more than a decade to just return to the 2019 level of per capita GDP and another decade to reach the per capita income of 2015,” SS says.
“Assuming growth rates of 4% per annum in 2021 and following years, we should be back in 2022 at the 2019 level and half-way through 2023 at the 2015 level. Per capita income would return to the 2019 level in 2024 and to the 2015 level in the middle of 2029.
“A high growth rate of 6% from 2022 on would return GDP in 2023 to the 2015 level and per capita income in 2025 – a decade after per capita income started to contract,” SS explains.
Not all income brackets will be equally affected by the declining per capita, SS says.
“The low and no-income earners in society will bear the brunt of the decline and consequently income inequality will rise – the K-shape recovery,” the analysts predict.
A K-shaped recovery is one where the wealthiest recover while lower-income groups see their economic situation continue to decline.
“This not only risks the social cohesion of our society, but also the sustainability of government finances. Low economic growth rates will result in low levels of government revenue, which will put enormous pressure on meeting operational and statutory expenditure, let alone availing resources for capital projects,” SS says.
SS previously anticipated a W-shape recovery for the domestic economy. This type of recovery involves a sharp decline in metrics like GDP, unemployment and industrial output, followed by a sharp rise back upward, followed again by a sharp decline and ending with another sharp rise.
The latest BoN outlook suggests an L-shaped economic future: a steep decline in economic output followed by a low, almost stagnant economic growth path, SS says.
“We want and should be more optimistic about the speed of recovery than the Bank of Namibia, given that we are starting from a very low base and slight improvements in output should result in stronger growth rates in 2021 and following years.
However, we remain extremely cautious of existing domestic stumbling blocks (SOE reform, SME development and other structural reforms) not being removed expeditiously,” SS says.
The analysts currently expect economic growth of -8.4% in 2020, followed by 0.9% next year. Under their worst-case scenario, 2020 growth comes in at -9.1%, followed by -1.8% in 2021.