To counteract the adverse effects of the depreciating Rand, it is advisable for the Namibian government to consider implementing policies that promote domestic production and reduce our reliance on imports, research experts Simonis Storm have said.
Additionally, efforts to enhance the competitiveness of Namibian exports should be prioritized, the firm also said.
The depreciation of the Rand exchange rate in 2023 has had a substantial impact on the Namibian economy, particularly affecting imports and inflation dynamics. During August 2023, the Rand experienced a significant depreciation of 5.8% against the US dollar, reaching a peak exchange rate of R19.17/$.
“This depreciation has translated into higher costs for both Namibian consumers and businesses when it comes to importing goods. Given Namibia’s status as a net importer of goods, the country becomes more susceptible to import-driven inflation, where rising import prices contribute to overall inflationary pressures.
“In this context, the weaker Rand has emerged as a significant factor influencing Namibian inflation trends. The broader consequences of the weaker Rand on the Namibian economy are multifaceted. On one hand, it has led to increased costs for imports and amplified the potential for inflationary pressures,” Simonis Storm said adding that on the other hand, it is anticipated to have a positive impact on Namibia’s export earnings.
“However, it is important to note that the overall resilience of the Namibian economy to the net effects of the weaker Rand will hinge on the government’s proactive efforts in promoting domestic manufacturing and supporting local agricultural production. This is crucial because, as it stands, the mining and fishing sectors alone may not be sufficient to steer the country out of trade deficits in the long term.”
The firm also noted that looking ahead, they anticipate that the trade deficit will continue to widen for the remainder of 2023.
“Mining and fishing are expected to play a vital role in boosting our export earnings, further driven by the depreciation of the Rand. A concern however remains for the global demand of raw materials, especially given the resurfacing discussions of a possible economic recession. On the flip side, our import costs are on the rise.
“The current weather conditions have shifted into an El Nino pattern, resulting in elevated temperatures and reduced rainfall, which poses a threat to crop yields. Consequently, we’ll likely see an increase in the importation of fresh produce due to lower domestic production. Escalating oil prices, exceeding the $90 per barrel mark, will contribute to higher transportation expenses, with the weakening Rand exacerbating these price hikes,” said the firm.
Namibia’s trade balance deficit increased by 17.0% y/y, becoming the new largest deficit since May 2022. The export bill decreased by 5.8% y/y, however the import bill increased by 2.2% y/y in August 2023. The export bill recorded N$7.4 billion, while the import bill amounted to N$12.3 billion. This translates to a trade deficit of N$4.9 billion, compared to -N$3.7 billion in July 2023.
Namibia’s current account has been trending in deficit territory, which further supports that the country is a net importer. The current account balance has narrowed since 3Q2023 driven by higher exports and lower imports. However, the primary income remains weighing down on the current balance due to negative investment income, while secondary income performs well due to SACU receipts.
In 2023, there has been a remarkable increase in the number of trade restrictions, with measures that hinder trade surpassing those aimed at promoting liberalization. This, coupled with the persistently low global demand for raw materials, poses a significant challenge for the future of global trade.
“Discussions around a potential recession raises further concerns for the global economy, supply chains, as factory closures become a possibility, and overall global demand. The Purchasing Managers’ Indices (PMI), which are surveys conducted by manufacturing managers to gauge their expectations and purchasing activities, continue to signal subdued economic demand, consistent with earlier forecasts.
“A PMI reading below 50 denotes a contraction, while a reading above 50 indicates an expansion. The JP Morgan Global PMI, for instance, has not surpassed the 50-mark since September 2022. During the third quarter of 2023, PMIs predominantly remained in contractionary territory, with India being the exception, underscoring the prevailing subdued global demand conditions,” further explained the firm.