…Key economic driver expected to slow down in 2024
Namibia’s GDP growth is projected to slow down in 2023 and 2024, mainly due to the weaker global demand and anticipated contraction in agriculture, the Bank of Namibia has said in its latest economic outlook report.
The domestic economy is estimated to grow by 3.9 percent in 2023, before moderating to 3.4 percent in 2024. The estimated growth of 3.9 percent in 2023 represents a slowdown from 7.6 percent recorded in 2022 but was revised upwards from 3.3 percent published in the August 2023 Economic Outlook.
“The projected slowdown in 2023 growth is largely on account of weaker demand in global and domestic economies, underpinned by high inflation and high interest rates that have a negative impact on consumer spending. Another factor contributing to the slowdown in 2023 growth is the high base effects from the mining industry, where diamond mining and other mining and quarrying (which includes prospecting) expanded by 45.1 percent and 144.2 percent, respectively, in 2022,” says Bank of Namibia.
Primary Industries
The report highlights that primary industries are expected to register lower growth in 2023, because of reduced growth in diamond mining, and other mining and quarrying. Primary industries are estimated to grow by 8.6 percent and 4.7 percent in 2023 and 2024, respectively, from a higher base of 30.0 percent in 2022.
“The decrease in the estimated growth for 2023 is largely on account of a slower performance in the diamond mining and other mining & quarrying sub-sectors. These subsectors posited very high growth rates in 2022, resulting in high base effects. In the August 2023 Economic Outlook, primary industries were initially anticipated to grow by 3.2 percent and 3.6 percent in 2023 and 2024, respectively,” said the Bank.
Growth for diamond mining is estimated to decrease significantly in 2023, partly dampened by low production on the back of declining international prices. The diamond mining sector is expected to grow by 5.5 percent and 9.7 percent in 2023 and 2024, respectively, a deterioration from 45.1 percent registered in 2022. The anticipated significant slowdown in diamond mining is attributed to below-potential production, on the back of unfavourable international prices.
Uranium mining is estimated to register an expansion in 2023 before moderation in 2024. The uranium mining sector is expected to expand significantly by 14.8 percent in 2023 before moderating to 3.0 percent growth in 2024. This sector continues to recover from water supply interruptions that led to mines adjusting their production targets for the year upwards. The high operational costs and risks are incorporated in the 2023 growth projections since the industry was anticipating much higher growth.
On the other hand, the metal ores sub-sector is expected to recover in 2023 and remain in positive territory in 2024. The metal ores sector is expected to expand by 24.1 percent in 2023 before moderating to 7.5 percent in 2024. The estimated recovery in 2023 is attributed to higher production from the gold subsector. Higher production volumes for gold are due to higher grade ore mined from all mines in operation.
Other mining and quarrying activities (which include oil exploration) are expected to moderate in 2023 and 2024.The other mining and quarrying subsector is expected to grow by 35.3 percent and 5.0 percent in 2023 and 2024, respectively, a significant reduction from growth of 144.2 percent registered in 2022. The anticipated slowdown in 2023 is linked to projections of a slower rate of increase in exploratory endeavors in contrast to previous years.
Secondary Industry
With regards to the secondary industry, Bank of Namibia said that growth for this industry is expected to slow down in 2023, mainly due to slower manufacturing growth and continued contraction for the construction sector. Secondary industries are projected to grow by 1.6 percent and 3.2 percent during 2023 and 2024, respectively, a slowdown from 3.3 percent registered in 2022.
“The slower growth estimated for 2023 was mainly attributed to a decline in growth for manufacturing. Furthermore, the construction sector is anticipated to remain in contraction during 2023 and 2024, albeit lower rates of contraction than in 2022.”
Growth for the manufacturing sector is estimated to decline in 2023 before improving in 2024. The manufacturing sector is projected to grow by 1.0 percent and 3.5 percent in 2023 and 2024, respectively. The lower growth estimate for 2023 was dragged down by anticipated weak performances for sub-sectors like beverages, grain milling, chemical and related products, as well as leather and related products. All these sub-sectors are expected to contract in 2023.
The electricity and water sector is expected to maintain strong growth in 2023, before registering low growth in 2024. The electricity and water sector is estimated to grow by 9.5 percent and 4.2 percent in 2023 and 2024, respectively, a slowdown from 10.3 percent in 2022. The strong growth in 2023 is mainly attributed to the electricity sub-sector where local generation of electricity improved on the back of an increased water level at the Ruacana hydro-power plant during the latest rain season.
The construction sector is expected to remain in a contraction during 2023 and 2024, in line with weak construction activities by both Government and the private sector. The construction sector is anticipated to contract by 7.3 percent and 1.6 percent in 2023 and 2024, respectively, at the back of another contraction of 16.4 percent in 2022. This trend means that the sector contracted every year since 2016, when major construction projects in the mining sector came to an end and Government commenced with fiscal consolidation.
Tertiary Industries
Growth for tertiary industries is expected to expand during 2023 and to remain on an upward trajectory during the entire forecast period. The tertiary industries are projected to grow by 2.9 percent in 2023 and by 3.0 percent in 2024, from 2.2 percent registered in 2022.
“Hotels and restaurants, transport and storage, Information and communication, Financial and Insurance service activities, Real estate activities and Public Administration and Defence are expected to lead growth for tertiary industries in 2023,” further says the Central Bank in its report.
Growth for the wholesale and retail trade sector is expected to slow down in 2023 and 2024 due to weaker demand. The wholesale and retail trade sector are projected to grow by 4.3 percent and 3.8 percent in 2023 and 2024, respectively, which is a slowdown from 6.0 percent in 2022. The prevailing high prices for consumables and high interest rates are expected to continue exerting a downward pressure on consumer spending.
“The sector is, however, expected to perform better in the medium term as construction activities linked to oil mining and green hydrogen projects gain momentum.”
The hotels and restaurants sector are expected to maintain a strong growth momentum during 2023 supported by increasing tourist arrivals. The hotels and restaurants sector is projected to grow by 6.5 percent and 5.5 percent in 2023 and 2024, respectively, as the sector continues to recover some ground lost due to the impact of Covid-19. Despite some notable growth rates in 2021 and 2022, the real value added for the hotels and restaurants sector is expected to be some 20.0 percent below its pre-pandemic level. The total number of tourist arrivals at Namibian airports increased by 32.6 percent during the first ten months of 2023, when compared to the corresponding period of 2022, continuing the strong upward trend experienced over the past two years. However, tourist arrivals remained below the pre-pandemic levels of 2019 by 13.6 percent.
Notably, the transport and storage sector are projected to improve in 2023 and 2024. The transport and storage sector are projected to grow by 2.9 percent and 3.5 percent in 2023 and 2024, respectively, at the back of another low growth of 0.9 percent registered in 2022. The lifting of travel restrictions during 2022 and increased production and exports from the copper sector and higher importation of industrial and consumer goods are anticipated to add to the transportation activity in Namibia. During the nine months of 2023, total cargo volumes increased by 3.9 percent on an annual basis. Furthermore, both the number of airlines operating in the country and the frequency of flights have increased in 2023 and are expected to contribute to improved growth for the sector.
Lastly, the Public Administration and Defence is anticipated to rebound in 2023 and 2024 as the government embark on recruitment of new staff. The public administration and Defence sector are projected to recover to 1.8 percent and 2.3 percent in 2023 and 2024, respectively, at the back of a contraction of 0.9 percent registered in 2022. The sector is expected to be supported by the recruitment drive of government administrative personnel.