Global supply chain disruptions could keep local inflation rising and a decline is SACU revenues which government relies on, Simonis Storm Securities has said.
In a report, Theo Klein, an economist at Simonis Storm stated that in addition to supply chain disruptions from the war in Ukraine, lockdowns in certain Chinese cities have disrupted seaborne trade which could potentially lead to renewed shortages of manufacturing inputs and higher inflation according to the World Trade Organisation (WTO).
“These disruptions will likely lead to shortages in various merchandise goods in Namibia as local firms battle to source imports, keeping local inflation on an upward trajectory and reduced consumer spending.
“With the risks of future Covid variants leading to subsequent lockdown restrictions in key manufacturing countries, risks to global trade are on the downside. This could negatively impact demand for commodities from Namibian mines and in turn lead to reduced SACU revenue which our government is reliant on for financing the budget deficit,” he said.
Klein also went on to say that the Rand has averaged R15.87 against the US dollar during May 2022 following an average of 15.04 during April 2022.
“The Rand has averaged 15.47 for the first two months of 2Q2022. The Rand outlook appears closer to our worst-case scenario as published in our Quarterly Economic Review Report which forecasts an average Rand exchange rate of 15.80 against the US dollar in 2Q2022 (compared to 15.35 in 1Q2022).
“The quantity of imported products has been on a long run declining trend, whereas the value of imports have increased. Even after we adjust for foreign inflation, the gap between import value and import quantity remains significant. The remaining gap could be explained by exchange rates amongst other. A weakening Rand, elevated shipping costs, elevated commodity prices and rising fuel prices amongst other production costs have the potential of inflating the value of Namibia’s imports, which would lead to a deterioration in the trade balance going forward,” he said.
Looking at trade statistics, commodities recorded the biggest decline in monthly exports, with the biggest declines observed for copper blisters ( down 57.0% m/m), diamonds (down 25.9% m/m), iron and steel bars (down 22.3% m/m) and
petroleum oils (down 21.1% m/m).
The data suggests a decrease in mining production which would counter
our view on the mining sector’s growth potential for 2022. With the lack of monthly production data on the mining sector, one can speculate using the export data that mining production has trended downwards during April 2022.
“YTD, total trade has exceeded total trade levels recorded for the same period last year. This has been driven by higher levels of imports rather than exports as Namibia has recorded a trade deficit in each month YTD. For the January to April period, Namibia recorded an average trade deficit of N$2.0 billion per month in 2021 compared to N$2.7 billion in 2022. This implies that net exports (exports less imports) will contribute negatively to the GDP calculation for 1Q2022,” Klein said.