The global economy is facing a new set of challenges in 2023, as inflation, geopolitical tensions, and the ongoing signs of the COVID pandemic continue to affect countries worldwide.
Namibia is no exception, and the domestic economy is expected to experience steady but slow growth in the next few years. However, there are signs of improvement and opportunities for growth in certain sectors.
According to the International Monetary Fund (IMF), Namibia’s real GDP growth is expected to reach 3% by 2024, which is good news for Namibian individuals and businesses alike. Certain industries that contribute positively, including agriculture, mining, and tourism, are anticipated to propel this growth.
Namibia has a resilient agricultural sector, with a significant proportion of the population relying on it for their livelihoods. The sector is expected to continue growing in the next few years, driven by increased investment in irrigation and other infrastructure projects, as well as good rainfall predicted for 2023.
According to a recent report by the Namibia Statistics Agency (NSA), export earnings for agriculture, forestry, and fishing products amounted to N$3.7 billion for Q3 of 2022, so their contribution to foreign currency earnings should not be underestimated.
Namibia is blessed with an abundance of natural resources, and the mining industry is another major contributor to the economy of the country. The increased demand for minerals such as uranium, gold, and diamonds is expected to drive the industry’s growth over the next few years. In addition, the government has implemented policies to attract more investment in the sector, which in turn can create additional employment opportunities and stimulate economic growth.
Namibia is known for its breathtaking landscapes and diverse wildlife; as a result, the tourism industry is a significant source of employment and foreign exchange for the country. Like many countries globally, the sector was negatively impacted by the health pandemic, leading to reduced tourism revenues and decreased investment spending. Until the devastating 2020 fall in GDP to 9.8%, this productive sector had shown continued growth.
According to the World Travel and Tourism Council (WTTC), travel and tourism contributed approximately 14.7% of GDP in Namibia, and 15.4 % to total employment in 2019. However, despite the COVID-19 damage, international tourist arrival trends to Namibia from January to December 2021 indicated that 37.81% of the lost market was regained when compared to 2020 figures, and the year 2022 delivered continued international arrivals.
Inflation is always an important factor when analysing any country’s economy. However, due to external factors such as geopolitical risks and global economic trends, it can be especially difficult to predict fluctuations in inflation rates. In 2020, inflation rates remained relatively low, but has continued on an upward trajectory over the past two years, due largely to rising prices of imported goods and services.
According to Bank of Namibia data from 2020–2022, inflation accelerated from 7% in 2020 to 11% in 2021, before declining slightly to 8% kby 2022. This trend suggests that inflation may now have tapered and could remain relatively stable over the next few years; however, it is important to note that fluctuations can occur due to external factors such as currency exchange rates or changes in commodity prices. Rising consumer price inflation has also been identified as the most significant risk to consumer spending through 2022, eroding purchasing power and shifting consumer spending away from discretionary spending.
In 2023, high unemployment rates are expected to persist in Namibia. According to global macro models and analysts at Trading Economics, the youth unemployment rate in Namibia is projected to be around 47.4% in 2023. This may limit consumer spending growth in a small country like Namibia and reduce prospects for discretionary consumer categories.
The statistic implies that more than half of Namibia’s economically active population will not be employed, resulting in significant social, political, and economic consequences. High unemployment can lead to social exclusion, increased crime, economic hardship, loss of human capital, and social instability. It is critical to address this issue in a comprehensive and effective manner in order to mitigate its negative impacts on society.
Currency volatility also poses a significant risk in Namibia, due to fluctuations between the South African Rand and major currencies such as the US Dollar and the Euro. The depreciation of the Namibian dollar against the US dollar is expected, with the exchange rate forecast to reach 17.48 NAD/USD from 16.4 NAD/USD in 2022. This will result in increased import prices and a more challenging economic environment for consumers in 2023, as the country relies heavily on imports to meet domestic economic activity.
According to the latest Fitch Solutions Country Risk and Industry Research Report, growth is projected to be limited, at 0.1% year-over-year, and real household spending will remain below pre-pandemic levels. The report highlights that the short- to medium-term outlook (2023-2024) will be challenging, despite slightly lower inflation providing relief to consumers.
On the positive side, our key industries can help the country to meet these challenges. To support its forward-looking and sustainable agriculture, Namibia is actively pursuing green hydrogen initiatives which can balance productivity and economic viability through responsible use of natural resources and reduced environmental impact.
The integration of renewable energy into agricultural processes can lead to increased efficiency, reduced negative environmental impact, and lower production costs, especially considering the country’s approximately 60% dependence on energy imports. In the mining sector, expected growth is echoed by the Namibia Chamber of Mines, foreseeing increased output from the diamond and uranium industries, specifically. Meanwhile, the tourism industry is poised to recover in the near future due to improvements in air travel and growing demand for outdoor activities.
In spite of this positive outlook, there are structural challenges such as a lack of diversification and high unemployment rates that continue to weigh on the economy. Both domestic and international interest rate pressures, as well as geopolitical tensions, contribute to the heightened sense of unpredictability. These deteriorating global conditions could adversely impact the local short-term outlook. Higher-than-anticipated fuel and food prices, a global economic slowdown, weaker export commodity prices, and further tightening in global financial conditions could exacerbate inflation, worsen imbalances, and undermine Namibia’s recovery.
At Nedbank Namibia CIB, seeing money differently is about more than finding solutions for current problems. It’s about taking a step back to look at the bigger picture and positioning solutions for future growth. Nedbank Namibia CIB is a strategic financial partner with a focused objective to help our clients achieve their business ambitions and opportunities. This is achieved through the provision of tailored solutions, characterized by fresh thinking, innovation and a highly integrated partnership approach.
*Tjivingurura Mbuende is Executive: Corporate & Investment Banking at Nedbank Namibia
