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What does a weakened Rand mean for Namibia?

May 17, 2023
What does a weakened Rand mean for Namibia?

The Namibia Dollar weakened after the South African Rand hit a new record low on the back of a diplomatic fallout between Pretoria and the US over Russia’s invasion of Ukraine.

The fallout added to investor concerns over a domestic energy crisis and global monetary tightening.

The Namibia Dollar closed at N$19.17 last Thursday from the previous close of N$18.63 recorded on Wednesday.

According to Theo Klein from Simonis Storms, a weak Rand increases the price of imported goods since Namibia has a large import requirement.

"This is inflationary for general merchandise goods," he said.

Depending on what happens to global oil prices, a weaker Rand could lead to the likelihood of local fuel price hikes.

"Higher fuel prices is the tide that lifts all boats, given the widespread use of fuel in the economy. So, this is a short-term upside risk to inflation. The weaker Rand will keep our import bill inflated and potentially above the value of exports, leading to continued trade deficits," Klein reiterated.

He added that businesses that rely on importing equipment, machinery, or raw materials in US Dollars will see an increase in their costs.

"Whether they decide to pass these on to consumers depends on if the Rand remains at much weaker levels for a prolonged period of time. Businesses operating in sectors ranging from agriculture, manufacturing and retail could be impacted by higher costs,” the economist said.

On the flip side, Klein said despite the weakening of the Namibia Dollar, there are sectors that will benefit from this, as a weaker Rand exchange rate is beneficial to local mining and fishing companies who sell their exports in US Dollars.

"This will boost their earnings and increase the value of exports to an extent," he added.

He noted that local investors who bought financial assets such as shares in offshore companies in foreign currency will benefit from the weaker Rand.

"They (investors) will likely see an increase in the value of their portfolios. This supports our view of increasing your offshore exposure with your personal investments," Klein said.

In order to lessen the inflationary effects of the weaker Rand, Klein said analysts anticipate that the South African Reserve Bank (SARB) would increase the repo rate by 50 basis points in their meeting in May. 

If that happens, Klein is of the view that the Bank of Namibia will follow suit.

"If we don’t, the interest rate differential between Namibia and South Africa risks becoming too large," he reasons.

South Africa's repo rate is at an all-high of 7.75%, while Namibia slightly hangs below at 7.25%.

 

 

 

 

 

 

 

 

 

 

 

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Last modified on Friday, 19 May 2023 17:50
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