Nam’s economic outlook optimistic

Namibia is witnessing organic economic growth of above pre-Covid levels for the first time since the pandemic, a trend that is expected to remain elevated and accelerate to degrees not seen in a decade.

This is the view of Cirrus Capital in its Updated Economic Outlook, released yesterday.

“Namibia’s outlook is, generally, optimistic – more so than it has been in a long time. This is not to say that our challenges are behind us or that growth will be achieved irrespective of other issues (external shocks, domestic policy),” Cirrus said.

The analysts have upwardly revised Cirrus’ estimates for 2023 and the forecast horizon, “owing to improved domestic economic sentiment, improved growth from some core sectors, the improving fiscal position (and thus likely further relaxation of ‘fiscal consolidation’), and unprecedented inward investment owing to mining and hydrocarbons”.

Overall economic growth of 3.8% is now forecast for this year, compared to 3.5% in January.



Performance



In 2023, the main impetus for growth will once more stem from the primary industries, chiefly due to improved diamond and uranium production, alongside continuous exploration efforts, Cirrus said. Additionally, the analysts anticipate a heightened pace of growth within the secondary and tertiary industries.

The secondary industries faced challenges during the pandemic due to subdued demand and restrictive policies. However, Cirrus foresees growth rebounding from this diminished starting point, driven by heightened engagement in sectors such as mining, tourism, logistics and the public service.

According to the analysts, tertiary industries are experiencing a healthy expansion, with tourism and logistics leading the way.

Furthermore, there's a positive trajectory in the fiscal outlook, and the services sector linked to ongoing oil and gas exploration activities is also showing early signs of growth, they said.

Cirrus expects primary industries to grow by 5.6% overall, slightly down from the 5.9% forecast at the beginning of the year. Secondary industries’ current growth estimate is 4.2%, a notable increase from 3.5% in January. Forecast growth for tertiary industries now is 3.1%, compared to 2.4% in January.



Oil and gas



Developments in the oil and gas space have been comparatively quiet for the first half of 2023, Cirrus said.

Both Shell and TotalEnergies are currently engaged in their appraisal initiatives. Reports from the media indicate positive flow test results and additional hydrocarbon discoveries through exploration drilling.

“Seeing as both of these majors are listed, the flow of information is understandably cautious,” Cirrus noted.

There is limited information available regarding Chevron's forthcoming actions after its acquisition of a nearby license in late 2022. On the other hand, Galp is set to commence a two-well exploration programme starting in November 2023.

“Should this prove successful, neighbouring blocks will likely also see accelerated exploration programmes,” it said.

Cirrus’ reading of the relevant legislation leads it to believe that the operators have approximately two years from first discovery to complete an appraisal programme, suggesting that there will likely not be official confirmation until early next year.

“Should a block prove commercially viable, there is uncertainty on the current time limits per legislation (if there is any) on the need to declare such a decision and begin the development phase,” the analysts said.

They added: “Nonetheless, the current excitement around the offshore oil and gas prospects along with the onshore mining exploration have seen unprecedented levels of net FDI [foreign direct investment] inflows into Namibia, an encouraging sign and a vital leading indicator for future growth.”



Policy



With all the hype around oil and gas, and the transformative potential this holds for Namibia, policy remains a concern, Cirrus said.

“We consider the plausible reality that irrespective of whether any of the discoveries prove to be commercially viable, it is not guaranteed that this will result in development and production.”

According to Cirrus: “At this stage a final investment decision seems incredibly unlikely given the apparent disinterest by the state in a fiscal stabilisation agreement or similar mechanism to protect an investment, which frankly cannot be exactly likened to the current minerals regime given the scale of investment is multitudes larger with far more transformative potential.

“The current policy missteps in the minerals space, however, serve as a warning sign for the oil and gas industry, given the talk and subtext of resource nationalisation. This stresses the importance of prudent and pragmatic policy across all fronts, as well as the need to drive macroeconomic policy reform to ensure economic growth is not solely driven by or linked to the extractive industries.”

Should production be viable and go ahead, Cirrus believes it would usher in “extreme levels of growth” for the country, particularly during the development phase with the establishment of peripheral industries.

“Frankly, this is something we believe the country is simply not prepared for,” Cirrus said.