The Namibian growth environment
The Namibian economy has performed admirably over the five years from 2010 to 2014. Over this five year period, growth averaged over 5.6%, compared to average growth since independence of 4.3%. This abnormally strong growth was driven by three key factors. Firstly, Namibia has been through a prolonged period of historically low interest rates, which drove unprecedented uptake of credit by the private sector; secondly, major fiscal expansion from 2011 until now, driving money into the pockets of the public, as well as major civil works programmes; finally, unprecedented levels of foreign direct investment into the country, driven by the consecutive construction of there, FDI funded mines in the country.
These factors resulted in a consumption and construction boom in the country, which saw a major expansion in the local economy, with the economy rebasing from a N$83 billion dollar economy, to a close to N$160 billion dollar economy in a period of six years.
However, subsequently, the macroeconomic environment in Namibia has started to deteriorate, as a combination of factors have come together to dampen growth and drive imbalances within the local economy. The unwinding of historically low interest rates, lower levels of Government spending, less foreign direct investment into the country, fewer Angolan retail tourists, a reduction in diamond output, weak commodity prices, drought, potential water supply constraints and a high base, are a notable few.
Thus, while many are still forecasting growth of 4% or over this year, given the unwinding of stimulus and the other factors mentioned above, this is all-but impossible. It seems unlikely that we will see growth of over 2.5% in 2016, as it appears that we are further through the normal economic cycle than many are predicting. At the same time, high frequency indicators suggest that growth already started to slow, admittedly from phenomenally high levels, in 2015. Despite the cloudy outlook for 2016, it is believed that some recovery will be seen come 2017 and 2018, largely due to the coming on-stream of the new Husab uranium mine, however this is conditional on no major infrastructure issues in the country, particularly.
Inflation
Inflation expectations for the upcoming fiscal year are notably higher than was the case in 2015. There are a number of reasons for this. Firstly, major rand weakens through 2015 has driven up the cost of imports into the CMA in rand terms; secondly, oil prices, which fell dramatically through 2014 and 2015 now appear to be stabilising, and the pass-through of base effects is likely to see an upward rebasing in inflation; third, rand weakness and other factors have driven up costs for many services in the country, including many critical utilities such as electricity and water; fourth, drought and poor harvests in the region mean that food prices are likely to increase, particularly if basic grain imports are required; and fifth, increasing interest rates are likely to see some pass-through of increased borrowing costs to consumers, and reduce consumer disposable income.
External position
The balance of payments of Namibia has remained under pressure for a number of years driven, particularly, by exceptional import volumes when compared to the historical norms of the country. In part, this is due to the abnormally high levels of construction activity that took place between 2012 and 2015, led by the construction of three mines, major public works programmes and retail floor space development. In addition to this, however, major fiscal and monetary expansion has also spurred private purchases of imported goods, as low interest rates, high government spending, wage settlements above inflation, and income tax cuts, buoyed the disposable income of local consumers. While the growth in imports has run rampant over recent years, export growth has been largely stagnant over the same period, and as a result, the current account has experienced huge deficits. While the capital and financial account has been positive, on an annual basis, every year since 2008, the magnitude of the inflow has not been adequate to offset the net outflows on the current account, and as such the overall balance of payments was negative in 2014, and would have been highly negative in 2015 had it not been for large external debt issuance by the Government.
Revenue:
According to the Ministry of Finance, revenue for 2015/16 is expected to come in at N$56.8 billion, N$1.7 billion less than the amount budgeted for in the 2015/16 budget. In 2016/17, revenue growth is expected at less than 2%, and as such total revenue for the year is expected to be just N$57.8 billion, a N$5.2 billion decline when compared to the number budgeted for in the 2015/16 budget.
Revenue is derived from a number of sources, however by far the largest single source is personal income tax paid by Namibian taxpayers. This represents some 27% of total revenue in 2016/17, and forms a critical part of the social contract between the public and government, whereby the public entrusts their money to government in order that the Government may provide public services to the taxpayer. In addition to personal income tax the second largest source of funds for government is VAT collections which are levelled on the entire Namibian public. These represent some 26% of total revenue in the 2016/17 financial year and too represent a core part of the social contract between the public and the public sector. Thereafter, the third largest source of funds for government is SACU payments from the southern African customs pool, which have which represents some 24% of total revenue in the upcoming financial year. Company taxes make up approximately 15% of total revenue, while the remainder is made up by non-tax and other tax revenue.
Generally, SACU receipts represent a larger share of total revenue than VAT, however as Namibia was overpaid by SACU in 2014/15, the country will now have to pay back just under N$3 billion in the upcoming financial year. As well is this, trade into and out of Southern Africa is likely to come under pressure in 2016, due to the fact that commodity prices are low and the global economy is relatively weak with demand for exports from Africa to China, particularly, on the decline.
In all, the revenue picture for the country looks slightly weaker than was the case previously, resulting in sizable downward revisions in forecast by the Ministry of Finance. As a result of weaker revenue, expenditure too has been tempered down somewhat, so as to ensure that the deficit remains manageable.
Kassie
IJG Securities Company Profile
IJG is one of Namibia’s leading financial services companies, with a strong focus on stockbroking, and as such is a registered member of the Namibian Stock Exchange. In addition to offering stockbroking services, we provide our clients with a full range of investment-related services, including money market, private equity and advisory services. We are also well-known and respected for our research activities within the country and the region.
IJG has assisted in listing 20 out of the last 22 companies and 5 of the last 6 Domestic Medium Term Note Programmes (DMTNP) on the Namibian Stock Exchange and has helped to raise over N$2 billion on the Namibian Stock Exchange through bond and equity issues since 1999 for its clients. As a result, IJG is currently the sponsor to approximately 50% of all the companies listed on the Namibian Stock Exchange.
Through our international associates, we have access to regional and international expertise to provide a superior service to our clients. We are on-the-ground professionals, driven by outcomes and adding real value by drawing on our collective skills and experience to develop solutions for our clients.
These factors resulted in a consumption and construction boom in the country, which saw a major expansion in the local economy, with the economy rebasing from a N$83 billion dollar economy, to a close to N$160 billion dollar economy in a period of six years.
However, subsequently, the macroeconomic environment in Namibia has started to deteriorate, as a combination of factors have come together to dampen growth and drive imbalances within the local economy. The unwinding of historically low interest rates, lower levels of Government spending, less foreign direct investment into the country, fewer Angolan retail tourists, a reduction in diamond output, weak commodity prices, drought, potential water supply constraints and a high base, are a notable few.
Thus, while many are still forecasting growth of 4% or over this year, given the unwinding of stimulus and the other factors mentioned above, this is all-but impossible. It seems unlikely that we will see growth of over 2.5% in 2016, as it appears that we are further through the normal economic cycle than many are predicting. At the same time, high frequency indicators suggest that growth already started to slow, admittedly from phenomenally high levels, in 2015. Despite the cloudy outlook for 2016, it is believed that some recovery will be seen come 2017 and 2018, largely due to the coming on-stream of the new Husab uranium mine, however this is conditional on no major infrastructure issues in the country, particularly.
Inflation
Inflation expectations for the upcoming fiscal year are notably higher than was the case in 2015. There are a number of reasons for this. Firstly, major rand weakens through 2015 has driven up the cost of imports into the CMA in rand terms; secondly, oil prices, which fell dramatically through 2014 and 2015 now appear to be stabilising, and the pass-through of base effects is likely to see an upward rebasing in inflation; third, rand weakness and other factors have driven up costs for many services in the country, including many critical utilities such as electricity and water; fourth, drought and poor harvests in the region mean that food prices are likely to increase, particularly if basic grain imports are required; and fifth, increasing interest rates are likely to see some pass-through of increased borrowing costs to consumers, and reduce consumer disposable income.
External position
The balance of payments of Namibia has remained under pressure for a number of years driven, particularly, by exceptional import volumes when compared to the historical norms of the country. In part, this is due to the abnormally high levels of construction activity that took place between 2012 and 2015, led by the construction of three mines, major public works programmes and retail floor space development. In addition to this, however, major fiscal and monetary expansion has also spurred private purchases of imported goods, as low interest rates, high government spending, wage settlements above inflation, and income tax cuts, buoyed the disposable income of local consumers. While the growth in imports has run rampant over recent years, export growth has been largely stagnant over the same period, and as a result, the current account has experienced huge deficits. While the capital and financial account has been positive, on an annual basis, every year since 2008, the magnitude of the inflow has not been adequate to offset the net outflows on the current account, and as such the overall balance of payments was negative in 2014, and would have been highly negative in 2015 had it not been for large external debt issuance by the Government.
Revenue:
According to the Ministry of Finance, revenue for 2015/16 is expected to come in at N$56.8 billion, N$1.7 billion less than the amount budgeted for in the 2015/16 budget. In 2016/17, revenue growth is expected at less than 2%, and as such total revenue for the year is expected to be just N$57.8 billion, a N$5.2 billion decline when compared to the number budgeted for in the 2015/16 budget.
Revenue is derived from a number of sources, however by far the largest single source is personal income tax paid by Namibian taxpayers. This represents some 27% of total revenue in 2016/17, and forms a critical part of the social contract between the public and government, whereby the public entrusts their money to government in order that the Government may provide public services to the taxpayer. In addition to personal income tax the second largest source of funds for government is VAT collections which are levelled on the entire Namibian public. These represent some 26% of total revenue in the 2016/17 financial year and too represent a core part of the social contract between the public and the public sector. Thereafter, the third largest source of funds for government is SACU payments from the southern African customs pool, which have which represents some 24% of total revenue in the upcoming financial year. Company taxes make up approximately 15% of total revenue, while the remainder is made up by non-tax and other tax revenue.
Generally, SACU receipts represent a larger share of total revenue than VAT, however as Namibia was overpaid by SACU in 2014/15, the country will now have to pay back just under N$3 billion in the upcoming financial year. As well is this, trade into and out of Southern Africa is likely to come under pressure in 2016, due to the fact that commodity prices are low and the global economy is relatively weak with demand for exports from Africa to China, particularly, on the decline.
In all, the revenue picture for the country looks slightly weaker than was the case previously, resulting in sizable downward revisions in forecast by the Ministry of Finance. As a result of weaker revenue, expenditure too has been tempered down somewhat, so as to ensure that the deficit remains manageable.
Kassie
IJG Securities Company Profile
IJG is one of Namibia’s leading financial services companies, with a strong focus on stockbroking, and as such is a registered member of the Namibian Stock Exchange. In addition to offering stockbroking services, we provide our clients with a full range of investment-related services, including money market, private equity and advisory services. We are also well-known and respected for our research activities within the country and the region.
IJG has assisted in listing 20 out of the last 22 companies and 5 of the last 6 Domestic Medium Term Note Programmes (DMTNP) on the Namibian Stock Exchange and has helped to raise over N$2 billion on the Namibian Stock Exchange through bond and equity issues since 1999 for its clients. As a result, IJG is currently the sponsor to approximately 50% of all the companies listed on the Namibian Stock Exchange.
Through our international associates, we have access to regional and international expertise to provide a superior service to our clients. We are on-the-ground professionals, driven by outcomes and adding real value by drawing on our collective skills and experience to develop solutions for our clients.
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