Category: GDP

2020 Economic Overview

Executive summary

The Namibian economy was hard hit during 2020 due to the negative impact of COVID-19 pandemic. The domestic economy contracted by 8.5% during 2020 from a contraction of 0.9% recorded in 2019. Real Gross Domestic Product (RGDP) declined to  N$ 132.5 billion from N$ 144.8 billion recorded for 2019. This was the deepest economic contraction since independence.

The main contributors to the economy’s contraction were the manufacturing sector, taxes on products, mining and quarrying, wholesale and retail trade and the financial services activities sectors. Out of a total of 18 sectors of the economy only 6 sectors registered growth for the year 2020 and the rest of the 12 sectors recorded a decline with the hotels and restaurants sector leading the pack followed by the transport sector (See figure 1). The secondary industries recorded the greatest decline with 13.0% followed by the tertiary industries with a decline of 5.7% and primary industries contribution to GDP declined by 5.9%.

Namibia’s GDP is driven by the tertiary sector which was the main contributor to the country’s economic growth. In a skills-constrained economy like Namibia, the bias towards skills-intensive employment driven by technological advancement has the unintended consequence of raising wage premiums, which further entrenches inequality and contributes to rising unemployment (See figure 2).

Analysis

The Hotels and the restaurants sector recorded the highest contraction of 31.2% this was due to a lack of demand for accommodation services which resulted from the lockdown restrictions imposed to contain the spread of Covid-19 for the year 2020. The taxes on products sector recorded the second highest contraction of 27.5%, this was due to reduced disposable income as a result of retrenchments and job losses.

The transport sector recorded the third highest contraction of 23.1%, this was due to the low demand for air transport services as a result of local and international travel restrictions. The manufacturing sector recorded the fourth largest contraction of 18.3%, this was due to low production reported for processed zinc as a result of the closure of the mine, low production of beverages as a result of the restriction on alcohol sales and also a low production of meat (See figure 1).

The water and electricity sector recorded the highest growth of 19.5%, this was driven by the growth in the electricity subsector due to good rainfall received in the catchment areas. The information and communication sector recorded the second highest growth of 17.4%, this was due to a high demand for communication services. The agriculture forestry and fishing sector recorded the third highest growth of 6.1%, this was driven by the growth in the crop farming subsector as a result of good rainfall which resulted in good harvests of cereal crops.

The health sector recorded the fourth largest growth of 4.5%, this was driven by a high demand of health services due to Covid-19 (See figure 1 below). For the year 2020, the secondary industries recorded a decline of 13.0% from a growth of 2.2% recorded in 2019, this was driven by low growths recorded in the manufacturing sector. The primary industries recorded a decline of 5.9% from a decline of 6.9% recorded in 2019, the slight growth  was driven by the growth recorded for the agriculture, forestry and fishing sector. Lastly the tertiary sector recorded a decline of 5.7% from a growth of 1.1% recorded in 2019, this was driven by low growth recorded in the transport sector, wholesale and retail sector and in the administrative and support services (See figure 2 below).

Figure 1: GDP Growth per sector (2020)

Figure 2: Industries contribution to GDP (2019 & 2020)

Outlook

Economic prospects continue to diverge across countries and vaccine access has emerged as the principal fault line along which the global recovery deviates. The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere.

Economic policy has become health policy and the efficient roll-out of Covid-19 vaccines will continue to help flatten the curve. Additionally, the relaxed Covid-19 protocols gives an opportunity for the economy to open up. However, an active demand of policies that caters towards the rebuilding of the economy is highly advised.

Concerted, well-directed structural reforms can make the difference between a future of sustainable recovery for the Namibian economy or one with widening fault line, as many struggle with the health crisis while a handful see conditions normalize, albeit with the constant threat of renewed flare-ups but to pre-covid19 levels.

Background

The COVID-19 pandemic is in its second year and concerns  continue to rise about how Namibia will recover from this. The Namibian economy has not responded very well to the economic fallout from the pandemic with unprecedented downturns for the  hard-hit sectors and households. The reality is that in the global economy some countries are rebounding faster than others and uncertainty is high regarding the pandemic, especially in relation to security of supply for the vaccines in the developing economies. This requires that Namibia need to navigate a shifting landscape, in order to reset the economy and achieve a sustainable recovery.

There are divergent recoveries in emerging markets which reflect differences in economic positions and policy responses. Those that were able to contain the virus or inoculate their populations[1] are recovering earlier. Those with ample fiscal buffers, market access, or both were able to deploy greater fiscal support[2]. In other countries Central bank credibility allowed some to cut policy rates to record lows and engage in unconventional monetary policy by embarking on asset purchasing programmes. Some countries with macroeconomic imbalances or elevated debt burdens continue to face serious challenges in whether to support recovery and reducing imbalances. Namibia and South Africa falls in the latter.

2.Analysis

Over the past five years the primary sectors contributed 16.8% on average to GDP. Mining and quarrying sector contributed around 10% on average to GDP between 2016 and 2020 on the back of very  good performance of the mining and quarrying activities. Agriculture forestry and fishing sector contributed to  7.7% on average from 2016 until 2020 see figure 2. Agriculture reached its peak in 2020 and contributed 9% to GDP ,which was attributed to the good rainfall received and the bumper harvest for cereal crops.

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Figure 1:Sectoral percentage contribution to GDP (2016-2020)

The performance of the secondary sectors were driven by the manufacturing sector contributing up to 12% on average to GDP between 2016 and 2020. Mining related manufacturing activities such as manufacturing of basic zinc and diamond cutting and polishing, makes up the Namibian manufacturing sector and its contribution  to GDP. Electricity and water sectors made up the second highest contribution for the secondary sectors to GDP. However, the growth of the secondary sectors  and its contribution to the country’s GDP  is  hindered by the lack of investment in the sector which contribute to the lack of skills needed to increase production capacity  and value addition.

Namibia’s GDP is driven by the tertiary sectors, and between 2016 till 2020 the services sectors were  the main contributors to the country’s economic growth. In a skills-constrained economy like Namibia, the bias towards skills-intensive employment driven by technological advancement has the unintended consequence of raising wage premiums, which further entrenches inequality and contributes to rising unemployment.

The Namibian economy contracted for 5 consecutive quarters since 2020 with a deepest  contraction recorded in third quarter of 2020 see figure 2. The year 2020 the economy declined by -7.9% on average. During the first quarter of 2021 the economy declined by -6.5% with the highest declines recorded  for the construction sector ,manufacturing sector and mining and quarrying sector.

Figure 2 : GDP Growth rates (2016-2021)

Outlook

The road ahead could be somewhat bumpy for Namibia because of the threats from the mutation of COVID-19 strains as it continues the spread with very little economic support to households and firms. There is a need for normalizing policies and rebuilding economic resilience. Securing adequate vaccines is a necessity and priorities will vary from country to country.

Recommendations

• Introduce measures through policies such as improved insolvency and restructuring procedures
• Promote competition to enable the exit and entry of firms to help curb market power
• Build local capacity for domestic market for inward linkages (agriculture sector)
• Supporting displaced workers, by gradually refocusing policy support from retention to reallocation
• Ensuring adequate access to financing for viable companies
• Accelerate digitalization
• Unconventional  Monetary Policy

Background

The Namibian Statistics Agency is set to release Namibia’s Q2 GDP figures towards the end of September 2020. This will demonstrate the full impact of the Covid-19 induced lockdowns. The impact will be huge and will result in record contractions. Historically, global recessions have always been accompanied by sharp declines in industrial commodity demand levels. The Namibian tourism and retail sectors face a hefty headwind as local and international travel has been significantly halted under lockdown regulations.

South Africa

South Africa’s GDP set the mark for African countries as the country’s second quarter Gross Domestic Product (GDP) output tanked by 51% on a quarterly basis. This marked the fourth consecutive quarter of decline in GDP. South Africa’s manufacturing industry contracted by 74.9%. The only sector to record growth was the agricultural sector that recorded a 15% increase. We expect this negative trend to mirror Namibia’s GDP figures as both countries were in lockdown between April and June.

Namibia

A large contribution to Namibia’s GDP is derived from the Mining Sector and the Manufacturing Sector. More importantly, the Manufacturing sector is dominated by mining related production. The two sectors contributed a collective 18% of GDP in the first quarter of 2020 according to the Namibian Statistics Agency (2020). Table 1 illustrates the most significant headwinds to global commodity prices, which in turn acts as a headwind to Namibian local mines. The Namibian Retail and Wholesale sectors have been on a downward trajectory since the first quarter of 2017. The private sector credit extension (PSCE) and the latest Vehicles Sales report (July 2020) illustrate a significant retraction on the back of covid-19 induced lockdown measures. This is an indication that businesses and households are under immense pressure.

Outlook

The weak demand for commodities and the abrupt halt to Namibia’s tourism sector paints a gloomy picture. The Namibian consumer is severely under pressure and this will result in poor economic output from the retail sector. We predict a 15- 20% decline in Namibia’s GDP on a quarterly basis. Figure 1 illustrates our GDP growth forecasts for Namibia and other emerging market economies as they are all on a downward trajectory.

Headwind	Reasoning
Reduced demand for travel	The first policy weapon against the Covid-19 pandemic was a world-wide travel ban.  This has resulted in a substantial reduction in the demand for fuel.   According to the World Bank (2019), this accounts for two thirds of global oil demand.   Furthermore, a reduction in crude oil prices has historically resulted in weaker prices for biofuels such as corn.
Lower aggregated demand during economic downturns	It is evident that a global recession is a major headwind to commodity demand.   This may lead to mines reducing their output in order to mitigate cash burning operations as operational costs exceed future commodity prices.

Table 1: Headwinds to Commodity Prices

Source: HEI Research, World Bank

Figure 1: GDP Growth Estimates

Source: HEI Research

Background

In June 2020 the International Monetary Fund (IMF) projected global growth will contract by –4.9 percent for 2020. This is a 1.9 percentage points below the World Economic Outlook (WEO) forecast that was predicted in April 2020. The consequence is that the COVID-19 pandemic has had a more negative impact on activity on the first six months of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. South Africa economy is now projected to contract by -8 percent for 2020. In 2021 global growth is projected at 5.4 percent and the slight rebound in growth will be driven by China, India and the Euro area.

Sub Saharan Africa is projected to grow with a modest 3.2 percent for 2021. Overall, this would leave 2021 Gross Domestic Product(GDP) some 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on businesses and households are particularly severe in developing economies compounded by huge job losses and will translate in severe economic hardships.

South Africa

South Africa recorded a contraction in GDP in the first quarter of 2020, worsening the recession it entered into at the start of 2020.Stats SA report that GDP growth for q1 2020 came in at -2%, marking the third quarter of decline in succession, following drops of 0.6 percent in q3 2019, and 1.4 percent in q4 2019 respectively (see figure 1).

The recent Supplementary Budget Review indicated a real challenge in government finances, with a fiscal deficit of -14.6 percent of GDP and gross debt as percentage of GDP of 81.8 projected for 2020/21 fiscal year. Countries that have gotten Covid 19 under control implemented stringent lockdown regulations for an extended period at the onset and funded the cost to the economy through unconventional monetary policy measures. The New Zealand Reserve Bank decided to implement a Large Scale Asset Purchase programme of government bonds up to $30 billion with diverse maturities to cushion the domestic economy.

Namibia

The GDP declined by -0.8 percent during q1 2020, compared to a decline of 3.3 percent in q1 2019 (see Figure 1). The data reflects only the first three months of 2020, before the nationwide lockdown was fully implemented (27 March 2020).

The Namibian economy faces a dilemma going into the future. On one hand, it faces a possible double digit decline especially with the current Covid-19 outbreak for 2020. On the other hand, the economy has not grown for the past 3 out of the last 4 years (see figure 1). Moodys in May 2020 made the point that the significant contraction in GDP as a result of the coronavirus outbreak will add to the already deteriorating economic environment. The current economic down turn is not the typical business cycle that will recover with an upswing but will need structural reforms to take effect. There is a need for policies to provide stimulus to stimulate demand and direct resources to increase the participation of the majority.

GDP Outlook

The economic cost as a result of the “short-lived” lockdown in industries and business to prevent the spread of Covid-19 is not represented in q1 2020.We expect a much bigger economic contraction in q2 of an average ranging between 9-11 percent for both countries.

The local elimination of Covid19 has put some economies on track for a 'V-shaped' bounce back while both South Africa and Namibia are yet to reach their peak of the pandemic. This will put further strain on economic activity and translate in further depressed economic environment coupled with potential loss of lives.

We hope both countries start considering the “unconventional Monetary Policy measures” to stem the further downward spiral.

Figure 1: GDP Namibia vs GDP South Africa 2020 Q1