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.
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