NAMIBIANS should be more positive about the economy than 12 months ago, as reflected in revised economic growth forecast figures for 2023, which resemble growth figures last seen in Namibia’s economic boom years.
According to financial analysts Simonis Storm Securities, growth in 2023 is likely to be supported by the implementation of the special economic zones (SEZ) bill, improved foreign direct investment, green hydrogen pilot projects from private sector players, as well as the mining, manufacturing, transport, tourism, energy and information and communications technology sectors.
“Risks to our growth outlook include elevated interest rates, weak external demand, softer commodity prices and political uncertainty as we approach the presidential and National Assembly elections in 2024,” said the analysts.
“We forecast 5,1% and 3,7% growth for 2022 and 2023 respectively, and inflation to reduce from 6,1% in 2022 to 5,3% in 2023, and for the central bank to gradually normalise interest rates over the medium term as the inflation outlook improves.
We foresee a net increase of 25 basis points (bps) in the repo rate throughout 2023, and so the repo rate will be 7,25% at year end and a stronger rand/US dollar exchange rate of R16,55 for 2023.
The economy expanded by 5,6% year-on-year (y/y) in the first three quarters of 2022, compared to 2,2% y/y growth in the same period in 2021, and this, together with the potential for more data revisions growth for 2022, is forecast from 2,5% to 5,1%.
Taking into account a weaker external economic outlook, softer commodity prices, tight monetary policy, limited fiscal policy for stimulus, constraints to financing for small and medium enterprises and high local interest rates, Simonis says economic growth could be somewhat weaker in 2023, estimated at 3,7%.
“Towards the end of our medium-term outlook, we expect growth to improve materially as we factor in green hydrogen production from private pilot projects, current exploration activity leading to increased mining production, SEZs being established after the SEZ bill was approved by Cabinet, and allowing manufacturing production to increase and improved foreign direct investment in various sectors of the economy,” said Simonis.
Although growth forecasts have been revised downwards for most advanced economies, the general expectation is for emerging markets to outperform in 2023.
According to the latest growth forecasts for 2023 in their World Economic Outlook, the International Monetary Fund expects growth to average 3,7% in emerging markets and 1,1% in advanced economies, compared to 2,7% global growth.
Namibia is expected to be one of the best performers when considering GDP growth forecasts for certain emerging markets and advanced economies, a league above Namibia’s status.
Growth in 2023 is likely to remain above rates recorded in the last eight years in Namibia. A basic regression analysis shows that Namibian economic growth is most sensitive to growth developments in South Africa and the European Union. China, the United States, the United Kingdom and Australia, among others, have smaller to minimal effects on Namibia’s growth.
The Current Account is also likely to be supported by higher Southern African Customs Union (Sacu) revenue where our forecast exceeds that of the Ministry of Finance, due to South Africa having increased their projected payments to the Sacu revenue pool by 24,7% for 2023 and 2024 as per their mid-term budget speech in October 2022.
This will also benefit Namibia’s income, as Sacu revenue is typically the largest revenue component.
Compared to other African countries, Namibia’s average inflation rate between January and November in 2022 came in much lower. Inflation averaged 6,1% in 2022.
Local inflation rates are proving to moderate very slowly, however, the pace of moderation could pick up in the second half of 2023.
During 2022, two main categories of the consumer price basket used to calculate inflation recorded negative rates of inflation, while the rest remained in positive territory.
Not surprising, the transport and food categories were the main drivers of inflation in 2022.
Going forward for 2023, we expect the usual categories such as transport, food and alcohol, as well as the hotels and restaurants, furniture and utilities categories to be the main drivers of local inflation. – Email: [email protected]
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