Recent Developments & Prospects
Economic Cooperation, Regional Integration & Trade
Economic & Political Governance
Public Sector Management, Institutions & Reform
Natural Resource Management & Environment
Thematic analysis: Structural transformation and natural resources
Authors: George J. Honde, Ojijo Odhiambo
- Namibia's GDP growth slowed slightly from 5% in 2012 to 4.2% in 2013, pulled down by the negative impact of drought conditions and a weak global demand for mineral exports.
- The fiscal deficit is projected to increase in 2014 and 2015 because of the sustained expansionary fiscal policy.
- Namibia's growth prospects look promising, but downside risks associated with the global and South African economic outlook remain high.
The Namibian economy has recovered from the global economic crisis. Growth of real gross domestic product (GDP) remained robust at 5.0% in 2012 despite the persistent global economic turbulence. It is estimated to have slowed down to 4.2% in 2013 owing to negative impacts from drought conditions and a weak global demand for mineral exports.
Real GDP growth is projected to climb moderately to 4.3% in 2014, benefiting from the continued expansion of construction activities related to new projects such as the government's launch of a massive housing project, the commencement of the expansion of the container terminal at Walvis Bay and large investment projects in mining.
The lack of an independent monetary tool has led to the active use of fiscal policy as a major countercyclical tool to sustain economic growth in the aftermath of the global economic crisis. The budget deficit for 2013/14 is estimated to be lower than expected on account of lower spending than budgeted, a recovery in the Southern African Customs Union (SACU) revenues and increased revenue collection associated with higher domestic economic growth and initiatives to improve the tax-administration regime. Nonetheless for 2014/15, total expenditure is expected to expand to 42.6% of GDP from 38% of GDP in 2013/14, leaving the overall fiscal deficit at 5.5% of GDP. This will be larger than the deficit of 4.1% originally projected for 2014/15 in the 2013/14 budget.
Inflationary pressures eased in 2013. Year-on-year inflation slowed down to 4.4% in November 2013, but increased slightly to 4.9% in December. On an annual basis, the year closed at an estimated 5.8%, lower than the annual inflation of 6.5% for 2012. The declining trend in inflation is mainly due to decelerating costs of food, while transport inflation picked up in the second half of the year.
Key risks to medium-term growth include weak global demand for mineral exports that would result in lower export earnings, adverse weather-related shocks that would further weaken growth in agriculture, delays in construction projects, and lower SACU revenues due to the economic slowdown in South Africa. Namibia's growth prospects continue to be clouded by the country's massive challenges of poverty, high unemployment and inequality.
The emergence of global value chains (GVCs) is perceived as an opportunity for Namibia, especially in view of the country's abundant natural resources. Although GVCs do not specifically form part of the government's strategic considerations, the government is aware of the need to implement innovative measures to enable the country to make the most of its comparative and competitive advantages, including policies to reduce the high cost of doing business, removing various bottlenecks in infrastructure and investing in skills as part of a broader diversification strategy.
Table 1: Macroeconomic indicators
|Real GDP growth||5||4.2||4.3||4.4|
|Real GDP per capita growth||3.1||2.3||2.4||2.5|
|Budget balance % GDP||-7||-0.1||-3||-5.5|
|Current account balance % GDP||6.3||-6||-7.1||-8|
Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.