12 Dec 2018
As the year draws to a close, we reflect on its highlights and anticipate the future. This has been a tough year – one that tested our resilience as a country. The Namibian economy stretched further into a technical economic depression that started in 2016. Since then the economy has registered nine consecutive quarters of negative growth, from 0.9 percent in the second quarter of 2016 to 0.2 percent in the second quarter of 2018. This is the first time that Namibia has experienced such a contraction episode since independence, largely driven by weak performance in the construction, manufacturing, wholesale and retail sectors. In our assessment, the current state of the economy is an outcome of a tight fiscal environment, underscored by sluggish household spending.
Primary agricultural output, which has historically supported the domestic economy, has surprised on the downside. The sector recorded growth of 1.4 percent and -1.1 percent in the first and second quarters of 2018, respectively, in contrast to the impressive growth of 16.5 percent and 21.2 percent recorded in the corresponding quarters of 2017. The minimal growth in the agricultural sector somewhat reflects that favourable prices and trading conditions observed in 2018 could not sustain agricultural output due to the dominance of supply side constrains over demand forces.
The surge in livestock producer prices in 2018 did not attract higher off-take rates as farmers largely focused on herd re-building, resulting in limited marketing stock being made available. Furthermore, the macroeconomic environment has been less supportive of the competitiveness of the agricultural sector.
Specifically, the Namibia Dollar plummeted against the US Dollar by about 7 percent (y-o-y), resulting in a production cost squeeze.
Looking to the future, Namibia’s real GDP growth is expected to marginally improve from a negative growth of 0.9 percent in 2017 to 0.6 percent and 1.9 percent in 2018 and 2019, respectively (BoN, July 2018). The mining and quarrying, electricity, water, transport and communication sectors are expected to support growth, complemented by a renewed focus on fiscal support to strategic sectors. Headline inflation is likely to average 4.3 percent this year, before increasing further to 5.7 percent and 5.4 percent in 2019 and 2020, respectively. Risks to the growth outlook are slow growth and political dynamics in our major trading partners, slow recovery of commodity prices, US policy uncertainty and sluggish domestic consumer spending.
Local meteorological experts predict that the 2018/19 rainy season will receive normal to below normal rainfall in most parts of the country. Given this forecast, we are concerned about the intensity and distribution of rainfall and the subsequent impact these twin developments might have on our customers.
The Namibian economy is faced with structural and climatic challenges. We need to embrace technology to increase production in the primary production and manufacturing sectors through backward and forward linkages. We believe that, policy-wise, these should be the key investment priority areas for the public and private sectors for the economy to rebound onto a sustainable growth path.
Agribank endured a tough economic environment, too. However, the Bank continued to support the agricultural sector through financial and advisory services. We see greater scope for Agribank to contribute to the economic development and betterment of the Namibian society. Towards that end, we strive to be the pillar that investors in the agricultural sector lean towards to grow their businesses.
In the midst of all this, we still see a promising agricultural sector provided it can embrace climate and economic-resilient strategies such as on-farm diversification, effective and on-time marketing and de-stocking, and the use of technology to enhance production. Aligning ourselves to the national strategic plans, the Bank will continue to support the agricultural sector through strategic interventions in the form of financial inclusion, sustainable lending practices, effective loan collections, stringent risk management and stakeholder partnerships.
Sakaria Nghikembua Chief Executive Officer
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