Flamingo - Business Industry - Green shoots in the desert
Namibia’s export-driven economy is being hit by the global downturn – but that hasn’t stopped plenty of good investments from moving ahead.
Politicians, economists, business people and pretty much everyone else too are on the lookout for green shoots – signs that the biggest downturn in the world economy since the Great Depression is coming to an end and that economic growth across the world is now resuming. Traditionally Namibians have always been excited by green shoots of almost any description, since life in one of the driest countries on earth means that signs of rain are often a matter of life and death. Because Namibia’s economy is closely integrated into the world economy, the downturn has hit home in this part of Africa too. Exports of livestock, meat and fish products, beer, minerals and an increasingly important travel industry based on foreign tourist arrivals means that Namibia’s economy is highly dependent on the health of the world economy – not only on the rich economies of Europe, Japan and North America but also increasingly on the emerging markets of Asia and elsewhere. This time round the world economy has done much more than sneeze – it’s currently on a government and central bank life-support machine – and Namibia, through no fault of its own, has definitely caught a cold.
Catching a heavy cold Namibia’s gem diamond industry led by the pioneering government-De Beers joint-venture company Namdeb started feeling the chill soon after Lehman Brothers went belly-up last year. Although diamond mining continued at record levels until the end of 2008, sales plummeted as US consumers, who make up half the world market for diamonds, were starved of credit and forced into some severe belt-tightening. At the end of the year Namdeb took the unprecedented step of introducing a ‘production holiday’, temporarily suspending land-based operations and halving its workforce through voluntary redundancies and early retirement.
Namibia’s nascent diamond-cutting and polishing industry, which the Namibian government had done so much to nurture, was similarly affected. Namibia has a long history of producing copper, but at the end of last year, as copper fell below US$3 000 a tonne, all three copper mines ceased production and were mothballed. By the beginning of 2009 some three thousand people in mining and mining-related industries found themselves out of work. The concern was that tourism too would be hit hard since most high-spending tourists to Namibia come from countries that were being hard hit by the downturn: Germany, the UK, France and the US.
Good policy and good luck Fortunately, thanks to a combination of good economic policies, a certain amount of foresightedness and a not inconsiderable dollop of luck, Namibia found itself not completely defenceless against the slump. For a start, Namibian banks were not directly exposed to the ‘toxic assets’ that had contributed so greatly to global economic problems. The Namibian central bank had raised interest rates in 2007 to counter the inflation caused by high international oil and food prices. As inflation started to subside in the second half of 2008, the Bank of Namibia was able to cut rates aggressively, something that should help consumers and investors.
The Minister of Finance’s strategy of fiscal prudence also paid dividends. Three successive budget surpluses had enabled her to pay off a considerable amount of debt and accumulate sizeable cash reserves. This meant that, come budget time in February 2009, Minister Kuugongelwa-Amadhila was able to propose a stimulatory budget that maintained the value of public-sector salaries and boosted spending on infrastructure and public works without jeopardising fiscal stability. The hope is this spending programme kicks in sooner rather than later and helps support local economic momentum while international demand picks itself up from the floor.
Big projects But on top of the usual monetary and fiscal policy tools comes strong investment spending by State-Owned Enterprises and private investors – a trend which has remained relatively robust despite international developments. Two big projects – French nuclear giant Areva’s Trekkopje uranium mine and the German Schwenk Group’s new state-of-the-art Ohorongo cement plant – are powering ahead and are likely to boost the GDP greatly into 2010 and 2011. Associated with Trekkopje is a new water desalination plant at the coast – a technology that is new to Namibia. Egyptian telecoms giant Orascom announced its takeover of Namibia’s second cellular operator Cell One at the very start of the year. Power projects such as the Caprivi Link, the Lower Orange River Hydro Electric Plant, which involves building a series of mini-hydroelectric plants along Namibia’s southernmost river, a fourth turbine at the existing Ruacana hydroelectric power station in the far north-west, a diesel peaking plant at Walvis Bay and the possibility that Namibia’s offshore Kudu gas field may now finally be tapped through innovative Compressed Natural Gas shuttle tankers, transporting gas to Namibia and other markets in Southern Africa are all tantalisingly close to realisation. At least two major new hotel projects kicked off (one in Windhoek and one in Swakopmund), all of which comes on top of a continuing boom in expanding existing uranium mines – Rössing and Langer Heinrich – and development work on at least four new mines. Luckily for Namibia, one of the advantages of uranium mining is that it is far less susceptible to wild demand fluctuations, since power utilities secure long-term contracts with mines many years in advance to ensure supply.
Notwithstanding the global credit crunch, NedCapital and Old Mutual are actively involved in advising on and financing many of these projects and helping to tap both the large pool of local Namibian savings as well as foreign funds from international lending institutions. It is a sign of confidence in Namibia that so many projects are going ahead in such a tough international climate.
All in all there is little doubt that Namibia’s economy will be severely affected by the global downturn. Namibia has to hope that policymakers in the US and Europe sort out their banks and get global growth going again. But the downturn has not affected Namibia’s big investment pipeline dramatically. If the world economy starts to pick up in 2010, Namibia is set to grow strongly and the green shoots now starting to appear should blossom into lasting growth. Robin Sherbourne is Group Economist for the Old Mutual in Namibia. Text by Robin Sherbourne
