Namibians living from hand to mouth – analyst

Namibia has been described as a consumer market, meaning that people primarily buy products and services for consumption and there is little to save.

This was discussed during the Sanlam Brief Sessions in the capital yesterday.

Twilight Capital Consulting managing director Mally Likukela said Namibia is a consumption country and most of the savings recorded are those that are contractual, like pension funds.

“Most of the saving statistics that we are proud of are primarily from contractual agreements, like for example pension fund savings. If we had a choice, many people would not even save with the pension fund. People spend most of their money on consumption,” said Likukela.

Sanlam investments portfolio manager Basson van Rooyen said consumption in the country is also reflected in the country’s budget.

“Most of the country’s budget is spent on consumption. So the majority of the budget goes to paying salaries and infrastructure.”

Likukela added that when the interest rate is adjusted, the cost of living increases for the ordinary Namibian and without any salary increment, people are forced to just spend and not save.

“When the interest rates go up, the cost of getting new credit becomes high and the cost of existing debt expands, so economic activity motivated by consumption also slows down,” said Likukela.

According to the Namibian Financial Stability Report, the ratio of household debt to disposable income stood close to 80%.

“Because of the structure of the economy, we are forced to take up credit. People are left with no other choice, but to borrow because there is firstly no money to save or enough for consumption.”

He added that because of the role the repo rate plays, whether the interest rate is successful or not depends on the consumer.

“For those in the investment, fund and financial sector, they are doing very well with the current interest rate, however, to the ordinary individual, the interest rate increased the cost of living and borrowing,” said Likukela.

He also said that the monetary policy is becoming less effective due to an increase in the informal sector.

“The monetary policy transmission mechanisms work much better in the formal than informal sector and Namibia is becoming more and more informal. The official unemployment statistics show that over 50% of the people that are unemployed are in the informal sector and those in the informal sector are not banking and, therefore, they are not really affected by the repo rate changes,” said Likukela.

“We don’t need to try and formalise the informal sector, but rather should find a way to protect it because there are few opportunities found in the formal sector.”

The discussion also touched on the currency peg that exists between the Namibia dollar and the rand.

“There are bilateral and multilateral agreements that exist, so a decision to unpeg is not just economic, but also political and because of this peg, whether or not it is viable for Namibia, we have to maintain a certain interest rate,” said Likukela.

Van Rooyen added that due to the pegging of currencies, whatever happens, South Africa’s economy will have an effect on Namibia’s economy.

“Being pegged to South Africa gives Namibia a lot of benefits, because it enables Namibia to have currency stability, which is vital in attracting foreign investors. The only time we can really have a discussion around unpegging our currency is when we have stronger exports and with the current energy sector making waves, it is something that can be looked at.”

These sessions will be taking place every month starting next month.