Standard sees 4,5% growth

OPERATING in an institutional environment characterised by economic and democratic freedoms, Standard Bank Namibia expects that the Namibian economy will grow by 4,5 per cent this year.

Speaking at a media briefing in Windhoek on Thursday, analyst for Standard Bank Africa Jan Duvenhage said that despite highly volatile growth rates in the mining sector, as well as high incidences of poverty, income inequality and unemployment, the non-mining sector provides stability to overall growth.Coupled to US consumer confidence, Duvenhage said that diamond prices are expected to ease, as diamond production has recovered from 2009 lows, but is still below 2006-8 levels.In terms of uranium, production has risen since 2008, and Duvenhage regards the outlook for the energy source as interesting, saying that the outlooks will be more positive than expected. This is due to the fact that Chinese uranium demand remains high, and based on this it appears unlikely that the Asian country will be dissuaded from making uranium investment.Standard Bank Namibia further expects inflation to increase in 2011 as a result of higher food and energy prices. The inflationary increase is also expected to have a knock-on effect on interest rates, which are also expected to increase this year.Duvenhage noted that the spread between the prime and repo rates had narrowed by 100 basis points to a current rate of 3.75 percent, pointing out that the Namibian Dollar is expected to remain pegged to the South African Rand, and that would weaken to N$7.30 to the US Dollar in December 2011.A current account surplus in recent years is expected to reverse to a small deficit in 2011, however Duvenhage said that Foreign Direct Investment (FDI) had more than doubled since 2006 to US$859 million in 2010.Standard Bank Namibia has noted that the fiscal situation has deteriorated and an average fiscal deficit of 7 percent of Gross Domestic Product (GDP) is projected between the 2011/12 and 2013/14 financial years. There is however expected to be an improvement in financial deepening and financial bonds will become more sophisticated, Duvenhage said.According to the Standard Bank Africa analyst, the Government would be looking to the local market, instead of the international market, to finance the fiscal deficit, as domestic borrowing is expected to rise to approximately 30 percent of GDP.The global and regional economic slowdown have caused a drop in Southern African Customs Union (Sacu) receipts, which in turn have exerted pressure on Government’s budget. Sacu receipts account for roughly a quarter of Namibia’s total revenue, and Standard Bank Namibia have noted uncertainties ahead regarding the revenue sharing formula. The civil servants wage bill presents an issue, as Standard Bank Namibia maintains that it needs to be trimmed, and equally, the introduction of state-owned Epangelo Mining presents a number of uncertainties in the mining sector.Duvenhage also stressed the significance of external events for the Namibian economy, saying that there is an increased dependency on events in the rest of the world. ‘Namibia has a small, open economy, which is dependent on forces outside its control,’ the Standard Bank Africa analyst said.