NAMIBIA IN RECESSION – HOW WE ENDED HERE

Until now it had never been difficult to answer this question because the words ‘’forward’’, ‘’onward’’ or ‘’upward’’ were mostly used to describe Namibia’s economic growth and outlook. Until now, the measures of progress showed Namibia improving consistently despite the challenges presented by her geography and complicated history. Real per capita income has increased, unemployment steadily decreased together with poverty levels, and the expansion of the provision of basic services, such as access to potable water, has markedly improved since independence in 1990.

Namibian economic expansion accelerated after stimulus measures were introduced by the government in reaction to the global financial crisis of 2008/09. By 2010, the Namibian economy had recovered from this external shock while monetary and fiscal policies remained accommodative. Interest rates were low and government spending was high even as the economy expanded. Real GDP growth rates between 2010 and 2015 averaged 5.7%, well in excess of the long-term average growth rate of 4% between 1990 and 2010.

The elevated growth rates can be explained by various factors, some within and others beyond the purview of the Namibian government. Among the factors that could not be controlled internally were favourable commodity prices, mineral resource wealth, a favourable global monetary environment and foreign investment flows into emerging markets. Although these factors account for a portion of the rapid growth experienced in Namibia between 2010 and 2015, they can also be regarded as a supporting act in procyclical expansion characterised by a stable, democratic government, institutional strength, and accommodative monetary and fiscal policy which provided the base for the expansion.

Government stability and institutional strength encouraged foreign direct investment flow into various sectors of the Namibian economy, especially mining. The strength of commodity prices indicated global optimism about the industry of which Namibia was also a beneficiary. Three large mines were constructed during the period under review, driving growth throughout the economy. A stable political regime and predictable regulatory environment meant such investments were relatively straightforward decisions in terms of quantifying risk. Foreign direct investment such as that into the mining sector drove much of the post-financial crisis expansion.

Arguably, the bigger driver of economic growth during the 2010 to 2015 period was the stimulus provided by rapidly increasing government expenditure and low interest rates. This is what is commonly referred to as procyclical monetary and fiscal policy when the rest of the economy is doing well. Government policy, both regulatory and fiscal, as well as monetary policy, are controllable. Expansionary government expenditure into both productive and unproductive projects drove much economic activity. The increase in government expenditure was financed by strong growth in government revenue and the issuance of government debt. Larger fiscal budgets resulted in budget deficits which were financed by the Namibian government issuing bonds and treasury bills. Namibia had low levels of government debt up until then and thus, the initial increase in debt issuance was not of major concern. However, as domestic economic expansion gathered steam, the necessity to issue debt lessened, because government revenue grew rapidly. The continued use of debt to fuel government expenditure resulted in government’s contribution to the economy growing far more rapidly even than the economy as a whole. Much of the increase in government expenditure went towards recurrent consumptive expenditure, such as salaries and wages, rather than the expansion of productive infrastructure such as roads and rail, water and electricity supply.