Namibia: Risk Assessment

Country Rating¹

Rating: A3

Business Climate Rating¹

Rating: A4

Risk Assessment²

Moderate growth underpinned by natural resources
After the slight recession in 2009 caused by the sharp decline in diamond and copper production, the economy rebounded in 2010 amid the recovery in mining activity This trend is expected to continue in 2011 with further moderate growth.
Mining, which directly contributes 10% to GDP, is expected to continue to recover, in particular with the development of new uranium deposits. Fishing will benefit from an increase in quotas, whereas agriculture will get a boost from stronger demand and higher prices. Industrial production will grow thanks to the extension of the Tsumeb brass foundry and increased activity in diamond cutting. If the Economic Partnership agreement is moreover concluded with the EU it could also benefit from the development of meat and fish processing. The construction and public works sectors will retain their momentum thanks to ongoing infrastructure works, recovery in commercial and residential construction, development of the Kudu offshore gas field, and construction of installations connected with the development of uranium mines.

Following South Africa's example on monetary policy
Household consumption is expected to be less buoyant than investment with credit conditions remaining tight and prices for food and energy continuing to trend up. Furthermore, with the de facto pegging of the Namibian dollar to the South African rand and the impact on inflation of the strong dependence on South Africa for imported consumer goods, Namibian interest rates tend to follow those of their large neighbour, but with greater severity. Although inflation was down to 3.2%, the central bank's key rate was 6.75 % in November 2010.

Deterioration of public deficit, but low and easily financed debt
During the crisis, public accounts slid into the red because of the fall in revenues from the mining tax and the decline in the common customs revenues of the Southern African Customs Union (SACU). Despite the rise in tax revenues accompanying the recovery and a decrease in spending on economic support, the deficit is expected to exceed 8% in 2011-2012. The main cause lies in the continued decline in transfers from SACU, which represented 10% of GDP in 2009-2010, but are not going to exceed 2.8% of GDP in 2011-2012. Nonetheless, public debt is expected to reach only 27% of GDP. Financing the deficit on the domestic market is not expected to present any difficulty. The government will, however, have to seek new resources to stem any deterioration. A bigger stake in new mining operations seems to be the preferred solution as, at present, the government has control over only half of diamond production alongside De Beers.

Despite the collapse of customs transfers from SACU, the external financial situation remains solid
The current account balance also became negative, but only very slightly. It is expected to be back in the black very shortly with the trade gap expected to narrow in 2011: sales of uranium, copper, diamond and fish will exceed purchases of capital goods related to mining and gas projects. Tourist revenues are going to increase, offsetting higher dividend payments abroad. However, the significant reduction in transfers from the SACU will weigh on the current account balance. Foreign debt will remain low. Foreign investments in mining and hydrocarbons will continue to be substantial especially with the country seeking new investors to improve the exploitation of known mining and gas deposits and develop new resources such as gold, iron, lead, and zinc.

Strengths

• Extensive mineral resources (diamonds, uranium, gas, and copper)
• Good transport infrastructures
• Developed financial market and banking system
• Political stability
• Low foreign debt
• Strong tourist potential
• Satisfactory governance

Weaknesses

• Dependence on the mineral sector (50% of exports) and on foreign operating companies
• Dependence on South Africa
• Lack of skilled labor/inadequate level of education
• High incidence of HIV (15% of the working population)
• Domination by one political party, itself very divided
• Poor distribution of the mineral wealth: massive unemployment (50%), poverty, and inequality