Namibia: Risk Assessment
Business Climate Rating1
Growth underpinned by natural resources
In 2012 economic activity is expected to be sustained by good mineral prices, especially those of uranium and diamonds. Though diamond production is expected to show moderate growth, that of uranium will increase significantly thanks to the development of new deposits as also will that of copper with the reopening of the mines. Fishing, one of the economy’s key sectors (5% of GDP) will benefit from the establishment of quota regulations which reduce the competition from other countries, while agriculture will benefit from continuing high demand and prices. Moreover, government spending on infrastructures and the construction of new uranium mines will support the construction and industrial production sectors. However, household consumption is expected to remain constrained by parsimonious lending and still high energy and food prices. Inflation is nevertheless expected to slow down in 2012 because of interest rate hikes and a change in the calculation of the consumer price index, which will no longer take electricity price rises into account.
Public accounts situation still weak
Public accounts have deteriorated in recent years chiefly because of the fall in revenues from the mining tax and the decline in the common customs revenues from the Southern African Customs Union (SACU). Despite the rise in tax revenues and a cut in spending on economic support, the deficit will exceed 6% in 2012. The main cause lies in the continued decline in transfers from the SACU, which fell from 10% of GDP in 2009-2010 to 2.8% in 2011-2012. However, even though it is still growing, public debt is not expected to exceed 29% of GDP in 2012. In the medium term the state should benefit from additional resources thanks to an increased share in the exploitation of the new resources. The state currently controls only half of diamond production alongside that of De Beers.
Despite a worsening current account balance, the external financial situation remains solid
The current account balance has also become slightly negative and is expected to worsen in 2012. The trade deficit is actually expected to grow: the rise in imports will exceed that of exports because of the need for capital goods for the two new uranium mines and the second desalination plant. Foreign debt will nonetheless remain low. Foreign investment in mining and hydrocarbons will remain strong, especially with the country seeking to attract new investors to improve the exploitation of existing mineral and gas deposits and to develop new resources such as gold, iron, lead, zinc and oil.
A stable but ossified political environment
The SWAPO, in power since independence in 1990 is expected to dominate the country’s political stage until the 2014 elections. During its 2012 electoral congress, the ruling party is expected to appoint as vice president of the party its future candidate for the 2014 presidential elections. The constitution does not allow the present president, Hifikepunye Pohamba, to be re-elected. However, if the present president’s health should deteriorate (aged 76), the prime minister would fill the power gap, which would certainly deepen the divisions within the party.
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.
- Extensive mineral resources (diamonds, uranium, natural gas, copper)
- Developed financial market
- Strong tourist potential
- Good transport infrastructure
- Political stability
- Satisfactory governance
- Dependence on the mineral sector (50% of exports)
- Dependence on South Africa
- Lack of skilled labor and inadequate level of education
- High HIV prevalence (15% of the economically active population)
- Uneven distribution of the mineral wealth: massive unemployment (50%) and poverty