Country Risk Rating

B
Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable. - Source: Coface

Business Climate Rating

A4
The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.

Strengths

  • Significant mineral resources (diamonds, uranium, copper) and fisheries
  • Good transport infrastructure
  • Good governance
  • Tourism potential

Weaknesses

  • Dependent on the mining sector
  • High unemployment and persistent inequalities
  • Agricultural sector exposed to climatic hazards
  • Dependent on South Africa

Current Trends

Struggling to exit several years of recession

After two years of negative growth, Namibian GDP contracted even more sharply in 2019 on poor performances by the agricultural, mining and construction sectors. These sectors are expected to see a broad recovery in 2020, which will allow economic activity to regain some momentum. Hurt by the closure of the Elizabeth Bay mine in 2019, diamond production will rise again thanks to offshore operations, which already account for 75% of total production. In addition, uranium mining will continue to grow with the ramp-up of the Husab mine, making the country the world’s third largest producer. Meanwhile, agricultural performance should improve owing to more favorable weather conditions than in 2019, when a severe drought affected livestock and crops. Fishing, which provides 3% of GDP, will also contribute to growth. The construction sector will still suffer from fiscal consolidation, which is limiting public investment. Even so, the latter could still increase slightly in 2020, particularly through several projects financed by the AfDB and Germany (road and rail infrastructure, water supply network, school renovations, agricultural mechanization program). Furthermore, despite relatively low inflation, private consumption will remain severely constrained by the very high unemployment rate (around 33% of the working population) and slower credit growth.

Complicated balance between supporting economic recovery and pursuing fiscal consolidation

After a rebound in the public deficit in fiscal year 2019/2020, fiscal consolidation will resume in 2020/2021 at a modest pace, as the government has to reckon with an economy trying to emerge from recession. Spending efforts will focus on containing the wage bill, through wage and hiring moderation. The authorities also plan to adjust the allocation of social transfers to target the poor more effectively. On the revenue side, the new electronic tax collection system launched in 2019 will make collection more efficient. Measures to broaden the tax base, reduce exemptions and recover arrears are also expected in 2020. In addition, the government should benefit from a rebound in customs revenues from the Southern African Custom Union (SACU); the surplus could be partially put towards capital investments. The ratio of public debt to GDP has been rising over recent years, but at a slower pace than in the past thanks to fiscal consolidation. Debt is mainly domestic, long-term and denominated in the local currency, which limits the exchange rate risk.

With regard to external accounts, the current account deficit should decline in 2020. The trade deficit (12% of GDP) is expected to narrow slightly as exports start climbing again, chiefly thanks to uranium and fishery products, while imports will be subdued, and with consumption and oil prices remaining low. Services will continue to show a small surplus, driven by a brisk performance from tourism, while the income deficit (2% of GDP) will continue to be fuelled by profit repatriation. However, it is primarily the rebound in SACU customs revenues (about 10% of GDP) as a result of South Africa’s recovery that will cause the current account deficit to narrow. FDI, as well as government and intra-group loans, will finance the deficit.

Hage Geingob re-elected as President

President Hage Geingob was comfortably re-elected in the November 2019 elections for a second 5-year term. His party, the South West African People’s Organisation (SWAPO), retained a strong majority in the National Assembly (63 seats out of 96), maintaining the political dominance that it has enjoyed since the country’s independence in 1990. Nevertheless, despite a fragmented opposition, SWAPO lost 14 seats, reflecting rising discontent, notably over the persistence of inequalities that are among the highest in the world. In particular, the controversial issue of land redistribution to «indigenous» populations will remain central and reflective of community divisions. President Geingob must find a balance between the pressure exerted by SWAPO members and a portion of the electorate, and the fragile economic context, as this type of provision could scare off potential investors.

The business environment will continue to be affected by the complexity of some procedures, such as those required to start a business or register property. However, access to electricity and credit, as well as contract enforcement, are satisfactory, allowing the country to rank 104th out of 190 countries in the Doing Business ranking.

Source:

Coface (02/2020)
Namibia