Cirrus laments policy-induced investment revolt

By Hilary Mare

ECONOMIC analysts, Cirrus Securities have said that Namibia is experiencing a policy-induced investment revolt and as a result, the forward-looking indicators of net foreign investment, as well as fixed capital formation, look poor – suggesting that the mid-term outlook will remain weak.

In the firm’s Economic Outlook 2020 report released recently, the analysts noted that without this investment, there are limited prospects for sustained material recovery of household incomes, as well as material recovery in government revenue adding that the best-case scenario for the near term is low growth.

“The secondary and tertiary industries are likely to remain under some pressure yet. In the former, manufacturing output is likely to be negatively affected by regional infrastructure bottlenecks, most notably low dam levels. At the same time, no material recovery in the construction industry is expected in the near term, as both public and private sector fixed capital formation remains low, with public and SOE construction spending sticking at very low levels.

“The tertiary industries also appear set to see further turbulent times, with the space dominated by retail consumer services and government-linked industries, both of which are to remain under pressure for the year ahead, as well as the foreseeable future should the general policy trajectory remain,” the report says.

The report highlights that a slight growth recovery will be witnessed this year, however remaining below population growth levels, and well below the growth rates required to supress the unsustainably high unemployment rate in the country.

“The slight buoyancy expected stems from a recovery in the primary industries, following an expected 13.2% contraction in 2019. Recovery is expected from the diamond mining industry, with output expected to increase by nearly 20% to two million carats. At the same time, after a poor 2019 (-30%), uranium output is expected to see some recovery and is expected to grow 17.5%.”

From a small business and investment perspective, no respite can be expected in the near term, the report further emphasises.

“Indeed, it appears as if Government remains determined to introduce additional taxes (dividend, taxes on trusts etc.), and while the worst-possible iteration of NEEEF and NIPA are unlikely to be introduced, less draconian versions (but still less desirable than the already challenging status quo) can be expected. That this will keep pressure on small businesses – the core employers in the country – is undeniable. These short-sighted measures will push economic, fiscal and household recovery further from reach, as well as provide additional space for misappropriation of funds by individuals, not to mention failure to achieve their broad-based intended outcomes. As a result, and depending on the severity of the new policies, our expectation is that many small businesses, particularly, will either close their doors, or lay off further workers.”

From a public finance perspective, the risk of fiscal slippage remains elevated despite commendable efforts to contain the wage bill with below inflation (no) wage adjustments in the past year.

“In this regard, the risk of wage bill pressure is ever-present, particularly as formal sector unemployment levels remain highly elevated while subsistence incomes have been devastated by the recent drought, thus increasing dependencies on employed community members. It has been reported that more positions in public health and education will be opened and funded this year, potentially increasing state employment by approximately 4%. However, we are told that wage increases will likely only materialise again in the 2021 financial year,” the report further states.

Furthermore, the report notes that in addition to the wage bill, demands on the shareholder from state-owned enterprises are a material risk to the fiscal situation in the country.

“This risk is dominated by Air Namibia, which runs an annual cash-deficit in excess of N$1 billion, has retained losses in excess of N$4.5 billion, is the largest government guaranteed SOE and appears on the brink of closure more often than not. At the same time, the student financial assistance fund, NSFAF, requires extensive funding from the state, as despite the loan-nature of most funds extended, very few of these are ever repaid. At the same time, the Namibia Airports Company and TransNamib remain fragile and (often) loss making, thus requiring shareholder support on a regular basis.”

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