Despite the local economy going through a rough patch, recording a negative growth of -0,8% during the third quarter of 2018, translating to 10 quarters of negative growth, the outlook for the domestic mining sector is expected to remain strong in 2019.
The sector’s real gross domestic product (GDP) is expected to increase by 1,1% in 2019.
However, Simonis Storm (SS)’s research team argues that the pending full details of the Neeef bill remains a threat to the sector. Additionally, SS stressed that although there’s a 25% equity stake in the sector, policy uncertainty remains a threat.
The SS research team had towards the end of 2018 released their report titled ‘Namibian Economic outlook 2019: In the Eye of the Storm’, where they noted that the proposed income tax amendments (especially around capping losses), make it increasingly difficult to operate in Namibia, which is an already high mining tax jurisdiction.
SS added that another threat to the mining sector is fuel costs, utility accessibility, and cost challenges that are also moving against the industry, but luckily the weaker rand will support the mines.
“There have been high expectations for a recovery in commodity prices, which could result into a significant catalyst for economic growth, if it materialises. We highlight seven key projects and new developments in the mining sector, affirming the positive outlook on the sector. The sector recorded growth of 7,8% during the third quarter of 2018,” stated SS.
Looking at other sectors’ growth, the agricultural sector is expected to continue experiencing slow growth, with SS expecting it to grow by 0,8% in 2019. Manufacturing is hampered by over-regulation, while the proposed income tax amendments are expected to put pressure on the manufacturers, with SS expecting the sector to contract by -9,2% in 2018, before lifting to a moderate pace of -0,1% in 2019.
SS also expects the wholesale and retail sector to contract by -8,7%, before growing by 1,8% in 2019.
“The sector is hit by persistent low consumer spending on the back of a depressed economic environment. This is evident in the sluggish private sector credit extension (PSCE),” added the firm.
Meanwhile, there is an expectation for the construction sector to pick up because of the increase in government’s capital expenditure budget on construction, although the sector declined by -6,5% during the third quarter of 2018 after growing by more than 20% in the first two quarters of the year. Simonis expects the sector to grow to 3,4% in 2019.
The fishing sector is expected to remain under pressure in the foreseeable future because of specific, internal, self-imposed factors such as continuous structural challenges between rights holders, quota allocations, and global challenges such as declining fish prices and stock levels.
The sector contracted by 10,6% during the third quarter of 2018. SS expects the sector to grow by 1,8% in 2019, while “further efforts should be implemented to manage the stocks so that catches are maintained at sustainable levels. This is in line with the three-year moratorium which was imposed on pilchard fishing in 2017 to facilitate stock recovery.”
The tourism sector (which encompasses hotels and restaurants as a proxy), is expected to contract by -11,6% and -2,2% in 2018 and 2019, respectively. Despite high expectations from the sector due to the increase in the number of regional and international arrivals into the country over the years, the sector has not delivered significantly over the past three years.
Overall, SS’s Namibian economic growth (GDP) forecasts are -0,8% and 0,7% for 2018 and 2019, respectively. Their outlook for 2019 is mainly driven by improvements in the mining sector, and a rebound in the construction sector.
SS’s junior analyst Indileni Nanghonga said most sectors are still in a depression, and are struggling. Mining, however, continued to record positive growth mainly attributed to diamond, copper and uranium production which increased significantly.
She added that when one looks at private sector credit extension, consumption still remains relatively low.
“We have seen an uptick in the November PSCE numbers, however, more in unsecured lending, which are mainly overdrafts, credit cards and personal loans. In terms of GDP, expect GDP to contract by -0,8% for the full year of 2018 on a fair case scenario, and for a worst-case scenario, we expect GDP to contract by -1.3%.
“Going forward, we do not expect excessive growth in the economy, with our predictions standing at 0,7% for the full year 2019. Mining and construction are the main contributors to the expected growth,” Nanghonga noted.
PSG Namibia’s head of research, Eloise du Plessis, stated that the economy has been in terrible shape, and that policies are not conducive for investment, which means the downturn keeps dragging on.
“GDP is a backward-looking number; it does not determine investor confidence, it is the result thereof. Investors, meaning anyone willing to commit money in Namibia, be it local business people or foreign companies, need to see policies that make it easy and safe for them to make this commitment. Direction and resolution on Neeef, the Investment Promotion Act, and tax reform are in my opinion required to get any investment going in order to get out of this slump,” she stressed.