Breaking the peg can cause hyperinflation
Prices doubling overnight
Namibia is highly dependent on imports from South Africa.
The controversy surrounding Namibia breaking the peg arrangement with South Africa can lead to hyperinflation, analysts have warned.If the peg breaks, considering that Namibia is dependent on imports from South Africa, Namibia’s exchange rate will increase and hyperinflation can happen overnight.
These sentiments were shared by Dr John Steytler, a board member of the Economic Association of Namibia (EAN) at a public discussion on rising inflation and interest rates.
According to the Namibia Statistics Agency (NSA), South Africa was Namibia’s top import market in April 2023, accounting for 46.7% of total imports valued at N$4.1 billion. Exports to South Africa stood at N$1.6 billion in April, making Namibia a net importer.
The Head of Research at Cirrus Capital Robert McGregor also concurred with Steytler and cautioned that the discussion surrounding adopting a different regime should be considered very carefully as it could have huge implications.
“If there is not sufficient demand for your currency but excess supply, you will see massive weakness.”
On the other hand, McGregor noted that if the Namibia dollar is stronger than the Rand, export earnings from key economic sectors such as agriculture and mining will be impacted positively.
In addition, if Namibia’s currency appreciates relative to the Rand, “a German tourist can find it more attractive to go on holiday to South Africa than to Namibia because they will get more value for money in South Africa,” he said.
Predictability
Moreover, Jesaya Hano-Oshike, another EAN board member who contributed to the discussion noted that a stronger currency will have a positive impact on Small and Medium Enterprises (SME’s), especially for those that import their production inputs.
Hano-Oshike believes a currency that is predictable and does not fluctuate more frequently is crucial.
He further referred to the recent suspension of the central bank governor of Nigeria Godwin Emefiele by president Bola Tinubu, which caused the Naira to depreciate significantly.
Fin24 reported that Emfiele was suspended a year before his term was set to end amid an investigation of his office and planned financial sector reforms.
The governor was one of the most influential members of former president Muhammadu Buhari’s government during which the central bank made significant interventions in the economy, including propping up the naira, lending unprecedented sums to the government and extending credit to multiple sectors.
Meanwhile, the governor of the Bank of Namibia Johaness !Gawaxab on Wednesday stated that the current peg arrangement with South Africa is competitive at this point. “Whether Namibia will have to delink from the Rand in the future, that is not an argument that we need to get into at this stage,” he said.
The benefits of Namibia currently being a member of the Common Monetary Area (CMA) outweigh the [email protected]