Dry weather conditions and weak consumption to drive GDP slowdown
The country’s Gross Domestic Product (GDP) growth is expected to moderate to 3.3% in 2023 and 2.8% in 2024, from 4.6% in 2022, mainly due to the dry weather conditions which will be compounded by a slowdown in consumption. This according to FNB Namibia Economist Ruusa Nandago.In her Namibia Quarterly Economics report, Nandago explains that the Namibian government officially declared a drought in June and effected a drought relief programme from 1 October 2023 to 30 June 2024. “These drought conditions will undermine growth in 2023 as agricultural output, employment in the sector, and food prices come under pressure. The impact is already evident in the 2Q23 GDP data where the agriculture sector experienced a severe contraction of 31.9% y/y — the deepest since 2Q19 which was also a drought year. Consequently, overall GDP growth slowed from 5.3% y/y in 1Q23 to 3.7% in 2Q23,” she says.
“A consumer slowdown will also act as a drag on growth, given that private consumption makes up about 78% of GDP. Disposable incomes are under pressure from relatively high interest rates which translate into higher debt servicing costs as well as renewed price pressures for utilities and fuel. Consequently, the 2Q23 data shows that private consumption contracted by 4.2% y/y and we expect weak consumption growth to persist into 2024. A protracted slowdown in private consumption will induce weakness in sectors such as wholesale and retail trade, residential property and clothing and footwear. It will also weigh on import growth as consumption in Namibia has a high import element,” she further explains.
According to the report, despite the headwinds facing the economy, growth will remain above its five-year pre-Covid historical average of 0.7%. The economy will also continue to rely on mining activity as a key contributor to growth. “Against the backdrop of a supportive uranium price, uranium will be the main driver of mining activity from 2024. The Langer Heinrich Uranium mine will exit care and maintenance in 2024, targeting a total production of 77.4 million pounds over its 17-year life of mine. Meanwhile, the Rössing Uranium Mine has extended its life of mine to 2036 and expects to sell 1.4 million pounds of uranium in its current financial year. Over the latter part of our forecast horizon, further support will come from improved activity in gold mining, particularly from the Twin Hills Gold Project from Osino Resources whose 13-year life of mine production is projected at 169,000 ounces per annum. Lastly, there has been increased exploration activity and interest in Namibia across all minerals, including rare earth elements, base metals, and nuclear fuels, which is supportive of growth in mining,” the report reads.
“The favourable mining activity will have spillover effects into the utilities and transport sectors and will keep gross fixed capital formation growth positive. Improved mining activity is also supportive of exports given that Namibia’s exports are dominated by minerals. However, as the global economy contends with slower economic growth and softening commodity prices, this could dampen export growth” Nandago says.
“Other sources of growth for the Namibian economy include investments in energy. The national power utility, NamPower, will deploy significant capex spending on renewable energy projects using biomass, solar, and wind. Independent power producers (IPPs) are also expected to ramp up investments in power generation. Together, NamPower and IPPs are estimated to provide an additional 180MW from 2024 onwards,” she concludes.