Namibia trapped in marriage with SA rand

Namibia has no immediate plans to delink its currency from the South Africa rand, as this would have a devastating impact on the domestic economy, the Bank of Namibia recently said.

Deputy governor Ebson Uanguta, during engagements with editors last week, said while it may sound politically feasible to detach the Namibian dollar from the South African currency, it would be economically disastrous for Namibia.

As long as Namibia’s trade relations remain the way they are with its southern neighbour, it would be negligible to delink the two currencies, he said.

The Namibian economy is closely linked to South Africa, with the Namibia dollar pegged one-to-one to the South African rand.

On Monday, Namibian Sun reported that the depreciating South African rand is increasing Namibia’s import bill. However, the depreciating currency is good for Namibian export earnings - although Namibia’s exports are significantly lower than its imports.

Significant depreciation

According to Simonis Storm, during August, the rand experienced a significant depreciation of 5.8% against the US dollar, reaching a peak exchange rate of R19.17/US$.

This depreciation has translated into higher costs for both Namibian consumers and businesses when it comes to importing goods.

Data provided by the Namibia Statistics Agency indicated that Namibia’s import bill stood at N$12.3 billion in August, while exports were worth N$7.4 billion. As a result, Namibia’s trade deficit widened to N$4.9 billion in August from N$3.7 billion recorded the previous month.

‘South Africa’s mess’

The linkage of the two currencies infuriates some Namibians, who argue that the country has often been caught up in South Africa’s ‘mess’, including the so-called Lady R saga when South Africa was accused of secretly supplying Russia with weapons.

Due to this incident, the value of the rand – and by implication the Namibian dollar - declined from R18.80 to the US dollar on 10 May to R19.30 to the dollar by 18 May.

But Uanguta believes that despite all the challenges, it is inevitable to keep the local currency pegged to South Africa’s.

“First, it [the pegging] is to achieve price stability. Second, it’s for us to gain competitiveness and that competitiveness is linked to your trade relations and trade structure,” he said.

“Our trade relations with South Africa have not really changed much since independence. About 15% to 20% of our exports go to South Africa. About 70% of our imports come from South Africa.”

Painting a picture of price stability, Uanguta added: "Suppose we were pegged to the US dollar or any other currency. It would mean in terms of our imports, we would be needing US dollar to import from South Africa. And how do you make US dollars? You make US dollars from export – but remember, our export bill is less than our import bill.”

He explained that because Namibia does most of its trade with South Africa, it is important to keep the two currencies pegged and easily accessible.

Too costly

“We allow the rand to circulate in order to have sufficient rands, because that’s where we are earning our exports from. A lot of our international financial obligations are in rands. If this wasn't the case, we would need to convert the US dollar, and with all this depreciation going on, you’d have to pay more and that was going to be too costly,” Uanguta said.

He added: “The fact that we’re importing mostly from South Africa means there are no transactional costs. Where transactional costs are involved, it would push up our inflation.

“I know that we [Namibians] somewhat don’t like this arrangement given our political history, but from an economic perspective, the benefits outweigh the cost.”