High inflation to make imports expensive

PHILLEPUS UUSIKUNamibia imports most of its products and will thus remain vulnerable to imported inflation as a result of the ongoing supply disruptions.

These remarks were made by the governor of the Bank of Namibia (BoN), Johannes !Gawaxab, on Tuesday. Inflation is not good as it has the effect of eroding the purchasing power of the domestic currency for consumers and thus reduce demand of goods and services in the economy, !Gawaxab said.

This implies that consumers would be required to spend more for the same quantity of goods or alternatively cut down on their consumption levels.

In terms of trade, Namibia will have to spend more when buying imported commodities. Furthermore, inflation devalue a currency and exports become cheaper to foreign customers, while imports become more expensive.

Therefore, increasing expenditure on imported goods deteriorates the country’s trade balance (exports-imports), while an increase in exports will lead to an improvement in the country’s trade balance and vice versa.

According to Simonis Storm (SS), elevated commodity prices will bode well for export earnings from local mines, however, a stronger forecasted Rand will be a limit on this. “We forecast an average Rand of 14.85 against the US dollar in the second quarter 2022.” At the same time, elevated global commodity prices will keep imported merchandise goods prices high, adding to local inflationary pressures. “Once again, we see the need to enhance productive capabilities in our manufacturing sector to replace certain merchandise goods imports as far as possible,” SS said.

Statistics released by the Namibia Statistics Agency (NSA) indicated that, during 2021, Namibia only recorded a trade surplus in April and November.

In February 2022, Namibia recorded a trade deficit of N$3.8 billion, an improvement when compared to the deficit of N$4.1 billion recorded in January 2022.

Furthermore, export earnings stood at N$5.7 billion, while imports stood at N$9.6 billion during the period under review. In the preceding month, N$6.3 billion was recorded in exports, while N$10.4 billion was registered for imports.

Goods

During the period under review, Namibia’s top imported commodities were vessels, which accounted for 26.3% of total imports, followed by petroleum oils (9.1%), inorganic chemical elements (3.8%), diamonds (1.9%) and vehicles (1.8%).

The products were mainly sourced from Netherlands, India, Tunisia, Morocco, Botswana, South Africa and the United Kingdom.

Transport by road was the most frequent mode of transport used for imports during the period of review. Imports by road amounted to N$4.8 billion, representing 49.6% of all goods imported into the country. Following in second place was sea transport which accounted for 46.5% of all goods imported into the country while 3.8% arrived by air, NSA pointed out.

With regard to exports, diamonds were Namibia’s largest export commodity, accounting for 20.5% of total exports, followed by uranium (17.7%), fish (14.0%), non-monetary gold (9.5%) and copper blisters (5.2%).

Those top five commodities were sold to Botswana, United Arab Emirates (UAE), Belgium China, Canada, France, Spain, Zambia and South Africa.

Furthermore, during the month of February 2022, exports amounting to N$2.4 billion, representing 41.0% share of total exports left the country by sea. This translated into a decrease of 17.7% when compared to its January 2022 level of N$2.9 billion. Subsequently, an increase of 75.4% was noted when compared to its level of N$1.3 billion recorded in February 2021. Air and road transportation accounted for 32.1% and 26.9% of total exports, respectively, NSA said.

Economy

The Namibia economy recorded a 2.4% growth in 2021, mainly supported by the mining, wholesale and retail, education and health sectors.

However, analysts expect the Bank of Namibia to increase interest rates as inflation continues to rise. Rising interest rates and inflation have the potential to hurt the economy and put a further strain on consumers budgets. According to !Gawaxab, “if we don’t act in the face of increasing inflation, we allow inflation to run out of control.”

“That is why we need to act quickly and gradually,” he said. The next monetary policy announcement by the central bank is expected to place on 13 April 2022. Simonis noted that private consumption expenditure constituted 75% of gross domestic product (GDP) in 2021.

“Private consumption expenditure therefore remains a crucial element of our economy, as any factors constraining household spending will lead to lower growth, SS said.”

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