Namibia: Food Inflation to Drive Inflation

Namibia

FOOD inflation is expected to be one of the main drivers of inflation this year, Simonis Storm Securities said in a 2017 economic outlook report.

The firm expects inflation to average 6,8% in 2017, compared to 6,7% recorded in 2016. Drivers of inflation in 2017 will be food inflation, a weaker rand exchange rate and higher oil prices.

"We expect the Bank of Namibia to hike the benchmark repo rate at least two times in 2017 by a total of 0,50%. Overall, we expect Namibian monetary policy to follow that of South Africa's closely," the report said.

Simonis said although the government has revised the borrowing plan downwards, this will not be sustainable as government will need to borrow more to fund priority expenditure, such as salaries and other current expenditure.

Simonis expect economic growth for 2016 to be 2,5%, down from 5,3% in 2015.This will be due to dwindling revenue, slower private sector credit extension, both of which have contributed to significantly slower construction activity. "Construction has been the main private sector driver of the economy over the last three years."

At the same time the water crisis has affected the manufacturing and agricultural sectors severely. Commenting on budget cuts, the firm noted that the government has committed to weed out unproductive spending such as travel allowances, vehicles, maintenance expenses and office furniture.

"Even so, we believe that the outlined expenses account for less than 5% of the total operational budget. We thus believe that there is little scope to further curb expenditure without compromising on effective public service delivery."

Government announced spending cuts amounting to N$5,5 billion in 2016, bringing the estimated budget deficit as a percentage of GDP below the national target of 5%, from 8,3% to 4,3%.

In terms of mining, Simonis expect the Swakop Uranium mine to have a significant effect on mining output once it goes into production. The Husab Mine is expected to produce 226 tonnes in 2017 and 4 535 tonnes in 2018. The Bank of Namibia expects uranium production to expand by 62,9% in 2016 and by 89,5% in 2017.

Simonis expects commodity prices, including those of copper and zinc, to continue to recover with a positive outlook for the mining sector.