‘Namibia Inc. stacks up well’

The Bank of Namibia’s monetary policy framework, which dictates interest rates in the country, “has proven its efficacy time and again”, according to the governor of the central bank, Johannes !Gawaxab.

!Gawaxab singled out the BoN as one of the key institutions to fortify the country’s economic landscape at the Bloomberg “Namibia in Focus” event on Tuesday.

The central bank “stands as a guardian of financial stability, meticulously managing the nation's monetary policy”, he said in his address, titled “Safeguarding Stability in a Changing World”.

“The benefits of the one-to-one peg arrangement to the South African rand outweigh any perceived disadvantages,” he said.

The peg to the rand is the deciding factor in the BoN’s monetary policy, which means that Namibia closely follows interest rates developments in the neighbouring country to prevent capital outflow.



‘Stable anchor’



After hiking the repo rate by 100 basis points (bps) so far this year, the BoN last month decided to keep the repo rate at 7.75%. That means the prime lending rates for local commercial banks also remained at 11.5%.

Similarly, the South African Reserve Bank (SARB) also left the repo rate unchanged at 8.25% at the fourth monetary policy announcement in June. That leaves Namibia 50 basis points behind.

!Gawaxab on Tuesday told the Bloomberg audience that the peg arrangement provides a “stable anchor for our economy, shielding us from external volatility while fostering a conducive environment for sustainable growth”.

According to him, the robustness of Namibia’s financial system reflects the BoN’s meticulous operational framework, designed to weather global uncertainties, and ensure the resilience of the country’s domestic institutions.

“However, we are open to innovation and adapting fast without placing undue risks on the stability of the system,” !Gawaxab added.



Economy



Namibia faces daunting challenges such unemployment rates, income inequality, its skills base and educational attainment, but these are not insurmountable.

However, the country also offers vast opportunities, !Gawaxab pointed out.

“By all measures, Namibia Inc. stacks up well despite the challenges,” he said.

Elaborating on the country’s challenges, the central bank chief said “no journey is without its rugged terrains, and Namibia’s path to foster economic development is no exception”.

Gross Fixed Capital Formation (GFCF) – an indicator of future business activity, confidence and economic growth – has plummeted. GFCF’s direct contribution to Namibia’s gross domestic product (GDP) fell from a high of 34% in 2014 to 14.5% last year.

This, according to !Gawaxab, explains why the Namibian economy has struggled to emulate the robust growth rates it experienced between 2010 and 2015 over much of the past seven years.

Last year, the largest contributing sectors to GFCF in Namibia were mining and quarrying (28.5%), finance and real estate (18.6%), as well as manufacturing (17.2%).

Together, these three sectors collectively represented more than one-third of Namibia's GDP, reinforcing the pivotal role of capital accumulation in fuelling economic growth in the country, he said.



Bright prospects



Looking forward, the future of Namibia's economy looks bright, !Gawaxab said.

“Namibia is perfectly positioned to meet the world's energy demand as it develops its green hydrogen and oil and gas industries.”

Namibia has ambitious plans to become a competitive producer of hydrogen and its related products, with the aim of establishing a large-scale green fuels sector catering to markets in Europe, China, Japan, South Korea, and beyond.

If successfully implemented, this hydrogen industry has the potential to significantly boost Namibia's economy, !Gawaxab said.

By 2030, it could contribute a substantial US$4.1 billion to the country's GDP, which is 32% higher than GDP estimates for 2030 without the presence of a hydrogen industry. Additionally, this industry is projected to generate approximately 18 000 job opportunities.

Regarding the oil discoveries in the Orange Basin offshore Namibia, !Gawaxab said the nascent oil and gas sector has the potential “to profoundly reshape the nation's economic landscape”, as at least three billion barrels in oil reserves have been discovered within the country's borders.

“Notably, three of the country’s oil discoveries rank among the world’s top 30 largest deepwater oil discoveries since 2015. Once commercial viability has been proven, production is set to commence within the next four to six years,” he added.