SA’s S&P downgrade to affect Namibia

Ogone Tlhage - South Africa’s recent downgrade by ratings agency Standards and Poor’s will have some negative consequences on the Namibian economy, according to Economics Association of Namibia director Klaus Schade.

Because of the downgrade, currency depreciation is to be expected while trade will further be affected, impacting Southern African Customs Union (SACU) receipts, he said.

“The downgrade by Standard & Poor’s indicates that the South African economy still faces severe headwinds, which will have an impact on the Namibian economy. The South African rand weakened only slightly against the US dollar but could come under more pressure,” he said.

Since the Namibia dollar is pegged one-to-one to the South African rand, it will also depreciate according to him.

“The depreciation will result in rising import prices for goods and services charged in US dollar and other hard currencies, in particular oil, which could result in increasing fuel prices,” said Schade.

He also felt that since no economic stimulus could be expected from the South African treasury, and foreign investors might wait for signs of improvements in the fiscal and economic environment, the South African economy would not recover strongly, which would have a negative impact on the demand for Namibian goods and services.

“Furthermore, South African imports from outside SACU will also not grow and hence SACU transfers to the other SACU member states including Namibia will come under pressure,” said Schade.

Consumers

Capricorn analyst Claudia Boamah shared Schade’s sentiments.

According to her, consumers are expected to remain under increased pressure, with no interest rate cuts on the horizon because of the downgrade.

“Interest rates higher for longer: In order to attract or maintain investment in South Africa, protect the currency and counteract inflation; interest rates cannot come down now even though the stagnant economic growth calls for rate cuts.”

Since SARB is now in a position where at best it has to keep the repo rate where it is or, at worst, hike rates, the Bank of Namibia (BoN) will likely follow suit to maintain the currency peg to the rand, she felt.

“Households and businesses are under financial pressure as evinced by declining private sector credit extended (PSCE), the economy would have really benefitted from a cutting cycle,” said Boamah.

The downgrade would also affect trade, Boamah felt. According to her, this would further impede growth, particularly for Namibia.

“With declines in investments on the horizon due to uncertainty and political and policy risk it looks like South Africa can expect further economic disappointment. This does not bode well for Namibia’s net exports which in turn do not bode well for our own growth [prospects],” she said.

S&P cut South Africa’s international debt by one notch last week Friday to BB grade. This is the equivalent of junk status.