Break, broke, broken

Jo-Maré Duddy – The average Namibian last year earned about N$4 653 per month in real terms, a drop of nearly 13% compared to 2015, the last year the economy showed any significant growth.

The Annual National Accounts 2020, released by the Namibia Statistics Agency (NSA) recently, showed the country’s real gross national income per capita at N$55 830 last year, down from N$60 849 in 2019 and N$63 921 in 2015.

Except for 2019 – when real gross national income per capita grew by a meagre 0.2% on an annual basis – the average Namibian’s real gross income has been falling: 2016 (-0.7%); 2017 (-0.8%); 2018 (-3.5%) and 2020 (-8.2%). In comparison, the figure boomed by 5.4% and 5.7% in 2014 and 2015 respectively.

According to the NSA’s latest stats, Namibia’s economy grew by -8.5% - the biggest contraction in the country’s history and deeper than the 8.0% estimated in the preliminary figures released earlier this year.

In real terms, Namibia’s gross domestic product (GDP) in 2020 was nearly N$132.5 billion compared to N$144.8 billion the previous year as the impact of the Covid-19 pandemic exacerbated the ongoing recession. In comparison, real GDP in both 2016 and 2017 was around N$146 billion.

Namibia’s real GDP per capita plummeted by 10.2% year-on-year (y/y) to N$52 902 in 2020 and was around 17% lower than that of 2015. Last year was the fifth consecutive year of contraction for GDP per capita.

Real GDP per capita in 2020 fell to levels last seen in 2009, Cirrus Capital commented on the annual accounts.

“Not only has real GDP per capita regressed to levels seen over a decade ago, but at current growth projections it will take more than a decade to return to the 2015 peak in real GDP per capita of N$64 023,” said Cirrus research chief, Robert McGregor.

BUYING POWER

The adjustment of “taxes less subsidies on products”, or value-added tax (VAT), delivered the biggest blow to the NSA’s revised GDP growth figure for last year.

In the agency’s preliminary stats, the y/y contraction in VAT was estimated at 17%. The revised figure is -27.5%. In real terms, taxes less subsidies on products amounted to nearly N$7.4 billion last year, down nearly N$2.8 billion from 2019 and a drop of more than N$4 billion compared to 2015. In nominal terms, taxes less subsidies on products fell by 23.5% y/y to N$9.6 billion, back below 2014 levels, McGregor pointed out.

The decrease in taxes less subsidies on products is echoed in the revised total private consumption figures last year. In real terms it was nearly N$97.5 billion, about N$11 billion or 10.2% short from 2019 and a far cry from the around N$116 billion in 2016.

“The large contraction in household consumption is unsurprising, given the impact of the pandemic (and lockdowns) on employment, working hours, and thus household incomes,” McGregor said.

He continued: “While this creates a low base for a rebound in consumption (particularly as ‘consumptive opportunities’ are less limited with more relaxed regulations), the outlook for household incomes is concerning. The low growth outlook, after a half-decade elusive growth, means that businesses will not be quick to hire.”

‘WORRYING’

“The breakdown of household consumption paints a worrying picture,” McGregor said.

Barely N$30.1 billion was spent in real terms last year on food, beverages and tobacco, down 11.4% or N$3.8 billion from 2019 and a massive drop from N$36.5 billion in 2016. In fact, according to McGregor, spending on these items were below 2014 levels.

“This is even more concerning when one considers the population growth in the intervening years, meaning significantly less consumption on a per capita basis,” he added.

Consumption relating to transport decreased 33% y/y to N$5.2 billion, below 2013 levels, driven by materially reduced domestic travel with lockdowns, curfews, job losses and the advent of working from home, according to McGregor.

Unsurprising, he said, real consumption reported for the health (N$5.4 billion), as well as clothing and footwear (N$4.78 billion) lines has been declining and was below 2013 levels too.

“Surprisingly, one line posted growth: education,” McGregor observed. Just over N$5 billion was spent on education in real terms last year compared to about N$4.98 billion in 2019.

“This is unexpected, given the disruption to education over the past year, as well as anecdotal evidence of withdrawals from schools for home-schooling, etc. caused by school closures,” he pointed out.

DEBT

Households’ overdraft, personal loans and credit card debt has skyrocketed by nearly 88% since the end of 2015, according to data of the Bank of Namibia (BoN).

At the end of 2020, these debt categories amounted to nearly N$12.2 billion - an increase of some N$700 million or 6.1% y/y. At the end of 2016, households’ overdraft, personal loans and credit card debt totalled around N$7.5 billion, compared to N$6.5 billion the year before.

Other loans and advances, which include personal loans and credit cards, stood at about N$9.7 billion at the end of December 2020 – up some N$5.8 billion or nearly 149% from the end of 2015. Overdrafts totalled nearly N$2.5 billion compared to N$2.6 billion at the end of 2015.

According to the Namibia Financial Institutions Supervisory Authority (Namfisa), nearly N$6.1 billion was owed to registered microlenders at the end of 2020 – an increase of around N$1.8 billion or nearly 42% from the end of 2015.

On average, term-lenders borrowed N$28 067 at a time, about 40% more than at the end of 2015. The average loan of a payday-lender jumped by some 82% to N$1 818 per shot.

According to the BoN’s latest Financial Stability Report, the consumer on average spent 89.1% of his disposable income in 2020 to repay his bank and microlender debt compared to 83.8% the previous year and 83.7% in 2016.

Banks’ credit risk as measured by the ratio of non-performing loans (NPLs) of the sector in 2016 was well below the benchmark of 4%. Last year the figure burst through the BoN new trigger ration of 6.0% for times of crisis and stood at 6.4%, up from 4.8% in 2019.

DEMOLISHED DEMAND

The NSA’s new national accounts show not only an ongoing contraction in household consumption, but in all demand-side factors of the GDP. Gross fixed capital formation (GFCF) or investment contracted 11.2% y/y in 2020, government consumption 1.5% and net exports 8.5%.

Of these, Namibia’s lack of investment poses the biggest threat to economic recovery.

McGregor pointed out that GFCF has been contracting in both nominal and real terms since peaking in 2014. “In real terms, GFCF of N$21.5 billion [in 2020] is 55.0% below its peak in 2014 and 44.7% below its 2013 level,” he said.

Analysing the detail, McGregor said: “Across the 11 activities for which GFCF is measured, all posted real contractions in 2020 except for mining and quarrying. Instead, GFCF for mining and quarrying increased for a second consecutive year (2019: +1.9%; 2020: +15.9%). This is due to ongoing investment into existing mines to extend life of mine, as the GFCF by type of asset indicates material reduction in mineral exploration.

“In absolute terms, the largest decreases in GFCF were seen in electricity and water (-N$810 million), manufacturing (-N$780 million) and fishing (-N$633 million).

“Looking at GFCF by type of asset, real decreases were seen across all lines. However, the largest were in construction works (-N$952 million), machinery and other equipment (-N$555 million) and mineral exploration (-N$492 million).”

Commenting on the latest GFCF stats, Simonis Storm (SS) economist Theo Klein said: “This remains a concerning trend and reflects low business confidence and uncertainty about future business prospects.”

‘DRAG ON GROWTH’

The ongoing decrease in investment means that household incomes will stagnate over the medium term, after the initial rebound from the low base set in 2020, McGregor said.

“Household consumption is by far the largest component of GDP from the expenditure side (peaking at 74.9% of GDP in 2015 but since shrinking to 68.7%). Without material increases in household incomes, not only from wage increases but also increased employment, this line will continue to be a drag on growth.”

He continued: “Investment has steadily been declining, both in overall terms, but also foreign direct investment. This is unsurprising, given the policies that have been floated in recent years (and those that have still not been resolved), as well as the deterioration in the economy and poor growth outlook.”