JOHN-MORGAN BEZUIDENHOUT
Namibia is moving into her election period and there have been some levels of uncertainty around the country’s future economic and political paths. More specifically, multinationals are looking for policy certainty for long term hydrocarbon investments to be kick-started.
Furthermore, the last year saw Namibian assets being favored due to economic tailwinds and governmental fiscal prudence. However, the government has fallen short on developmental and capital expenditure which could exacerbate inequality and prevent many Namibians from entering the formal economy.
Another important factor to consider is that the region is viewing Namibia as a key logistical hub through the Walvis Bay corridor. Unfortunately, a lack of infrastructural development does limit the country’s capacity to live up to her potential. Tax amendments and government wage adjustments have provided relief to Namibian consumers, but overall, the purchasing power of consumers is still considered weak.
However, on an asset basis, Namibian bonds have repriced as the market welcomes fiscal constraint and strong revenue collections. Furthermore, the government continues to illustrate that the upcoming bond redemptions are catered for through the sinking fund.
Namibia’s future looks promising on the back of future hydrocarbon discoveries and economic productivity. However, income inequality and poverty may lead to radical policies in the future – opening the possibility of policy uncertainties. Namibia can spend on developmental projects after years of fiscal restraint and we expected her to take advantage of the current fiscal health of the country.
Revenue outperformed marginally (0,40%) compared to initial expectations in the annual budget speech (N$81.5 billion vs N$81.1 billion).
Expenditure came in lower than anticipated, with earlier expectations at -2.2%, due to lower- than-expected spending on the developmental budget. Consequently, the government is expected to increase spending in the future.
The economy is currently lacking infrastructure development, particularly in logistics, such as rail. This has strained the road network, potentially causing future bottlenecks as neighboring countries look to Namibia for goods transport, given South Africa’s execution shortcomings, which have led to widespread disappointment. Moreover, the government did not anticipate any wage adjustments, which may continue to suppress consumer confidence.
Interest expense has been well maintained thus far, supported by improved GDP growth figures and strong revenue collection. Expenditure was lower than expected, tightening the budget deficit and marking continued improvement.
Fiscal discipline has enabled the government to keep the interest expense low despite additional debt was sourced, supported by growth in GDP. The formal implementation of tax reform is widely welcomed by the market. SMEs benefit from an increased mandatory VAT registration threshold up to N$1 million.
The government remains on a fiscally responsible path, which is welcomed by market participants. Economic tailwinds such as civil wage adjustments and tax reform make Namibian asset classes (bonds and equity) more attractive when compared to South African counterparts. Future initiatives such as the SEZs and progressive tax reforms (corporate tax rate of 20% for SMEs, Building Improvement Deduction, VAT e-invoicing system) coupled with the potential spending power unlocked through hydrocarbon projects will continue buoying Namibian assets. However, it is of paramount importance for the government to focus on developmental projects to address high levels of inequality by providing all Namibians with the tools to benefit from future economic.
*John-Morgan Bezuidenhout is Portfolio Manager at Momentum Investments Namibia.
*This article was shortened for space
