By Josef Kefas Sheehama
The business and economic space was characterized by several challenges in 2022. However, investors had to contend with the typical constraints of the business environment, high inflation, a global energy crisis, tightening monetary policy, a slowdown in the economic recovery, climate, high employment, weak GDP Growth and insecurity, among others.
The Cost of Living 2022 explores how commodity prices and currency movements have affected the world. I have covered a lot of ground in writing about the economy and business this year, and so as the year wraps up I take a moment to refocus on the fundamental leitmotifs causal our current economic situation and confer the most vital variables going forward. I will look back on the economy and business in 2022, and the viewpoint going into 2023. The global economy continues to deal with a mismatch between supply and demand. The surge in inflation that started end of 2021 was only accelerated when the Russian invasion of Ukraine dented global energy and food commodity markets, and demand for goods, which was supposed to abate as the economy to rebalance, has mostly remained at elevated levels. But inflation has become much more of a broad-based. The Bank of Namibia in its 2021/2022 meetings consistently left the Monetary Policy Committee (MPC) and other parameters increase. The Bank of Namibia mentioned factors such as slow recovery in the economy, rising inflation rate, decline international reserve, weakening demand and consumer spending as reasons for retaining a tightening Monetary policy stand at this time. Despite all the pessimism and negativity around, we are not necessarily going to fall into a recession. Some sectors of the economy are performing well.
The situation is complicated by the Bank of Namibia needing to walk a tightrope with interest rates, given soaring inflation. They may need to continue to raise rates to keep inflation in check, but this makes debt for individuals and businesses more expensive. Mortgage rates, for instance, are tied to overall debt yields. The access to and cost of funds remain a big issue for many Namibian companies. The commercial bank lending rate at between 10.50% and 11.50%, the business especially the SMEs could not successfully access funds capital for their businesses. Furthermore, government amended their tender requirements, requesting business to provide liquidity asset which kill SME’s.
Additionally, the combination of high inflation and weak growth has at least been replicated. A big driver of both the economic slowdown and the rise in inflation has been the global energy crisis that intensified in 2022. The economy is a real mix right now. The labor market is very tight in certain industries. In others, conditions are worse than ever, with greater workloads being handed to employees by companies struggling to recruit. This issue tends to be in industries with lower-paid workers, where labor shortages are becoming increasingly common. The Russian invasion of Ukraine only sent oil prices soaring higher, and the loss of significant Russian refining capacity amidst sanctions and other trade restrictions sent gas prices up even more than oil prices. The supply chains, rising energy prices, and high cyclical inflation have led the Bank of Namibia to engage in an unprecedented pace of rate hikes this year, with target interest rates rising by 0.50% on the 30 November 2022.
The explicit goal of the Monetary Policy Committee (MPC) was to tighten credit throughout much of this year in an effort to bring demand back in line with supply, and they have thereby caused significant deterioration in financial conditions and increases in recession risks. Credit spreads on high-yield corporate debt remain elevated, indicating both worse borrowing conditions for major companies and deterioration in the broad macroeconomic outlook. Hence, with the potential slowdown in monetary tightening and the cooling of inflation, some of the forces that have been dragging in 2022, now stand a good chance of easing, releasing some of the 2022 pressure and with the likelihood of resuscitating business confidence.
Going forward, the economy will grow at a softer pace in 2023. Inflation will remain eminent, eating into consumers’ pockets. Power supply issues will further jeopardize activity. Moreover, social rifts and violence ahead of the November 2024 elections could undermine momentum. Also Social tensions and violence could increase going forward, as political party members and opposition party’s divides are heightening the stakes of the November 2024 presidential elections. The ruling party’s biggest problem in 2022/2023 may be internal party divisions. The opposition parties failed to stabilize. The opposition parties appear or become active only during an election, and disappear when the election is over. It is found out that most of the opposition parties are established around the personalities of individuals, lack internal democracy, suffer from inter-party and intra-party conflicts, have severe shortage of finance, and lack strong base and experience. Their weaknesses also include bad organization and weak connection with the popular constituencies. I am not a politician, I am an Independent Economic and Business Researcher. I have no intention of joining mainstream politics or contesting any election. So, I don’t have a relationship with any political party. This is a country; it’s not a company.
Moreover, the government’s investment push should support activity. The GDP growth to up by 4.3% in 2023, and 6.1% in 2024. Inflation has dominated the economy this year, and the economic outlook depends in large part on the path of inflation and the amount of pain required to get inflation back on track. Market-based measures of inflation expectations were put back into normal levels by the rapid increases in interest rates, but recession risks also increased dramatically at the same time. The most important thing to keep in mind is that economic outcome variance has radically increased during the pandemic, so many of the events that defined 2022, like the war in Ukraine or the highly restrictive lockdowns in China. The year 2023 at least promises to be another year for the history books. The commodities attracting the most attention are those which have the potential to power the green economy and lithium among them. Furthermore, the government’s recovery plan should focus on expanding and improving infrastructure, a public employment stimulus, local industrial development and the expansion of energy generation.
The government should acknowledge that the slow economic growth, coupled with poor policies, bankrupt parastatals, and rising debt, is creating serious financial problems. The growing debt burden is partly due to the government continuing to bail out failing State-Owned Enterprises. We continue to wag our fingers at the parastatals every year, saying it is the last, and then we add another million bailout. The government should think about privatize these SOE”S. These companies are artificially kept alive and are hurting the economy.
In conclusion, the prospects of the Namibian economy have a profound detrimental effect on the quality of life for Namibians. Unrelentingly high unemployment, extreme inequality, and widespread poverty will continue to weigh heavily on Namibians in the medium term as long as structural impediments to growth remain unresolved.
