A year of challenges, opportunities
Economic overview 2023
This year stood out as a complex period of adjustment and growth, reflecting the dynamic nature of this emerging economy. Max Rix, designate head of research at IJG Securities, unpacks this statement.
In 2023, the Namibian economy experienced a multifaceted journey, facing significant challenges while simultaneously unlocking new opportunities. The year stood out as a complex period of adjustment and growth, reflecting the dynamic nature of this emerging economy.
The year began on the heels of a commendable gross domestic product (GDP) growth of 4.6% in 2022, but soon encountered a slowdown.
Various sectors that are mainstays of the Namibian economy, such as construction and agriculture, grappled with challenges. The construction sector, in particular, saw a decrease in activity, influenced by global economic fluctuations and localised issues.
Agriculture faced adversities, primarily due to harsh weather conditions like drought, which impeded crop and livestock productivity.
Inflation, jobs
A pivotal concern in 2023 was the surge in inflation, reaching 6% in October.
This escalation had profound implications, especially for the more vulnerable groups in society. The rise in prices led to reduced purchasing power and economic strain, necessitating policy interventions to mitigate these effects.
Unemployment remained a pressing issue in 2023, with high rates persisting, especially among the youth.
This underscored the need for targeted job creation strategies and skills development initiatives to address job market mismatches and stimulate employment growth.
Mining, tourism
Despite these economic hurdles, 2023 was not devoid of positive developments.
The mining sector remained a stronghold of the Namibian economy, showcasing resilience especially in the diamond and uranium mining subsectors.
Significant investments in these areas underscored the sector's vital role in stabilising and propelling the economy forward.
An outstanding performer in 2023 was the tourism sector, which experienced a remarkable recovery. Boosted by global reopening post-pandemic and Namibia's unique attractions, tourism surged, contributing significantly to the economy.
This resurgence was a welcome development, bringing in foreign exchange and revitalising related industries like hospitality and transport.
Financial markets
In the financial markets, Namibia's bond market showed resilience, with a more favourable risk perception compared to South Africa.
This was evident in the 5-year Credit Default Swap (CDS) chart, where South Africa's CDS tracked higher than Namibia's, indicating a higher perceived default risk for South Africa.
This market sentiment was influenced by challenges in South Africa, including severe load-shedding and political uncertainties, which dampened investor confidence.
In contrast, Namibia was poised for potential growth, supported by promising sectors like green hydrogen, oil and gas.
These opportunities fostered an optimistic economic outlook, contributing to lower yields on Namibian bonds compared to South Africa. Despite both countries having a BB- stable outlook from Fitch Ratings, Namibia's lower CDS levels highlighted the market's more favourable view of its credit risk profile.
Green hydrogen
The standout story of 2023, however, was the advancement in green hydrogen initiatives.
Namibia, leveraging its abundant sunshine and low population density, embarked on ambitious projects to tap into its solar and wind energy potential to generate green hydrogen, aiming to establish itself as a renewable energy hub in Africa.
This venture, while facing challenges like water scarcity and distance from major global export markets, held the promise of significant economic and environmental benefits.
Namibia's commitment to green energy was further bolstered by its collaboration with the European Union (EU) in pursuit of carbon neutrality by 2050.
The EU's REPowerEU initiative, targeting 20 million tonnes of clean hydrogen, with plans to import half from regions like Namibia by 2030, injected optimism into these endeavours.
The EU committed N$60 million to support the green hydrogen programme, extending this support to the Electricity Control Board and NamPower for new energy generation and rural electrification projects.
Oil and gas
Namibia's oil and gas sector also saw promising developments, with significant discoveries by companies like Shell and TotalEnergies in the Orange Basin, setting the stage for potential large-scale production in the future.