Slowing economic growth and rising government debt likely to delay the roll-out of some infrastructure expansion projects in the next year

Over the past decade, Namibia has aimed at becoming a regional transport hub and has invested heavily in the upgrading and expansion of its infrastructure. Some of those efforts have borne fruit, with Namibia ranking 19th out of 140 countries in terms of their quality of road infrastructure in the World Economic Forum’s Global Competitiveness Report 2018; Namibia scored better than Bahrain, Qatar, the United Kingdom, and regional power house South Africa which ranked 28.

Furthermore, in August, President Hage Geingob inaugurated the expanded deep-water port at Walvis Bay, now the country’s largest harbour. The port’s capacity has increased from 350,000 twenty-foot equivalent (TEU) containers to more than 1 million TEUs. The port expansion is also expected to increase passenger traffic in a bid to boost tourism. Equally, upgrades to the railway link between the northern town of Tsumeb to Walvis Bay has contributed to a 53 per cent increase in bulk cargo transport since it was inaugurated in 2018. Meanwhile, several road and railway upgrades, funded through loans by the African Development Bank to the tune of USD153 million, are in the pipeline.

However, macroeconomic headwinds could slow the execution and hamper the pace of profitability of those projects. Sovereign-credit-rating agency Fitch Ratings’ revision of its investment outlook for Namibia from Stable to Negative on 1 October underscored continued concerns about the economy’s anticipated recovery following two consecutive years of recession. The IMF projected in a report on 16 October that the economy would contract by 0.1 per cent in 2019. Fitch cited continued vulnerabilities to exogenous shocks. These include a protracted drought, debt-vulnerability of some state-owned enterprises, and a lower sub-regional growth outlook, in large part due to the lacklustre performance of the South African economy which is likely to remain subdued with 0.7 per cent growth in 2019 and 1.1 per cent in 2020, according to the IMF.

Following the downgrade, finance minister Carl-Hermann Schlettwein promised more budget consolidation. The economic headwinds mean that capital expenditure – budget-speak for infrastructure investment and one of the first budget items that governments tend to cut – is likely to be reduced to combat the short-term balance of payments deficits and liquidity issues.

This is problematic for the Namibian economy in the medium term. Given that most of Namibia’s infrastructure is provided in a bid to facilitate shipment of primary and unfinished goods from its neighbouring economies, including Botswana, South Africa, and Zambia, slow growth or recession in those markets is likely to lower demand for Namibian infrastructure in the one- to two-year outlooks. Compounding the impact is that some government-guaranteed debt will reach maturity in the coming four years. This means that the government is likely to reprofile some of its credit, likely through bond issuances or loans from international creditors at the same time as it is trying to reduce spending. Namibia’s debt-to-GDP ratio has increased from 16 per cent in 2011 to 40.6 per cent in 2017, indicating that debt has been a key driver of the country’s growth of the past five years.

With more debt maturing over the next four years, it is highly probable that debt-distress will grow in the face of declining revenue from its neighbours, in particular South Africa. One way to address such budget shortfalls over the past five years has been to cut sizeable amounts of subsidies for SOEs. With state-owned infrastructure operator TransNamib at the centre of this expansion, it is expected that the company’s debt-sustainability will be damaged by the recent expansion and projected slowing regional growth. In addition, reduced appetite over the past year for riskier bonds in frontier and emerging markets is likely to hamper Namibian SOEs’ access to debt markets to make up for any liquidity shortages. Such growing debt-vulnerabilities mean that suppliers and contractors may face debt arrears that could limit their own cash-flow and expose them to growing external risks in the two-year outlook. Ultimately, this will delay the roll-out of many projects.


Also in this edition:

BOTSWANA: President's re-election promises policy continuity and increased scrutiny of contracts signed by previous administration

SOUTH AFRICA: Mid-term budget offers few solutions to economic headwinds