Namibia – relatively stable economy

Population: 2,1-million

GDP: US$ 11, 451-billion

Country rating: A3

Business climate rating: A4

Strengths

• Extensive mineral resources (diamonds, uranium, gas, and copper)
• Low foreign debt
• Developed financial market
• Strong tourist potential
• Good transport infrastructure
• Political stability
• Satisfactory governance

Weaknesses

• Dependence on the mineral sector (50% of exports) and on foreign operating companies
• Lack of skilled labour and inadequate level of education
• High HIV prevalence (15% of the working population)
• Poor distribution of the mineral wealth: massive unemployment (50%), poverty, and inequality
• Unemployment rate of 51% confirms wealth distribution inequality
• Poorest 10% of population command 1% of total GDP

Risk assessment

Moderate growth underpinned by natural resources

After the slight recession in 2009 caused by the sharp decline in diamond and copper production, the economy rebounded in 2010 amid the recovery in mining activity. This trend has continued throughout 2011 with further moderate growth.

Mining, which directly contributes 10% to GDP, is expected to continue to recover, in particular with the development of new uranium deposits.

Namibia is the world’s fourth-largest producer of uranium oxide, representing approximately 10% of global uranium production. There are two operational uranium mines and three new uranium mines are in the planning phase to become operational over the next five years.

Other important mineral resources are zinc, copper, lead, gold, fluorspar and salt. The country is also a source of natural stones such as granite and marble. Semi-precious stones are mined on a smaller scale.

The recently discovered crude oil resources off the coast of Namibia will have a positive impact on the country’s economy. It has been estimated that oil resources found off the southern Namibian coast are equivalent to 11-billion barrels.

Chariot Oil and Gas, an independent oil and gas exploration company, made the discovery earlier this year and plans to commence drilling in the fourth quarter of 2011.

Fishing will benefit from an increase in quotas, and agriculture will get a boost from stronger demand and higher prices. Industrial production will grow due to the extension of the Tsumeb brass foundry and increased activity in diamond cutting.

The construction and public works sectors will retain their momentum due to ongoing infrastructure works, recovery in commercial and residential construction, development of the Kudu offshore gas field, and the construction of installations connected with the development of uranium mines.

Following South Africa’s example on monetary policy

Household consumption is expected to be less buoyant than investment with credit conditions remaining tight and prices for food and energy continuing to trend up.

Furthermore, with the de facto pegging of the Namibian dollar to the South African rand and the impact on inflation of the strong dependence on South Africa for imported consumer goods, Namibian interest rates tend to follow those of their neighbour, but with greater severity.

Deterioration of public deficit, but low and easily financed debt

During the economic crisis, public accounts slid into the red because of the fall in revenues from the mining tax and the decline in the common customs revenues of the Southern African Customs Union (SACU).

Despite the rise in tax revenues accompanying the recovery and a decrease in spending on economic support, the deficit is expected to exceed 8% in 2011-2012. The main cause lies in the continued decline in transfers from SACU, which represented 10% of GDP in 2009-2010, but are not going to exceed 2,8% of GDP in 2011-2012.

Nonetheless, public debt is expected to reach only 27% of GDP. Financing the deficit on the domestic market is not expected to present any difficulty. The government will, however, have to seek new resources to stem any deterioration. A bigger stake in new mining operations seems to be the preferred solution as, at present, the government has control over only half of diamond production alongside De Beers.

Despite the collapse of customs transfers from SACU, the external financial situation remains solid

The current account balance also became negative, but only very slightly. It is expected to be back in the black very shortly with the trade gap expected to narrow in 2011. Sales of uranium, copper, diamond and fish will exceed purchases of capital goods related to mining and gas projects.

Tourist revenues are expected to increase, offsetting higher dividend payments abroad. However, the significant reduction in transfers from the SACU will weigh on the current account balance.

Foreign debt will remain low. Foreign investments in mining and hydrocarbons will continue to be substantial especially with the country seeking new investors to improve the exploitation of known mining and gas deposits and develop new resources such as gold, iron, lead and zinc.

In conclusion, foreign direct investment inflows rose by nearly 150% from 2005 to 2010.The profits from foreign investment needs to be distributed to developing all sectors especially education and healthcare and not only the oil industry for Namibia to take full advantage of the recent oil discovery and move towards becoming a first-world nation.

About country risk ratings:

The Coface country rating does not concern sovereign debt, but rather indicates the average level of risk presented by a country’s companies on their commercial transactions. This average trend is not a guide to each company’s rating,

The Country @rating assigned by Coface reflects the average level of short-term non-payment risk associated with companies in a particular country. It reflects the extent to which a country’s economic, financial, and political outlook influences financial commitments of local companies. However, international trade actors know that sound companies can operate in risky countries and unsound companies in less-risky countries and that overall risk will depend not only on a company’s qualities but also on those of the country in which it operates. In assessing overall risk associated with a particular operation, Country @ratings are thus complementary to @rating Credit Opinions on companies.

How assessments are assigned?

Assessments are based on threefold expertise developed by Coface:
- macroeconomic expertise in assessing country risk based on a battery of macroeconomic financial and political indicators
- expertise on business environment. The score is based on internal and external sources
- microeconomic expertise that draws on Coface databases covering 50-million companies worldwide and 50 years experience with payment in trade flows it guarantees.