November 01, 2024
Economy

China effect threatens Namibia recovery

May 23, 2022
China effect threatens Namibia recovery

The International Monetary Fund’s latest World Economic Outlook 2022 published in April 2022, says China’s economic slowdown could set back the economic recovery in emerging markets and developing countries, especially commodity exporters like Namibia.

Although there are positive developments in the medium-term outlook with positive spill over effects for commodity exporters, Covid-19 infections and zero- Covid policies remains a risk to economic recovery in developing countries.

China is Namibia’s second largest trading partner on average, with China’s share of Namibia’s exports averaging 19,1% in the last five years. Any decrease in demand from China will therefore have an impact on Namibia’s exports, given that China alone accounts for about a fifth of total exports, according to Simonis Storm Economist Theo Klein.

Exports to China have been dominated by minerals, mainly uranium, and commodities and fish. Uranium mines are likely to experience the biggest negative impact. Namibia mainly imports capital, consumer and intermediate goods, as well as clothing and textiles.

With regards to Southern Africa Customs Union (SACU) revenue, China is South Africa’s biggest importer and second biggest importer for Namibia. So, any major decrease in trade with China as a result of an economic slowdown in China will reduce SACU receipts and add pressure on the fiscus.

If Namibian mining companies can remain fully operational and expand production in the medium-term, much benefit can be earned as China commences its infrastructure plan and if commodity demand remains resilient owing to American students having higher disposable incomes.

A large number of Namibian companies rely on equipment imports from China which are used in renewable energy projects such as solar panels among others.

Due to less factory production and lower supplies in solar equipment, there could be project delays and increases in costs. Equipment could be sourced from alternative markets, but usually at higher prices than China.

As a result, this could also increase costs of local renewable energy projects, the analysts said.

One major risk to local fuel prices would be China’s removal of lockdown restrictions in various cities. As China reopens certain cities and industrial production, as well as transportation services resume normally, an increase in demand to provide upward pressure on global oil prices is most likely.

Normally, China consumes about 40 million barrels per day and currently consumes 28 million barrels per day with the lockdowns in place.

Rising oil prices together with a weaker rand could lift the rand oil price and lead to additional fuel price hikes in Namibia.

Zero-covid policies which prevent ports and other logistics services from operating normally will also keep shipping costs high, leading to higher prices of general merchandise goods imported by South Africa and Namibia.

This implies that prices of electronics, furniture and clothing in Namibia could rise further as long as supply chains are disrupted in China. Rising import costs together with a weaker rand will increase the import bill and could reduce the current account balance if not countered by strong export growth in Namibia.

China’s supply chain disruptions will likely keep shipping costs high. This could lead to higher input costs to Namibian importing companies which might potentially be passed on to consumers in the form of higher prices.

Also, supply chain constraints remain a downside risk to global trade and negatively influence the quantity of exports that can take place in Namibia.

The Chinese government faces tighter domestic budgets and needs to balance different priorities overseas. China reduced its financial pledge to Africa for the first time in a decade, from US$60 billion in 2018 to US$40 billion in 2021.

Higher risk to debt repayments from low-income countries are also deterring Chinese investors according to the Shanghai Institute for International Studies.

Unless the Namibian economy records a significant rebound, Namibia could expect to see less foreign direct investment coming from China in the near future.

 

 

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Last modified on Tuesday, 24 May 2022 19:39
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