November 01, 2024
Economy

Why food prices are so high in Namibia right now

March 10, 2023
Why food prices are so high in Namibia right now

Namibia has continued to record a spike in food prices, a development that is eroding the disposable incomes of many.

However, the situation is not likely to change any time soon, according to FirstRand Namibia economist Ruusa Nandago.

“Food inflation is expected to remain high this year given the impact of load shedding on food production and food supply in South Africa. The weakening exchange rate will also play a role from an import perspective. Furthermore, there is an increased probability of the El Niño climate phenomenon materialising which could cause erratic rainfall patterns, thus reducing food supply and increasing the import requirement,” she told The Brief.

According to Nandago, food prices remain elevated owing to the lagged effect of last year’s shocks on input prices (fuel, fertilizer, utility prices, etc).

“This has especially affected food prices, and food inflation has been further worsened by higher food prices in South Africa – the source of the majority of Namibia’s food imports,” she said.

The FirstRand Namibia Economist notes consumers will continue to feel the price shock, a development that is negatively impacting disposable incomes.

“Food makes up 16% of the inflation basket and in 2021 made up 30% of total consumption. Given the significant weight of food in individuals’ consumption baskets the increase in food prices will reduce disposable incomes. This is especially because food is a consumption item that individuals cannot substitute away from,” she said.

Simonis Storm economist Theo Klein said Namibia’s net import status and the weak rand makes the country vulnerable to price shocks are those currently being faced by consumers with rising food prices.

“Namibian farmers only produce about 20% to 30% of our food requirement with regards to fruits and vegetables. This makes the country vulnerable to food price developments in other countries, especially in South Africa where we get most of our food from. South Africa gets most of their food imports from Europe. Through this channel, the weaker Rand exchange rate leads to food price increases in Namibia as well. The Namibian Agronomic Board (NAB) has forecasted shortages in various horticulture products (e.g. beetroots, carrots, tomatoes, etc.) from Namibian farmers from January 2023 to May 2023. This means that Namibia’s import requirement is likely to increase at a time when the Rand is depreciating significantly against major currency pairs such as the US dollar, Euro and Pound,” he said.

“Namibia also imports most of what we consume on a daily basis, so the weaker Rand exchange rate greatly impacts on the prices that we pay in Namibia. To this end, prices of furniture, clothes, electronic appliances, books, stationery, cars, etc. have continued on an upward trend in Namibia.”

Citing the forested fuel price hikes going forward and an expected electricity price increase, Klein notes the cost of living is expected to remain elevated in 2023.

“While we see globally that fertilizer, car, oil and commodity prices are on a downward trend, this has not filtered through to lower prices in Namibia because of the weak Rand exchange rate. We still see further fuel price hikes as a possibility and given the widespread use of diesel in various sectors of the economy (e.g. agriculture, manufacturing, tourism, and logistics amongst others), we do expect price pressures to remain high. To add to this, we do expect NamPower to request a double digit increase in electricity prices. However, it remains to be seen how much the Electricity Control Board (ECB) allows to be passed through to the consumer. The ECB usually announces their decision in April and new electricity tariffs will be effective from July 2023. All the above imply that the usual drivers of inflation (i.e. food, transport and alcoholic beverages) will likely keep costs of living elevated in 2023,” he said.

Klein, however, said the tax relief measures announced by Finance Minister Iipumbu Shiimi is his budget, where individuals who earn between N$50,000 and N$99,999 annually will no longer have to pay 18% income tax from April 2024, will bring some much needed relief to consumers.

“We expect the disposable incomes of low income earners to improve from next year onwards, given the increase in the minimum taxable income threshold. Individuals who earn between N$50,000 and N$99,999 will no longer have to pay 18% income tax from April 2024. So, in the short run, there is some relief for low income earners. In addition, if we continue to see inflation rates below 7%, we might only see one more 25bps repo rate hike by the Bank of Namibia. With the interest rate hiking cycle then coming to an end, this should also prevent further budget tightening on households.”

 

 

 

 

 

 

 

 

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Last modified on Monday, 13 March 2023 19:46
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