Newspaper Contribution

Consumption to economic growth dips


08 Mar 2019

THE contribution of household consumption to economic growth declined to -4% in 2017, from a positive growth of 6% in 2016, according to statistics provided by the Namibia Statistics Agency.

The annual national accounts’ report by the Namibia Statistics Agency (NSA) showed that in 2017, private households’ consumption amounted to approximately N$121 million each for 2016 and 2017. Government consumption amounted to about N$43 million in 2017, and N$40 million in 2016.

Looking at the figures, predictions are that the figures will continue to drop if the current economic conditions remain unchanged. During 2017, private household consumption amounted to 69%, compared to 73% recorded in 2016.

Statistics also indicate that in 2017, final consumption, including that of the government, amounted to approximately N$164 million, compared to N$161 million recorded in 2016.

Titus Kamatuka, a senior statistician at the NSA, explained that the statistics show that private household consumption declined because households spent less on consumables.

Analysts who spoke to The Namibian said the high unemployment rate has to some extent affected consumption levels across the country because of reduced disposable income. Apart from the high rate of unemployment, the increase in the demand for imported goods compared to local goods has also worsened the decline.

PSG Namibia’s head of research, Eloise du Plessis, said for consumption to be stimulated, the average income of Namibians should be raised.

She added that reducing the rate of unemployment should be a priority because more jobs means more disposable income in the economy, thus increasing consumption levels.

Du Plessis noted that high consumption supports businesses as people buy consumables, hence leading to business expansion and more jobs being created.

“Stronger businesses and more jobs lead to a broader tax base for the government, and this strengthens government finances to provide supportive infrastructure,” she added.

The analyst observed that when there are more business-friendly government policies, more jobs will be created to stimulate higher consumption.

The consumption component is currently the primary driver of growth, but unfortunately due to unfriendly government policies, jobs are being lost and capital flows out of Namibia, thus reducing consumption levels, Du Plessis continued.

An economist from the Economic Association of Namibia, Klaus Schade, said the impact of private consumption on economic growth depends on whether it comes in the form of demand for locally produced goods and services, or imported goods and services.

The demand for locally produced goods and services will increase domestic production, job creation, tax payments, and could result in more investments.

The increased demand for imported goods or services results in an outflow of funds, except for the dealer margin and some other expenses, Schade said.

He added that consumption has dropped as reflected in negative growth rates for the wholesale and retail sector because of increased unemployment and economic uncertainties that result in a decline of consumer spending.

“Shop closures are another sign of the drop in spending, and the drop in demand impacts negatively on the economy since employment and profits decline,” the economist said.

Schade said consumption will increase with rising employment and salary increases.

However, if increased consumption results in rising demand for imported products, it will lead to an outflow of foreign exchange reserves.

Namibia needs to build sufficient foreign exchange reserves in order to maintain the peg of the dollar to the rand, and to meet the international benchmark of three months import cover.

Furthermore, promoting consumption over savings will leave households vulnerable to economically challenging times.

Hence, households should strive for a healthy balance between consumption and savings, which will further reduce their exposure to debts.

IJG Securities, for their part, said household consumption is heavily dependent on consumer demand and confidence.

The company added that consumer confidence is currently depressed as many Namibian businesses are retrenching employees due to the prolonged recession, which forces consumers to cut back on consumption.

“When the level of consumer spending is high, businesses will increase their output to keep up with the demand for goods and services. As a result of higher demand, businesses may expand operations, and in turn hire more employees. Higher consumption and 1emand for goods and services will subsequently drive prices up,” IJG Securities said.

The company noted that currently, household consumption is contracting, thus contributing to the recession.