Agricultural output severely threatened by drought

Martin Endjala

Ruusa Nandago, an economist at the First National Bank of Namibia, has raised concerns about the growth prospects of the agricultural sector in 2023 due to persistent drought conditions, which are exerting mounting pressure on food prices.

Nandago pointed out that the Namibian government officially declared a drought in June and initiated a drought relief program running from October 1, 2023, to June 30, 2024.

These drought conditions are expected to significantly impact growth in 2023, affecting agricultural output, employment within the sector, and food prices.

The adverse effects of the drought are already evident in the second-quarter Gross Domestic Product (GDP) data for 2023, which saw the agriculture sector contracting by a severe 31.9 percent.

According to Nandago, this deepest contraction since the second quarter of 2019, another drought-affected year. Consequently, the overall GDP growth rate dropped from 5.3 percent in the first quarter of 2023 to 3.7 percent in the second quarter of the same year.

The economist further indicated that the country’s GDP growth is expected to moderate to 3.3 percent in 2023 and 2.8 percent in 2024, down from 4.6 percent in 2022. This downward trend is primarily attributed to the persistently dry weather conditions, compounded by a slowdown in consumption.

“A consumer slowdown will also act as a drag on growth, given that private consumption makes up about 78 percent of GDP. Disposable incomes are under pressure from higher interest rates, leading to higher debt servicing costs and renewed price pressures for utilities and fuel,” Nandago explained.

According to Nandago, second-quarter data for 2023 indicates that private consumption contracted by 4.2 percent, and this weak consumption growth is expected to continue into 2024.

This protracted slowdown in private consumption is likely to impact various sectors, including wholesale and retail trade, residential property, clothing, and footwear. It will also weigh on import growth since consumption in Namibia has a significant import component.

Despite the challenges facing the economy, Nandago believes that growth will remain above its five-year pre-Covid historical average of 0.7 percent. The economy will continue to rely on mining as a key driver of growth.

Given the favourable uranium prices, Nandago anticipates uranium mining to play a crucial role in driving mining activity from 2024 onwards.

The Langer Heinrich Uranium mine is set to exit care and maintenance in 2024, targeting a total production of 77.4 million pounds over its 17-year mining life.

Additionally, Rössing Uranium Mine has extended its mining life to 2036 and expects to sell 1.4 million pounds of uranium in the current financial year.

Nandago also highlighted increased exploration activity and interest in Namibia across various minerals, including rare earth elements, base metals, and nuclear fuels, which bodes well for mining growth.

She believes that favourable mining activities will have positive spillover effects on the utilities and transport sectors, contributing to the continued growth of gross fixed capital formation. Improved mining activity is also expected to boost exports, as minerals dominate Namibia’s export profile.

However, the global economic slowdown and softening commodity prices pose potential challenges to export growth.

Namibia’s economy is also expected to benefit from investments in energy, with NamPower, the national power utility, allocating significant capital expenditure to renewable energy projects utilizing biomass, solar, and wind.

Independent Power Producers (IPPs) are also set to increase investments in power generation, with NamPower and IPPs expected to provide an additional 180MW of power from 2024 onwards.

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