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Home / China’s economic slowdown to hit hard …any decrease in demand to impact Namibian exports

China’s economic slowdown to hit hard …any decrease in demand to impact Namibian exports

2022-05-24  Edgar Brandt

China’s economic slowdown to hit hard …any decrease in demand to impact Namibian exports
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 LOCAL stock brokerage Simonis Storm (SS) has cautioned that a slowdown in China’s economic activity will have an adverse impact on the domestic economy. 

In a detailed report on the causes of reduced activity in the world’s second largest economy, SS economist Theo Klein warns that Namibia can expect reduced exports, reduced foreign direct investment and increased inflation as a continued Chinese lockdown intensifies fears of a slowdown in the Chinese economy. 

This has already led to Chinese GDP growth forecasts being revised downward as Beijing now forecasts 5.5% GDP growth for 2022, with consensus amongst global research houses now forecasting 4.9%, instead of 5.3%. 

In April 2022, the International Monetary Fund (IMF) revised China’s GDP forecast for 2022 downwards from 4.8% to 4.4%, while the latest quarterly figures show growth of 4.8% in 1Q2022. 

In the report, SS notes the IMF’s latest World Economic Outlook 2022 published in April 2022, citing China’s economic slowdown could set back the economic recovery in emerging markets and developing countries, especially commodity exporters. 

“Although there are positive developments in the medium-term outlook with positive spillover effects for commodity exporters discussed earlier, Covid-19 infections and zero Covid policies remain a key risk to economic recoveries in emerging markets and developing countries, including Namibia,” the report states. 

SS further points out that Chinese tourists accounted for about 2% of all tourists visiting Namibia in 2018 and 2019 (pre-pandemic levels). By 2020, the Chinese’s share of total tourists visiting Namibia averaged 0.6% according to data from the Hospitality Association of Namibia. 

“So, an economic slowdown in China will not have a material impact on the local tourism industry,” the report states. 

SS also points out that numerous Namibian companies rely on equipment imports from China, which are used in renewable energy projects, such as solar panels. 

SS believes that due to less factory production and lower supplies of solar equipment, project delays and cost increases can be expected. “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,” SS cautioned. 

Meanwhile, from an export perspective, China is Namibia’s second largest trading partner on average, where China’s share of Namibia’s exports has averaged 19.1% during the last five years. 

As such, any decrease in demand from China will have an impact on Namibia’s exports, given that China, alone, accounts for about a fifth of Namibia’s total exports. 

“Exports to China have been dominated by minerals and commodities (mainly uranium) and fish. Uranium mines are likely to experience the biggest negative impact, with immaterial effects on Namibian fish exports given that fish is a basic food item. Namibia mainly imports capital, consumer and intermediate goods, as well as clothing and textiles. With regards to SACU revenue, China is South Africa’s biggest importer and the second biggest importer of 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 public finances,” the SS report noted. 

SS emphasised that a key 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, we expect an increase in demand to provide upward pressure on global oil prices,” the report reads. 

China usually consumes about 40 million barrels of oil per day, which has reduced significantly to 28 million barrels per day with Covid lockdowns in place. 

In this regard, SS cautioned that even when China resumes normal economic activity the resultant rising oil prices, together with a weaker Rand, could lift the Rand oil price and lead to additional fuel price hikes in Namibia. 

Moreover, China’s zero-Covid policies, which prevent ports and other logistics services from operating normally, are expected to 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,” SS warned. 

Now, as China faces tighter domestic budgets, it has decreased its financial pledge to Africa for the first time in a decade, from US$60 billion in 2018 to US$40 billion in 2021. Also, SS point out that the higher risk of debt repayments from low-income countries is 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 FDI coming from China in the near future,” the SS report added. 


2022-05-24  Edgar Brandt

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