Namibia

Demand for diamonds to return to growth in 2025

In 2024, Namibia is experiencing a drop in global demand for diamonds, which is hampering its economic activity. The slowdown is exacerbated by drought, which is having a negative impact on agriculture (4% of GDP). Uranium mining is also experiencing a slowdown, despite rising prices, due to the impact of water supply interruptions on stripping activities. In addition, the sluggish economic performance of the main trading partners, such as South Africa and Europe, is also holding back growth, including through tourism. Nonetheless, inflation is falling, thanks to lower prices for imported energy and foodstuffs and the stabilisation of the South African rand.

In 2025, the economy is expected to rebound modestly, underpinned by a recovery in mineral exports, particularly diamonds and uranium, as well as an increase in tourism. The likely fall in interest rates and tax relief should stimulate private consumption. In addition, inflation is expected to remain within the target range of 3-6% in 2025, reflecting the fall in inflation in South Africa, where many goods are sourced. In addition, the La Niña weather phenomenon is expected to bring more water, which will increase agricultural yields and reduce inflationary pressures. Investment in fixed capital will also play a key role, with the development of infrastructure and energy following the discovery of offshore oil deposits, as well as the exploitation of renewable energies (wind and solar) for the production of green hydrogen, supported by German, French and US funding. Germany and Namibia have signed an agreement to support the Green Hydrogen Namibia Programme. This partnership aims to develop local value chains that directly benefit the population, for example, by drawing up a national strategy for green industrialisation. Namibia is also seeking to develop its transport infrastructure, notably through the Trans-Kalahari rail project, linking the Mmamabula coal mine in Botswana to the Namibian port of Walvis Bay. The project, estimated to cost more than USD 9 billion, is due to begin in January 2025. In addition, the Sixth National Development Plan, for the period 2022-2023 to 2026-2027, aims to ensure food and water security, strengthen the role of the private sector in the economy, improve the efficiency of institutions, and increase national energy production capacity, while promoting renewable energy. Improvements are also expected in the regulatory environment, including transparency in the awarding of contracts, improved accounting standards for businesses, and greater digitisation of tax and customs administration. Although stronger anti-corruption mechanisms are also planned, progress in this area could be limited by a lack of political will, which could slow down investment outside the mining sector.

Reducing the burden of public debt

Faced with a heavy public debt, Namibia plans to prepay USD 500 million of a USD 750 million Eurobond maturing in October 2025 from a sinking fund replenished by past SACU revenues. This decision, coupled with a primary surplus (i.e. excluding interest), will lead to a significant reduction in the ratio of public debt to GDP. However, the budget plan for the years 2024 to 2026 foresees an increase in capital expenditure, in principle offset by a tightening of operating expenditure, all of which should make it possible to limit the deficit to less than 4% of GDP. However, the government wants to reduce tax on non-mining companies from 32% to 30% and has doubled the income tax threshold to N$100,000. In addition, a 5% increase in civil servants' salaries is planned. At the same time, SACU revenues are expected to fall from 2025 due to the sluggishness of the South African economy and the fall in world commodity prices. This drop in revenue, combined with increased spending, will widen the public deficit.

Although the current account should remain structurally negative in 2025, its deficit should decrease thanks to the fall in import prices and the increase in mineral production and demand. Last, the Namibian dollar should remain at parity with the rand. The rand could depreciate due to its heavy dependence on raw materials and its vulnerability to unfavourable global economic conditions.

SWAPO still dominant despite declining popularity

President Hage Geingob, who had been in power for 8 years, died in February 2024. Nangolo Mbumba, his Vice-President, has taken over as interim President until November 2024, the date set for the presidential and legislative elections. Netumbo Nandi-Ndaitwah, the presidential candidate of SWAPO, the party in power since independence (1990), is the favourite, despite her party's declining popularity due to high unemployment, poverty and persistent inequality. The main opposition party, the People's Democratic Movement (PDM), is critical of corruption and the government's inability to negotiate better deals with foreign mining companies, which should enable it to win a few more seats. In addition, land reform is a persistently polarizing factor. The colonial legacy of German South West Africa (1884-1915) has resulted in the unequal distribution of land persists. Around 70% of privately-owned farmland is held by the white minority, representing just 8% of the population (compared with just 16% by the black population). The Revised National Resettlement Policy 2018-2027, which provides for the voluntary redistribution of land on the principle of "willing buyer, willing seller", has not made any progress, as demand is not very solvent and the state is devoting only limited financial resources to the issue despite the population's demand . Nevertheless, at least in the short term, SWAPO's dominance will continue, ensuring the continuity of its moderate policy in favour of foreign investors.

Namibia's main partner remains South Africa, a partnership that was reaffirmed at the South Africa-Namibia Business Forum in October 2023. The presidents of the two countries signed a number of agreements, covering green hydrogen, cross-border value chains, the encouragement of investment in both countries and closer cooperation with the private sector. Relations with the European Union will also be strengthened, as the latter seeks to diversify its energy sources. Namibia has significant wind, solar and hydrocarbon potential. Furthermore, in 2021, the German and Namibian governments published a joint declaration on German colonisation, in particular the massacres and other atrocities that followed the revolt of the Herero and Nama populations between 1904 and 1908. In this declaration, Germany acknowledged its moral and historical responsibility, apologised and proposed a EUR 1.1 billion development programme over 30 years. However, this declaration was very quickly contested by the representatives of the descendants of the communities affected, supported by the UN, because of their limited involvement in the negotiations and the lack of recognition of the crime of genocide and the obligation to make reparations. Under this pressure, the Namibian government requested that negotiations be reinitiated, a process that is still under way.

Last updated : July 2024