Namibia is ruling out dropping its currency peg with the South African rand “unless something very drastic happens,” given the close trade links to its larger neighbour and the drive by the world’s biggest producer of marine diamonds to recover from a two-year recession.
“We have to consider all the options, but after having considered that we still think that backing one-on-one with the rand is the best option,” Namibian President Hage Geingob, 77, said in an interview in Cascais, Portugal, where he attended the Horasis Global Meeting.
The arid south-west African nation’s economy has partly been dragged down by anaemic growth in South Africa and power shortages in that country have spilled over into Namibia, which imports electricity. That prompted calls for a review of the currency arrangement and customs agreement. The rand is one of the most-volatile currencies, making planning tough using the pegged Namibian dollar.
Most of Namibia’s trade is with South Africa and its companies, such as banks FirstRand and Nedbank, are also listed on the Windhoek exchange.
Namibia, a country bigger than France by land area but with a population of just 2.6 million people, is part of a currency union with other smaller regional nations Lesotho and Eswatini, the monarchy formerly known as Swaziland.
The rand lost 14% against the dollar in 2018 and is 1.4% stronger this year.
Prospects for Namibia’s economy are improving after a two-year slump — its first ever back-to-back annual contractions — despite signs South Africa’s acceleration from weak expansion may be delayed.
“We have taken tough actions, painful ones” including cutting back wasteful spending and tackling corruption, Geingob said. “Although it was painful I know we are getting out of the woods now. We are going to have a growth rate of maybe 1%” in 2019 and “by next year we’ll be OK.”
Namibia will seek private investment in its energy sector, to help provide generation capacity to the state-owned Namibia Power and reduce its reliance on imports from South Africa’s cash-strapped power utility.
“In the past we had a monopoly, just NamPower,” said Geingob, who will be seeking a second term as leader in an election in November. “We hope to address that issue. It’s not easy, but I think we will overcome.”
Geingob said Namibia is satisfied with its “marriage” with Anglo American unit De Beers, the world’s largest diamond company, and has signed a new long-term agreement to extract the stones in a joint venture through Namdeb.
“So far it is working,” he said. “We have an open-door policy where we can discuss anything and when it comes to profit-sharing I think we work. So if it is working, so why fixing if it isn’t broken.”
© 2019 Bloomberg L.P