The South Africa rand, which has plummeted against the world’s major currencies, is dragging the Namibian economy down in its wake.
Economists across the border are already predicting that the rand will fall to R15 or even R20 to the US dollar, which has grave implications for Namibians who are already paying top dollar for basic foodstuffs and other commodities.
The petrol price increased by 38 cents at midnight last night, while the diesel price was hiked by 30 cents – putting motorists and commuters under further pressure. The knock-on effect on food prices is expected to follow swiftly.
On Monday, SA’s Automobile Association warned that if the rand’s depreciation continued unchecked, a petrol price of R16 per litre was possible in the medium term.
The rand was trading at R11.21 to the US dollar yesterday, compared to R10.35 on December 27, while the currency was trading at R15 to the Euro and R18 to the British Pound.
It has hit a five-year low against the US dollar, with analysts predicting price hikes in transport and construction during the first half of 2014.
There is widespread concern that the knock-on inflationary effect of the recent fuel price hikes would send further shockwaves through the economy.
Food price and mortgage hikes
Namibian Consumer Trust Executive Director Michael Gaweseb said yesterday: “When prices of goods are increased, people turn to their employers and demand more money. This further contributes to challenges between employer and employees, which further affects the economy undesirably when there are strikes.”
He said mortgage prices would also rise once the central bank translates the falling currency into higher interest rates to manage the economy.
FNB’s Manager for Research and Competitor Intelligence, Namene Kalili, said the depreciating rand is expected to increase the cost of construction materials in Namibia, including steel, roofing, flooring, aluminium and paint.
This will be “aggravated by the rising transport costs for bricks, sand and cement, which are very bulky inputs”.
It also raises the spectre of foreigners snapping up properties in both Namibia and SA.
Workers are also in danger of becoming trapped with lower wages, as their purchasing power continually diminishes and inflation rises.
Govt loan repayments
Currency weakness makes the cost of importing goods, particularly machinery and other technology used in production, exorbitant or unaffordable.
Sharp currency depreciation also causes the trade deficit to balloon, as the cost of oil imports and capital equipment climbs.
The costs of labour, electricity, transport and the like also rise sharply, driving up the cost of exports and driving down their competitiveness.
The Namibian dollar’s depreciation will also substantially increase the cost of government servicing foreign debt and increase the cost of borrowing from other countries.
Namibia’s monetary policy framework is underpinned by the exchange rate system linked to the SA rand. This link, which requires that Namibia’s currency be backed by international reserves, is supposed to ensure that the country imports price stability from the anchor country.
Investor confidence
Asked about the possibility of delinking the Namibia dollar from the SA rand, independent economist Klaus Schade said Namibia would not be able to exercise this option.
He said the benefits still outweigh the negatives.
“The country and economy has benefited from a more diversified South African economy that is less vulnerable to shocks in certain sectors, and hence (has) resulted in a greater degree of macroeconomic stability and investor confidence.”
He said that the tourism industry and exports can benefit from the currency devaluation.
Gaweseb said yesterday that it was imperative that consumers be consulted before prices are increased, especially when it comes to fuel and other commodities
“The country needs to look at socio-economic conditions in relation to its unique income disparity and how the sudden implementation of international economic impacts affects social-class harmony,” he added.
Economists across the border are already predicting that the rand will fall to R15 or even R20 to the US dollar, which has grave implications for Namibians who are already paying top dollar for basic foodstuffs and other commodities.
The petrol price increased by 38 cents at midnight last night, while the diesel price was hiked by 30 cents – putting motorists and commuters under further pressure. The knock-on effect on food prices is expected to follow swiftly.
On Monday, SA’s Automobile Association warned that if the rand’s depreciation continued unchecked, a petrol price of R16 per litre was possible in the medium term.
The rand was trading at R11.21 to the US dollar yesterday, compared to R10.35 on December 27, while the currency was trading at R15 to the Euro and R18 to the British Pound.
It has hit a five-year low against the US dollar, with analysts predicting price hikes in transport and construction during the first half of 2014.
There is widespread concern that the knock-on inflationary effect of the recent fuel price hikes would send further shockwaves through the economy.
Food price and mortgage hikes
Namibian Consumer Trust Executive Director Michael Gaweseb said yesterday: “When prices of goods are increased, people turn to their employers and demand more money. This further contributes to challenges between employer and employees, which further affects the economy undesirably when there are strikes.”
He said mortgage prices would also rise once the central bank translates the falling currency into higher interest rates to manage the economy.
FNB’s Manager for Research and Competitor Intelligence, Namene Kalili, said the depreciating rand is expected to increase the cost of construction materials in Namibia, including steel, roofing, flooring, aluminium and paint.
This will be “aggravated by the rising transport costs for bricks, sand and cement, which are very bulky inputs”.
It also raises the spectre of foreigners snapping up properties in both Namibia and SA.
Workers are also in danger of becoming trapped with lower wages, as their purchasing power continually diminishes and inflation rises.
Govt loan repayments
Currency weakness makes the cost of importing goods, particularly machinery and other technology used in production, exorbitant or unaffordable.
Sharp currency depreciation also causes the trade deficit to balloon, as the cost of oil imports and capital equipment climbs.
The costs of labour, electricity, transport and the like also rise sharply, driving up the cost of exports and driving down their competitiveness.
The Namibian dollar’s depreciation will also substantially increase the cost of government servicing foreign debt and increase the cost of borrowing from other countries.
Namibia’s monetary policy framework is underpinned by the exchange rate system linked to the SA rand. This link, which requires that Namibia’s currency be backed by international reserves, is supposed to ensure that the country imports price stability from the anchor country.
Investor confidence
Asked about the possibility of delinking the Namibia dollar from the SA rand, independent economist Klaus Schade said Namibia would not be able to exercise this option.
He said the benefits still outweigh the negatives.
“The country and economy has benefited from a more diversified South African economy that is less vulnerable to shocks in certain sectors, and hence (has) resulted in a greater degree of macroeconomic stability and investor confidence.”
He said that the tourism industry and exports can benefit from the currency devaluation.
Gaweseb said yesterday that it was imperative that consumers be consulted before prices are increased, especially when it comes to fuel and other commodities
“The country needs to look at socio-economic conditions in relation to its unique income disparity and how the sudden implementation of international economic impacts affects social-class harmony,” he added.
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