The trade deficit handicaps GDP and employment

By Josef Kefas Sheehama.

Economic research has shown that when countries trade with each other, global wealth increases and all countries benefit. There is no doubt that trade being an engine of economic growth, the development of a competitive capacity is crucial. This includes an improved education system, market diversification, a strong legal framework and trade policy, incentives for export promotion, and prioritization of the agricultural and energy sectors.

Conservative wisdom is that the trade balance reflects a country’s competitive strength, so the lower the trade deficit, the greater a country’s competitive strength and higher its economic growth. However, it may also reflect a low level of savings and make a country more vulnerable to external economic shocks.

According to the latest trade data from the Namibian Statistics Agency (NSA), the trade balance remained in deficit at N$4.6 billion, compared to N$4.1 billion recorded in April 2022 and N$2.6 billion Namibians in May 2021. As a result, Namibia’s trade deficit is widening despite a deficit of N$15.9 billion. trillions of dollars in trade growth, acting as a negative catalyst for economic growth and GDP.

Moreover, structural unemployment remains extremely high, poverty continues to plague communities, oppression of workers continues, and inequality is now deeper than ever. In this regard, HPPs were envisioned to accelerate the growth of the Namibian economy, and to do so in a way that rapidly reduces poverty, unemployment and inequality.

The trade deficit and external debt have not yet reached critical levels. Total government debt as a percentage of GDP stood at 68% at the end of March 2022, representing an annual increase of 10.1 percentage points. The annual increase was driven by an increase in the issuance of treasury bills (TB) and internal registered shares (IRS), according to the Bank of Namibia. On a positive note, however, external debt declined year-on-year due to the redemption of one of the Eurobonds in November 2021. Additionally, total loan guarantees as a percentage of GDP declined. on an annual basis, mainly due to the repayments of foreign loans, which were guaranteed by the government in sectors such as transport and energy, coupled with the repayment of domestic loans to the finance, transport and industrial sectors. ‘energy. Well done!

Moreover, the effects of a trade deficit can vary depending on a number of variables. Some of them may not occur due to policy decisions taken to mitigate them. At the same time, there are also other factors at play. The reaction of the market will depend on the exchange rate. Nevertheless, it is likely that new employment opportunities will arise. As consumers benefit from lower-priced goods from abroad, they have more money to spend elsewhere. This in turn opens up new opportunities for other domestic companies. Therefore, this trade deficit aspect is not necessarily a bad sign for an economy.

In my opinion, a single African currency will contribute positively to the necessary process of structural development of the continent. The single currency, if properly implemented, will improve trade by allowing specific countries to specialize in what they are good at and exchange it for other goods than other countries in the alliance. produce more efficiently. The implementation of the African Continental Free Trade Area (AfCFTA) Agreement is seen as a catalyst for long-term continental prosperity and integration. An integrated single currency will contribute to monetary stability, less financial risk, lower transaction costs, a stronger and more stable exchange rate, price transparency and less trade impact of inflation. The foundations have been laid for the harmonization of continental monetary policy leading to a single currency and the smooth implementation of the African Continental Free Trade Area.

Namibia managed to reintegrate its economy into world trade in the early 1990s after a long period of political difficulties and international reactions to the apartheid regime. Since 1995, successive Namibian governments have faced major economic policy challenges in changing the institutional structure of the economy and adapting the trade policy regime to the new agenda and structure.

A country’s trade balance can also influence the value of its currency in world markets, as it allows a country to control the majority of its currency through trade. In many cases, a trade surplus helps strengthen a country’s currency against other currencies, affecting exchange rates, however, this depends on the proportion of a country’s goods and services to other countries. other countries, as well as other market factors. When focusing only on trade effects, a trade surplus means that there is a strong demand for a country’s goods in the world market, which drives up the price of those goods and leads to a direct strengthening of the national currency.

To this end, trade surpluses are no guarantee of economic health and trade deficits are no guarantee of economic weakness. Deficits or surpluses can be good or bad, depending on whether the corresponding financial capital flows are invested wisely.