Namibia's Road Runner Housing Market

Namibia’s ‘Roadrunner’ Housing Market?

 Those who are fans of cartoons will no doubt recall the  Roadruuner where usually Wiley Coyote would run off a cliff and keeps running until he finally realized there was nothing underneath and  gravity would rapidly take over . In Business it is now known as the Roadrunner effect, that is when someone or a market continues to behave as the foundations for the earlier behavior still exist. Housing bubbles are very much part of this phenomenon and the big question that is now asked is Windhoek specifically and in Namibia more generally about to experience a  Road Runner effect?

While average asking prices for housing have continued to rise  what has happened is that that the volume of turnover has started to decline quite drastically. But averages disguise huge variations throughout the economy. In Windhoek for example the FNB(First National Bank) housing price index has continued to show growth on average but there the volumes of sales that underpin the market are not there and  the volume index has been dropping sharply. This is one key part of the Road-runner effect. People are demanding higher prices but the sales are simply not occurring. But as can be seen below in 2009 when volumes of sales dipped sharply in Namibia prices continued to grow so a decline in average prices is possible but a cliff is not inevitable. 

            According to FNB, the median house price was N$1.3mn in June which is 10.5% higher than average Windhoek house prices in 2015. High income suburbs have begun to show signs of decline. In KleineKuppe prices have dropped by 1.0%, while Ausblick and Olympia prices have declined by 12.1% and 2.2% respectively. Unsurprisingly as the more expensive suburbs become out of reach to middle income Namibians there strong price growth in  low income areas such as Okuryangava, Khomasdal, Katutura and Rocky Crest.

Unfortunately the elements that supported the housing bubble  in Namibia that peaked in 2014 and saw Namibia with the world’s fastest growing prices is now  well and truly over. Several well known factors have combined together to create  a market which cannot sustain prices at the top end. The first is the decline in commodity prices, including oil which effected the local economy severely. But more importantly than any direct effect this has had on Namibia the decline in oil prices has removed the Angolan buyer who would come to Namibia, a buy or rent an expensive property with a suitcase of US dollars. With the collapse of oil prices Angolans no longer have the petro-dollars to prop up the market and government

The second factor that has caused the decline in sales is that the economy has not been growing anywhere near as rapidly as in the past and may be entering a technical recession with the last quarter registering  -1.2% economic growth. A technical recession (ie two quarters of GDP decline) is unlikely because the exports  from the new Hauseb mine are likely to register shortly which is expected to provide a 5% boost to GDP.

What is also likely to put a severe damper on rising housing prices is the  austerityprogramme that will be necessary if the government is to rectify its budget deficit of 8.3% of GDP.  Government, as the largest sector in the economy will cause the greatest impact on other sectors.

The signs of a decline in the housing market are already there in not just the decline in the volume of sales but also in the rental rates. According to FNB, the largest decline in volume of transactions emanates from the high-end market (house prices over N$2.6mn) where volume growth contracted by 46.0% at the end of May. Prices in this segment, however, haven’t declined as one would expect with the extended drop in demand. Although in June of this year high-end property price growth remain 22.4% higher compared to last year June. Properties are spending significantly more time on the market, giving buyers the opportunity to negotiate prices down, a trend which was not available a year ago, when most properties were selling above valuation and top ups were the order of the day.

Speaking to real estate agents there have been serious declines in rental rates for not only top end houses but the increasingly over-supplied two-bed room units where rentals have, according to prominent real estate agent Ms Nadia Steenkamp  have decreased by some 10% over the last year. Declining rental rates tend to get translated into declining house price eventually.  It is however usually in the middle to upper levels of the housing market where prices tend to be stable though no sector is immune to temporary over- supply.

But house prices deflation which is a serious phenomena because it leaves those who have acquired bonds on their homes when prices are high in positions of having a house where they have negative equity. This is still unlikely to happen here because the problem that underlies the market is temporary. There remains a  structural shortage of housing in Namibia that, according to the IMF, is only getting worse with time and until land is made available is the increase in prices despite the  possibility of a price cliff in several segments of the market.

 But what is perhaps most interesting is why average housing prices in Namibia have increased by 250% between 2007 and 2016 . Part of the explanation is of course inflation but the structural shortage of land for development has strengthened this trend. In Africa’s most sparsely populated country it seems a great shame that a sector which can be such as vital source of semi-skilled and skilled employment is stymied by the structural shortage of land.

What is needed is a rethink of land policy in the periurban areas. Where the private sector is strong enough the government should make the land available and allow the private sector to get on with the job  of construction that will provide much needed growth and employment for the country rather than having local councils directly involved in allocation of land for those other than the very poor.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

SACU's Great Moral Hazard

SACU’s Great Moral Hazard

Economists love talking about moral hazards. This is when an action has unintended consequence like insurance causing people to drive recklessly. Namibia and the other three small states Botswana Lesotho and Swaziland (BLNS states) which together with South Africa make up the membership of SACU live under a scheme of sharing customs revenue that create an exception moral hazard. The moral hazard stems from the fact that the smaller countries get customs revenue from South Africa that bears no relationship to what they actually import from outside the Customs Union. That means that these countries have no interest in collecting customs duties. I frequently complain to Customs Officers in the BLNS states that that they could collect millions of dollars more money if they just policed the importing of  second hand motor vehicles properly and forced people to declare proper prices. But several weeks ago a Customs official said something that clarified the SACU situation. His response was blunt and simple enough- ‘What do I care?’, he blurted’ If I collect all the money that is owed to us it all goes to Pretoria and what I get back from Pretoria has no relationship to what I collected.’

This position is absolutely correct and it is a classic definition of  what economists call a moral hazard. What the customs official gets back from Pretoria bears no relationship to what he collects. What is collected into the SACU pool is largely determined by how much South Africa imports from the rest of the world because SA is by far the biggest member of SACU and what each SACU member gets back is based,  bizarrely,  on what each SACU imports from other SACU members. But that is just as true of all the members of SACU, even South Africa. If some 80% of customs revenue goes to the four BLNS states as they are called then what possible incentive does South Africa have to tighten up on Customs collection.In effect it creates an incentive to turn a blind eye to the sort of tax evasion that is so pervasive in international trade today.

But there are worse and yet more expensive moral hazards imbedded in the SACU customs rebate system. The  most expensive for countries like the four small  BLNS states which gets most of the SACU  customs revenue,  is the duty rebates which eats a huge part of the total SACU revenue. The country that use duty rebates the most is South Africa and the sector that employs them most extensively is the automobile export industry. How does this work.  Under the terms of the South African Automotive Production and Development program firms that produce cars in South Africa get all sorts of financial incentives. The most important are the duty remissions and rebates. The first is the so-called Vehicle Assembly Allowance whereby manufacturers with a minimumplant volume of 50 000 vehicles per annum are allowed to import a percentage of their components duty free (20%- decreasing to 18% over 3 years). The second is the ‘production incentive’ which is  an allowance for duty free import of vehicles or components, calculated at 55% of value added in the SA supply chain; reducing to 50% over 5 years. The cost of both all comes from SACU revenues. And how much? In 2015 the South African Department of Trade and Industry reported to its parliament that the ‘hypothetical’ loss of customs duty from these two parts of the program were a staggering ZAR 10 billion.

Why do the South Africans refer to the losses as ‘hypothetical’? It is because the South African government knows that most of those losses would have gone to the citizens of the BLNS, and not to South Africans, who would have otherwise received some 80% of this loss in customs duty. In short Botswana and Namibia would be about ZAR3-4 billion richer if they were not paying  forPretoria’s subsidies to the automobile manufacturers.

South Africa benefits by the 110,000 jobs that this industry createsand  represents some 7.2% of South Africa’s GDP. The South African government knows that  the industry would be as dead as its now defunct Australian counterpart, if these SACU subsidies were removed. But for South Africa, this is mana from heaven. It is virtually free money, there is no political pressure from South Africans and there is no incentive to contain the cost of these programs as it is the citizens of the BLNS that pay!

 This is a perfect example of a moral hazard. But like the entire SACU customs revenue sharing formula, the rebate scheme is based on the BLNS subsidizing South African, jobs production and exports. But because the BLNS states get more in subsidies under the revenue sharing formula than they pay out for rebates everyone just keeps quiet and accepts the continuation of this economic absurdity. And so it goes on until one day someone will pull the plug.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

 

 

Vegetarian India is the Word's Biggest Exporter of Bovine Meat .... and has endemic FMD

Vegetarian India is the World's Biggest Exporter of Bovine Meat !

Global trade produces some of the most intriguing and often unexpected results. But they are only strange if you don’t understand the details of the particular commodity. For example, the world’s biggest exporter of green coffee is Germany which does so without a coffee plant for 5,000 km in any direction from Frankfurt .It exports more green coffee than all of Africa put together. Botswana exports boats from Maun in the Kalahari Desert and India regularly exports four times as much Darjeeling tea as it 87 registered plantations produces. Butperhaps  the oddest outcome I have seen in international trade is fact that largely Hindu and vegetarian  India is now the now the world’s biggest exporter of  bovine meat, bigger than Australia, US and Brazil. In 2015 India exported some 2 million tonnes of bovine meat and yet  has had endemic Foot and Mouth disease (FMD) which has played havoc with African exporters and confined many of them to local markets.

Germany exports more coffee than all of Africa because of its superb logistics to other countries in Europe. German transnational companies dominate the  European trade in beans used for making expresso. But coffee beans have a limited shelf life and therefore they need to be moved quickly to their final consumer. Germany is well located to do this for virtually everyone in Europe. Until Africa improves its logistics hubs beneficiation of coffee will remain just a dream.

Botswana exports aluminum boats to Mozambique and Namibia from the Kalahari because they have developed expertise in boats that manage hippos, crocodiles and logson the Okavango river. Mozambique, which is Africa’s biggest producer of aluminum makes no boats and does not even export the aluminum to Botswana, that comes from SA. SA boats are fiberglass and meant for rich people to play with on the beach and have little hope of surviving a collision with an unhappy hippo on one of Africa’s rivers

The reason why four times more Darjeeling tea is exported from India than is produced  is simple enough- its normally called commercial fraud. India also exports bovine animals but not beef.  The export is principallyof  buffalomeat which has a huge chunk of the bottom end of the meat  market in Asia and the Middle East. It is particularly popular in countries like Vietnam and the Gulf states which is not surprising given that the cost of deboned buffalo is US$3 per kilo in 2016, far below that of imported Australian beef which exports for about US$4.40 per kilo .

That a largely vegetarian country like India which reveres cows is the world’s biggest exporter of bovine meat is, like German coffee and Botswana boats,  not as surprising as it first seems. The fact that most Indians are vegetarians creates a far bigger exportable surplus than would otherwise be the case and moreover, buffalos are not revered like cows amongst  Hindus in India. Buffalo are needed as a very important part of India’s huge dairy industry and so being the world’s largest exporter of buffalo meat should not be surprising

What really is truly surprising from an African perspective is the fact that India has endemic FMD and yet is still the world’s biggest exporter of bovine meat.  From the perspective of the Ehiopian and Ugandan cattle herder as well as from Namibia and Botswana’s relatively  developed cattle industry this sounds very strange indeed. If you have FMD in your area the European Union and the US, our two main markets, simply block your exports. The EU in particular imposes absurd obligations on beef from Botswana and Namibia. Not only does the beef have to certified as coming from  FMD free areas it also has to deboned to make doubly sure that it is FMD free.

Countries like Ethiopia and Uganda where there is little effective management of the FMD are completely blocked from international trade. If you want to know just how damaging it is to be excluded from international trade in beef then ask the cattle farmers of the Caprivi strip in Namibia or in Ngamilandin Botswana.

There are perfectly legal ways of getting over the existence of FMD as a block to international trade but they are not used in Africa. It is called commodity based trade  under the terms of the OIE’s code allows countries to export  bovine beef from FMD areas as long as it is deboned,matured and has an appropriate PH level and the cattle do not actually have FMD. All this is well known and used by the Indians to develop export markets for its surplus buffalo. Namibia has been developing an extensive program in the Zambezi region (Caprivi). Botswana has done virtually nothing,

The  Chinese, hot on the heels of the Europeans and Americans,  take issue with India’s endemic FMD and have in 2014 blocked exports of Indian  buffalo meat but, given their  preference for cheap meat,  the Chinese have had no qualms about importing it from Vietnam which in turn brings in the meat from India. This so-called ‘grey market’ trade continues to be mutually beneficial and the Chinese have done nothing to stop it  but India has implied that if the block is continues it might consider taking the matter to the WTO. A WTO dispute on the Chinese regulations would be extremely valuable to Africa

There is nothing stopping African countries from developing their own protocol on commodity based trade fromFMD areas but they will not because those with developed  industries such as Botswana Namibia and South Africa desperately fear the implications of allowing imports from the massive herds of Ethiopia and Uganda, let alone buffalo meat from India,  and hence prefer to deal with the EU FMD measures. Commodity based trade, if it is to succeed,  will need to deal with the  relative lack of competitiveness of Southern African industry. 

These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.

 

 



Vets Impoverishing Africa

Vets Impoverishing Namibia and Botswana

 

It is hard to imagine a group of people who are more innocuous and of all the professions amongst the most highly regarded. After all it is the vet who often saves what are ‘man’s best friends’ and treats cattle, the source of traditional wealth in both Namibia and Botswana, when they faced deadly diseases. So how can a group of scientists who are the pillars of their community be the cause of poverty in vast swathes of Zambezi Region (northeastern Namibia) and in Ngamiland (in western Botswana).

 

For almost a decade now both regions have experience increased frequency of occurrence of foot-and-mouth (FMD)disease , which is a result of poor vaccines and apparently increasing proximity between cattle and buffalo, which are the main source of the disease in Southern Africa. If your cattle were raised in an FMD area then their meat cannot be sold to the EU, the USA, China or even in parts of your country that is recognized free of the disease. The traditional way in which all our vets have been taught in their studies throughout the world to deal with FMD has been through separation of animal populationsand vaccination against FMD.When an outbreak occurs, you stop movement of cattle and you vaccinate- set up a containment area of up to 60 km around the diseased animals and you wait six months until after the last case before you allow exports of beef to occur again. The only problem is that it no longer works. For a decade the Kavango-Zambezi region, which stretches across five countries, Angola, Botswana, Namibia, Zambia and Zimbabwe has been suffering from increasing frequency of outbreaks of FMD. The old way of resolving this problem is causing financial chaos in the effected regions and impoverishing the people of Zambezi and Ngamiland.

 

But vets, like most scientists are creatures of intellectual habit and have simply advocated the same response to FMD- more fences, more restrictions on livestock marketing and more vaccinations but the people of Zambezi and Ngamiland have suffered terribly as a result. They have not been able to move their cattle freely, often for many months and have experienced worsening poverty as a result. At least in Ngamiland there is an abattoir where cattle from FMD areas can be slaughtered and traded. The government of Botswana has provided massive subsidies to keep an otherwise unprofitable abattoir going because if it closed the cattle would be worthless except for domestic use or smuggling.

 

This is precisely the situation facing farmers in Zambezi Region of Namibia  where the abattoir at KatimaMulilo has been closed sinceAugust 2015. An abattoir is a factory and needs to run at a high and constant rate of utilization to make a profit. Because of the FMD, the lack of economies of scale and the regular closures of the abattoir due to FMD, the people have no external market for their beef. It can only be sold for local consumption or, more commonly smuggled across borders to make something of a profit. Since August this year Meatco has started a system of mobile slaughter in Kavango East Region and the Ministry of Agriculture, Water and Forestry is constructing a $110 million abattoir and meat processing facility in Rundu, which is near completion.

 

So in response to the problems confronting farmers the response is the development of another facility in Namibia, which proceeds without much policy analysis, or thought that perhaps the best way of dealing with this regional problem is through regional co-operation rather than pouring more money into the same type of responses. But the solution is for vets to adopt the changes to international standards in the Terrestrial Code of the World Organization for Animal Health, known as the OIE (acronym from its previous French name, Office International des Epizooties). Ironically, the vets have requested for these changes based on studies conducted in Namibia and they voted for them at their OIE General Assembly in May last year.

 

FMD does not cause any disease in people. It is also entirely possible to safely trade meat from an FMD area but the meat has to be maturated, deboned, and the major lymph nodes removed and handled hygienically. This beef can be traded and consumed safely without any risk to other animals. Angola imports large volumes of such beef from India,where FMD is endemic and is yet the world’s largest exporter of beef. Unfortunately Botswana tried to export beef from Ngamiland, an FMD area, to Angola but was blocked, without an iota of scientific justification, from even transiting Namibia for a few hours in seal-secured and leak-proof refrigerated trucks from Shakawe under escort to Katwitwi via Rundu. Beef from Ngamiland, although it is derived from cattle that were raised in an FMD area, is produced under the OIE standards rendering it safe for trade.  This decision of the Namibian Veterinary Authority is indefensible, has no basis in science and has caused real bitterness and mistrust on the other side of the border.Now Botswana can only make shipments to Angola via Beira Port in Mozambique, this despite having a dry port at Walvis Bay.

 

This alternative way of allowing meat to be moved and traded fromendemic FMD areas is well known to the veterinary services of the region, which have in many places, including Namibia, been the main block to change. The instant FMD is mentioned our vets instinctively shut down livestock movement and trade. In India they do the opposite, they encourage trade in bovine meat – FMD or no FMD. In Africa we impoverish our people by discouraging trade without any scientific justification whatsoever. 

 

It is absurd and outrageous that African nations block each other from trading with each other, and in the process allow India to dominate a trade that we can easily supply. But what it requires is a different mind-set from the region’s veterinary services and intervention by our health and trade ministers. The nations that border this Kavango- Zambezi basin urgently need political intervention from the Agriculture and Trade ministers and not from the vets to make real progress. It requires ministers to sign a protocol that would allow commodity-based trade, which is supported by OIE standards requested for and voted in by the Chief Veterinary Officers of OIE member countries including Namibia and Botswana. The benefits to Namibia and Botswana of such co-operation are potentially enormous. We waste enormous resources building national infrastructure and rather than allowing cross border trade e.g. from allowing cattle from the FMDareas of the Ngoma and Kasanetriangle to be slaughtered say in Katima Mulilo, Namibia, which is a stone throw away. Or allowing cattlefrom far eastern parts of Kavango East Region to be slaughtered in Maun, Botswana. All of this intra-regionaltrade is entirely possible but now requires ministerial intervention.

 

The people of the Kavango-Zambezi region suffered greatly during the long war against apartheid. They deserve better than to be impoverished by vets who are living in another century. The Trade and Agriculture ministers need to act now to allow trade and to facilitate international co-operation in beef or they, and not the vets, should be held responsible for their peoples’ suffering.

 

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.