The financial year kicked off during heightened political activity, globally, regionally and domestically. It took the form of a record number of elections, which led us to call 2024 a “super election year" with profound economic implications. The major trend that became evident over the twelve months was the loss of support for incumbents as trust between electorates and governments reached an all-time low. This resulted in new administrations or coalitions in several jurisdictions, not least of which in the USA, South Africa, Namibia and Botswana.
These new administrations were immediately faced with geoeconomic turbulence in the shape of flare-ups in global international trade frictions that became especially acute in the latter part of the year. At the time of writing, a very fragile Israel-Iran ceasefire is in place and the world awaits the final shape of tariffs on trade.
In Namibia, President Netumbo Nandi-Ndaitwah and in Botswana, President Duma Boko are establishing their respective teams and laying the groundwork for grappling with a host of challenges of foreign and domestic origin.
Borrowing from aerospace lexicon, economies are approaching different types of landings, depending on their trade exposure and policy flexibility. Global growth expectations will continue to be shaved back, due to a sharp deceleration in trade, but a hard landing is not foreseen. In the USA, forward-looking indicators signal a slowdown, but a soft landing is still the base case. Europe and the UK face a greater risk of hard landings, while China's economy is weak and flirting with deflation. South Africa remains grounded, struggling to gain take-off velocity. GDP numbers are soft, and the leading indicator does not hold out much promise.
Namibia registered 3.7% growth in 2024. A rate between 3% and 4% per annum is likely over the next several years, supported by ongoing mining and energy sector developments. The outlook for agriculture has improved, as has manufacturing, where food and beverage production accounts for two-thirds of activity. Wholesale and retail trade, tourism and transport are on a relatively firm footing. The financial industry continues to heal gradually from bad debts and insurance policy lapses, while Government spending should grow at positive real rates.
Botswana is in the midst of a hard landing. Recovery hinges on a diamond market turnaround, currently a dim prospect. Diamonds normally represent 20% of the economy, 30% of Government revenue, and 80% of exports. Therefore, the crash in the market, among others, due to lab-grown diamonds, is a severe economic challenge. Following a surge in the wake of Covid, diamond prices have halved over the past three years to the lowest levels in 24 years.
Gold was already surging at the start of the year. Over twelve months, it rose by 42%. Recently, it stabilised around $3,350 amid geopolitical tensions. Platinum staged a late rally, ending the year up 33%. Oil was down 22% for the financial year as a whole. It surged by nearly a quarter when the bombing of Iran started, but has fallen sharply since then, when a ceasefire came into view. Natural gas mirrored oil's movements with volatility in energy showing no sign of abating.
Late in the year, copper surged by 17% to the top of its 18-month trading range between $9,000 and $10,000, a positive indicator for global economic conditions. Global grains prices are, generally, down, while South African maize futures have plunged, white by 30% and yellow by 24% year to date. Uranium was down for the year, but staged a late comeback, surging by 17%. There seems to be a positive global sentiment shift in favour of nuclear power, which has regained some stature as a climate-friendly energy source. So much so that Rössing is considering a significant expansion of operations.Commodities and their relative price movements, a proxy for the terms of trade, play a crucial role in the geographies where we operate, driving prospects for growth, currencies, inflation, and interest rates. The weak US dollar lifted the Namibian dollar. It appreciated by 6% year-to-date, supported by a solid South African balance of payments and favourable terms of trade. We expect USD to reach 19.50 by year-end 2025 and 20.00 by the end of 2026. The USD, which has traded between $1.06 and $1.22 per EUR over the past ten years, is currently at $1.16, down by 12%, having lost some of its “safe haven" shine. We do not foresee changes to the NAD fixed exchange rate regime for the foreseeable future.
The recent surge in oil shifted inflation expectations. The combination of the USD oil price and exchange rate movements will determine much of what can be expected from fuel prices, which in turn have a significant inflation impact. Inflation in South Africa, Namibia, and Botswana is likely to converge at around 4.5% by end-2025. It may drift higher in 2026. In the USA, inflation is sticky at 2.4%, as measured by both consumer inflation and the PCE deflator. The latter is a key Fed metric. Oil, grains, and Chinese deflation are key to the inflation outlook and, therefore, interest rates.
In the fiscal policy domain, overall debt dynamics remain troubling. High indebtedness translates into heavy interest bills and a lack of fiscal manoeuvrability. The USA downgrade by Moody's again highlighted the risks of large structural deficits, rising interest costs and an unsustainable debt-to-GDP ratio. The Namibian trajectory is promising, in that the debt-to-GDP ratio is set to decline. However, funding pressures persist, with maturities, most notably the Eurobond, making this year especially tricky to navigate. Botswana's position is more precarious. Fortunately, the starting fiscal position is healthier than most other countries. However, with diamond revenue falling away precipitously and a shallow capital market, borrowing is problematic in its present malaise. South Africa's fiscal spiral continues, but we do not foresee defaults.
The BoN is close to, or at the end of its cutting cycle. The MPCs of both BoN and the Bank of Botswana (“BoB") are likely to hold rates steady for an extended period – through the course of 2026, inflation trends will determine for how long. Elsewhere, we expect the Fed and the SARB to lower rates, reaching their lows over the course of the next year. The SARB has proposed a new, tighter, inflation targeting framework, which is the subject of intense research and debate, because it holds profound implications for monetary policy in SA and Namibia. The RSA Minister of Finance is expected to make an announcement in this regard in the February 2026 Budget.
The demand for credit from households and businesses in Namibia and South Africa has been slow for several years now, growing, on average, with low single-digit rates of 3% and 4% per annum respectively, over the past five years. The interest rate-cutting cycle, which is now close to ending, will take more time to have a positive effect. In Botswana, credit growth tended to be higher, averaging around 7% per annum over the past five years. The recent acceleration is probably due to distress borrowing, while money supply growth has stalled.
Floris Bergh
Chief Economist
Capricorn Asset Management
