It is feared that the plunging global oil price will lead to a halt in Angolan shopping sprees in Namibia, which has long been the lifeblood of the country, especially in the North.
Among the other impacts of the oil price dipping below US$50 a barrel, is that oil exploration in Namibia might be negatively affected. The Kudu Gas Project, which is critical to addressing predicted electricity shortages, may also feel the pinch.
According to a tourism survey 426 025 Angolans visited Namibia in 2013 and 79% of them shopped here.
The government announced this week that petrol and diesel prices will drop today by more than one Namibian dollar due to the dropping global oil price.
This means that fuel prices in Namibia will be about 20% below the pump prices of a year ago - levels that have last been seen in the middle of 2012.
The Economy Watch Namibia Report for this month, compiled by the Institute for Public Policy Research (IPPR), said if the low oil price prevails, Namibia is heading for stormy waters.
Angola is an oil-rich nation almost completely dependent on this resource. If the oil price continues to plunge, it is predicted that Angolans will have less money to spend.
“Low oil prices are not only good news. Depending on how long they will prevail, they can have a negative impact on oil-exploration activities in the country in the medium to long term,” according to the Economic Watch report.
In addition to this the report warns that Angolans might spend less in Namibia once the lower oil prices affect their income, economic activities in Angola and the value of their currency.
It further stated that since gas prices are linked to oil prices, the price decline can have an impact on the development of the Kudu Gas Project, the financial viability of which has been questioned by some experts recently.
However, on the positive side, the lower oil prices will reduce Namibia’s trade deficit and improve foreign exchange reserves. Oil imports accounted for 9% of total imports in Namibia in 2013, amounting to some N$7 billion.
Oil imports ranked as the third largest import item after transport equipment and chemicals.
The drop in fuel prices will also benefit farmers. The Namibia Agricultural Union (NAU) said in its latest newsletter that while the sharp decrease in the oil price during the past six months was a headache for various fuel companies and oil-exporting countries, the average Namibian farmer would be better off.
According to the NAU, besides the sharp decrease in the oil price of approximately N$1 120 to N$590 per barrel in only six months, the price of iron ore - which is used for the manufacturing of all steel products - also decreased by approximately 50% in the same period.
The expected relief brought about by these price drops usually takes some time to reach the farmer, but the production-cost index of the NAU already shows a decreasing tendency in the general production-cost inflation index since the third quarter of 2014. According to the NAU the general annual inflation figure of the agricultural basket of expenditure has decreased from 9.86% in the second quarter to 9.13% in the third quarter of 2014.
“This tendency is driven by the decrease in petrol prices, infrastructure and general maintenance items as well as the decrease which was noted in the prices of general maintenance with regard to vehicles,” the NAU said.
Petrol prices decreased quarterly by 3.1% from the second quarter to the third quarter of 2014, with infrastructure and general maintenance items having decreased by 2.94% during the same period.