However, recently introduced incentives by the Namibian government to stimulate the manufacturing sector are expected to see the paints and coatings market through the current flat or negative growth curve period.
Analysts predict contraction of the construction industry and decline in sales of new vehicles. Leading paints and coatings market player Kansai Plascon, formed after a 2012 merger between Plascon South Africa and Kansai, said its sales in the Southern Africa region dropped in 2017 because of the economies of South Africa and neighboring countries such as Namibia and Angola.
Namibia’s economy is expected to recover after slowing to 0.1 percent in 2016, according to the country’s finance minister Calle Schlettwein.
Schlettwein expects 3.5 percent and 4.8 percent in 2017 and 2018, respectively.
According to tax and advisory firm KPMG, Namibia’s economy has become sensitive to shocks because of the “water crisis, a possible bubble in the construction and real estate market, a disappearing Angolan consumer base, a precarious foreign reserves position and a high reliance on government spending and mining are other challenges.
“The slowdown in 2016 was driven by fragile external demand and slow growth in the services sector. The recovery forecast for 2017 will be dependent on higher uranium production,” KPMG said.
The long term effects of the economic contraction of 2015 and 2016 has constrained the growth of the country’s construction and automotive industry: The key consumers of paints and coating products.
The construction industry in Namibia is expected to contract by 18.6 percent in 2017 and 11.2 percent in 2018 “as both private and public construction activities face headwinds,” according to Flanders Investment and Trade (FIT), a Flemish government agency that supports foreign investments.
FIT says although the sector had previously enjoyed growth driven by major construction activities at different mines in Namibia, the projects have now eased and the industry is expected to remain in recession in the medium term.
Minister Schlettwein said the poor performance in the construction sector “stems from the completion of construction projects done by the mining and quarrying sector, following the construction of the Husab Uranium and Tschudi mines which came to an end and since then no new projects have taken off in the mining sector.”
Namibia is also rationalizing its budgetary priorities with additional fiscal consolidation expected in 2018.
Schlettwein in November said government spending will in the medium term be “limited to the most essential basic needs only and seeking to achieve efficient utilization of the resources within the budget provisions.”
However, FIT said the fiscal measures pushed by the government “will reduce the public construction activities as government continues to employ strict measures to improve and restore fiscal buffers.”
Growth of Namibia’s automotive industry is also expected to remain suppressed in the short term for both passenger and commercial vehicles.
Namibia-based IJG Securities (Pty) Ltd, Research Division, which specializes in economic, equity and bonds research predicts a contraction of 39.9 percent and 34.1 percent for passenger and commercial vehicles, respectively.
Since 2015, there has been a noticeable decline in new vehicle sales, which IJG attributes to “lower government spending specifically on capital assets which has had a direct effect on the number of vehicles sold.
“Additionally, slower economic growth means that consumers will have lower disposable incomes and many consumers have been reigning in their spending as a result,” IJG said.
In August 2016, Namibia implemented the Credit Agreement Act, which spells out a deposit of 10 percent on all vehicle units purchased and repayment period of the balance in four and half years.
“This has reduced the number of people eligible for vehicle financing,” said IJG.
Namibia paints and coatings market is dominated by Neo Paints, the largest and oldest manufacturer, and Kansai Plascon Namibia. Other industry players include Peralin Paints; Coral; Hemco Paints; Dulux Namibia; and Medal Paints Namibia. There are others such as Stoncor of South Africa, which has dealerships and agents in Namibia to market it products.
Although the construction industry has been struggling to grow over the last two years, the Namibian government has outlined several projects to be developed under a public private partnership with anticipation they will create opportunities for increased supply of paints and coatings.
The new builds include new apartments for rental services in Windhoek; private accommodation complex for students; mixed infrastructure development in Tsumeb, Walvis Bay Marina Facility; a private hospital in Rundu; road construction; and upgrading of the country’s network among others.
The finance minister said some of these projects will be financed from Namibia’s envisaged Infrastructure Fund that is being established to “ring-fence funding and completion of existing mega infrastructure development projects” and harnessing of other alternative means of infrastructure financing such public private partnerships.
These projects are likely to be developed with the backing of a rebounding Namibian economy supported by similar growth in neighboring South Africa and Angola, according to Schlettwein.
In November, he said the South Africa’s economic growth is expected at 0.7 percent in 2017 and 1.1 percent in 2018, “representing a downward revision by 0.1 percent and 0.5 percent respectively.
“The downward revision is mainly attributable to elevated political uncertainty, weaker consumer demand and low business confidence,” Schlettwein added.
The challenges of suppressed growth of Namibia’s construction and automotive industries is compensated by the many incentives that the government is offering to investors including existing and new paints and coatings companies keen on expanding or making foray into the Namibian market as the national leadership strives to transform the country into an investment destination of choice in Southern Africa.
The government has now put in place general tax regulations including the non-resident shareholders’ tax of 10 percent. This is exempt from tax dividends accruing to Namibian companies or resident shareholders, writing off plant, machinery and equipment over a period of three years and also buildings of non-manufacturing operations at the rate of 20 percent in the first year and the balance at four percent over the ensuing 20 years.
Investors keen on investing in paints and coatings manufacturing in Namibia also have the advantage of exemption from Value Added Tax (VAT) of all imported or purchased manufacturing machinery and equipment.
Additionally, Namibia now has an Export Processing Zone (EPZ) scheme that offers conducive conditions for manufacturers and exporters. More than 18 EPZ companies were in operation by the beginning of 2017.
The government of President Hage Geingob has attempted to create a competitive manufacturing sector with the introduction of additional package of tax and non-tax special incentives to be enjoyed by both existing and new manufacturing enterprises, exporters and Export Processing Zone (EPZ) enterprises, according to the U.S. State Department.
“Namibia offers one of the most favorable EPZ regimes of the region,” it said.
Although all Namibian incorporated companies pay corporate income tax, general and additional sales duties, as well as stamps and transfer duties “the EPZ companies do not pay any of these taxes and duties; only personal income taxes on employees’ income are paid, and there is a Non-Resident Shareholders’ Tax of 10 percent when dividends are exported.”
“Currency conversion is guaranteed, and financial transactions (the transfer of dividends, profits and dis-investment) may be undertaken by banks without the involvement of the Central Bank,” the State Department said.
Because of these enticing Namibian government incentives for manufacturing companies, paints and coatings sub sector is likely to grow in the long run as the project turnaround of the construction and automotive industries is achieved.