The Dollar-Rand Peg: Time to Decouple?

31 March 2021 | Economics

Windhoek • Carel Jordaan, RMB Trader

Namibia’s sophisticated and liquid foreign exchange market plays a crucial role in its economy. Notwithstanding the country’s size, we have a very liquid market. Banks, like FirstRand Namibia, have been playing a key role in establishing this market. Equally, banks are instrumental in developing, capacitating and growing its potential.

Although the Namibia dollar replaced the South African rand in 1993, following Namibia’s independence from its neighbour, the rand remains widely used in Namibia. Moreover, the dollar has been pegged to the rand at one to one as Namibia is a member of the Common Monetary Area (CMA). The CMA links Namibia, South Africa, Lesotho and Eswatini into a monetary union. The main purpose of this trade is that all the parties can aspire to the same level of development and equitable economic advances.

Being pegged to the rand has both advantages and disadvantages.

The rand is a free-floating currency and its supply-demand curve is constantly evolving and influenced by many factors. Some of these factors are external and some are internal, and the rand frequently experiences volatility.

Domestic factors, such as policy uncertainty, structural issues, widening budget and current account deficits, downgrading by sovereign rating agencies, and low growth prospects have been the main drivers of the currency’s weakness and volatility.

During 2020, the rand traded to a high of 19.0815 against the US dollar as risk aversion took hold of the market. As we headed into 2021, we have already seen it trading close to 14.50 levels. By the middle of March, it was trading at 14.87.

This depreciation can be both good and bad. For example, with a weaker currency, it becomes easier and cheaper for tourists to visit our shores and boost our tourism industry. However, regulations to curb the further spread of Covid-19, particularly closed borders, have resulted in the tourism sector not being able to capitalise on this for the moment.

On the other hand, our exporters of goods receive more local currency once their proceeds come in, which again filters through to more revenue for our government. The flip side is that imports become more expensive, especially fuel imports, and even more so for companies importing to produce exportable goods.
For Namibia, which relies on the importation of most consumer goods and faces an arid climate, increased import prices can eventually lower the population’s standard of living - unless they are compensated for the rising costs of living by increasing salaries, wages and or social transfers.

Pros and cons

So why do we want to stay pegged to the rand? Would we not be better off trying to make it on our own?

There are, of course, two different schools of thought: those in favour of, and those against the peg.

Being a trader, a part of me really wants us to break the peg against the rand. We can become the masters of our own future, make our own prices and create value, guide our own ship and not trail the rand.

On the other hand, although there might have been times that we thought we do not have the same domestic problems as South Africa, we must face the fact that we are in the same boat for now.

Even if we don’t have the same problems as South Africa, we are still exposed to all the external factors. With Namibia’s current narrow industrial and export base, it is going to be difficult to withstand the external shocks. Our current economy is very reliant on a limited number of sectors such as fishing, diamonds and uranium mining.

Taking this into consideration, as well as the hardships that Covid-19 has brought to the world economy, it’s reasonable to think that the Namibian Dollar will lose much more value than the rand, should we decide to decouple. This would result in a declining standard of living in Namibia, since imported goods and services would become more expensive for consumers.

The recommendation is therefore to stick to the rand peg for now. It offers our economy and its citizens a level of protection, as the South African economy is so much more diversified, and capable of withstanding the external shocks.

Similar News


Construction sector recovery to take a while

9 hours ago | Economics

Windhoek ∙ [email protected] For the past five years, the construction sector continued with a downward trend. The sector recorded negative growth rates of 41.1%,...

National Consumer Protection Policy launched

3 weeks ago - 05 October 2021 | Economics

Windhoek ∙ [email protected] The National Consumer Protection Policy 2020-2025 and the Namibia GS1 License was launched on Wednesday in Windhoek.According to the Minister of...

Economy loses billions due to shipping constraints

1 month - 21 September 2021 | Economics

Windhoek ∙ [email protected] For the month July 2021, the Namibian economy lost about N$4.6 billion in potential export earnings. Statistics released by the...

Sea freight grapples with container shortage

1 month - 18 September 2021 | Economics

Benoit Pleegrin Global sea freight was severely disrupted by the Covid crisis but is now recovering and prompting a boom new container ship orders...

New global opportunities fund for locals

1 month - 14 September 2021 | Economics

Arysteq Asset Management recently launched a first of its kind global equity fund for Namibia.The Arysteq Global Opportunities Fund was established late in 2020...

Minimumloon vandag in die kollig

1 month - 07 September 2021 | Economics

Swakopmund Die ministerie van arbeid voer vandag samesprekings oor die voorgestelde nasionale minimumloon in die ouditorium van die ministerie van visserye en mariene hulpbronne...

Construction activities picking at the coast

1 month - 02 September 2021 | Economics

Windhoek ∙ [email protected] The composite index of building plans completed (Windhoek, Swakopmund, Walvis Bay and Ongwediva) for June 2021 increased by 10.0% on monthly...

Bright business prospects in the mining sector

1 month - 31 August 2021 | Economics

Windhoek ∙ [email protected] In 2020, it was only the mining and quarrying sector that registered positive growth in terms of investment increasing by 15.9%...

Rail cargo transportation slipped into a decline

2 months ago - 10 August 2021 | Economics

Windhoek ∙ [email protected] During June 2021, Namibia transported 975 708 tonnes of cargo through rail, road, air and sea, compared to 810 940 tonnes and...

Namibia’s construction sector still on mute

2 months ago - 31 July 2021 | Economics

Windhoek ∙ [email protected] delivery was one of the challenges pointed out in the recently released First National Bank (FNB) residential property report.According to the report,...

Latest News

Pastels in the spotlight at...

8 hours ago | Art and Entertainment

Various artists are currently displaying their pastel artwork at the Fine Art Gallery in Swakopmund. These artists include Paul Dixon, Werner Schröder, Rosemarie Kuchling, Paul...

CATS programme beneficial

9 hours ago | Education

Manica Namibia has been affiliated with the Commercial Advancement Training Scheme (CATS) programme since 2005, and has had over 39 intakes, with an impressive pass...

Construction sector recovery to take...

9 hours ago | Economics

Windhoek ∙ [email protected] For the past five years, the construction sector continued with a downward trend. The sector recorded negative growth rates of 41.1%,...

Getooi teen kanker

23 hours ago | Events

Walvisbaai • [email protected] Die Walvisbaai-tak van die Kankervereniging van Namibië (CAN) het ’n spoggerige kuier, uitstappie en fietsrit by die Atlantis-sportklub op...

Kry jou tuingereedskap gereed ...

23 hours ago | Local News

Swakopmund • [email protected] Die Namibian Community Skills Development Foundation (Cosdef) gaan op 6 November die eerste varsgroentemark en ook ’n landbouprojek by...

Grumpy’s fishing report

23 hours ago | Fishing

The sand sharks are in the shallows which in turn brings the bigger predators closer too. A lot of anglers, including even the most...

Rare, unique catch ...

23 hours ago | Fishing

Ilka Schroeder recently caught a marbled electric ray at Mile 8. Local fishing guru Graham “Grumpy” Gramowsky said this is truly an uncommon catch in...


23 hours ago | Fishing

Tuesday, 26 October High 06:12 Low 11:52 High 18:15 Low 00:17 Wednesday, 27 October High 06:58 Low 12:41...

Playtime Trust hosts top notch...

1 day - 25 October 2021 | Sports

The Walvis Bay-based Playtime Trust Namibia offers multi-disciplinary sports training programmes in soccer, cricket and athletics for the youth at the coast, particularly from disadvantaged...

Load More