Households face cost of living crisis with rising inflation, energy prices

• By Josef Kefas Sheehama

The most likely outlook remains a continuation along the current path of economic stagnation and slow deteriorating of Namibia’s prolong financial crisis.

The Electricity Control Board approved a 7.30 percent tariff increase effective July 1 to ensure sustainable electricity industry at affordable tariffs. Namibia Power Corporation importing about 67 percent of power from neighboring countries to meet the country’s electricity demand. The higher costs come at a time when rising bank’s interest rate rise, increase fuel and food prices.

The Bank of Namibia raised its key interest rate as policymaker’s combat inflation fuelled by high energy prices, Russia’s war in Ukraine and lingering concerns about Covid-19. The energy supply crisis is one of the main factors pushing up household bills. The supply chain shortage due to a spike in demand and lack of delivery drivers is also pushing up prices for goods. The cost of living crisis will deepen inequality in Namibia and yet no political party is talking seriously about addressing the enormity of this challenge by fixing our broken social safety net.

I am afraid that City of Windhoek might increase the water bill and people to be disconnected from their water supplies if they didn’t pay the bill. I am talking here about people in genuine distress, who haven’t the money to pay their bill because, I think, human beings, as well as having a right to water we have a right to light and to warmth. It is unclear how long the cost of living crisis will last. 

Furthermore, it helps to be aware of all the changes that are coming and how much they will cost you, so you can take steps to budget and protect your finances. There’s no way to avoid the increase, but it pays to be aware of upcoming changes so you’re not caught out.

POORER FAMILIES

This has the largest effect on poorer families because they tend to spend a larger proportion of their income on essentials. The rises in energy prices have a huge effect on discretionary spending power, after households have paid their rent or mortgages, food bills and utilities such as water.

This rise in prices is considerably higher than the increase in average earnings. Inflation is clearly something that bites on people’s household income. I’m sure they’re already feeling that in terms of prices that are going up. Employers are unlikely to compensate their staff for this extra and might well limit pay rises.

Moreover, what should you do? One option is to fix your mortgage now, so you lock in current rates and avoid any future interest rate rises. Consider your heating and electricity use when spending more time at home as this could push up your energy bills, especially for all those cups of tea. Don’t be tempted to leave your TV on standby or your phone and laptop plugged in when they’re fully charged if you’re at home all day.

Overall, for the temporary reduction of levies imposed on fuel products, the signs are positive despite uncertainty caused by the Ukraine war and inflationary pressures. So, it is crucial to avoid complacency and ensure the opportunity of this windfall is not missed. There are still many risks to the outlook, including the knock-on effects of a global economic slowdown should rising prices and the conflict persist.

INFLATION RISING

Additionally, as inflation rises, it erodes the spending power of your hard-earned cash. So it’s important to make sure your money is working hard for you. But it’s almost impossible to find a savings account to beat inflation at the moment.

Everyone’s going to be hit, and it will feel like a big squeeze for everybody. It’s going to feel like a catastrophe for lower-income households if nothing changes. The ruling, if left uncontested, will not only disrupt the industry but will further suppress economic recovery, considering the current threat the country’s economy is facing.

It is quite interesting to see that Namibia is importing electricity from its neighbouring countries such as South Africa, Zambia and Zimbabwe, which has similar climate conditions. I strongly believe that the prices of electricity will rise due to this lack of electricity production and dependence on foreign imports.

Furthermore, if electricity production is not supported with alternative renewable sources such as wind, solar and biomass energy, these type of problems are inevitable.

Moreover, green hydrogen will be one of the largest economic opportunities.

The preferred bidder, Hyphen Hydrogen Energy, is set to start production in 2026. According to Mr Mnyupe green hydrogen trains and pipelines to trade with neighbouring countries. The Zambian and Namibian governments are expected to sign a Memorandum of Understanding for the construction of a Gas and Oil pipeline from Windhoek into Lusaka.

There are hopes of creating renewable electricity, both for export and as an alternative to imported coal power from South Africa. Namibia believes that, by making renewables the cheapest and most attractive option during the bidding, the system creates an incentive to switch to low-carbon technologies, stimulates investments and reduces the need for state subsidies. Therefore, energy consumption per capita of a country is regarded as an important indicator of economic development.

STRATEGIC COMMODITY

In today’s world, energy is not only considered to be a production input but is also regarded as a strategic commodity that constitutes the basis for international relations and shapes the world economy and politics. Due to the rapid depletion of oil reserves with each passing day, it is thought that this problem can be mitigated in the short term and completely solved in the long term, provided alternative energy sources are mobilised.

To this end, this isn’t only going to be felt by the very poorest. That’s obviously where the political response ought to focus, but very many middle-income people will also struggle quite a lot with the kind of rise in bills that they’re going to see. The whole country is going to feel squeezed throughout 2022 and low-income households are going to struggle most to deal with that. Also, when inflation gets too hot, the government might shift toward a contractionary fiscal policy. These measures, such as hiking interest rates and increasing the cost of borrowing, could slow economic activity and depress standard prices.

Therefore, it is clear that renewable energy sources have considerable potential to meet mainstream electricity needs. However, having solved the problems of harnessing them there is a further challenge of integrating them into the supply system where most demand is for continuous, reliable supply.

Obviously sun, wind and waves cannot be controlled to provide directly either continuous dispatchable power to meet base-load demand, or peak-load power when it is needed.

*Josef Kefas Sheehama is a banking industry professional with 19 years of experience. He writes in his personal capacity.