The Effect of South African Monetary Changes on the Namibian Economy : Case Study on Beef Industry

The aim of this study is to measure the long and short term dynamics of trade with South Africa, impact of Common Monetary Area (CMA) on the Namibian beef price. More specifically, it examines the relationship between monetary change by South African Central Bank Governor (i.e taking exchange rate and interest rate as explanatory variables) and the beef industry a case study to the Namibian economy. The Vector Error Correction Model (VECM) was applied by using beef price a dependent variable, with a mentioned set of explanatory variables. As the study hypothesized the study has found a significant linkage between monetary shock occurred in South Africa simultaneously affect the beef industry (or the Namibian agriculture sector in general), and also bears the burden of adjustment in the economy, that could increases farmers financial vulnerability. The dynamic relationships of trading between Namibia and South Africa, more specifically the volatile nature of rand and interest rate have influenced consumers to absorb short-run price change. This change could be substantially affecting the poor households. The result has found that Namibian consumers have to absorb the short run price overshooting, which in turn impacts on the ability to manage their cash flow. For example, the result finding shows one percent change in South Africa money supply or appreciation (depreciation) of rand leads to double change in beef price in Namibia. Due to the linkages between monetary policy variables and relative agricultural prices, it is recommended that agricultural policy makers and monetary authorities in CMA need to work closely in designing and implementing monetary policy. This is important because monetary policies meant to stabilize the economy may have less desirable impacts on farmers and consumers, especially in the short run