Lack of investment opportunities drains Nam
Windhoek ‑ Limited investment opportunities in Namibia’s relatively small but growing economy is resulting in most would-be investors opting to look for investment opportunities in neighbouring South Africa, contributing to huge amounts of funds outflow.
Billions of Namibian dollars flow yearly into the South African financial system, as portfolio investments, while at the same time Namibia has over the years witnessed a surge in its import bill for goods from South Africa. “Namibia invests large sums of money into investment assets in South Africa largely through contractual savings and institutional investors,” Bank of Namibia (BoN) spokesperson, Ndangi Katoma, told The Southern Times.
“A number of factors contribute to this, including, but not limited to, the somewhat limited depth of the financial sector in Namibia, and the relatively limited listed investment instruments,” Katoma added.
The central bank says that Namibia’s portfolio investment stood at R8.5 billion in 2008 but reduced slightly to R5.2b in 2009 and to R4.6b in 2010. Year 2011, the year Namibia issued a debut international bond, witnessed a reversal in funds outflows, with the country netting in R224 million in positive inflows.
Last year, portfolio investments ‑ the bulk of which are being invested in South Africa ‑ rose to a staggering R4.5b, the central bank said. “The largest chunk of capital outflows is in the form of portfolio investments…the vast majority of these investments are to South Africa,” Katoma said.
South Africa is a key source of imported products for the Namibian economy, accounting for 70 percent of the country’s total import bill in 2012. Namibia’s imports from neighbouring South Africa swelled to R41.8b in 2012 from R28b recorded in 2008. Namibia’s total import bill in 2012 stood at R59.8b in 2012, with imports from South Africa accounting for R41.8b (70 percent of total imports), the central bank statistics reveal.
Finished goods such as vehicles, boilers, fuels and oils, articles of iron and steel and electrical machinery constitute the bulk of imports from South Africa. The central bank says that Namibia’s exports to South Africa declined slightly in 2012, although the economy witnessed a rise in its exports.
Namibia’s trade deficit widened to R17.4b in 2012, from R11.2b, statistics from Namibia Statistics Agency (NSA) show. In 2012, Namibia’s imports from Switzerland stood at R3.5b, China R2.4b, United Kingdom R1.5b, Germany R1.2b and Botswana R931m, the NSA says.
The NSA also says that during 2012, Namibia witnessed some notable increases of imports from neighbouring countries such as Zambia, which registered a more than tenfold increase and Botswana, which registered a fourfold increase.
“As a small open economy, Namibia will continue to import goods and services where required over the foreseeable future. As the local economy develops and produces more and more of the goods consumed in the country (and potentially in the region), our import reliance on South Africa can be expected to fall,” Katoma said.
“However, this process of structural reform is on-going and will not be completed overnight,” Katoma added. Namibia hopes that legislative reforms ‑ through amending Regulations 15, 28 and 29, which govern pension funds and insurance companies and a financial sector strategy launched in August 2012 ‑ would help curb capital outflows.
The amendments to Regulations 15, 28 and 29, which government says it is finalising, would compel pension fund managers and insurance companies to invest a small portion of their funds in locally listed or unlisted assets. Government Institutions Pension Fund (GIPF), which has assets of R60b as of June this year, has earmarked R2.4b for local investments.
“Plans are currently being implemented to deepen the financial sector and encourage local institutional investors to invest more of their funds in the local market, both in listed and unlisted equities, money market and fixed interest instruments,” Katoma said.
The Namibian economy, which is export-oriented, would have to undergo major structural reforms to lessen import dependence on South Africa and other markets. The BoN admits that even though the economy should strive for export-led growth, the levels of self-sufficiency, which will drastically reduce dependence on South Africa, will not be achieved in the short-term.
“The nascent nature of the Namibian economy means that it is currently unlikely that import trade from South Africa will decline substantially over the short-term. In the medium- to long-term, however, the on-going efforts to diversify exports and grow the industrial base could reduce the outflow of funds to South Africa,” Katoma explained.