Windhoek — Namibia is one of the top ten saving countries worldwide, with a gross saving rate reaching levels of 40 per cent of Gross Domestic Product (GDP).
When it comes to saving for that rainy day, Namibia outperforms all other member states of the Southern African Customs Union (SACU) and the Common Monetary Area (CMA).
However, despite this relatively high savings rate, massive amounts of capital still leave Namibia due to a limited number of promising investment opportunities available in the country.
On Monday, the Minister of Finance Saara Kuugongelwa-Amadhila said private equity funds could play a vital role in Namibia's economy to address the lack of investment, and consequently could help reduce unemployment and alleviate poverty.
The minister conveyed this message at the Government Institutions Pension Fund (GIPF)'s first-ever private equity workshop that took place in Windhoek on Monday morning.
"Namibia is confronted with huge outflows, reflected in international investments in the balance of payments. Here the private equity industry could help us to explore and identify new investment opportunities and therefore to make domestic saving fruitful for national economic and social development," said the finance minister in a speech read on her behalf by the Deputy Finance Permanent Secretary, I-Ben Nashandi.
Private equity is defined as equity capital that is not quoted on a public exchange.
Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.
The majority of private equity investors consists of institutional and accredited investors who can commit large sums of money for long periods of time.
Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an Initial Public Offering (IPO) or sale to a public company.
However, during the initial impact of the global financial crisis, private equity funding fell more than 50 per cent worldwide in 2008 and 2009.
According to Thomson Reuters, worldwide equity backed mergers and acquisitions dropped from an absolute high of US1 trillion in 2007 to a low of US$100 billion in 2008.
"The lesson learnt was that it is not all about achieving a high return on investment in a very short time, but also about the sustainability of investments and trying to make a development impact with the collected savings. The days of earning profits through financial engineering and rapid portfolio turnover seem unlikely to return in the foreseeable future," explained the finance minister.
To unleash resources for national economic development, the Namibian government has established domestic asset requirements for domestic pension funds.
"The amendments to regulations 15, 28 and 29 constitute a national effort to mobilize domestic resources to finance productive investment, while retaining the business imperative of fund management," concluded Kuugongelwa-Amadhila.