Namibia: N$13 Billion Shipped Out of the Country

Independence Avenue Windhoek

ABOUT N$13,6 billion left the country as portfolio investment and foreign direct investment during 2017.

Of this figure, N$8,4 billion was in direct investment, while N$5,2 billion was in portfolio investments.

Foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country, while portfolio investments are investments in the form of a group of assets, including transactions in equity and securities, such as common stock, and debt securities, such as banknotes, bonds and debentures.

According to the finance ministry, pension funds, insurance companies and money market institutions make up the list of companies that invest funds through asset managers in the Common Monetary Area (CMA) and international markets.

Finance minister Calle Schlettwein told a press conference last year that N$8,4 billion had left the country in direct investments, and his executive director, Ericah Shafudah, told The Namibian recently about the N$5,2 billion.

Shafudah also said companies shipped out N$-1,4 billion during the first and N$2,1 billion in the second quarter, and approximately N$1 billion during the third quarter of 2018.

The negative sign in front of the 'net capital inflow' figure means that the "total value of foreign assets sold during that period is more than the total value of foreign assets purchased in the same period".

Reinvestment picked up to N$2,1 billion in 2017, before decreasing to N$574 million during the third quarter of 2018.

"With regard to all other sectors, particularly mining and manufacturing, retained earnings have been lower. The lower reinvested earnings in the mining sector can be attributed to numerous factors, such as low international commodity prices and high operational costs (with some mines under care and maintenance)," she noted.

Shafudah said Namibia could keep capital in the country, as illustrated by numerous projects undertaken in the country over the past four years with minimum investments valued at N$2,8 billion, namely the construction of Husab Mine, Neckartal Dam, the oil storage facility, and the expansion of the Walvis Bay port, and many others.

Although it is not illegal, Schlettwein last year said because of the "perpetual outflow of investments", productive capacity remains limited.

"We still import the most basic consumables, continually eroding our balance of payments," he said. "Our trade current account and international reserve balances are only getting better now, inasmuch as domestic demand conditions are weak."

Schlettwein and the Namibia National Reinsurance Corporation (NamibRe) have taken eight insurance companies to court over their refusal to comply with the law compelling them to do business with NamibRe to curb outflows. The case is still pending.

At that time in 2018, Schlettwein said more than N$1 billion was estimated to be leaving Namibia each year through reinsurance.

Finance ministry figures show that overall net capital inflows stood at N$-9,6 billion in 2017, compared to N$-882 million during the third quarter of 2018.

In the first and second quarters of 2018, the figures stood at N$-1,4 billion and N$-744 million, respectively.

To better understand funds leaving the country, The Namibian asked various financial institutions if their decision to invest funds outside is linked to the repo rate.

This also comes after local commercial banks advertised offshore banking offerings to provide their clients with a chance to invest in strong currencies and diversify their investments.

First National Bank's spokesperson, Elzita Beukes, said individual taxpayers have under the existing exchange control framework for many years been allowed to make foreign investments to a maximum of N$4 million per annum, which recently increased to N$6 million per annum.

She added that after launching their long overdue global account offering, "we merely facilitate the process of giving customers currency exposure without having to go through the pain of having to approach foreign banks directly to open investment accounts."

Beukes, however, said FNB did not make this decision because of the domestic interest rates, and that their onshore accounts are maintained in the books of FNB Namibia.

Meanwhile, Bank Windhoek's head of funding and liquidity management, Diederik Kruger, said they do not offer offshore investments, but only onshore accounts, which are denominated in foreign currency.

Echoing Beukes' sentiments, Kruger said it is the constitutional right of every Namibian to apply for approval and invest their funds locally or abroad, saying foreign investments are not a new development.

"Bank Windhoek, as an authorised dealer, can assist clients in applying for the good standing certificate from the Receiver of Revenue, and we will convert and transfer the funds to an account opened by the investor abroad," he explained.

Kruger said the decision to keep the repo rate unchanged and on par with South African rates will benefit the consumers and borrowers in Namibia as it signals that the expectation of higher rates is now moved out at least 9 to 12 months.

"However, it does influence the pricing of deposits, and this can lead to higher interest rates paid by banks to retain funding in the country. The lower returns will also affect the demand for local assets offered by commercial banks and the Bank of Namibia," he added.

Johannes !Gawaxab, the co-founder of private equity fund Eos Capital, said the return on the N$5 billion leaving the country and the return on the money reinvested within the economy is quite high.

However, he cautioned that although shipping investments to foreign countries earns high returns, it deprives the local economy of jobs, infrastructure and capital.

He added that inasmuch as the country earns good returns on investment, there was a need to look beyond the returns.

"We need to look at job creation, social benefits and economic benefits of deepening our own financial/capital market," !Gawaxab said.

He reiterated that the country needs to retain some of those billions leaving the country, and inasmuch as the country wants to maintain the peg to the South African rand, it is important to start looking beyond the peg and other ways to support the peg.

Sanlam Namibia portfolio manager Basson van Rooyen said in an open market, capital can flow freely, which means Namibian entities are not only reliant on domestic capital or lenders to finance their business.

He noted that this gives investors in the country an opportunity to invest their capital more efficiently, and help them diversify (protect) themselves from geographical risks, and invest in other rewarding markets.

Van Rooyen said despite the reported capital outflows in 2017, the concerned financial institutions were complying with the Namibia Financial Institutions Supervisory Authority (Namfisa)'s domestic asset requirement of 35%.

"In my opinion, there is limited options for investing in the Namibian capital market beside government bonds/treasury bonds, and the country needs to address that," he reasoned.

Furthermore, one way to ensure more capital is invested in Namibia is by implementing laws such as the domestic asset holding requirements, while the other is to have a conducive environment where business can grow and convince investors to give the country capital, Van Rooyen continued.

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