Namibia: Govt Guarantees SOEs to Jump-Start Local Capital Market


Out of the N$10,9 billion government loan guarantees to SOEs, only N$1,8 billion was for borrowing from the local capital market.

This comes at a time when out of the outstanding corporate bond in the country's capital market, only N$606 million was issued by two SOEs, the Development Bank of Namibia and NamWater.

SOEs, however, had an outstanding debt of N$10,6 billion at the end of 2020 - meaning they are borrowing elsewhere beyond the local underdeveloped capital market.

This is according to information collected from the Bank of Namibia's quarterly and annual reports, the latest financial stability report, as well as the daily update by Simonis and Storm.

This shows that the government is encouraging state-owned entities to borrow more from outside than from inside - as a result SOEs together with other private corporate entities spent N$17 billion on interest payments to their foreign lenders, last year.

This is in contradiction with the stance of economic policymakers and market observers who are calling for the development of the country's capital market with more and different financial products.

The chief executive officer of the new investment board, Nangula Uaandja is quoted in The Namibian Financial Supplement highlighting that Namibia enjoys a stable banking system but "the challenges remain the shallowness of our capital markets with inadequate listed instruments".

She added that the stability of the financial sector can be an enabler for economic development.

However, "to reap the benefit of such a sector, Namibia would have to work on deepening our financial markets and related instruments," said Uaandja.

As it stands, the value of outstanding corporate bonds declined during 2020 from N$128,6 billion in 2019 to N$123,9 billion in 2020. Furthermore, 63,8% of the money was borrowed outside the country.

The central bank did not explain why the corporate world prefers borrowing more from outside than inside the country.

Budding entrepreneurs and SMEs are being encouraged to go to local financiers, while the big well-established businesses go outside.

The stock of bonds issued by Namibian corporate entities listed on both the Namibian Stock Exchange (NSX) and the Johannesburg Stock Exchange (JSE) declined from N$8,3 billion registered in 2019 to N$6,7 billion in 2020.

Ironically, SOEs alone have a portfolio of outstanding debt of N$10,6 billion, guaranteed by the central government - meaning if they default, the Namibian government will pay despite them not being listed on the local board for them to participate.

This means if DBN wants money and lists a corporate bond on the NSX, Namibians can also lend to the entity and earn interest as opposed to many SOEs borrowing from outside.

As a result, most of the Namibian savings are in equities/shares of a few companies that are listed on the NSX, because of lack of wider financial products.

Of the N$6,7 billion listed corporate bonds on the NSX and JSE in 2020, a total of N$5,2 billion was listed on the NSX, while N$1,6 billion was listed on the JSE, the financial stability report shows.

The report also shows that the value of corporate bonds declined because several bonds matured but fewer new bonds were issued during 2020.

Meanwhile, commercial banks issued N$5,9 billion of the total outstanding corporate bonds in 2020 and N$606 million came from SOEs.

Non-bank entities were responsible for the remaining N$263,3 million, meaning it is not only government and SOEs that are bypassing the local capital market for international markets.

Total foreign private-sector debt in 2020 stood at N$68,96 billion and for the past five years, they have spent between N$15 billion and N$21 billion every year in interest payment.

Most non-banking businesses are also borrowing through inter-company facilities, from their parents or shareholders outside.

Corporate bonds represented only 13,8% of total bonds outstanding in the market at the end of 2020, with government bond issuances continuing to dominate the domestic bond market.

This is expected to continue given the government approach to keep borrowing rather than broadening the tax base.

This year, the government needs around N$15 billion to fund the country's budget deficit and so far it has received the green light from international lenders to borrow N$6 billion.

The rest will be from the local market and perhaps the JSE as the government continues to dominate the capital market.

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