Duval van Zijl, an analyst at Bravura, an independent investment banking firm specialising in corporate finance and structured solutions, discusses recent developments in Namibia.
Namibia, a country with an abundance of scenic views, landscapes and cultures, has secured its place among the elite tourist locations within Sub-Saharan Africa. Even though the country only has a population of 2.5 million, an estimated 1.4 million tourists flood to Namibia every year. Besides its topography and touristic charm, Namibia is the 9th most attractive African economy for investments, according to the Africa Investment Index 2016, published by Quantum Global Research Lab.
The country has functional banking and financial systems, as well as a reputable stock exchange. The Namibian Stock Exchange (NSX) is an affiliate of the World Federation of Exchanges. Current key developments at the NSX is the demutualisation of the exchange and the move towards autonomy in the exchange’s systems, including the dematerialisation of shares through the incorporation of a central securities deposit. This is all anticipated to occur within the next two years.
There are 38 companies listed on the Namibian Stock Exchange, with some notable blue chip counters such as Anglo America, Barloworld, Bidvest, Clover, Firstrand, Old Mutual, Shoprite and Standard Bank. The appeal for companies to obtain a dual/secondary listing on the NSX according to Mark Späth, the Group Managing Director of IJG, is “the access to a captive pool of around N$170bn in institutional savings. At present at least 35% of this needs to be invested in local assets, so any dual listed company attracts natural buying from Namibian institutions which can be surprisingly large. In addition the “hassle factor” is negligible as the NSX and JSE systems and rules are largely harmonised and there are no exchange controls between Namibia and SA. Finally, a dual listing offers obvious marketing benefits for any business that is active in Nambia.”
Although Namibia’s Gross Domestic Product (GDP) has expanded on average by 4.7% per year since 1990, the country is currently going through a period of lacklustre growth driven by a slump in key commodities, with GDP growth of only 0.2% for the 2016 calendar year. The main industries contributing to the GDP in Namibia are Mining and Energy, Agriculture, Manufacturing and Tourism.
Whilst the current fiscal deficit is a respectable 6% of GDP, with debt to GDP estimated at around 42% (notably above the 40% self-imposed prudential limits), there are other headwinds being faced by the country in the form of somewhat radical and largely unexpected recent policy-making.
Recent investment roadshows by the Namibian President, Dr. Hage Geingob, to New York and Johannesburg have emphasised the need to diversify the Namibian economy whilst also allocating resources to “Social Architecture” such as healthcare and educational industries.
Namibia faces similar challenges to its neighbours, specifically South Africa, where social unrest has increased pressure on government to address negative legacy dispositions of the previously disadvantaged. This has led to calls for wealth redistribution, which has placed certain key government policies and initiatives under the microscope of foreign as well as local investors.
One of the proposed solutions to address inequality in Namibia is the New Equitable Economic Empowerment Framework (NEEEF). The NEEEF has been seen by many as a copy of the Black Economic Empowerment framework within South Africa. The framework has many critics, including rating agent Fitch, which changed Namibia’s country outlook from stable to negative based on the proposed policies as set out in the NEEEF. However, it should be noted that when compared to other countries in Africa, Namibia still has an investment-grade credit rating.
The NEEEF is still in draft form, with many experts opining that the current draft document cannot be implemented in its current form. This sentiment was echoed to some extent by presidential economic advisor Dr John Steytler, who stated that “consultations are still underway…the NEEEF document at hand is a draft so it cannot be used to draw conclusions at that level”.
The framework revolves around the five “Pillars of Empowerment” which are the policy instruments that will be used to redress past practises and redistribute wealth. The five pillars are:
- Ownership;
- Management Control and Employment Equity;
- Human Resources;
- Entrepreneurship Development; and
- Community Investment.
Each pillar contributes 20 points towards the maximum of 100 points, with a score in excess of 50 required to achieve empowered status. Non-compliant companies will not be considered for government tenders or the granting of licences. The ownership requirements are expected by many to be watered-down before finalisation of the framework.
A further (and more concerning) development is the promulgation of the Investment Promotion Act, which aims to promote sustainable economic development and growth. The process of promulgating the Act has been questioned by many, due to the perceived lack of consultation with key stakeholders. The Act provides the Minister responsible for investments with substantial power and even the discretion to override recommendations from the to-be-established investment centre, which is a concern in terms of governance and having meaningful checks and balances. Many commentators have been highly scathing of this legislation, noting that a backlash from foreign investors is a likely outcome. The key principle is that certain economic sectors and business activities will be reserved for the State, Namibian residents / companies, joint ventures between Namibians and foreign investors as well as qualifying foreign investors who have qualified by virtue of meeting a set of comprehensive and onerous criteria linked to providing a net benefit for Namibia. The Act does not prescribe the timeline or process for approval, so this creates substantial uncertainty for investors.
A further source of controversy in the Act is expropriation of assets (with compensation), which has raised eyebrows due to the negative effects that similar policies have had in countries like Zimbabwe and Venezuela. The Act further restricts the transfer of ownership (including licences, permits, etc.) in the natural resource sector and in any other sector which is above specific thresholds (not defined in the Act) to foreign investors without obtaining relevant approvals.
As indicated, the proposed NEEEF Bill as well as the Namibian Investment Promotion Act are both under review at the moment, with ongoing consultations between the Namibian Government and a variety of public and private sector stakeholders. The fact that Namibia has undergone its worst economic performance since its Independence in 1990 is deemed to substantiate a need for a more investor friendly and conducive economic growth environment than ever before.
Although the current legislative direction is highly controversial and will need to be navigated carefully by investors until further clarity is obtained, from an advisory perspective with a substantial practice in Namibia, we are cautiously optimistic that the revised legislation will contain a more investor friendly and economic growth conducive framework than presented in its current form.
Note: Bravura Namibia is part of the Bravura Holdings Limited group, which is an investment banking firm specialising in corporate finance and structured solutions services. Bravura Holdings has a primary listing on the Stock Exchange of Mauritius and a secondary listing on the NSX. The services of Bravura Namibia include performance improvement, transaction services, mergers and acquisitions, company valuations, empowerment solutions, debt and equity capital raising, inward listings, cross-border transactions as well general strategic financial advisory services.
Catergories: Economy, Namibia, News
Published: Dealmakers, August 2017
