Namibia in desperate need of Foreign Direct Investment
The outflows in debt instruments reflect debt repayments by subsidiaries in Namibia to their foreign parent companies.
21 January 2021 | Economics
In order to improve investment levels, the country needs to get some of the basics right, which it has struggled to do since 2015. Rowland Brown: Economist: Cirrus Capital (CC)
Namibia is in desperate need of Foreign Direct Investment (FDI) and policy certainty is of critical importance to boost investor confidence.
Following a depressing 2019 marred by a local recession, lower FDI worldwide, and global trade tensions, Namibia again struggled to attract FDI inflows in 2020 amid the Covid-19 pandemic.
According to Eloise du Plessis of PSG Namibia, net FDI deteriorated from a tiny net inflow of N$2 million (m) in the second quarter of 2020 to a net outflow of N$92 million in the third quarter of 2020 as a result of foreign debt repayments by enterprises in the mining sector.
The small net inflows from reinvested earnings (N$7m) and equity other than reinvested earnings (N$4m) recorded in the third quarter of 2020 were completely dwarfed by the outflows from debt instruments (-N$102m), she pointed out.
The outflows in debt instruments reflect debt repayments by subsidiaries in Namibia to their foreign parent companies. Nearly 57% of the FDI stock is in mining and quarrying and almost 26% is in financial services. The countries with the biggest shares of the FDI stock are China (40.3%) and South Africa (32.7%), she said.
Unfriendly Policies, Outlook
Namibia’s net FDI has fallen steadily since a peak of N$1.05 billion in 2012, eventually turning negative in 2019, as global commodity prices and domestic growth turned lower since this period. During the same period, the real GDP growth rate fell from a peak of 6.1% in 2016 to a low of - 0.4% in 2019, she said.
This period was also associated with reduced emerging market sentiment and a slowdown in FDI flows globally. “The Namibian government scored some own goals in this time, in terms of several mooted investor unfriendly policies which have since been shelved but created policy uncertainty at the time,” she added.
Looking ahead, commodity prices are expected to recover in the medium term, which will boost the profitability of mining investments. Mining companies have expressed interest in bringing old copper and uranium mines back to life and are also exploring opportunities in so-called battery minerals such as lithium and graphite as well as oil and natural gas.
Furthermore, the government is expected to pull its socks up on the policy front to attract the desperately needed FDI to revitalise the economy. In future, the government aims to auction prospecting licences and to improve the transparency of the bidding process for mining and fishing licenses to strengthen anti-corruption efforts.
“We estimate that the Covid-19 pandemic’s blow to investor confidence will result in net FDI divestment of N$149.8m in 2020, before a modest return to net inflows of N$101.3m this year,” she said.
Improved commodity prices and government policies should bode well for investments in exploitable opportunities in the mining, energy, and transport industries in the medium term.
According to Rowland Brown of Cirrus Capital, local and foreign is the only material stimulus that Namibia can aim for over the next few years, as local households, businesses and government are largely tapped out.
“Without investment, we should not expect a material recovery in employment levels, growth or government revenues over the next two or more years. In order to improve investment levels, the country needs to get some of the basics right, which it has struggled to do since 2015”, Brown said.
Firstly, the protection of property rights is of critical importance as no investor deploys capital into a jurisdiction in which there is a relatively high chance of it being annexed or from which they cannot extract return.
Secondly, the country needs to ensure that investors ability to make profit is not hamstrung by excessive taxes and inefficiently implemented rules and regulations.
Thirdly, the environment needs to treat foreign investors as assets to the economy, not second-rate citizens. While there seems to be some policy-maker aversion to private profit being made, without this ability to make profit, few will invest and thus new jobs and value add activity will not ensue, he said.
Lastly, in order to improve investment, government needs to deregulate the excessively regulated environment in the country, as well as drive major improvement in the efficiency of implementation of regulation. Government needs to focus on creating an environment that allows investors to make ethical profit and ensure that the net benefits of regulations and rules are positive, he concluded. – [email protected]