Namibia’s elusive sovereign wealth fund dream

The fund could target asset sales, royalties collected from mineral extraction, privatisation of parastatals, and public-private partnership ventures between local and foreign businesses.

05 January 2022 | Economics

MATHIAS HAUFIKU

WINDHOEK

Namibia is one of four countries scheduled to launch their sovereign wealth funds (SWF) this year, joining the existing 161 funds, an annual global report on wealth funds revealed.

The other three nations, according to the 2022 Global Sovereign Wealth Fund report, are the Bahamas, Mozambique and Israel.

Global SWF is a comprehensive data platform that tracks all the world's sovereign wealth funds and public pension funds. The annual report by Global SWF analysed data from 161 sovereign wealth funds and 275 public pension funds.

While the details on how the fund will be seeded, funded and governed remain scant, predictions are that the Namibian fund could target asset sales and royalties collected from mineral extraction, privatisation of parastatals and public-private partnership ventures between local and foreign businesses.

Local economist Salomo Hei says Namibia’s implementation model will determine the benefits thereof.

“The Sovereign Wealth Fund conversation has been on the radar for a while and it would be interesting to understand the funding mechanism. The benefits of SWF are massive, especially during downturns and pandemics, but it is how and when you establish it that will be interesting,” he said.

Hei, who is the managing director of Makalani Fund Managers, said countries with budget surplus tend to provide the seed capital during very good growth cycles.

“Generally, countries that have successfully launched and managed SWFs are countries that own their minerals. Norway is a good example and their SWF is one of the success stories.”

On a continental scale, the report further raised some reservations about the establishment of sovereign wealth funds.

“The process of establishing a sovereign wealth fund in Africa is, however, fraught with difficulties due to poor governance, lack of human resource capacity and few opportunities,” the report noted.

The planned establishment of the Namibian fund is one of the first goals of the Harambee Prosperity Plan II. The recommendation to launch a wealth fund was made by the High-Level Panel on the Namibian Economy.

Finance minister Iipumbu Shiimi last year said Namibia’s wealth fund would be launched by end 2021. This did not materialise.

Africa currently has 30 SWFs or sub-funds, most of which are relatively small, with combined wealth of US$98 billion (N$1.6 trillion).

Fund seeding

The SWF will be seeded with funds raised by the privatisation of state-owned enterprises as well as income from Namibia’s share of the Southern African Customs Union (SACU) revenue pool, royalties from mining of diamonds and other minerals, fisheries quotas and proceeds from the green renewable sector.

It is unclear what portion of these income sources the SWF will gobble up.

SACU tariffs currently represent 30-40% of total fiscal revenue and apportioning these to the wealth fund would challenge efforts towards fiscal consolidation.

Namibia followed an expansionary policy in response to the Covid-19 pandemic to head off the 7.9% contraction in GDP in 2020.

Despite an improved outlook in coming years should boost revenue, economists warned that any transfer of income-generating assets and revenues to the envisaged wealth fund would thwart efforts to reduce the budget deficit and start tackling the public debt that has soared above 60% of GDP.

SOE cash cows

There is also talk that the government plans to privatise over 20 parastatals, with the proceeds set to be directed to the wealth fund. The biggest of these assets is Namibia's largest telecommunications company with a 90% market share, MTC Namibia.

Last year MTC listed a 49% stake on the local bourse, generating N$2.5 billion of the targeted N$3.1 billion.

The HLPNE in 2020 recommended that NamPost, the Namibia Institute of Pathology (NIP), Meatco, Namibia Wildlife Resorts and Namport could be co-owned as joint ventures with the private sector, the national railway company TransNamib could be privatised or form joint ventures, and Air Namibia be liquidated and turned into a regional airline under the control of the National Airports Company (NAC). The national airline has since been liquidated.

The SWF is likely to both invest in domestic green energy infrastructure as well as using it to grow revenues. The development of solar energy is at a nascent stage, but is a key plank of the HPPII given the country’s high potential in the sector and regarded as necessarily for the objective of a 10-fold increase in generation capacity by 2030.

*Additional reporting by Global SWF

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