Trapping local investment
30 December 2013 | Business
The Namibia Stock Exchange (NSX) has proved valuable in providing focus for the activities of mining exploration companies and stimulating the local bond market, yet its long-term usefulness remains a matter of question. This according to economist Robin Sherbourne, in his recently published ‘Guide to the Namibian Economy 2013/14’, where he analyses the state of the local stock market, along with other sectors of the economy. Tracking the local stock exchange since its establishment in 1992, Sherbourne asks the question whether investment by local and foreign companies would have been any different had the NSX not existed, given the reluctance of both the government and the local private sector to make use of it. Business disinclined “The irony is that, while many in government and in the private sector protest the usefulness of the NSX, neither seems prepared to make much use of its services,” Sherbourne says. In the case of the government, he suggests the State has been reluctant to privatise commercial parastatals for fear of job losses as well as of control of important national assets. As for the local private sector, he says these are already able to adequately raise the capital they require “without diluting ownership or the hassle of playing open cards with institutional investors”, including getting it more easily and cheaply on more liquid international capital markets. Strides made Acknowledging the strides made by the local stock exchange to date, Sherbourne recalls the NSX’s establishment in 1992, raising starting capital from N$10 000 donations each by the 36 Namibian companies who then joined. He goes on to recognise its role in establishing the local asset management and stockbroking industries, as well as in the development of the Development Capital Board (DevX), with its lessened requirements. By the end of 2012, the NSX had 25 companies listed on the main board, of which five are primary listed local companies. As for the 2008 established DevX, it has grown to include six dual-listed companies, all mining, oil and gas companies. At present, the NSX main board requires a three-year audited profit history with the last year’s pre-tax profits being at least N$500 000, a minimum free float of 20% and at least 150 public shareholders. To list on the DevX, a company is only required to have a business plan and a 10% free float. With regard to the asset management industry, these to date equal 37, although Sherbourne points out only 13 of the foreign-owned managers and four of the Namibian managers had assets under management. Policy intervention Sherbourne’s analysis further criticises the government’s efforts to try and increase the use of the NSX, through regulation that introduced a cap on dual-listed investments, and also introduced a threshold for unlisted investments. “The harsh reality is that the revised minimum requirement for unlisted investments is too small to make any appreciable difference to local investment while the cap on dual-listed investments is likely to push money into a banking system which does not lack liquidity,” Sherbourne says, citing the revised Regulations 15 and 28 in Namibia’s Pension Fund Amendment Act (of 2011). The revisions were introduced in order to encourage asset managers to invest in real Namibian assets, rather than companies dual-listed with the Johannesburg Stock Exchange (JSE). “By 2002 many observers had reached the conclusion that the NSX had already become little more than a shadow stock exchange trading mainly shares that were primarily listed elsewhere rather than serving the needs of Namibian business. The regulatory environment encouraged this trend since it was far easier for asset managers to invest in dual-listed stock to meet their regulatory requirements, and brokers could make good money trading dual-listed shares without the bother of having to bring local companies to market,” Sherbourne says. The new regulations are yet to go into effect.