By Johannes !Gawaxab
THE gap between Namibia’s national savings and investments is widening, while the sharp drop in our country’s ranking in the 2007 Global Competitiveness Report lists low access to financial services, poor infrastructure, crime and corruption as contributory factors.
Namibia’s savings – household, business and government – over its investments for the period 1990-2000 averaged around N$600 million, increased to N$1.8 billion for the period 2000-2005 and ballooned to N$5.2 billion in 2006. Aggregate growth of savings has greatly exceeded investments and the surplus of funds looking for a return locally has grown faster than investor demand, resulting in us becoming a net exporter of capital.
To stem the outflow of capital, the Government has indicated its intention to compel retirement funds and life insurance companies to invest a minimum of 5% in local unlisted assets. This is certainly an intervention worth supporting.
There appears to be some resistance, resentment, and cynicism in some circles against the proposed 5 percent regulation. These reactions are understandable given the unfortunate losses made on some unlisted investments in the recent past, shortage of skills and governance challenges. However, appreciating the rationale for the “pushback” doesn’t mean we need to do away with the proposed policy intervention.
Our country is in an exciting era. It is time for leadership on many fronts. Yes, we have our fair share of challenges, but our democracy is maturing, our debates, albeit limited, deepening, our challenges crystallising and our opportunities are emerging more clearly. How we respond to the environment around us now will dictate our individual and collective fortunes in the years ahead.
Size of Contractual Savings
The total policyholder and pension fund assets were estimated around N$50 billion at the end of the last year. Requiring contractual savers to invest a minimum of 5 percent in unlisted investments equates to finding bankable projects to the approximate value of N$2.5 billion. My understanding, though, is that the Government intends to phase the 5 percent in over three years.
Developing countries typically have much higher savings rates than do developed nations. Savings as a percentage of nominal GDP for advanced nations tended to be around 21-22 percent during the 1980s and 19902 and averaged 23-24 percent for developing economies during the same period.
How are Contractual Sa-vings Currently Invested?
About 35 percent of all pension fund and life insurance assets (N$50 billion) is invested in Namibia, mostly in dual listed shares on the Namibian Stock Exchange, Namibian Government Bonds, in property and as deposits with local commercial banks. Approximately 15-20 percent of the assets are invested in Europe, the US and Asia, while the remainder is largely invested in South Africa and more specifically, in shares listed on the JSE Securities Exchange, SA Government Bonds, paper issued by corporates, property and with commercial banks.
A decline in home bias by local savers causes a rise in the current account surpluses of receiving countries, strengthening their currencies, developing their economies in general and resulting in an increase in the deficits of “capital exporting” countries.
If investments exceed savings, real interest rates will rise adequately to dissuade investors from investing and/or encourage savers to save more. If savings exceed investments, real interest rates are supposed to fall. Although this process is not sequential in practice, it is concurrent and instantaneous.
Why the Concerns of Investing in Local Unlisted Instruments?
The reasons would seem to include the following: millions lost on unlisted investments; the lack of skills, capacity and governance, lack of entrepreneurs and bankable deals and inertia towards financial engineering and innovation. The new regulations do have the potential of disrupting entrenched power bases and providing opportunity for innovation, which do not necessarily suit the narrow agenda of some constituencies.
Where to Invest the 5 Percent
Successful investing is challenging but the market pays a premium to those who find value, optimise risks and take a long-term view. It would be a sad day if we have the highest investment returns imaginable on our pension funds assets and insurance policies, yet retire in a country with poor (collapsing) infrastructure, thousands of unemployed people, weak institutions and so forth.
There are efficient methods of legally relieving contractual savers of their money and rewarding them handsomely. The following could be options for consideration:
1. Infrastructure Funds – Namibia is faced with significant supply constraints. Investments in energy projects, roads, water, airports, hospitals and low cost housing come to mind.
2. Private Equity funds – To ensure long-term stability we need to bring the majority of our people in to the mainstream economic activities via empowerment or investments better served by private equity funds.
3. Financing for SMEs and enterprise development in general – to grow productive enterprise and support initiatives to create jobs.
4. Capital market development – parastatals and local authorities with a sound balance sheet can surely issue their own paper as opposed to relying on Government for guarantees every time they require capital.
5. Mining Funds – given the latest finds in uranium, gold and coal deposits in the country, is there not a solid case to be made?
6. Partial privatisation of non-essential State Owned Enterprises or does economic populism still reign?
And so, imagine the day when successful investment in any one of the above – in addition to conventional investing – would fund the retirement of Namibians. Even if the investment only yields inflation-beating returns, we will have the necessary infrastructure and stability to have contributed to the sustainable growth of our economy.
If we do not mobilise a portion of our national savings to grow our economy –
not throwing good money after bad – our independence could be defended by others with obscure agendas and ulterior motives.