Tega Shiimi ya Shiimi
John-Morgan Bezuidenhout
“Time is the cruellest teacher; first she gives you the test, then teaches the lesson…”
With the past 36 months arguably being one of the most documented periods and panic-stricken times in decades, very few will admit these times have not taught us some very valuable lessons.
The lessons learnt around the recent global pandemic; the end of global conglomerates; the lessons learnt on emerging economies such as Africa; continued geo-political tensions; the continued emergence of China and India; changes in individual consumer expenditure patterns to name but a few.
Though the lessons learnt largely were largely hard and permanent, we at Sanlam Investments – Namibia have always prided on seeing ahead while others are looking – and we are forging ahead with new opportunities despite the panic of some in the world out there
Closer to home, the last three years have seen a stark divergence between the South African and Namibian economies. The Namibian economy outgrew the South African economy in real terms. We are expecting the trend to continue on the back of mining activity and further foreign direct investment largely driven by the green hydrogen phenomena as well as continued traction with the developments in the oil and gas sectors.
In further comparison, the South African economy is facing a plethora of headwinds. Their latest mid-term budget speech highlighted lower revenue than expected due to substandard logistical infrastructure and energy shortfalls – dampening the mining sector’s productivity. In addition, higher administered interest rates and a rising government employee wage bill has resulted in the government considering higher taxes. Conversely, the Namibian mid-year budget saw strong revenue generation, as 53.7% of the yearly budget has been achieved. Revenue was driven by SACU receipts and strong tax collection from diamond production and value added tax (VAT). Namibian expenditure followed South Africa’s trend as higher interest rates resulted in a higher cost of funding.
However, it is important to recognise the Namibian fiscal position is more robust than South Africa’s. Namibian financial institutions remain well capitalised as Namibian banks fund their balance sheets with retail deposits as opposed to commercial deposits.
The spread between the average Namibian negotiable certificate of deposit (NCD) against the South African NCD does show an interesting difference and is attributed to the fact that Namibia’s repo rate lags South Africa’s by 0.50%.
This is motivated by the perception that Namibia can keep capital flight muted due to her stronger fiscal position and high reserves. Another important difference to note is that South African Treasury Bills are also trading at discounts to Namibian Treasury Bills.
Furthermore, long-term Namibian bonds are mostly trading at premiums to South African long-term debt.
In conclusion, the South African economy continues to lag as SOEs are failing on a structural level. This has happened while Namibia’s oil and gas sectors attracted international interest, leading to a divergence in economies. Namibian financial institutions naturally benefited from the uptick in local economic trends. Local banks remained well-capitalised due to their conservative nature.
With continued amendments within the regulatory environment especially pertaining to the direction that contractual savings should be taking, we do however need to be pragmatic and deliberate around what the ultimate outcome should yield and be mindful of unintended headwinds these much-needed reforms may cause.
Benjamin Graham stated that the market is a voting machine in the short run – tallying up which firms are more popular than others. “In the long run, the market is a weighing machine that assesses the substance of the firm”.
For now, Namibia remains a more popular investment destination due to the buzz around the country’s stronger fiscal position coupled with the latest developments in the oil and gas sectors. The country’s financial prudence, political stability and economic development will be required to remain in place to justify Namibian assets trading at a premium to that of our southern neighbours.
As underpinned by our “pragmatic value” investment philosophy, we at Sanlam Investments – Namibia continue to embrace these positive winds of change lurking in the Land of the Brave.
*Tega Shiimi ya Shiimi and John-Morgan Bezuidenhout are both employed by Sanlam Investments Namibia as managing director and investment analyst, respectively.
Photo: Sanlam
Caption: Lessons learnt… Namibia remains a more popular investment destination due to the buzz around the country’s stronger fiscal position coupled with the latest developments in the oil and gas sectors. Photo: Contributed