With the nostalgia of my days at the NHE, I pen this article full of emotions. While my contribution here is to give insight into the existential problem of the NHE, I avoid the murky waters of the happenings there.
To give my story some context, I worked in the finance department. Yes, in the situation room. After nine months of diligent service to the NHE, I resigned after completing the mission that took me there. For those who care, I left just before the Mass Housing implementation.
NHE has a business model dictated by the shareholder through an Act of parliament. And rightly so, our good government sought to use a vehicle to deliver affordable housing to its citizens.
Despite belaboring the need for reforms in many public entities, solving the existential problem of the NHE needs a reorganization. Ultimately, a new business model through a change in the NHE Act is the solution.
Two provisions of the NHE Act (Act No 5 of 1993) under the powers bestowed in subsection four stand out regarding the business model:
4 (d) whether on its own or in co-operation with any other person, to erect residential or other buildings, or to undertake or execute township development projects or to advance moneys for any such purpose;
4 (i) to lend money upon the security of a mortgage or notarial bond or any other security determined by the board;
The two provisions above make the NHE a player on both ends of the housing delivery value chain. That is, on the supply side and also on the demand side. The Supply-side is building housing or partnering with developers in the delivery of housing. The demand side involves providing funding for buying the houses built by the NHE or using third-party financiers.
There are two problems with this. Firstly, on the supply side, NHE is competing against private developers who are lean in overheads and agile in business model switching, while the NHE has a huge wage bill with a stringent business model cast in the NHE Act. Secondly, on the demand side, NHE is competing with established financial institutions with infrastructure for acquiring and retaining their clients.
In principle, the loan book is the only source of recurring income for the NHE. However, as the loan book ages, the revenue reduces because interest (income) is paid off in the earlier years, the later years pay off the principal amounts. Therefore, if NHE is not getting land to build houses, it is likely not growing its loan book. The accounting in such a scenario is nightmarish, even with smoothing, because a steady decline in revenue with inflation on expenditure will show the end is in sight.
And with time, the situation becomes dire, forcing payment of operational expenses from collections of the principal amounts. Consequently, capital will be depleted, and begging for a bailout from the government is inevitable. Aggravatingly, this bailout is likely to go towards salaries and other overheads.
Fixing the NHE will not come without sacrifice and not for the faint-hearted. But the choices here seem limited, better to bite the bullet now than later. I agree with the NHE management on one issue in The Namibian of 5 April 2021, although on a different trajectory, changing the business model and not just the CEO per se.
I propose a split of the NHE into two entities running on a purely commercial basis. One entity to be on the supply side staffed mainly with project managers and real estate consultants. The second entity will be a financial institution that will fend for itself in terms of funding. With this business model, each entity will specialise in what they do.
Better still, explore the concept of Real Estate Investment Trusts (REITs) as a vehicle to mobilize funding from the private sector for affordable housing delivery.
To subjugate the existence of
NHE by lack of willpower to take a bold action of reform will haunt the shareholder, a lesson from Air Namibia. Therefore, act now or be prepared to fill a bottomless pit or even face an embarrassing foreclosure.
*Robert Gatonye is pursuing a doctorate in business administration (finance) at the UNAM Namibia Business School (NBS), is also an ICT expert and a Certified Public Accountant (CPA).