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SOE securing funding will deepen local capital markets

2021-03-17  Edgar Brandt

SOE securing funding will deepen local capital markets
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A consensus by local analysts that attracting more investment for the domestic economy is crucial to ensure economic growth could be hampered by the fact that institutional investors would welcome a regime where State-Owned Enterprises (SOEs) are discouraged to continually depend on government funding. Instead, a local institutional investor proposes that SOEs create their own funding programs via capital markets, such as a corporate credit market that, while not limited to SOEs, would aid in creating more liquid, diverse and deeper capital markets. 

This is according to CEO of Sanlam Investments Tega Shiimi Ya Shiimi, who, during an exclusive interview with New Era, noted that deepening Namibia’s capital markets has been a standing point of discussion for many

“Over 90% of current bonds in issuance are government bonds where the State is ultimately the guarantor of all Bank of Namibia issuances. This gives comfort to the investor but additional strain to government, as some of the raised capital is re-directed to fund non-performing State-Owned Enterprises (SOEs), which may increase the default risk onus on government,” Ya Shiimi explained. 

He continued that Sanlam Investments believes in and supports the deepening of local capital markets.  “Our current asset allocation on domestic assets on contractual savings exceeds the required 45% on contractual savings. We have, however, found practical challenges in optimally allocating the 45% within the available local investable universe to optimise diversification and investor return potential. A review of the current allowable limits will assist in creating better liquidity and activity both in the equity markets as well as bond markets,” the Sanlam Investments CEO stated. 

Sanlam Namibia has, over the years, been an active participant in the development of Namibia’s capital markets and Ya Shiimi noted the company will strive to do so in the future. 

Said Ya Shiimi: “Our participation in local bond issuances has over the past five years averaged 9% of total investors. We believe, however, that the determination of the current pricing model must be more transparent, as the current practice has been subject to arbitrage events, which has dampened previous participation and unduly negatively affected the yield curve. It is advisable to explore alternatives such as the ‘Dutch Auction’ method to provide investors with much more certainty and transparency around price discovery and eventual allocations”. 

He added that the issue of policy uncertainty has been a continuous detractor for institutional investors to meaningfully deploy capital into the local market. 

“Capital does not like policy uncertainty – and this remains a concern for institutional and foreign investors alike. The long-awaited Financial Institutions and Markets (FIM) Bill, National Equitable Economic Empowerment Bill (NEEEB) and reforms of the Investment Promotion Act, for example, are dampening the appetite for investors,” Ya Shiimi

Meanwhile, Ya Shiimi sees the African Free Trade Agreement as a positive catalyst that has turned investors’ eyes on Africa and specifically southern Africa. 

“This is a great opportunity for Namibia to compete for foreign capital on a larger scale, given the fact that there has recently been expressed policy uncertainty in known destinations such as South Africa”.  Ya Shiimi pointed out that the private sector has over the years developed a wealth of knowledge and experience that he feels, at times, has probably not been fully appreciated and considered in the policy formulation and deployment process. 

Said Ya Shiimi: “We acknowledge that industry consultation does take place but we believe that the central bank as advisor to government could play a much more critical role in ensuring the objectives of the policymaker are in-line and practically executable with on-ground realities. We, as Sanlam, as in the past, will avail ourselves for such deliberations”. 

Meanwhile, Namibia still ranks amongst the top-quartile of the highest tax rate destinations marked against its southern African peers and other emerging markets both at individual, indirect and corporate tax. 

In this regard, Ya Shiimi is of the opinion that the current tax regime needs considerable review to attract the necessary corrective investment and savings behaviour. 

Also, describing the increased amount of the deductibility of aggregated contributions of pension, provident and retirement annuity funds as a welcome relief to the individual, Ya Shiimi said the delayed implementation of such reforms dampens these initiatives. 

The Sanlam Investments CEO further emphasised that investment into infrastructure projects is a crucial component in revving up the domestic economy. 

“The impact of productive spending in the correct high growth sectors, initially in the primary sector, is a necessary catalyst to revive the economy. There are several initiatives targeted at much-needed development in the SME sector – but these are being stifled by, amongst others, aspects such as access to cheap funding; stringent credit requirements; skills development and training, and infrastructure,” he explained. 

 In this regard, he stressed that there is a collaborative need to repackage and restructure existing, as well as future projects, in the garment manufacturing, agriculture, tannery and gemstones operations that can immediately attract necessary external funding. This restructuring program, Ya Shiimi said, should incentivise both the promoter and investor. 

“With the fast emergence of socially responsible investments or impact investing, we believe the opportunities for both private, public and society will unlock benefits for all. We, at Sanlam, are exploring such initiatives for a local credit fund. We, however, would like to see as a collective that a holistic view with other financiers is taken specifically with SME development in mind,” he stated. 

With prevailing current circumstances, Ya Shiimi feels the role of regulatory entities should be clearly defined, understood and executed by all parties. 

“There has been an increasing concern raised around the debate about necessary and relevant regulation; the cost, thereof, and how regulatory entities deploy levies charged to industry and consumers alike,” he concluded. 

2021-03-17  Edgar Brandt

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