SADC member states face the challenge of substantial investment requirements in critical infrastructure, such as road and railway networks, sea- and airports, energy and communication networks, as well as the expansion of productive capacities to increase trade and competitiveness in the region and globally.
Often, various traditional sources of financing available, including national budgets and financial markets (bonds issuance and direct loans) cannot meet the financing needs of infrastructure development. In this regard Development Finance Institutions (DFIs) play an important complementary role in funding development projects, either directly or through other financial intermediaries.
Recognising this role, the SADC member states agreed in Article 11 of the SADC Protocol on Finance and Investment – and in more detail in Annex 9 to the Protocol – to cooperate in the area of development finance.
The main objective of this cooperation is to establish a network of DFIs with a view to pool resources and mobilise funds from within and outside the region, and collaborate on projects. This approach creates synergies between funds and expertise of various institutions that could ease the access to additional funds from outside the region or commercial lenders within the region, because risks are spread more widely.
At the same time, the reputation increases when larger and more established DFIs from within the region are involved in projects while skills transfers will also be enhanced. The cooperation in joint project funding requires that DFIs across the region harmonise credit risk management procedures and practices and apply international best practices to reduce the risks involved for all parties.
In order to facilitate an effective and efficient regional network and the coordination of capacity building activities, the SADC member states established the Development Finance Resource Centre (DFRC). The Centre is not only involved in capacity building activities, but also in policy research and advisory services, among others.
One of the current projects relate to the development of a credit rating methodology for SADC financial institutions that, once in place, could help DFIs to improve their sovereign ratings and hence attract more capital.
The DFRC is governed by a Board of Trustees, of which the current CEO of the Development Bank of Namibia is a member.
There are currently five DFIs operating in Namibia, namely the Agricultural Bank, Development Bank of Namibia, Environmental Investment Fund, National Housing Enterprise and SME Bank.
Some of them have signed Memoranda of Understanding with other DFIs in the region to formalise and facilitate secondments and workplace programmes, for instance the Development Bank of Namibia and the Industrial Development Corporation (IDC) of South Africa.
They have also joined forces in jointly funding larger projects. For instance, the Development Bank of Namibia, the Development Bank of Southern Africa and IDC took up equity stakes in Ohorongo Cement until recently when DBSA and IDC sold their shares.
However, Namibian DFIs are not yet legally permitted to invest in projects outside the country. Therefore, Namibia has fulfilled this commitment partially that is included in the annual Monitoring and Evaluation Matrix for Annex 9.
Since Namibian DFIs have participated in workplace programmes, secondments and or training courses offered by the DFRC, the country achieved the second commitment. The matrix actually contains a third commitment, namely the establishment of a Public-Private Partnership (PPP) policy framework.
The PPP however, falls under Annex 1, which deals with Cooperation on Investment, and is spearheaded by the Ministry of Finance. The PPP Policy Framework is in place and the institutional framework approved and funded. The positions of the PPP Directorate, however, still need to be filled and the legal framework approved.
For further information and relevant documents on the SADC Protocol on Finance and Investment, please see www.sadc-fip.gov.na.
* Festus Nghifenwa is the SADC FIP Implementation Coordinator at the Ministry of Finance. He can be contacted by email: info.sadc-fip@gov.mof.na. This article is the ninth in a series of 12 on the SADC Finance and Investment Protocol.