Namibia

Country Summary

Macroeconomic performance and outlook

Real GDP, which peaked at 6.1% in 2015, contracted by an estimated 1.0% in 2019, following a 0.5% contraction in 2018. Aggregate demand fell sharply in 2016 and 2017 as the government began fiscal consolidation to correct growing imbalances from high public spending and falling revenues from the Southern African Customs Union (SACU).

The fiscal deficit narrowed from a peak of 9% of GDP in 2016 to 5.4% in 2018 and is projected to aver- age around 5% over the medium term. It was financed through domestic and foreign borrowings that pushed public debt from 39% of GDP in 2015 to 46% in 2018. The pressure on the domestic debt market constrained liquidity, crowded out private sector credit, and dragged down domestic demand.

Monetary policy was accommodative to support growth under favorable inflation conditions. Estimated at 4.5% in 2019, inflation is projected to remain within the 3%–6% target in the medium term.

The current account deficit, estimated at 3% of GDP in 2019, started improving in 2017 as exports rebounded and import growth weakened due to subdued economic activity. At the same time, mining construction projects ended and government capital spending was cut, sharply contracting construction and, through spillover effects on the rest of the economy, shedding jobs and reducing disposable incomes.

Tailwinds and headwinds

Real GDP growth is projected to recover to 1.9% in 2020 and 2.4% in 2021, on the back of construc- tion and manufacturing. The government is pursuing reforms to improve the business environment, attract investment, and spur industrialization. Key reforms support protection of intellectual property, an industrial development agency, and public–private partnerships.

An online business registration and licensing platform should boost domestic investment and foreign direct investment. Also approved is a policy to remove regulatory impediments to small and medium enterprises and improve their access to finance. And to address a skill mismatch and boost human capital, the govern- ment is expanding higher education and technical and vocational education training facilities.

The inauguration of the Walvis Bay Container Terminal in August 2019 improved the port’s efficiency and more than doubled its container handling capacity.

Namibia has political stability, well-developed trans- port infrastructure, and abundant and diverse natural resources. Its potential as a regional transport and logistics hub and a participant in regional and global value chains benefits from a growing and dynamic regional market with well-developed transport corridors. Namibia’s huge pool of institutional savings could finance high-return investments to contribute to rapid, inclusive, and sustainable growth.

Subdued economic conditions in South Africa could dampen, however, demand for exports and reduce SACU receipts. Weak growth in the Southern Africa region could also reduce transit cargo and the demand for transport services. Fiscal consolidation could be jeopardized if revenues underperform due to frag- ile economic recovery. Weak GDP growth, leading to further cuts in capital spending, could prompt another credit and economic outlook downgrade by rating agencies. Mining growth could be constrained by weak global diamond demand if trade tensions shrink global growth. Erratic rainfall, following a severe drought, could constrain agriculture production. The fiscal space to stimulate the economy is limited by uncertain SACU revenues. With subdued wage growth and weak labor markets, private consumption is unlikely to strengthen soon. Stagnating productivity, skill mismatches, and a weak business regulatory environment keep the econ- omy from reaching its potential.

Source: African Economic Outlook 2020

Fixed Income

Summary

  • The government securities yield curve extended to 30 years with 14 (3m-6m-1-2-3-4-5-7-10-12-15-20-25-30 Years) benchmark points along the curve. 
  • The issuance strategy is to fund the budget deficit. Namibia is 4th in the ABMDI 2017 Ranking Report. 

Issuance strategy 

The government debt security issuance strategy details the funding plan, in terms of volumes, securities, markets and tenors that will be tapped to finance the budget deficit over the Medium-Term Expenditure 

Financing period of three years. The plan outlines the allocations across various instruments and the markets in which these instruments will be issued, based on cost and risk considerations, as well as the prevalence of market demand.   

Benchmark issues 

There are fourteen (3m-6m- 1-2-3-4-5-7-10-12-15-20-25-30 years) fixed-rate benchmark maturities and two inflation-linked maturities for government securities in local currency. 

Yield curve 

Yield curve calculation models 

As the main issuer in the domestic market, the Namibian government is committed to develop the market and create benchmarks for the private and public sectors. 

Notwithstanding the function of developing the domestic market, the government employs a cost-effective issuance strategy. As such, both new lines and taps on the old securities are used. The benchmark yield curve in Namibia is a market curve. 

The yield curve is constructed from the average of the rates quoted by the main market participants, which consist of commercial banks and brokers. 

Interpolation methods 

Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. Cubic spline interpolation is used in the case of Namibia. 

Yield curve managed by

The Bank of Namibia is the official body in charge of calculating the yield curve on a daily basis. 

Display platform 

Namibia’s benchmark yield curve is available on Bloomberg. 

Challenges in building an efficient yield curve 

Illiquid Bonds and limited secondary market: there is a lack of trading in the secondary market, which makes effective market pricing difficult as most investors buy and hold bonds to maturity. 

Guide to Buying Bonds

Procedure for market participation

Minimum bid for T-bills is N$10,000 and any subsequent bids must be in multiples in N$10,000. Minimum bid amount for T-bonds is N$50,000 and any subsequent bids must be in multiples of N$10,000. Auctions of T-bonds are placed one week in advance, on the Central Bank website and via emails. Tender forms are to be submitted to the Central Bank no later than 10:00 AM on the auction date.

Settlement cycle

Bond and Treasury bills settlement is T+1 and is done via the Bank of Namibia (BoN).

Taxation

All government securities are tax-free.

Capital gains are not taxable, unless the individual is a professional trader.

Rating Agency Current rating Outlook
Moody's Ba2 Stable
Fitch BB Stable

 

Primary Dealers

Namibia Still does not currently have a PD system. The country is working on some amendments to the law to allow for PD System.

 

Market restrictions

Openness to international investors

Foreign and local investors are protected by the Foreign Investment Act which guarantees equal treatment of both categories of investors. This includes the rights to international arbitration of disputes between investors and the government, the right to remit profits, rights to access foreign exchange without restriction and fair compensation to affected parties in the event of expropriation.

Capital controls

The Namibia is part of the Common Monetary Area, a monetary union that comprises three other countries: Lesotho, South Africa and Swaziland. Exchange controls are not imposed within the Common Monetary Area and there is unrestricted flow of both the Rand and the Namibian Dollar between South Africa and Namibia (subject to clearance from the BoN. It is to be noted that a 10% fee is payable before the funds can be repatriated. With the exception of companies benefiting from local loans, remittance of dividends to non-resident shareholders is allowed without Bank of Namibia's approval.

For any flows of funds outside the Common Monetary Area, the Ministry of Finance (MoF) has relegated this function to the Central Bank which is itself assisted by Authorized Dealers with Limited Authority (ADLA). The list of these authorized dealers is available on the BoN's website.

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Restrictions on foreign exchange and profit repatriation

Foreign and local investors are protected by the Foreign Investment Act which guarantees equal treatment of both categories of investors. This includes the rights to international arbitration of disputes between investors and the government, the right to remit profits, rights to access foreign exchange without restriction and fair compensation to affected parties in the event of expropriation.

 

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