Namibia

Country Summary

Economic performance and outlook: Following sluggish growth of 0.2% in 2016, the economy recovered in 2017, with real GDP growth estimated at 0.8%. The main growth drivers were agriculture and forestry—which benefitted from a favorable rainy season —and diamond mining, electricity, and water. Wholesale and retail trade, education, and services underperformed, reflecting depressed demand from external trading partners, particularly Angola. In 2018, continued signals of a stronger recovery in agriculture and mining are projected to facilitate 2.6% GDP growth. A boost in uranium mining is expected as new mines achieve full production capacity. The small open commodity-driven economy will continue to be permeable to exogenous external shocks, conditioning macroeconomic stability. 

Macroeconomic evolution: Expansionary fiscal policies stimulated economic growth, increasing the country’s budget deficit and public-sector debt. As of end-2016, public debt was 41% of GDP, breaching the government’s 35% limit. Since then, fiscal consolidation efforts have reduced the debt increase to 0.1%. Public and publicly guaranteed debt stands at 46.9% of GDP in 2017. A considerable fiscal consolidation effort reduced the budget deficit from 6.3% in 2016 to 3.6% in 2017. Sluggish economic activity with less public spending eased inflationary pressures. Consequently, inflation decreased 0.2 percentage point from 2016, to 6.5% in 2017, driven by a decline in food price inflation. Growth in credit to the private sector slowed to 7.3% at the end of the first half of 2017 from 11.7% one year before. Despite the Namibian dollar peg to the South African rand, the Bank of Namibia reduced its policy rate by 25 basis points to 6.75% to foster economic growth. 

Tailwinds: The economy, with its high dependency on trading partners, is expected to benefit from projected growth in emerging markets and advanced economies. Higher global demand for raw materials and improvements in mining infrastructure, particularly for diamonds and uranium, will fuel the development of the mining sector. Production of uranium is expected to grow 47.7% in 2018 as a new mine comes online. Moreover, with better rainfall patterns subduing the recent regional drought caused by El Niño, agriculture and forestry will round out the group of highest-performing sectors, making the primary sector the growth driver in the country for the short term. Investment in infrastructure, namely, in solar power, boosted domestic power generation and led to a 22% decline in electricity imports in 2017. The services sector is expected to profit in the short term from the projected improvement in the Angolan economy due to better terms of trade and the recovery in oil prices. 

Headwinds: The main risk for the economy, with its over-reliance on the extractive sector, lies in the slow recovery of world demand for commodities, affecting both growth and fiscal revenues. In 2017, mining production was lower than expected due mainly to a decline in international uranium prices. The slow pickup in Angola, one of Namibia’s main trading partners and client for services, is a particular risk. The sluggish performance of South Africa’s economy poses another potential risk. The slow recovery of both private and public demand will continue to weaken the secondary and services sectors. In addition, fiscal consolidation could face added difficulties if the Southern African Customs Union’s reduced revenues inflows persist. The fiscal consolidation trend of the medium-term fiscal framework will weigh down public investment, further hurting the secondary sector, in particular, construction and related subsectors. Private investment and private consumption in the short to medium term remained subdued.

Source: African Economic Outlook 2018

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.

Market restrictions

Openness to international investors

Sections 3(2) and 3(3) of the Foreign Investment Act of 1990 proclaim the equality of treatment between a foreign investor and a local investor. There is no obligation on foreigners to partner with nationals before forming a business. However, the government reserves the right to impose restrictions investment in land and natural resources.

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.

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.

Credit rating

In January 2013, Moody’s confirmed Namibia’s sovereign credit Baa3 with a stable outlook. Fitch’s sovereign rating on Namibia on the other hand is currently BBB- on its long-term currency.  

Fitch also assigned a “AA-”(zaf) national (South Africa) scale rating for Namibia in June 2012 Namibia’s national scale is supported by investment grade foreign currency ratings.  The Zaf rating is designed to allow Namibia's credit quality to be assessed alongside South African issuers. NamPower, a Namibian state owned entity with listed bonds was also assigned a AA- (zaf) rating by Fitch in 2007.

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