Namibia

Overview

Policy Watch

Namibia Monetary Policy Statement

21/10/2015

The Bank of Namibia decided to keep its key repo rate unchanged at 6.5%, given low inflation risk.

Namibia Monetary Policy Statement

19/08/2015

Bank of Namibia kept repo rate at 6.5%

Namibia Monetary Policy Statement

15/04/2015

Despite concerns for credit growth , the Bank of Namibia decided to maintain its key rate at 6.25%.

Namibia Monetary Policy Statement

18/02/2015

Bank of Namibia kept its key rate unchanged at 6.5%

Debt vs GDP / Bonds vs bills

All Data - Namibia

Year 2011 2012 2013 2014 2015 2016
GDP (billions US$) 12.41 13.04 13.11 11.73 - -
Total Outstanding Amount (Billion US$) 2.09 2.30 1.89 - - -
Bonds 1.00 1.25 1.04 - - -
Bills 1.09 1.05 0.85 - - -
Outstanding Amount/GDP (%) 16.81% 17.65% 14.38% 0.00% - -

News

Country Summary

Namibia's financial markets compare favorably with other African markets. The 2014 Global Competitiveness Report ranks Namibia financial market development 46 out of 148 countries. The Namibian financial industry is closely linked to that of South Africa. Four banks (Ned Bank Namibia Ltd., Bank Windhoek Namibia Ltd., First National Bank of Namibia Ltd.,Standard Bank of Namibia Ltd) dominate the banking sector, although 11 commercial branches were numbered at the end of 2014. The money market is generally liquid.

The banking sector is regulated by the Bank of Namibia (BoN) which strives to establish a sound regulatory framework; Namibian banks are known to be stable, well-capitalized and liquid. During 2014, the liquidity ratio of Namibian banks increased to 12.5%, in excess of the 10% requirement. The total qualifying capital of Namibian banks was N$9.6 billion at the end of 2014 and the ROA and the ROE stood at 2.4% and 24% respectively.

The non-banking financial sector is regulated by the Namibia Financial Institutions Supervisory Authority (NAMFISA).  It is comprised of pension and retirement funds, collective schemes, investment managers, the stock exchange, assets managers and other smaller intermediaries; they were 3,853 of them at the end of 2014 and their assets totaled N$192.579 billion. Investment managers contribute massively to the economy: their assets was valued at 135.85% of the country’s GDP while those of the 109 Namibia’s registered pension firms was at 119.27% of GDP (or N$119.56 billion).

Non-banking institutions (as well as commercial banks) are obligated by law to invest at least 35% of their assets in the domestic market. For the period ending June 2015, collective investment schemes and investment managers invested 48.6% of their assets in the local financial markets while pension funds invested 40.6% of their assets locally.

The Namibian debt market is dominated by government securities which accounted for a little less than 80% (or N$17.3 billion) of the total debt stock of Namibia (valued at N$ 21.8 billion at the end of 2014). The debt market is “over-the-counter”(OTC) and participants trade as counter-parties. Given the high savings generated by the economy, the demand for government securities is high. As a result, the secondary market trading is relatively low, since most institutions prefer a “buy and hold” strategy.

Internal Registered Stocks (IRS), Namibian Government bonds, are the largest public securities segment, accounting for more than half of government issues. However in recent years, more Treasury bills have been issued, causing the stock of short-term debt to rise; the government intends to rectify this bias towards short-term debt in next borrowing strategies. Currently, outstanding IRS have maturities ranging between two and twenty two years.  

The Namibian Stock Exchange (NSX) is the second largest by market capitalization in Africa, after the Johannesburg Stock Exchange. Most of the firms listed on the NSX are South African branches. The NSX operates as a self-regulatory organization, under the Stock Exchange Control Act. In 2014, its market capitalization amounted to N$1.772 trillion. During 2014, both prices and volumes of the shares on the NSX increased by 7.1% while the stock of corporate bonds increased from N$4 billion to N$4.6 billion (most of these bonds are issued by commercial banks).

On August 6th, 2012, the Ministry of Finance launched the Financial Sector Strategy. This 10-year Strategy aims at achieving resilience, competitiveness and efficiency in the financial industry. The Ministry of Finance (MoF) hopes the implementation of this strategy will solve the weaknesses that plagued the sector for years: limited nationals’ participation, inadequate regulation, limited access to financial services, low financial literacy and consumer protection. Among the goals the Financial sector strategy hopes to achieve is the one that would align the financial intermediation growth rate with the country’s economic growth (estimated at 4.5.1% in 2014). Currently, with the new development plan, Vision 2030, the country targets a growth rate of 6.2% for the next 17 years.

Monetary policy & Public debt

Generally, the Bank of Namibia (BoN) monetary policies are aligned to the direction of the South African Reserve Bank (SARB)  due to the country’s membership to the Common monetary Area (CMA).

Namibian’s debt strategy is currently contained in the 2005 Sovereign Debt Management Strategy (SDMS). This document is currently under review by the Ministry of Finance (MoF) and the BoN. The two institutions are working together to produce a new Medium-Term Expenditure Framework (MTEF) that will serve to minimize the cost of government borrowing, consistent with an acceptable degree of risk.  The SDMS thresholds although outdated are still valid: Namibian public debt could not exceed 35% of GDP and domestic debt, the largest share of debt stock, 28% of GDP. Furthermore, 80% of the financing requirements are to be raised domestically. For the fiscal year 2013-14, estimates of government debt was at 26.8% GDP or N$30.9 billion while domestic debt represented 64% of the total public debt. The responsibility of the long-term debt strategy of the country resides on the Ministry of Finances

The long-term debt management strategy is the responsibility of the MoF. Up until the 2008 financial crisis, Namibian monetary and fiscal policies were considered prudent. To temper the negative impacts of the crisis and give an impulse to the economy by lowering unemployment, the government increased its spending by 36%. Despite this expansionary policy, Namibian kept its public debt at sustainable levels and within the thresholds set under the SDMS (except the external debt which exceeded the 5% limit as a result of the USD 500 million Eurobond issue in 2011). 

Government net borrowing requirements for 2013-14 amounted to N$3.2 billion. An amount of N$2.5 billion was to be financed through domestic issuances in the capital markets:  N$2.1 billion through bonds and N$440 million through T-bills offerings. For the fiscal year 2013-14, T-bills issuances would be limited to 3 tenors: 182-d (N$70 million), 273-d (N$130 million) and 364-d (N$240 million); no 91-d T-bills would be offered so as to concentrate the issuances on long-term bills and bonds.

Market Structure

Market participants

Issuers

The Bank of Namibia (BoN) issues Government securities on behalf of the Ministry of Finance which draws its issuance privilege from the State Finance Act of 1991.

Some state-owned enterprises (Road Fund Administration, NamPower and Telecom Namibia) have also used their rights to issue in the market.

Investor base

Commercial banks hold a larger proportion of the Treasury bills stock.

Other intermediaries

In 2009, the BoN appointed the four major commercial banks, Ned Bank Namibia Ltd., Bank of Windhoek Namibia Ltd., First National Bank of Namibia Ltd., Standard Bank of Namibia Ltd, as well as one stock brobker, IJG Securities Ltd as Primary Dealers (PDs). However, due to regulatory issues, the establishment of their role as PDs has been postponed.  The market is working on developing the Repo market to ensure liquidity in the secondary market and efficiency of the PD system. 

Four stockbrokers are authorized to deal on the Namibian Stock Exchange (NSX): Simonis Storm Securities Ltd., Namibia Equity Brokers Ltd., IJG Securities Ltd. and PSG Wealth Management. Through partnerships and parent companies, these four stockbrokers have access to the South African stock market.

Instruments issued

Instruments issued by the Central Government

Treasury bills and IRS are issued under the Finance Act of 1991 and according to a 6-month calendar released by the Central Bank and posted on its website. Treasury bonds issuances are the most popular as the government privileges a strategy to minimize short-term refinancing risk. 

Treasury Bills

Treasury Bills have maturities of 91-day, 182-day, 273-day and 365-days. Auctions of T-bills are held on a weekly basis.

For the fiscal year 2013-14, only the 182-d, 273-d and the 364-d bills would be issued: the respective allocations would be N$70 million, N$130 million and N$240 million. 

Treasury Bonds

Namibian bonds, also referred to as Internal Registered Stocks, trade on the Namibian Stock Exchange (NSX). They have been in the market since 1998. IRs auctions are held twice a month.

In 2014, bond issuances were affected by the US quantitative program, which triggered a sell-offs of bonds across emerging markets.

Short-to medium term bonds were most popular in 2014.

In 2014, 24 government bond auctions were held during the year, for a total of N$2.1 billion.

Instruments issued by State-owned enterprises

On May 2015, Namibia Water Corporation (NamWater) inaugurated its first coporate bonds (5- and 7-year) totalling N$200 million 

Average time-to-maturity and yield-to-maturity

Namibian and South African bonds are closely linked and their spread has narrowed significantly over the past decade- the spread on the 21-year bond was 126 bp - reflecting a lower sovereign credit risk of the country and a higher liquidity.

The average effective yields across T-bills were all above 5%: the 91-d bill rate was at 5.69% and the 364-d T-bill was at 5.98%.

As of 2013-14, the outstanding balances in the domestic debt portfolio were to mature in the next 5 years and specifically in 3 fiscal years: 2018-19, 2021-22 and 2024-25.

Primary and secondary markets

Primary Market

Treasury bills and IRS are issued as Book Entry securities. Auctions are announced one week in advance through the BoN website, emails and Bloomberg. 

Participants need to fill a tender form (available at the BoN). The minimum bidding amount for Treasury bills is N$10,000 and the minimum investment for Treasury bonds is N$ 50,000.

T-bills are allotted in descending order of prices while IRS are allotted in ascending order of prices.

Secondary Market

Secondary market trading is illiquid in Namibia owing to regulations, the limited number of issuers, the narrow offer of instruments and high transaction fees; as a result, investors prefer a buy a hold strategy.

To boost secondary trading, the market is introducing the Bloomberg Ebond trading system to improve price discovery and enhance transparency.  Although the process has started, the implementation of this system was still pending as of October 2013.  Furthermore, the Government has increased the volumes as well as the number of issuances.

OTC vs. Exchange listed.

All bonds in Namibia list and trade on the NSX.

The NSX is fully automated (it leverages off the Johannesburg and London Stock Exchanges’ trading platforms, technology and best practices).

In 2014, the turnover ratio of government bonds decreased to 18.2 %. Trading was concentrated in shorter dated securities, namely GC14, GC17 and GC21 (trades in these three bonds accounted for 67.8% of total trades).

Clearing, settlement and custody

Currently there is no Central Securities Depository. Since 2010, Namibia is trying to implement a Central Securities Depository. The BoN is leading this process. 

All Government securities settles via the Namibia Inter Bank Settlement System (NISS). All commercial banks are participants in the NISS system. 

Individuals and small businesses can clear their accounts (if lower than N$5 million) by writing a bank cheque (personal cheque and certified cheque are not accepted). Any amount in excess of N$5 million must be settled through the NISS. However, the option of cheques for settlement purposes ins not utilized. 

Payment system

BoN is in the process of reforming its payment system. A vision statement, the National System Vision 2015, guides the implementation of the new national payment system.

Namibia is a participant in the Southern African Development Community (SADC) payment system integration project, SIRESS.

Recent Developments

In the last two years, Namibia introduced new tenors to extend the yield curve beyond 17 years : in 2013-14, the GC25. The GC32 and the GC35 were introduced; they wre folloed by the GC37 and GC40 in 2014-15 which extended the yield curve to 26 years.

In 2015, Namibia started issuing inflation-linked bonds.

Investor protection

In its Financial Sector Strategy, the government of Namibia addresses consumer protection; its objective is to implement an overall consumer protection legal framework, starting with the banking sector.

The NSX guarantees the obligations of stockbrokers with respect to their trades; this accountability avoids and reduces the settlement risk that could arise in a securities environment. The NSX guarantee funds and financial reserves bring additional layers of protection to the investors.

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.