Deployment of local capital for economic development

MUCH has been written about the high Gini coefficient in the Namibian economy, over-dependence on the mining sector (especially diamond mining), the low manufacturing base, high unemployment rate and Government efforts to attract foreign direct investments.

It appears that in the past we might have overly vested our hopes in foreign direct investments, that we might have lacked long-term vision and that there was no platform whereby Government, the private sector and the financial sector could come together to discuss these issues. Foreign direct investments are a vital factor in kick-starting an economy that lacks capital, markets, resources and know-how.However, there are many countries competing for these investments and eventually only those that have a competitive edge tend to be the preferred FDI destinations.Namibia is unfortunately not high on the competitiveness table from a global investor’s point of view.However, Namibia now has a long-term economic growth vision, Vision 2030, and has embarked on a series of discussions between Government and the private sector, the most recent of which was the National Colloquium on Mobilisation of Domestic Savings for Economic Growth held on October 6.Most importantly, we have come to the realisation that given the quantum of our own domestic savings, we have more than enough capital available for economic development – it must simply be put to better use inside our country.There are a number of options available to channel money towards new projects, which are not mutually exclusive, but could complement each other.Option 1: Creating specialist private-equity or venture-capital funds Venture-capital funds are a global phenomenon, and have been used successfully to spawn new business ventures in cutting-edge sectors, or simply in building the stock of small and medium enterprises in developing countries.However, starting a new business is risky, and a lack of experience and expertise can have negative and untold repercussions.From research done in other parts of the world, we know that 40 to 50 per cent of greenfield projects fail completely, another 30 to 40 per cent are marginally profitable and only 10 to 20 per cent eventually become successful in a significant way.In order to run a successful venture-capital fund, one needs experienced people, who will immerse themselves in the operations of the new ventures to assist the various management teams, and the will to work through a number of failures.Option 2: Strengthening the current institutional structures for economic development There is already an institution whose mission is to serve as a nursery for start-up businesses, namely the Development Bank of Namibia.One could rightly ask whether the savings industry should create a number of alternative venture-capital investment vehicles, or whether the chances of reaching the ultimate goal of enhanced economic growth and job creation would improve if we support the activities of the Development Bank of Namibia.Option 3: Other proposals to stimulate economic activity and growth A problem with the venture-capital approach is that there is a huge gap between the risk tolerance of the contractual savers and the risk profile of the typical start-up business venture.With this in mind, a number of lower-risk options, more suitable for pension fund money, come to mind: 1. The creation of a bond market for Government utilities in fields such as power, telecommunications, water, ports, possibly even roads.2. The further development of a corporate bond market for private-sector companies.This would provide efficient and lower-cost financing to the Namibian business community to enable them to expand their activities.3. A partial privatisation programme involving the utilities mentioned in point 1.A potential candidate for privatisation would be Air Namibia.4. Encouraging currently unlisted private companies in Namibia – in the mining sector Navachab, Skorpion, Roessing, and Namdeb for example – to list on the NSX.5. The Namibian Development Bank (NDB) could issue NDB bonds to investors, thus allowing the NDB to fund new activities.6. The issue of infrastructure bonds by Government to raise funds for investing in the extension of transport and utility services in Namibia.7. The issue of housing bonds similar to the Shelter Afrique bonds trading on the Nairobi Stock Exchange and the Home Finance Company bonds on the Ghanaian Stock Exchange.8. The issue of municipal bonds emulating the City of Johannesburg’s 2004 municipal bond issue for R1 billion.9. Encouraging foreign firms, including the dual-listed ones with sizeable investments in Namibia, to list their Namibian subsidiaries on the NSX.This would emulate FNB Namibia.We see the net result of the above not merely to be the attraction of new funds to the Namibian investment scene but also the freeing up of existing capital assets now owned by Government for redeployment elsewhere.* The writer, Dr Alfred Kamupingene, is the Director of Investec Asset Management NamibiaForeign direct investments are a vital factor in kick-starting an economy that lacks capital, markets, resources and know-how.However, there are many countries competing for these investments and eventually only those that have a competitive edge tend to be the preferred FDI destinations.Namibia is unfortunately not high on the competitiveness table from a global investor’s point of view. However, Namibia now has a long-term economic growth vision, Vision 2030, and has embarked on a series of discussions between Government and the private sector, the most recent of which was the National Colloquium on Mobilisation of Domestic Savings for Economic Growth held on October 6.Most importantly, we have come to the realisation that given the quantum of our own domestic savings, we have more than enough capital available for economic development – it must simply be put to better use inside our country.There are a number of options available to channel money towards new projects, which are not mutually exclusive, but could complement each other. Option 1: Creating specialist private-equity or venture-capital funds Venture-capital funds are a global phenomenon, and have been used successfully to spawn new business ventures in cutting-edge sectors, or simply in building the stock of small and medium enterprises in developing countries.However, starting a new business is risky, and a lack of experience and expertise can have negative and untold repercussions.From research done in other parts of the world, we know that 40 to 50 per cent of greenfield projects fail completely, another 30 to 40 per cent are marginally profitable and only 10 to 20 per cent eventually become successful in a significant way. In order to run a successful venture-capital fund, one needs experienced people, who will immerse themselves in the operations of the new ventures to assist the various management teams, and the will to work through a number of failures.Option 2: Strengthening the current institutional structures for economic development There is already an institution whose mission is to serve as a nursery for start-up businesses, namely the Development Bank of Namibia.One could rightly ask whether the savings industry should create a number of alternative venture-capital investment vehicles, or whether the chances of reaching the ultimate goal of enhanced economic growth and job creation would improve if we support the activities of the Development Bank of Namibia. Option 3: Other proposals to stimulate economic activity and growth A problem with the venture-capital approach is that there is a huge gap between the risk tolerance of the contractual savers and the risk profile of the typical start-up business venture.With this in mind, a number of lower-risk options, more suitable for pension fund money, come to mind: 1. The creation of a bond market for Government utilities in fields such as power, telecommunications, water, ports, possibly even roads.2. The further development of a corporate bond market for private-sector companies.This would provide efficient and lowe
r-cost financing to the Namibian business community to enable them to expand their activities.3. A partial privatisation programme involving the utilities mentioned in point 1.A potential candidate for privatisation would be Air Namibia.4. Encouraging currently unlisted private companies in Namibia – in the mining sector Navachab, Skorpion, Roessing, and Namdeb for example – to list on the NSX.5. The Namibian Development Bank (NDB) could issue NDB bonds to investors, thus allowing the NDB to fund new activities.6. The issue of infrastructure bonds by Government to raise funds for investing in the extension of transport and utility services in Namibia.7. The issue of housing bonds similar to the Shelter Afrique bonds trading on the Nairobi Stock Exchange and the Home Finance Company bonds on the Ghanaian Stock Exchange.8. The issue of municipal bonds emulating the City of Johannesburg’s 2004 municipal bond issue for R1 billion.9. Encouraging foreign firms, including the dual-listed ones with sizeable investments in Namibia, to list their Namibian subsidiaries on the NSX.This would emulate FNB Namibia. We see the net result of the above not merely to be the attraction of new funds to the Namibian investment scene but also the freeing up of existing capital assets now owned by Government for redeployment elsewhere. * The writer, Dr Alfred Kamupingene, is the Director of Investec Asset Management Namibia