Lack of post-trading systems limit bond market

Namibia’s bond market faces low investor confidence due to poor post-trading infrastructure, limited local listings, and a lack of financial sector diversification.

According to the African Development Bank (AfDB), the market for government treasury bills and bonds is highly illiquid, which makes it difficult to buy or sell these bonds quickly.

“The lack of post-trading infrastructure, particularly for clearing and settlement, brings risks to the market and reduces foreign investor participation, particularly in government bonds,” reads the AfDB’s country focus report.

Additionally, the report says the Namibia Securities Exchange (NSX) appears big on paper, but has a limited number of local companies.

According to the report, the market capitalisation of the NSX is a massive 10 times the country’s gross domestic product (GDP).
However, only eight of the companies listed are truly Namibian.

These few local companies make up less than 2% of the exchange’s total value.

“There are only eight domestic equities with a primary listing on the NSX, accounting for less than 2% of the market’s total value.

The rest are mostly dual-listed stocks, with their main listing on the Johannesburg Stock Exchange. It’s a case of big numbers, but not enough local substance,” the report says.

The bank has therefore recommended that the country put in place financial infrastructure to support both domestic and foreign investment.

Last year, the Bank of Namibia announced it would be introducing a central securities depository.

This is a settlement system that uses a book-entry system where ownership is recorded digitally, eliminating the need for physical stock certificates.

Another recommendation by the AfDB is the government’s plan to increase domestic investment requirements for institutional investors.

“There is a risk that the announced increase in domestic investment requirements will lead to asset price inflation, given a limited supply of domestic assets,” the report says.

It says Namibia needs a comprehensive strategy to diversify its economy away from its traditional sectors to overcome these challenges.

This includes investing in non-extractive industries, supporting small businesses and youth-led enterprises, and promoting local value addition.

“Namibia needs a comprehensive strategy by aggressively diversifying its economy, which must be coupled with robust fiscal management, including a sovereign wealth fund, prudent spending, and tax reforms,” the report says.

According to the Namibia Financial Sector Transformation Strategy 2025-2035, the first strategy focuses on developing a policy framework to advance capital markets.

To achieve this, the Bank of Namibia aims to develop capital market strategies by 2026 and introduce measures to encourage local shareholding in international companies by 2027.

Strategy two sets out to diversify financial services and encourage innovation.

This would include the establishment of a sector-led innovation hub focusing on financial technologies by 2026, as well as the development of regulatory sandboxes by 2025.

“A diversified financial sector can better absorb economic shocks and cater to various needs of the economy,” the report reads.

Additionally, the financial sector will develop an incentives framework by 2026 to reward financial institutions that introduce innovative products and will work toward a competitive alternative finance market by 2030.

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