Nam investment rules still worry IMF

THE International Monetary Fund (IMF) has urged Government to carefully rethink tighter domestic investment requirements, warning that Namibia simply doesn’t have the necessary opportunities to absorb that kind of money.

In the 2008 Country Paper on Namibia, released on Tuesday, the IMF says its Executive Board finished their yearly consultations with the Namibian authorities on January 18, and recommended that ‘any changes to domestic investment requirements should not prevent financial institutions from continuing to invest productively’.This is not the first time the IMF has expressed concern about Namibia’s changes to Regulation 28 of the Pension Fund Act and Regulation 15 of the Act on Long-term Insurance to force asset managers to invest a bigger chunk of the nearly N$80 billion pension cake locally. Over the years, the Fund has repeatedly warned Finance Minister Saara Kuugongelwa-Amadhila that this intervention in capital outflow may boomerang.The amended regulations, which were to be phased in over five years beginning this year, limit dual-listed companies to a maximum of ten per cent of local assets and requires a minimum of five per cent of total assets to be invested in unlisted Namibian companies. Previously the regulations permitted investment in dual-listed companies to be counted toward the 35 per cent domestic investment requirement, with no required minimum investment in unlisted companies.In the meantime, Kuugongelwa-Amadhila has agreed to ‘consider modifications’ to the amendments ‘to address market uncertainty about their interpretation’, the Fund says.According to the IMF, Government regards the original changes to the regulations as ‘relatively modest’ with a sufficient phase-in period.’The authorities maintained that it would not create undue risk for these [pension] funds and cited the example of many other emerging market economies with similar requirements,’ the IMF report states.In her 2009-10 Budget speech in March, Minister Kuugongelwa-Amadhila said the current financial crisis has revealed the vulnerability posed by offshore investments.She added: ‘Implementation of the amendments has revealed a need for amendments to the legal framework as well.’ This, according to the Minister, will receive ‘priority attention’ this year.The Minister has repeated said that she is convinced that the retained savings will find an appropriate investment home in Namibia. The IMF does not agree.'[IMF] staff agreed that a modest revision to direct a larger share of investment into local assets rather than dual-listed shares could be appropriate, but cautioned that there are insufficient instruments to absorb efficiently the significant volume of capital inflows that the new regulation would require,’ the Fund says.It points out that the limited number of domestically listed companies and corporate and government bonds are mostly held by buy-and-hold investors and do not trade in sufficient volume or size to absorb the capital inflow.The IMF furthermore has serious reservations about forcing asset managers to invest in unlisted companies in Namibia.’Experience with investment in unlisted domestic companies by the Government Institutions Pension Fund in the mid-1990s raises significant concerns about excessive risk associated with these investments,’ the IMF [email protected]